SUPERIOR WELL SERVICES, INC. 10-K/A

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K/A

(Amendment No. 1)


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the Fiscal Year Ended December 31, 2006
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File No. 000-51435

SUPERIOR WELL SERVICES, INC.

(Exact name of registrant as specified in its charter)


Delaware		20-2535684
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1380 Rt. 286 East, Suite #121

Indiana, Pennsylvania 15701

(Address of principal executive offices)

(Zip Code)

(Registrant’s telephone number, including area code) (724) 465-8904

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


Common Stock, $.01 par value (Title of class)		The NASDAQ Stock Market LLC (Exchange)

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 o No þ

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

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

As of June 22, 2007, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $305,778,523 based on the closing sale price as reported on the The NASDAQ Stock Market LLC.

As of June 25, 2007, there were outstanding 23,465,567 shares of the registrant’s common stock, par value $.01, which is the only class of common or voting stock of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 with respect to the 2007 annual meeting of shareholders are incorporated by reference in Part III.

SUPERIOR WELL SERVICES, INC.
ANNUAL REPORT ON FORM 10-K/A
(AMENDMENT NO. 1)
EXPLANATORY NOTE

We are filing this Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2006, as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 9, 2007, to amend the disclosure in Items 6, 7 and 8 to reclassify our statements of cash flow data to reflect separately cash flows used to acquire businesses, net of cash acquired, within our cash flows from investing activities. We have also provided additional disclosure in Note 2 to our consolidated financial statements in Item 8 regarding acquisitions that were consummated in 2006.

Other than the changes referred to above, all other information included in the above described Form 10-K, as amended, remains unchanged. This amendment does not reflect events occurring after the filing of such Form 10-K, as amended, and does not modify or update the disclosures therein in any way other than as required to reflect the amendment as described above and set forth below.


Item 6.	*Selected Financial Data*

The selected consolidated financial information contained below is derived from our Consolidated Financial Statements and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements.


	Year Ended December 31,
										2005			2006
	2002			2003			2004			(Superior Well			(Superior Well
	(Partnerships)			(Partnerships)			(Partnerships)			Services, Inc.)			Services, Inc.)
	(In thousands, except income per share information)

Statements of Income Data:
Revenue	$	34,246		$	51,462		$	76,041		$	131,733		$	244,626
Cost of revenue		24,135			35,581			54,447			90,258			165,877

Gross profit		10,111			15,881			21,594			41,475			78,749
Selling, general and administrative expenses		4,723			7,609			11,339			17,809			25,716

Operating income		5,388			8,272			10,255			23,666			53,033
Interest expense		35			78			310			566			478
Other (expense) income		(7	)		20			(148	)		193			159
Income tax expense		—			—			—			13,826			20,791

Net income	$	5,346		$	8,214		$	9,797		$	9,467		$	31,923

Pro Forma income tax expense (unaudited)(1)		(2,288	)		(3,528	)		(4,249	)		—			—

Net income adjusted for pro forma income tax expense (unaudited)	$	3,058		$	4,686		$	5,548			—			—

Net income per common share(2)
Basic	$	0.16		$	0.24		$	0.29		$	0.49		$	1.63
Diluted	$	0.16		$	0.24		$	0.29		$	0.49		$	1.63
Average Shares Outstanding
Basic		19,376,667			19,376,667			19,376,667			19,317,436			19,568,749
Diluted		19,376,667			19,376,667			19,376,667			19,317,436			19,568,749
Statements of Cash Flow Data:
Net cash provided by operations	$	9,151		$	6,692		$	12,790		$	16,742		$	35,949
Net cash used in investing		(10,288	)		(10,765	)		(19,290	)		(40,091	)		(78,902	)
Net cash provided by financing		—			4,827			6,751			32,570			88,940
Capital expenditures		9,813			9,150			19,409			40,790			77,424
Acquisitions, net of cash acquired		—			2,125			—			—			9,150
Depreciation and amortization		2,467			3,465			5,057			8,698			14,453
Balance Sheet Data (at period end):
Cash and cash equivalents	$	538		$	1,293		$	1,544		$	10,765		$	56,752
Property, plant and equipment, net		19,437			26,036			40,594			72,691			141,424
Total assets		26,379			37,225			56,682			113,091			259,034
Long-term debt		34			80			11,093			1,258			1,597
Partners’ capital		18,837			30,112			33,819			—			—
Stockholders’ Equity		—			—			—			91,393			213,904
Other Financial Data:
EBITDA(3)	$	7,848		$	11,757		$	15,164		$	32,557		$	67,645


(1)		Prior to our initial public offering in August 2005, we were not subject to federal or state income taxes due to our partnership structure. Pro forma income tax expense (unaudited) has been computed at statutory rates to reflect the pro forma effect on net income for periods prior to our holding company restructuring in August 2005.

(2)		Share and per share data have been retroactively restated to reflect our holding company restructuring in connection with our initial public offering in August 2005. For the calculations of earnings per share for the years ended December 31, 2002 through 2004, all shares are assumed to have been issued at the beginning of the period resulting in 19,376,667 average shares outstanding.

(3)		We define EBITDA as earnings (net income) before interest expense, income tax expense and depreciation and amortization This term, as we define it, may not be comparable to similarly titled measures employed by other companies and is not a measure of performance calculated in accordance with GAAP. EBITDA should not be considered in isolation or as a substitute for operating income, net income, cash flows provided by operating, investing and financing activities or other income or cash flow statement data prepared in accordance with GAAP. Our management uses EBITDA:


	•	as a measure of operating performance because it assists us in comparing our performance on a consistent basis, since it removes the impact of our capital structure and asset base from our operating results;

	•	as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations;

	•	to assess compliance with financial ratios and covenants included in credit facilities;

	•	in communications with lenders concerning our financial performance; and

	•	to evaluate the viability of potential acquisitions and overall rates of return.

The following table presents a reconciliation of EBITDA with our net income for each of the periods indicated:


	Year Ended December 31,
							2005		2006
	2002		2003		2004		(Superior Well		(Superior Well
	(Partnerships)		(Partnerships)		(Partnerships)		Services, Inc.)		Services, Inc.)
	(In thousands)

*Reconciliation of EBITDA to Net Income:*
Net income	$	5,346	$	8,214	$	9,797	$	9,467	$	31,923
Income tax expense		—		—		—		13,826		20,791
Interest expense		35		78		310		566		478
Depreciation and amortization		2,467		3,465		5,057		8,698		14,453

EBITDA	$	7,848	$	11,757	$	15,164	$	32,557	$	67,645


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

The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report. This discussion contains forward-looking statements that reflect management’s current views with respect to future events and financial performance. Our actual results may differ materially form those anticipated in these forward-looking statements or as a result of certain factors such as those set forth below under “Forward-Looking Statements.”

Overview

We are a Delaware corporation formed in 2005 to serve as the parent holding company for an oilfield services business operating under the Superior Well Services name since 1997 in many of the major oil and natural gas producing regions in the Appalachian, Mid-Continent, Rocky Mountain, Southwest and Southeast regions of the United States. In August 2005, we completed our initial public offering of 6,460,000 shares of common stock at a price of $13.00 per share and in December 2006 we completed a follow-on offering of 3,690,000 shares of common stock at a price of $25.50 per share. We provide a wide range of wellsite solutions to oil and natural gas companies, primarily technical pumping services and down-hole surveying services. We focus on offering technologically advanced equipment and services at competitive prices, which we believe allows us to successfully compete against both major oilfield services companies and smaller, independent service providers.

We derive our revenue from two primary categories of services — technical pumping services and down-hole surveying services. Substantially all of our customers are domestic oil and natural gas exploration and production companies that typically require both types of services in their operations. Our operating revenue from these operations, and their relative percentages of our total revenue, consisted of the following (dollars in thousands):


	Year Ended December 31,
	2004				2005				2006
	(Dollars in thousands)

Revenue:
Technical pumping services	$	68,160	89.6	%	$	119,210	90.5	%	$	219,624	89.8	%
Down-hole surveying services		7,881	10.4	%		12,523	9.5	%		25,002	10.2	%

Total revenue	$	76,041	100.0	%	$	131,733	100.0	%	$	244,626	100.0	%

The following is a brief description of our services:

Technical Pumping Services

We offer three types of technical pumping services — stimulation, nitrogen and cementing — which accounted for 58.4%, 10.4% and 21.0% of our revenue for the year ended December 31, 2006 and 55.3%, 13.4% and 21.8% of our revenue for the year ended December 31, 2005, respectively. Our fluid-based stimulation services include fracturing and acidizing, which are designed to improve the flow of oil and natural gas from producing zones. In addition to our fluid-based stimulation services, we also use nitrogen to stimulate wellbores. Our foam-based nitrogen stimulation services accounted for substantially all of our total nitrogen services revenue in 2005 and 2006. Our cementing services consist of blending high-grade cement and water with various additives to create a cement slurry that is pumped through the well casing into the void between the casing and the bore hole. Once the slurry hardens, the cement isolates fluids and gases, which protects the casing from corrosion, holds the well casing in place and controls the well.

