As filed with the Securities and Exchange Commission on September 30, 2009

Registration No. 333-161693

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Amendment No. 1

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

Basic Energy Services, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Co-Registrants

(see next page)

 

 

 

 

 

 

 

 

Copy to:

 

David C. Buck

Andrews Kurth LLP

600 Travis, Suite 4200

Houston, Texas 77002

(713) 220-4200

 

 

 

 

Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable following the effectiveness of this registration statement.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

(Do not check if a smaller reporting company)

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

SUBSIDIARY GUARANTOR CO-REGISTRANTS

 

 

 

 

SUBJECT TO COMPLETION DATED SEPTEMBER 30, 2009

 

Basic Energy Services, Inc.

 

Offer to exchange up to

$225,000,000 of 11.625% Senior Secured Notes Due 2014

that have been registered under the Securities Act of 1933

for

$225,000,000 of 11.625% Senior Secured Notes Due 2014

that have not been registered under the Securities Act of 1933

 

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM, NEW YORK

CITY TIME, ON          , 2009, UNLESS WE EXTEND THE DATE

 

 

 

 

Terms of the Exchange Offer:

 

 

See “Risk Factors” beginning on page 15 for a discussion of certain risks that you should consider prior to tendering your outstanding old notes in the exchange offer.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

Each broker-dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the consummation of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. Please read “Plan of Distribution.”

 

Prospectus dated          , 2009

 

TABLE OF CONTENTS

 

 

This prospectus is part of a registration statement we filed with the Securities and Exchange Commission, referred to in this prospectus as the SEC. In making your decision to participate in the exchange offer, you should rely only on the information contained in this prospectus and in the accompanying letter of transmittal. We have not authorized anyone to provide you with any other information. If you received any unauthorized information, you must not rely on it. We are not making an offer to sell these securities in any state or jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front cover of this prospectus.

 

THIS PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT OUR COMPANY THAT HAS NOT BEEN INCLUDED IN OR DELIVERED WITH THIS PROSPECTUS. WE WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY SUCH INFORMATION. REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO: CHIEF FINANCIAL OFFICER, BASIC ENERGY SERVICES, INC., 500 W. ILLINOIS, SUITE 100, MIDLAND, TEXAS 79701; TELEPHONE NUMBER: (432) 620-5500. TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THIS INFORMATION NO LATER THAN FIVE BUSINESS DAYS BEFORE YOU MUST MAKE YOUR INVESTMENT DECISION. ACCORDINGLY, YOU SHOULD REQUEST THE INFORMATION NO LATER THAN          , 2009.

 

In this prospectus, we use the terms “Basic Energy Services,” “we,” “us” and “our” to refer to Basic Energy Services, Inc. together with its subsidiaries, unless the context otherwise requires.

 

PROSPECTUS SUMMARY

	•	Well Servicing.  Our well servicing segment (34% of our revenues in 2008 and 31% of our revenues in the first six months of 2009) currently operates our fleet of 414 well servicing rigs and related equipment. This business segment encompasses a full range of services performed with a mobile well servicing rig, including the installation and removal of downhole equipment and elimination of obstructions in the well bore to facilitate the flow of oil and gas. These services are performed to establish, maintain and improve production throughout the productive life of an oil and gas well and to plug and abandon a well at the end of its productive life. Our well servicing equipment and capabilities are essential to facilitate most other services performed on a well.
	•	Fluid Services.  Our fluid services segment (32% of our revenues in 2008 and 42% of our revenues in the first six months of 2009) currently utilizes our fleet of 805 fluid service trucks and related assets, including specialized tank trucks, storage tanks, water wells, disposal facilities, construction and other related equipment. These assets provide, transport, store and dispose of a variety of fluids, as well as provide well site construction and maintenance services. These services are required in most workover, completion and remedial projects and are routinely used in daily producing well operations.
	•	Completion and Remedial Services.  Our completion and remedial services segment (30% of our revenues in 2008 and 24% of our revenues in the first six months of 2009) currently operates our fleet of pressure pumping units, an array of specialized rental equipment and fishing tools, air compressor packages specially configured for underbalanced drilling operations, and cased-hole wireline units. The largest portion of this business segment consists of pressure pumping services focused on cementing, acidizing and fracturing services in niche markets. We entered the rental and fishing tool business through an acquisition in the first quarter of 2006.
	•	Contract Drilling.  Our contract drilling segment (4% of our revenues in 2008 and 3% of our revenues in the first six months of 2009) currently operates nine drilling rigs and related equipment. We use these assets to penetrate the earth to a desired depth and initiate production from a well. We greatly increased our presence in this line of business through the Sledge Drilling acquisition in the second quarter of 2007.

	•	Significant Market Position.  We maintain a significant market share for our well servicing operations in our core operating areas throughout Texas and a growing market share in the other markets that we serve. Our fleet of 414 well servicing rigs as of June 30, 2009 represents the third-largest fleet in the United States, and our goal is to be one of the top two providers of well site services in each of our core operating areas. Our market position allows us to expand the range of services performed on a well throughout its life, such as drilling, maintenance, workover, completion and plugging and abandonment services.
	•	Modern and Active Well Servicing Fleet.  We operate a modern and active fleet of well servicing rigs. We believe over 75% of the active U.S. well servicing rig fleet was built prior to 1985. Greater than 50% of our rigs at December 31, 2008 were either 2000 model year or newer, or have undergone major refurbishments during the last five years. As of March 31, 2009, we had taken delivery of all 134 newbuild well servicing rigs since October 2004 as part of a newbuild commitment, driven by our desire to maintain one of the most efficient, reliable and safest fleets in the industry. In addition to our regular maintenance program, we have an established program to routinely monitor and evaluate the condition of our fleet. We selectively refurbish rigs and other assets to maintain the quality of our service and to provide a safe work environment for our personnel and have made major refurbishments on 70 of our rigs since the beginning of 2004. Since 2003, we have obtained annual independent reviews and evaluations of substantially all of our assets, which confirmed the location and condition of these assets.
	•	Extensive Domestic Footprint in the Most Prolific Basins.  Our operations are concentrated in the major United States onshore oil and gas producing regions in Texas, New Mexico, Oklahoma, Arkansas, Kansas and Louisiana and the Rocky Mountain states. We operate in states that accounted for approximately 58% of the approximately 900,000 existing onshore oil and gas wells in the 48 contiguous states and approximately 73% of onshore oil production and 90% of onshore gas production in 2008. We believe that our operations are located in the most active U.S. well services markets, as we currently focus our

		operations on onshore domestic oil and gas production areas that include both the highest concentration of existing oil and gas production activities and the largest prospective acreage for new drilling activity. This extensive footprint allows us to offer our suite of services to more than 2,000 customers who are active in those areas and allows us to redeploy equipment between markets as activity shifts.

	•	Diversified Service Offering for Further Revenue Growth.  We believe our range of well site services provides us a competitive advantage over smaller companies that typically offer fewer services. Our experience, equipment and network of 115 area offices position us to market our full range of well site services to our existing customers. By utilizing a wider range of our services, our customers can use fewer service providers, which enables them to reduce their administrative costs and simplify their logistics. Furthermore, offering a broader range of services allows us to capitalize on our existing customer base and management structure to grow within existing markets, generate more business from existing customers, and increase our operating profits as we spread our overhead costs over a larger revenue base.
	•	Decentralized Management with Strong Corporate Infrastructure.  Our corporate group is responsible for maintaining a unified infrastructure to support our diversified operations through standardized financial and accounting, safety, environmental and maintenance processes and controls. Below our corporate level, we operate a decentralized operational organization in which our nine regional or division managers are responsible for their operations, including asset management, cost control, policy compliance and training and other aspects of quality control. With an average of over 25 years of industry experience, each regional manager has extensive knowledge of the customer base, job requirements and working conditions in each local market. Below our nine regional or division managers, our area managers are directly responsible for customer relationships, personnel management, accident prevention and equipment maintenance, the key drivers of our operating profitability. This management structure allows us to monitor operating performance on a daily basis, maintain financial, accounting and asset management controls, integrate acquisitions, prepare timely financial reports and manage contractual risk.

	•	Establish and Maintain Leadership Position in Core Operating Areas.  We strive to establish and maintain market leadership positions within our core operating areas. To achieve this goal, we maintain close customer relationships, seek to expand the breadth of our services and offer high quality services and equipment that meet the scope of customer specifications and requirements. In addition, our significant presence in our core operating areas facilitates employee retention and attraction, a key factor for success in our business. Our significant presence in our core operating areas also provides us with brand recognition that we intend to utilize in creating leading positions in new operating areas.
	•	Expand Within Our Regional Markets.  We intend to continue strengthening our presence within our existing geographic footprint through internal growth and acquisitions of businesses with strong customer relationships, well-maintained equipment and experienced and skilled personnel. We typically enter into new markets through the acquisition of businesses with strong management teams that will allow us to expand within these markets. Management of acquired companies often remain with us and retain key positions within our organization, which enhances our attractiveness as an acquisition partner. We have a record of successfully implementing this strategy. During the past three fiscal years, we have made 23 acquisitions including:

	•	LeBus Oil Field Service Co., a fluid service company operating in our Ark-La-Tex region, and
	•	G&L Tool, Ltd., a rental and fishing tool company included in our completion and remedial line of business;

	•	JetStar Consolidated Holdings, Inc., a pressure pumping company operating in our completion and remedial line of business, and
	•	Sledge Drilling Holding Corp., a contract drilling company operating in our contract drilling line of business;

	•	Azurite Services Company, Inc., Azurite Leasing Company, LLC and Freestone Disposal, L.P. (collectively “Azurite”), a fluid service business operating in our Ark-La-Tex and Mid-Continent regions.

