10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT of 1934

For the fiscal year ended December 31, 2005

Commission file number: 001-31346

W-H Energy Services, Inc.

(Exact name of Registrant as specified in its charter)

Texas	76-0281502
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10370 Richmond Avenue, Suite 990

Houston, Texas 77042

(713) 974-9071

(Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on which Registered
Common Stock, par value $0.0001 per share	New York Stock Exchange
Rights to Purchase Series A Junior Participating	New York Stock Exchange
Preferred Stock, par value $0.01 per share

Securities registered pursuant to Section 12(g) of the Act: None

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes þ         No o

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.    Yes o         No þ

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    þ

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

         Large Accelerated Filer    o Accelerated Filer    þ Non-Accelerated Filer    o         

     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

     As of June 30, 2005, approximately 27,991,955 shares of common stock, par value $0.0001 per share, of the registrant were outstanding, and the aggregate market value of the outstanding shares of common stock of the registrant held by non-affiliates (based on the closing price of such shares on the New York Stock Exchange on such date) was approximately $544.3 million. The determination of stock ownership by non-affiliates was made solely for the purpose of providing the foregoing market capitalization information, and the registrant is not bound by such determination for any other purpose.

     As of February 17, 2006, approximately 29,306,936 shares of common stock, par value $0.0001 per share, of the registrant were outstanding and the aggregate market value of the outstanding shares of common stock of the registrant held by non-affiliates (based on the closing price of such shares on the New York Stock Exchange on such date) was approximately $932.1 million. The determination of stock ownership by non-affiliates was made solely for the purpose of providing the foregoing market capitalization information, and the registrant is not bound by such determination for any other purpose.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s Proxy Statement for its 2006 Annual Meeting of Shareholders, which the Registrant intends to file within 120 days of December 31, 2005, are incorporated by reference into Part III of this Form 10-K.

W-H ENERGY SERVICES, INC.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2005

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		12
Item 1B.	Unresolved Staff Comments		18
Item 2.	Properties		18
Item 3.	Legal Proceedings		20
Item 4.	Submission of Matters to a Vote of Security Holders		20
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		20
Item 6.	Selected Consolidated Financial Data		22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		32
Item 8.	Consolidated Financial Statements and Supplementary Data		33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		33
Item 9A.	Controls and Procedures		33
Item 9B.	Other Information		34
PART III
Item 10.	Directors and Executive Officers of the Registrant		34
Item 11.	Executive Compensation		34
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		34
Item 13.	Certain Relationships and Related Transactions		34
Item 14.	Principal Accountant Fees and Services		34
PART IV
Item 15.	Exhibits and Financial Statement Schedules		34
Signatures			35
Index to Consolidated Financial Statements			F-1
Exhibit Index
Second Amendment to Credit Agreement
Summary of 2006 Base Salary and 2005 Bonus Determinations for Named Executive Officers
Summary of Director Compensation Policy
List of Significant Subsidiaries of the Company
Consent of Grant Thornton LLP
Consent of PricewaterhouseCoopers LLP
Certification of CEO pursuant to Section 302
Certification of CFO pursuant to Section 302
Certification of CEO pursuant to Section 1350
Certification of CFO pursuant to Section 1350

PART I

Item 1. Business.

Overview

      We are a diversified oilfield service company that provides products and services used in connection with the drilling and completion of oil and natural gas wells and the production of oil and natural gas. We have operations in North America and select areas internationally. Since our formation in 1989, we have entered the following lines of business through acquisitions, and we have expanded our product and service offerings through a combination of acquisitions, internal growth and research and development:

•  drilling related products and services, which include logging-while-drilling, measurement-while-drilling, directional drilling, down-hole drilling motors, rental tools and drilling fluids; and

•  completion and workover related products and services, which include cased-hole wireline logging, perforating, tubing conveyed perforating and associated rental equipment, polymers and specialty chemicals, rental tools and coiled tubing.

      We focus on products and services that provide our customers with alternatives to the integrated services typically marketed by the major integrated oilfield service companies. We believe our business approach enables us to compete successfully against these larger oilfield service companies by:

•  operating our business lines autonomously and marketing our product offerings independently;

•  focusing on niche markets in which leading market positions can be achieved;

•  emphasizing customer service, responsiveness and reliability;

•  offering technologically advanced and cost effective products and services; and

•  providing equity incentives to key management and operating personnel.

      Our customers include major and independent oil and natural gas companies, drilling contractors and other oilfield service companies.

      In this report, unless otherwise specified, “W-H” and “we,” “our,” “us” and “our company” refer to W-H Energy Services, Inc., a Texas corporation, and/or one or more of its subsidiaries. General information about our company can be found on our internet website (www.whes.com). Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other reports and forms that we file with the U.S. Securities and Exchange Commission, or SEC, or that are filed with the SEC in respect of our company, such as Forms 3, 4 and 5, as well as any amendments and exhibits to the foregoing reports and forms, are available free of charge through our website as soon as reasonably practicable after we file them with, or furnish them to, the SEC.

      Information regarding our corporate governance policies and guidelines, including our Corporate Governance Guidelines, Corporate Code of Business Conduct and Ethics, Financial Code of Ethics for Senior Officers, as well as the charters for the Audit, Compensation and Corporate Governance and Nominating Committees of our Board of Directors are also available on our internet website or in print to any shareholder who requests them.

      Following is a discussion of our business lines, our strategy, our research and development initiatives and risks related to our business.

Businesses

Drilling Related Products and Services

      Our drilling related products and services segment provides a broad range of products and services used by oil and natural gas companies, drilling contractors and other oilfield service companies for the drilling of oil and natural gas wells. Our drilling related products and services are used primarily in North America and

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select areas internationally. We currently are conducting international operations onshore in Canada, Brazil, Europe, North Africa, the Middle East and Mexico and offshore in the North Sea, the Persian Gulf, the Gulf of the Suez, the Mediterranean Sea and off the coast of Brazil. Our drilling related products and services segment includes the following business lines:

•  logging-while-drilling, measurement-while-drilling and directional drilling;

•  down-hole drilling motors;

•  rental tools; and

•  drilling fluids.

      Logging-while-drilling, Measurement-while-drilling and Directional Drilling. We are one of a few companies worldwide that currently has the technological capability to offer a full complement of logging-while-drilling products and services. Logging-while-drilling tools provide real-time data about the physical properties of downhole formations. In addition to indicating the possible presence of hydrocarbons, this data also assists in improving drilling performance.

      Before the introduction of logging-while-drilling technology, well formation data was typically obtained by lowering evaluation tools into the well with armored electro-mechanical cable, or wireline, from a truck on land or a skid unit offshore. Traditional open-hole wireline information can only be obtained after the well has been drilled or during the drilling process if drilling is halted and the drill string is removed from the well. An advantage that logging-while-drilling has over traditional open-hole wireline logging is that costs are reduced because the logging-while-drilling tools accompany the drill string and downhole data is provided during drilling operations. Drilling rig downtime is thereby minimized. These savings can be substantial for offshore jobs where day rates for drilling currently range from an average of about $80,000 per day in shallow waters to an average of about $140,000 per day in deep waters. In addition, the real-time information transmitted during the drilling process can assist in making drilling decisions such as altering the path of the well-bore to a point in the formation which, when compared with previously obtained seismic data, provides for enhanced recovery of oil and natural gas.

      We also offer measurement-while-drilling products and services, which use down-hole tools to help locate and direct the drill bit to the intended target. This capability is particularly advantageous when drilling directional (non-vertical) wells, which represent an increasing percentage of overall drilling activity, particularly offshore. In order to drill a directional well, the driller must be able to determine the precise direction the drill bit is moving during the drilling operation. Measurement-while-drilling tools assist the driller in making this determination by transmitting data to the surface enabling the driller to adjust the drilling path as necessary during the drilling process.

      We provide directional drilling services in North America and in select areas internationally. Directional drilling involves directing the well-bore along a predetermined path to optimally recover oil and natural gas from a reservoir. These services are used to more accurately drill vertical wells and to drill deviated or directional wells (which deviate from vertical by a planned angle and direction), horizontal wells (which are sections of wells drilled perpendicular or nearly perpendicular to vertical) and extended reach wells (which are deviated over extended distances). We entered the directional drilling market in North America in October 2002 and believe that doing so has increased the domestic utilization of our measurement-while-drilling and logging-while-drilling tools and down-hole drilling motor fleet. Prior to that time, we provided directional drilling services only in select areas of the Eastern Hemisphere.

      Our logging-while-drilling, measurement-while-drilling and directional drilling services are provided by our PathFinder Energy Services subsidiary. We market these services through an internal sales force. Our customers typically utilize these services on a per well or per project basis. We generally charge our customers for these services on a per day basis.

      Down-hole Drilling Motors. We are a supplier of down-hole drilling motors and a manufacturer of certain of their components and replacement parts. We provide down-hole drilling motors internally to our PathFinder Energy Services subsidiary’s directional drilling business and to other oilfield service companies.

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Our drilling motors business is conducted by our two wholly owned subsidiaries, Drill Motor Services, Inc. and Dyna-Drill Technologies, Inc.

      Drill Motor Services’ rental product line consists of a wide range of sizes of down-hole drilling motors ranging from 1 ¹¹/16 inches to 11¹/2 inches in outside diameter for use at various drilling depths and down-hole environments. The components of the drill motor are designed to operate at various speeds and torque levels and to withstand severe environmental conditions such as high temperatures, hard rock and abrasive drilling fluids.

      Power sections and bearing packs for Dyna-Drill^® down-hole drilling motors are manufactured by Dyna-Drill Technologies. In addition to complementing our Drill Motor Services line of down-hole drilling motors, our manufacturing capability enables us to support our own motor lines and to provide manufacturing and repair services for other oilfield service companies. Dyna-Drill Technologies is one of only a limited number of companies worldwide that manufactures the power sections and bearing packs for down-hole drilling motors.

      We typically charge our customers for the use of our rental fleet of drilling motors on the basis of hours of usage. We charge our customers for our manufactured motor components and repair services when products are shipped and services are completed. We market our down-hole drilling motors and services directly through our internal sales force.

      Rental Tools. We provide a broad range of rental equipment and tools for the drilling of oil and natural gas wells. Our rental equipment allows our customers, primarily oil and natural gas companies, the ability to have access to inventories of tools and other equipment without the cost of maintaining or storing that equipment in their own inventory. Our rental tool inventory includes:

•  drilling equipment, such as large diameter drill pipe, heavy weight drill pipe, high torque drill pipe, drill collars and other required accessories;

•  pressure control equipment, such as blowout preventers, high pressure valves, choke and kill manifolds and test pumps;

•  down-hole tools, such as milling tools and casing scrapers;

•  pipe handling equipment; and

•  side entry subs and our patented lockdown lubricator system.

      We have various sizes of drill pipe and related handling tools, providing our customers with a wide range of equipment for drilling at a variety of well depths and conditions. In response to the growth in directional drilling, we have expanded our inventory of premium, high torque drill pipe, which also provides operators with the technical characteristics demanded by deeper wells and wells expected to encounter adverse conditions. We also offer all corresponding handling and sub-surface tools and pressure control equipment that support high torque drill pipe.

      Our drilling related rental tool business is conducted by our wholly-owned subsidiaries Thomas Energy Services, Inc. and Boyd’s Bit Service, Inc. which conducts business as Boyd’s Rental Tools. These rental tools and related services are marketed through our internal sales force. The majority of our equipment and tools are rented to our customers on a per day basis.

      Drilling Fluids. Drilling fluid products are used to cool and lubricate the drill bit during drilling operations, to contain formation pressures and to suspend and remove rock cuttings from the borehole while maintaining the stability of the well-bore. We manufacture, package, transport, warehouse and wholesale drilling fluids and drilling fluid chemicals and additives. We also provide size reduction services of environmentally approved solids that are added to drilling fluids to control loss circulation and seepage. Our customers, which include retail drilling fluid companies, specialty fluid companies and other oilfield service companies, use our drilling fluid products throughout the world.

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      Our drilling fluid chemicals and additives are used in the production and maintenance of:

•  water-based drilling fluids, which are the most widely used drilling fluids, having application in both onshore and offshore environments;

•  oil-based drilling fluids, which are used primarily to drill water-sensitive shale and in situations where stuck pipe is more likely to occur; and

•  synthetic-based drilling fluids, which are used where oil-based fluids are prohibited for environmental reasons, or where high performance and safety are an issue.

      We manufacture a large portion of the drilling fluid products we wholesale, which enables us to manage the cost and maintain the proprietary nature of these products. Our drilling fluids business is conducted through our wholly owned subsidiaries, Integrity Industries, Inc., Grinding and Sizing Company, Inc. and Agri-Empresa, Inc. We market and sell these products through our internal sales force.

Completion and Workover Related Products and Services

      Our completion and workover related products and services segment provides a broad range of products and services used by oil and natural gas companies and other oilfield service companies for the completion and workover of oil and natural gas wells. Our completion and workover related products and services are used primarily in North America. These products and services include:

•  cased-hole wireline logging, perforating, tubing conveyed perforating and associated rental equipment and services;

•  polymers and specialty chemicals;

•  rental tools; and

•  coiled tubing.

      Cased-hole wireline logging, perforating, tubing conveyed perforating and associated rental equipment and services. Cased-holes are wells that have been drilled and in which casing has been installed to stabilize the hole. Cased-holes typically are either ready to produce or are already producing oil and natural gas. A substantial portion of our revenues from this business are generated by repeat business on existing wells. Consequently, this business typically provides more stable revenue during periods of reduced drilling activity. Our services include:

•  Logging Services. Logging involves the gathering of down-hole information to identify various characteristics about the formation or zone to be produced. Production logging involves the measurement of production rates. Logging services are performed by lowering armored electro-mechanical cable, or wireline, into a well from a truck on land or a skid unit offshore. These units contain instrumentation and computer equipment used to chart and record down-hole information.

•  Perforating Services. Perforating involves creating a pathway for oil and natural gas to flow into a completed and cased well from a reservoir. Once a well has been drilled and cased and is ready for production, a perforating gun is lowered into the well using wireline and a shaped explosive charge is detonated in the zone from which production is desired. The resulting perforations in the casing allow oil and natural gas to flow into the casing where they are carried to the surface. Perforating is also used in wells that are already producing to improve the production rate of oil and natural gas. For example, perforating might be used to restore or improve production in a producing well that has become congested by sand or might be used to create production from a new zone once a deeper zone or formation has been depleted.

•  Tubing Conveyed Perforating/ Drill Stem Testing. Tubing conveyed perforating involves the use of drill pipe, tubing or coil tubing, to convey the perforating assembly to the required depth. Drill stem testing is a method of determining the producing potential of a formation by allowing the formation fluids to flow into the borehole. The use of these tools together allows our customers to evaluate and

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	complete oil and natural gas wells in a more efficient and safer manner relative to conventional techniques.
•	Rental Equipment and Services. Wireline rental equipment includes grease injector units, pipe recovery lubricators, air compressors, high pressure risers, wireline blow-out preventers and flanges.

      We conduct our cased-hole wireline logging and perforating business through our wholly owned subsidiaries, Perf-O-Log, Inc. and E.M. Hobbs, L.P. Our wireline rental equipment is offered through our wholly owned subsidiary, Boyd’s Bit Service, Inc. which conducts business as Boyd’s Rental Tools. A wireline job typically involves the use by a skilled operator of a logging and perforating unit and certain specialized rental equipment at a customer’s well site. We market these services through an internal sales force and our customers typically utilize these services on a per well basis. We charge our customers on a per day or per job basis.

      Polymers and Specialty Chemicals. We produce polymers and specialty chemicals for niche applications related to completion and workover activities. Our polymers and specialty chemical products are sold to customers for use around the world.

      Completion fluids are generally solids-free solutions with high specific gravities and are non-damaging to the producing formation. Oil and natural gas operators use completion fluids in combination with specialty chemical products to control bottom-hole pressures during the completion and workover phase of a well.

      Our three classes of completion and workover related polymer and specialty chemical products are:

•  oilfield products, which include:

•  enhanced recovery chemicals;

•  lubricants;

•  well treating chemicals; and

•  liquefied polymers;

•  industrial products, which include:

•  cleaners;

•  lubricants; and

•  environmentally sensitive solvents; and

•  environmental remediation products.

      We conduct our completion and workover related polymers and specialty chemicals business through our wholly owned subsidiaries, Integrity Industries and Agri-Empresa. We market and sell our polymers and specialty chemical products through an internal sales force.

      Rental Tools. We provide rental of premium tubing work strings, high pressure blowout preventers, flow iron packages, high pressure manifolds, tanks and tubing handling tools for conventional well remediation, as well as specialized equipment for snubbing and coiled tubing applications. Snubbing involves pushing pipe into the well against high well-bore pressures.

      Our completion and workover related rental tool business is conducted by our wholly-owned subsidiary Thomas Energy Services, Inc., through its Thomas Tubing Specialists division. We market our rental tools through an internal sales force. Our customers typically utilize tools on a per well basis and we charge our customers for rental tools primarily on a per day rental basis.

      Coiled Tubing. A typical coiled tubing job involves the use of a coiled tubing unit and one or more pumping units which are operated by skilled personnel at a customer well site. We own and operate a fleet of coiled tubing units and associated equipment that are used in a variety of well-bore applications, including foam washing, acidizing, displacing, fishing, milling, drilling, cementing, gravel packing and jetting. In

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addition to these services, we use modeling software for coiled tubing applications to provide optimal job design and cost saving solutions for our customers.

      Coiled tubing is one of the fastest growing segments of the well service industry today. The economics of coiled tubing operations are often far superior to the use of conventional workover rigs. The growth in deep well and horizontal drilling has increased the market for coiled tubing. Routine logging and down-hole tool manipulation in highly deviated and horizontal wells previously performed primarily with wireline can now be accomplished more efficiently utilizing coiled tubing services.

      Our coiled tubing business is conducted by our wholly owned subsidiary, Coil Tubing Services, L.L.C.

Discontinued Operations

      In March 2004, we committed to the divestiture of our maintenance and safety related products and services segment. Accordingly, this segment has been included in our Selected Financial Data and our Consolidated Statements of Operations and Comprehensive Income for fiscal years ended on or before December 31, 2004 as discontinued operations. In April 2004, we completed the sale of Well Safe, Inc., one of the two companies that formerly comprised our maintenance and safety related products and services segment, for cash consideration of $28.0 million. Additionally, in December 2004, we sold Charles Holston, Inc., the remaining entity that formerly comprised this segment, for consideration of $2.0 million, consisting of $1.0 million in cash and a $1.0 million subordinated promissory note due December 31, 2009. We sold Well Safe and Charles Holston pursuant to customary stock purchase agreements in which we made customary representations and warranties, agreed to customary covenants and agreed to indemnify the buyers of these businesses for certain matters, subject to certain caps, limitations and deductibles. These sales resulted in a loss of $5.1 million for the year ended December 31, 2004.

      For a summary of our reportable segments and operations by geographical region as of and for the years ended December 31, 2005, 2004 and 2003, see Note 13 to our Consolidated Financial Statements, which information is incorporated herein by reference.

Strategy

      Our strategy is to grow revenues, cash flow and earnings by providing our customers with an alternative to the major integrated oilfield service companies while preserving our entrepreneurial culture. Our strategy consists of the following key components:

      Provide Leading Technology Solutions to Our Customers. We believe technology is an important aspect of our business. Improving technology helps us provide our customers with more efficient and cost effective tools to find and produce oil and natural gas. In fiscal year 2005, we spent approximately $16.3 million on research and development initiatives, and we plan to spend approximately $18 million on these initiatives in 2006. We are committed to investing substantial time and resources in building our technology-based products and services. We believe our new products and services are among the best in the industry and will provide us with the opportunity to grow our business and service the needs of our customers.

      Maintain a Diverse Source of Revenues within the Oilfield Services Industry. We believe that the value and stability of our company will be enhanced if we continue to broaden and diversify our revenue base, both operationally and geographically. We believe that the products and services provided by our completion and workover segment provide a measure of revenue stability during periods of low drilling activity when demand for our drilling related products and services is reduced. We have devoted substantial time and capital to accomplish this diversification of our business lines, both through organic growth and through acquisitions, and we expect to continue to do so in the future.

      Capitalize on the Growth of Select Emerging Markets. We believe that the longer-term domestic outlook will continue to reflect upward pressure on oil and natural gas prices as supply struggles to keep up with demand. As a result, we expect the domestic search for energy, and especially natural gas, to continue its recent growth trend, recognizing that there will be occasional interruptions in this trend when energy prices decline as a result of events such as an abnormally warm winter. Our response to this expectation is to expand

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our geographic coverage in North America. For example, we are making approximately $30.0 million in capital expenditures to open and equip a facility in southwestern Wyoming that we plan to use to increase our presence in the Rocky Mountain region. We also plan to provide our products and services to companies that are seeking to develop less conventional sources of energy, such as coalbed methane.

      Capitalize on Trends in More Mature Markets. We believe that many of the larger integrated oil and natural gas companies are increasingly focused on projects in the deeper waters of the Gulf of Mexico and in other remote international locations. As a consequence, we believe that independent oil and natural gas companies are becoming more prominent players in exploration, development and production activity in the Gulf of Mexico, the North Sea and in the North American onshore market. We believe that we have good working relationships with many of these independent oil and natural gas companies, and we plan to capitalize on these relationships to increase the utilization of our tools and personnel in these regions.

      Capitalize on the Growth of Offshore and Directional Drilling. A substantial portion of our drilling related products and services are designed for use in directional drilling onshore and directional and vertical drilling offshore. We believe that the long-term trends in directional drilling are positive. We provide directional drilling services in North America and in select areas internationally. We believe that providing directional drilling services will continue to increase the utilization of our measurement-while-drilling and logging-while-drilling tools, down-hole drilling motors and rental tools.

      Expand the Breadth and Scope of Our International Operations. Although our operations are focused primarily in the United States, we believe that the larger oil and natural gas projects will increasingly be located in other countries. We will continue to seek to capitalize on this trend by increasing our market share in existing international locations and by selectively establishing new locations where we believe the geo-political risk is acceptable. Our international operations will continue to consist primarily of our and measurement-while-drilling and logging-while-drilling services, directional drilling services and down-hole drilling motors.

      Selectively Acquire Complementary Businesses and Technologies. We expect to continue to pursue acquisitions of complementary businesses, which increase the technological base and expand the market reach of our product and service offerings. We intend to focus on acquisitions that expand our operations with new products and services, broaden our geographic scope, increase our market share and improve our ability to compete with the major integrated oilfield service companies. We also intend to provide management and key personnel of acquired businesses with stock-based incentives in our company and to continue to market the products and services of these companies under their established names.

Research and Development: Technology Initiatives

      We engage in research and development activities in an effort to improve our existing product and service offerings and to satisfy customer demand for tools, products and services that will increase the efficiency of their operations. Our expenditures for research and development were $16.3 million, $15.5 million and $11.2 million for the years ended December 31, 2005, 2004 and 2003, respectively. While several of our subsidiaries conduct research and development at their facilities, our largest research and development effort is conducted by our PathFinder Energy Services subsidiary through its research and development facility in Houston, Texas, where most of our logging-while-drilling, measurement-while-drilling and directional drilling technology is developed.