Down-Hole Surveying Services

We offer two types of down-hole surveying services — logging and perforating — which collectively accounted for approximately 10.2% and 9.5% of our revenues for years ended December 31, 2006 and 2005, respectively. Our logging services involve the gathering of down-hole information through the use of specialized tools that are lowered into a wellbore from a truck. An armored electro-mechanical cable, or wireline, is used to transmit data to our surface computer that records various characteristics about the formation or zone to be produced. We provide perforating services as the initial step of stimulation by lowering specialized tools and

perforating guns into a wellbore by wireline. The specialized tools transmit data to our surface computer to verify the integrity of the cement and position the perforating gun, which fires shaped explosive charges to penetrate the producing zone to create a short path between the oil or natural gas reservoir and the production tubing to enable the production of hydrocarbons. In addition, we also perform workover services aimed at improving the production rate of existing oil and natural gas wells, including perforating new hydrocarbon bearing zones in a well once a deeper zone or formation has been depleted.

How We Generate Our Revenue

The majority of our customers are regional, independent oil and natural gas companies. The primary factor influencing demand for our services by those customers is their level of drilling activity, which, in turn, depends primarily on current and anticipated future natural gas and crude oil commodity prices and production depletion rates.

We generate revenue from our technical pumping services and down-hole surveying services by charging our customers a set-up charge plus an hourly rate based on the type of equipment used. The set-up charges and hourly rates are determined by a competitive bid process and depend upon the type of service to be performed, the equipment and personnel required for the particular job and the market conditions in the region in which the service is performed. Each job is given a base time allotment of six hours. We generally charge an increased hourly rate for each hour worked beyond the initial six hour base time allotment. We also charge customers for the materials, such as stimulation fluids, cement and nitrogen, that we use in each job. Material charges include the cost of the materials plus a markup and are based on the actual quantity of materials used.

How We Evaluate Our Operations

Our management uses a variety of financial and operational measurements to analyze the performance of our services. These measurements include the following: (1) operating income per operating region; (2) material and labor expenses as a percentage of revenue; (3) selling, general and administrative expenses as a percentage of revenue; and (4) EBITDA.

Operating Income per Operating Region.

We currently service customers in five operating regions through our 19 service centers. Our Appalachian region service centers are located in Bradford, Black Lick and Mercer, Pennsylvania; Wooster, Ohio; Kimball and Buckhannon, West Virginia; Norton, Virginia; and Gaylord, Michigan. Our Southeast region service centers are located in Cottondale, Alabama; Columbia, Mississippi; and Bossier City, Louisiana. Our Mid-Continent region service centers are located in Hominy, Enid and Cleveland, Oklahoma; and Van Buren, Arkansas. Our initial Rocky Mountain region service center is located in Vernal, Utah and we opened additional Rocky Mountain region service centers in Farmington, New Mexico and Trinidad, Colorado in the third and fourth quarters of 2006, respectively. Our Southwest region service center is located in Alvarado, Texas and commenced operations in the third quarter of 2006.

The operating income generated in each of our operating regions is an important part of our operational analysis. We monitor operating income separately for each of our operating regions and analyze trends to determine our relative performance in each region. Our analysis enables us to more efficiently allocate our equipment and field personnel among our various operating regions and determine if we need to increase our marketing efforts in a particular region. By comparing our operating income on an operating region basis, we can quickly identify market increases or decreases in the diverse geographic areas in which we operate. It has been our experience that when we establish a new service center in a particular operating region, it may take from 12 to 24 months before that service center has a positive impact on the operating income that we generate in the relevant region.

Material and Labor Expenses as a Percentage of Revenue.

Material and labor expenses are composed primarily of cost of materials, maintenance, fuel and the wages of our field personnel. The cost of these expenses as a percentage of revenue has historically remained relatively stable for our established service centers.

Our material costs primarily include the cost of inventory consumed while performing our stimulation, nitrogen and cementing services. Increases in our material and fuel costs are frequently passed on to our customers. However, due to the timing of our marketing and bidding cycles, there is generally a delay of several weeks or months from the time that we incur an actual price increase until the time that we can pass on that increase to our customers.

Our labor costs consist primarily of wages for our field personnel. As a result of recent shortages of qualified supervision personnel and equipment operators, due to increased activity in the oilfield services and commercial trucking sectors, it is possible that we will have to raise wage rates to attract and train workers from other fields in order to maintain or expand our current work force. We believe we will be able to continue to increase service rates to our customers to compensate for wage rate increases.

Selling, General and Administrative Expenses as a Percentage of Revenue.

Our selling, general and administrative expenses, or SG&A expenses, include fees for management services and administrative, marketing and maintenance employee compensation and related benefits, office and lease expenses, insurance costs and professional fees, as well as other costs and expenses not directly related to field operations. Our management continually evaluates the level of our general and administrative expenses in relation to our revenue because these expenses have a direct impact on our profitability. Our selling, general and administrative expenses have increased as a result of our becoming a public company. For a discussion of the increase in costs associated with our public company status, please read “— Items Impacting Comparability of Our Financial Results — Public Company Expenses.”

EBITDA.

We define EBITDA as net income before interest expense, income tax expense and depreciation and amortization expense. Our management uses EBITDA:


	•	as a measure of operating performance because it assists us in comparing our performance on a consistent basis, since it removes the impact of our capital structure and asset base from our operating results;

	•	as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations;

	•	to assess compliance with financial ratios and covenants included in credit facilities;

	•	in communications with lenders concerning our financial performance; and

	•	to evaluate the viability of potential acquisitions and overall rates of return.

How We Manage Our Operations

Our management team uses a variety of tools to manage our operations. These tools include monitoring: (1) service crew utilization and performance; (2) equipment maintenance performance; (3) customer satisfaction; and (4) safety performance.

Service Crew Performance.

We monitor our revenue on a per service crew basis to determine the relative performance of each of our crews. We also measure our activity levels by the total number of jobs completed by each of our crews as well as by each of the trucks in our fleet. We evaluate our crew and fleet utilization levels on a monthly basis, with full utilization deemed to be approximately 24 jobs per month for each of our service crews and approximately 30 jobs per month for each of our trucks. By monitoring the relative performance of each of our service crews, we can more efficiently allocate our personnel and equipment to maximize our overall crew utilization.

Equipment Maintenance Performance.

Preventative maintenance on our equipment is an important factor in our profitability. If our equipment is not maintained properly, our repair costs may increase and, during levels of high activity, our ability to operate efficiently could be significantly diminished due to having trucks and other equipment out of service. Our maintenance crews perform monthly inspections and preventative maintenance on each of our trucks and other mechanical equipment. Our management monitors the performance of our maintenance crews at each of our service centers by monitoring the level of maintenance expenses as a percentage of revenue. A rising level of maintenance expenses as a percentage of revenue at a particular service center can be an early indication that our preventative maintenance schedule is not being followed. In this situation, management can take corrective measures, such as adding additional maintenance personnel to a particular service center to help reduce maintenance expenses as well as ensure that maintenance issues do not interfere with operations.

Customer Satisfaction.

Upon completion of each job, we encourage our customers to complete a “pride in performance survey” that gauges their satisfaction level. The customer evaluates the performance of our service crew under various criteria and comments on their overall satisfaction level. Survey results give our management valuable information from which to identify performance issues and trends. Our management also uses the results of these surveys to evaluate our position relative to our competitors in the various markets in which we operate.

Safety Performance.

Maintaining a strong safety record is a critical component of our operational success. Many of our larger customers have safety history standards we must satisfy before we can perform services for them. We maintain an online safety database that our customers can access to review our historical safety record. Our management also uses this safety database to identify negative trends in operational incidents so that appropriate measures can be taken to maintain a positive safety history.

Our Industry

We provide products and services primarily to domestic onshore oil and natural gas exploration and production companies for use in the drilling and production of oil and natural gas. The main factor influencing demand for well services in our industry is the level of drilling activity by oil and natural gas companies, which, in turn, depends largely on current and anticipated future natural gas and crude oil prices and production depletion rates. Current market indicators suggest an increasing demand for oil and natural gas coupled with a flat or declining production curve, which we believe should result in the continuation of historically high natural gas and crude oil commodity prices. For example, the Energy Information Administration of the U.S. Department of Energy, or EIA, forecasts that U.S. oil and natural gas consumption will increase at an average annual rate of 1.1% through 2025. The EIA also forecasts that U.S. oil production will decline at an average annual rate of 0.5% and natural gas production will increase at an average annual rate of 0.8%.