	•	Develop Additional Service Offerings Within the Well Servicing Market.  We intend to continue broadening the portfolio of services we provide to our clients by leveraging our well servicing infrastructure. A customer typically begins a new maintenance or workover project by securing access to a well servicing rig, which generally stays on site for the duration of the project. As a result, our rigs are often the first equipment to arrive at the well site and typically the last to leave, providing us the opportunity to offer our customers other complementary services. We believe the fragmented nature of the well servicing market creates an opportunity to sell more services to our core customers and to expand our total service offering within each of our markets. We have expanded our suite of services available to our customers and increased our opportunities to cross-sell new services to our core well servicing customers through recent acquisitions and internal growth. We expect to continue to develop or selectively acquire capabilities to provide additional services to expand and further strengthen our customer relationships.
	•	Pursue Growth Through Selective Capital Deployment.  We intend to continue growing our business through selective acquisitions, continuing a newbuild program and/or upgrading our existing assets. Our capital investment decisions are determined by an analysis of the projected return on capital employed of each of those alternatives. Acquisitions are evaluated for “fit” with our area and regional operations management and are thoroughly reviewed by corporate level financial, equipment, safety and environmental specialists to ensure consideration is given to identified risks. We also evaluate the cost to acquire existing assets from a third party, the capital required to build new equipment and the point in the oil and gas commodity price cycle. Based on these factors, we make capital investment decisions that we believe will support our long-term growth strategy, and these decisions may involve a combination of asset acquisitions and the purchase of new equipment. As the oil and gas commodity cycle has declined in recent quarters, we have taken a disciplined approach to acquisitions, with our last acquisition completed in September 2008. We expect to continue this strategy in order to maintain existing operating assets while this cycle continues.

Old Notes		11.625% Senior Secured Notes due August 1, 2014, which were issued on July 31, 2009.
New Notes		11.625% Senior Secured Notes due August 1, 2014. The terms of the new notes are substantially identical to the terms of the outstanding old notes, except that the transfer restrictions, registration rights and liquidated damages provisions relating to the old notes will not apply to the new notes.
Exchange Offer		We are offering to exchange up to $225.0 million aggregate principal amount of our new notes that have been registered under the Securities Act for an equal amount of our outstanding old notes that have not been registered under the Securities Act to satisfy our obligations under the registration rights agreement.
		The new notes will evidence the same debt as the old notes and will be issued under, and be entitled to the benefits of, the same indenture that governs the old notes. Holders of the old notes do not have any appraisal or dissenter’s rights in connection with the exchange offer. Because the new notes will be registered, the new notes will not be subject to transfer restrictions, and holders of old notes that have tendered and had their old notes accepted in the exchange offer will have no registration rights.
Expiration Date		The exchange offer will expire at 5:00 p.m., New York City time, on          , 2009, unless we decide to extend it.
Conditions to the Exchange Offer		The exchange offer is subject to customary conditions, which we may waive. Please read “The Exchange Offer — Conditions to the Exchange Offer” for more information regarding the conditions to the exchange offer.
Procedures for Tendering Old Notes		Unless you comply with the procedures described under the caption “The Exchange Offer — Procedures for Tendering — Guaranteed Delivery,” you must do one of the following on or prior to the expiration of the exchange offer to participate in the exchange offer:
		• tender your old notes by sending the certificates for your old notes, in proper form for transfer, a properly completed and duly executed letter of transmittal, with any required signature guarantees, and all other documents required by the letter of transmittal, to The Bank of New York Mellon Trust Company, N.A., as registrar and exchange agent, at the address listed under the caption “The Exchange Offer — Exchange Agent”; or
		• tender your old notes by using the book-entry transfer procedures described below and transmitting a properly completed and duly executed letter of transmittal, with any required signature guarantees, or an agent’s message instead of the letter of transmittal, to the exchange agent. In order for a book-entry transfer to constitute a valid tender of your old notes in the exchange offer, The Bank of New York Mellon Trust Company, N.A., as registrar and

		exchange agent, must receive a confirmation of book-entry transfer of your old notes into the exchange agent’s account at The Depository Trust Company prior to the expiration of the exchange offer. For more information regarding the use of book-entry transfer procedures, including a description of the required agent’s message, please read the discussion under the caption “The Exchange Offer — Procedures for Tendering — Book-entry Transfer.”
Guaranteed Delivery Procedures		If you are a registered holder of the old notes and wish to tender your old notes in the exchange offer, but
		• the old notes are not immediately available,
		• time will not permit your old notes or other required documents to reach the exchange agent before the expiration of the exchange offer, or
		• the procedure for book-entry transfer cannot be completed prior to the expiration of the exchange offer,
		then you may tender old notes by following the procedures described under the caption “The Exchange Offer — Procedures for Tendering — Guaranteed Delivery.”
Special Procedures for Beneficial Owners		If you are a beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your old notes in the exchange offer, you should promptly contact the person in whose name the old notes are registered and instruct that person to tender on your behalf.
		If you wish to tender in the exchange offer on your own behalf, prior to completing and executing the letter of transmittal and delivering the certificates for your old notes, you must either make appropriate arrangements to register ownership of the old notes in your name or obtain a properly completed bond power from the person in whose name the old notes are registered.
Withdrawal; Non-Acceptance		You may withdraw any old notes tendered in the exchange offer at any time prior to 5:00 p.m., New York City time, on          , 2009. If we decide for any reason not to accept any old notes tendered for exchange, the old notes will be returned to the registered holder at our expense promptly after the expiration or termination of the exchange offer. In the case of old notes tendered by book-entry transfer into the exchange agent’s account at The Depository Trust Company, any withdrawn or unaccepted old notes will be credited to the tendering holder’s account at The Depository Trust Company. For further information regarding the withdrawal of tendered old notes, please read “The Exchange Offer — Withdrawal Rights.”
U.S. Federal Income Tax Consequences		The exchange of new notes for old notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes. Please read the discussion under the caption “Material United States Federal Income Tax Consequences” for more information regarding the tax consequences to you of the exchange offer.
Use of Proceeds		The issuance of the new notes will not provide us with any new proceeds. We are making this exchange offer solely to satisfy our obligations under the registration rights agreement.

Fees and Expenses		We will pay all of our expenses incident to the exchange offer.
Exchange Agent		We have appointed The Bank of New York Mellon Trust Company, N.A. as exchange agent for the exchange offer. For the address, telephone number and fax number of the exchange agent, please read “The Exchange Offer — Exchange Agent.”
Resales of New Notes		Based on interpretations by the staff of the SEC, as set forth in no-action letters issued to third parties that are not related to us, we believe that the new notes you receive in the exchange offer may be offered for resale, resold or otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act so long as:
		• the new notes are being acquired in the ordinary course of business;
		• you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate in the distribution of the new notes issued to you in the exchange offer;
		• you are not our affiliate or an affiliate of any of our subsidiary guarantors; and
		• you are not a broker-dealer tendering old notes acquired directly from us for your account.
		The SEC has not considered this exchange offer in the context of a no-action letter, and we cannot assure you that the SEC would make similar determinations with respect to this exchange offer. If any of these conditions are not satisfied, or if our belief is not accurate, and you transfer any new notes issued to you in the exchange offer without delivering a resale prospectus meeting the requirements of the Securities Act or without an exemption from registration of your new notes from those requirements, you may incur liability under the Securities Act. We will not assume, nor will we indemnify you against, any such liability. Each broker-dealer that receives new notes for its own account in exchange for old notes, where the old notes were acquired by such broker-dealer as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. Please read “Plan of Distribution.”
		Please read “The Exchange Offer — Resales of New Notes” for more information regarding resales of the new notes.
Consequences of Not Exchanging Your Old Notes		If you do not exchange your old notes in this exchange offer, you will no longer be able to require us to register your old notes under the Securities Act, except in the limited circumstances provided under the registration rights agreement. In addition, you will not be able to resell, offer to resell or otherwise transfer your old notes unless we have registered the old notes under the Securities Act, or unless you resell, offer to resell or otherwise transfer them under an exemption from the registration requirements of, or in a transaction not subject to, the Securities Act.
		For information regarding the consequences of not tendering your old notes and our obligation to file a registration statement, please read “The Exchange Offer — Consequences of Failure to Exchange Outstanding Securities” and “Description of the New Notes.”

