UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to               

Commission File Number 001-32693

Basic Energy Services, Inc.

Delaware		54-2091194
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
500 W. Illinois, Suite 100
Midland, Texas		79701
(Address of principal executive offices)		(Zip code)

(432) 620-5500
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o   No 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):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No þ

     40,687,607 shares of the registrant’s Common Stock were outstanding as of October 29, 2009.

 

 

BASIC ENERGY SERVICES, INC.

Index to Form 10-Q

Part I. FINANCIAL INFORMATION			4
Item 1. Financial Statements			4
Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008 (Unaudited)			4
Consolidated Statements of Operations and Comprehensive Income for the three months and nine months ended September 30, 2009 and 2008 (Unaudited)			5
Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2009 (Unaudited)			6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 (Unaudited)			7
Notes to the Unaudited Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			26
Management’s Overview			26
Segment Overview			28
Operating Cost Overview			31
Critical Accounting Policies and Estimates			31
Results of Operations			33
Liquidity and Capital Resources			35
Other Matters			41
Item 3. Quantitative and Qualitative Disclosures About Market Risk			42
Item 4. Controls and Procedures			42
Part II. OTHER INFORMATION			42
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			43
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			44
Item 6. Exhibits			45
Signatures			47
EX-31.1
EX-31.2
EX-32.1
EX-32.2

CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS

     This quarterly report contains certain statements that are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including, among other things, the risk factors discussed in this quarterly report and other factors, most of which are beyond our control.

     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 quarterly report are forward-looking statements. Although we believe that the forward-looking statements contained in this quarterly report are based upon reasonable assumptions, the forward-looking events and circumstances discussed in this quarterly report 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:

	•		a decline in, or substantial volatility of, oil and gas prices, and any related changes in expenditures by our customers;
	•		the effects of future acquisitions on our business;
	•		changes in customer requirements in markets or industries we serve;
	•		competition within our industry;
	•		general economic and market conditions;
	•		our access to current or future financing arrangements;
	•		our ability to replace or add workers at economic rates; and
	•		environmental and other governmental regulations.

     Our forward-looking statements speak only as of the date of this quarterly report. 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 quarterly report includes market share and 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, and industry publications and surveys. 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.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Basic Energy Services, Inc.

Consolidated Balance Sheets
(in thousands, except share data)

		September 30,				December 31,
		2009				2008
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	137,026			$	111,135
Restricted cash			14,316				—
Trade accounts receivable, net of allowance of $5,129 and $5,838, respectively			98,753				172,930
Accounts receivable — related parties			144				148
Income tax receivable			45,737				3,324
Inventories			11,124				11,937
Prepaid expenses			8,564				6,838
Other current assets			7,468				6,508
Deferred tax assets			27,040				11,081
Total current assets			350,172				323,901
Property and equipment, net			690,720				740,879
Deferred debt costs, net of amortization			8,218				5,132
Goodwill			—				202,749
Other intangible assets, net of amortization			33,591				36,004
Other assets			2,634				2,046
Total assets		$	1,085,335			$	1,310,711
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	16,864			$	28,291
Accrued expenses			49,260				47,139
Current portion of long-term debt			27,784				26,063
Other current liabilities			462				658
Total current liabilities			94,370				102,151
Long-term debt, less unamortized discount on senior secured notes of $11,808 and $0, respectively			480,317				454,260
Deferred tax liabilities			137,617				149,591
Other long-term liabilities			9,941				9,705
Commitments and contingencies
Stockholders’ equity:
Preferred stock; $.01 par value; 5,000,000 shares authorized; none designated or issued at September 30, 2009 and December 31, 2008, respectively			—				—
Common stock; $.01 par value; 80,000,000 shares authorized; 42,394,809 shares issued, and 40,685,046 shares outstanding at September 30, 2009; 41,734,485 shares issued, and 40,851,862 shares outstanding at December 31, 2008.			424				417
Additional paid-in capital			329,330				325,785
Retained earnings			47,318				277,173
Treasury stock, at cost, 1,709,763 and 882,623 shares at September 30, 2009 and December 31, 2008, respectively			(13,982	)			(8,371	)
Total stockholders’ equity			363,090				595,004
Total liabilities and stockholders’ equity		$	1,085,335			$	1,310,711

See accompanying notes to consolidated financial statements.

Basic Energy Services, Inc.

Consolidated Statements of Operations and Comprehensive Income
(in thousands, except per share amounts)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		(Unaudited)								(Unaudited)
Revenues:
Well servicing		$	38,434			$	97,382			$	123,647			$	266,919
Fluid services			49,782				82,660				163,847				226,640
Completion and remedial services			32,592				85,541				99,224				233,578
Contract drilling			4,150				11,992				11,776				31,832
Total revenues			124,958				277,575				398,494				758,969
Expenses:
Well servicing			29,051				61,047				93,793				164,806
Fluid services			38,471				53,028				118,439				148,015
Completion and remedial services			23,106				46,798				70,484				125,236
Contract drilling			3,305				7,722				9,912				22,311
General and administrative, including stock-based compensation of $1,264 and $1,159 in three months ended September 30, 2009 and 2008, and $3,928 and $3,423 in the nine months ended September 30, 2009 and 2008, respectively			25,140				30,552				81,643				83,212
Depreciation and amortization			33,455				29,271				98,605				86,035
(Gain) loss on disposal of assets			514				376				1,853				(208	)
Goodwill impairment			—				—				204,014				—
Total expenses			153,042				228,794				678,743				629,407
Operating income (loss)			(28,084	)			48,781				(280,249	)			129,562
Other income (expense):
Interest expense			(9,760	)			(6,315	)			(21,470	)			(20,117	)
Interest income			135				654				528				1,824
Loss on early extinguishment of debt			(3,481	)			—				(3,481	)			—
Other income (expense)			819				(1,273	)			1,071				(7,708	)
Income (loss) from continuing operations before income taxes			(40,371	)			41,847				(303,601	)			103,561
Income tax benefit (expense)			15,046				(15,905	)			74,215				(39,253	)
Net income (loss)		$	(25,325	)		$	25,942			$	(229,386	)		$	64,308
Earnings per share of common stock:
Basic		$	(0.64	)		$	0.63			$	(5.78	)		$	1.58
Diluted		$	(0.64	)		$	0.62			$	(5.78	)		$	1.54

See accompanying notes to consolidated financial statements.

Basic Energy Services, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)

										Additional												Total
		Common Stock								Paid-In				Treasury				Retained				Stockholders’
		Shares				Amount				Capital				Stock				Earnings				Equity
Balance — December 31, 2008			41,734,485			$	417			$	325,785			$	(8,371	)		$	277,173			$	595,004
Issuances of restricted stock			660,324				7				(7	)			431				(431	)			—
Amortization of share based compensation			—				—				3,903				—				—				3,903
Treasury stock issued as compensation to Chairman of the Board			—				—				—				43				(19	)			24
Purchase of treasury stock			—				—				—				(6,139	)			—				(6,139	)
Exercise of stock options / vesting of restricted stock			—				—				(351	)			54				(19	)			(316	)
Net loss			—				—				—				—				(229,386	)			(229,386	)
Balance — September 30, 2009 (unaudited)			42,394,809			$	424			$	329,330			$	(13,982	)		$	47,318			$	363,090

See accompanying notes to consolidated financial statements.

Basic Energy Services, Inc.