We anticipate that oil and natural gas exploration and production companies will continue to respond to sustained increases in demand by expanding their exploration and drilling activities and increasing capital spending. In recent years, much of this expansion has focused on natural gas. According to Baker Hughes rig count data, the average total rig count in the United States increased 90.2% from 918 in 2000 to 1,746 through the third week of February 2007, while the average natural gas rig count increased 104.6% from 720 in 2000 to 1,473 through the third week of February 2007. While the number of rigs drilling for natural gas has increased by more than 250% since 1996, natural gas production has decreased by approximately 3% over the same period of time. This is largely a function of increasing decline rates for natural gas wells in the United States. We believe that a continued increase in U.S. drilling and workover activity will be required for the natural gas industry to help meet the expected increased demand for natural gas in the United States.

Our Growth Strategy

Our growth strategy contemplates engaging in organic expansion opportunities and, to a lesser extent, complementary acquisitions of other oilfield services businesses. Our organic expansion activities generally consist of establishing service centers in new locations, including purchasing related equipment and hiring experienced local personnel. Historically, many of our customers have asked us to expand our operations into new regions that they enter. Once we establish a new service center, we seek to expand our operations by attracting new customers and hiring additional local personnel.

Our revenues from each operating region, and their relative percentage of our total revenue, consisted of the following (dollars in thousands):


	2004					2005					2006
			Percent of					Percent of					Percent of
Region	Revenue		Revenue			Revenue		Revenue			Revenue		Revenue

Appalachian	$	48,433		63.7	%	$	71,695		54.4	%	$	118,943		48.6	%
Southeast		21,099		27.8			34,274		26.0			58,491		23.9
Southwest		—		—			—		—			6,832		2.8
Mid-Continent		6,509		8.5			21,073		16.0			43,566		17.8
Rocky Mountain		—		—			4,691		3.6			16,794		6.9

Total	$	76,041		100	%	$	131,733		100	%	$	244,626		100	%

We also pursue selected acquisitions of complementary businesses both in existing operating regions and in new geographic areas in which we do not currently operate. In analyzing a particular acquisition, we consider the operational, financial and strategic benefits of the transaction. Our analysis includes the location of the business, strategic fit of the business in relation to our business strategy, expertise required to manage the business, capital required to integrate and maintain the business, the strength of the customer relationships associated with the business and the competitive environment of the area where the business is located. From a financial perspective, we analyze the rate of return the business will generate under various scenarios, the comparative market parameters applicable to the business and the cash flow capabilities of the business.

To successfully execute our growth strategy, we will require access to capital on competitive terms to the extent that we do not generate sufficient cash from operations. We intend to finance future acquisitions primarily by using capacity available under our bank credit facility and equity or debt offerings or a combination of both. For a more detailed discussion of our capital resources, please read “— Liquidity and Capital Resources”.

Our Results of Operations

Our results of operations are derived primarily by three interrelated variables: (1) market price for the services we provide; (2) drilling activities of our customers; and (3) cost of materials and labor. To a large extent, the pricing environment for our services will dictate our level of profitability. Our pricing is also dependent upon the prices and market demand for oil and natural gas, which affect the level of demand for, and the pricing of, our services and fluctuates with changes in market and economic condition and other factors. To a lesser extent, seasonality can affect our operations in the Appalachian region and certain parts of the Mid-Continent and Rocky Mountain regions, which may be subject to a brief period of diminished activity during spring thaw due to road restrictions. As our operations have expanded in recent years into new operating regions in warmer climates, this brief period of diminished activity no longer has a significant impact on our overall results of operations.

Our results of operations from our two primary categories of services consisted of the following for each of the years in the three-year period ended December 31, 2006:


	Year Ended December 31,
	2004		2005		2006
	(In thousands)

Statement of Operations Data
Revenue:
Technical pumping services	$	68,160	$	119,210	$	219,624
Down-hole surveying services		7,881		12,523		25,002

Total revenue		76,041		131,733		244,626
Expenses:
Cost of revenue		54,447		90,258		165,877
Selling, general and administrative		11,339		17,809		25,716

Total expenses		65,786		108,067		191,593

Operating income	$	10,255	$	23,666	$	53,033

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Revenue.

Revenue was $244.6 million for the year ended December 31, 2006 compared to $131.7 million for the year ended December 31, 2005, an increase of 85.7%. Increased activity levels and pricing improvements led to the increases in 2006. Revenue by operating region increased in 2006 by $47.3 million, $24.2 million, $22.5 million, $6.8 million and $12.1 million in the Appalachian, Southeast, Mid-Continent, Southwest and Rocky Mountain operating regions, respectively. Approximately $56.5 million of the total increase was attributable to new service centers. New service center revenue by operating region increased in 2006 by $17.5 million, $11.9 million, $8.2 million, $6.8 million and $12.1 million in the Appalachian, Southeast, Mid-Continent, Southwest and Rocky Mountain operating regions, respectively. New service centers include: Gaylord, MI (Appalachian), Buckhannon, WV (Appalachian), Norton, VA (Appalachian), Bossier City, LA (Southeast), Van Buren, AK (Mid-Continent), Enid, OK (Mid-Continent), Alvarado, TX (Southwest), Farmington, NM (Rocky Mountain), Trinidad, CO (Rocky Mountain) and Vernal, UT (Rocky Mountain). Existing service center revenue by operating region increased in 2006 by $29.7 million, $12.3 million and $14.4 million in the Appalachian, Southeast and Mid-Continent operating regions, respectively.

Revenue from our technical pumping services increased by approximately 84.2% to $219.6 million for the year ended December 31, 2006 from $119.2 million for the year ended December 31, 2005. Approximately $51.6 million of this increase was attributable to new service centers. New service center revenue by operating region increased in 2006 by $15.8 million, $11.9 million, $6.7 million, $6.8 million and $10.4 million in the Appalachian, Southeast, Mid-Continent, Southwest and Rocky Mountain operating regions, respectively. Existing service center revenue by operating region increased in 2006 by $25.5 million, $11.9 million and $11.4 million in the Appalachian, Southeast and Mid-Continent operating regions, respectively. Increased activity levels and pricing improvements led to the existing center increases in 2006.

Revenue from our down-hole surveying services increased approximately 99.6% to $25.0 million for the year ended December 31, 2006 from $12.5 million for the year ended December 31, 2005. Revenue by operating region increased in 2006 by $5.9 million, $0.4 million, $4.5 million and $1.7 million in the Appalachian, Southeast, Mid-Continent and Rocky Mountain operating regions, respectively. New service center revenue by operating region increased in 2006 by $1.7 million, $1.4 million, and $1.7 million in the Appalachian, Mid-Continent, and Rocky Mountain operating regions, respectively. Increased activity levels and pricing improvements led to the existing center increases in 2006.

Cost of Revenue.

Cost of revenue increased 83.8% to $165.9 million for the year ended December 31, 2006 compared to $90.3 million for the year ended December 31, 2005. Approximately $40.7 million of the aggregate increase in cost of revenues was attributable to the establishment of new service centers. New service center cost of revenue by operating region increased in 2006 by $10.1 million, $6.2 million, $6.8 million, $6.9 million and $10.7 million in the Appalachian, Southeast, Mid-Continent, Southwest and Rocky Mountain operating regions, respectively. The aggregate dollar increase in cost of revenues was due to the fact that these costs vary with revenue and higher activity levels. However, as a percentage of revenue these costs decreased between periods primarily because of higher crew utilization levels, pricing increases and the ability to leverage the fixed cost component of these costs over a higher base of revenue. As a percentage of revenue, cost of revenue decreased to 67.8% for the year ended December 31, 2006 from 68.5% for the year ended December 31, 2005. This percentage decrease was primarily due to an approximate 1.0% drop in cost of materials and labor expenses as a percentage of revenues in 2006 versus 2005. Labor expenses as a percentage of revenues decreased from 18.5% in 2005 to 18.2% in 2006. Aggregate labor expenses in cost of revenue increased $18.8 million to $44.5 million in 2006 due to the hiring of additional personnel in connection with the establishment of new service centers and the expansion of existing service centers.

Selling, General and Administrative Expenses.