Issuer		Basic Energy Services, Inc.
Securities Offered		$225,000,000 aggregate principal amount of our 11.625% Senior Secured Notes due 2014.
Interest		The new notes will accrue interest from the date of their issuance at the rate of 11.625% per year. Interest on the new notes will be payable semi-annually in arrears on each February 1 and August 1, commencing on February 1, 2010.
		We have agreed to make additional interest payments to holders of the new notes under certain circumstances if we do not comply with our obligations under the registration rights agreement.
Maturity Date		August 1, 2014.
Guarantees		The new notes will be guaranteed by all of our current subsidiaries, other than two immaterial subsidiaries. The new notes will be guaranteed by all of our current and certain material future restricted subsidiaries that guarantee any of our other indebtedness.
Collateral		The new notes and the guarantees will be secured by a first-priority lien, subject to limited exceptions, on all of the current and future personal property of our company and our guarantor subsidiaries, except for cash and cash equivalents, accounts receivable, inventory, maritime assets (including our existing inland barge rigs), titled vehicles and the stock or other equity interests of our subsidiaries. As of June 30, 2009, the net book value of the collateral included approximately $509 million of property and equipment, which represents 71% of our total property and equipment.
Ranking		The new notes will be our senior secured indebtedness. Both the new notes and the subsidiary guarantees will rank:
		• equally in right of payment with any of our and the subsidiary guarantors’ existing and future senior indebtedness, including our existing senior notes and the related guarantees; and
		• effectively junior to all existing or future liabilities of our subsidiaries that do not guarantee the notes and to our existing or future indebtedness that is secured by assets other than the collateral securing the new notes to the extent of the value of the collateral therefor.

		As of June 30, 2009 as adjusted to give effect to the offering of the old notes and the use of the net proceeds from the offering, (i) we and our subsidiaries would have had no secured indebtedness outstanding other than the old notes and related guarantees, $75.3 million of capital lease obligations and letters of credit collateralized by $16.2 million of cash and (ii) we and our subsidiary guarantors would have had $225.0 million of unsecured senior indebtedness outstanding.
Optional Redemption		We may redeem the notes, in whole or in part, at any time on or after February 1, 2012 at a redemption price equal to 100% of the principal amount thereof, plus a premium declining ratably to par and accrued and unpaid interest to the date of redemption.
		At any time before February 1, 2012, we may redeem up to 35% of the aggregate principal amount of the notes issued under the indenture with the net cash proceeds of one or more qualified equity offerings at a redemption price equal to 111.625% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to the date of redemption; provided that:
		• at least 65% of the aggregate principal amount of the notes issued under the indenture remains outstanding immediately after the occurrence of such redemption; and
		• such redemption occurs within 90 days of the date of the closing of any such qualified equity offering.
		In addition, at any time before February 1, 2012, we may redeem some or all of the notes at a redemption price equal to 100% of the principal amount of the notes, plus an applicable premium and accrued and unpaid interest to the date of redemption.
Change of Control		Upon a change of control, if we do not redeem the notes, each holder of notes will be entitled to require us to purchase all or a portion of its notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase. Our ability to purchase the notes upon a change of control will be limited by the terms of our then outstanding debt agreements. We cannot assure you that we will have the financial resources to purchase the notes in such circumstances.
Certain Covenants		The indenture contains covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to:
		• incur additional indebtedness;
		• pay dividends or repurchase or redeem capital stock;
		• make certain investments;
		• incur liens;
		• enter into certain types of transactions with our affiliates;
		• limit dividends or other payments by our restricted subsidiaries to us; and
		• sell assets or consolidate or merge with or into other companies.

		These and other covenants that are contained in the indenture are subject to important exceptions and qualifications, which are described under “Description of the New Notes.”
Absence of a Public Market for the New Notes		There is no public trading market for the new notes, and we do not intend to apply for listing of the new notes on any national securities exchange or for quotation of the new notes on any automated dealer quotation system. See “Risk Factors — Risks Relating to the Exchange Offer and the New Notes — An active trading market may not develop for the new notes.”
Risk Factors		See “Risk Factors” beginning on page 15 for discussion of factors you should carefully consider before deciding to participate in the exchange offer.

		Year Ended December 31,												Six Months Ended June 30,
		2008				2007				2006				2009				2008
		(Dollars in thousands)												(Unaudited)
Statement of Operations Data:
Revenues:
Well servicing		$	343,113			$	342,697			$	323,755			$	85,213			$	169,537
Fluid services			315,768				259,324				245,011				114,065				143,980
Completion and remedial services			304,326				240,692				154,412				66,632				148,037
Contract drilling			41,735				34,460				6,970				7,626				19,841
Total revenues			1,004,942				877,173				730,148				273,536				481,395
Expenses:
Well servicing			215,243				205,132				178,028				64,742				103,759
Fluid services			203,205				165,327				153,445				79,968				94,987
Completion and remedial services			165,574				125,948				74,981				47,378				78,439
Contract drilling			28,629				22,510				8,400				6,607				14,589
General and administrative(1)			115,319				99,042				81,318				56,503				52,663
Depreciation and amortization			118,607				93,048				62,087				65,150				56,764
Loss (gain) on disposal of assets			76				477				277				1,339				(584	)
Goodwill impairment			22,522				—				—				204,014				—
Total expenses			869,175				711,484				558,536				525,701				400,617
Operating income (loss)			135,767				165,689				171,612				(252,165	)			80,778
Other income (expense):
Net interest expense			(24,630	)			(25,136	)			(15,504	)			(11,317	)			(12,630	)
Loss on early extinguishment of debt			—				(230	)			(2,705	)			—				—
Other income (expense)			12,235				176				169				252				(6,431	)
Income (loss) from continuing operations before income taxes			123,372				140,499				153,572				(263,230	)			61,717
Income tax benefit (expense)			(55,134	)			(52,766	)			(54,742	)			59,169				(23,348	)
Net Income (loss)		$	68,238			$	87,733			$	98,830			$	(204,061	)		$	38,369
Statement of Cash Flow Data:
Cash flows from operating activities		$	212,827			$	198,591			$	145,678			$	73,049			$	87,328
Cash flows from investing activities			(197,302	)			(294,103	)			(241,351	)			(25,460	)			(91,840	)
Cash flows from financing activities			3,669				136,088				114,193				(24,420	)			(9,645	)
Capital expenditures:
Acquisitions, net of cash acquired			110,913				199,673				135,568				1,190				51,239
Property and equipment			91,890				98,536				104,574				25,187				45,023
Other Financial Data:
Ratio of earnings to fixed charges			4.7x				5.2x				7.9x				(2	)

		As of December 31,												As of June 30,
																		2009
		2008				2007				2006				2009				(As Adjusted)(3)
		(Dollars in thousands)												(Unaudited)
Balance Sheet Data:
Cash and cash equivalents		$	111,135			$	91,941			$	51,365			$	134,304			$	162,719
Property and equipment, net			740,879				636,924				475,431				714,560				714,560
Total assets			1,310,711				1,143,609				796,260				1,068,393				1,101,290
Long-term debt, including current portion			480,323				423,719				262,743				480,274				513,171
Stockholders’ equity			595,004				524,821				379,250				387,219				387,219

(1)		Includes approximately $4,149,000, $3,964,000, $3,429,000, $2,665,000 and $2,264,000 of non-cash stock compensation expense for the years ended December 31, 2008, 2007 and 2006 and the six months ended June 30, 2009 and 2008, respectively.
(2)		Earnings were inadequate to cover fixed charges for the six months ended June 30, 2009 by $249.3 million.
(3)		Gives effect to the offering of the old notes and the application of the net proceeds therefrom as if each had occurred on June 30, 2009.

	•	we charge our well servicing customers on an hourly basis, and rig hours reflect actual billed hours;
	•	our rig utilization rate is calculated using a 55-hour work week per rig;
	•	our fluid services segment includes an array of services billed on an hourly, daily and per barrel basis; accordingly, we believe that revenue per truck is a more meaningful measure for this segment;
	•	in our completion and remedial services segment, we charge different rates for our pressure pumping trucks based on the type of services performed and varying horsepower requirements, making segment profits the most meaningful measure of performance; and
	•	in our contract drilling segment, revenues are derived primarily from the drilling of new wells, making rig operating days, revenue per drilling day and segment profits as a percent of revenues the most meaningful measures of performance.

														Six Months Ended
		Year Ended December 31,												June 30,
		2008				2007				2006				2009				2008
Well Servicing:
Weighted average number of rigs			405				376				344				414				398
Rig hours (000’s)			840.2				831.2				868.2				242.8				424.8
Rig utilization rate			72.5	%			77.3	%			88.2	%			41.0	%			74.6	%
Revenue per rig hour		$	408			$	412			$	373			$	351			$	399
Segment profits per rig hour		$	152			$	166			$	168			$	84			$	155
Segment profits as a percent of revenue			37.3	%			40.1	%			45.0	%			24.0	%			38.8	%
Fluid Services:
Weighted average number of fluid service trucks			699				655				588				811				654
Revenue per fluid service truck (000’s)		$	452			$	396			$	417			$	141			$	220
Segment profits per fluid service truck (000’s)		$	161			$	144			$	156			$	42			$	75
Segment profits as a percent of revenue			35.6	%			36.2	%			37.4	%			29.9	%			34.0	%
Completion and Remedial Services:
Segment profits as a percent of revenue			45.6	%			47.7	%			51.5	%			28.9	%			47.0	%
Contract Drilling:
Weighted average number of rigs			9				8				2				9				9
Rig operating days			2,777				2,233				484				562				1,344
Revenue per day (000’s)		$	15			$	15			$	14			$	14			$	15
Profits (loss) per day (000’s)		$	5			$	5			$	(3	)		$	2			$	4
Segment profits as a percent of revenue			31.4	%			34.7	%			(20.5	)%			13.4	%			26.5	%

 

Prior to making a decision about participating in the exchange offer, and in consultation with your own financial and legal advisors, you should carefully consider, among other matters, the following risk factors. If any of these risks were to occur, our business, results of operations or financial condition could be materially and adversely affected.