      Some of our recently commercialized technologies include:

•  PathMaker^® 3-Dimensional Rotary Steerable (“3DRS”) technology for 12¹/4-inch borehole size. This technology facilitates full steering and propulsion of a drill string in any direction, with or without the use of a down-hole drilling motor, with real-time at-surface feedback as to the tool’s performance and well placement. Aspects of this technology are patented or patent-pending.

•  Array Wave Resistivity (AWR™) technology. This technology involves the use of proprietary tools and data analysis techniques to improve the reliability and quality of resistivity data as it relates to

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	formation evaluation. Our AWR technology operates by transmitting electromagnetic waves through the formation surrounding a well-bore. Aspects of this technology are patented or patent-pending.
•	Slim Density Neutron Standoff Caliper (“SDNSC”) technology. Our density neutron technology is used to provide customers with more reliable information about the porosity of a formation and the diameter of the borehole. We recently commercialized our SDNSC to provide this service in smaller borehole diameters. Aspects of this technology are patent-pending.
•	Matrix-3® tungsten carbide-based metal coating technology. These coatings improve resistance to wear, corrosion and impact to metal components used in drilling and other down-hole applications, such as motor bearings used in down-hole drilling motors. The coating process is a confidential process, developed independently in-house, based on proven tungsten carbide metallurgy and brazing technologies.
•	Pay Zone Inclination Gamma (PZIG™) directional survey technology. This technology includes deployment of an independent drilling tool at or near the drill bit from which real-time directional survey and formation information can be obtained.
•	Survivor™ high-temperature/high pressure technology. This technology includes a survey package and a data transmission system that are designed for especially demanding down-hole conditions (up to 350° F and 25,000 psi). The Survivor™ tools are compatible with our other logging-while-drilling technologies, such as the AWR™ and SDNSC technologies described above.

      We plan to use research and development expenditures to continue to develop proprietary technologies targeted to give us a commercial advantage. Two of these technologies in development include:

•  PathMaker^® 3DRS technology for 9⁷/8-inch, 8¹/2-inch and 6-inch borehole sizes. This technology is intended to be functionally substantially similar to the 12¹/4-inch PathMaker^® 3DRS tool described above, except that these tools will be able to accommodate correspondingly smaller borehole diameters. Aspects of this technology are patented and patent-pending. The 8¹/2-inch borehole size became commercially available on a limited basis during the first quarter of 2006. The 9⁷/8-inch borehole size is targeted to be commercially available by late 2006 or early 2007.

•  Slim Array Wave Resistivity (“SAWR”) technology. Our SAWR technology is intended to allow our AWR™ technology discussed above to be used to evaluate formation characteristics in smaller borehole diameters. This technology is targeted to be commercially available in the second quarter of 2006.

      We own or have licenses to use various patents covering a variety of technologies embodied in our portfolio of products and services. Although in the aggregate these patents are of importance to us, we do not consider any single patent to be of a critical or essential nature. Some of our products and services enjoy brand name recognition. We own trademarks in respect of these brands. Some of these trademarks are registered or are pending registration.

      While we are developing and deploying many of our own technologies, our logging-while-drilling business is still dependent upon technologies that we acquired when we acquired PathFinder Energy Services. We have the right to use substantially all of these acquired technologies pursuant to worldwide, royalty-free, irrevocable license rights. We have the right to use a small number of these acquired technologies under licenses from other third party licensors. The terms of certain of these licenses may be subject to change if there is a change in control of our company.

      We have employment or product revenue sharing agreements with a limited number of our employees who have been involved in the development of technologies that are important to our business. In general, these agreements provide that we must make payments to these employees based upon the amount of revenues generated by the products to which these employees contributed. Certain of these agreements have provided for acceleration of these payments upon the occurrence of specified events, such as a change in control of our company.

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Potential Liabilities and Insurance

      Our industry involves a high degree of operational risk. Failure of equipment could result in property damage, personal injury, loss of life, environmental pollution and other damages for which we could be liable. Litigation arising from a catastrophic occurrence at a location where our equipment or services are used may result in our being named as a defendant in lawsuits asserting potentially large claims.

      We maintain insurance policies providing coverage for risks that we believe are consistent with industry standards and that meet the requirements of our customers. We have deductibles under these policies in amounts we believe to be customary and reasonable. Although we believe that we maintain insurance coverages that are adequate in amount and type for the risks associated with our businesses, there is always a risk that our insurance may not be sufficient to cover any particular loss. In addition, our insurance does not provide coverage for all liabilities. Finally, insurance rates have recently been subject to increases and wide fluctuations, and, during the last five fiscal years our cost of insurance and deductibles have increased substantially. Changes in coverage, insurance markets and our industry, and events affecting our company, may result in future increases in our insurance costs and in higher deductibles and retentions.

Government Regulation

      Our business is significantly affected by foreign, federal, state and local laws and regulations relating to the oil and natural gas industry, worker safety and environmental protection. Changes in these laws, including more stringent administrative regulations and increased levels of enforcement of these laws and regulations, could affect our business. We cannot predict the level of enforcement of existing laws and regulations or how these laws and regulations may be interpreted by enforcement agencies or court rulings or the effect changes in these laws and regulations may have on us or our businesses, our results of operations, our cash flows or our financial condition. We also are not able to predict whether additional laws and regulations will be adopted.

      We depend on the demand for our products and services from oil and natural gas companies, drilling contractors and other oilfield service companies. This demand is affected by changing taxes, price controls and other laws and regulations relating to the oil and natural gas industry. The adoption of laws and regulations curtailing exploration and development drilling for oil and natural gas in our areas of operation for economic, environmental or other policy reasons could also adversely affect our operations by limiting demand for our products and services. We cannot determine the extent to which our future operations and earnings may be affected by new laws or legislation, new regulations or changes in existing laws, regulations or enforcement.

      Some of our employees who perform services on offshore platforms and vessels are covered by the provisions of the Jones Act, the Death on the High Seas Act and general maritime law. These laws have the effect of making the liability limits established under state workers’ compensation laws inapplicable to these employees and, instead, permit them or their representatives to pursue actions against us for damages from job-related injuries, with generally no limitations on our potential liability.

      Our operations are subject to numerous foreign, federal, state and local laws and regulations governing the manufacture, management and/or disposal of materials and wastes in the environment and otherwise relating to environmental protection. Numerous governmental agencies issue regulations to implement and enforce these laws which are often difficult and costly to comply with and the violation of which may result in the revocation of permits, issuance of corrective action orders and assessment of administrative, civil and even criminal penalties. For example, state and federal agencies have issued regulations implementing environmental laws that regulate environmental and safety matters, such as restrictions on the types, quantities and concentration of various substances that can be released into the environment in connection with specialty chemical manufacturing or other field service operations, remedial measures to prevent pollution arising from current and former operations and requirements for worker safety training and equipment usage. While our management believes that we are in compliance in all material respects with applicable environmental laws and regulations, there can be no assurance that future compliance with environmental laws and regulations will not have a material effect on us.

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      We generate wastes, including hazardous wastes, which are subject to the federal Resource Conservation and Recovery Act, or RCRA, and comparable state statutes. The U.S. Environmental Protection Agency and state agencies have limited the approved methods of disposal for some types of hazardous and non-hazardous wastes. Furthermore, it is possible that certain wastes handled by us in connection with our field service activities that currently are exempt from treatment as “hazardous wastes” may in the future be designated as “hazardous wastes” under RCRA or other applicable statutes and therefore be subject to more rigorous and costly operating and disposal requirements.

      The federal Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, also known as the “Superfund” law and comparable state statutes impose liability, without regard to fault or legality of the original conduct, on classes of persons that are considered to have contributed to the release of a “hazardous substance” into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed of or arranged for the disposal of the hazardous substances at the site where the release occurred. Under CERCLA, these persons may be subject to strict joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment and for damages to natural resources, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. We currently lease a number of properties upon which activities involving the handling of hazardous substances or wastes may have been conducted by third parties not under our control and prior to our occupation of the subject property. These properties may be subject to CERCLA, RCRA and analogous state laws in the future. Under these laws and implementing regulations, we could be required to remove or remediate previously discarded hazardous substances and wastes or property contamination that was caused by these third parties. These laws and regulations may also expose us to liability for our acts, including acts that were in compliance with applicable laws at the time they were performed.

      We are subject to regulation under both the federal Clean Water Act of 1972, or the CWA, and the Oil Pollution Act of 1990, or the OPA. The CWA is the principal federal statute protecting navigable waters and adjoining shorelines from pollution. The CWA imposes specific requirements for pollution prevention and response measures. In conjunction with similar state laws the CWA imposes effluent limitations regulating the amount of pollutants that may be discharged from specific point sources into state waters and waters of the United States through a system of permitting, compliance and spill prevention program requirements. Under the OPA, the government has adopted requirements related to the prevention of oil spills and the liability for damages resulting from such spills into waters of the United States. The OPA imposes strict, joint and several liability on the owners or operators of facilities or vessels, and/or the lessee or permittee of the area in which an offshore facility is located for oil removal costs and a variety of public and private damages, including natural resource damages. Our management believes that we possess and are in material compliance with applicable permits and plans required under the CWA and OPA. We are currently updating our existing and or developing new spill prevention, control and countermeasure (SPCC) plans which are required under the CWA and OPA for certain facilities that store oils. The SPCC regulations have been amended in recent years and their applicability is under consideration as each subsidiary evaluates its obligations under these regulations in light of the changing dynamics of the operations.

      The Atomic Energy Act, which provides for the development and regulation of commercial nuclear power, authorizes the Nuclear Regulatory Commission, or NRC, to regulate radioactive “source material.” The “source material” used in the conduct of our business includes cesium-137, americium(241), iridium, iodine, radium, californium-252 and cobalt. Under the Atomic Energy Act, the NRC has entered into cooperative agreements with the states of Texas, Louisiana, Mississippi and New Mexico that authorize those states to regulate and license the use of source material. Source material is used by several of our companies, including PathFinder, Perf-O-Log and E.M. Hobbs, in connection with logging exploratory and producing wells in those states. We have obtained licenses from the Louisiana Department of Environmental Quality, the Texas Department of State Health Services (Radiation Control Program), and the Mississippi Department of Health and Radiological Control, as well as an NRC license, that allow us to store and use these source materials in connection with our well logging activities in these three states and other agreement states, as well

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as offshore in federal waters. We believe that we are in compliance with the terms and conditions of our radioactive material licenses.

Customers

      Our customers include major and independent oil and natural gas companies, drilling contractors and other oilfield service companies operating in North America and select areas internationally. We provide services and equipment to a broad range of customers, and, therefore, we believe that we are not dependent on any single customer or group of customers. For the years ended December 31, 2005, 2004 and 2003, no single customer or group of affiliated customers accounted for 10% or more of our revenues. We typically enter into master service agreements with our customers. These agreements govern the terms of our relationship with our customers, but they generally do not create binding commitments on the part of our customers to use our services or on us to provide services.

Suppliers

      We obtain our coiled tubing units, wireline equipment and rental tools, certain parts and components of our drilling motors and logging-while-drilling and measurement-while-drilling tools and certain chemicals and additives used in producing our drilling fluids from various third-party suppliers. We do not believe that any one supplier of these products is material to us. We have not experienced and do not foresee experiencing a shortage of any of these products. Lead times for certain specialty chemicals, additives, metals and components have increased, however, during the last twelve to eighteen months.

Competition

      Drilling Related Products and Services. In this segment, we principally compete on the basis of product capability, reputation, quality, price, reliability, experience, availability and range of services offered. Competitors in our logging-while-drilling, measurement-while-drilling and directional drilling businesses include divisions of Baker Hughes, Halliburton, Schlumberger, and Weatherford International. In our rental tool business, our competitors range from small, independent oilfield service companies to much larger oilfield service companies such as Weatherford International. Competitors in our measurement-while-drilling, directional drilling, down-hole drilling motors, drilling fluids and specialty chemicals businesses include both small and large independent oilfield service companies.

      Completion and Workover Related Products and Services. In this segment, we principally compete on the basis of reputation, quality, price, reliability, experience, availability and range of services offered. Our competitors in this segment include the major integrated oilfield service companies and both small and large independent oilfield service companies.

Employees

      As of December 31, 2005, 2004 and 2003 we had 2,333, 2,079 and 1,795 employees, respectively. None of our employees are represented by a union or covered by a collective bargaining agreement. We believe that our relations with our employees are satisfactory.

Factors That May Affect Future Results and Accuracy of Forward Looking Statements

      In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act, that involve risks, uncertainties and assumptions. The words “believe,” “expect,” “plan,” “intend,” “estimate,” “project,” “will,” “could,” “may,” and similar expressions are intended to identify forward-looking statements. Actual results may differ materially from the results discussed in the forward-looking statements as a result of important risk factors including, but not limited to, the risk factors discussed below. You should not place undue reliance on these forward-looking statements, which speak only of the date of this report. We undertake no obligation to

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publicly update such forward-looking statements to reflect events or circumstances after the date of this report.

Item 1A. Risk Factors.

      Set forth below is a discussion of some of the risks that we face and that could affect our business and financial position for 2006 and beyond. However, they are not the only risks that we face. There may be additional risks that we do not presently know of or that we currently believe are immaterial which could also impair our business and financial position.

Risks Related to Our Business

Demand for our products and services depends on oil and natural gas industry activity and expenditure levels that are directly affected by trends in oil and natural gas prices.

      Demand for our drilling related products and services is substantially dependent on the level of exploration, development and production activity of, and the corresponding capital spending by, oil and natural gas companies. Oil and natural gas companies typically reduce exploration and development activity during periods of low or volatile oil and natural gas prices. The markets for oil and natural gas historically have been volatile and are likely to continue to be so in the future. Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of other factors that are beyond our control. Any prolonged reduction in oil and natural gas prices will depress the level of exploration, development and production activity by our customers which will result in a decrease in the demand for our drilling related products and services and could have a material adverse effect on our financial condition or results of operations.

      Factors affecting the prices of oil and natural gas include:

•  the level of demand for oil and natural gas;

•  worldwide political, military and economic conditions, including the ability of the Organization of Petroleum Exporting Countries to set and maintain production levels and prices for oil and potential political or economic uncertainties resulting from the threat or occurrence of terrorist attacks;

•  oil and natural gas production/inventory levels;

•  the policies of governments regarding the exploration for and production and development of their oil and natural gas reserves;

•  global weather conditions;

•  interest rates and cost of capital; and

•  tax policies.

      The production sector of the oil and natural gas industry, which utilizes our completion and workover related products and services, is less immediately affected by changing oil and natural gas prices and, thus, tends to be less volatile than the exploration sector, which utilizes our drilling related products and services. However, producers likely would react to declining oil and natural gas prices by reducing expenditures, which could also adversely affect our completion and workover related products and services segment.

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Because many of our products and services are used in potentially hazardous applications and operations, our business is subject to risks associated with events that result in personal injuries, loss of life, damage to or destruction of property, equipment or the environment and suspension of operations.

      Many of our products and services are used in potentially hazardous drilling, completion and production applications. These activities are dangerous and accidents can result in:

•  personal injury;

•  loss of life;

•  damage to or destruction of property, equipment and the environment; and

•  suspension of operations.

      Litigation arising from a catastrophic occurrence at a location where our equipment or services are used may result, in the future, in our being named as a defendant in lawsuits asserting potentially large claims.

      In addition, many of our employees who perform services on offshore platforms and vessels are covered by provisions of the Jones Act, the Death on the High Seas Act and general maritime law. These laws have the effect of making the liability limits established by state workers’ compensation laws inapplicable to these employees and, instead, permit them or their representatives to pursue actions against us for damages from job-related injuries, with generally no limitations on our potential liability.

      The frequency and severity of these incidents affect our operating costs, insurability and relationships with customers, employees and regulators. Any increase in the frequency or severity of these incidents, or the general level of compensation awards resulting from these incidents, could affect our ability to obtain projects from oil and natural gas companies or insurance covering these incidents.

Unavailability of or costs associated with insurance could affect us adversely.

      We maintain insurance policies providing coverage for risks that we believe are consistent with industry standards and that meet the requirements of our customers. However, our insurance may not be sufficient to cover any particular loss, and it does not provide coverage for all liabilities. In addition, many of our insurance policies contain deductibles for which we are responsible.

      Insurance premiums for our industry have been subject to increases and large fluctuations during the last five years. As a result, the amount we are required to spend each year on insurance has increased, in some cases, substantially, and we expect that these increases will continue. We have sought to minimize these premium increases through increasing the size of our deductibles. Continuing increases in the costs of insurance could adversely affect our financial condition and results of operations. We may not be able to maintain adequate insurance at rates we consider commercially reasonable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial condition or results of operations.

We may encounter difficulty in continuing to develop, produce and commercialize technologically advanced products and services.

      Our customers continually demand new and improved products and services that increase the precision of and reduce the uncertainty associated with the exploration for and development of oil and natural gas. Many of our competitors are much larger and have greater research and development, financial and other resources than we do. If we are not able to develop commercially competitive products and services that we can offer at competitive prices in a timely manner, our financial condition and results of operations may be adversely affected. New product development is a lengthy and costly process and depends upon our ability to:

•  foresee the needs of our customers and the new technologies likely to be introduced by our competitors;

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•  successfully design, test, manufacture, market and commercialize our own competing technologies; and

•  obtain and maintain exclusive technology positions through patent and trade secret protection.

      We may encounter resource constraints or technical or other difficulties that could delay the introduction of new products and services in the future. In addition, our competitors may introduce new products before we are able to, thereby possibly achieving a commercial advantage over us.

      If we are unable to develop, produce and commercialize new products and services that we can offer to our customers at a competitive price, our financial position and results of operations could be adversely affected.

Our business could be adversely affected by disputes regarding intellectual property or our inability to obtain protection for technologies we develop.

      Many of our operations, especially those dependent on our logging-while-drilling and measurement-while-drilling products and services and specialty chemical sales, rely substantially on proprietary rights in technologies for which we hold licenses or patents. In addition, we are pursuing patent and trademark protection for our newly developed technologies and brands. The market success of our technologies will depend, in part, on our ability to obtain and enforce our proprietary rights in these technologies, to preserve rights in our trade secret and non-public information, and to operate without infringing the proprietary rights of others. We rely on a combination of patent, trademark and trade secret laws and restrictions on disclosure of our proprietary information to protect our intellectual property rights. We also seek to obtain confidentiality agreements from our employees, consultants and business partners and control access to and distribution of our documentation and other forms of our proprietary information. It is possible that these measures may not:

•  Prevent the challenge, invalidation, narrowing or circumvention of our existing patents;

•  Prevent our competitors from independently developing similar products or services, duplicating our products or services, or designing around the patents owned by us;

•  Prevent third-parties from enforcing patents against us that eventually limit our ability to do business in some areas of the market;

•  Provide adequate protection for our intellectual property rights and technologies;

•  Prevent disclosure of our trade secrets and know-how to third parties or the public; or

•  Result in intellectual property rights adequate to protect our business from competition from foreign sources.

      If any of our patents or other intellectual property rights are determined to be invalid or unenforceable, or if a court limits the scope of claims in a patent or fails to recognize our trade secret rights, our competitive advantages could be significantly reduced in the relevant technology, allowing competition for our customer base to increase. The resulting loss in revenues could adversely affect our operational results. In addition, unauthorized parties may attempt to obtain or use our proprietary technologies. Monitoring unauthorized use of our technology may be difficult and we cannot be certain that the steps that we have taken will prevent unauthorized use of our technology particularly in foreign countries or markets where the laws may not protect our proprietary rights as fully as in the United States.

      Numerous patents have been issued to oilfield service companies covering a wide variety of products and services. Although we endeavor to avoid infringing the proprietary rights of others in bringing new technologies and brands to market, there can be no assurance that third parties will not make claims of infringement. Intellectual property litigation is inherently expensive, whether enforcing our own proprietary rights or defending against the infringement claims of others. If a commercially significant intellectual property dispute arises, we could incur substantial litigation costs or be subject to claims for damages or injunctive relief, the impact of which upon our business could be substantial.

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Intense competition in our industry could adversely affect our results of operations.

      We operate in highly competitive areas of the oilfield products and services markets. The volatility of oil and natural gas prices has led to a consolidation of a number of companies providing products and services similar to those we provide. As a result of these consolidations, many of our competitors are much larger and have greater research and development, marketing, distribution, financial and other resources than we do. If these or other of our competitors or new market entrants introduce new products or services with better features, performance, prices or other characteristics than our products and services, our financial condition or results of operations may be adversely affected. In addition, the intense competition in our industry could result in significant price competition that could have a material adverse effect on our results of operations and financial condition. Finally, competition among oilfield service and equipment providers is partly based on the provider’s reputation for safety and quality. Although we believe that our reputation for safety and quality service is good, there can be no assurance that we will be able to maintain this reputation and, thus our competitive position.

The volatility of the oil and natural gas industry may affect our ability to attract and retain the skilled workers on which our operations depend.

      We may not be able to find enough skilled workers to meet our needs, which could limit our growth. Business activity in the oil and natural gas industry historically decreases or increases with the price of oil and natural gas. Even though the prices of oil and natural gas have recovered, industry-wide downsizing, resulting from low oil and natural gas prices in the late 1990s and industry consolidation, caused oilfield workers to look for and secure work in other industries and locations. The oil and natural gas industry has not fully recovered from the earlier employment migration away from the oil and natural gas industry. As a result, we may have problems finding enough skilled workers in the future.

      With a reduced pool of workers, it is possible that we will have to raise wage rates to attract workers from other fields and to retain or expand our current work force. If we are not able to increase our service rates to our customers to compensate for wage rate increases, our financial condition or results of operations may be adversely affected.

Our success depends on attracting and retaining key employees.

      We depend on attracting and retaining the services of key employees, including executive officers and directors. We have employment agreements with certain key employees that contain non-compete provisions. Despite these agreements, we may not be able to retain these key employees and may not be able to enforce the non-compete provisions in their employment agreements.

Increases in the prices of raw materials could affect our results of operations.

      Large amounts of steel are used in the manufacture of many of the products we use. Steel prices have increased significantly since the end of 2003, which has resulted in increased costs of these products for us and, in some cases, delays in our ability to obtain these products. In addition, we use raw materials in the production of our drilling fluid products. If we encounter difficulty in procuring or arranging for the transportation of these raw materials, and we are unable to pass corresponding cost increases on to our customers, our financial position and results of operations could be adversely affected.

Adverse weather conditions could result in fluctuations in our operating results.

      Demand for our products and services in the Gulf of Mexico may be adversely affected by the hurricanes and other storms prevalent in the Gulf of Mexico and along the Gulf Coast during the summer and fall months. The threat of a hurricane or tropical storm in the vicinity of a drilling rig or production platform where we have personnel and equipment deployed often requires us to evacuate our personnel and equipment. An evacuation and the amount of time required to redeploy personnel and equipment after the threat of a storm has passed may result in significant downtime and lost revenues, especially in the case of a large storm. In addition, equipment that we are unable to remove from the path of a storm may be damaged, lost or destroyed.