Consolidated Statements of Cash Flows
(in thousands)

		Nine Months Ended September 30,
		2009				2008
		(Unaudited)
Cash flows from operating activities:
Net income (loss)		$	(229,386	)		$	64,308
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			98,605				86,035
Goodwill impairment			204,014				—
Accretion on asset retirement obligation			110				96
Change in allowance for doubtful accounts			(709	)			(42	)
Amortization of deferred financing costs			1,032				722
Amortization of discount on senior secured notes			294				—
Non-cash compensation			3,928				3,423
Loss on early extinguishment of debt			3,481				—
(Gain) loss on disposal of assets			1,853				(208	)
Deferred income taxes			(27,933	)			19,080
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			74,890				(46,330	)
Inventories			813				(173	)
Prepaid expenses and other current assets			(2,238	)			6,653
Other assets			(568	)			(151	)
Accounts payable			(11,427	)			1,399
Excess tax expense (benefit) from exercise of employee stock options / vesting of restricted stock			351				(4,848	)
Income tax payable			(42,932	)			2,154
Other liabilities			90				(3,545	)
Accrued expenses			3,756				14,894
Net cash provided by operating activities			78,024				143,467
Cash flows from investing activities:
Purchase of property and equipment			(34,799	)			(68,868	)
Proceeds from sale of assets			2,470				8,055
Change in restricted cash			(14,316	)			—
Payments for other long-term assets			(1,539	)			(2,118	)
Payments for businesses, net of cash acquired			(1,190	)			(110,818	)
Net cash used in investing activities			(49,374	)			(173,749	)
Cash flows from financing activities:
Proceeds from debt			241,697				30,000
Payments of debt			(230,401	)			(16,987	)
Purchase of treasury stock			(6,139	)			(1,179	)
Excess tax (expense) benefit from exercise of employee stock options / vesting of restricted stock			(351	)			4,848
Tax withholding from exercise of stock options			(5	)			(4,063	)
Exercise of employee stock options			39				6,583
Deferred loan costs and other financing activities			(7,599	)			—
Net cash used in financing activities			(2,759	)			19,202
Net increase (decrease) in cash and equivalents			25,891				(11,080	)
Cash and cash equivalents — beginning of period			111,135				91,941
Cash and cash equivalents — end of period		$	137,026			$	80,861

See accompanying notes to consolidated financial statements.

BASIC ENERGY SERVICES, INC.

Notes to Consolidated Financial Statements
September 30, 2009 (unaudited)

1. Basis of Presentation and Nature of Operations

Basis of Presentation

     The accompanying unaudited consolidated financial statements of Basic Energy Services, Inc. and subsidiaries (“Basic” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been made in the accompanying unaudited financial statements.

Nature of Operations

     Basic Energy Services, Inc. provides a 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. These services are primarily provided using Basic’s fleet of equipment. Basic’s 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.

2. Summary of Significant Accounting Policies

Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of Basic and its wholly-owned subsidiaries. Basic has no variable interest in any other organization, entity, partnership, or contract. All intercompany transactions and balances have been eliminated.

Estimates and Uncertainties

     Preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas where critical accounting estimates are made by management include:

	•		Depreciation and amortization of property and equipment and intangible assets
	•		Impairment of property and equipment, goodwill and intangible assets
	•		Allowance for doubtful accounts
	•		Litigation and self-insured risk reserves
	•		Fair value of assets acquired and liabilities assumed
	•		Stock-based compensation
	•		Income taxes
	•		Asset retirement obligations

Revenue Recognition

     Well Servicing — Well servicing consists primarily of maintenance services, workover services, completion services and plugging and abandonment services. Basic recognizes revenue when services are performed, collection of the relevant receivables is probable, persuasive evidence of an arrangement exists and the price is fixed or determinable. Basic prices well servicing by the hour or by the day of service performed.

     Fluid Services — Fluid services consists primarily of the sale, transportation, storage and disposal of fluids used in drilling, production and maintenance of oil and natural gas wells, and well site construction and maintenance services. Basic recognizes revenue when services are performed, collection of the relevant receivables is probable, persuasive evidence of an arrangement exists and the price is fixed or determinable. Basic prices fluid services by the job, by the hour or by the quantities sold, disposed of or hauled.

     Completion and Remedial Services — Completion and remedial services consists primarily of pressure pumping services, focused on cementing, acidizing and fracturing, nitrogen units, coiled tubing units, and rental and fishing tools. Basic recognizes revenue when services are performed, collection of the relevant receivables is probable, persuasive evidence of an arrangement exists and the price is fixed or determinable. Basic prices completion and remedial services by the hour, day, or project depending on the type of service performed. When Basic provides multiple services to a customer, revenue is allocated to the services performed based on the fair values of the services.

     Contract Drilling — Contract drilling consists primarily of drilling wells to a specified depth using shallow and medium depth rigs. Basic recognizes revenues based on either a “daywork” contract, in which an agreed upon rate per day is charged to the customer, or a “footage” contract, in which an agreed upon rate is charged per the number of feet drilled.

     Taxes assessed on sales transactions are presented on a net basis and are not included in revenue.

Inventories

     For Rental and Fishing Tools, inventories consisting mainly of grapples and drill bits and are stated at the lower of cost or market, with cost being determined on the average cost method. Other inventories, consisting mainly of rig components, repair parts, drilling and completion materials and gravel, are held for use in the operations of Basic and are stated at the lower of cost or market, with cost being determined on the first-in, first-out (“FIFO”) method.

Property and Equipment

     Property and equipment are stated at cost or at estimated fair value at acquisition date if acquired in a business combination. Expenditures for repairs and maintenance are charged to expense as incurred and additions and improvements that significantly extend the lives of the assets are capitalized. Upon sale or other retirement of depreciable property, the cost and accumulated depreciation and amortization are removed from the related accounts and any gain or loss is reflected in operations. All property and equipment are depreciated or amortized (to the extent of estimated salvage values) on the straight-line method. The components of a well servicing rig generally require replacement or refurbishment during the well servicing rig’s life and are depreciated over their estimated useful lives, which ranges from 3 to 15 years. The costs of the original components of a purchased or acquired well servicing rig are not maintained separately from the base rig.

Impairments

     Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization, are reviewed for impairment at least annually, or whenever, in management’s judgment, events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of such assets to estimated undiscounted future cash flows expected to be generated by the assets. Expected future cash flows and carrying values are aggregated at their lowest identifiable level. If the carrying amount of such assets exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of such assets exceeds the fair value of the assets. Assets to be disposed of would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities, if material, of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet. These assets are normally sold within a short period of time through a third party auctioneer.

     Basic’s goodwill is considered to have an indefinite useful economic life and is not amortized. Basic assesses impairment of its goodwill annually as of December 31 or on an interim basis if events or circumstances indicate that the fair value of the asset has decreased below its carrying value. A two-step process is required for testing impairment. First, the fair value of each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. If impairment is indicated, then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination. The amount of impairment for goodwill is measured as the excess of its carrying value over its fair value.

     The Company performed an assessment of goodwill as of March 31, 2009. A “triggering event” requiring this assessment was deemed to have occurred because the oil and gas services industry continued to decline in the first quarter of 2009 and the Company’s common stock price declined by 50% from December 31, 2008 to March 31, 2009. For Step One of the impairment testing, the Company tested three reporting units for goodwill impairment: well servicing, fluid services, and completion and remedial services. The Company’s contract drilling reporting unit does not carry any goodwill, and was not subject to the test.

     To estimate the fair value of the reporting units, the Company used a weighting of the discounted cash flow method and the public company guideline method of determining fair value of a business unit. The Company weighted the discounted cash flow method 85% and public company guideline method 15%, due to differences between the Company’s reporting units and the peer companies’ size, profitability and diversity of operations. In order to validate the reasonableness of the estimated fair values obtained for the reporting units, a reconciliation of fair value to market capitalization was performed for each unit on a stand-alone basis. A control premium, derived from market transaction data, was used in this reconciliation to ensure that fair values were reasonably stated in conjunction with the Company’s capitalization. The measurement date for the Company’s common stock price and market capitalization was the closing price on March 31, 2009.

     Based on the results of Step One of the impairment test, impairment was indicated in all three of the assessed reporting units. As such, the Company was required to perform Step Two assessment on all three of the reporting units. Step Two requires the allocation of the estimated fair value to the tangible and intangible assets and liabilities of the respective unit. This assessment indicated that $204.1 million was considered impaired as of March 31, 2009. This non-cash charge eliminated all of the Company’s goodwill.

     Additionally, the Company performed an assessment of the Company’s long-lived assets for impairment. This assessment is performed as a comparison of the undiscounted future cash flows of each reporting unit to the carrying value of the assets in each unit. No impairment was indicated by this test.

Deferred Debt Costs

     Basic capitalizes certain costs in connection with obtaining its borrowings, such as lender’s fees and related attorney’s fees. These costs are amortized to interest expense using the effective interest method.