 

Risks Relating to Our Business

 

Our business depends on domestic spending by the oil and gas industry, and this spending and our business have been, and may continue to be, adversely affected by industry and financial market conditions that are beyond our control.

 

We depend on our customers’ willingness to make operating and capital expenditures to explore for, develop and produce oil and gas in the United States. Customers’ expectations for lower market prices for oil and gas, as well as the availability of capital for operating and capital expenditures, may cause them to curtail spending, thereby reducing demand for our services and equipment.

 

Industry conditions are influenced by numerous factors over which we have no control, such as the supply of and demand for oil and gas, domestic and worldwide economic conditions, political instability in oil and gas producing countries and merger and divestiture activity among oil and gas producers. The volatility of the oil and gas industry and the consequent impact on exploration and production activity could adversely impact the level of drilling and workover activity by some of our customers. This reduction may cause a decline in the demand for our services or adversely affect the price of our services. In addition, reduced discovery rates of new oil and gas reserves in our market areas also may have a negative long-term impact on our business, even in an environment of stronger oil and gas prices, to the extent existing production is not replaced and the number of producing wells for us to service declines.

 

Recent deterioration in the global economic environment has caused the oilfield services industry to cycle into a downturn, and the rate at which it may continue to slow, or return to former levels, is uncertain. Recent adverse changes in capital markets and declines in prices for oil and gas have caused many oil and gas producers to announce reductions in capital budgets for future periods. Limitations on the availability of capital, or higher costs of capital, for financing expenditures have caused and may continue to cause these and other oil and gas producers to make additional reductions to capital budgets in the future even if commodity prices increase from current levels. These cuts in spending will curtail drilling programs as well as discretionary spending on well services, which have resulted in a significant reduction in the demand for our services, the rates we can charge and our utilization and may continue to do so in the future. In addition, certain of our customers could become unable to pay their suppliers, including us. As a result of these conditions, our customers’ spending patterns have become increasingly unpredictable, making it difficult for us to predict our future operating results. Accordingly, our results may differ significantly from our forecasts and those of the investment community. Any of these conditions or events could adversely affect our operating results.

 

If oil and gas prices remain volatile, remain low or decline further it could have an adverse effect on the demand for our services.

 

The demand for our services is primarily determined by current and anticipated oil and gas prices and the related general production spending and level of drilling activity in the areas in which we have operations. Volatility or weakness in oil and gas prices (or the perception that oil and gas prices will decrease) affects the spending patterns of our customers and may result in the drilling of fewer new wells or lower production spending on existing wells. This, in turn, could result in lower demand for our services and may cause lower rates and lower utilization of our well service equipment. Continued low oil and gas prices, a further decline in oil and gas prices or a reduction in drilling activities could materially and adversely affect the demand for our services and our results of operations.

Prices for oil and gas historically have been extremely volatile and are expected to continue to be volatile. Although oil prices exceeded $140 per barrel and natural gas prices exceeded $13 per mcf in 2008, prices fell to below $40 per barrel and $6 per mcf by the end of 2008. The Cushing WTI Spot Oil Price averaged $66.05, $72.34 and $99.67 per barrel in 2006, 2007 and 2008, respectively, and $51.18 per barrel for the first six months of 2009. The average wellhead price for natural gas, as recorded by the Energy Information Agency, was $6.42, $6.38 and $8.07 per mcf for 2006, 2007 and 2008, respectively, and $3.99 per mcf for the first five months of 2009. The speed and severity of the decline in natural gas prices during the fourth quarter of 2008 and the resulting low prices in the first half of 2009 has materially affected and may continue to materially affect the demand for our services and the rates that we are able to charge. Likewise, the overall decline in oil prices from their highest levels in 2008 and the uncertainty regarding the sustainability of current oil prices has materially affected and may continue to materially affect the demand for our services and the rates that we are able to charge.

 

We may require additional capital in the future. We cannot assure you that we will be able to generate sufficient cash internally or obtain alternative sources of capital on favorable terms, if at all. If we are unable to fund capital expenditures our business may be adversely affected.

 

We anticipate that we will continue to make substantial capital investments to purchase additional equipment to expand our services, refurbish our well servicing rigs and replace existing equipment. For the year ended December 31, 2007, we invested approximately $98.5 million in cash for capital expenditures, excluding acquisitions. For the year ended December 31, 2008, we invested approximately $91.9 million in cash for capital expenditures, excluding acquisitions. For the six months ended June 30, 2009, we invested approximately $25.2 million in cash for capital expenditures, excluding acquisitions, and we currently expect our aggregate capital expenditures for 2009 to be approximately $57.5 million. Historically, we have financed these investments through internally generated funds, debt and equity offerings, our capital lease program and our prior senior credit facility, which was terminated on July 31, 2009 in connection with the offering of the old notes. These significant capital investments require cash that we could otherwise apply to other business needs. However, if we do not incur these expenditures while our competitors make substantial fleet investments, our market share may decline and our business may be adversely affected. In addition, if we are unable to generate sufficient cash internally or obtain alternative sources of capital to fund our proposed capital expenditures and acquisitions, take advantage of business opportunities or respond to competitive pressures, it could materially adversely affect our results of operations, financial condition and growth. The recent adverse changes in the capital markets could make it difficult to obtain capital or obtain it at attractive rates.

 

Our indebtedness could restrict our operations and make us more vulnerable to adverse economic conditions.

 

We now have, and will continue to have, a significant amount of indebtedness. As of June 30, 2009, our total debt was $480.3 million, including $180.0 million of borrowings under our prior senior credit facility, the $225.0 million aggregate principal amount due under our 7.125% Senior Notes due 2016 and capital lease obligations in the aggregate amount of $75.3 million. We repaid all borrowings outstanding under our prior senior credit facility on July 31, 2009, with the proceeds from the issuance of the old notes. For the year ended December 31, 2008, we made cash interest payments totaling $24.5 million. For the six months ended June 30, 2009, we made cash interest payments totaling $12.3 million.

 

Our current and future indebtedness could have important consequences. For example, it could:

 

 

 

If we are unable to generate sufficient cash flow or are otherwise unable to obtain the funds required to make principal and interest payments on our indebtedness, or if we otherwise fail to comply with the various covenants in instruments governing any existing or future indebtedness, we could be in default under the terms of such instruments. In the event of a default, the holders of our indebtedness could elect to declare all the funds borrowed under those instruments to be due and payable together with accrued and unpaid interest and we or one or more of our subsidiaries could be forced into bankruptcy or liquidation. If our indebtedness is accelerated, or we enter into bankruptcy, we may be unable to pay all of our indebtedness in full.

 

The indentures governing our 7.125% Senior Notes due 2016 and our 11.625% Senior Secured Notes due 2014 impose, and future credit facilities may impose, restrictions on us that may affect our ability to successfully operate our business.

 

The indentures governing our 7.125% Senior Notes due 2016 and our 11.625% Senior Secured Notes due 2014 include, and we expect future credit facilities may include, limitations on our ability to take various actions, such as:

 

 

In addition, a future credit facility could require us to maintain certain financial ratios and to satisfy certain financial conditions, several of which could become more restrictive over time and may require us to reduce our debt or take some other action in order to comply with them. The failure to comply with any of these financial conditions, including the financial ratios or covenants, would cause a default under any such credit facility. A default, if not waived, could result in acceleration of the outstanding indebtedness under any such credit facility, in which case the debt would become immediately due and payable. In addition, a default or acceleration of indebtedness under any such credit facility could result in a default or acceleration of our existing senior notes and senior secured notes or other indebtedness with cross-default or cross-acceleration provisions. If this occurs, we may not be able to pay our debt or borrow sufficient funds to refinance it. Even if new financing is available, it may not be available on terms that are acceptable to us. These restrictions could also limit our ability to obtain future financings, make needed capital expenditures, withstand a downturn in our business or the economy in general, or otherwise conduct necessary corporate activities. We also may be prevented from taking advantage of business opportunities that arise because of the limitations imposed on us by the restrictive covenants under a future credit facility.