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For example, during the third quarter of 2005, two major hurricanes affected the Gulf of Mexico, causing a suspension of oil and natural gas operations and significant damage to industry infrastructure. This continues to have a negative impact on our results of operations.

      In the North Sea, demand for our products and services is also affected by periods of adverse weather, although the storms experienced in the North Sea typically do not require the evacuation of personnel and equipment.

      As a result, our operating results may vary from quarter to quarter, depending upon factors outside of our control and full year results are not likely to be a direct multiple of any particular quarter or combination of quarters.

Compliance with environmental and other government regulations could adversely affect our business.

      Our business is significantly affected by foreign, federal, state and local laws and regulations relating to:

•  the oil and natural gas industry; and

•  worker safety and environmental protection.

      We depend on the demand for our products and services from oil and natural gas companies, drilling contractors and other oilfield service companies. This demand is affected by a variety of factors, including taxes, price controls and the adoption or amendment of laws and regulations. For example, the adoption of laws and regulations curtailing the exploration and development of oil and natural gas in our areas of operation for economic, environmental or other policy reasons could adversely affect our operations by limiting demand for our products and services.

      The technical requirements of the foreign, federal, state and local laws and regulations affecting our businesses are becoming increasingly complex and stringent. For instance, some environmental laws may provide for “strict liability” for damages to natural resources or threats to public health and safety, rendering a party liable for environmental damage without regard to negligence or fault on the part of the party. Sanctions for noncompliance with these laws and regulations may include:

•  revocation of permits;

•  issuance of corrective action orders;

•  assessment of administrative, civil or criminal penalties; and

•  issuance of injunctions restricting or prohibiting our operations.

      Some environmental laws provide for joint and several strict liability for remediation of spills and releases of hazardous substances. In addition, we may be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances, as well as damage to natural resources. These laws and regulations also may expose us to liability for the conduct of, or conditions caused by, others, or for our acts that were in compliance with applicable laws at the time the acts were performed.

The concentration of our customers in the energy industry could materially and adversely affect our earnings.

      Substantially all of our customers are in the energy industry. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. Many of our customers slow the payment of their accounts when industry conditions decline. We perform ongoing credit evaluations of our customers, but do not generally require collateral in support of our trade receivables.

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A significant amount of our growth has occurred through the acquisition of existing businesses; however, future acquisitions may be difficult to integrate, may disrupt our existing businesses and may adversely affect our operating results.

      We may acquire other companies, assets and product lines that complement or expand our existing business. Each acquisition, however, involves a number of risks. These risks include:

•  the diversion of our management’s attention from our existing businesses to integrate the operations and personnel of the acquired business;

•  possible adverse effects on our operating results during the integration process; and

•  our possible inability to achieve the intended objectives of the combination.

      We may seek to finance an acquisition through borrowings under our credit facility or through the issuance of new debt or equity securities. If we should proceed with a relatively large cash acquisition, we could deplete a substantial portion of our financial resources to the possible detriment of our other operations. Any future acquisitions could also dilute the equity interests of our shareholders, require us to write off assets for accounting purposes or create other accounting issues.

Our international operations may experience interruptions due to political and economic risks.

      We operate our business and market our products and services in oil and natural gas producing areas outside the United States. We are, therefore, subject to the risks common in international operations and investments in foreign countries. These risks include:

•  nationalization and expropriation;

•  acts of terrorism, war and civil disturbances;

•  restrictive actions by local governments;

•  limitations on repatriation of earnings;

•  changes in foreign tax laws; and

•  changes in currency exchange rates and currency devaluations.

      The occurrence of any of these events could have an adverse effect on regional demand for our products and services or our ability to provide our products and services in a particular region. An interruption of our international operations could have a material adverse effect on our results of operations and financial condition.

Our credit facility contains restrictive covenants that limit our financial and operational flexibility and our ability to pay dividends.

      Our credit facility contains restrictive covenants that limit the incurrence of debt by our company, require us to maintain certain financial ratios, including a leverage ratio and an interest coverage ratio, and a specified net worth. Our credit facility also limits the amount of capital expenditures we may make, limits the amount of debt we may incur outside the credit facility, limits the amount of future investments we may make, restricts our ability to pay dividends and restricts our ability to engage in certain business combination transactions. These restrictions may adversely affect our ability to conduct and expand our operations. For example, our business is capital intensive and requires specialized equipment. We may need to raise additional funds through public or private debt or equity financing to acquire new or additional equipment or for other purposes. Adequate funds may not be available when needed or may not be available on favorable terms. Even if adequate funds are available, our credit facility may restrict our ability to raise additional funds. If we are unable to raise capital, our financial condition and results of operations may be adversely affected.

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As a holding company, we are dependent on dividends from our operating subsidiaries to pay our obligations.

      We are a holding company with no business operations. Our only significant asset is the outstanding capital stock of our subsidiaries. As a result, we must rely on dividends from our subsidiaries to provide funding to meet our debt obligations and operating expenses. Before they can dividend funds to us, our subsidiaries must meet their own debt obligations, including payment of their trade payables. We currently intend to retain our earnings and cash flow for growth and general corporate expenditures and not to pay any dividends. Even if we decided to pay a dividend on or make a distribution in respect of our common stock, our subsidiaries may not be able to generate sufficient cash flow to pay a dividend or distribute funds to us. At present, we are restricted from paying dividends under our credit facility. Future credit facilities and other future debt obligations, as well as statutory provisions, may also limit our ability to pay dividends.

Risks Related to the Market for Our Common Stock

The availability of shares of our common stock for future sale could depress our stock price.

      Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock. We have registered the sale of 5,800,075 shares of our common stock which have been and may in the future be issued upon the exercise of options granted under our option plans. All of the shares issued upon exercise of these options will be freely tradable without restrictions or registration under the Securities Act of 1933, by persons other than our affiliates. Our affiliates would be able to sell these shares under Rule 144 after compliance with any lock-up agreement to which they are subject.

Our stock price could be extremely volatile as a result of the effect that variations in oil and natural gas prices and other factors beyond our control could have on the market price of our stock.

      The market price of our common stock may be influenced by many factors, including:

•  variations in our quarterly or annual results of operations;

•  variations in oil and natural gas prices and production/ inventory levels;

•  drilling activity levels worldwide;

•  investor perceptions of us and other oilfield service companies, in general;

•  general economic conditions and industry competition; and

•  the liquidity of the market for our common stock.

      These factors may cause the price of our common stock to fluctuate significantly.

      In particular, the market price of our common stock may be influenced by variations in oil and natural gas prices because demand for our products and services is closely related to the prices of these commodities. This may cause our stock price to fluctuate with these underlying commodity prices, which are highly volatile.

Item 1B.     Unresolved Staff Comments.

      Not applicable.

Item 2.     Properties.

      Our principal executive offices are located at 10370 Richmond Avenue, Suite 990, Houston, Texas 77042 and our telephone number is (713) 974-9071. Our businesses are conducted out of sales offices and facilities

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located throughout North America and in select areas internationally. Set forth below is a chart describing the locations of these sales offices and facilities:

Business	Location
Drilling Related Products and Services
Logging-while-drilling/Measurement-while- drilling/Directional Drilling	Lafayette and New Orleans, Louisiana; Houston, Midland and Corpus Christi, Texas; Casper, Wyoming; Al Khobar, Saudi Arabia; Aberdeen, Scotland; Macae, Brazil; Dubai, United Arab Emirates; Doha, Qatar; Nisku and Calgary, Canada; Cairo, Egypt; Alkmarr, The Netherlands
Down-hole Drilling Motors	Lafayette, Louisiana; Elk City, Oklahoma; Houston, Texas; Nisku, Canada; Cairo, Egypt; Al Khobar, Saudi Arabia; Aberdeen, Scotland; Dubai, United Arab Emirates Lafayette and New Iberia, Louisiana; Denver, Colorado
Rental Tools	New Iberia, Louisiana; Houston, Dallas, Corpus Christi and Victoria, Texas
Drilling Fluids	Liberal, Kansas; Jennings, Lafayette, Minden and Venice, Louisiana; Carlsbad and Hobbs New Mexico; Antlers, Ardmore and Elk City, Oklahoma; Abilene, Brownsville, Canadian, Conroe, Edinburg, Galveston, Houston, Jacksboro, Justin, Kingsville, Lufkin, Midland, Navasota, Victoria and Zapata, Texas
Completion and Workover Related Products and Services
Cased-hole Wireline Logging, Perforating, Tubing Conveyed Perforating and Associated Rental Equipment	Lafayette, Lake Charles, New Iberia and Houma, Louisiana; Laurel, Mississippi; Artesia, New Mexico; Alice, Bridgeport, Corpus Christi, Edinburg, Iowa Colony, Midland, Odessa, Pearland, Sonora, Victoria, Snyder, and Tyler, Texas; Rock Springs, Wyoming
Polymers and Specialty Chemicals	Jennings and Venice, Louisiana; Carlsbad and Hobbs, New Mexico; Antlers, Ardmore and Elk City, Oklahoma; Abilene, Conroe, Edinburg, Houston, Jacksboro, Kingsville, Lufkin, Midland, Victoria and Zapata, Texas
Rental Tools	New Iberia, Louisiana; Corpus Christi and Victoria, Texas
Coiled Tubing	Broussard and New Orleans, Louisiana; Alice, Bridgeport, Houston and Angleton, Texas

      With the exception of certain of our Lafayette and Houma, Louisiana and our Alice, Angleton, Bridgeport, Corpus Christi, Snyder, and Tyler, Texas facilities, which are owned, all of these sales offices and facilities are leased pursuant to operating leases for various terms. Some of these sales offices and facilities are leased from employees, two of which are officers of the company, who were the former owners of the subsidiaries that operate out of such facilities. We believe that all of our leases are at competitive or market rates and do not anticipate any difficulty in renewing these leases or in leasing suitable alternative space upon expiration of our current lease terms.

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Item 3. Legal Proceedings.

      We are from time to time a party or otherwise subject to legal proceedings, claims, investigations and other proceedings in the ordinary course of our business. These matters typically involve tort, workers compensation, commercial and infringement and other intellectual property claims. Where appropriate, we make provision for a liability with respect to these claims in our financial statements in accordance with generally accepted accounting principles. These provisions are reviewed periodically and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and events pertaining to a particular case. Litigation is inherently unpredictable. However, we believe that we have valid defenses with respect to the legal matters pending against us. It is possible, nevertheless, that our results of operations or financial position could be adversely affected by the outcome of one or more of these matters.

Item 4. Submission of Matters to a Vote of Security Holders.

      No matters were submitted to a vote of our security holders during the fourth quarter of 2005.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for, Holders of and Dividends on Common Equity

      Our common stock is traded on the New York Stock Exchange under the symbol “WHQ”. The following table sets forth the high and low prices per share of our common stock as reported by the New York Stock Exchange.

		High		Low
2004
	First Quarter	$	18.05	$	14.25
	Second Quarter		19.61		14.06
	Third Quarter		20.99		17.51
	Fourth Quarter		23.40		19.36
2005
	First Quarter		26.83		19.95
	Second Quarter		25.30		20.05
	Third Quarter		33.84		24.28
	Fourth Quarter		36.56		25.55

      As of February 17, 2006, there were 29,306,936 shares of our common stock outstanding, which were held by approximately 86 record holders.

      We have not declared or paid any cash dividends on our common stock since our initial public offering and do not intend to declare or pay any cash dividends on our common stock in the foreseeable future. Instead, we currently intend to retain our earnings, if any, to finance our business and for general corporate purposes. Furthermore, our credit facility restricts our ability to pay dividends. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources” in Item 7 for a discussion of restrictions on our ability to pay dividends. Any future determination as to the declaration and payment of dividends will be at the discretion of our Board of Directors and will depend on then existing conditions, including our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our Board of Directors considers relevant.

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Equity Compensation Plans

      The table below provides information relating to our equity compensation plans as of December 31, 2005:

						Number of Securities
	Number of Securities			Weighted-Average		Remaining Available for
	to be Issued Upon			Exercise Price of		Future Issuance Under
	Exercise of			Outstanding		Compensation Plans
	Outstanding Options,			Options, Warrants		(Excluding Securities
Plan Category	Warrants and Rights			and Rights		Reflected in First Column)
Equity compensation plans approved by security holders		2,622,666	(1)	$	18.88		754,946
Equity compensation plans not approved by security holders		620,000		$	4.55		—
Total		3,242,666	(1)	$	16.07		754,946

(1)  Includes 75,000 shares of restricted stock issued to our President and Chief Executive Officer. The forfeiture restrictions applicable to 25,000 of such shares lapsed in May 2005, and the remaining forfeiture restrictions are scheduled to lapse in 25,000 share increments in May 2006 and 2007, assuming the continued employment of our President and Chief Executive Officer. These restricted shares do not have an exercise price; they have, thus, been excluded in calculating the weighted average exercise price.

      On March 29, 1999, prior to our initial public offering, we granted to Kenneth T. White, Jr., our Chairman, President and Chief Executive Officer, an option to purchase 900,900 shares of our common stock at a purchase price of $4.55 per share. The issuance of this option was approved by the Board of Directors but was not submitted to our shareholders for their approval. This option, which is fully vested, is exercisable by Mr. White at any time until March 29, 2009 and is not transferable. Upon Mr. White’s death or disability, or the termination of his employment for any reason, this option will terminate and expire; although, Mr. White (or his estate or the person who acquires this option by will or the laws of descent or distribution or otherwise by the reason of Mr. White’s death) may exercise this option for a period of three months following any such event. As of December 31, 2005, 620,000 of these options have not been exercised.

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Item 6. Selected Financial Data.

      Our selected consolidated financial data set forth below is derived from our Consolidated Financial Statements and should be read in conjunction with our Consolidated Financial Statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. In particular, Note 3 to our Consolidated Financial Statements describes acquisitions consummated since January 1, 2004, which could affect the year to year comparability of the information presented below.

      The Consolidated Financial Statements for the year ended December 31, 2005 have been audited by Grant Thornton LLP. The Consolidated Financial Statements for the years ended December 31, 2004, 2003 and 2002 were audited by PricewaterhouseCoopers LLP. The Consolidated Financial Statements for the year 2001 were audited by Arthur Andersen LLP which has ceased operations.

				As of and for the Years Ended December 31,
				2005		2004			2003			2002		2001
				(In thousands, except per share data)
Statements of Operations Information:
Revenues:
Drilling				$	409,155	$	302,788		$	242,085		$	205,177	$	253,068
Completion and workover					225,206		159,640			125,098			80,645		78,087
			Total revenues		634,361		462,428			367,183			285,822		331,155
Cost of revenues					357,787		269,897			209,118			157,169		171,151
Selling, general and administrative expense					108,946		87,772			71,078			56,717		54,063
Warehouse fire related costs					3,690		—			—			—		—
Research and development expense					16,275		15,474			11,241			9,954		7,923
Depreciation and amortization					56,639		45,665			36,032			29,083		23,941
Income from operations					91,024		43,620			39,714			32,899		74,077
Interest expense and other expense, net(1)					10,777		11,023			8,168			6,715		7,606
Provision for income taxes					31,294		12,548			12,145			10,081		26,130
Income from continuing operations					48,953		20,049			19,401			16,103		40,341
Income (loss) from discontinued operations, net of tax					—		(2,126	)		(140	)		172		1,079
Net income				$	48,953	$	17,923		$	19,261		$	16,275	$	41,420
Earnings (loss) per share:
	Basic:
		From continuing operations		$	1.74	$	0.73		$	0.71		$	0.61	$	1.67
		From discontinued operations			—		(0.08	)		—			0.01		0.04
			Total	$	1.74	$	0.65		$	0.71		$	0.62	$	1.71
	Diluted:
		From continuing operations		$	1.68	$	0.71		$	0.69		$	0.58	$	1.51
		From discontinued operations			—		(0.07	)		—			0.01		0.04
			Total	$	1.68	$	0.64		$	0.69		$	0.59	$	1.55
Number of shares used in computing earnings (loss) per share:
	Basic				28,135		27,528			27,190			26,360		24,208
	Diluted				29,086		28,201			27,942			27,371		26,652
Balance Sheet Information:
Total assets				$	622,775	$	548,611		$	501,325		$	441,062	$	384,611
Total debt				$	165,000	$	180,805		$	177,725		$	147,305	$	122,225

(1)  The 2004 amount includes the write-off of approximately $3.1 million ($1.9 million, after tax) of non-cash financing costs associated with our previous credit facility.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

      Set forth below is a description of the matters that we consider to be important to understanding the results of our operations for each of the three years in the period ended December 31, 2005, and our capital resources and liquidity as of December 31, 2005 and 2004. Our discussion begins with an overview of the significant factors that have recently affected our company, including a discussion of industry market trends and management’s perspectives regarding the opportunities and challenges we face during 2006 and beyond. Next, we analyze the results of our operations for the last three years. A summary follows of the critical accounting judgments and estimates that we have made which we believe are most important to an understanding of our Management’s Discussion and Analysis and our consolidated financial statements, as well as a discussion of recently issued accounting pronouncements. Finally, we review our cash flows and liquidity, capital resources and contractual commitments.

      The following discussion includes various forward-looking statements about the markets in which we operate, the demand for our products and services and our future results. These statements are based on certain assumptions that we believe are reasonable. For information about some of the risks that could cause actual results to differ from these forward looking statements, please refer to the section entitled “Item 1. Business — Factors That May Affect Future Results and Accuracy of Forward-Looking Statements.”

      The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and related notes appearing elsewhere in this Form 10-K.

Overview of Our Products and Services

      We provide drilling related products and services and completion and workover related products and services to major and independent oil and natural gas companies, drilling contractors and other oilfield service companies. The majority of our revenues are generated from charging our customers day rates, based on the number of days our products and services are used. We also sell certain products used in the exploration for and production of oil and natural gas and receive revenues from our customers in connection with these sales. Our primary expenses are salaries for our personnel and the costs associated with expendable parts and supplies, research and development, repair and maintenance of equipment and costs of products sold as well as general operational costs. A detailed description of the products and services that we provide, the manner in which we market these products and services and the way in which we charge our customers for these products and services is contained under “Item 1. Business — Businesses.”

      Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of other factors. Any prolonged increase or decrease in oil and natural gas prices affects the levels of exploration, development and production activity as well as the entire health of the oil and natural gas industry. Demand for our drilling related products and services is directly affected by the level of exploration, development and production activity of, and the corresponding capital spending by, oil and natural gas companies. Demand for our completion and workover related products and services depends more on oil and natural gas production activity, which is less immediately affected by changes in oil and natural gas prices.

Drilling Related Products and Services

      Revenue from our drilling related products and services segment constituted approximately 64% of our total 2005 consolidated revenue. Approximately 83% of our drilling segment revenue for 2005 was generated in the United States, including the Gulf of Mexico. The remaining 17% was generated in various international locations.

      In July 2001, exploration and development activity levels in the United States peaked and subsequently began to decline primarily as a result of lower natural gas prices. This decline continued through April 2002, at which point the United States drilling rig count levels reached a low of 738, which was comprised of 110 offshore rigs and 628 land rigs. As natural gas prices climbed and remained relatively strong, rig count levels

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began to recover in 2003 and continued through 2005. This increase, however, resulted entirely from an increase in land-based rigs. According to statistics published by Baker Hughes, the average number of rotary rigs operating in the United States was 1,032, 1,192 and 1,383 for 2003, 2004 and 2005, respectively. Of these figures, land rigs comprised 924, 1,095 and 1,290, respectively, and offshore rigs comprised 108, 97 and 93, respectively, for the same periods. The offshore rig count did improve modestly in the fourth quarter of 2004 and into early 2005, but has since retreated to activity levels not experienced since mid-1993. Whether this trend will continue beyond 2005 is unclear at this time. We do believe that the overall outlook for domestic natural gas exploration and development activity remains positive, as natural gas production has yet to respond to the higher level of natural gas prices and higher rig counts. This factor should keep upward pressure on natural gas prices.

      Despite the divergence between onshore and offshore activity levels, the recovery in exploration and development activity levels in the United States has positively impacted our revenue, cash flow and earnings generated in this market.

      Outside of the United States, the North Sea remains our largest drilling segment market. According to statistics published by Baker Hughes, the number of rotary rigs operating in the North Sea declined from an average of 67 in January 2002 to a low of 28 in February 2005, before recovering to an average of 46 in December 2005. We expect no significant change in activity levels in the North Sea in the near term.

      As the primary area of improvement in drilling activity in the United States has been onshore, the importance of improving our market share for land-based services became critical. In October 2002, in response to this developing trend, we made the strategic decision to enter the directional drilling business in North America. As a result of this decision and the growth in the United States land rig count, we have successfully leveraged our new directional drilling business to effect an increase in the utilization of our measurement-while-drilling tools and down-hole drilling motor fleet. The increased utilization of our measurement-while-drilling tools and down-hole drilling motor fleet has helped to offset the sluggish nature of United States offshore activity. However, our logging-while-drilling revenues from this market have outperformed the rig count numbers as a result of performing more jobs with a higher content of our services, improving prices and an increase in our share of this market.

      A key challenge that our drilling related products and services segment faces is the demand by our customers for more efficient and technologically advanced services and tools. We have invested substantial time and capital into developing and commercializing technologies that are of value to our customers and that enable us to compete effectively with the major integrated oilfield service companies. During the third quarter of 2004, we began to market our PathMaker^® 12¹/4" 3-Dimensional Rotary Steerable technology. We expect commercialization of the 3-Dimensional Rotary Steerable technology to improve the utilization of our logging-while-drilling, measurement-while-drilling and directional drilling services, as our customers are increasingly requiring this type of technology as a prerequisite for a drilling project or contract. We are currently developing a PathMaker^® 8¹/2" 3-Dimensional Rotary Steerable tool and are offering this tool on a limited commercial basis during the first quarter of 2006.

      Introduced on a commercial basis in late 2004, our Array Wave Resistivity technology is the first of our next generation of logging-while-drilling tools. We believe that our Array Wave Resistivity tools provide a more robust and accurate resistivity measurement. Tools and data analysis in this technology improve the precision and reliability of formation data obtained through the analysis of electromagnetic wave transmissions through the formation surrounding a well bore. Our Array Wave Resistivity tools are also designed to withstand high pressure (25,000 psi) and high temperature (350°F) well conditions.

      For a discussion of other technologies we have under development, please read “Item 1. Business — Research and Development: Technology Initiatives.”

Completion and Workover Related Products and Services

      Our completion and workover related products and services segment provided approximately 36% of our total consolidated revenue for 2005. Revenues provided by this segment are almost entirely derived from the

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United States and the Gulf of Mexico. While revenues from this segment are affected by the level of oil and natural gas prices, activity in this segment is only modestly affected by drilling activity (see the discussion under Drilling Related Products and Services above). As a result, our completion and workover segment has provided stability during prolonged downturns in drilling activity.

      We have increased our revenue capacity in this segment through capital spending in 2003, 2004 and 2005, which, when combined with our acquisitions and strategic land-based expansion efforts, has strengthened and further diversified the operations of the Company. Continued growth in this segment will be dependent upon, among other factors, industry activity levels, prices of oil and natural gas, our capital expenditure program and our ability to attract and retain qualified service personnel and field engineers required to operate the specialized equipment used in this business.