     Deferred debt costs were approximately $10.2 million net of accumulated amortization of $1.9 million and $7.6 million net of accumulated amortization of $2.4 million at September 30, 2009 and December 31, 2008, respectively. Amortization of deferred debt costs totaled approximately $401,000 and $240,000 for the three months ended September 30, 2009 and 2008, respectively. For the nine months ended September 30, 2009 and 2008, amortization of deferred debt costs totaled approximately $1.0 million and $723,000, respectively.

     The Company recorded a charge of $3.5 million during the third quarter of 2009 related to the write-down of debt costs associated with the Company’s revolving credit facility. The revolving credit facility was terminated on July 31, 2009. Additionally, the Company incurred $5.0 million of deferred debt costs associated with the issuance of the Company’s Senior Secured Notes on July 31, 2009.

Goodwill and Other Intangible Assets

     Goodwill and other intangible assets not subject to amortization are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. Basic completes its assessment of goodwill impairment December 31 of each year.

     As of September 30, 2009, Basic had no goodwill. All of the Company’s goodwill was considered impaired as of March 31, 2009.

     Basic’s intangible assets subject to amortization consist of customer relationships and non-compete agreements. The gross carrying amount of customer relationships subject to amortization was $35.4 million as of September 30, 2009 and December 31, 2008. The gross carrying amount of non-compete agreements subject to amortization totaled approximately $3.9 million and $4.4 million at September 30, 2009 and December 31, 2008, respectively. Accumulated amortization related to these intangible assets totaled approximately $5.7 million and $3.8 million at September 30, 2009 and December 31, 2008, respectively. Amortization expense for the three months ended September 30, 2009 and 2008 was approximately $790,000 and $695,000, respectively. Amortization expense for the nine months ended September 30, 2009 and 2008 was approximately $2.4 million and $2.0 million, respectively. Other intangibles net of accumulated amortization allocated to reporting units as of September 30, 2009 were $350,000, $3.0 million, $24.6 million and $5.6 million for well servicing, fluid services, completion and remedial services, and contract drilling, respectively.

     Customer relationships are amortized over a 15-year life. Non-compete agreements are amortized over a five-year life.

Stock-Based Compensation

     Basic’s stock-based awards consist of stock options and restricted stock. Stock options issued are valued on the grant date using the Black-Scholes-Merton option-pricing model and restricted stock issued is valued based on the fair value of Basic’s common stock at grant date. All stock-based awards are adjusted for an expected forfeiture rate and amortized over the vesting period. Compensation expense of the unvested portion of awards granted as a private company and outstanding as of January 1, 2006 will be based upon the intrinsic value method.

Income Taxes

     Basic recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in the period that includes the statutory enactment date. A valuation allowance for deferred tax assets is recognized when it is more likely than not that the benefit of deferred tax assets will not be realized.

     Basic recognized an effective tax benefit rate of 24% in the first nine months of 2009 compared to a tax rate of 38% in the first nine months of 2008. The lower effective tax rate in the first nine months of 2009 was primarily due to the $204.0 million goodwill impairment charge. The tax deductibility of the impairment charge was determined by the taxable basis of the goodwill considered to be impaired. A portion of the Company’s goodwill was not tax-deductible.

     Interest charges are recorded in interest expense and penalties are recorded in income tax expense.

Concentrations of Credit Risk

     Financial instruments, which potentially subject Basic to concentration of credit risk, consist primarily of temporary cash investments and trade receivables. Basic restricts investment of temporary cash investments to financial institutions with high credit standing. Basic’s customer base consists primarily of multi-national and independent oil and natural gas producers. Basic performs ongoing credit evaluations of its customers but generally does not require collateral on its trade receivables. Credit risk is considered by management to be limited due to the large number of customers comprising its customer base. Basic maintains an allowance for potential credit losses on its trade receivables, and such losses have been within management’s expectations.

     Basic did not have any one customer which represented 10% or more of consolidated revenue during the three months ended September 30, 2009 or 2008.

Asset Retirement Obligations

     Basic records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets and capitalizes an equal amount as a cost of the asset depreciating it over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each quarter to reflect the passage of time, changes in the estimated future cash flows underlying the obligation, acquisition or construction of assets, and settlements of obligations.

Environmental

     Basic is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require Basic to remove or mitigate the adverse environmental effects of disposal or release of petroleum, chemical and other substances at various sites. Environmental expenditures are expensed or capitalized depending on the future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable and the costs can be reasonably estimated.

Litigation and Self-Insured Risk Reserves

     Basic estimates its reserves related to litigation and self-insured risks based on the facts and circumstances specific to the litigation and self-insured claims, its past experience with similar claims and the likelihood of the future event occurring. Basic maintains accruals in the consolidated balance sheets to cover self-insurance retentions (See note 6).

Recent Accounting Pronouncements

     In June 2009, the FASB issued ASU No. 2009-01, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“ASU No. 2009-01”), which became effective for the Company on July 1, 2009. ASU No. 2009-01 establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. ASU No. 2009-01 is not expected to change GAAP and did not have a material impact on the Company’s consolidated financial statements.

     In August 2009, the FASB issued ASU No. 2009-05, “Measuring Liabilities at Fair Value” (“ASU No. 2009-05”), which became effective for the Company on August 27, 2009. ASU No. 2009-05 issues guidance related to measuring the fair value of a liability where there is no market for the transfer of the liability. One or more of the following techniques should be used in valuing the liability:

	•		the quoted price of an investment in the identical liability traded as an asset,
	•		the quoted prices for similar liabilities, or
	•		other fair value technique per principles in accountings standards, such as discounted cash flow.

     This update has not changed the techniques the Company uses to measure the fair value of liabilities and has not had a material impact on the Company’s consolidated financial statements.

3. Acquisitions

     In the first nine months of 2009 Basic did not acquire any businesses. In 2008, Basic acquired either substantially all of the assets or all of the outstanding capital stock of each of the following businesses, each of which was accounted for using the purchase method of accounting (in thousands):

						Total Cash Paid (net of
		Closing Date				cash acquired)
Xterra Fishing and Rental Tools Co.		January 28, 2008				$	21,473
Lackey Construction, LLC		January 30, 2008					4,328
B&S Disposal, LLC and B&S Equipment, Ltd		April 30, 2008					7,071
Triple N Services, Inc.		May 27, 2008					17,315
Azurite Services Company, Inc., Azurite Leasing Company, LLC and Freestone Disposal, L.P. (collectively, “Azurite”)		September 26, 2008					60,977
Total 2008						$	111,164

     The operations of each of the acquisitions listed above are included in Basic’s statement of operations as of each respective closing date. The acquisition of Azurite in 2008 has been deemed material and is discussed below in further detail.

Contingent Earn-out Arrangements and Purchase Price Allocations

     Contingent earn-out arrangements are generally arrangements entered into on certain acquisitions to encourage the owner/manager to continue operating and building the business after the purchase transaction. The contingent earn-out arrangements of the related

acquisitions are generally linked to certain financial measures and performance of the assets acquired in the various acquisitions. All amounts paid or reasonably accrued for related to the contingent earn-out payments are reflected as increases to the goodwill associated with the acquisition or compensation expense depending on the terms and conditions of the earn-out arrangement.

Azurite

     On September 26, 2008, Basic acquired substantially all of the assets of Azurite Services Company, Inc., Azurite Leasing Company, LLC, and Freestone Disposal, L.P. (collectively, “Azurite”) for $61.0 million in cash. This acquisition operates in our fluid services line of business and expanded our operations in the East Texas markets. The following table summarizes the fair value of the assets acquired and liabilities assumed at the date of acquisition for Azurite (in thousands):

Property and Equipment		$	54,456
Intangible Assets (1)			1,862
Goodwill (2)			4,659
Total Assets Acquired		$	60,977

     The following unaudited pro forma results of operations have been prepared as though the Azurite acquisition had been completed on January 1, 2008. Pro forma amounts are based on the purchase price allocations of the significant acquisitions and are not necessarily indicative of the results that may be reported in the future (in thousands, except per share data).

		Nine Months Ended
		September 30, 2008
Revenues		$	794,187
Net income		$	66,750
Earnings per common share — basic		$	1.64
Earnings per common share — diluted		$	1.60

     Basic does not believe the pro forma effect of the remainder of the acquisitions completed in 2008 are material, either individually or when aggregated, to the reported results of operations.