SG&A expenses were $25.7 million for the year ended December 31, 2006 compared to $17.8 million for the year ended December 31, 2005, an increase of 44.4%. Approximately $7.1 million was attributable to the establishment of new service centers. New service center SG&A expenses by operating region increased in 2006 by $1.9 million, $0.7 million, $0.9 million, $1.8 million and $1.8 million in the Appalachian, Southeast, Mid-Continent, Southwest and Rocky Mountain operating regions, respectively. We hired additional personnel during 2006 to manage the growth in our operations. As a result of this growth, 2006 expenses for labor, office, rent and insurance expenses increased $5.2 million, $0.4 million, $0.5 million and $0.5 million, respectively. Additionally, legal and professional and franchise tax expenses increased $0.6 million and $0.5 million, respectively. The legal and professional and franchise tax expense increases were associated with becoming a public company in 2005. As a percentage of revenue, the portion of labor expenses included in SG&A expenses decreased to 6.0% in 2006. Aggregate labor expenses increased $3.6 million to $10.3 million in 2006 due to revenue growth.

Operating Income.

Operating income was $53.0 million for the year ended December 31, 2006 compared to $23.7 million for the year ended December 31, 2005, an increase of 124.1%. As a percentage of revenue, operating income increased from 18.0% in 2005 to 21.7% in 2006. The primary reason for this increase was the increase in drilling activity by our customers in our existing locations, coupled with the establishment of new service centers and the expansion of operations in existing service centers. This increase in operating income was partially offset by the increases in our cost of revenue and SG&A expenses as described above. Approximately $8.7 million of this increase was attributable to new service centers. New service center operating income (expense) by operating region increased (decreased) in 2006 by $5.5 million, $5.0 million, $0.5 million, $(1.9) million and $(0.4) million in the Appalachian, Southeast, Mid-Continent, Southwest and Rocky Mountain operating regions, respectively. It has been our experience that when we establish a new service center in a particular operating region, it may take from 12 to 24 months before that service center has a positive impact on the operating income that we generate in the relevant region. EBITDA increased $35.1 million in 2006 to $67.6 million. For a definition of EBITDA, a reconciliation of EBITDA to net income and a discussion of EBITDA as a performance measure, please see footnote 3 to “Selected Financial Data.” Net income increased $22.5 million to $31.9 million in 2006 due to increased activity levels described above. In addition, income tax expense in 2005 included a non-cash adjustment of $8.6 million to deferred tax expense to establish deferred tax liabilities that existed at the time of the reorganization in connection with our initial public offering in August 2005. Prior to our reorganization, our business was not subject to federal or state corporate income taxes.

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

Revenue.

Revenue was $131.7 million for the year ended December 31, 2005 compared to $76.0 million for the year ended December 31, 2004, an increase of 73.2%. Increased activity levels and pricing improvements led to the increases in 2005. Revenue by operating region increased in 2005 by $23.3 million, $13.2 million, $14.6 million and $4.7 million in the Appalachian, Southeast, Mid-Continent and Rocky Mountain operating regions, respectively. Approximately $28.7 million was attributable to the establishment of new service centers. New service center revenue by operating region increased in 2005 by $1.8 million, $7.7 million, $14.5 million and $4.7 million in the Appalachian, Southeast, Mid-Continent and Rocky Mountain operating regions, respectively. New service centers include: Gaylord, MI (Appalachian), Bossier City, LA (Southeast), Columbia, MS (Southeast), Cleveland, OK (Mid-Continent), Van Buren, Arkansas (Mid-Continent) and Vernal, UT (Rocky Mountain). Existing service center revenue by operating region increased in 2005 by $21.4 million, $5.3 million and $0.3 million in the Appalachian, Southeast and Mid-Continent operating regions, respectively.

Revenue from our technical pumping services increased by approximately 74.9% to $119.2 million for the year ended December 31, 2005 from $68.2 million for the year ended December 31, 2004. Approximately $27.1 million was attributable to new service centers. New service center revenue by operating region increased in 2005 by $1.8 million, $7.6 million, $12.9 million and $4.7 million in the Appalachian, Southeast, Mid-Continent and Rocky Mountain operating regions, respectively. Existing service center revenue by operating region increased in 2005 by $18.5 million, $5.3 million and $0.2 million in the Appalachian, Southeast and Mid-Continent operating regions, respectively.

Revenue from our down-hole surveying services increased approximately 58.9% to $12.5 million for the year ended December 31, 2005 from $7.9 million for the year ended December 31, 2004. Revenue by operating region increased in 2005 by $2.9 million and $1.6 million in the Appalachian and Mid-Continent operating regions, respectively. The Mid-Continent operating region increase was from new service centers and the Appalachian operating increase was from existing service centers.

Cost of Revenue.

Cost of revenue increased 65.8% to $90.3 million for the year ended December 31, 2005 compared to $54.4 million for the year ended December 31, 2004. Approximately $20.3 million was attributable to new service centers. New service center cost of revenue by operating region increased in 2005 by $1.8 million, $4.8 million, $10.3 million and $3.4 million in the Appalachian, Southeast, Mid-Continent and Rocky Mountain operating regions, respectively. As a percentage of revenue, cost of revenue decreased to 68.5% for the year ended December 31, 2005 from 71.6% for the year ended December 31, 2004. This percentage decrease was primarily due to a 3.1% drop in labor expenses as a percentage of revenues in 2005 versus 2004. Labor expenses as a percentage of revenues decreased from 20.4% in 2004 to 17.2% in 2005. Aggregate labor expenses included in cost of revenue increased $7.2 million to $22.7 million in 2005 due to revenue growth.

Selling, General and Administrative Expenses.

SG&A expenses were $17.8 million for the year ended December 31, 2005 compared to $11.3 million for the year ended December 31, 2004, an increase of 57.1%. We hired additional personnel during 2005 to manage the growth in our operations. As a result of this growth, 2005 expenses for labor, office, transportation, rent and depreciation increased $3.5 million, $0.5 million, $0.4 million, $0.3 million and $0.4 million, respectively. SG&A expense increases related to the new service centers amounted to $1.6 million, $0.3 million, $0.2 million, $0.2 million and $0.4 million for labor, office, transportation, rent and depreciation, respectively. Additionally, legal and professional and franchise tax expenses increased $0.6 million and $0.2 million, respectively. The legal and professional and franchise tax expense increases were associated with going public during 2005. As a percentage of revenue, the portion of labor expenses included in SG&A expenses decreased slightly from 10.1% in 2004 to 8.4% in 2005.

Operating Income.

Operating income was $23.7 million for the year ended December 31, 2005 compared to $10.3 million for the year ended December 31, 2004, an increase of 130.8%. The primary reason for this increase was the increase in drilling activity by our customers in our existing locations, coupled with the establishment of our new service centers and the expansion of operations at our existing service centers. This increase in operating income was partially offset by the increases in our cost of revenue and SG&A expenses as described above. New service center operating income by operating region increased (decreased) in 2005 by $(0.7) million, $1.2 million, $1.0 million and $0.7 million in the Appalachian, Southeast, Mid-Continent and Rocky Mountain operating regions, respectively. It has been our experience that when we establish a new service center in a particular operating region, it may take from 12 to 24 months before that service center has a positive impact on the operating income that we generate in the relevant region. EBITDA increased $17.4 million in 2005 to $32.6 million. For a definition of EBITDA, a reconciliation of EBITDA to net income and a discussion of EBITDA as a performance measure, please see footnote 3 to “Selected Financial Data.” Net income decreased $0.3 million to $9.5 million in 2005 due to a non-cash adjustment of $8.6 million to deferred tax expense to establish deferred tax liabilities that existed at the time of our reorganization in connection with our initial public offering in August 2005. Prior to our reorganization, our business was not subject to federal or state corporate income taxes. Additionally, the statement of operations reflects federal and state income taxes for the five months of operations that occurred after the reorganization.

Items Impacting Comparability of Our Financial Results

Prior to the initial public offering, we were not subject to federal or state taxes due to the partnership structure. Accordingly, our historical results of operations for the periods presented may not be comparable to our results of operations in the future for the reasons discussed below.

Changes in Our Legal Structure.

Prior to our initial public offering in August 2005, our operations were conducted by two separate operating partnerships under common control, Superior Well Services, Ltd. and Bradford Resources, Ltd. Pursuant to a contribution agreement among Superior Well, Inc. and the former partners of these two operating partnerships, the operations of these two partnerships were combined under a holding company structure immediately prior to the closing of our initial public offering. Superior Well Services, Inc. serves as the parent holding company for this structure. Following the closing of the contribution agreement and our initial public offering as discussed in Note 1 to our historical consolidated financial statements, we began to report our results of operations and financial condition as a corporation on a consolidated basis, rather than as two operating partnerships on a combined basis.