Geographic Expansion

      We are currently working to establish a larger presence in the Rocky Mountain region of the United States, an expansion that will require an initial capital investment of approximately $30.0 million (see Item 1. Business — Strategy).

Discontinued Operations

      In March 2004, we committed to the divestiture of our maintenance and safety related products and services segment. Accordingly, this segment has been included in our Selected Financial Data and our Consolidated Statements of Operations and Comprehensive Income for fiscal years ended on or before December 31, 2004 as discontinued operations. In April 2004, we completed the sale of Well Safe, Inc., one of the two companies that formerly comprised our maintenance and safety related products and services segment, for cash consideration of $28.0 million. Additionally, in December 2004, we sold Charles Holston, Inc., the remaining entity that formerly comprised this segment, for consideration of $2.0 million, consisting of $1.0 million in cash and a $1.0 million subordinated promissory note due December 31, 2009. We sold Well Safe and Charles Holston pursuant to customary stock purchase agreements in which we made customary representations and warranties, agreed to customary covenants and agreed to indemnify the buyers of these businesses for certain matters, subject to certain caps, limitations and deductibles. These sales resulted in a loss of $5.1 million for the year ended December 31, 2004.

Recent Development

      Adverse Weather Conditions. Our 2005 results of operations were negatively impacted by Hurricanes Katrina and Rita and the associated shut-in of drilling and production activity in the Gulf of Mexico and along the Gulf Coast. The adverse impact began during the third quarter of 2005 and has continued into the first quarter of 2006.

Results of Operations

Year Ended December 31, 2005 Compared to the Year Ended December 31, 2004

      Revenues. Revenues increased by $172.0 million, or approximately 37%, to $634.4 million for the year ended December 31, 2005 from $462.4 million for the year ended December 31, 2004. This increase was primarily attributable to higher demand for certain of our products and services, combined with the benefit of increased revenue capacity from our capital expenditures.

      Revenues from our drilling related products and services increased by $106.4 million, or approximately 35%, to $409.2 million for the year ended December 31, 2005 from $302.8 million for the year ended December 31, 2004. We attribute the increase in revenues in this segment to:

•  a 16% increase in the average number of rotary rigs operating in the United States, resulting in an increase in demand for our products and services;

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•  an increase in our Gulf of Mexico market share, resulting from higher utilization of our existing logging-while-drilling tools and commercialization of certain of our new technologies discussed earlier; and

•  revenue capacity increases from our capital expenditure program.

      Revenues from our completion and workover related products and services increased by $65.6 million, or approximately 41%, to $225.2 million for the year ended December 31, 2005 from $159.6 million for the year December 31, 2004. We attribute the increase in revenues in this segment to:

•  the benefits experienced from our onshore geographic expansion;

•  higher utilization of our tools and services as a result of the overall increase in activity levels; and

•  revenue capacity increases from our capital expenditure program.

      Cost of Revenues. Cost of revenues increased by $87.9 million, or approximately 33%, to $357.8 million for the year ended December 31, 2005 from $269.9 million for the year ended December 31, 2004. As a percentage of revenues, cost of revenues decreased to 56% for the year ended December 31, 2005 from 58% for the year ended December 31, 2004. The decrease in cost of revenues as a percentage of revenues was primarily due to improved pricing, improved utilization and a change in our revenue mix.

      Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $21.1 million, or approximately 24%, to $108.9 million for the year ended December 31, 2005 from $87.8 million for the year ended December 31, 2004. The increase was primarily attributable to increased personnel costs related to expansion efforts within all of our business lines. As a percentage of revenues, selling, general and administrative expenses decreased to 17% for the year ended December 31, 2005 from 19% for the year ended December 31, 2004.

      Warehouse Fire Related Costs. On April 17, 2005, a Houston warehouse facility operated by one of our subsidiaries was destroyed by a fire. For the year ended December 31, 2005, we reported $3.7 million in costs associated with this fire, net of approximately $0.8 million in anticipated insurance reimbursements. This amount has been reflected in our Selected Financial Data and our Consolidated Statements of Operations and Comprehensive Income under the caption “Warehouse fire related costs” and in Footnote 13 “Operating Segments” as a reduction to operating income for the drilling segment for the year ended December 31, 2005.

      Research and Development Expenses. Research and development expenses increased by $0.8 million, or approximately 5%, to $16.3 million for the year ended December 31, 2005 from $15.5 million for the year ended December 31, 2004. This increase was the result of increased research and development spending on our PathFinder Energy Services technologies, including our PathMaker^® 8¹/2″ 3-Dimensional Rotary Steerable tool, our Slim Density Neutron Stand-off Caliper tool and other research and development initiatives.

      Depreciation and Amortization. Depreciation and amortization increased by $10.9 million, or approximately 24%, to $56.6 million for the year ended December 31, 2005 from $45.7 million for the year ended December 31, 2004. This increase was largely the result of a larger depreciable asset base resulting from our capital expenditures.

      Interest and Other Expense. Interest and other expense for the year ended December 31, 2005 was $10.8 million, a decrease of $0.2 million, or approximately 2%, from $11.0 million for the year ended December 31, 2004. This decrease was primarily due to our write-off, during the second quarter of 2004, of $3.1 million in deferred financing costs associated with the retirement of our previous credit facility during June of 2004 and a larger amount of debt in 2004, partially offset by higher interest costs associated with rising interest rates and our recognition of approximately $0.5 million in net losses in 2005 as increases to interest expense resulting from net payments to the swap counterparties (discussed more fully under “Capital Resources”).

      Provision for income taxes. Our effective income tax rate for the year ended December 31, 2005 was 39.0% as compared to 38.5% for the year ended December 31, 2004. The increase in the 2005 effective rate compared to 2004 was due to several factors including, but not limited to, changes in valuation allowances in

26

various jurisdictions, ongoing and settled audits in foreign jurisdictions, and fluctuations in income across taxing jurisdictions with different tax rates.

Year Ended December 31, 2004 Compared to the Year Ended December 31, 2003

      Revenues. Revenues increased by $95.2 million, or approximately 26%, to $462.4 million for the year ended December 31, 2004 from $367.2 million for the year ended December 31, 2003. This increase was attributable to increases in capacity driven by capital expenditures, higher demand for certain of our products and services, particularly drilling/completion fluids, land-based measurement-while-drilling and directional drilling services, cased-hole wireline and coiled tubing, as well as the revenue contributions of Hydracoil, Inc., Dutch, Inc. and Continental Directional Corp., which were acquired in the fourth quarter 2003.

      Revenues from our drilling related products and services increased by $60.7 million, or approximately 25%, to $302.8 million for the year ended December 31, 2004 from $242.1 million for the year ended December 31, 2003. This increase was primarily attributable to increases in capacity driven by capital expenditures, the growth of our North American directional drilling business, enhanced by the increase in land-based drilling activity levels in the United States, increased demand for our drilling fluids and rental tool products and the impact of the acquisitions that we consummated during the fourth quarter of 2003.

      Revenues from our completion and workover related products and services increased by $34.5 million, or approximately 28%, to $159.6 million for the year ended December 31, 2004 from $125.1 million for the year ended December 31, 2003. This increase was the result of increases in capacity driven by capital expenditures, higher utilization of our coiled tubing and cased-hole wireline fleet, demand for our completion fluids and the impact of the acquisitions that we consummated during the fourth quarter of 2003.

      Cost of Revenues. Cost of revenues increased by $60.8 million, or approximately 29%, to $269.9 million for the year ended December 31, 2004 from $209.1 million for the year ended December 31, 2003. As a percentage of revenues, cost of revenues increased to 58% for the year ended December 31, 2004 from 57% for the year ended December 31, 2003. The increase in cost of revenues as a percentage of revenues was due to increased insurance costs and our revenue mix. In particular, our revenue mix was affected by sales increases in our lower margin fluids products and land-based directional drilling services.

      Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $16.7 million, or approximately 23%, to $87.8 million for the year ended December 31, 2004 from $71.1 million for the year ended December 31, 2003. The increase was primarily attributable to the operating expenses associated with the businesses we acquired in the fourth quarter of 2003 and during 2004, as well as increased personnel costs related to expansion efforts within our directional drilling business and corporate compliance initiatives as mandated by law. As a percentage of revenues, selling, general and administrative expenses remained flat at 19% for the year ended December 31, 2004 relative to the year ended December 31, 2003.

      Research and Development Expense. Research and development expenses increased by $4.3 million, or approximately 38%, to $15.5 million for the year ended December 31, 2004 from $11.2 million for the year ended December 31, 2003. This increase was the result of increased research and development spending on our PathFinder Energy Services technologies, including our PathMaker^® 12¹/4” 3-Dimensional Rotary Steerable tool, our Array Wave Resistivity tool and other research and development initiatives.

      Depreciation and Amortization. Depreciation and amortization increased by $9.7 million, or approximately 27%, to $45.7 million for the year ended December 31, 2004 from $36.0 million for the year ended December 31, 2003. This increase was the result of depreciation associated with our continued capital expenditures, as well as additional depreciation and amortization due to our acquisitions.

      Interest and Other Expense. Interest and other expense for the year ended December 31, 2004 was $11.0 million, an increase of $2.8 million, or approximately 34%, from $8.2 million for the year December 31, 2003. This increase was primarily due to the $3.1 million write-off of non-cash financing costs related to our previous credit facility, offset by a reduction in our effective interest rate during the second half of 2004.

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      Provision for income taxes. Our effective income tax rate for the years ended December 31, 2004 and 2003 was 38.5%.

Critical Accounting Policies and Estimates

      The preparation of our consolidated financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis, based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The most significant areas involving management judgment and estimates are described below. Actual results may differ from these estimates under different assumptions or conditions.

Allowance for doubtful accounts

      We extend credit to customers and other parties in the normal course of business. We regularly review outstanding receivables and provide for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, we make judgments regarding our customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. In the event we were to determine that a customer may not be able to make required payments, we would increase the allowance through a charge to income in the period in which that determination is made. See Note 2 to the Consolidated Financial Statements for further discussion.

Income taxes

      Deferred tax assets and liabilities are recognized for the difference between the book basis and tax basis of our net assets. In providing for deferred taxes, we consider current tax regulations, estimates of future taxable income and available tax planning strategies. We believe that our earnings during the periods when the temporary differences become deductible will be sufficient to realize the related future income tax benefits. In certain cases where projected results indicate that realization is not likely, we have established a valuation allowance to reduce deferred tax assets to estimated realizable value.

      In assessing the need for a valuation allowance, we estimate future taxable income, considering the feasibility of ongoing tax planning strategies and the realizability of tax loss carry-forwards. Valuation allowances related to deferred tax assets can be impacted by changes to tax laws, changes to statutory tax rates and future taxable income levels. In the event we were to determine that we would not be able to realize all or a portion of our deferred tax assets in the future, we would reduce such amounts through a charge to income in the period in which that determination is made. Conversely, if we were to determine that we would be able to realize our deferred tax assets in the future in excess of the net carrying amounts, we would decrease the recorded valuation allowance through an increase to income in the period in which that determination is made. See Note 9 to the Consolidated Financial Statements for further discussion.

      In addition, the calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations. We recognize liabilities for anticipated tax audit issues in the U.S. and other tax jurisdictions based on our estimate of whether, and the extent to which, additional taxes will be due. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary. We record an additional charge in our provision for taxes in the period in which we determine that the recorded tax liability is less than we expect the ultimate assessment to be.

Insurance reserves

      We are subject to legal proceedings and claims from time to time, the outcomes of which are subject to significant uncertainty. Although we maintain policies of insurance that cover claims asserted against our company, many of our policies provide for large deductibles. In addition, our insurance policies may not cover certain types of claims. We determine whether to disclose and accrue for loss contingencies based on the

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coverages we maintain and our assessment of whether the risk of loss is remote, reasonably possible, or probable. While we make these judgments with the advice of legal counsel and our insurers, these judgments are inherently subjective. As claims develop and additional information becomes available, adjustments to loss reserves may be required.

Impairment of long-lived assets

      Our long-lived assets are carried on our financial statements based on their cost less accumulated depreciation. However, accounting standards require us to write down assets or groups of assets if they become impaired. If significant events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable, we perform a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, we will determine whether an impairment has occurred for the group of assets for which we can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset or asset group to its carrying value. Fair value is typically determined by an internally developed discounted projected cash flow analysis of the asset or asset group. If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs.

      Typical indicators that an asset may be impaired include:

•  Significant underperformance relative to expected historical or projected future operating results;

•  Significant changes in the manner of our use of the assets or the strategy for our overall business;

•  Significant negative industry or economic trends;

•  Significant decline in our stock price for a sustained period; and

•  Market capitalization relative to net book value.

      If any of these or other indicators occur, we review the asset to determine whether there has been an impairment. Several of these indicators are beyond our control, and we cannot predict with any certainty whether or not they will occur. In addition, determination of future cash flows requires us to make judgments and estimates based upon the most recent market and operating data for the applicable asset at the time the estimate is made, and such estimates can change based on market conditions, technological advances in the industry or changes in regulations governing the industry.

Goodwill and intangible assets

      Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment testing or more frequently if indicators arise. The identification and measurement of goodwill impairment involves the estimation of the fair value of reporting units. The estimates of fair value of reporting units are based on the best information available as of the date of the assessment, which primarily incorporate management assumptions about expected future cash flows but are also based on other valuation techniques. Future cash flows can be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized with newly acquired entities. Although no goodwill impairment has been recorded to date, there can be no assurances that future goodwill impairments will not occur. See Note 5 to the Consolidated Financial Statements for further discussion.

Recent Accounting Pronouncements

      In December 2004, the Financial Accounting Standards Board issued SFAS 123R, “Share-Based Payment,” a revision of SFAS 123. In March 2005, the SEC issued Staff Bulletin No. 107 regarding its interpretation of SFAS 123R. Under SFAS 123R and SAB 107, we must expense the grant-date fair value of stock options and other equity-based compensation issued to employees. We adopted SFAS 123R as of January 1, 2006 using the modified prospective method in which compensation cost is recognized based

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(1) on the requirements of SFAS 123R for all share-based payments granted after January 1, 2006 and (2) on the requirements of SFAS 123 for all awards granted to employees prior to January 1, 2006 that remain unvested on January 1, 2006. For the year ending December 31, 2006, we estimate that the cost relating to this pronouncement for unvested share-based payments granted prior to January 1, 2006 will be approximately $3.1 million, or $0.06 per share. Our Compensation Committee may award additional stock options during 2006 which would increase the amount of this expense.

Liquidity and Capital Resources

      Our primary uses for cash are working capital, capital expenditures, research and development expenditures, acquisitions, business expansions and principal and interest payments on indebtedness. Our primary sources of liquidity are cash reserves, cash generated by operations and amounts available to be drawn under our revolving credit facility. To the extent our cash requirements exceed our sources of liquidity, we will be required to fund our cash requirements through other means, such as through debt and equity financing activities or we will be required to curtail our expenditures.

Cash flow

      Working capital was $160.1 million as of December 31, 2005 and $121.6 million as of December 31, 2004. Net cash provided by operating activities was $72.7 million for the year ended December 31, 2005 and $41.2 million for the year ended December 31, 2004. The increase in working capital and cash flow from operating activities was principally attributable to higher operating levels across our business segments.

      Net cash used in investing activities was $68.5 million for the year ended December 31, 2005 and $70.7 million for the year ended December 31, 2004. Net cash used in investing activities was principally the result of capital expenditures, offset by lost-in-hole proceeds which represent funds we receive from a customer when one of our tools is involuntarily damaged or lost down-hole.

      Net cash used in financing activities was $3.9 million for the year ended December 31, 2005 and net cash provided by financing activities was $3.1 million for the year ended December 31, 2004. Changes in net cash related to financing activities were primarily the result of borrowings and repayments under our credit facility, which is described below, and proceeds from the exercise of stock options.

      For the year ended December 31, 2005, we made capital expenditures of $89.0 million, primarily for rental tool inventory, logging-while-drilling and measurement-while-drilling tools, wireline equipment and coil tubing units, including expenditures for the replacement of equipment lost-in-hole. In addition, we incurred $16.3 million in research and development expenditures for the year ended December 31, 2005.

Acquisitions

      During 2005, we consummated one acquisition in the completion and workover segment for total consideration of approximately $3.5 million, including cash of approximately $2.5 million and 31,422 shares of our common stock. See Note 3 to the Consolidated Financial Statements for additional information.

Capital resources

      We maintain a revolving credit facility with certain lenders to provide for our cash, liquidity and other borrowing needs. Our credit facility provides for aggregate borrowings of up to $375.0 million and matures on May 5, 2010. As of December 31, 2005, we had an outstanding loan balance of $165.0 million and approximately $7.9 million in letters of credit issued under our credit facility, resulting in an available borrowing capacity on such date of approximately $202.1 million.

      Amounts borrowed under our credit facility bear interest, at our election, at either a variable rate equal to LIBOR, plus a margin ranging from 1.0% to 2.0% depending upon our leverage ratio, or an alternate base rate equal to the higher of (1) the prime rate or (2) the federal funds rate plus 0.5%, plus a margin ranging from zero to 1.0% depending upon our leverage ratio. As of December 31, 2005, we had elected to pay interest on our outstanding borrowings at LIBOR plus the then applicable margin of 1.25%.

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      Our credit facility is secured by a lien on substantially all of our property and assets, a pledge of all of the capital stock of our domestic subsidiaries and a pledge of not greater than 65% of the capital stock of each of our top tier foreign subsidiaries. In addition, our credit facility is guaranteed by all of our domestic subsidiaries. Our credit facility requires, among other things, that we maintain certain financial ratios, including a leverage ratio and an interest coverage ratio, and a specified net worth. Our credit facility limits the amount of capital expenditures we may make, the amount of debt we may incur outside of the credit facility, the amount of future investments we may make, our ability to pay dividends and our ability to engage in certain business combination transactions.

      Our credit facility contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain other indebtedness agreements in excess of specified amounts, certain events of bankruptcy and insolvency, judgments in excess of specified amounts, ERISA defaults, certain failures of guaranty or security documents supporting our credit facility to be in full force and effect and a change of control.

      We entered into our credit facility in June 2004. We entered into a first amendment to our credit facility in May 2005 and a second amendment in February 2006. Financing costs associated with our original credit facility of approximately $1.6 million and financing costs associated with the first amendment of approximately $1.0 million will be ratably amortized to interest expense over the five year term of the credit facility. As a result of the approximate $160.0 million repayment of our previous credit facility in June 2004, we wrote off approximately $3.1 million in non-cash financing costs to interest expense during the second quarter of 2004. This amount represented financing costs that previously had been deferred.

      The descriptions of our credit facility, as amended by the first amendment and second amendment, are qualified in their entirety by reference to the original credit facility which is filed as Exhibit 10.8 to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004, the first amendment which is filed as Exhibit 10.8(a) to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 and the second amendment which is filed herewith as Exhibit 10.8(b).

      On May 18, 2005, we entered into interest rate swap agreements with a total notional amount of $150 million related to our credit facility. Under these agreements, we receive payments from the swap counterparties based on a floating rate equal to three-month LIBOR plus the applicable spread under our credit facility, and we make payments to such counterparties based on a fixed interest rate of 4.24% per annum plus the applicable spread under our credit facility.

Contractual obligations

      The following table aggregates information about our contractual cash obligations (in thousands) as of December 31, 2005:

	Payments Due by Period
									More than
Contractual Obligations	Total		0-1 Year		2-3 Years		4-5 Years		5 Years
Debt	$	165,000	$	—	$	—	$	165,000	$	—
Operating leases		23,462		6,543		9,543		4,223		3,153
Purchase obligations(1)		56,394		55,194		1,200		—		—
Total	$	244,856	$	61,737	$	10,743	$	169,223	$	3,153

(1)  Purchase obligations represent orders to purchase various equipment and inventory items that have not yet been delivered.

Future capital requirements

      We anticipate that acquisitions of complementary companies, assets and product lines will continue to play an important role in our business strategy. While there are currently no unannounced agreements or

31

ongoing negotiations for the acquisition of any material businesses or assets, such transactions can be effected quickly and may occur at any time. Likewise, we will continue to need to make capital expenditures for tools and equipment and to make research and development expenditures to maintain and improve the quality of our products and services. We currently estimate that we will make capital expenditures of approximately $150 million in 2006 and will make research and development expenditures of approximately $18 million in 2006.

      We believe that our internally generated cash flow, combined with access to our credit facility will be sufficient to meet the liquidity requirements necessary to fund our operating, capital expenditure, research and development and debt service requirements for at least the next 12 months. However, our ability to maintain our credit facility and the sufficiency of our internally generated cash flow can be impacted by economic conditions outside of our control.

      The continuation of our acquisition strategy will require substantial capital. We currently intend to finance future acquisitions through issuances of our equity or debt securities and through borrowings under our credit facility. Using debt to complete acquisitions could substantially limit our operational and financial flexibility and using stock could dilute the ownership interests of our existing shareholders. The extent to which we will be able or are willing to use our common stock to make acquisitions will depend on its market value from time to time and the willingness of potential sellers to accept it as full or partial payment. If we are unable to obtain additional capital on acceptable terms, we may be unable to grow through acquisitions.

Off balance sheet arrangements

      With the exception of operating leases on real property and automobile leases discussed in Note 8 of our consolidated financial statements, we have no off-balance sheet debt or other off-balance sheet financing arrangements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

      We are exposed to market risks. Market risk is the potential loss arising from adverse changes in market prices and rates. Our market risk could arise from changes in interest rates and foreign currency exchange rates. We have utilized, and may continue to utilize, derivative and other financial instruments to manage these market risks. We have not entered into derivative or other financial instruments for trading or speculative purposes.

      Interest Rate Risk. We are subject to market risk exposure related to changes in interest rates. To manage this risk, we have entered into interest rate swap agreements with a total notional amount of $150.0 million related to our credit facility. Under these agreements, we receive interest at a floating rate equal to three-month LIBOR plus the applicable spread under our credit facility and pay interest at a fixed rate of 4.24% plus the applicable spread under our credit facility. Assuming our current level of borrowings and considering the effect of the interest rate swap agreements, a 100 basis point increase in the interest rate we pay under our credit facility would have increased our interest expense by approximately $0.2 million for the year ended December 31, 2005.

      Foreign Currency Exchange Risk. Our earnings and financial position are affected by foreign exchange rate fluctuations. We currently do not hedge against foreign currency translation risks and we believe that foreign currency exchange risk is unlikely to be significant to our operations.

      Stock Price Volatility. Our ability to raise capital at a reasonable cost of capital is, in part, affected by the market price of our common stock. The market price of our common stock may be influenced by many factors including variations in our earnings, variations in oil and natural gas prices, the level of exploration, development and production activity of, and the corresponding capital spending by, our customers, investor perceptions of us and other oilfield service companies and the liquidity of the market for our common stock.

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Item 8. Financial Statements and Supplementary Data.