4. Property and Equipment

     Property and equipment consisted of the following (in thousands):

		September 30,				December 31,
		2009				2008
Land		$	5,809			$	4,689
Buildings and improvements			34,060				29,913
Contract drilling equipment			60,250				60,340
Well service units and equipment			387,900				379,167
Fluid services equipment			134,969				136,814
Brine and fresh water stations			10,481				10,203
Frac/test tanks			130,722				128,845
Pressure pumping equipment			159,871				156,406
Construction equipment			25,667				22,483
Disposal facilities			57,313				49,878
Vehicles			38,937				41,129
Rental equipment			38,641				36,898
Aircraft			4,251				4,119
Other			29,210				21,758
			1,118,081				1,082,642
Less accumulated depreciation and amortization			427,361				341,763
Property and equipment, net		$	690,720			$	740,879

     Basic is obligated under various capital leases for certain vehicles and equipment that expire at various dates during the next five years. The gross amount of property and equipment and related accumulated amortization recorded under capital leases and included above consisted of the following (in thousands):

		September 30,				December 31,
		2009				2008
Light vehicles		$	26,391			$	30,141
Well service units and equipment			2,238				1,194
Fluid services equipment			56,901				56,010
Pressure pumping equipment			27,180				20,492
Construction equipment			1,034				3,679
Software			10,231				9,464
Other			—				705
			123,975				121,685
Less accumulated amortization			43,014				37,370
		$	80,961			$	84,315

     Amortization of assets held under capital leases of approximately $5.2 million and $3.8 million for the three months ended September 30, 2009 and 2008 and $15.3 million and $10.5 million for the nine months ended September 30, 2009 and 2008, respectively, is included in depreciation and amortization expense in the consolidated statements of operations.

5. Long-Term Debt

     Long-term debt consisted of the following (in thousands):

		September 30,				December 31,
		2009				2008
Credit Facilities:
Revolver		$	—			$	180,000
7.125% Senior Notes			225,000				225,000
11.625% Senior Secured Notes			225,000				—
Unamortized discount			(11,808	)			—
Capital leases and other notes			69,909				75,323
			508,101				480,323
Less current portion			27,784				26,063
		$	480,317			$	454,260

Senior Notes

     On April 12, 2006, Basic issued $225.0 million of 7.125% Senior Notes due April 2016 (the “Senior Notes”) in a private placement. Proceeds from the sale of the Senior Notes were used to retire the outstanding balance on the $90.0 million Term B Loan and to pay down approximately $96.0 million under our previous revolving credit facility. Interest payments on the Senior Notes are due semi-annually, on April 15 and October 15. The Senior Notes are unsecured. Under the terms of the sale of the Senior Notes, Basic was required to take appropriate steps to offer to exchange other Senior Notes with the same terms that have been registered with the Securities and Exchange Commission for the private placement Senior Notes. Basic completed the exchange offer for all of the Senior Notes on October 16, 2006.

     The Senior Notes are redeemable at the option of Basic on or after April 15, 2011 at the specified redemption price as described in the indenture governing the Senior Notes. Prior to April 15, 2011, Basic may redeem the Senior Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed plus the Applicable Premium as defined in the indenture.

     Following a change of control, as defined in the indenture, Basic will be required to make an offer to repurchase all or any portion of the Senior Notes at a purchase price of 101% of the principal amount, plus accrued and unpaid interest to the date of repurchase.

     Pursuant to the indenture, Basic is subject to covenants that limit the ability of Basic and its restricted subsidiaries to, among other things: incur additional indebtedness, pay dividends or repurchase or redeem capital stock, make certain investments, incur liens, enter into certain types of transactions with affiliates, limit dividends or other payments by restricted subsidiaries, and sell assets or consolidate or merge with or into other companies. These limitations are subject to a number of important qualifications and exceptions set forth in the indenture. Basic was in compliance with the restrictive covenants at September 30, 2009.

     As part of the issuance of the above-mentioned Senior Notes, Basic incurred debt issuance costs of approximately $4.6 million, which are being amortized to interest expense using the effective interest method over the term of the Senior Notes.

     The Senior Notes are jointly and severally guaranteed by Basic and all of its restricted subsidiaries. Basic Energy Services, Inc., the ultimate parent company, does not have any independent operating assets or operations. Subsidiaries other than the restricted subsidiaries that are guarantors are minor.

Senior Secured Notes

     On July 31, 2009, Basic completed the issuance and sale of $225.0 million aggregate principal amount of 11.625% Senior Secured Notes due 2014 (the “Senior Secured Notes”). The Senior Secured Notes are jointly and severally, and unconditionally, guaranteed on a senior secured basis initially by all of Basic’s current subsidiaries other than two immaterial subsidiaries. As of September 30, 2009, these two subsidiaries held no assets and performed no operations. The Senior Secured Notes and the related guarantees were offered and sold in private transactions in accordance with Rule 144A and

Regulation S under the Securities Act of 1933, as amended. Under the terms of the sale of the Senior Secured Notes, Basic is required to take appropriate steps to offer to exchange other Senior Secured Notes with the same terms that have been registered with the Securities and Exchange Commission for the private placement Senior Secured Notes. For more information about the offer to exchange the Senior Secured Notes, see note 14.

     The net proceeds from the issuance of the Senior Secured Notes were $207.9 million after discounts and offering expenses. Basic used the net proceeds from the offering, along with other funds, to repay all outstanding indebtedness under its revolving credit facility, which Basic terminated in connection with the offering.

     The Senior Secured Notes and the related guarantees were issued pursuant to an indenture dated as of July 31, 2009 (the “Indenture”), by and among Basic, the guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee. The obligations under the Indenture are secured as set forth in the Indenture and in the Security Agreement (as defined below), in favor of the trustee, by a first-priority lien (other than Permitted Collateral Liens, as defined in the Indenture) in favor of the trustee, on the Collateral (as defined below) described in the Security Agreement.

     Interest on the Senior Secured Notes accrues at a rate of 11.625% per year. Interest on the Senior Secured Notes is payable semi-annually in arrears on February 1 and August 1 of each year, commencing on February 1, 2010. The Senior Secured Notes mature on August 1, 2014.

     The Indenture contains covenants that, among other things, limit Basic’s ability and the ability of certain of its 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 its affiliates, limit dividends or other payments by its restricted subsidiaries to Basic, sell assets (including Collateral under the Security Agreement), or consolidate or merge with or into other companies. These limitations are subject to a number of important exceptions and qualifications. Basic was in compliance with the restrictive covenants at September 30, 2009.

     If Basic or its restricted subsidiaries sell, transfer or otherwise dispose of assets or other rights or property that constitute Collateral (including the same or the issuance of equity interests in a restricted subsidiary that owns Collateral such that it thereafter is no longer a restricted subsidiary, a “Collateral Disposition”), Basic is required to deposit any cash or cash equivalent proceeds constituting net available proceeds into a segregated account under the sole control of the trustee that includes only proceeds from the Collateral Disposition and interest earned thereon (an “Asset Sale Proceeds Account”). The Asset Sale Proceeds Account will be subject to a first-priority lien in favor of the trustee, and the proceeds are subject to release from the account for specified uses. These permitted uses include: acquiring additional assets of a type constituting Collateral (“Additional Assets”), provided the trustee has or is immediately granted a perfected first-priority security interest (subject only to Permitted Collateral Liens) in such Additional Assets, and repurchasing or redeeming the Senior Secured Notes.

     Upon an Event of Default (as defined in the Indenture), the trustee or the holders of at least 25% in aggregate principal amount of the Senior Secured Notes then outstanding may declare the entire principal of all the Senior Secured Notes to be due and payable immediately.

     Basic may, at its option, redeem all or part of the Senior Secured Notes, 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. Basic may redeem some or all of the Senior Secured Notes before February 1, 2012, at a redemption price equal to 100% of the principal amount of the Senior Secured Notes to be redeemed, plus the Applicable Premium (as defined in the Indenture) and accrued and unpaid interest to the date of redemption.