Historically, we did not incur income taxes because our operations were conducted by two separate operating partnerships that were not subject to income tax. The historical combined financial statements of Superior Well Services, Ltd. and Bradford Resources, Ltd., however, include a pro forma adjustment for income taxes calculated at the statutory rate resulting in a pro forma net income adjusted for income taxes. Historically, partnership capital distributions were made to the former partners of our operating partnerships to fund the tax obligations resulting from the partners being taxed on their proportionate share of the partnerships’ taxable income. As a consequence of our change in structure, we recorded a non-cash adjustment of $8.6 million to record the deferred tax asset and liabilities arising from the differences in the financial and tax basis of assets and liabilities that existed at that time. As of December 31, 2006, the net deferred tax liability was approximately $14.0 million, resulting primarily from accelerated depreciation. Following our initial public offering, we incur income taxes under our new holding company structure, and our consolidated financial statements reflect the actual impact of income taxes.

Public Company Expenses.

Our general and administrative expenses have increased as a result of becoming a public company following our initial public offering in 2005. We estimate approximately $1.5-$2.0 million of the total increase in our annual general and administrative expenses for the year ended December 31, 2006 as compared to the year ended December 31, 2005 was attributable to expenses incurred as a result of becoming a public company. This increase was due to the cost of tax return preparations, accounting support services, Sarbanes-Oxley compliance expenses,

filing annual and quarterly reports with the SEC, investor relations, directors’ fees, directors’ and officers’ insurance and registrar and transfer agent fees. Our consolidated financial statements reflect the impact of these increased expenses and affect the comparability of our financial statements with periods prior to the completion of our initial public offering.

Non-cash Compensation Expense.

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, or SFAS No. 123R. Under this standard, companies are required to account for equity transactions using an approach in which the fair value of an award is estimated at the date of grant and recognized as an expense over the requisite service period. Our results of operations for the year ended December 31, 2006 includes $1.7 million of additional compensation expense as a result of the adoption of SFAS No. 123R and its application to the restricted stock awards that we primarily granted in January 2006.

Liquidity and Capital Resources

Prior to the completion of our initial public offering, cash generated from operations, borrowings under our existing credit facilities and funds from partner contributions were our primary sources of liquidity. Following completion of our initial public offering, we rely on cash generated from operations, future public equity and debt offerings and borrowings under our revolving credit facility to satisfy our liquidity needs. Our ability to fund planned capital expenditures and to make acquisitions will depend upon our future operating performance, and more broadly, on the availability of equity and debt financing, which will be affected by prevailing economic conditions in our industry and financial, business and other factors, some of which are beyond our control. At December 31, 2006, we had $56.8 million of cash and cash equivalents and $33.8 million of availability under our bank credit facilities which can be used for planned capital expenditures and to make acquisitions.

Financial Condition and Cash Flows

Financial Condition.

Our working capital increased $55.5 million to $84.0 million at December 31, 2006 compared to December 31, 2005, primarily due to increases in cash, accounts receivable and inventory of $46.0 million, $23.9 million and $3.2 million, respectively. Cash increased due to proceeds from our follow-on equity offering in December 2006, and the increase in accounts receivable and inventory which was due to the higher revenue activity discussed above in “— Our Results of Operations.” Offsetting the increase in current assets were increases in accounts payable and accrued liabilities of $13.8 million and $3.0 million, respectively. These increases were due to the higher revenue activity levels. Additionally, capital expenditures were $69.8 million for the year ended December 31, 2006. The capital expenditures were financed through funds generated by our initial public offering in August 2005 and our December 2006 follow-on equity offering, as well as through $27.1 million of long term debt that was subsequently repaid using proceeds from our December 2006 follow-on equity offering.

Cash flows from operations.

Our cash flow from operations increased $19.2 million to $35.9 million for the year ended December 31, 2006 compared to December 31, 2005, primarily due to higher income before income taxes. Also contributing to the 2006 increase in cash flow from operations were non-cash stock based compensation and depreciation and amortization of $1.7 million and $5.8 million, respectively. These increases were partially offset by working capital changes that decreased cash flows from operations by $17.1 million for the year ended December 31, 2006 as compared to the year ended December 31, 2005. Working capital decreased cash flow from operations due to growth in accounts receivable, inventory, accounts payable and accrued liabilities as a result of higher revenues. Accounts receivable, inventory, accounts payable and accrued liabilities increased $23.9 million, $3.2 million, $13.8 million and $3.0 million, respectively for the year ended December 31, 2006 as compared to the year ended December 31, 2005. Deferred income taxes also decreased in 2006 because the 2005 amounts included a non-cash adjustment of $8.6 million to record net deferred tax liabilities that existed at the time of our reorganization in connection with our initial public offering in August 2005.

Cash flows used in investing activities.

Net cash used in investing activities increased from $41.0 million for the year ended December 31, 2005 to $78.9 million for the year ended December 31, 2006. The increase was due to higher amounts of capital expenditures to purchase and upgrade pumping and down-hole surveying equipment. In October 2006, we purchased substantially all of the operating assets of Patterson Wireline, L.L.C. for approximately $8.7 million in cash. Patterson provides open hole and cased hole completion services that expanded our market presence in Colorado and New Mexico. In addition, our goodwill and intangible assets increased by $3.9 million due principally to asset acquisitions that occurred in 2006, including the Patterson acquisition.

Cash flows from financing activities.

Net cash provided by financing activities increased $56.4 million to $88.9 million for the year ended December 31, 2006, primarily due to net proceeds from our follow-on equity offering in December 2006 that was partially offset by debt repayments using the proceeds from that offering. The significant increase in cash flows from financing activities included $88.6 million in net proceeds from the follow-on public offering and $27.1 million from credit facility borrowings used to fund capital expansion. These increases were partially offset by long-term debt repayments of $27.0 million.

Capital Requirements

The oilfield services business is capital-intensive, requiring significant investment to expand and upgrade operations. Our capital requirements have consisted primarily of, and we anticipate will continue to be:


	•	expansion capital expenditures, such as those to acquire additional equipment and other assets to grow our business; and

	•	maintenance or upgrade capital expenditures, which are capital expenditures made to extend the useful life of partially or fully depreciated assets or to upgrade the operational capabilities of existing assets.

We continually monitor new advances in pumping equipment and down-hole technology and commit capital funds to upgrade and purchase additional equipment to meet our customers’ needs. For the year ended December 31, 2006, we made capital expenditures of approximately $75.1 million to purchase new and upgrade existing pumping and down-hole surveying equipment. The 2006 capital expenditure amounts include approximately $24.9 million of construction in progress for new capital equipment to be delivered in 2007. These purchase and upgrades allow us to deploy additional service crews. Our preliminary 2007 capital expenditure budget is approximately $84.0 million. We plan to continue to focus on expanding our ability to provide stimulation services for high-pressure wells, with approximately 45-50% of our planned 2007 capital expenditures budgeted for high-pressure pumping equipment.

Given our objective of growth through organic expansions and selective acquisitions, we anticipate that we will continue to invest significant amounts of capital to acquire businesses and assets. We actively consider a variety of businesses and assets for potential acquisitions, although currently we have no agreements or understandings with respect to any acquisition. For a discussion of the primary factors we consider in deciding whether to pursue a particular acquisition, please read “— Our Growth Strategy”. Management believes that cash flows from operations, combined with cash and cash equivalents and borrowing under our revolving credit facility will provide us with sufficient capital resources and liquidity to manage our routine operations and fund capital expenditures that are presently projected.

The following table summarizes our contractual cash obligations as of December 31, 2006 (in thousands):


			Less Than						After 5
Contractual Cash Obligations	Total		1 Year		1-3 Years		4-5 Years		Years

Long term and short term debt	$	1,979	$	382	$	540	$	243	$	814
Operating leases		4,000		1,264		2,020		716		—
Purchase obligations		64,700		64,700		—		—		—

Total	$	70,679	$	66,346	$	2,560	$	959	$	814

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of December 31, 2006.

Description of Our Indebtedness

We used the proceeds from our follow-on equity offering in December 2006 to repay all amounts outstanding under our credit facilities. In October 2005, we entered into a $20.0 million revolving credit facility with our existing lending institution, which matures in October 2008. Interest on the revolving credit facility is at LIBOR plus a spread of 1.00% to 1.25%, based upon certain financial ratios, or the prime lending rate, at our option. As of December 31, 2006, we had no borrowings under our revolving credit facility and had $15.8 million of available capacity and $4.2 million in letters of credit outstanding.