      Our consolidated financial statements, together with the notes thereto and our independent registered public accounting firm’s reports thereon appear on pages F-1 through F-25 of this Annual Report on Form 10-K and are incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

      Not applicable.

Item 9A. Controls and Procedures.

      Disclosure Controls and Procedures. We maintain disclosure controls and procedures, which are controls and procedures designed to ensure that the information we are required to disclose in the reports we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this report conducted by our management, with the participation of our Chief Executive Officer and Chief Financial Officer, our Chief Executive Officer and Chief Financial Officer believe that these controls and procedures are effective to ensure that we are able to collect, process and disclose the information we are required to disclose in the reports we file with the SEC within the required time periods.

      Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

      As of December 31, 2005, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on this assessment, our management has determined that our internal control over financial reporting as of December 31, 2005 was effective.

      Our management’s assessment of the effectiveness of our internal control over external financial reporting in accordance with generally accepted accounting principles as of December 31, 2005 has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report appearing elsewhere in this Annual Report on Form 10-K, which expresses unqualified opinions on our management’s assessment and on the effectiveness of our internal control over financial reporting as of December 31, 2005.

      Other Matters. During the quarterly period ended December 31, 2005, there were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

      Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent and/or detect all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

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Item 9B. Other Information.

      Not Applicable.

PART III

Item 10. Directors and Executive Officers of the Registrant.

      Information required by this item is hereby incorporated by reference to the sections entitled “Information About Directors” and “Executive Officers of the Company” in our definitive proxy statement to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of our fiscal year ended December 31, 2005.

Item 11. Executive Compensation.

      Information required by this item is hereby incorporated by reference to the sections entitled “Director Compensation” and “Executive Compensation” of our definitive proxy statement to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of our fiscal year ended December 31, 2005.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

      Information required by this item is hereby incorporated by reference to the section entitled “Principal Shareholders” of our definitive proxy statement to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of our fiscal year ended December 31, 2005 and under the heading “Equity Compensation Plans” in Item 5 of this Annual Report on Form 10-K.

Item 13. Certain Relationships and Related Transactions.

      Information required by this item is hereby incorporated by reference to the section entitled “Certain Relationships and Related Transactions” of our definitive proxy statement to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of our fiscal year ended December 31, 2005.

Item 14. Principal Accountant Fees and Services.

      Information required by this item is hereby incorporated by reference to the section entitled “Audit Committee Report” of our definitive proxy statement to be filed with the SEC pursuant to the Exchange Act within 120 days of the end of our fiscal year ended December 31, 2005.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

      Our consolidated financial statements, together with the notes thereto and our independent accountants’ reports thereon appear on pages F-1 through F-25 of this Annual Report on Form 10-K. An index to such financial statements appears on page F-1, and such index is incorporated herein by reference. All schedules not filed herewith for which provision is made under SEC Regulation S-X have been omitted as not applicable or not required or the information required has been included in the notes to our consolidated financial statements.

      The Exhibit Index, which index follows page F-25 of this report and is incorporated herein by reference, sets forth a list of those exhibits filed herewith, and includes and identifies management contracts or compensatory plans or arrangements required to be filed as exhibits to this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K.

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

W-H Energy Services, Inc.

By:  /s/ Kenneth T. White, Jr.

Kenneth T. White, Jr.

Chairman, President and Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 6th day of March, 2006.

Signature
/s/ Kenneth T. White, Jr. Kenneth T. White, Jr.	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)
/s/ Jeffrey L. Tepera Jeffrey L. Tepera	Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ Ernesto Bautista, III Ernesto Bautista, III	Vice President and Corporate Controller (Principal Accounting Officer)
/s/ John R. Brock John R. Brock	Director
/s/ James D. Lightner James D. Lightner	Director
/s/ Christopher Mills Christopher Mills	Director
/s/ Milton L. Scott Milton L. Scott	Director
/s/ Robert H. Whilden, Jr. Robert H. Whilden, Jr.	Director

35

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms	F-2
Consolidated Balance Sheets as of December 31, 2005 and 2004	F-5
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2005, 2004 and 2003	F-6
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2005, 2004 and 2003	F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003	F-8
Notes to Consolidated Financial Statements	F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and

Shareholders of W-H Energy Services, Inc.

      We have audited the accompanying consolidated balance sheet of W-H Energy Services, Inc. (a Texas corporation) and subsidiaries as of December 31, 2005, and the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of W-H Energy Services, Inc. and subsidiaries as of December 31, 2005, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

      We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of W-H Energy Services, Inc. its and subsidiaries’ internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 3, 2006, expressed an unqualified opinion that W-H Energy Services, Inc. and subsidiaries maintained effective internal control over financial reporting and on management’s assessment thereof.

GRANT THORNTON LLP

Houston, Texas

March 3, 2006

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

W-H Energy Services, Inc.

      We have audited management’s assessment, included in the accompanying management’s report on internal control over financial reporting, that W-H Energy Services, Inc. (a Texas corporation) and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The management of W-H Energy Services, Inc. and its subsidiaries is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

      A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

      Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

      In our opinion, management’s assessment that W-H Energy Services, Inc. and its subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by COSO. Also in our opinion, W-H Energy Services, Inc. and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by COSO.

      We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the balance sheet of W-H Energy Services, Inc. and subsidiaries as of December 31, 2005, and the related statements of operations and comprehensive income, shareholders’ equity, and cash flows the year then ended, and our report dated March 3, 2006 expressed an unqualified opinion on those consolidated financial statements.

GRANT THORNTON LLP

Houston, Texas

March 3, 2006

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

W-H Energy Services, Inc.:

      In our opinion, the accompanying consolidated balance sheet as of December 31, 2004 and the related consolidated statements of operations and comprehensive income, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of W-H Energy Services, Inc. and its subsidiaries (the Company) at December 31, 2004 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Houston, Texas

March 11, 2005

F-4

W-H ENERGY SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

				December 31,
				2005			2004
Current Assets:
	Cash and cash equivalents			$	9,914		$	10,448
	Accounts receivable, net of allowance of $5,243 and $3,890, respectively				152,348			111,728
	Inventories				55,142			48,317
	Deferred income taxes				5,625			5,601
	Prepaid expenses and other				11,149			9,965
		Total current assets			234,178			186,059
Property and equipment, net					257,286			235,317
Goodwill and other intangibles, net					119,502			117,801
Other assets, net					11,809			9,434
			Total assets	$	622,775		$	548,611
Current Liabilities:
	Accrued liabilities			$	43,401		$	34,926
	Accounts payable				30,692			29,572
		Total current liabilities			74,093			64,498
Long-term debt					165,000			180,805
Deferred income taxes					40,214			30,849
Other long-term obligations					4,518			3,864
Commitments and Contingencies
Shareholders’ Equity:
	Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued and outstanding				—			—
	Common stock, $0.0001 par value, 100,000,000 shares authorized, 28,826,087 and 27,803,130 shares issued and outstanding, respectively				3			3
	Additional paid-in capital				235,392			214,846
	Deferred stock compensation				(280	)		(806	)
	Other comprehensive income				7,852			7,522
	Retained earnings				95,983			47,030
		Total shareholders’ equity			338,950			268,595
			Total liabilities and shareholders’ equity	$	622,775		$	548,611

The accompanying notes are an integral part of these financial statements.

F-5

W-H ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)

				For the Years Ended December 31,
				2005			2004			2003
Revenues				$	634,361		$	462,428		$	367,183
Costs and expenses:
	Cost of revenues				357,787			269,897			209,118
	Selling, general and administrative				108,946			87,772			71,078
	Warehouse fire related costs				3,690			—			—
	Research and development expenses				16,275			15,474			11,241
	Depreciation and amortization				56,639			45,665			36,032
		Total costs and expenses			543,337			418,808			327,469
		Operating income			91,024			43,620			39,714
Other (income) expense:
	Interest expense, net				10,498			11,117			8,092
	Other (income) expense, net				279			(94	)		76
		Income before income taxes			80,247			32,597			31,546
	Provision for income taxes				31,294			12,548			12,145
		Income from continuing operations			48,953			20,049			19,401
		Loss from discontinued operations, net of tax			—			(2,126	)		(140	)
		Net income		$	48,953		$	17,923		$	19,261
Comprehensive income:
	Net income			$	48,953		$	17,923		$	19,261
	Interest rate swap valuations				2,030			—			—
	Foreign currency translation adjustment				(1,700	)		855			3,246
	Comprehensive income			$	49,283		$	18,778		$	22,507
Earnings (loss) per share:
	Basic
		From continuing operations		$	1.74		$	0.73		$	0.71
		From discontinued operations			—			(0.08	)		—
			Total	$	1.74		$	0.65		$	0.71
	Diluted
		From continuing operations		$	1.68		$	0.71		$	0.69
		From discontinued operations			—			(0.07	)		—
			Total	$	1.68		$	0.64		$	0.69
Number of shares used in calculation of earnings per share:
	Basic				28,135,263			27,527,881			27,189,530
	Diluted				29,085,582			28,201,222			27,942,202

The accompanying notes are an integral part of these financial statements.

F-6

W-H ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

	Common Stock
					Additional					Other
			Par		Paid-In		Deferred Stock			Comprehensive			Retained
	Shares		Value		Capital		Compensation			Income			Earnings		Total
Balance, December 31, 2002		27,016	$	3	$	208,646	$	(387	)	$	3,421		$	9,846	$	221,529
Amortization of deferred stock compensation		—		—		—		387			—			—		387
Foreign currency translation adjustment		—		—		—		—			3,246			—		3,246
Issuance of common stock — warrant conversion		184		—		—		—			—			—		—
Issuance of common stock — severance agreement		3		—		61		—			—			—		61
Issuance of common stock — stock option exercises		88		—		512		—			—			—		512
Issuance of common stock — acquisitions		110		—		1,518		—			—			—		1,518
Tax benefit from employee stock option plan		—		—		946		—			—			—		946
Net income		—		—		—		—			—			19,261		19,261
Balance, December 31, 2003		27,401		3		211,683		—			6,667			29,107		247,460
Deferred stock compensation		75		—		1,318		(1,318	)		—			—		—
Amortization of deferred stock compensation		—		—		—		512			—			—		512
Foreign currency translation adjustment		—		—		—		—			855			—		855
Issuance of common stock — stock option exercises		327		—		1,553		—			—			—		1,553
Tax benefit from employee stock option plan		—		—		292		—			—			—		292
Net income		—		—		—		—			—			17,923		17,923
Balance, December 31, 2004		27,803		3		214,846		(806	)		7,522			47,030		268,595
Amortization of deferred stock compensation		—		—		—		526			—			—		526
Foreign currency translation adjustment		—		—		—		—			(1,700	)		—		(1,700	)
Interest rate swap valuations, net of tax of $1,092		—		—		—		—			2,030			—		2,030
Issuance of common stock — stock option exercises		992		—		12,991		—			—			—		12,991
Issuance of common stock — acquisitions		31		—		882										882
Tax benefit from employee stock option plan		—		—		6,673		—			—			—		6,673
Net income		—		—		—		—			—			48,953		48,953
Balance, December 31, 2005		28,826	$	3	$	235,392	$	(280	)	$	7,852		$	95,983	$	338,950

The accompanying notes are an integral part of these financial statements.

F-7

W-H ENERGY SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

					For the Years Ended December 31,
					2005			2004			2003
Cash Flows from Operating Activities:
	Net income				$	48,953		$	17,923		$	19,261
	Adjustments to reconcile net income to cash provided by operating activities —
		Depreciation and amortization				56,639			45,665			36,032
		Provision for doubtful accounts				2,103			1,889			66
		Gain on the sale of assets				(12,158	)		(8,715	)		(7,660	)
		Deferred tax provision				8,045			6,579			6,122
		Amortization of deferred stock compensation				526			512			387
		Write-off of deferred financing costs				—			3,123			—
		Amortization of deferred financing costs				488			842			1,134
		Tax benefit from employee stock option plan				6,673			292			946
		Change in operating assets and liabilities, excluding effects of acquisitions and discontinued operations —
			Accounts receivable, net			(42,230	)		(32,739	)		(10,364	)
			Inventories			(6,572	)		(10,950	)		47
			Prepaid expenses and other			(385	)		(4,038	)		(3,564	)
			Other assets, net			576			(2,130	)		(973	)
			Accounts payable and accrued liabilities			10,028			22,987			(5,826	)
				Net cash provided by operating activities		72,686			41,240			35,608
Cash Flows from Investing Activities:
	Acquisition of businesses, net of cash acquired of $ — , $272 and $1,205					(2,496	)		(4,066	)		(11,903	)
	Additions to property and equipment					(88,967	)		(82,407	)		(65,420	)
	Proceeds from sale of property and equipment					22,934			15,778			12,418
				Net cash used in investing activities		(68,529	)		(70,695	)		(64,905	)
Cash Flows from Financing Activities:
	Proceeds from the issuance of debt					61,783			241,361			135,689
	Payments on debt					(77,588	)		(238,281	)		(107,017	)
	Debt issuance costs					(1,089	)		(1,572	)		(1,939	)
	Proceeds from exercise of stock options					12,991			1,553			512
				Net cash provided by (used in) financing activities		(3,903	)		3,061			27,245
Effect of exchange rate changes on cash						(788	)		(177	)		2,660
Cash flow of discontinued operations (revised — Note 1):
		Operating cash flows				—			(1,533	)		5,204
		Investing cash flows				—			26,674			(3,032	)
				Total		—			25,141			2,172
Net Increase (Decrease) in Cash and Cash Equivalents						(534	)		(1,430	)		2,780
Cash and Cash Equivalents, beginning of period						10,448			11,878			9,098
Cash and Cash Equivalents, end of period					$	9,914		$	10,448		$	11,878
Supplemental Disclosure of Cash Flow Information:
	Interest paid during the period				$	9,366		$	7,120		$	6,954
	Income taxes paid during the period				$	15,647		$	8,411		$	4,171

The accompanying notes are an integral part of these financial statements.

F-8

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business Organization

Description of Company

      W-H Energy Services, Inc., a Texas corporation, and its subsidiaries (collectively, “W-H”) is a diversified oilfield service company that provides products and services used in connection with the drilling and completion of oil and natural gas wells and the production of oil and natural gas there from. W-H has the following primary lines of business: (i) drilling related products and services, which include logging-while-drilling, measurement-while-drilling, directional drilling, down-hole drilling motors, rental tools and drilling fluids; and (ii) completion and workover related products and services, which include cased-hole wireline logging, perforating, tubing conveyed perforating and associated rental equipment, polymers and specialty chemicals, rental tools and coiled tubing.

      W-H’s business depends in large part on the conditions in the oil and natural gas industry and specifically on the amount of capital spending by its customers. Any prolonged increase or decrease in oil and natural gas prices affects the levels of exploration, development and production activity, as well as the entire health of the oil and natural gas industry. Changes in prices could have a material effect on W-H’s results of operations and financial condition, particularly with respect to its drilling related products and services segment. Demand for W-H’s drilling related products and services is directly affected by the level of exploration, development and production activity of, and the corresponding capital spending by, oil and natural gas companies. Demand for W-H’s completion and workover related products and services depends more on oil and natural gas production activity, which is less immediately affected by changes in oil and natural gas prices. Prices for oil and natural gas are subject to large fluctuations in response to relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty and a variety of other factors that are beyond W-H’s control. Any prolonged reduction in oil and natural gas prices may depress the level of exploration, development and production activity. Lower levels of activity result in a corresponding decline in the demand for W-H’s drilling related products and services which could have a material adverse effect on its revenues and profitability. Other risk factors include, but are not limited to, risks associated with (1) W-H’s ability to develop and commercialize competitive tools and technologies, (2) explosions, spills, fires and other accidents, (3) the competitive nature of W-H’s business, (4) the cost and availability of insurance, (5) the ability to attract and retain skilled employees and managers and (6) weather conditions in offshore markets.

Discontinued Operations

      In March 2004, W-H committed to the divestiture of its maintenance and safety related products and services segment. Accordingly, this segment has been included in the Consolidated Statements of Operations and Comprehensive Income as discontinued operations. In April 2004, W-H completed the sale of Well Safe, Inc., one of the two companies that formerly comprised the maintenance and safety related products and services segment, for cash consideration of $28.0 million. In December 2004, W-H sold Charles Holston, Inc., the remaining entity that formerly comprised this segment, for consideration of $2.0 million, consisting of $1.0 million in cash and a $1.0 million subordinated promissory note due December 31, 2009. These sales resulted in a loss of $5.1 million for the year ended December 31, 2004. This loss is included as a component of discontinued operations in the accompanying Consolidated Statements of Operations and Comprehensive Income. Summary financial results for this segment are as follows:

	2004			2003
Revenues	$	16,007		$	31,166
Loss before taxes	$	(3,792	)	$	(228	)
Tax benefit		(1,666	)		(88	)
Net loss	$	(2,126	)	$	(140	)

F-9

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      W-H sold Well Safe and Charles Holston pursuant to customary stock purchase agreements in which it made customary representations and warranties, agreed to customary covenants and agreed to indemnify the buyers of these businesses for certain matters, subject to certain caps, limitations and deductibles.

      In 2005, W-H has revised the 2004 and 2003 statement of cash flows to separately present the operating and investing portions of the cash flows attributable to its discontinued operations, which in prior periods were reported on a combined basis as a single amount.

2. Summary of Significant Accounting Policies

Consolidation and Presentation

      The accompanying consolidated financial statements include the accounts of W-H and its subsidiaries. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current presentation.

Cash and Cash Equivalents

      W-H considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Accounts Receivable

      Accounts receivable have a concentration of credit risk in the oil and natural gas industry. W-H performs continuing credit evaluations of its customers and generally does not require collateral.

Allowance for Doubtful Accounts

      W-H extends credit to customers and other parties in the normal course of business. W-H regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, W-H makes judgments regarding its customers’ ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. In the event W-H was to determine that a customer may not be able to make required payments, W-H would increase the allowance through a charge to income in the period in which that determination is made.

Inventories

      Inventories are stated at the lower of cost or market, determined on a first-in, first-out basis. Inventories consist primarily of equipment, parts, raw materials and supplies. W-H assesses the realizability of its inventories based upon specific usage and future utility. A charge to results of operations is taken when factors that would result in a need for a reduction in the valuation, such as excess or obsolete inventory, are noted.

Property and Equipment

      Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized while minor replacements, maintenance and repairs, which do not improve or extend the life of such assets, are charged to operations as the services are provided. Disposals are removed at cost, less accumulated depreciation, and any resulting gain or loss is reflected in the accompanying consolidated statements of operations and comprehensive income. Proceeds from customers for the cost of oilfield rental equipment that is involuntarily damaged or lost down-hole are reflected as revenues, with the resulting carrying value of the related equipment charged to cost of revenues.

F-10

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Depreciation is calculated using the straight-line method over the estimated useful lives of the depreciable assets. Leasehold improvements are amortized over the shorter of their useful lives or the term of the lease. The useful lives of the major classes of property and equipment are as follows:

	Life in
	Years
Rental equipment		2-10
Machinery and equipment		5-10
Automobiles and trucks		2-10
Office equipment, furniture and fixtures		3-7
Buildings and leasehold improvements		5-40

Realization of Long-Lived Assets

      W-H evaluates the recoverability of assets not held for sale by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. If such evaluations indicate that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. Based on these evaluations, there were no adjustments to the carrying value of long-lived assets in 2005, 2004 or 2003.

Goodwill and Other Intangibles

      Goodwill represents the excess of the aggregate price paid by W-H in acquisitions over the fair market value of the tangible and identifiable intangible net assets acquired. In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” separable intangible assets that are not deemed to have indefinite lives will be amortized over their useful lives.

      Under SFAS No. 142, goodwill and intangible assets with indefinite lives are not amortized but are reviewed annually (or more frequently if indicators arise) for impairment. According to SFAS No. 142, companies are required to identify their reporting units and determine the aggregate carrying values and fair values of all such reporting units. If the carrying value of a reporting unit exceeds its relative fair value, SFAS No. 142 requires that a second impairment test be performed. This second step requires the comparison of the implied fair value of the reporting unit goodwill to its related carrying value, both of which must be measured by the company at the same point in time each year. W-H performed the required assessments in accordance with SFAS No. 142 for the years ended December 31, 2005, 2004 and 2003, which resulted in W-H recording no goodwill impairment expense.

Debt Issue Costs

      Other assets includes debt issue costs related to W-H’s revolving credit facility. W-H amortizes these costs as interest expense over the scheduled maturity period of the debt. As a result of the repayment of its prior credit facility in June 2004, W-H expensed approximately $3.1 million of the unamortized debt financing costs as interest expense during the year ended December 31, 2004. Financing costs associated with W-H’s current credit facility, as amended, totaled approximately $2.6 million, and are amortized ratably to interest expense over the remaining term of the credit facility. See Note 6 to the Consolidated Financial Statements for further discussion.

Revenue Recognition

      W-H provides rental equipment and services to its customers on a day/hourly rate basis and recognizes the related revenue on a per-day/hourly basis as the work progresses. W-H also sells products to customers

F-11

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and recognizes the related revenue as items are shipped from its facilities. Proceeds from customers for the cost of oilfield rental equipment that is involuntarily damaged or lost down-hole are reflected as revenues.

Cost of Revenues

      The primary components of cost of revenues are those salaries, expendable supplies, repairs and maintenance, costs of products sold and general operational costs that are directly associated with the services W-H performed for or products sold by W-H to its customers.

Research and Development

      Research and development costs primarily represent salaries of research personnel and their related expenditures. Such activities are expensed when incurred. For the years ended December 31, 2005, 2004 and 2003, research and development costs were $16.3 million, $15.5 million and $11.2 million, respectively.

Income Taxes

      W-H utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases based on enacted tax rates.

      W-H recognizes liabilities for anticipated tax issues based on its estimate of whether, and the extent to which, additional taxes will be due. These liabilities are adjusted accordingly as information on the associated tax issues becomes available.

Use of Estimates and Assumptions

      The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Financial Instruments

      W-H considers the fair value of all financial instruments (primarily long-term debt) not to be materially different from their carrying values at the end of each fiscal year based on management’s estimate of W-H’s ability to borrow funds under terms and conditions similar to those of W-H’s existing debt.

      On May 18, 2005, W-H entered into interest rate swap agreements with a total notional amount of $150.0 million related to its credit facility. The interest rate swap agreements have been designated as and qualify as cash flow hedging instruments. The interest rate swap agreements are fully effective, and have resulted in no gain or loss due to ineffectiveness being recorded in net income in the Consolidated Statement of Operations and Comprehensive Income. W-H records the fair values of the interest rate swap agreements on its Consolidated Balance Sheet. See Note 7 to the Consolidated Financial Statements for more information.

      With the exception of the operating leases on real property and automobile leases discussed in Note 8 to the Consolidated Financial Statements, W-H has no off-balance sheet debt or other off-balance sheet financing arrangements.