     In addition, at any time before February 1, 2012, Basic, at its option, may redeem up to 35% of the aggregate principal amount of the Senior Secured Notes issued under the Indenture with the net cash proceeds of one or more qualified equity offerings at a redemption price of 111.625% of the principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest to the date of redemption, as long as at least 65% of the aggregate principal amount of the Senior Secured 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.

     If Basic experiences certain kinds of changes of control, holders of the Senior Secured Notes will be entitled to require Basic to purchase all or a portion of the Senior Secured Notes at 101% of their principal amount, plus accrued and unpaid interest to the date of repurchase.

     On July 31, 2009, Basic and each of the guarantors party to the Indenture (the “Grantors”) entered into a Security Agreement (the “Security Agreement”) in favor of The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee under the Indenture, to secure payment of the Senior Secured Notes and related guarantees. The Liens (as defined in the Security Agreement) granted by each of the Grantors under the Security Agreement consist of a security interest in all of the following personal property now owned or at any time thereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest and whether existing as of the date of the Security Agreement or thereafter coming into existence (together with the Aircraft Collateral (as defined in the Security Agreement), the “Collateral”), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the obligations of the Grantors under the Indenture, the related Senior Secured Notes and the security documents:

          (i) all Commercial Tort Claims;

          (ii) all Contracts (as defined in the Security Agreement);

          (iii) all Documents;

          (iv) all Equipment (other than the Aircraft Collateral);

          (v) all General Intangibles (excluding Payment Intangibles except to the extent included pursuant to clause (xv) below);

          (vi) all Goods (as defined in the Security Agreement);

          (vii) all Intellectual Property (as defined in the Security Agreement);

          (viii) all Investment Property;

          (ix) all Letter-of-Credit Rights (whether or not the letter of credit is evidenced by a writing);

          (x) all Supporting Obligations;

          (xi) each Asset Sale Proceeds Account (as defined in the Security Agreement) and all deposits, Securities and Financial Assets (as defined in the Security Agreement) therein and interest or other income thereon and investments thereof, and all property of every type and description in which any proceeds of any Collateral Disposition or other disposition of Collateral are invested or upon which the trustee is at any time granted, or required to be granted, a Lien to secure the Obligations (as defined in the Security Agreement) as set forth in Section 4.12 of the Indenture and all proceeds and products of the Collateral described in this clause (xi);

          (xii) all other personal property (other than Excluded Property), whether tangible or intangible, not otherwise described above;

          (xiii) whatever is received (whether voluntary or involuntary, whether cash or non cash, including proceeds of insurance and condemnation awards, rental or lease payments, accounts, chattel paper, instruments, documents, contract rights, general intangibles, equipment and/or inventory) upon the lease, sale, charter, exchange, transfer, or other disposition of any of the Collateral described in clauses (i) through (xii) above;

          (xiv) all books and records pertaining to the Collateral; and

          (xv) to the extent not otherwise included, all Proceeds, Supporting Obligations and products (including, without limitation, any Accounts, Chattel Paper, Instruments or Payment Intangibles constituting Proceeds, Supporting Obligations or products) of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing; provided, that notwithstanding the foregoing provisions, Collateral shall not include Excluded Property.

     “Excluded Property” means the following, whether now owned or at any time hereafter acquired by any Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest and whether now existing or hereafter coming into existence: Maritime Assets (as defined in the Security Agreement), cash and cash equivalents (as such terms are defined by GAAP) other than those maintained in an Asset Sales Proceeds Account, Securities Accounts containing only cash and cash equivalents other than any Asset Sale Proceeds Account and Security Entitlements relating to any such Securities Account, equity interests in any subsidiary of any Grantor, Inventory, trucks, trailers and other motor vehicles covered by a certificate of title law of any state, property and/or transactions to which Article 9 of the UCC does not apply pursuant to Section 9-109 thereof, certain computer software and Equipment acquired prior to the date thereof and subject to a lien securing purchase money indebtedness as of the date thereof if (but only to the extent that) the applicable documentation relating to such lien prohibits the granting of a lien on such Equipment, Equipment leased by any Grantor, other than pursuant to a capitalized lease, if (but only to the extent that) the lien securing the Equipment prohibits the granting of a lien on such Equipment, certain General Intangibles, governmental approvals or other rights arising under any contracts, instruments, permits, licenses or other documents if the granting of a security interest therein would cause a breach of a restriction on the granting of a security interest therein or the assignment thereof in favor of a third party, subject to exceptions as set forth in the Security Agreement, and Accounts, Chattel Paper, Instruments and Payment Intangibles to the extent they are not Proceeds, Supporting Obligations or products of the Collateral.

     The following capitalized terms are used above are as defined in the Uniform Commercial Code (“UCC”) of the State of New York, or such other jurisdiction as may be applicable under the terms of the Security Agreement) on the date of the Security Agreement: Accounts, Chattel Paper, Commercial Tort Claims, Deposit Account, Documents, Electronic Chattel Paper, Equipment, Financial Assets, General Intangibles, Instruments, Inventory, Investment Property, Letter-of-Credit Rights, Payment Intangibles, Proceeds, Securities, Securities Accounts, Security Entitlements, Supporting Obligations, and Tangible Chattel Paper.

     Under the Security Agreement, each Grantor must maintain a perfected security interest in favor of the trustee and take all steps necessary from time to time in order to maintain the trustee’s first-priority security interest (other than Permitted Collateral Liens). If an event of default were to occur under the Indenture, the Senior Secured Notes, the guarantees relating to the Senior Secured Notes, the Security Agreement or any other agreement, instrument or certificate that is entered into to secure payment or performance of the Senior Secured Notes, the trustee would be empowered to exercise all rights and remedies of a secured party under the UCC, in addition to all other rights and remedies under the applicable agreements.

Other Debt

     Basic has a variety of other capital leases and notes payable outstanding that are generally customary in its business. None of these debt instruments are individually material.

     Basic’s interest expense consisted of the following (in thousands):

		Nine Months Ended September 30,
		2009				2008
Cash payments for interest		$	13,242			$	14,910
Commitment and other fees paid			157				155
Amortization of debt issuance costs and discount on senior secured notes			1,327				723
Change in accrued interest			6,741				4,046
Other			3				283
		$	21,470			$	20,117

Losses on Extinguishment of Debt

     In July 2009, upon the termination of the Company’s revolving credit facility, Basic wrote off unamortized debt issuance costs of approximately $3.5 million.

6. Commitments and Contingencies

Environmental

     Basic is subject to various federal, state and local environmental laws and regulations that establish standards and requirements for protection of the environment. Basic cannot predict the future impact of such standards and requirements which are subject to change and can have retroactive effectiveness. Basic continues to monitor the status of these laws and regulations. Management believes that the likelihood of any of these items resulting in a material adverse impact to Basic’s financial position, liquidity, capital resources or future results of operations is remote.

     Currently, Basic has not been fined, cited or notified of any environmental violations that would have a material adverse effect upon its financial position, liquidity or capital resources. However, management does recognize that by the very nature of its business, material costs could be incurred in the near term to bring Basic into total compliance. The amount of such future expenditures is not determinable due to several factors including the unknown magnitude of possible contamination, the unknown timing and extent of the corrective actions which may be required, the determination of Basic’s liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnification.

Litigation

     From time to time, Basic is a party to litigation or other legal proceedings that Basic considers to be a part of the ordinary course of business. Basic is not currently involved in any legal proceedings that it considers probable or reasonably possible, individually or in the aggregate, to result in a material adverse effect on its financial condition, results of operations or liquidity.

Self-Insured Risk Accruals

     Basic is self-insured up to retention limits as it relates to workers’ compensation and medical and dental coverage of its employees. Basic generally maintains no physical property damage coverage on its workover rig fleet, with the exception of certain of its 24-hour workover rigs and newly manufactured rigs. Basic has deductibles per occurrence for workers’ compensation and medical and dental coverage of $500,000 and $250,000, respectively. Basic has lower deductibles per occurrence for automobile liability and general liability. Basic maintains accruals in the accompanying consolidated balance sheets related to self-insurance retentions by using third-party data and claims history.

     At September 30, 2009 and December 31, 2008, self-insured risk accruals totaled approximately $14.5 million net of a $30,000 receivable for medical and dental coverage and $15.4 million net of a $992,000 receivable for medical and dental coverage, respectively.