In August 2006, we entered into a standby term loan facility with our existing lending institution. The standby term loan facility provides an additional $30.0 million of borrowing capacity that can be used to finance equipment purchases. The standby term loan facility matures in August 2008, at which time the outstanding aggregate principle balance under the standby term facility will convert to a single amortizing 60-month term loan. Interest on the standby term loan facility will be at LIBOR plus a spread of 1% to 1.25%, based upon certain financial ratios. As of December 31, 2006, we had no borrowings under the standby term loan facility and had $18.0 million of borrowing availability.

The standby term loan facility and revolving credit facility are secured by our cash, investment property, accounts receivable, inventory, intangibles and equipment. Both facilities contain leverage ratio and net worth covenants and a fixed charge coverage ratio as specified in the respective credit agreements. At December 31, 2006, we were in compliance with the financial covenants required under our revolving credit facility and our standby term loan facility.

At December 31, 2006, we had $2.0 million of other indebtedness, collateralized by specific buildings and equipment.

Recent Accounting Pronouncements

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3, or SFAS No. 154. SFAS No. 154 requires retrospective application to prior periods’ financial statements for voluntary changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions and makes a distinction between retrospective application of an accounting principle and the restatement of financial statements to reflect the correction of an error. Additionally, SFAS No. 154 requires that a change in depreciation, amortization or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 did not have an impact on our consolidated financial statements.

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, or FIN 48, effective for fiscal years beginning after December 15, 2006. FIN 48 prescribes a recognition threshold and measurement attribute, as well as criteria for subsequently recognizing, derecognizing and measuring tax positions for financial statement purposes and requires companies to make disclosures about uncertain tax positions, including detailed rollforward of tax benefits taken that do not qualify for financial statement recognition. We are currently evaluating the impact of FIN 48 on our consolidated financial statements.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, or SAB 108. SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. In SAB 108, the SEC staff established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of the company’s financial statements

and related financial statement disclosures. This model is commonly referred to as a “dual-approach.” The adoption of SAB 108 did not have an impact on our consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This standard only applies when other standards require or permit the fair value measurement of assets and liabilities. It does not increase the use of fair value measurement. SFAS No. 157 is effective for fiscal years beginning after Nov. 15, 2007. The Company is currently evaluating the impact of adopting this Statement; however, we do not expect it to have an effect on our consolidated financial statements.

Critical Accounting Policies

The selection and application of accounting policies is an important process that has developed as our business activities have evolved and as the accounting standards have developed. Accounting standards generally do not involve a selection among alternatives, but involve the implementation and interpretation of existing standards, and the use of judgment applied to the specific set of circumstances existing in our business. We make every effort to properly comply with all applicable standards on or before their adoption, and we believe the proper implementation and consistent application of the accounting standards are critical. For further details on our accounting policies, please read Note 2 to the historical consolidated financial statements included elsewhere in this prospectus.

These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the amounts of revenue and expenses recognized during the reporting period. We analyze our estimates based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. However, actual results could differ from such estimates. The following is a discussion of our critical accounting policies.

Revenue Recognition

We recognize revenue when the services are performed, collection of the relevant receivables is reasonably assured, evidence of the arrangement exists and the price is determinable. Substantially all of our services performed for our customers are completed within one day.

We grant credit to all qualified customers. Losses arising from uncollectible accounts have been negligible. Management maintains close, regular contact with customers and regularly reviews accounts receivable for credit risks resulting from changes in the financial condition of our customers. We record an allowance for uncollectible accounts receivable when management believes that a related receivable is not recoverable based on customer payment activity and other factors that could affect collection. Judgment is involved in performing these evaluations, since the results are based on estimated future events. Such items include the financial stability of our customers, timing of anticipated payments, as well as the overall condition of the oil and gas industry. Historically, our loss experience has not been significant, but if there is a prolonged downturn in the oil and gas industry, our loss experience could materially change.

Property, Plant and Equipment

Our property, plant and equipment are carried at cost and are depreciated using the straight-line and accelerated methods over their estimated useful lives. The estimated useful lives range from 15 to 30 years for buildings and improvements and range from five to ten years for equipment and vehicles. The estimated useful lives may be adversely impacted by technological advances, unusual wear or by accidents during usage. Management routinely monitors the condition of equipment. Historically, management has not changed the estimated useful lives of our property, plant and equipment and presently does not anticipate any significant changes to those estimates. Repairs and maintenance costs, which do not extend the useful lives of the asset, are expensed in the period incurred.

Impairment of Long-Lived Assets

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we evaluate our long-lived assets, including related intangibles, of identifiable business activities for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. The determination of whether impairment has occurred is based on management’s estimate of undiscounted future cash flows attributable to the assets as compared to the carrying value of the assets. For assets identified to be disposed of in the future, the carrying value of these assets is compared to the estimated fair value less the cost to sell to determine if impairment is required. Until the assets are disposed of, an estimate of the fair value is recalculated when related events or circumstances change.

When determining whether impairment of one of our long-lived assets has occurred, we must estimate the undiscounted cash flows attributable to the asset or asset group. Our estimate of cash flows is based on assumptions regarding the future estimated cash flows, which in most cases is derived from our performance of services. The amount of future business is dependent in part on natural gas and crude oil prices. Projections of our future cash flows are inherently subjective and contingent upon a number of variable factors, including but not limited to:


	•	changes in general economic conditions in regions in which our services are located;

	•	the price of natural gas and crude oil;

	•	our ability to negotiate favorable sales arrangements; and

	•	our competition from other service providers.

We currently have not recorded any impairment of an asset. Any significant variance in any of the above assumptions or factors could materially affect our cash flows, which could require us to record an impairment of an asset.

Goodwill and Other Intangible Assets

In accordance with SFAS No. 142, no amortization is recorded for goodwill and/or intangible assets deemed to have indefinite lives for acquisitions completed after June 30, 2001. SFAS No. 142 requires that goodwill and non-amortizable assets be assessed annually for impairment. We completed the annual impairment test for 2006 and no impairment was determined. At December 31, 2006, our intangible assets consisted of $2.9 million of goodwill and $1.4 million of customer relationships and non-compete agreements that are amortized over their estimated useful lives which range from three to five years. For the years ended December 31, 2004, 2005 and 2006, we recorded amortization expense of $285,000, $285,000 and $345,000, respectively.

Contingent Liabilities

We record expenses for legal, environmental and other contingent matters when a loss is probable and the cost or range of cost can be reasonably estimated. Judgment is often required to determine when expenses should be recorded for legal, environmental and contingent matters. In addition, we often must estimate the amount of such losses. In many cases, our judgment is based on the input of our legal advisors and on the interpretation of laws and regulations, which can be interpreted differently by governmental regulators and the courts. We monitor known and potential legal, environmental and other contingent matters and make our best estimate of when to record losses for these matters based on available information. Although we continue to monitor all contingencies closely, particularly our outstanding litigation, we currently have no material accruals for contingent liabilities.

Insurance Expenses

We partially self-insure employee health insurance plan costs. The estimated costs of claims under this self-insurance program are accrued as the claims are incurred (although actual settlement of the claims may not be made until future periods) and may subsequently be revised based on developments relating to such claims. The self-insurance accrual is estimated based upon our historical experience, as well as any known unpaid claims activity. Judgment is required to determine the appropriate accrual levels for claims incurred but not yet received and paid. The accrual estimates are based primarily upon recent historical experience adjusted for employee headcount

changes. Historically, the lag time between the occurrence of an insurance claim and the related payment has been approximately two months and the differences between estimates and actuals have not been material. The estimates could be affected by actual claims being significantly different. Presently, we maintain an insurance policy that covers claims in excess of $110,000 per employee.

Stock-Based Compensation

Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123R”). Under this standard, companies are required to account for equity-based awards using an approach in which the fair value of an award is estimated at the date of grant and recognized as an expense over the requisite service period. Compensation expense is adjusted for equity awards that do not vest because service or performance conditions are not satisfied. Our results of operations for the year ended December 31, 2006 includes $1,740,000 of additional compensation expense as a result of the adoption of SFAS 123R. We had no stock based compensation prior to 2006.

Impact of Inflation

Inflation can affect the costs of fuel, raw materials and equipment that we purchase for use in our business. We are generally able to pass along any cost increases to our customers, although due to pricing commitments and the timing of our marketing and bidding cycles there is generally a delay of several weeks or months from the time that we incur a cost increase until the time we can pass it along to our customers. Management is of the opinion that inflation has not had a significant impact on our business.