F-12

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Accounting for Stock-Based Compensation

      Through December 31, 2005, W-H accounted for all stock-based employee compensation plans under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Under APB No. 25, no stock-based employee costs are reflected in net income, as all options granted under those plans had an exercise price equal to or in excess of the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share as if W-H had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation:

			Year Ended December 31,
			2005			2004			2003
Net income, as reported			$	48,953		$	17,923		$	19,261
Add: Total stock-based employee compensation expense included in reported net income, net of related tax effect				321			315			239
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect				(2,489	)		(2,692	)		(2,731	)
Pro forma net income			$	46,785		$	15,546		$	16,769
Earnings per share:
	As reported:
		Basic	$	1.74		$	0.65		$	0.71
		Diluted	$	1.68		$	0.64		$	0.69
	Pro forma:
		Basic	$	1.66		$	0.56		$	0.62
		Diluted	$	1.61		$	0.55		$	0.60
Weighted-average fair value per share of options granted			$	11.85		$	9.61		$	9.81

      In calculating the amount of the deduction in the table above, the fair value of each option was estimated on the date of grant using the Black-Scholes option valuation model. The following assumptions were used for the historical option grants in the years ended December 31, 2005, 2004 and 2003: risk-free interest rates between 3.9% and 4.6%; dividend rates of zero; expected lives between 5.6 years and 6.7 years; and expected volatilities between 49.6% and 50.7%.

      In December 2004, the Financial Accounting Standards Board issued SFAS 123R, “Share-Based Payment,” a revision of SFAS 123. In March 2005, the SEC issued Staff Bulletin No. 107 regarding its interpretation of SFAS 123R. Under SFAS 123R and SAB 107, W-H must expense the grant-date fair value of stock options and other equity-based compensation issued to employees. W-H adopted SFAS 123R as of January 1, 2006 using the modified prospective method in which compensation cost is recognized based (1) on the requirements of SFAS 123R for all share-based payments granted after January 1, 2006 and (2) on the requirements of SFAS 123 for all awards granted to employees prior to January 1, 2006 that remain unvested on January 1, 2006. For the year ending December 31, 2006, W-H estimates that the cost relating to this pronouncement for unvested share-based payments granted prior to January 1, 2006 will be approximately $3.1 million, or $0.06 per share. W-H’s Compensation Committee may award additional stock options during 2006 which would increase the amount of this expense.

F-13

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Foreign Currency Translations

      The operations of foreign locations were translated into U.S. dollars based on the current exchange rates at the respective balance sheet dates and the weighted-average rates during each year for the statements of operations and comprehensive income. For the years ended December 31, 2005, 2004 and 2003, the translation adjustments were a loss of $1.7 million and gains of $0.9 million and $3.2 million, respectively, and are reflected as foreign currency translation adjustments in the consolidated statements of operations and comprehensive income.

Earnings per Share

      Basic earnings per share excludes dilution and is computed by dividing income from continuing/discontinued operations available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share are computed considering the dilutive effect of stock options and restricted shares. For the years ended December 31, 2005, 2004 and 2003, shares resulting from the assumed exercise of outstanding options and the existence of outstanding restricted shares of 950,319, 673,341 and 752,672, respectively, were added to the denominator because the inclusion of such shares would be dilutive. For the years ended December 31, 2005, 2004 and 2003, additional shares resulting from the assumed exercise of outstanding options and the existence of outstanding restricted shares of 2,382, 1,404,661 and 1,495,925, respectively, were excluded from the computation of diluted earnings per share, because the inclusion of such shares would be anti-dilutive.

Recent Accounting Pronouncements

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a Replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS No. 154 requires retrospective application of changes in accounting principle to prior periods’ financial statements, rather than the use of the cumulative effect of a change in accounting principle, unless impracticable. If impracticable to determine the impact on prior periods, then the new accounting principle should be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable, with a corresponding adjustment to equity, unless impracticable for all periods presented, in which case prospective treatment should be applied. SFAS No. 154 applies to all voluntary changes in accounting principle, as well as those required by the issuance of new accounting pronouncements if no specific transition guidance is provided. SFAS No. 154 does not change the previously issued guidance for reporting a change in accounting estimate or correction of an error. SFAS No. 154 becomes effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. W-H does not expect this policy to have a material impact on its financial position, results of operations or cash flows.

3. Acquisitions

      During 2005, W-H acquired Madden Systems, Inc. (“Madden”). W-H believes the acquisition of Madden brings technological advantages to those of its operating subsidiaries that offer wireline logging services. Total consideration for this acquisition of $3.5 million included $2.5 million in cash and 31,422 shares of W-H common stock, 10,998 shares of which are being held in escrow for a period of two years against prospective indemnity claims available to W-H, if necessary, under the purchase agreement. W-H recognized intangible assets of approximately $2.6 million, including trade secret technology of $2.1 million and goodwill of approximately $0.5 million.

      During 2004, W-H consummated two acquisitions in the cased-hole wireline business of its completion and workover segment for total consideration of approximately $4.0 million, resulting in goodwill of approximately $1.3 million.

F-14

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Unaudited proforma consolidated financial information for these acquisitions have not been included as the results were not material to current operations.

4. Detail of Certain Balance Sheet Accounts

      Activity in W-H’s allowance for doubtful accounts consists of the following (in thousands):

		Years Ended December 31,
		2005			2004			2003
Balance, beginning of year		$	3,890		$	4,465		$	5,658
	Deductions for uncollectible receivables written off		(750	)		(2,464	)		(1,259	)
	Additions charged to expense		2,103			1,889			66
Balance, end of year		$	5,243		$	3,890		$	4,465

      The components of inventories are as follows (in thousands):

		December 31,
		2005			2004
Finished goods		$	49,248		$	43,380
Work-in-process			3,658			3,646
Raw materials and supplies			8,506			7,152
Inventory reserve			(6,270	)		(5,861	)
	Inventories	$	55,142		$	48,317

      Net property and equipment consists of the following (in thousands):

		December 31,
		2005			2004
Rental equipment		$	339,673		$	295,274
Machinery and equipment			50,294			41,958
Automobiles and trucks			23,023			20,084
Office equipment, furniture and fixtures			7,675			7,114
Building and leasehold improvements			25,862			19,038
	Total		446,527			383,468
Less — accumulated depreciation			(189,241	)		(148,151	)
	Property and equipment, net	$	257,286		$	235,317

      Depreciation expense charged to operations totaled approximately $55.4 million, $44.5 million and $35.2 million for the years ended December 31, 2005, 2004 and 2003, respectively.

F-15

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Goodwill and other intangibles consist of the following (in thousands):

		December 31,
								Life in
		2005			2004			Years
Goodwill		$	113,569		$	112,784			—
License agreements			6,476			6,633			12-17
Non-compete agreements			3,286			3,183			2-5
Trade secret technology			2,100			—			—
	Total		125,431			122,600
Less — accumulated amortization			(5,929	)		(4,799	)
	Goodwill and other intangibles, net	$	119,502		$	117,801

      Amortization expense charged to operations totaled approximately $1.2 million, $1.2 million and $0.8 million for the years ended December 31, 2005, 2004 and 2003, respectively.

      Estimated aggregate amortization of intangible assets (in thousands) for the next 5 years is as follows:

	2006		2007		2008		2009		2010
Amortization	$	1,083	$	981	$	834	$	340	$	252

      Accrued liabilities consist of the following (in thousands):

		December 31,
		2005		2004
Accrued compensation and benefits		$	16,526	$	12,800
Accrued maintenance			4,335		2,595
Accrued taxes			4,654		6,119
Accrued insurance			2,153		1,491
Accrued professional fees			1,782		1,784
Accrued liabilities associated with discontinued operations			1,551		3,105
Other accrued liabilities			12,400		7,032
	Accrued liabilities	$	43,401	$	34,926

5. Goodwill:

      The changes in the carrying amount of goodwill for each of W-H’s reportable business segments for the years ended December 31, 2004 and 2005 were as follows (in thousands):

	Drilling			Completion		Total
Balances as of January 1, 2004	$	38,501		$	72,953	$	111,454
Goodwill acquired during the period		193			1,252		1,445
Goodwill adjusted for prior year acquisitions		(220	)		105		(115	)
Balances as of December 31, 2004		38,474			74,310		112,784
Goodwill acquired during the period		—			542		542
Goodwill adjusted for prior year acquisitions		111			132		243
Balances as of December 31, 2005	$	38,585		$	74,984	$	113,569

F-16

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Credit Facility:

      W-H maintains a revolving credit facility with certain lenders to provide for its cash, liquidity and other borrowing needs. The credit facility provides for aggregate borrowings of up to $375.0 million and matures on May 5, 2010. As of December 31, 2005, W-H had an outstanding loan balance of $165.0 million and approximately $7.9 million in letters of credit issued under its credit facility, resulting in an available borrowing capacity on such date of approximately $202.1 million.

      Amounts borrowed under the credit facility bear interest, at W-H’s election, at either a variable rate equal to LIBOR, plus a margin ranging from 1.0% to 2.0%, depending upon W-H’s leverage ratio, or an alternate base rate equal to the higher of (1) the prime rate or (2) the federal funds rate plus 0.5%, plus a margin ranging from zero to 1.0%, depending upon W-H’s leverage ratio. As of December 31, 2005, borrowings under the credit facility bore interest at LIBOR plus the then applicable margin of 1.25%.

      The credit facility is secured by a lien on substantially all of W-H’s property and assets, a pledge of all the capital stock of W-H’s domestic subsidiaries and a pledge of not greater than 65% of the capital stock of each of W-H’s top tier foreign subsidiaries. In addition, the credit facility is guaranteed by all of W-H’s domestic subsidiaries. The credit facility requires, among other things, that W-H maintain certain financial ratios, including a leverage ratio and an interest coverage ratio, and a specified net worth. The credit facility limits the amount of capital expenditures W-H may make, the amount of debt W-H may incur outside of the credit facility, the amount of future investments W-H may make, the ability of W-H to pay dividends and the ability of W-H to engage in certain business combination transactions.

      W-H entered into its credit facility in June 2004. W-H entered into a first amendment to its credit facility in May 2005 and a second amendment in February 2006. Financing costs associated with W-H’s original credit facility of approximately $1.6 million and financing costs associated with the first amendment of approximately $1.0 million will be ratably amortized to interest expense over the five year term of the credit facility. As a result of the repayment of W-H’s previous credit facility, W-H wrote off approximately $3.1 million in non-cash financing costs to interest expense during 2004. This amount represented financing costs that previously had been deferred.

7. Interest Rate Swap Agreements

      On May 18, 2005, W-H entered into interest rate swap agreements with a total notional amount of $150.0 million related to its credit facility. Under these agreements, W-H receives interest at a floating rate equal to three month LIBOR plus the applicable spread under its credit facility and pays interest at a fixed rate of 4.24% plus the applicable spread under its credit facility. The interest rate swap agreements have been designated as and qualify as cash flow hedging instruments. The interest rate swap agreements are fully effective, and have resulted in no gain or loss due to ineffectiveness being recorded in net income in the Consolidated Statement of Operations and Comprehensive Income. W-H recognized net losses of approximately $0.5 million in 2005 as increases to interest expense resulting from net payments to the swap counterparties. W-H has recorded the fair value of the interest rate swap agreements on its Consolidated Balance Sheet, which was in aggregate a $3.1 million asset at December 31, 2005, based on the fair value of the instruments. As of December 31, 2005, W-H anticipates that approximately $0.7 million of this asset will be recognized as gains resulting in reductions to interest expense during 2006.

8. Commitments and Contingencies

Operating Leases

      W-H leases certain real property and automobiles under operating leases that expire at various dates through 2014. Additionally, W-H rents various equipment under short-term, cancelable arrangements. Rental expense under operating leases and short-term rentals was approximately $25.5 million, $21.4 million and

F-17

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$20.3 million for the years ended December 31, 2005, 2004 and 2003, respectively. Future minimum lease payments under non-cancelable operating leases are as follows (in thousands):

For the Year Ended December 31,
2006		$	6,543
2007			5,133
2008			4,410
2009			2,590
2010			1,633
Thereafter			3,153
	Total	$	23,462

Employment Agreements

      W-H has entered into employment agreements with its corporate officers. Under these agreements, each officer receives a set base salary, subject to adjustment, an annual discretionary bonus based on specific objectives to be determined by the compensation committee, an automobile or automobile allowance and certain fringe benefits as may be available to such executive officers. The agreements are for original terms of two to three years, with certain automatic renewal provisions and contain non-competition agreements. The agreements also contain a termination clause, which requires a two-year payment (2.5 years in the case of W-H’s Chief Executive Officer) based on the officer’s salary and historical bonus amounts received, in the event of termination without cause or certain change of control events.

      W-H also has employment agreements with certain non-corporate officers. The agreements are for original terms of two to three years and provide for severance pay in the event of involuntary termination.

Litigation

      W-H is from time to time a party or otherwise subject to legal proceedings, claims, investigations and other proceedings in the ordinary course of its business. These matters typically involve tort, workers compensation, commercial and infringement and other intellectual property claims. Where appropriate, W-H makes provision for a liability with respect to these claims in its financial statements in accordance with generally accepted accounting principles. These provisions are reviewed periodically and adjusted to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and events pertaining to a particular case. Litigation is inherently unpredictable. W-H believes that it has valid defenses with respect to the legal matters pending against it. It is possible, nevertheless, that W-H’s results of operations or financial position could be adversely affected by the outcome of one or more of these matters.

F-18

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9. Income Taxes

      The components of W-H’s income tax provision are as follows (in thousands):

			Years Ended December 31,
			2005			2004			2003
Current
	U.S. federal and state income taxes		$	26,000		$	2,296		$	975
	Foreign			2,004			2,940			2,335
		Total current		28,004			5,236			3,310
Deferred
	U.S. federal and state income taxes			4,446			9,106			8,468
	Foreign			(1,156	)		(1,794	)		367
		Total deferred		3,290			7,312			8,835
		Total provision	$	31,294		$	12,548		$	12,145

      The United States and foreign components of income before income taxes are as follows (in thousands):

	Years Ended December 31,
	2005		2004			2003
United States	$	77,935	$	34,285		$	27,037
Foreign		2,312		(1,688	)		4,509
Total	$	80,247	$	32,597		$	31,546

      The total provision for income taxes differs from an amount computed at the statutory rate as follows (in thousands):

		Years Ended December 31,
		2005			2004			2003
Federal income tax at statutory rates		$	28,086		$	11,410		$	11,041
State income taxes, net of federal benefit			2,702			1,029			958
Other			(70	)		17			142
Foreign income taxes, net of credits			(410	)		1,161			1,124
Nondeductible items			1,233			983			129
Increase/(decrease) in valuation allowance			334			(2,038	)		185
Credits			(581	)		(14	)		(1,434	)
	Total provision	$	31,294		$	12,548		$	12,145

F-19

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      The significant components of the deferred tax assets and liabilities are as follows (in thousands):

			December 31,
			2005			2004
Deferred tax assets —
	Net operating loss carry-forwards		$	2,759		$	2,642
	Accruals not currently deductible for tax purposes			5,452			4,656
	Write-off of bad debts			1,348			789
	Inventory costs capitalized for tax purposes			565			329
	Credit carry forwards			4,320			422
	Other			753			1,230
		Total gross deferred tax assets		15,197			10,068
	Less — valuation allowance			(1,872	)		(1,538	)
		Net deferred tax assets		13,325			8,530
Deferred tax liabilities —
	Tax depreciation in excess of book depreciation			(31,729	)		(21,911	)
	Tax amortization in excess of book amortization			(12,545	)		(9,916	)
	Other			(3,640	)		(1,951	)
		Total gross deferred tax liabilities		(47,914	)		(33,778	)
		Net deferred tax liabilities	$	(34,589	)	$	(25,248	)

      Applicable U.S. deferred income taxes and related foreign dividend withholding taxes have not been provided on approximately $0.8 million of undistributed earnings and profits of the company’s foreign subsidiaries. W-H considers such earnings to be permanently reinvested outside the United States. It is not practicable to estimate the amount of deferred income taxes associated with these unremitted earnings.

      As of December 31, 2005, W-H had deferred tax assets of $7.0 million relating to $4.3 million of credit carry-forwards, $31.5 million of state net operating loss (“NOL”) carry-forwards and $7.9 million of foreign NOL carry-forwards. Foreign losses related to the Netherlands do not expire; however, our Norwegian NOL carry-forwards expire in 2013 through 2015. State NOL carry-forwards expire beginning in 2006 until 2020. The NOL and credit carry-forwards can be used to reduce W-H’s federal, state and foreign income taxes payable in future years. W-H’s ability to realize the entire benefit of its deferred tax assets requires that W-H achieve certain future earnings levels prior to the expiration of its NOL carry-forwards.

      Valuation allowances have been established for uncertainties in realizing the benefit of tax loss and credit carry-forwards. While W-H expects to realize the net deferred tax assets, changes in future taxable income or in tax laws may alter this expectation. W-H could be required to record an additional valuation allowance against certain or all of its remaining deferred tax assets if market conditions deteriorate or future earnings are below current estimates. As of December 31, 2005, approximately $0.2 million of the valuation allowance relates to state NOL carry-forwards and $1.7 million relates to foreign NOL and credit carry-forwards. The valuation allowance increased approximately $0.3 million in 2005, decreased approximately $2.0 million in 2004, and increased $1.2 million in 2003. The $2.0 million decrease in 2004 was primarily due to release of the valuation allowance on the federal NOL and foreign tax credits. The increases in 2005 and 2003 relate to amounts provided on current foreign and state losses in jurisdictions where management does not believe W-H will be able to utilize the losses in future periods.

F-20

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      W-H recognizes liabilities for anticipated tax issues based on its estimate of whether, and the extent to which, additional taxes will be due. These liabilities are adjusted accordingly as information on the associated tax issues becomes available. As of December 31, 2005 and 2004, amounts reserved for such contingencies were $5.2 million and $7.2 million, respectively.

10. Related-Party Transactions

Lease Agreements

      One of W-H’s subsidiaries leases its facilities from a W-H officer. For each of the years ended December 31, 2005, 2004 and 2003, W-H paid the officer $108,000 for such annual lease costs.

      An additional W-H subsidiary leases its facilities from a company that is partially owned by a W-H officer. For the years ended December 31, 2005, 2004 and 2003, W-H paid the company approximately $312,000, $90,000, and $90,000, respectively for such annual lease costs.

Transactions with Penny-Farthing Press, Inc.

      W-H’s Chairman, President and Chief Executive Officer is the owner of Penny-Farthing Press Inc. (“PFP”), a publishing company, which occasionally performs services for W-H and several of its subsidiaries. In 2005, 2004 and 2003, W-H did not make any payments to PFP for services. During the same periods, PFP made payments to W-H of approximately $42,000, $38,000 and $38,000, respectively, primarily for rental of office space.

11. Shareholders’ Equity

Stock Options

      In May 2004, W-H’s shareholders approved an amendment to W-H’s stock option plan (the “1997 Option Plan”) to increase the number of authorized shares to 4,900,000 to be issued under the 1997 Option Plan. Each option granted under the 1997 Option Plan contains such terms and conditions as may be approved by the compensation committee (the “Committee”). The options currently outstanding under the 1997 Option Plan vest ratably over a four-year period, commencing on the grant date, in 25% increments after each year of service has been completed and will expire ten years from the date the options were granted. The terms of such options also provide that if an optionee’s employment terminates for any reason, the option may be exercised during the three month period following such termination, but only to the extent vested at the time of such termination. As of December 31, 2005, 2,547,666 options were outstanding under this plan.

      Additionally, on March 29, 1999, W-H issued 900,900 options to its chief executive officer under a separate non-statutory option plan. These options have a 10-year term and an exercise price of $4.55 per share. As of December 31, 2005, the remaining unexercised options to purchase 620,000 shares of common stock were vested.

F-21

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      A summary of W-H’s stock option activity for the three years ended December 31, 2005 is as follows:

					Weighted
					Average
		Number of			Price Per
		Options			Share
Outstanding December 31, 2002			3,256,824		$	12.21
	Granted		492,500			18.55
	Exercised		(88,505	)		5.78
	Expired/canceled		(27,361	)		16.45
Outstanding December 31, 2003			3,633,458			13.20
	Granted		561,500			18.10
	Exercised		(328,752	)		4.69
	Expired/canceled		(121,014	)		20.76
Outstanding December 31, 2004			3,745,192			14.43
	Granted		503,500			23.27
	Exercised		(990,045	)		13.09
	Expired/canceled		(90,981	)		20.77
Outstanding December 31, 2005			3,167,666			16.07
Exercisable at December 31, 2005			1,994,916			13.56

      The following table summarizes information about stock options outstanding at December 31, 2005:

	Options Outstanding						Options Exercisable
	Outstanding		Weighted Average				Exercisable
	as of		Remaining				as of
	December 31,		Contractual Life		Weighted Average		December 31,		Weighted Average
Range of Exercise Prices	2005		(in Years)		Exercise Price		2005		Exercise Price
$ 2.21- 5.30		837,141		3.2	$	4.51		837,141	$	4.51
15.28-21.75		1,311,925		7.2		17.98		636,050		17.78
22.88-31.39		1,018,600		7.4		23.11		521,725		22.94
2.21-31.39		3,167,666		6.2		16.07		1,994,916		13.56

Restricted Common Stock

      On May 12, 2004, W-H’s shareholders approved the grant of 75,000 shares of restricted common stock to W-H’s Chairman, President and Chief Executive Officer. Deferred stock compensation of approximately $1.3 million generated by this issuance has been recorded in shareholders’ equity and is being amortized to compensation expense under the provisions of FASB issued Interpretation No. 28, “Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans — interpretation of APB Opinions No. 15 and 25.” During each of the years ended December 31, 2005 and 2004, W-H recognized $0.5 million in compensation expense relating to this restricted stock issuance.

12. 401(k) Plan

      W-H maintains a 401(k) plan that enables employees to defer up to specified percentages of their annual compensation and contribute such amount to the plan. W-H may contribute a matching amount for each participant equal to a discretionary percentage determined annually by W-H. W-H may also contribute

F-22

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

additional amounts at its sole discretion. W-H matching contributions were approximately $2.7 million, $2.2 million and $1.2 million for the years ended December 31, 2005, 2004 and 2003, respectively.

13. Operating Segments

      Management has elected to aggregate its business unit segments based on the differences in each segment’s customers, the products and services offered and other economic characteristics. Based on these requirements, management has identified the following reportable segments: (i) drilling related products and services and (ii) completion and workover related products and services. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies.

Drilling Related Products and Services

      The drilling related products and services segment provides products and services used by oil and natural gas companies, drilling contractors and other oilfield service companies for the drilling of oil and natural gas wells. These products and services are used primarily throughout North America and in select areas internationally. This segment includes the following business lines: (i) logging-while-drilling; (ii) measurement-while-drilling; (iii) directional drilling; (iv) down-hole drilling motors; (v) rental tools and (vi) drilling fluids.

Completion and Workover Related Products and Services

      The completion and workover related products and services segment provides products and services primarily to customers onshore in the Gulf Coast region and offshore in the Gulf of Mexico. These products and services include: (i) cased-hole wireline logging, perforating, tubing conveyed perforating and associated rental equipment; (ii) polymers and specialty chemicals; (iii) rental tools and (iv) coiled tubing.