7. Stockholders’ Equity

Common Stock

     At September 30, 2009 and December 31, 2008, Basic had 80,000,000 shares of common stock, par value $.01 per share, authorized.

     During the year ended December 31, 2008, Basic issued 447,255 shares of newly-issued common stock and 138,675 shares of treasury stock for the exercise of stock options.

     In March 2008, Basic granted various employees 361,700 unvested shares of common stock which vest over a five-year period. Also, in March 2008, Basic granted the Chairman of the Board 4,000 shares of common stock which vested immediately in lieu of annual cash director fees. In October 2008, Basic granted a vice president 5,000 shares of restricted common stock which vest over a three-year period.

     In March 2008, the Compensation Committee of Basic’s Board of Directors approved grants of performance-based stock awards to certain members of management. In March 2009, it was determined that 93,500 shares, or 100% of the target number of shares, were earned based on the Company’s achievement of certain earnings per share growth and return on capital employed performance over the performance period from January 1, 2006 through December 31, 2008, as compared to other members of a defined peer group. These shares remain subject to vesting over a three-year period, with the first shares vesting on March 15, 2010.

     In March 2009, Basic granted various employees 571,824 unvested shares of common stock which vest over a five-year period. Also, in March 2009, Basic granted the Chairman of the Board 4,000 shares of common stock which vested immediately in lieu of annual cash director fees.

     In May 2009, consistent with its director compensation practices, Basic granted a new board member 37,500 shares of restricted common stock which vest over a three-year period.

     During the nine months ended September 30, 2009, Basic issued 5,000 shares of common stock from treasury stock for the exercise of stock options.

Treasury Stock

     On October 13, 2008, Basic announced that its Board of Directors authorized the repurchase of up to $50.0 million of Basic’s shares of common stock from time to time in open market or private transactions, at Basic’s discretion. The number of shares purchased and the timing of purchases are based on several factors, including the price of the common stock, general market conditions, available cash and alternative investment opportunities. During the year ended December 31, 2008, Basic repurchased 897,558 shares at a total price of $8.8 million (an average of $9.82 per share), inclusive of commissions and fees. During the first nine months of 2009, Basic repurchased 809,093 shares at a total price of $6.0 million (an average of $7.41 per share), inclusive of commissions and fees. The stock repurchase program was suspended by the Board of Directors during the first quarter of 2009.

     Basic also acquired treasury shares through net share settlements for payment of payroll taxes upon the vesting of restricted stock. Basic acquired a total of 52,877 shares through net share settlements during 2008 and 18,810 shares through net share settlements during the first nine months of 2009.

Preferred Stock

     At September 30, 2009 and December 31, 2008, Basic had 5,000,000 shares of preferred stock, par value $.01 per share, authorized, of which none was designated, issued or outstanding.

8. Incentive Plan

     In May 2003, Basic’s board of directors and stockholders approved the Basic 2003 Incentive Plan (as amended effective May 26, 2009) (the “Plan”), which provides for granting of incentive awards in the form of stock options, restricted stock, performance awards, bonus shares, phantom shares, cash awards and other stock-based awards to officers, employees, directors and consultants of Basic. The Plan assumed awards of the plans of Basic’s successors that were awarded and remained outstanding prior to adoption of the Plan. The Plan provides for the issuance of 7,100,000 shares. The Plan is administered by the Plan committee, and in the absence of a Plan committee, by the Board of Directors, which determines the awards and the associated terms of the awards and interprets its provisions and adopts policies for implementing the Plan. The number of shares authorized under the Plan and the number of shares subject to an award under the Plan will be adjusted for stock splits, stock dividends, recapitalizations, mergers and other changes affecting the capital stock of Basic.

     The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option-pricing model. Basic is required to estimate the expected forfeiture rate and only recognize expense for those options expected to vest. During the three months ended September 30, 2009 and 2008, compensation expense related to share-based arrangements was approximately $1.3 million and $1.2 million, respectively. For compensation expense recognized during the three months ended September 30, 2009 and 2008, Basic recognized a tax benefit of approximately $471,000 and $441,000 respectively. During the nine months ended September 30, 2009 and 2008, compensation expense related to share-based arrangements was approximately $3.9 million and $3.4 million, respectively. For compensation expense recognized during the nine months ended September 30, 2009 and 2008, Basic recognized a tax benefit of approximately $1.5 and $1.3 million respectively.

     Options granted under the Plan expire 10 years from the date they are granted, and generally vest over a three to five-year service period.

     The following table reflects the summary of stock options outstanding at September 30, 2009 and the changes during the nine months then ended:

										Weighted
						Weighted				Average				Aggregate
		Number of				Average				Remaining				Instrinsic
		Options				Exercise				Contractual				Value
		Granted				Price				Term (Years)				(000’s)
Non-statutory stock options:
Outstanding, beginning of period			1,608,675			$	11.11
Options granted			—			$	—
Options forfeited			(22,500	)		$	13.60
Options exercised			(5,000	)		$	6.98
Options expired			(96,500	)		$	6.41
Outstanding, end of period			1,484,675			$	11.39				5.08			$	3,094
Exercisable, end of period			1,118,800			$	9.16				4.71			$	2,876
Vested or expected to vest, end of period			1,474,425			$	11.30				5.07			$	3,094

     The total intrinsic value of share options exercised during the nine months ended September 30, 2009 and 2008 was approximately $15,000 and $11.7 million, respectively.

     On March 13, 2009, the Compensation Committee of Basic’s Board of Directors approved grants of performance-based stock awards to certain members of management. The performance-based awards are tied to the Company’s achievement of certain earnings per share growth and return on capital employed performance over the performance period from January 1, 2007 through December 31, 2009, as compared to other members of a defined peer group. The number of shares to be issued will range from 0% to 150% of the target number of shares of 265,000 depending on the performance noted above. Any shares earned at the end of the performance period will then remain subject to vesting over a three-year period, with the first shares vesting March 15, 2011. As of September 30, 2009, it was estimated that none of the performance based awards will be earned.

     A summary of the status of the Company’s non-vested share grants at September 30, 2009 and changes during the nine months ended September 30, 2009 is presented in the following table:

						Weighted Average
		Number of				Grant Date Fair
Nonvested Shares		Shares				Value Per Share
Nonvested at beginning of period			599,325			$	21.41
Granted during period			616,324				6.50
Vested during period			(87,975	)			18.75
Forfeited during period			(52,650	)			15.81
Performance based earned (1)			14,025				21.17
Nonvested at end of period			1,089,049			$	13.46

     As of September 30, 2009, there was approximately $11.3 million of total unrecognized compensation related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.04 years. The total fair value of share-based awards vested during the nine months ended September 30, 2009 and 2008 was approximately $4.1 million and $10.2 million, respectively. The actual tax benefit realized for the tax deduction from vested share-based awards was $188,000 and $1.3 million for the nine months ended September 30, 2009 and 2008, respectively.

     Cash received from share option exercises under the Plan was approximately $35,000 and $2.5 million for the nine months ended September 30, 2009 and 2008, respectively. The actual tax benefit realized for the tax deductions from options exercised was $6,000 and $4.5 million for the nine months ended September 30, 2009 and 2008, respectively.

     The Company has a history of issuing treasury and newly-issued shares to satisfy share option exercises.

9. Related Party Transactions

     Basic had receivables from employees of approximately $144,000 and $148,000 as of September 30, 2009 and December 31, 2008, respectively. During 2006, Basic entered into a lease agreement with Darle Vuelta Cattle Co., LLC, an affiliate of the Chief Executive Officer, for approximately $69,000. The term of the lease is five years and will continue on a year-to-year basis unless terminated by either party.