Forward-Looking Statements and Risk Factors

Certain information contained in this Annual Report on Form 10-K (including, without limitation, statements contained in Part I, Item 1. “Business”, Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 9A. “Controls and Procedures”), as well as other written and oral statements made or incorporated by reference from time to time by us and our representatives in other reports, filings with the United States Securities and Exchange Commission (the “SEC”), press releases, conferences, or otherwise, may be deemed to be forward-looking statements within the meaning of Section 2lE of the Securities Exchange Act of 1934 (“the Exchange Act”).

Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect,” “may,” and similar expressions, as they relate to us and our management, identify forward-looking statements. The actual results of future events described in such forward-looking statements could differ materially from the results described in the forward-looking statements due to the risks and uncertainties set forth below and elsewhere within this Annual Report on Form 10-K:


	•	a decrease in domestic spending by the oil and natural gas exploration and production industry;

	•	a decline in or substantial volatility of natural gas and crude oil commodity prices;

	•	the loss of one or more significant customers;

	•	the loss of or interruption in operations of one or more key suppliers;

	•	the incurrence of significant costs and liabilities in the future resulting from our failure to comply with new or existing environmental regulations or an accidental release of hazardous substances into the environment; and

	•	other financial, operational and legal risks and uncertainties detailed from time to time in our Securities and Exchange Commission filings.


Item 8.	*Financial Statements and Supplementary Data*

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and Stockholders of

Superior Well Services, Inc.:

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934). Our internal control over financial reporting is designed to provide reasonable assurance to management and board of directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2006. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on our assessment, we believe that, as of December 31, 2006, our internal control over financial reporting is effective based on those criteria.

Management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2006, has been audited by Schneider Downs & Co. Inc., an independent registered public accounting firm which also audited our consolidated financial statements. Schneider Down’s attestation report on management’s assessment of our internal control over financial reporting is included under the heading “Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.”

Indiana, Pennsylvania

March 6, 2007

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Superior Well Services, Inc.

We have audited management’s assessment, included in the accompanying “Management’s Report on Internal Control Over Financial Reporting”, that Superior Well Services, Inc. (Superior) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Superior’s management 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 opinion.

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 Superior Well Services, Inc. maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also in our opinion, Superior Well Services, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets and the related statements of income, changes in capital and stockholders’ equity, and cash flows of Superior Well Services, Inc, and our report dated March 6, 2007 expressed an unqualified opinion.

/s/ Schneider Downs & Co., Inc.

Pittsburgh, Pennsylvania

March 6, 2007

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Superior Wells Services, Inc.

We have audited the accompanying consolidated balance sheets of Superior Well Services, Inc. (Superior) as of December 31, 2006 and 2005, and the related statements of income, changes in capital and stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2006. In addition, our audit included the financial statement schedule listed in the index at Item 15 (b) (Schedule II). These consolidated financial statements and financial statement schedule are the responsibility of Superior’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

We conducted our audits 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 audits provide 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 Superior as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements as a whole, presents fairly, in all material respects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Superior Well Services, Inc.’s internal control over financial reporting as of December 31, 2006, 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 6, 2007 expressed an unqualified opinion on management’s assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.

/s/ Schneider Downs & Co., Inc.

Pittsburgh, Pennsylvania

March 6, 2007

SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	December 31,			December 31,
	2005			2006
	(Superior Well			(Superior Well
	Services, Inc.)			Services, Inc.)
	(In thousands, except
	per share data)

Current Assets:
Cash and cash equivalents	$	10,765		$	56,752
Trade accounts receivable, net of allowance of $134 and $772, respectively		23,381			47,325
Inventories		3,761			6,951
Prepaid expenses and other current assets		1,157			908
Deferred income taxes		303			507

Total current assets		39,367			112,443
Property, Plant and Equipment:
Land		420			420
Building and improvements		1,842			3,323
Equipment and vehicles		84,184			149,195
Construction in progress		8,760			24,922

		95,206			177,860
Accumulated depreciation		(22,515	)		(36,436	)

Total property, plant and equipment, net		72,691			141,424
Goodwill		—			2,850
Intangible assets, net of accumulated amortization of $665 and $1,010, respectively		760			1,416
Deferred income taxes		—			585
Other assets		273			316

Total assets	$	113,091		$	259,034

Current Liabilities:
Accounts and construction payable-trade	$	7,737		$	21,565
Income taxes payable		—			542
Current portion of long-term debt		179			382
401(k) plan contribution and withholding		911			1,982
Advance payments on servicing contracts		479			803
Accrued wages and health benefits		841			1,462
Other accrued liabilities		706			1,664

Total current liabilities		10,853			28,400
Long-term debt		1,258			1,597
Deferred income taxes		9,587			15,133
Stockholders’ Equity:
Common stock, voting, par $.01 per share, 70,000,000 shares authorized, 19,376,667 and 23,352,567 shares issued at December 31, 2005 and 2006, respectively		194			234
Additional paid-in capital		91,944			182,492
Retained (deficit) earnings		(745	)		31,178

Total stockholders’ equity		91,393			213,904

Total liabilities and stockholders equity	$	113,091		$	259,034

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

SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL AND STOCKHOLDERS’ EQUITY


	Partnerships									Superior Well Services, Inc.
				Accumulated								Additional
	Partners’			Comprehensive			Less: Notes			Common		Paid-in		Retained
	Capital			Income (Loss)			Receivable			Stock		Capital		Deficit			Total
										(In thousands)

BALANCE, DECEMBER 31, 2003	$	30,246		$	(56	)	$	(78	)	$	—	$	—	$	—		$	30,112
Net income prior to reorganization		9,797																9,797
Unrealized losses on interest rate swaps					58													58

Total comprehensive income																		9,855

Distributions to partners		(6,158	)															(6,158	)
Collection of notes receivable								10										10

BALANCE, DECEMBER 31, 2004		33,885			2			(68	)		—		—		—			33,819
Net income prior to reorganization		10,212																10,212
Net (loss) after reorganization															(745	)		(745	)

Net income for 2005																		9,467
Other					(2	)												(2	)

Total comprehensive income																		9,465

Distributions to partners		(13,719	)															(13,719	)
Collection of notes receivable								68										68
Reorganization effected through contribution of partnership interests to Superior Well Services, Inc.		(30,378	)								141		30,237					—
Issuance of common stock in connection with initial public offering											53		61,707					61,760

BALANCE, DECEMBER 31, 2005		—			—			—			194		91,944		(745	)		91,393
Net income															31,923			31,923
Issuance of restricted stock awards											3		286					289
Share-based compensation													1,740					1,740
Issuance of common stock in connection with follow-on public offering											37		88,522					88,559

BALANCE, DECEMBER 31, 2006	$	—		$	—		$	—		$	234	$	182,492	$	31,178		$	213,904

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

SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Year Ended December 31,
				2005			2006
	2004			(Superior Well			(Superior Well
	(Partnerships)			Services, Inc.)			Services, Inc.)
	(In thousands)

Cash flows from operations:
Net income	$	9,797		$	9,467		$	31,923
Adjustments to reconcile net income to net cash provided by operations:
Deferred income taxes		—			9,284			4,758
Depreciation and amortization		5,057			8,698			14,453
Loss on disposal of equipment		185			280			224
Stock-based compensation		—			—			1,740
Changes in assets and liabilities:
Trade accounts receivable		(4,273	)		(12,089	)		(23,944	)
Inventory		(1,096	)		(1,926	)		(3,190	)
Prepaid expenses and other assets		438			(821	)		249
Accounts payable		2,004			2,627			6,220
Income taxes payable		—			—			542
401(k) plan contribution and withholding		263			260			1,071
Advance payments on servicing contracts		69			278			324
Accrued wages and health benefits		287			176			621
Other accrued liabilities		59			508			958

Net cash provided by operations		12,790			16,742			35,949
Cash flows from investing:
Expenditure for property, plant and equipment, net of construction payables		(19,300	)		(39,920	)		(69,816	)
Acquisition of businesses, net of cash acquired		—			—			(9,150	)
Proceeds from sale of property, plant and equipment		—			—			79
Proceeds (expenditures) for other assets		—			(239	)		(15	)
Advances on notes receivable		—			68			—
Proceeds from notes receivable		10			—			—

Net cash used in investing		(19,290	)		(40,091	)		(78,902	)
Cash flows from financing:
Principal payments on long-term debt		(188	)		(12,236	)		(27,019	)
Proceeds from long-term borrowings		12,880			720			27,111
Proceeds from notes payable		217			10,511			—
Payments on notes payable					(14,466	)		—
Net proceeds from common stock offerings		—			61,760			88,559
Issuance of restricted stock awards		—			—			289
Distributions to partners		(6,158	)		(13,719	)		—

Net cash provided by financing		6,751			32,570			88,940

Net increase in cash and cash equivalents		251			9,221			45,987
Cash and cash equivalents, beginning of period		1,293			1,544			10,765

Cash and cash equivalents, end of period	$	1,544		$	10,765		$	56,752

Supplemental disclosure of cash flow data:
Interest paid	$	310		$	587		$	437
Income taxes paid	$	—		$	5,156		$	15,008
Equipment acquired through seller financed debt	$	55		$	—		$	450

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

SUPERIOR WELL SERVICES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Organization

Superior Well Services, Inc. (“Superior”) was formed as a Delaware corporation on March 2, 2005 for the purpose of serving as the parent holding company for Superior GP, L.L.C. (“Superior GP”), Superior Well Services, Ltd. (“Superior Well”) and Bradford Resources, Ltd. (“Bradford”). In May 2005, Superior and the partners of Superior Well and Bradford entered into a contribution agreement that resulted in the partners of Superior Well and Bradford contributing their respective partnership interests to Superior in exchange for shares of common stock of Superior (the “Contribution Agreement”). Superior Well and Bradford are Pennsylvania limited partnerships that became wholly owned subsidiaries of Superior in connection with its initial public common stock offering.