 

At the closing of our offering of the old notes, we pledged cash collateral with respect to the approximately $16.2 million of letters of credit that were outstanding under our revolving credit facility. We terminated the revolving credit facility on July 31, 2009, and we are unable to borrow any amounts under it. We expect to rely on cash on hand in the near term and to evaluate alternatives with respect to a new revolving credit facility or letter of credit facility in the future to address our long term liquidity requirements. The indenture governing the notes limits the amount that we could borrow under a future secured credit facility to the difference between (i) $240 million and (ii) the sum of (a) $212.9 million (the principal amount of the notes, net of offering discount) and (b) our outstanding collateralized letters of credit, subject to possible upward adjustment of the amount in clause (i) based on our consolidated tangible assets. While we have significant available cash after closing our offering of the old notes, our future cash balances could decrease

and affect our financial condition. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

 

Competition within the well services industry may adversely affect our ability to market our services.

 

The well services industry is highly competitive and fragmented and includes numerous small companies capable of competing effectively in our markets on a local basis, as well as several large companies that possess substantially greater financial and other resources than we do. Our larger competitors’ greater resources could allow those competitors to compete more effectively than we can. The amount of equipment available currently exceeds demand, which has resulted in active price competition. Many contracts are awarded on a bid basis, which may further increase competition based primarily on price. In addition, recent market conditions and the existence of excess equipment have resulted in lower utilization rates.

 

We depend on several significant customers, and a loss of one or more significant customers could adversely affect our results of operations.

 

Our customers consist primarily of major and independent oil and gas companies. During 2007 and 2008, our top five customers accounted for 16% and 18% of our revenues, respectively, and they accounted for 22% of our revenues for the first six months of 2009. The loss of any one of our largest customers or a sustained decrease in demand by any of such customers could result in a substantial loss of revenues and could have a material adverse effect on our results of operations.

 

We may not be able to grow successfully through future acquisitions or successfully manage future growth, and we may not be able to effectively integrate the businesses we do acquire.

 

Our business strategy includes growth through the acquisitions of other businesses. We may not be able to continue to identify attractive acquisition opportunities or successfully acquire identified targets. In addition, we may not be successful in integrating our current or future acquisitions into our existing operations, which may result in unforeseen operational difficulties or diminished financial performance or require a disproportionate amount of our management’s attention. Even if we are successful in integrating our current or future acquisitions into our existing operations, we may not derive the benefits, such as operational or administrative synergies, that we expected from such acquisitions, which may result in the commitment of our capital resources without the expected returns on such capital. Furthermore, competition for acquisition opportunities may escalate, increasing our cost of making further acquisitions or causing us to refrain from making additional acquisitions.

 

Our industry has experienced a high rate of employee turnover. Any difficulty we experience replacing or adding personnel could adversely affect our business.

 

We may not be able to find enough skilled labor to meet our needs, which could limit our growth. Our business activity historically decreases or increases with the price of oil and gas. We may have problems finding enough skilled and unskilled laborers in the future if the demand for our services increases. If we are not able to increase our service rates sufficiently to compensate for wage rate increases, our operating results may be adversely affected.

 

Other factors may also inhibit our ability to find enough workers to meet our employment needs. Our services require skilled workers who can perform physically demanding work. As a result of our industry volatility and the demanding nature of the work, workers may choose to pursue employment in fields that offer a more desirable work environment at wage rates that are competitive with ours. We believe that our success is dependent upon our ability to continue to employ and retain skilled technical personnel. Our inability to employ or retain skilled technical personnel generally could have a material adverse effect on our operations.

Our success depends on key members of our management, the loss of any of whom could disrupt our business operations.

 

We depend to a large extent on the services of some of our executive officers. The loss of the services of Kenneth V. Huseman, our President and Chief Executive Officer, or other key personnel could disrupt our operations. Although we have entered into employment agreements with Mr. Huseman and our other executive officers that contain, among other provisions, non-compete agreements, we may not be able to enforce the non-compete provisions in the employment agreements.

 

Our operations are subject to inherent risks, some of which are beyond our control. These risks may be self-insured, or may not be fully covered under our insurance policies.

 

Our operations are subject to hazards inherent in the oil and gas industry, such as, but not limited to, accidents, blowouts, explosions, craterings, fires and oil spills. These conditions can cause:

 

 

The occurrence of a significant event or adverse claim in excess of the insurance coverage that we maintain or that is not covered by insurance could have a material adverse effect on our financial condition and results of operations. In addition, claims for loss of oil and gas production and damage to formations can occur in the well services industry. Litigation arising from a catastrophic occurrence at a location where our equipment and services are being used may result in our being named as a defendant in lawsuits asserting large claims.

 

We maintain insurance coverage that we believe to be customary in the industry against these hazards. However, we do not have insurance against all foreseeable risks, either because insurance is not available or because of the high premium costs. As such, not all of our property is insured. We are also self-insured up to retention limits with regard to workers’ compensation and medical and dental coverage. We maintain accruals in our consolidated balance sheets related to self-insurance retentions by using third-party data and historical claims history. The occurrence of an event not fully insured against, or the failure of an insurer to meet its insurance obligations, could result in substantial losses. In addition, we may not be able to maintain adequate insurance in the future at rates we consider reasonable. Insurance may not be available to cover any or all of the risks to which we are subject, or, even if available, it may be inadequate, or insurance premiums or other costs could rise significantly in the future so as to make such insurance prohibitively expensive. It is likely that, in our insurance renewals, our premiums and deductibles will be higher, and certain insurance coverage either will be unavailable or considerably more expensive than it has been in the recent past. In addition, our insurance is subject to coverage limits, and some policies exclude coverage for damages resulting from environmental contamination.

 

We are subject to federal, state and local regulations regarding issues of health, safety and protection of the environment. Under these regulations, we may become liable for penalties, damages or costs of remediation. Any changes in laws and government regulations could increase our costs of doing business.

 

Our operations are subject to federal, state and local laws and regulations relating to protection of natural resources and the environment, health and safety, waste management, and transportation of waste and other materials. Our fluid services segment includes disposal operations into injection wells that pose some risks of environmental liability, including leakage from the wells to surface or subsurface soils, surface water or groundwater. Liability under these laws and regulations could result in cancellation of well operations, fines and penalties, expenditures for remediation, and liability for property damage and personal injuries. Sanctions for noncompliance with applicable environmental laws and regulations also may include assessment of administrative, civil and criminal penalties, revocation of permits and issuance of corrective action orders.

Laws protecting the environment generally have become more stringent over time and are expected to continue to do so, which could lead to material increases in costs for future environmental compliance and remediation. The modification or interpretation of existing laws or regulations, or the adoption of new laws or regulations, could curtail exploratory or developmental drilling for oil and gas and could limit well servicing opportunities. Some environmental laws and regulations may impose strict liability, which means that in some situations we could be exposed to liability as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, prior operators or other third parties. Clean-up costs and other damages arising as a result of environmental laws and costs associated with changes in environmental laws and regulations could be substantial and could have a material adverse effect on our financial condition.

 

Risks Relating to the Exchange Offer and the New Notes

 

If you do not properly tender your old notes, you will continue to hold unregistered outstanding notes and your ability to transfer outstanding notes will be adversely affected.

 

We will only issue new notes in exchange for old notes that you timely and properly tender. Therefore, you should allow sufficient time to ensure timely delivery of the old notes, and you should carefully follow the instructions on how to tender your old notes. Neither we nor the exchange agent is required to tell you of any defects or irregularities with respect to your tender of old notes. Please read “The Exchange Offer — Procedures for Tendering” and “Description of the New Notes.”

 

If you do not exchange your old notes for new notes in the exchange offer, you will continue to be subject to the restrictions on transfer of your old notes described in the legend on the certificates for your old notes. In general, you may only offer or sell the old notes if they are registered under the Securities Act and applicable state securities laws, or offered and sold under an exemption from these requirements. We do not plan to register any sale of the old notes under the Securities Act. For further information regarding the consequences of failing to tender your old notes in the exchange offer, please read “The Exchange Offer — Consequences of Failure to Exchange Outstanding Securities.”

 

Some holders who exchange their old notes may be deemed to be underwriters.

 

If you exchange your old notes in the exchange offer for the purpose of participating in a distribution of the new notes, you may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

 

There may not be sufficient collateral to pay all of the new notes.

 

The new notes and the guarantees are secured by a first-priority lien, subject to limited exceptions, on certain of our current and future assets. See “Description of the New Notes — Security.”

 

No appraisals of any collateral have been prepared in connection with this exchange offer. Estimating the value of the collateral is a subjective process and subject to considerable uncertainty. As of June 30, 2009, the net book value of the collateral included approximately $509 million of property and equipment. Furthermore, the collateral will likely decline in value over time, though the value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers for the collateral. By its nature, some or all of the collateral may be illiquid and may have no readily ascertainable market value. The value of the assets pledged as collateral for the new notes could be impaired in the future as a result of changing economic conditions, volatility of or further reduction in oil and gas prices, competition or other future trends. As such, the sale value of the collateral may be substantially different from its book value. In the event of a foreclosure, liquidation, bankruptcy or similar proceeding, no assurance can be given that the proceeds from any sale or liquidation of the collateral will be sufficient to pay our obligations under the new notes in full. See “Description of the New Notes — Security.” Accordingly, there may not be sufficient collateral to pay all of the amounts due on the new notes. Any claim for the difference between any amount realized by holders of the new notes from the sale of the collateral securing the new notes and the obligations

under the new notes will rank equally in right of payment with all of our other senior indebtedness and other unsubordinated obligations, including trade payables.