10. Earnings Per Share

     Basic’s basic earnings per common share are determined by dividing net earnings applicable to common stock by the weighted average number of common shares actually outstanding during the period. Diluted earnings per common share is based on the increased number of shares that would be outstanding assuming conversion of dilutive outstanding securities using the “as if converted” method. The following table sets forth the computation of basic and diluted earnings per share (in thousands, except share data):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
		(Unaudited)								(Unaudited)
Numerator (both basic and diluted):
Net income (loss)		$	(25,325	)		$	25,942			$	(229,386	)		$	64,308
Denominator:
Denominator for basic earnings per share			39,595,392				40,988,436				39,713,071				40,762,759
Stock options			—				685,428				—				769,307
Unvested restricted stock			—				113,382				—				230,285
Denominator for diluted earnings per share			39,595,392				41,787,246				39,713,071				41,762,351
Basic earnings per common share:		$	(0.64	)		$	0.63			$	(5.78	)		$	1.58
Diluted earnings per common share:		$	(0.64	)		$	0.62			$	(5.78	)		$	1.54

     Stock options and unvested restricted stock shares of approximately 202,000 and 454,000 were excluded in the computation of diluted earnings per share for the three months and nine months ended September 30, 2009, respectively, as the effect would have been anti-dilutive due to the net loss in each of these periods.

11. Business Segment Information

     Basic’s reportable business segments are Well Servicing, Fluid Services, Completion and Remedial Services, and Contract Drilling. The following is a description of the segments:

     Well Servicing: 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. Well servicing equipment and capabilities such as Basic’s are essential to facilitate most other services performed on a well.

     Fluid Services: This segment utilizes a fleet of trucks and related assets, including specialized tank trucks, storage tanks, water wells, disposal facilities, construction and other related equipment. Basic employs these assets to 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: This segment utilizes a fleet of pressure pumping units, coiled tubing units, air compressor packages specially configured for underbalanced drilling operations, cased-hole wireline units and an array of specialized rental equipment and fishing tools. The largest portion of this business consists of pressure pumping services focused on cementing, acidizing and fracturing services in niche markets.

     Contract Drilling: This segment utilizes shallow and medium depth rigs and associated equipment for drilling wells to a specified depth for customers on a contract basis.

     Basic’s management evaluates the performance of its operating segments based on operating revenues and segment profits. Corporate expenses include general corporate expenses associated with managing all reportable operating segments. Corporate assets consist principally of working capital and debt financing costs.

     The following table sets forth certain financial information with respect to Basic’s reportable segments (in thousands):

										Completion
		Well				Fluid				and Remedial				Contract				Corporate
		Servicing				Services				Services				Drilling				and Other				Total
Three Months Ended September 30, 2009 (Unaudited)
Operating revenues		$	38,434			$	49,782			$	32,592			$	4,150			$	—			$	124,958
Direct operating costs			(29,051	)			(38,471	)			(23,106	)			(3,305	)			—			$	(93,933	)
Segment profits		$	9,383			$	11,311			$	9,486			$	845			$	—			$	31,025
Depreciation and amortization		$	12,565			$	9,363			$	7,892			$	1,838			$	1,797			$	33,455
Capital expenditures, (excluding acquisitions)		$	3,610			$	2,690			$	2,267			$	528			$	517			$	9,612
Three Months Ended September 30, 2008 (Unaudited)
Operating revenues		$	97,382			$	82,660			$	85,541			$	11,992			$	—			$	277,575
Direct operating costs			(61,047	)			(53,028	)			(46,798	)			(7,722	)			—				(168,595	)
Segment profits		$	36,335			$	29,632			$	38,743			$	4,270			$	—			$	108,980
Depreciation and amortization		$	11,327			$	7,909			$	6,974			$	1,764			$	1,297			$	29,271
Capital expenditures, (excluding acquisitions)		$	9,228			$	6,442			$	5,681			$	1,437			$	1,057			$	23,845
Nine Months Ended September 30, 2009 (Unaudited)
Operating revenues		$	123,647			$	163,847			$	99,224			$	11,776			$	—			$	398,494
Direct operating costs			(93,793	)			(118,439	)			(70,484	)			(9,912	)			—			$	(292,628	)
Segment profits		$	29,854			$	45,408			$	28,740			$	1,864			$	—			$	105,866
Depreciation and amortization		$	37,034			$	27,596			$	23,260			$	5,418			$	5,297			$	98,605
Capital expenditures, (excluding acquisitions)		$	13,070			$	9,739			$	8,209			$	1,912			$	1,869			$	34,799
Identifiable assets		$	257,429			$	199,312			$	195,933			$	42,840			$	389,821			$	1,085,335
Nine Months Ended September 30, 2008 (Unaudited)
Operating revenues		$	266,919			$	226,640			$	233,578			$	31,832			$	—			$	758,969
Direct operating costs			(164,806	)			(148,015	)			(125,236	)			(22,311	)			—				(460,368	)
Segment profits		$	102,113			$	78,625			$	108,342			$	9,521			$	—			$	298,601
Depreciation and amortization		$	33,294			$	23,245			$	20,497			$	5,185			$	3,814			$	86,035
Capital expenditures, (excluding acquisitions)		$	26,651			$	18,607			$	16,407			$	4,150			$	3,053			$	68,868
Identifiable assets		$	307,739			$	264,261			$	333,780			$	72,008			$	333,054			$	1,310,842

     The following table reconciles the segment profits reported above to the operating income as reported in the consolidated statements of operations (in thousands):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Segment profits		$	31,025			$	108,980			$	105,866			$	298,601
General and administrative expenses			(25,140	)			(30,552	)			(81,643	)			(83,212	)
Depreciation and amortization			(33,455	)			(29,271	)			(98,605	)			(86,035	)
Gain (loss) on disposal of assets			(514	)			(376	)			(1,853	)			208
Goodwill impairment			—				—				(204,014	)			—
Operating income (loss)		$	(28,084	)		$	48,781			$	(280,249	)		$	129,562

12. Supplemental Schedule of Cash Flow Information

     The following table reflects non-cash financing and investing activity during the following periods:

		Nine Months Ended September 30,
		2009				2008
		(In thousands)
Capital leases issued for equipment		$	16,188			$	35,663
Contingent earnout accrual		$	1,340			$	435
Asset retirement obligation additions		$	18			$	143

     Basic paid no income taxes during the nine months ended September 30, 2009. Basic paid income taxes of approximately $17.3 million during the nine months ended September 30, 2008. Basic paid interest of approximately $13.2 million and $14.9 million during the nine months ended September 30, 2009 and 2008, respectively.

13. Fair Value Measurements

     Fair value is the price that would be received to sell an asset or the amount paid to transfer a liability in an orderly transaction between market participants (an exit price) at the measurement date. Fair value is a market based measurement considered from the perspective of a market participant. The Company uses market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation. These inputs can be readily observable, market corroborated, or unobservable. If observable prices or inputs are not available, unobservable prices or inputs are used to estimate the current fair value, often using an internal valuation model. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the item being valued. The Company primarily applies a market approach for recurring fair value measurements using the best available information while utilizing valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

     There is a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The Company classifies fair value balances based on the observability of those inputs. The three levels of the fair value hierarchy are as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2—Inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable. These inputs are either directly observable in the marketplace or indirectly observable through corroboration with market data for substantially the full contractual term of the asset or liability being measured.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

     In valuing certain assets and liabilities, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. For disclosure purposes, assets and liabilities are classified in their entirety in the fair value hierarchy level based on the lowest level of input that is significant to the overall fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the placement within the fair value hierarchy levels.

     The Company’s asset retirement obligation related to its salt water disposal sites, brine water wells, gravel pits and land farm sites, each of which is subject to rules and regulations regarding usage and eventual closure, is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging, abandonment and remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs. The fair value is

calculated by taking the present value of the expected cash flow at the time of the closure of the site. The following table reflects the changes in the fair value of the liability during the nine months ended September 30, 2009 (in thousands):

		Asset
		Retirement
		Obligation
Balance, December 31, 2008		$	1,796
Additional asset retirement obligation			18
Accretion expense			110
Balance, September 30, 2009		$	1,924

14. Subsequent Events

     Management performed an evaluation of the Company’s activity through October 30, 2009, the date these financial statements were issued, noting the following subsequent event.

     On October 16, 2009, Basic filed with the Securities and Exchange Commission a registration statement relating to its offer to exchange the Senior Secured Notes sold in its July 2009 private placement for senior secured notes, having substantially identical terms, that have been registered under the Securities Act of 1933, as amended.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 September 30, 2009. Our weighted average number of well servicing rigs increased from 279 in 2004 to 414 in the third quarter of 2009 and our weighted average number of fluid service trucks increased from 386 to 805 in the same period. These acquisitions make our revenues, expenses and income not directly comparable between periods.