F-23

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Summary Information

      W-H recognizes revenues, cost of revenues, selling, general and administrative expense, research and development expense and depreciation and amortization expense by segment. Interest expense and other income (expense) are not monitored by segment. Summarized information for W-H’s reportable segments is contained in the following tables (in thousands):

      As of and for the year ended December 31, 2005:

	Drilling		Completion		Corporate			Total
Revenues	$	409,155	$	225,206	$	—		$	634,361
Operating Income		51,081		51,761		(11,818	)		91,024
Depreciation & Amortization		36,136		20,253		250			56,639
Total assets		369,930		228,169		24,676			622,775
Capital expenditures		54,710		34,154		103			88,967

      As of and for the year ended December 31, 2004:

	Drilling		Completion		Corporate			Total
Revenues	$	302,788	$	159,640	$	—		$	462,428
Operating Income		22,651		30,997		(10,028	)		43,620
Depreciation & Amortization		29,380		16,011		274			45,665
Total assets		333,518		199,119		15,974			548,611
Capital expenditures		55,166		27,036		205			82,407

      As of and for the year ended December 31, 2003:

	Drilling		Completion		Corporate			Total
Revenues	$	242,085	$	125,098	$	—		$	367,183
Operating Income		26,881		22,546		(9,713	)		39,714
Depreciation & Amortization		23,237		12,476		319			36,032
Total assets, net of assets held for sale		273,354		188,553		8,831			470,738
Capital expenditures		41,780		23,504		136			65,420

      W-H operates in the United States, the North Sea and other geographic regions. The following is summary information by geographic region (in thousands):

			For the Years Ended December 31,
			2005		2004		2003
Revenues:
	United States		$	563,304	$	410,706	$	305,702
	North Sea			34,331		24,513		36,390
	Other			36,726		27,209		25,091
		Total	$	634,361	$	462,428	$	367,183

F-24

W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

			For the Years Ended December 31,
			2005		2004			2003
Operating Income:
	United States		$	85,857	$	44,741		$	34,130
	North Sea			2,209		(4,644	)		2,309
	Other			2,958		3,523			3,275
		Total	$	91,024	$	43,620		$	39,714

			As of December 31,
			2005		2004
Long-Lived Assets:
	United States		$	369,782	$	336,740
	North Sea			9,498		15,494
	Other			9,317		10,318
		Total	$	388,597	$	362,552

14. Interim Financial Information (Unaudited)

      The following is a summary of consolidated interim information for the years ended December 31, 2005 and 2004 (amounts in thousands, except per share data):

		Three Months Ended
		March 31,		June 30,		September 30,		December 31,
2005
Revenues		$	142,423	$	157,294	$	161,343	$	173,301
Operating income			17,028		19,759		24,253		29,984
Net income			8,683		11,247		12,822		16,201
Earnings per common share:
	Basic		0.31		0.40		0.45		0.57
	Diluted		0.30		0.39		0.44		0.55

		Three Months Ended
		March 31,		June 30,		September 30,		December 31,
2004
Revenues		$	107,544	$	108,434	$	115,453	$	130,997
Operating income			9,331		10,217		9,965		14,107
Net income			4,967		1,595		5,255		6,106
Earnings per common share:
	Basic		0.18		0.06		0.19		0.22
	Diluted		0.18		0.06		0.19		0.21

F-25

EXHIBIT INDEX

Exhibit
Number				Description
	3	.1	—	Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement No. 333-43411 on Form S-1)
	3	.2	—	Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement No. 333-43411 on Form S-1)
	3	.3	—	Statement of Designations of Series A Junior Participating Preferred Stock of the Company (included as Exhibit A to the Rights Agreement (Exhibit 4.2 hereto)) setting forth the terms of the Series A Junior Participating Preferred Stock, par value $0.01 per share
	4	.1	—	Specimen Common Stock certificate (incorporated by reference to Exhibit 4.1 of the Company’s Registration Statement on Form 8-A filed with the SEC on July 28, 2003)
	4	.2	—	Rights Agreement, dated as of May 31, 2002, between the Company and Computershare Trust Company, Inc., as Rights Agent (incorporated by reference to Exhibit 4.2 of to the Company’s Registration Statement on Form 8-A filed with the SEC on July 28, 2003)
	9	.1	—	Amended and Restated Stockholders Agreement, dated March 26, 1999 (incorporated by reference to Exhibit 9.1 of the Company’s Registration Statement No. 333-43411 on Form S-1)
	10	.1	—	Employment Agreement of Kenneth T. White, Jr., dated October 30, 2003 (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003)
	10	.2	—	Employment Agreement of Jeffrey L. Tepera, effective January 1, 2004 (incorporated by reference to Exhibit 10.2 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003)
	10	.3	—	Employment Agreement of William J. Thomas III, effective January 1, 2004 (incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004)
	10	.4	—	W-H Energy Services, Inc. 1997 Stock Option Plan as restated, effective as of May 12, 2004 (incorporated by reference to Appendix B of the Company’s Definitive Proxy Statement on Schedule 14A, filed April 6, 2004)
	10	.5	—	Non-Statutory Stock Option Agreement for Kenneth T. White, Jr., dated March 29, 1999 (incorporated by reference to Exhibit 10.5 of the Company’s Registration Statement No. 333-43411 on Form S-1)
	10	.6	—	Form of Indemnification Agreement (incorporated by reference to Exhibit 10.8 of the Company’s Registration Statement No. 333-43411 on Form S-1)
	10	.7	—	Amended and Restated TJC Transaction Advisory Agreement with TJC Management Corp., dated March 26, 1999 (incorporated by Reference to Exhibit 10.11 of the Company’s Registration Statement No. 333-43411 on Form S-1)
	10	.8	—	Credit Agreement, dated as of June 30, 2004, among the Company, Various Financial Institutions, and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004)
	10	.8(a)	—	First amendment to Credit Agreement dated as of May 5, 2005 among the Company; Wells Fargo Bank, National Association, as Administrative Agent, Co-Lead Arranger and Sole Book Running Manager; JP Morgan Chase Bank, N.A., as Co-Lead Arranger and Co-Syndication Agent; Comerica Bank, as Co- Syndication Agent; The Bank of Nova Scotia, as Co-Documentation Agent; Wachovia Bank, N.A., as Co-Documentation Agent; Citibank Texas, N.A., as Managing Agent; and various other financial institutions parties thereto. (incorporated by reference to Exhibit 10.8(a) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005)

Exhibit Index

Page 1

Exhibit
Number				Description
	10	.8(b)	—	Second amendment to Credit Agreement dated as of February 3, 2006 among the Company; Wells Fargo Bank, National Association, as Administrative Agent, Co-Lead Arranger and Sole Book Running Manager; JP Morgan Chase Bank, N.A., as Co-Lead Arranger and Co-Syndication Agent; Comerica Bank, as Co-Syndication Agent; The Bank of Nova Scotia, as Co-Documentation Agent; Wachovia Bank, N.A., as Co-Documentation Agent; Citibank Texas, N.A., as Managing Agent; and various other financial institutions parties thereto*
	10	.9	—	Employment Agreement of Glen J. Ritter, effective April 14, 2005. (incorporated by reference to Exhibit 10.8(a) to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005)
	10	.10	—	Employment Agreement of Ernesto Bautista, III, effective January 1, 2004 (incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003)
	10	.11	—	Employment Agreement of Stuart J. Ford, effective January 1, 2004 (incorporated by reference to Exhibit 10.11 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004)
	10	.12	—	Restricted Stock Agreement between the Company and Kenneth T. White, Jr. dated as of May 12, 2004 (incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004)
	10	.13	—	Summary of 2006 Base Salary and 2005 Bonus Determinations for Named Executive Officers*
	10	.14	—	Summary of Director Compensation Policy*
	21	.1	—	List of Significant Subsidiaries of the Company*
	23	.1	—	Consent of Grant Thornton LLP*
	23	.2	—	Consent of PricewaterhouseCoopers LLP*
	31	.1	—	Certification of Chief Executive Officer of W-H Energy Services, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
	31	.2	—	Certification of Chief Financial Officer of W-H Energy Services, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
	32	.1	—	Certification of Chief Executive Officer of W-H Energy Services, Inc. pursuant to 18 U.S.C. Section 1350*
	32	.2	—	Certification of Chief Financial Officer of W-H Energy Services, Inc. pursuant to 18 U.S.C. Section 1350*

*  filed herewith

Exhibit Index

Page 2 EX-10.8(B) 2 h33274exv10w8xby.txt SECOND AMENDMENT TO CREDIT AGREEMENT Exhibit 10.8(b) SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment"), dated as of February 3, 2006, is entered into among W-H ENERGY SERVICES, INC., a Texas corporation (the "Borrower"), each Subsidiary Guarantor, the lenders listed on the signature pages hereof as Lenders (the "Lenders"), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent, Swing Line Lender and Issuer. BACKGROUND A. The Borrower, the Lenders and the Administrative Agent are parties to that certain Credit Agreement, dated as of June 30, 2004, as amended by that certain First Amendment to Credit Agreement, dated as of May 5, 2005 (the "Credit Agreement"). The terms defined in the Credit Agreement and not otherwise defined herein shall be used herein as defined in the Credit Agreement. B. The Borrower has requested an amendment to the Credit Agreement with respect to Capital Expenditures. C. The Lenders and the Administrative Agent hereby agree to amend the Credit Agreement, subject to the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the covenants, conditions and agreements hereafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are all hereby acknowledged, the Borrower, the Subsidiary Guarantors, the Lenders and the Administrative Agent covenant and agree as follows: 1. AMENDMENTS. (a) Section 7.2.7 of the Credit Agreement is hereby amended to read as follows: Section 7.2.7 Capital Expenditures, etc. The Borrower will not, and will not permit any of its Subsidiaries to, make or commit to make Capital Expenditures in Fiscal Year 2006 or in any Fiscal Year thereafter in excess of $150,000,000 in aggregate amount. (b) Exhibit F, the Compliance Certificate, is hereby amended to be in the form of Exhibit F hereto. 2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its execution and delivery hereof, the Borrower represents and warrants that, as of the date hereof: (a) the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct in all material respects on and as of the date hereof as made on and as of such date (unless stated to relate solely to an earlier date, in which case such 1 representations and warranties shall be true and correct in all material respects as of such earlier date); (b) no event has occurred and is continuing which constitutes a Default or an Event of Default; (c) (i) the Borrower has full power and authority to execute and deliver this Second Amendment, (ii) this Second Amendment has been duly executed and delivered by the Borrower, and (iii) this Second Amendment and the Credit Agreement, as amended hereby, constitute the legal, valid and binding obligations of the Borrower, enforceable in accordance with their respective terms, except as enforceability may be limited by applicable Debtor Relief Laws and by general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and except as rights to indemnity may be limited by federal or state securities laws; (d) neither the execution, delivery and performance of this Second Amendment, or the Credit Agreement, as amended hereby, nor the consummation of any transactions contemplated herein or therein, will conflict with or contravene (i) any Organizational Document of the Borrower, (ii) any law or governmental regulation or court decree or order binding on or affecting the Borrower that could reasonably be expected to have a Material Adverse Effect, or (iii) any indenture, agreement or other instrument to which the Borrower or any of its property is subject, that could reasonably be expected to have a Material Adverse Effect; and (e) no authorization, approval, consent, or other action by, notice to, or filing with, any governmental authority or other Person not previously obtained or made is required for the (i) due execution, delivery or performance by the Borrower of this Second Amendment, or (ii) the acknowledgment by any Subsidiary Guarantor of this Second Amendment. 3. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall be effective upon satisfaction or completion of the following (for the avoidance of doubt, the Borrower shall comply with Section 7.2.7 of the Credit Agreement without giving effect to this Second Amendment for the 2005 Fiscal Year): (a) the Administrative Agent shall have received counterparts of this Second Amendment executed by Lenders comprising the Required Lenders; (b) the Administrative Agent shall have received counterparts of this Second Amendment executed by the Borrower and acknowledged by each Subsidiary Guarantor; and (c) the Administrative Agent shall have received, in form and substance satisfactory to the Administrative Agent and its counsel, such other documents, certificates and instruments as the Administrative Agent shall require. 2 4. REFERENCE TO THE CREDIT AGREEMENT. (a) Upon the effectiveness of this Second Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", or words of like import shall mean and be a reference to the Credit Agreement, as affected and amended hereby. (b) The Credit Agreement, as amended by the amendments referred to above, shall remain in full force and effect and is hereby ratified and confirmed. 5. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Second Amendment and the other instruments and documents to be delivered hereunder (including the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent with respect thereto). 6. SUBSIDIARY GUARANTOR'S ACKNOWLEDGMENT. By signing below, each Subsidiary Guarantor (a) acknowledges, consents and agrees to the execution, delivery and performance by the Borrower of this Second Amendment, (b) acknowledges and agrees that its obligations in respect of its Subsidiary Guaranty are not released, diminished, waived, modified, impaired or affected in any manner by this Second Amendment or any of the provisions contemplated herein, (c) ratifies and confirms its obligations under its Subsidiary Guaranty, and (d) acknowledges and agrees that it has no claims or offsets against, or defenses or counterclaims to, its Subsidiary Guaranty. 7. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which when taken together shall constitute but one and the same instrument. For purposes of this Second Amendment, a counterpart hereof (or signature page thereto) signed and transmitted by any Person party hereto to the Administrative Agent (or its counsel) by facsimile machine, telecopier or electronic mail is to be treated as an original. The signature of such Person thereon, for purposes hereof, is to be considered as an original signature, and the counterpart (or signature page thereto) so transmitted is to be considered to have the same binding effect as an original signature on an original document. 8. GOVERNING LAW; BINDING EFFECT. This Second Amendment shall be governed by and construed in accordance with the internal laws of the State of Texas, provided that each party shall retain all rights arising under federal law, and shall be binding upon the parties hereto and their respective successors and assigns. 9. HEADINGS. Section headings in this Second Amendment are included herein for convenience of reference only and shall not constitute a part of this Second Amendment for any other purpose. 10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE 3 CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. REMAINDER OF PAGE LEFT INTENTIONALLY BLANK 4 IN WITNESS WHEREOF, this Second Amendment is executed as of the date first set forth above. W-H ENERGY SERVICES, INC. By: /s/ Jeffrey L. Tepera ------------------------------------ Name: Jeffrey L. Tepera Title: Vice President and Chief Financial Officer WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent, as Swing Line Lender, as Issuer and as Lender By: /s/ Eric R. Hollingsworth ------------------------------------ Name: Eric R. Hollingsworth Title: Vice President JPMORGAN CHASE BANK, NA, successor by merger with Bank One, NA, as Co-Syndication Agent and as a Lender By: /s/ Dianne L. Russell ------------------------------------ Name: Dianne L. Russell Title: Vice President THE BANK OF NOVA SCOTIA, as Co-Documentation Agent and as a Lender By: /s/ William E. Zarrett ------------------------------------ Name: William E. Zarrett Title: Managing Director 5 COMERICA BANK, as Co-Syndication Agent and as a Lender By: /s/ Mona M. Foch ------------------------------------ Name: Mona M. Foch Title: Senior Vice President-Texas Division CITIBANK TEXAS, N.A., formerly known as First American Bank, S.S.B., as Managing Agent and as a Lender By: /s/ Dale T. Wilson ------------------------------------ Name: Dale T. Wilson Title: Senior Vice President WACHOVIA BANK, NATIONAL ASSOCIATION, as Co-Documentation Agent and as a Lender By: /s/ Michael S. Hodges ------------------------------------ Name: Michael S. Hodges Title: Vice President SCOTIABANC INC. By: /s/ William E. Zarrett ------------------------------------ Name: William E. Zarrett Title: Managing Director 6 BANK OF SCOTLAND By: /s/ Karen Weich ------------------------------------ Name: Karen Weich Title: Assistant Vice President DnB NOR BANK ASA By: /s/ Peter M. Dodge ------------------------------------ Name: Peter M. Dodge Title: Senior Vice President By: /s/ Stig Kristiansen ------------------------------------ Name: Stig Kristiansen Title: Vice President HIBERNIA NATIONAL BANK By: /s/ Stephen H Birnbaum ------------------------------------ Name: Stephen H. Birnbaum Title: Vice President 7 NATEXIS BANQUES POPULAIRES By: /s/ Timothy L. Polvado ------------------------------------ Name: Timothy L. Polvado Title: Vice President and Group Manager By: /s/ Daniel Payer ------------------------------------ Name: Daniel Payer Title: Vice President REGIONS BANK, successor by merger with Union Planters Bank NA By: /s/ B. Forrest Taylor ------------------------------------ Name: B. Forrest Taylor Title: Sr. Vice President 8 ACKNOWLEDGED AND AGREED: AGRI-EMPRESA, INC. AGRI-EMPRESA TRANSPORTATION, INC. BOYD'S BIT SERVICE, INC. BOYD'S HOLDINGS, L.L.C. COIL TUBING SERVICES, L.L.C. DIAMOND WIRELINE SERVICES, INC. DRILL MOTOR SERVICES, INC. DUTCH, INC. DYNA DRILL TECHNOLOGIES, INC. GRINDING AND SIZING COMPANY, INC. INTEGRITY INDUSTRIES, INC. PATHFINDER ENERGY HOLDINGS, INC. PATHFINDER ENERGY, INC. PATHFINDER MEXICO HOLDINGS, L.L.C. PATHFINDER ENERGY SERVICES HOLDINGS, INC. PATHFINDER ENERGY SERVICES, INC. PERF-O-LOG, INC. STG TRANSPORTATION, INC. SUPERIOR LONESTAR GP, L.L.C. SUPERIOR LONESTAR LP, L.L.C. THOMAS ENERGY SERVICES, INC. W-H ACQUISITIONS, LLC W-H DRILLING SOLUTIONS, INC. W-H ENERGY HOLDINGS, INC. W-H ENERGY HOLDINGS II, INC. WHES MANAGEMENT, INC. E. M. HOBBS, L.P. By: W-H Acquisitions, LLC LSDI, L.P. By: Superior Lonestar GP, L.L.C. PATHFINDER ENERGY SERVICES, LP By: Pathfinder Energy, Inc. PATHFINDER INTERNATIONAL, L.P. By: WHES Management, Inc. SUPERIOR PACKAGING & DISTRIBUTION, L.P. By: Superior Lonestar GP, L.L.C. U.S. CLAY, L.P. By: Agri-Empresa, Inc. W-H ENERGY FINANCING, L.P. By: WHES Management, Inc. 9 W-H ENERGY SERVICES, L.P. By: WHES Management, Inc. By: /s/ Ernesto Bautista III --------------------------------- Ernesto Bautista III Vice President and Assistant Secretary for all WHES PARTNERS, INC. By: /s/ Kenneth T. White, Jr. --------------------------------- Kenneth T. White, Jr. President 10 EX-10.13 3 h33274exv10w13.txt SUMMARY OF 2006 BASE SALARY AND 2005 BONUS DETERMINATIONS FOR NAMED EXECUTIVE OFFICERS EXHIBIT 10.13 Pursuant to separate employment agreements between W-H Energy Services, Inc. (the "Company") and each of the named executive officers set forth below, the Board of Directors (the "Board") of the Company has the discretion, at the beginning of each year, to increase, but not decrease, each such officer's annual base salary above the annual base salary level provided in such agreement. In addition, each such agreement provides for each such officer to receive an incentive compensation bonus of up to 100% (or, in Mr. White's case, 200%) of such officer's annual base salary, the amount of such bonus, if any, to be established in the sole discretion of the Board. On January 17, 2006, the Compensation Committee of the Board recommended, and the Board approved, 2006 annual base salaries, effective January 1, 2006, and 2005 cash bonus payments for such executive officers. In connection with establishing base salaries and bonuses, the Compensation Committee conducted its annual review of Mr. White's performance and, with Mr. White's assistance, the performance of each such other officer. The Compensation Committee also received a report from an independent compensation consulting firm that included a comparison of the compensation paid to executive officers in the Company's peer group. Based on such evaluation as well as the Company's operational and financial performance, the Compensation Committee recommended, and the Board approved, the 2006 base salaries and 2005 bonus payments set forth below: - -------

Executive Officer 2006 Annual Salary 2005 Cash Bonus ------------------ --------------- Kenneth T. White, Jr. Chairman, President and Chief Executive Officer $475,000 $900,000 William J. Thomas III Vice President $360,000 $340,000 Glen J. Ritter Vice President $360,000 $340,000 Jeffrey L. Tepera Vice President and Chief Financial Officer $300,000 $260,000 Stuart J. Ford Vice President and Intellectual Property Counsel $250,000 $230,000