 

To the extent that third parties enjoy prior liens, such third parties may have rights and remedies with respect to the property subject to such liens that, if exercised, could adversely affect the value of the collateral. Additionally, the terms of the indenture will allow us to issue additional notes in certain circumstances. The indenture will not require that we maintain the current level of collateral or maintain a specific ratio of indebtedness to asset values. Any additional notes issued pursuant to the indenture will rank pari passu with the new notes and be entitled to the same rights and priority with respect to the collateral. Thus, the issuance of additional notes pursuant to the indenture may have the effect of significantly diluting your ability to recover payment in full from the then existing pool of collateral. Releases of collateral from the liens securing the new notes are permitted under some circumstances. See “Description of the New Notes — Security.”

 

The collateral is subject to casualty risks.

 

We are obligated under the collateral arrangements to maintain adequate insurance or otherwise insure against hazards as is usually done by corporations operating assets of a similar nature in the same or similar localities. There are, however, certain losses that may be either uninsurable or not economically insurable, in whole or in part. As a result, it is possible that the insurance proceeds will not compensate us fully for our losses. If there is a total or partial loss of any of the collateral, we cannot assure you that any insurance proceeds received by us will be sufficient to satisfy all of our secured obligations, including the new notes. Please read “— Risks Relating to Our Business — Our operations are subject to inherent risks, some of which are beyond our control. These risks may be self-insured, or may not be fully covered under our insurance policies” above for further discussion of risks to our operations and the collateral securing the new notes.

 

In the event of a bankruptcy, your ability to realize upon the collateral will be subject to certain bankruptcy law limitations.

 

The right of the trustee to repossess and dispose of the collateral securing the new notes upon acceleration is likely to be significantly impaired by federal bankruptcy law if bankruptcy proceedings are commenced by or against us prior to or possibly even after the trustee has repossessed and disposed of the collateral. Under the U.S. Bankruptcy Code, a secured creditor, such as the trustee for the new notes, is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from a debtor, without bankruptcy court approval. Moreover, bankruptcy law permits the debtor to continue to retain and to use collateral, and the proceeds, products, rents or profits of the collateral, even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given “adequate protection.” The meaning of the term “adequate protection” may vary according to circumstances, but it is intended in general to protect the value of the secured creditor’s interest in the collateral and may include cash payments or the granting of additional security, if and at such time as the court in its discretion determines, for any diminution in the value of the collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. In view of the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the new notes could be delayed following commencement of a bankruptcy case, whether or when the trustee would repossess or dispose of the collateral, or whether or to what extent holders of the new notes would be compensated for any delay in payment of loss of value of the collateral through the requirements of “adequate protection.” Furthermore, in the event the bankruptcy court determines that the value of the collateral is not sufficient to repay all amounts due on the new notes, the holders of the new notes would have “undersecured claims” as to the difference. Federal bankruptcy laws do not permit the payment or accrual of interest, costs and attorneys’ fees for “undersecured claims” during the debtor’s bankruptcy case. Finally, the trustee’s ability to foreclose on the collateral on your behalf may be subject to procedural restrictions, the consent of third parties and practicable problems associated with the realization of the security interest in the collateral.

Your rights in the collateral may be adversely affected by the failure to perfect security interests in certain collateral existing or acquired in the future.

 

The security interest in the collateral securing the new notes includes our drilling rigs and well service rigs, whether now owned or acquired in the future, as well as considerable additional assets. There can be no assurance that the trustee will monitor, or that we will inform the trustee of, the future acquisition of assets that constitute collateral, and that the necessary action will be taken to properly perfect the security interest in such after-acquired collateral. The failure to perfect a security interest in respect of such after-acquired collateral may result in the loss of the security interest therein or the priority of the security interest in favor of the new notes against third parties.

 

If we or any guarantor were to become subject to a bankruptcy proceeding after the issue date of the old notes, any liens recorded or perfected after the issue date of the old notes would face a greater risk of being avoided than if they had been recorded or perfected on the issue date. If a lien is recorded or perfected after the issue date, it may be treated under bankruptcy law as if it were delivered as a preferential transfer to secure previously existing debt. In bankruptcy proceedings commenced within 90 days of lien perfection, a lien given to secure previously existing debt is materially more likely to be avoided as a preference by the bankruptcy court than if delivered and promptly recorded on the issue date of the old notes. Accordingly, if we or a guarantor were to file for bankruptcy after the issue date of the old notes and the liens had been perfected less than 90 days before commencement of such bankruptcy proceeding, the liens securing the notes may be especially subject to challenge as a result of having been delivered after the issue date of the old notes. To the extent that such challenge succeeded, you would lose the benefit of the security that the collateral was intended to provide.

 

We will require a significant amount of cash to service our debt. Our ability to generate cash depends on many factors beyond our control.

 

Our ability to make payments on and to refinance our debt, including the notes, and to fund planned capital expenditures will depend on our ability to generate cash in the future. This is subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control. We cannot assure you that our business will generate sufficient cash flow from operations in an amount sufficient to enable us to pay our debt, including the notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our debt, including the notes, on or before maturity. We cannot assure you that we will be able to refinance any of our debt, including our lease facilities or the notes, on commercially reasonable terms or at all.

 

In addition to our current indebtedness, we may incur substantially more debt, including additional secured debt. This could further exacerbate the risks associated with our substantial debt.

 

We and our subsidiaries may be able to incur substantial additional debt in the future. Although the indenture governing the notes contains restrictions on the incurrence of additional debt, these restrictions are subject to a number of qualifications and exceptions and, under certain circumstances, debt incurred in compliance with these restrictions could be substantial. If new debt is added to our current debt levels, the substantial risks described above would intensify. See “Capitalization,” “Selected Historical Financial Data” and “Description of Other Indebtedness.”

 

We are a holding company with no direct operations.

 

Basic Energy Services, Inc. is a holding company with no direct operations. Our principal assets are the equity interests and investments we hold in our subsidiaries. As a result, we depend on dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations, including the payment of principal of and interest on our outstanding debt. Our subsidiaries are legally distinct from us and have no obligation to pay amounts due on our debt or to make funds available to us for such payment except as provided in the note guarantees or pursuant to intercompany notes.

A court could cancel the new notes or the guarantees of the initial or future guarantors and the security interests in the collateral under fraudulent conveyance laws or certain other circumstances.

 

All of our current subsidiaries, other than two immaterial subsidiaries, and all of our future material restricted subsidiaries that guarantee our other indebtedness, guarantee the notes. If we or such a subsidiary becomes a debtor in a case under the U.S. Bankruptcy Code or encounters other financial difficulty, under federal or state laws governing fraudulent transfer, renewable transactions or preferential payments, a court in the relevant jurisdiction might avoid or cancel its guarantee and/or the liens created by the security interest in its collateral. The court might do so if it found that, when the subsidiary entered into its guarantee and security arrangement or, in some states, when payments became due thereunder, (a) it received less than reasonably equivalent value or fair consideration for such guarantee and/or security arrangement and (b) either (i) was or was rendered insolvent, (ii) was left with inadequate capital to conduct its business, or (iii) believed or should have believed that it would incur debts beyond its ability to pay. The court might also avoid such guarantee and/or security arrangement, without regard to the above factors, if it found that the subsidiary entered into its guarantee and/or security arrangement with actual or deemed intent to hinder, delay, or defraud our creditors.

 

Similarly, if we become a debtor in a case under the U.S. Bankruptcy Code or encounter other financial difficulty, a court might cancel our obligations under the notes, if it found that when we issued the notes (or in some jurisdictions, when payments become due under the notes), factors (a) and (b) above applied to us, or if it found that we issued the notes with actual intent to hinder, delay or defraud our creditors.

 

A court would likely find that a subsidiary did not receive reasonably equivalent value or fair consideration for its guarantee unless it benefited directly or indirectly from the issuance of the notes. If a court avoided such guarantee, holders of the notes would no longer have a claim against such subsidiary. In addition, the court might direct holders of the notes to repay any amounts already received from such subsidiary. If the court were to avoid any guarantee, we cannot assure you that funds would be available to pay the notes from another subsidiary or from any other source.

 

The indenture states that the liability of each subsidiary on its guarantee and security arrangement is limited to the maximum amount that the subsidiary can incur without risk that the guarantee or security arrangement will be subject to avoidance as a fraudulent conveyance or fraudulent transfer. See “Description of the New Notes — Note Guarantees.” This limitation may not protect the guarantees and/or security arrangements from a fraudulent conveyance attack or, if it does, the guarantees and/or security arrangements may not be in amounts sufficient, if necessary, to pay obligations under the notes when due.

 

We may not have the ability to raise funds necessary to finance any change of control offer required under the indenture.

 

If a change of control (as defined in the indenture) occurs, we will be required to offer to purchase your notes at 101% of their principal amount plus accrued and unpaid interest. Any of our future debt agreements may contain provisions relating to the acceleration of indebtedness or restrictions on our ability to repay the notes upon a change in control. If a purchase offer obligation arises under the indenture governing the notes, a similar obligation would likely arise with respect to our outstanding 7.125% Senior Notes due 2016. If a purchase offer were required under the indenture for our debt, we may not have sufficient funds to pay the purchase price of all debt, including your notes, that we are required to purchase or repay.