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

		Nine Months Ended September 30,
		2009								2008
Revenues:
Well servicing		$	123.6				31	%		$	266.9				35	%
Fluid services			163.8				41	%			226.6				30	%
Completion and remedial services			99.2				25	%			233.6				31	%
Contract drilling			11.8				3	%			31.8				4	%
Total revenues		$	398.4				100	%		$	758.9				100	%

     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, has adversely impacted, and could continue to 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.

     In 2007, natural gas prices declined as an excess supply of natural gas began to develop, 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. In the third quarter of 2009, as oil prices began to increase, utilization and pricing for our services stabilized and remained near second quarter 2009 levels.

     While we see continued steady improvement in oil related activity, we anticipate tough market conditions to prevail until gas driven activity increases to more fully absorb the excess service capacity in each of our markets and segments.

     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 have caused a number of oil and gas producers to reduce their capital budgets for 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.

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

	•		Well Servicing — rig hours, rig utilization rate, revenue per rig hour and segment profits as a percent of revenues;
	•		Fluid Services — revenue per truck and segment profits as a percent of revenues;
	•		Completion and Remedial Services — segment profits as a percent of revenues; and
	•		Contract Drilling — rig operating days, revenue per drilling day and segment profits as a percent of revenues.

     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. As discussed below in “Liquidity and Capital Resources,” we also must meet certain financial covenants in order to borrow money under our existing credit agreement to fund future acquisitions.

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 nine months of 2009, our well servicing segment represented 31% of our revenues. 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 392 rigs in the first quarter of 2008 to 414 in the third 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 operations for each of the quarters in 2008, the full year ended December 31, 2008 and the quarters ended March 31, 2009, June 30, 2009, and September 30, 2009:

		Weighted
		Average								Rig								Profits
		Number of				Rig				Utilization				Revenue Per				Per Rig				Segment
		Rigs				Hours				Rate				Rig Hour				Hour				Profits%
2008:
First Quarter			392				202,500				72.2	%		$	398			$	158				39.8	%
Second Quarter			403				222,300				77.1	%		$	400			$	152				37.9	%
Third Quarter			412				233,000				79.1	%		$	418			$	156				37.3	%
Fourth Quarter			414				182,400				61.6	%		$	418			$	141				33.8	%
Full Year			405				840,200				72.5	%		$	408			$	152				37.3	%
2009:
First Quarter			414				132,300				44.7	%		$	369			$	90				24.4	%
Second Quarter			414				110,500				37.3	%		$	329			$	78				23.6	%
Third Quarter			414				122,900				41.5	%		$	313			$	76				24.4	%

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

     Rig utilization increased to 41.5% in the third quarter of 2009, compared to 37.3% in the second quarter of 2009. The increase was caused by stabilization in oil and natural gas prices during the third quarter of 2009, which caused a slight increase in demand for our services. Although there was stabilization experienced in the economy and oil and gas prices, there was still price pressure for our services, and our revenue per rig hour decreased to $313 in the third quarter of 2009 compared to $329 in the second quarter of 2009. Through our continued cost cutting measures, we were able to increase the segment profit percentage to 24.4% in the third quarter of 2009 from 23.6% in the second quarter of 2009.

Fluid Services

     During the first nine months of 2009, our fluid services segment represented 41% of our revenues. 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 operations for each of the quarters in 2008, the full year ended December 31, 2008 and the quarters ended March 31, 2009, June 30, 2009, and September 30, 2009 (dollars in thousands):

		Weighted								Segment Profits
		Average Number of				Revenue Per				Per Fluid
		Fluid Service				Fluid Service				Service				Segment
		Trucks				Truck				Truck				Profits%
2008:
First Quarter			644			$	111			$	39				35.0	%
Second Quarter			663			$	109			$	36				33.1	%
Third Quarter			683			$	121			$	43				35.8	%
Fourth Quarter			804			$	111			$	42				38.1	%
Full Year			699			$	452			$	161				35.6	%
2009:
First Quarter			814			$	80			$	25				31.4	%
Second Quarter			808			$	61			$	17				27.9	%
Third Quarter			805			$	62			$	14				22.7	%

     We gauge activity levels in our fluid services segment based on revenue and segment profits per fluid service truck.

     Revenue per fluid service truck remained relatively flat at $62,000 in the third quarter of 2009 compared to $61,000 in the second quarter of 2009. Segment profit percentage decreased to 22.7% in the third quarter of 2009 from 27.9% in the second quarter of 2009 which was driven by increased competitive rate pressure and higher fuel and repair and maintenance costs.

Completion and Remedial Services

     During the first nine months of 2009, our completion and remedial services segment represented 25% of our revenues. Revenues from our completion and remedial services segment are generally derived from a variety of services designed to stimulate oil and gas production or place cement slurry within the wellbores. Our completion and remedial services segment includes pressure pumping, cased-hole wireline services, underbalanced drilling and rental and fishing tool operations.

     Our pressure pumping operations concentrate on providing lower-horsepower cementing, acidizing and fracturing services in selected markets. Our total hydraulic horsepower capacity for our pressure pumping operations was 139,000 and 134,000 at September 30, 2009 and September 30, 2008, respectively.

     In this segment, we generally derive our revenues on a project-by-project basis in a competitive bidding process. Our bids are generally based on the amount and type of equipment and personnel required, with the materials consumed billed separately. During periods of decreased spending by oil and gas companies, we may be required to discount our rates to remain competitive, which would cause lower segment profits.

     The following is an analysis of our completion and remedial services segment for each of the quarters in 2008, the full year ended December 31, 2008 and the quarters ended March 31, 2009, June 30, 2009, and September 30, 20009 (dollars in thousands):

						Segment
		Revenues				Profits%
2008:
First Quarter		$	68,458				47.7	%
Second Quarter		$	79,579				46.4	%
Third Quarter		$	85,541				45.3	%
Fourth Quarter		$	70,748				43.0	%
Full Year		$	304,326				45.6	%
2009:
First Quarter		$	37,259				30.5	%
Second Quarter		$	29,373				26.9	%
Third Quarter		$	32,592				29.1	%

     We gauge the performance of our completion and remedial services segment based on the segment’s operating revenues and segment profits.

     The increase in completion and remedial revenue to $32.6 million in the third quarter of 2009 from $29.4 million in the second quarter of 2009 was caused by the stabilization of the economy and oil and natural gas prices in the third quarter of 2009. There was also an increase in segment profit percentage to 29.1% in the third quarter of 2009 from 26.9% in the second quarter of 2009 due to our cost cutting measures.

Contract Drilling

     During the first nine months of 2009, our contract drilling segment represented 3% of our revenues. Revenues from our contract drilling segment are derived primarily from the drilling of new wells.

     Within this segment, we typically charge our drilling rig customers at a “daywork” daily rate, or footage at an established rate per number of feet drilled. We measure the activity level of our drilling rigs on a weekly basis by calculating a rig utilization rate which is based on a seven day work week per rig. Our contract drilling rig fleet had a weighted average of nine rigs during the four quarters of 2008 and the first, second and third quarters of 2009.

     The following is an analysis of our contract drilling segment for each of the quarters in 2008, the full year ended December 31, 2008 and the quarters ended March 31, 2009, June 30, 2009, and September 30, 2009:

		Weighted
		Average				Rig
		Number of				Operating				Revenue				Profits				Segment
		Rigs				Days				Per Day				Per Day				Profits%
2008:
First Quarter			9				645			$	14,700			$	3,800				25.7	%
Second Quarter			9				699			$	14,800			$	4,000				27.2	%
Third Quarter			9				767			$	15,600			$	5,600				35.6	%
Fourth Quarter			9				666			$	14,900			$	5,400				36.2	%
Full Year			9				2,777			$	15,000			$	4,700				31.4	%
2009:
First Quarter			9				248			$	14,700			$	1,500				10.1	%
Second Quarter			9				314			$	12,700			$	2,100				16.3	%
Third Quarter			9				391			$	10,600			$	2,200				20.4	%