EX-10.14 4 h33274exv10w14.txt SUMMARY OF DIRECTOR COMPENSATION POLICY EXHIBIT 10.14 On October 13, 2005, the Board approved amendments to its director compensation package. As amended, directors of the Company will receive the following compensation during 2006: Annual Retainer $40,000 Compensation for each Board or committee meeting attended $1,500 (subject to a 75% in-person attendance requirement) Annual retainer for Chairman of the Audit Committee $15,000 Annual retainer for Chairman of the Compensation Committee and the Corporate Governance and Nominating Committee $10,000 Annual retainer for Lead Director $5,000 EX-21.1 5 h33274exv21w1.txt LIST OF SIGNIFICANT SUBSIDIARIES OF THE COMPANY Exhibit 21.1 LIST OF SUBSIDIARIES OF THE COMPANY 1. Agri-Empresa Transportation, Inc. (TX) 2. Agri-Empresa, Inc. (TX) 3. Boyd's Bit Service, Inc. (LA) 4. Boyd's Holdings, L.L.C. (DE) 5. Boyd's Rental Tools S. de R.L. de C.V. (Mexico) 6. Boyd's Rental Tools Servicios S. de R.L. de C.V. (Mexico) 7. Coil Tubing Services, L.L.C. (LA) 8. Drill Motor Services, Inc. (LA) 9. Dutch, Inc. (LA) 10. Dyna Drill Technologies, Inc. (TX) 11. Dyna-Drill Technologies Canada LP (Canada) 12. Dyna-Drill Technologies Canada Ltd. (Canada) 13. E.M. Hobbs, L.P. (TX) 14. Grinding and Sizing Company, Inc. (TX) 15. Integrity Industries, Inc. (TX) 16. LSDI, L.P. (DE) 17. P.E.S. Management C.V. (Netherlands) 18. PathFinder Energy Holdings, Inc. (DE) 19. PathFinder Energy Services AS (Norway) 20. PathFinder Energy Services B.V. (Netherlands) 21. PathFinder Energy Services Canada Ltd. (Canada) 22. PathFinder Energy Services Holding B.V. (Netherlands) 23. PathFinder Energy Services Holdings, Inc. (DE) 24. PathFinder Energy Services Limited (UK) 25. PathFinder Energy Services, Inc. (LA) 26. PathFinder Energy Services, L.P. (DE) 27. PathFinder Energy, Inc. (DE) 28. Perf-O-Log, Inc. (TX) 29. STG Transportation, Inc. (TX) 30. Superior Lonestar LP, L.L.C. (DE) 31. Superior Packaging & Distribution, L.P. (DE) 32. Thomas Energy Services, Inc. (LA) 33. U. S. Clay, L.P. (TX) 34. W-H Acquisitions, L.L.C. (DE) 35. W-H Energy Holdings, Inc. (DE) EX-23.1 6 h33274exv23w1.txt CONSENT OF GRANT THORNTON LLP Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We have issued our reports dated March 3, 2006, accompanying the consolidated financial statements and management's assessment of the effectiveness of internal control over financial reporting included in the Annual Report of W-H Energy Services, Inc. on Form 10-K for the year ended December 31, 2005. We hereby consent to the incorporation by reference of said reports in the Registration Statements of W-H Energy Services, Inc. on Forms S-8 (File Nos. 333-69480, 333-56116, and 333-115784). /s/ GRANT THORNTON LLP Houston, Texas March 3, 2006 EX-23.2 7 h33274exv23w2.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.2 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Registration Nos. 333-69480, 333-56116, and 333-115784) of W-H Energy Services, Inc. of our report dated March 11, 2005 relating to the consolidated financial statements, which appears in this Annual Report on Form 10-K. We also consent to the reference to us under the heading "Selected Financial Data" in this Form 10-K. PricewaterhouseCoopers LLP Houston, TX March 3, 2006 EX-31.1 8 h33274exv31w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 302 EXHIBIT 31.1 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Kenneth T. White, Jr., Chief Executive Officer of W-H Energy Services, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of W-H Energy Services, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 6, 2006 /s/ KENNETH T. WHITE, JR. ---------------------------------------- Name: Kenneth T. White, Jr. Title: Chairman, President and Chief Executive Officer EX-31.2 9 h33274exv31w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 302 EXHIBIT 31.2 CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Jeffrey L. Tepera, Chief Financial Officer of W-H Energy Services, Inc., certify that: 1. I have reviewed this annual report on Form 10-K of W-H Energy Services, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 6, 2006 /s/ JEFFREY L. TEPERA ---------------------------------------- Name: Jeffrey L. Tepera Title: Vice President and Chief Financial Officer EX-32.1 10 h33274exv32w1.txt CERTIFICATION OF CEO PURSUANT TO SECTION 1350 EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER W-H ENERGY SERVICES, INC. PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the annual report on Form 10-K for the period ended December 31, 2005 filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kenneth T. White, Jr., the Chief Executive Officer of W-H Energy Services, Inc. (the "Company"), hereby certify, to my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Kenneth T. White, Jr. ---------------------------------------- Name: Kenneth T. White, Jr. Date: March 6, 2006 This certification is furnished solely to comply with the requirements of Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. section 1350, is subject to the knowledge standard contained therein and shall not be deemed to be a part of the Report or "filed" for any purpose whatsoever. EX-32.2 11 h33274exv32w2.txt CERTIFICATION OF CFO PURSUANT TO SECTION 1350 EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER W-H ENERGY SERVICES, INC. PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the annual report on Form 10-K for the period ended December 31, 2005 filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jeffrey L. Tepera, the Chief Financial Officer of W-H Energy Services, Inc. (the "Company"), hereby certify, to my knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Jeffrey L. Tepera ---------------------------------------- Name: Jeffrey L. Tepera Date: March 6, 2006 This certification is furnished solely to comply with the requirements of Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. section 1350, is subject to the knowledge standard contained therein and shall not be deemed to be a part of the Report or "filed" for any purpose whatsoever. -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.8(B)

                                                                 Exhibit 10.8(b)

                      SECOND AMENDMENT TO CREDIT AGREEMENT

     THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Second Amendment"), dated
as of February 3, 2006, is entered into among W-H ENERGY SERVICES, INC., a Texas
corporation (the "Borrower"), each Subsidiary Guarantor, the lenders listed on
the signature pages hereof as Lenders (the "Lenders"), and WELLS FARGO BANK,
NATIONAL ASSOCIATION, as Administrative Agent, Swing Line Lender and Issuer.

                                   BACKGROUND

     A. The Borrower, the Lenders and the Administrative Agent are parties to
that certain Credit Agreement, dated as of June 30, 2004, as amended by that
certain First Amendment to Credit Agreement, dated as of May 5, 2005 (the
"Credit Agreement"). The terms defined in the Credit Agreement and not otherwise
defined herein shall be used herein as defined in the Credit Agreement.

     B. The Borrower has requested an amendment to the Credit Agreement with
respect to Capital Expenditures.

     C. The Lenders and the Administrative Agent hereby agree to amend the
Credit Agreement, subject to the terms and conditions set forth herein.

     NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower, the
Subsidiary Guarantors, the Lenders and the Administrative Agent covenant and
agree as follows:

     1. AMENDMENTS.

     (a) Section 7.2.7 of the Credit Agreement is hereby amended to read as
follows:

          Section 7.2.7 Capital Expenditures, etc. The Borrower will not, and
     will not permit any of its Subsidiaries to, make or commit to make Capital
     Expenditures in Fiscal Year 2006 or in any Fiscal Year thereafter in excess
     of $150,000,000 in aggregate amount.

     (b) Exhibit F, the Compliance Certificate, is hereby amended to be in the
form of Exhibit F hereto.

     2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof:

     (a) the representations and warranties contained in the Credit Agreement
and the other Loan Documents are true and correct in all material respects on
and as of the date hereof as made on and as of such date (unless stated to
relate solely to an earlier date, in which case such


                                        1



representations and warranties shall be true and correct in all material
respects as of such earlier date);

     (b) no event has occurred and is continuing which constitutes a Default or
an Event of Default;

     (c) (i) the Borrower has full power and authority to execute and deliver
this Second Amendment, (ii) this Second Amendment has been duly executed and
delivered by the Borrower, and (iii) this Second Amendment and the Credit
Agreement, as amended hereby, constitute the legal, valid and binding
obligations of the Borrower, enforceable in accordance with their respective
terms, except as enforceability may be limited by applicable Debtor Relief Laws
and by general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law) and except as rights to indemnity may be
limited by federal or state securities laws;

     (d) neither the execution, delivery and performance of this Second
Amendment, or the Credit Agreement, as amended hereby, nor the consummation of
any transactions contemplated herein or therein, will conflict with or
contravene (i) any Organizational Document of the Borrower, (ii) any law or
governmental regulation or court decree or order binding on or affecting the
Borrower that could reasonably be expected to have a Material Adverse Effect, or
(iii) any indenture, agreement or other instrument to which the Borrower or any
of its property is subject, that could reasonably be expected to have a Material
Adverse Effect; and

     (e) no authorization, approval, consent, or other action by, notice to, or
filing with, any governmental authority or other Person not previously obtained
or made is required for the (i) due execution, delivery or performance by the
Borrower of this Second Amendment, or (ii) the acknowledgment by any Subsidiary
Guarantor of this Second Amendment.

     3. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall be effective
upon satisfaction or completion of the following (for the avoidance of doubt,
the Borrower shall comply with Section 7.2.7 of the Credit Agreement without
giving effect to this Second Amendment for the 2005 Fiscal Year):

     (a) the Administrative Agent shall have received counterparts of this
Second Amendment executed by Lenders comprising the Required Lenders;

     (b) the Administrative Agent shall have received counterparts of this
Second Amendment executed by the Borrower and acknowledged by each Subsidiary
Guarantor; and

     (c) the Administrative Agent shall have received, in form and substance
satisfactory to the Administrative Agent and its counsel, such other documents,
certificates and instruments as the Administrative Agent shall require.


                                        2



     4. REFERENCE TO THE CREDIT AGREEMENT.

     (a) Upon the effectiveness of this Second Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as affected and amended hereby.

     (b) The Credit Agreement, as amended by the amendments referred to above,
shall remain in full force and effect and is hereby ratified and confirmed.

     5. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
out-of-pocket costs and expenses of the Administrative Agent in connection with
the preparation, reproduction, execution and delivery of this Second Amendment
and the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Agent with respect thereto).

     6. SUBSIDIARY GUARANTOR'S ACKNOWLEDGMENT. By signing below, each Subsidiary
Guarantor (a) acknowledges, consents and agrees to the execution, delivery and
performance by the Borrower of this Second Amendment, (b) acknowledges and
agrees that its obligations in respect of its Subsidiary Guaranty are not
released, diminished, waived, modified, impaired or affected in any manner by
this Second Amendment or any of the provisions contemplated herein, (c) ratifies
and confirms its obligations under its Subsidiary Guaranty, and (d) acknowledges
and agrees that it has no claims or offsets against, or defenses or
counterclaims to, its Subsidiary Guaranty.

     7. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which when taken together shall constitute but one and the same
instrument. For purposes of this Second Amendment, a counterpart hereof (or
signature page thereto) signed and transmitted by any Person party hereto to the
Administrative Agent (or its counsel) by facsimile machine, telecopier or
electronic mail is to be treated as an original. The signature of such Person
thereon, for purposes hereof, is to be considered as an original signature, and
the counterpart (or signature page thereto) so transmitted is to be considered
to have the same binding effect as an original signature on an original
document.

     8. GOVERNING LAW; BINDING EFFECT. This Second Amendment shall be governed
by and construed in accordance with the internal laws of the State of Texas,
provided that each party shall retain all rights arising under federal law, and
shall be binding upon the parties hereto and their respective successors and
assigns.

     9. HEADINGS. Section headings in this Second Amendment are included herein
for convenience of reference only and shall not constitute a part of this Second
Amendment for any other purpose.

     10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE


                                        3



CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.

                   REMAINDER OF PAGE LEFT INTENTIONALLY BLANK


                                        4



     IN WITNESS WHEREOF, this Second Amendment is executed as of the date first
set forth above.

                                        W-H ENERGY SERVICES, INC.


                                        By: /s/ Jeffrey L. Tepera
                                            ------------------------------------
                                        Name: Jeffrey L. Tepera
                                        Title: Vice President and
                                               Chief Financial Officer


                                        WELLS FARGO BANK, NATIONAL ASSOCIATION,
                                        as  Administrative  Agent,  as Swing
                                        Line Lender, as Issuer and as Lender


                                        By: /s/ Eric R. Hollingsworth
                                            ------------------------------------
                                        Name: Eric R. Hollingsworth
                                        Title: Vice President


                                        JPMORGAN CHASE BANK, NA,
                                        successor by merger with Bank One, NA,
                                        as Co-Syndication Agent and as a Lender


                                        By: /s/ Dianne L. Russell
                                            ------------------------------------
                                        Name: Dianne L. Russell
                                        Title: Vice President


                                        THE BANK OF NOVA SCOTIA,
                                        as Co-Documentation Agent and as
                                        a Lender


                                        By: /s/ William E. Zarrett
                                            ------------------------------------
                                        Name: William E. Zarrett
                                        Title: Managing Director


                                        5



                                        COMERICA BANK,
                                        as Co-Syndication Agent and as a Lender


                                        By: /s/ Mona M. Foch
                                            ------------------------------------
                                        Name: Mona M. Foch
                                        Title: Senior Vice President-Texas
                                               Division


                                        CITIBANK TEXAS, N.A.,
                                        formerly known as First American Bank,
                                        S.S.B., as Managing Agent and as
                                        a Lender


                                        By: /s/ Dale T. Wilson
                                            ------------------------------------
                                        Name: Dale T. Wilson
                                        Title: Senior Vice President


                                        WACHOVIA BANK, NATIONAL ASSOCIATION,
                                        as Co-Documentation Agent and as
                                        a Lender


                                        By: /s/ Michael S. Hodges
                                            ------------------------------------
                                        Name: Michael S. Hodges
                                        Title: Vice President


                                        SCOTIABANC INC.


                                        By: /s/ William E. Zarrett
                                            ------------------------------------
                                        Name: William E. Zarrett
                                        Title: Managing Director


                                        6



                                        BANK OF SCOTLAND


                                        By: /s/ Karen Weich
                                            ------------------------------------
                                        Name: Karen Weich
                                        Title: Assistant Vice President


                                        DnB NOR BANK ASA


                                        By: /s/ Peter M. Dodge
                                            ------------------------------------
                                        Name: Peter M. Dodge
                                        Title: Senior Vice President


                                        By: /s/ Stig Kristiansen
                                            ------------------------------------
                                        Name: Stig Kristiansen
                                        Title: Vice President


                                        HIBERNIA NATIONAL BANK


                                        By: /s/ Stephen H Birnbaum
                                            ------------------------------------
                                        Name: Stephen H. Birnbaum
                                        Title: Vice President


                                        7



                                        NATEXIS BANQUES POPULAIRES


                                        By: /s/ Timothy L. Polvado
                                            ------------------------------------
                                        Name: Timothy L. Polvado
                                        Title: Vice President and Group Manager


                                        By: /s/ Daniel Payer
                                            ------------------------------------
                                        Name: Daniel Payer
                                        Title: Vice President


                                        REGIONS BANK,
                                        successor by merger with
                                        Union Planters Bank NA


                                        By: /s/ B. Forrest Taylor
                                            ------------------------------------
                                        Name: B. Forrest Taylor
                                        Title: Sr. Vice President


                                        8



ACKNOWLEDGED AND AGREED:

AGRI-EMPRESA, INC.
AGRI-EMPRESA TRANSPORTATION, INC.
BOYD'S BIT SERVICE, INC.
BOYD'S HOLDINGS, L.L.C.
COIL TUBING SERVICES, L.L.C.
DIAMOND WIRELINE SERVICES, INC.
DRILL MOTOR SERVICES, INC.
DUTCH, INC.
DYNA DRILL TECHNOLOGIES, INC.
GRINDING AND SIZING COMPANY, INC.
INTEGRITY INDUSTRIES, INC.
PATHFINDER ENERGY HOLDINGS, INC.
PATHFINDER ENERGY, INC.
PATHFINDER MEXICO HOLDINGS, L.L.C.
PATHFINDER ENERGY SERVICES HOLDINGS, INC.
PATHFINDER ENERGY SERVICES, INC.
PERF-O-LOG, INC.
STG TRANSPORTATION, INC.
SUPERIOR LONESTAR GP, L.L.C.
SUPERIOR LONESTAR LP, L.L.C.
THOMAS ENERGY SERVICES, INC.
W-H ACQUISITIONS, LLC
W-H DRILLING SOLUTIONS, INC.
W-H ENERGY HOLDINGS, INC.
W-H ENERGY HOLDINGS II, INC.
WHES MANAGEMENT, INC.
E. M. HOBBS, L.P.
   By: W-H Acquisitions, LLC
LSDI, L.P.
   By: Superior Lonestar GP, L.L.C.
PATHFINDER ENERGY SERVICES, LP
   By: Pathfinder Energy, Inc.
PATHFINDER INTERNATIONAL, L.P.
   By: WHES Management, Inc.
SUPERIOR PACKAGING & DISTRIBUTION, L.P.
   By: Superior Lonestar GP, L.L.C.
U.S. CLAY, L.P.
   By: Agri-Empresa, Inc.
W-H ENERGY FINANCING, L.P.
   By: WHES Management, Inc.


                                        9



W-H ENERGY SERVICES, L.P.
   By: WHES Management, Inc.


By: /s/ Ernesto Bautista III
    ---------------------------------
    Ernesto Bautista III
    Vice President and Assistant
    Secretary for all


WHES PARTNERS, INC.


By: /s/ Kenneth T. White, Jr.
    ---------------------------------
    Kenneth T. White, Jr.
    President


                                       10

EX-10.13

                                                                   EXHIBIT 10.13

Pursuant to separate employment agreements between W-H Energy Services, Inc.
(the "Company") and each of the named executive officers set forth below, the
Board of Directors (the "Board") of the Company has the discretion, at the
beginning of each year, to increase, but not decrease, each such officer's
annual base salary above the annual base salary level provided in such
agreement. In addition, each such agreement provides for each such officer to
receive an incentive compensation bonus of up to 100% (or, in Mr. White's case,
200%) of such officer's annual base salary, the amount of such bonus, if any, to
be established in the sole discretion of the Board.

On January 17, 2006, the Compensation Committee of the Board recommended, and
the Board approved, 2006 annual base salaries, effective January 1, 2006, and
2005 cash bonus payments for such executive officers. In connection with
establishing base salaries and bonuses, the Compensation Committee conducted its
annual review of Mr. White's performance and, with Mr. White's assistance, the
performance of each such other officer. The Compensation Committee also received
a report from an independent compensation consulting firm that included a
comparison of the compensation paid to executive officers in the Company's peer
group. Based on such evaluation as well as the Company's operational and
financial performance, the Compensation Committee recommended, and the Board
approved, the 2006 base salaries and 2005 bonus payments set forth below:

- -------


Executive Officer                                                  2006 Annual Salary            2005 Cash Bonus
                                                                   ------------------            ---------------

                                                                                               
Kenneth T. White, Jr.
Chairman, President and Chief Executive Officer                         $475,000                     $900,000

William J. Thomas III
Vice President                                                          $360,000                     $340,000

Glen J. Ritter
Vice President                                                          $360,000                     $340,000

Jeffrey L. Tepera
Vice President and Chief Financial Officer                              $300,000                     $260,000

Stuart J. Ford
Vice President and Intellectual Property Counsel                        $250,000                     $230,000

EX-10.14

                                                                   EXHIBIT 10.14

On October 13, 2005, the Board approved amendments to its director compensation
package. As amended, directors of the Company will receive the following
compensation during 2006:

                                                                                    
Annual Retainer                                                                        $40,000

Compensation for each Board or committee meeting attended                               $1,500
(subject to a 75% in-person attendance requirement)

Annual retainer for Chairman of the Audit Committee                                    $15,000

Annual retainer for Chairman of the Compensation Committee and the Corporate
Governance and Nominating Committee                                                    $10,000

Annual retainer for Lead Director                                                       $5,000

EX-21.1

                                                                    Exhibit 21.1

                       LIST OF SUBSIDIARIES OF THE COMPANY

1.  Agri-Empresa Transportation, Inc. (TX)
2.  Agri-Empresa, Inc. (TX)
3.  Boyd's Bit Service, Inc. (LA)
4.  Boyd's Holdings, L.L.C. (DE)
5.  Boyd's Rental Tools S. de R.L. de C.V. (Mexico)
6.  Boyd's Rental Tools Servicios S. de R.L. de C.V. (Mexico)
7.  Coil Tubing Services, L.L.C. (LA)
8.  Drill Motor Services, Inc. (LA)
9.  Dutch, Inc. (LA)
10. Dyna Drill Technologies, Inc. (TX)
11. Dyna-Drill Technologies Canada LP (Canada)
12. Dyna-Drill Technologies Canada Ltd. (Canada)
13. E.M. Hobbs, L.P. (TX)
14. Grinding and Sizing Company, Inc. (TX)
15. Integrity Industries, Inc. (TX)
16. LSDI, L.P. (DE)
17. P.E.S. Management C.V. (Netherlands)
18. PathFinder Energy Holdings, Inc. (DE)
19. PathFinder Energy Services AS (Norway)
20. PathFinder Energy Services B.V. (Netherlands)
21. PathFinder Energy Services Canada Ltd. (Canada)
22. PathFinder Energy Services Holding B.V. (Netherlands)
23. PathFinder Energy Services Holdings, Inc. (DE)
24. PathFinder Energy Services Limited (UK)
25. PathFinder Energy Services, Inc. (LA)
26. PathFinder Energy Services, L.P. (DE)
27. PathFinder Energy, Inc. (DE)
28. Perf-O-Log, Inc. (TX)
29. STG Transportation, Inc. (TX)
30. Superior Lonestar LP, L.L.C. (DE)
31. Superior Packaging & Distribution, L.P. (DE)
32. Thomas Energy Services, Inc. (LA)
33. U. S. Clay, L.P. (TX)
34. W-H Acquisitions, L.L.C. (DE)
35. W-H Energy Holdings, Inc. (DE)

EX-23.1

                                                                    Exhibit 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We have issued our reports dated March 3, 2006, accompanying the consolidated
financial statements and management's assessment of the effectiveness of
internal control over financial reporting included in the Annual Report of W-H
Energy Services, Inc. on Form 10-K for the year ended December 31, 2005. We
hereby consent to the incorporation by reference of said reports in the
Registration Statements of W-H Energy Services, Inc. on Forms S-8 (File Nos.
333-69480, 333-56116, and 333-115784).


/s/ GRANT THORNTON LLP

Houston, Texas
March 3, 2006

EX-23.2

                                                                    EXHIBIT 23.2

     CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Registration Nos. 333-69480, 333-56116, and 333-115784)
of W-H Energy Services, Inc. of our report dated March 11, 2005 relating to the
consolidated financial statements, which appears in this Annual Report on Form
10-K. We also consent to the reference to us under the heading "Selected
Financial Data" in this Form 10-K.

PricewaterhouseCoopers LLP

Houston, TX
March 3, 2006

EX-31.1

                                                                    EXHIBIT 31.1

     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kenneth T. White, Jr., Chief Executive Officer of W-H Energy Services, Inc.,
certify that:

     1. I have reviewed this annual report on Form 10-K of W-H Energy Services,
Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

     4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

     a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

     c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

     5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):

     a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: March 6, 2006


                                        /s/ KENNETH T. WHITE, JR.
                                        ----------------------------------------
                                        Name: Kenneth T. White, Jr.
                                        Title: Chairman, President and Chief
                                               Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2

     CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey L. Tepera, Chief Financial Officer of W-H Energy Services, Inc.,
certify that:

     1. I have reviewed this annual report on Form 10-K of W-H Energy Services,
Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

     4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

     a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

     c) disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and

     5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):

     a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: March 6, 2006


                                        /s/ JEFFREY L. TEPERA
                                        ----------------------------------------
                                        Name: Jeffrey L. Tepera
                                        Title: Vice President and Chief
                                               Financial Officer

EX-32.1

                                                                    EXHIBIT 32.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                            W-H ENERGY SERVICES, INC.
                       PURSUANT TO 18 U.S.C. SECTION 1350

     In connection with the annual report on Form 10-K for the period ended
December 31, 2005 filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Kenneth T. White, Jr., the Chief Executive Officer of
W-H Energy Services, Inc. (the "Company"), hereby certify, to my knowledge,
that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.


                                        /s/ Kenneth T. White, Jr.
                                        ----------------------------------------
                                        Name: Kenneth T. White, Jr.
                                        Date: March 6, 2006

This certification is furnished solely to comply with the requirements of Rule
13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. section 1350,
is subject to the knowledge standard contained therein and shall not be deemed
to be a part of the Report or "filed" for any purpose whatsoever.

EX-32.2

                                                                    EXHIBIT 32.2

                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                            W-H ENERGY SERVICES, INC.
                       PURSUANT TO 18 U.S.C. SECTION 1350

     In connection with the annual report on Form 10-K for the period ended
December 31, 2005 filed with the Securities and Exchange Commission on the date
hereof (the "Report"), I, Jeffrey L. Tepera, the Chief Financial Officer of W-H
Energy Services, Inc. (the "Company"), hereby certify, to my knowledge, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.


                                        /s/ Jeffrey L. Tepera
                                        ----------------------------------------
                                        Name: Jeffrey L. Tepera
                                        Date: March 6, 2006

This certification is furnished solely to comply with the requirements of Rule
13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. section 1350,
is subject to the knowledge standard contained therein and shall not be deemed
to be a part of the Report or "filed" for any purpose whatsoever.