 

In a recent decision, the Chancery Court of Delaware raised the possibility that a change of control put right occurring as a result of a failure to have “continuing directors” comprising a majority of a board of directors may be unenforceable on public policy grounds.

 

An active trading market may not develop for the new notes.

 

The new notes are a new issue of securities. There is no active public trading market for the new notes, and the new notes will not be listed on any securities exchange.

 

We cannot assure you that an active trading market will develop for the new notes or that the new notes will trade as one class with the old notes. In addition, the liquidity of the trading market in the new notes and

the market prices quoted for the new notes may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a consequence, an active trading market may not develop for your notes, you may not be able to sell your notes, or, even if you can sell your notes, you may not be able to sell them at an acceptable price.

 

You generally are required to accrue income before you receive cash attributable to original issue discount on the notes. Additionally, in the event we enter into bankruptcy, you may not have a claim for all or a portion of any unamortized amount of the original discount on the notes.

 

The old notes were issued with original issue discount (“OID”) for U.S. federal income tax purposes. Accordingly, if you are an individual or entity subject to U.S. tax, you generally are required to accrue interest in the form of OID on a current basis in respect of the notes, include such accrued interest in income and pay tax accordingly, even before you receive cash attributable to that income. Additionally, a bankruptcy court may not allow a claim for all or a portion of any unamortized amount of the OID on the notes.

 

This prospectus contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements relating to goals, plans and projections regarding our financial position, results of operations, market position, product development and business strategy under the headings “Prospectus Summary” and “Risk Factors.” These statements are based on management’s current expectations and involve significant risks and uncertainties that may cause results to differ materially from those set forth in the statements.

 

The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “plan,” “expect” and similar expressions are intended to identify forward-looking statements. All statements other than statements of current or historical fact contained in this prospectus are forward-looking statements. Although we believe that the forward-looking statements contained in this prospectus are based upon reasonable assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

 

Important factors that may affect our expectations, estimates or projections include:

 

 

Our forward-looking statements speak only as of the date of this prospectus. Unless otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

This prospectus includes market share data, industry data and forecasts that we obtained from internal company surveys (including estimates based on our knowledge and experience in the industry in which we operate), market research, consultant surveys, publicly available information, industry publications and surveys. These sources include Baker Hughes Incorporated (“Baker Hughes”), the Association of Energy Service Companies (“AESC”), and the Energy Information Administration of the U.S. Department of Energy (“EIA”). Industry surveys and publications, consultant surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable. Although we believe such information is accurate and reliable, we have not independently verified any of the data from third party sources cited or used for our management’s industry estimates, nor have we ascertained the underlying economic assumptions relied upon therein. For example, the number of onshore well servicing rigs in the U.S. could be lower than our estimate to the extent our two larger competitors have continued to report as stacked rigs equipment that is not actually complete or subject to refurbishment. Statements as to our position relative to our competitors or as to market share refer to the most recent available data.

 

The exchange offer is intended to satisfy our obligations under the registration rights agreement we entered into in connection with the private offering of the old notes. We will not receive any proceeds from the issuance of the new notes in the exchange offer. In consideration for issuing the new notes as contemplated in this prospectus, we will receive, in exchange, outstanding old notes in like principal amount. We will cancel all old notes surrendered in exchange for new notes in the exchange offer. As a result, the issuance of the new notes will not result in any increase or decrease in our indebtedness.

 

The following table sets forth our consolidated ratio of earnings to fixed charges for the periods shown:

 

 

For these ratios, “earnings” means the sum of income before income taxes and fixed charges exclusive of capitalized interest, and “fixed charges” means interest expensed and capitalized, amortized premiums, discounts and capitalized expenses relating to indebtedness and an estimate of the portion of annual rental expense on capital leases that represents the interest factor.

 

 

 

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2009:

 

 

This table should be read in conjunction with “Summary Historical Consolidated Financial Information,” “Selected Historical Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus.

 

 

 

 

The following table sets forth our selected historical financial information for the periods shown. The following information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this prospectus. The amounts for each historical annual period presented below were derived from our audited financial statements. The amounts for each interim period presented below were derived from our unaudited interim financial statements.

 

 

 

 

 

Management’s Overview

 

We provide a wide range of well site services to oil and gas drilling and producing companies, including well servicing, fluid services, completion and remedial services and contract drilling. Our results of operations reflect the impact of our acquisition strategy as a leading consolidator in the domestic land-based well services industry. Our acquisitions have increased our breadth of service offerings at the well site and expanded our market presence. In implementing this strategy, we purchased businesses and assets in 40 separate acquisitions from January 1, 2004 to June 30, 2009. Our weighted average number of well servicing rigs increased from 279 in 2004 to 414 in the second quarter of 2009 and our weighted average number of fluid service trucks increased from 386 to 808 in the same period. We added 98 trucks through the acquisition of Azurite Services Company, Inc., Azurite Leasing Company, LLC, and Freestone Disposal, LP (collectively “Azurite”) in the third quarter of 2008. We significantly increased our completion and remedial services segment, principally through the acquisition of JetStar Consolidated Holdings, Inc. in the first quarter of 2007. Our weighted average number of drilling rigs increased from two in the first quarter of 2006 to nine in the fourth quarter of 2008, principally through the acquisition of Sledge Drilling Holding Corp. in the second quarter of 2007. These acquisitions make our revenues, expenses and income not directly comparable between periods.

 

Basic revised its business segments beginning in the first quarter of 2008, and in connection therewith, restated the corresponding items of segment information for earlier periods. The new operating segments are Well Servicing, Fluid Services, Completion and Remedial Services, and Contract Drilling. These segments were selected based on changes in management’s resource allocation and performance assessment in making decisions regarding the Company. Contract Drilling was previously included in our Well Servicing segment. The Well Site Construction Services segment was consolidated into our Fluid Services segment. These changes reflect Basic’s operating focus in compliance with Statement of Financial Accounting Standards (SFAS) No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

 

Our operating revenues from each of our segments, and their relative percentages of our total revenues, consisted of the following (dollars in millions):

 

 

Our core businesses depend on our customers’ willingness to make expenditures to produce, develop and explore for oil and gas in the United States. Industry conditions are influenced by numerous factors, such as the supply of and demand for oil and gas, domestic and worldwide economic conditions, political instability in oil producing countries and merger and divestiture activity among oil and gas producers. The volatility of the oil and gas industry, and the consequent impact on exploration and production activity, could adversely impact the level of drilling and workover activity by some of our customers. This volatility affects the demand for our services and the price of our services.

 

We derive a majority of our revenues from services supporting production from existing oil and gas operations. Demand for these production-related services, including well servicing and fluid services, tends to remain relatively stable, even in moderate oil and gas price environments, as ongoing maintenance spending is required to sustain production. As oil and gas prices fluctuate, demand for all of our services changes correspondingly as our customers must balance maintenance and capital expenditures against their available cash flows. Because our services are required to support drilling and workover activities, we are also subject

to changes in capital spending by our customers as oil and gas prices increase or decrease. Adverse changes in capital markets also caused a number of oil and gas producers to reduce their capital budgets for the remainder of 2009. Limitations on the availability of capital, or higher costs of capital, for financing expenditures may cause these and other oil and gas producers to make additional reductions to capital budgets in the future even if commodity prices return to historically high levels.

 

During 2006, our business activity levels increased due to the impact of higher oil and gas prices and the expansion of our equipment fleets. In 2007, natural gas prices declined as an excess supply of natural gas began to occur, mainly due to moderate U.S. weather patterns. Utilization for our services declined from 2006 levels as drilling activity flattened or declined in several of our markets and new equipment entered the marketplace balancing supply and demand for our services. However, pricing for our services improved in 2007 from 2006, mainly reflecting continued increases in labor costs, and offset a portion the effect of the lower utilization of our services on our total revenues. By the middle of 2008, oil and natural gas prices reached historic highs. However, in the second half of 2008 oil and natural gas prices decreased substantially, which caused significantly lower utilization of our services in the fourth quarter of 2008. In the first half of 2009, utilization and pricing for our services continued to decline from the fourth quarter of 2008. For the second half of 2009, we expect oil and gas prices to remain below the levels required to support aggressive capital spending programs by our customers and that their maintenance related spending will be deferred for as long as possible. The reduced spending by our customers in the first half of 2009 is expected to continue in the second half of 2009, which will result in decreased demand for our services and increased competition among the service providers in each of our segments. We anticipate that utilization, revenue and margins in 2009 will be substantially below 2008 levels. As a result of these conditions, our customers’ spending patterns have become increasingly unpredictable, making it difficult for us to predict our future operating results. Accordingly, our results may differ significantly from our forecasts and those of the investment community.

 

We believe that the most important performance measures for our lines of business are as follows:

 

 

Segment profits are computed as segment operating revenues less direct operating costs. These measurements provide important information to us about the activity and profitability of our lines of business. For a detailed analysis of these indicators for our company, see below in “Segment Overview.”

 

We will continue to evaluate opportunities to grow our business through selective acquisitions and internal growth initiatives. Our capital investment decisions are determined by an analysis of the projected return on capital employed for each of those alternatives, which is substantially driven by the cost to acquire existing assets from a third party, the capital required to build new equipment and the point in the oil and gas commodity price cycle. Based on these factors, we make capital investment decisions that we believe will support our long-term growth strategy. While we believe our costs of integration for prior acquisitions have been reflected in our historical results of operations, integration of acquisitions may result in unforeseen operational difficulties or require a disproportionate amount of our management’s attention.

 

Recent Strategic Acquisitions and Expansions

 

During the period from 2006 through 2008, we grew significantly through acquisitions and capital expenditures. During 2006, we completed ten acquisitions, of which G&L Tool, Ltd. was considered significant for purposes of SFAS No. 141, “Business Combinations.” During 2007, we completed eight acquisitions, of which JetStar Consolidated Holdings, Inc. and Sledge Drilling Holding Corp. were considered significant for

purposes of SFAS No. 141. During 2008, we completed five acquisitions, of which Azurite was considered significant for purposes of SFAS No. 141.

 

We discuss the aggregate purchase prices and related financing issues below in “Liquidity and Capital Resources” and present the pro forma effects of the acquisition of G&L Tool, Ltd., JetStar Consolidated Holdings, Inc., Sledge Drilling Holding Corp., and Azurite in Note 3 of our audited historical consolidated financial statements for the year ended December 31, 2008 included in this prospectus.

 

Selected 2006 Acquisitions

 

During 2006, we made several acquisitions that complemented our existing business segments and provided an entry into the rental and fishing tool business. These included, among others:

 

LeBus Oil Field Service Co.

 

On January 31, 2006, we acquired all of the outstanding capital stock of LeBus Oil Field Service Co. (“LeBus”) for an acquisition price of $26.0 million, subject to adjustments. This acquisition significantly expanded our fluid services segment in the Ark-La-Tex region. The cash used to acquire LeBus was primarily from borrowings under our senior credit facility.

 

G&L Tool, Ltd.

 

On February 28, 2006, we acquired substantially all of the operating assets of G&L Tool, Ltd. (“G&L”) for total consideration of $58.5 million in cash. This acquisition provided an entry into the rental and fishing tool market and operates within our completion and remedial line of business. The purchase agreement also contained an earn-out agreement based on annual EBITDA targets. The cash used to acquire G&L was primarily from borrowings under our senior credit facility.

 

Chaparral Service, Inc.

 

On August 15, 2006, we acquired all of the outstanding capital stock and substantially all operating assets of the subsidiaries of Chaparral Service, Inc. (“Chaparral”) for total consideration of $19.0 million in cash, subject to adjustments. This acquisition expanded our well servicing and fluid services capabilities in the eastern New Mexico portion of the Permian Basin. The cash used to acquire Chaparral was primarily from operating cash.

 

Selected 2007 Acquisitions

 

During 2007, we made several acquisitions that complemented our existing business segments. These included, among others:

 

Parker Drilling Offshore USA, LLC

 

On January 3, 2007, we acquired two barge-mounted workover rigs and related equipment from Parker Drilling Offshore USA, LLC for total consideration of $20.5 million in cash. The acquired rigs operate in the inland waters of Louisiana and Texas as a part of Basic Marine Services.

 

JetStar Consolidated Holdings, Inc.

 

On March 6, 2007, we acquired all of the outstanding capital stock of JetStar Consolidated Holdings, Inc. (“JetStar”) for an aggregate purchase price of approximately $127.3 million, including $86.3 million in cash, of which approximately $37.6 million was used for the retirement of JetStar’s outstanding debt. As part of the purchase price, we issued 1,794,759 shares of common stock, at a fair value of $22.86 per share for a total fair value of approximately $41.0 million. This acquisition operates in our completion and remedial business segment.

Sledge Drilling Holding Corp.

 

On April 2, 2007, we acquired all of the outstanding capital stock of Sledge Drilling Holding Corp. (“Sledge”) for an aggregate purchase price of approximately $60.8 million, including $50.6 million in cash, of which approximately $19 million was used for the repayment of Sledge’s outstanding debt. As part of the purchase price, we issued 430,191 shares of common stock at a fair value of $23.63 per share for a total fair value of approximately $10.2 million. This acquisition allowed us to expand our drilling operations in the Permian Basin and operates in our contract drilling segment.

 

Wildhorse Services, Inc.

 

On June 5, 2007, we acquired all of the outstanding capital stock of Wildhorse Services, Inc. (“Wildhorse”) for an aggregate purchase price of approximately $17.3 million, net of cash acquired. This acquisition allowed us to expand our rental and fishing tool operations in northwestern Oklahoma and the Texas panhandle area. This acquisition operates in our completion and remedial line of business.

 

Selected 2008 Acquisitions

 

During the year 2008, we made several acquisitions that complemented our existing lines of business. These included among others:

 

Xterra Fishing and Rental Tools Co.

 

On January 28, 2008, we acquired all of the outstanding capital stock of Xterra Fishing and Rental Tools Co. (“Xterra”) for total consideration of $21.5 million cash. This acquisition operates in our completion and remedial services line of business.

 

Azurite Services Company, Inc.

 

On September 26, 2008, we acquired substantially all of the operating assets of Azurite for $61.0 million in cash. This acquisition operates in our fluid services line of business.

 

Segment Overview

 

Well Servicing

 

During the first six months of 2009 and in the year ended December 31, 2008, our well servicing segment represented 31% and 34% of our revenues, respectively. Revenue in our well servicing segment is derived from maintenance, workover, completion, and plugging and abandonment services. We provide maintenance-related services as part of the normal, periodic upkeep of producing oil and gas wells. Maintenance-related services represent a relatively consistent component of our business. Workover and completion services generate more revenue per hour than maintenance work, due to the use of auxiliary equipment, but demand for workover and completion services fluctuates more with the overall activity level in the industry.

 

We typically charge our customers for services on an hourly basis at rates that are determined by the type of service and equipment required, market conditions in the region in which the rig operates, the ancillary equipment provided on the rig and the necessary personnel. Depending on the type of job, we may also charge by the project or by the day. We measure our activity levels by the total number of hours worked by all of the rigs in our fleet. We monitor our fleet utilization levels, with full utilization deemed to be 55 hours per week per rig.

 

Our fleet increased from a weighted average number of 325 rigs in the first quarter of 2006 to 414 in the second quarter of 2009 through a combination of newbuild purchases and acquisitions and other individual equipment purchases.

The following is an analysis of our well servicing segment for each of the quarters and years in the years ended December 31, 2006, 2007 and 2008, and the quarters ended March 31, 2009 and June 30, 2009:

 

 

We gauge activity levels in our well servicing rig operations based on rig utilization rate, revenue per rig hour and profits per rig hour.

 

The decrease in oil and gas prices over the last part of 2008, along with prices remaining depressed and volatile through the second quarter of 2009, caused a decrease in rig utilization in the first half of 2009 compared to the same period in 2008, as our customers decreased their capital and maintenance expenditures for our services. The decrease in customer demand was exacerbated by the continued weakness in natural gas prices. This decrease also caused price pressure, and our revenue per rig hour decreased in the first half of 2009 compared to the same period in 2008. Our rates declined faster than our costs, resulting in the decrease in segment profit percentage in the first half of 2009 compared to the same period in 2008. Through our continued cost cutting measures, we were able to minimize the decrease in segment profit percentage to 23.6% in the second quarter of 2009 as compared to the first quarter of 2009.

 

Fluid Services

 

During the first six months of 2009 and in the year ended December 31, 2008, our fluid services segment represented 42% and 32% of our revenues, respectively. Revenues in our fluid services segment are earned from the sale, transportation, storage and disposal of fluids used in the drilling, production and maintenance of oil and gas wells, and well site construction and maintenance services. The fluid services segment has a base level of business consisting of transporting and disposing of salt water produced as a by-product of the production of oil and gas. These services are necessary for our customers and generally have a stable demand but typically produce lower relative segment profits than other parts of our fluid services segment. Fluid services for completion and workover projects typically require fresh or brine water for making drilling mud, circulating fluids or frac fluids used during a job, and all of these fluids require storage tanks and hauling and

disposal. Because we can provide a full complement of fluid sales, trucking, storage and disposal required on most drilling and workover projects, the add-on services associated with drilling and workover activity enable us to generate higher segment profits contributions. Revenues from our well site construction services are derived primarily from preparing and maintaining access roads and well locations, installing small diameter gathering lines and pipelines, constructing foundations to support drilling rigs and providing maintenance services for oil and gas facilities. The higher segment profits are due to the relatively small incremental labor costs associated with providing these services in addition to our base fluid services segment. We typically price fluid services by the job, by the hour or by the quantities sold, disposed of or hauled.

 

The following is an analysis of our fluid services segment for each of the quarters and years in the years ended December 31, 2006, 2007 and 2008, and the quarters ended March 31, 2009 and June 30, 2009 (dollars in thousands):