In August 2005, Superior completed its initial public offering of 6,460,000 shares of its common stock, which included 1,186,807 shares sold by selling stockholders and 840,000 shares sold by Superior to cover the exercise by the underwriters of an option to purchase additional shares to cover over-allotments. Proceeds to Superior, net of the underwriting discount and offering expenses, were approximately $61.8 million.

In December 2006, Superior completed a follow-on offering of 3,690,000 shares of its common stock, which included 690,000 shares sold by Superior to cover the exercise by the underwriters of an option to purchase additional shares to cover over-allotments. Proceeds to Superior, net of the underwriting discount and offering expenses, were approximately $88.6 million.

Superior Well provides a wide range of well services to oil and gas companies, primarily technical pumping and down-hole surveying services, in many of the major oil and natural gas producing regions of the United States.


2.	Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). These financial statements reflect all adjustments that, in our opinion, are necessary to fairly present our financial position and results of operations. Significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements include the accounts of Superior and its wholly-owned subsidiaries Superior Well, Bradford and Superior GP. Superior Well and Bradford (“Partnerships”), prior to the effective date of the Contribution Agreement, were entities under common control arising from common direct or indirect ownership of each. The transfer of the Partnerships’ assets and liabilities to Superior (see Note 1) represented a reorganization of entities under common control and was accounted for at historical cost. Prior to the reorganization, the Partnerships were not subject to federal and state corporate income taxes. The 2005 statement of income reflects federal and state income taxes for the five months of operations following the reorganization. Additionally, Superior recorded a non-cash adjustment of $8.6 million to record the deferred tax asset and liabilities arising from the differences in the financial statement and tax bases of assets and liabilities that existed at that time. The $8.6 million non-cash adjustment is included in the deferred income tax provision for the year ended December 31, 2005.

Estimates and Assumptions

Superior uses certain estimates and assumptions that affect reported amounts and disclosures. These estimates are based on judgments, probabilities and assumptions that are believed to be reasonable but inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and unanticipated events and circumstances may occur. Superior is subject to risks and uncertainties that may cause actual results to differ from estimated amounts.

Cash and Cash Equivalents

All cash and cash equivalents are stated at cost, which approximates market. Superior considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Superior maintains cash at various financial institutions that may exceed federally insured amounts.

Trade Accounts Receivable

Accounts receivable are carried at the amount owed by customers. Superior grants credit to all qualified customers, which are mainly regional, independent natural gas and oil companies. Management periodically reviews accounts receivable for credit risks resulting from changes in the financial condition of its customers. Once an account is deemed not to be collectible, the remaining balance is charged to the reserve account. For the year ended December 31, 2004, 2005 and 2006, Superior recorded a provision for uncollectible accounts receivable of $5,300, $144,200 and $637,600, respectively.

Property, Plant and Equipment

Superior’s property, plant and equipment are stated at cost less accumulated depreciation. The costs are depreciated using the straight-line and accelerated methods over their estimated useful lives. The estimated useful lives range from 15 to 30 years for building and improvements and range from 5 to 10 years for equipment and vehicles. Depreciation expense, excluding intangible amortization, amounted to $4,772,000, $8,413,000 and $14,108,000 in 2004, 2005 and 2006, respectively.

Repairs and maintenance costs that do not extend the useful lives of the asset are expensed in the period incurred. Gain or loss resulting from the retirement or other disposition of assets is included in income.

Superior reviews long-lived assets for impairment whenever there is evidence that the carrying value of such assets may not be recoverable. The review consists of comparing the carrying value of the asset with the asset’s expected future undiscounted cash flows. An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and their eventual dispositions are less than the asset’s carrying value. Estimates of expected future cash flows represent management’s best estimate based on reasonable and supportable assumptions.

Revenue Recognition

Superior’s revenue is comprised principally of service revenue. Product sales represent approximately 1% of total revenues. Services and products are generally sold based on fixed or determinable pricing agreements with the customer and generally do not include rights of return. Service revenue is recognized when the services are provided and collectibility is reasonably assured. Substantially all of Superior’s services performed for customers are completed at the customer’s site within one day. Superior recognizes revenue from product sales when the products are delivered to the customer and collectibility is reasonably assured. Products are delivered and used by our customers in connection with the performance of our cementing services. Product sale prices are determined by published price lists provided to our customers.

Inventories

Inventories, which consist principally of materials consumed in Superior’s services provided to customers, are stated at the lower of cost or market using the specific identification method.

Insurance Expense

Superior partially self-insures employee health insurance plan costs. The estimated costs of claims under this self-insurance program are accrued as the claims are incurred (although actual settlement of the claims may not be made until future periods) and may subsequently be revised based on developments relating to such claims. The self-insurance accrual is estimated based upon our historical experience, as well as any known unpaid claims activity. Judgment is required to determine the appropriate accrual levels for claims incurred but not yet received and paid. The accrual estimates are based primarily upon recent historical experience adjusted for employee

headcount changes. Historically, the lag time between the occurrence of an insurance claim and the related payment has been approximately two months and the differences between estimates and actuals have not been material. The estimates could be affected by actual claims being significantly different. Presently, Superior maintains an insurance policy that covers claims in excess of $110,000 per employee.

Income Taxes

Superior accounts for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. This statement requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in Superior’s financial statements or tax returns. Using this method, deferred tax liabilities and assets were determined based on the difference between the financial carrying amounts and tax bases of assets and liabilities using enacted tax rates. Prior to becoming wholly-owned subsidiaries of Superior, the Partnerships were not taxable entities for federal or state income tax purposes and, accordingly, were not subject to federal or state corporate income taxes. For the year ended December 31, 2004, pro forma income tax expense (unaudited) has been computed at statutory rates to provide the reader of the financial statements with a pro forma net income (unaudited) consistent with the entity structure change referenced in Note 1.

Interest Rate Risk Management

Prior to repayment of its variable rate bank debt, Superior used an interest rate swap agreement to manage the risk that future cash flows associated with interest payments on its variable rate debt may be adversely affected by volatility in market rates. Superior settled the interest rate swap agreement in August 2005, and recorded a $20,000 gain on settlement. The interest rate swap had a notional principal amount of $3 million and a fixed rate of 3.28%.

Fair Value of Financial Instruments

Superior’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable and notes payable. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximate their fair value due to the short-term nature of such instruments. The carrying value of notes payable and long-term debt approximates fair value, since the interest rates are market-based and are generally adjusted periodically.

Additionally, interest rate swaps are recorded at fair value in accordance with Statement of Financial Accounting Standards (SFAS) No. 133.

Superior’s financial instruments are not held for trading purposes.

Acquisitions

Assets acquired and liabilities assumed in business combinations were recorded on Superior’s consolidated balance sheets as of the respective acquisition dates based upon their estimated fair values at such dates. The results of operations of businesses acquired by the Company have been included in the Company’s consolidated statements of income since their respective dates of acquisition. The excess of purchase price over the estimated fair values of the underlying assets acquired and liabilities assumed was allocated to goodwill. In certain circumstances, the allocations of the excess purchase price are based upon preliminary estimates and assumptions. Accordingly, the allocations are subject to revision when the Company receives final information, including appraisals and other analyses. Revisions to the fair values, which may be significant, will be recorded by the Company as further adjustments to the purchase price allocations.

On October 2, 2006, the Company acquired substantially all of the operating assets of Patterson Wireline, L.L.C. (“Patterson”) for approximately $8.7 million in cash. Patterson provides open hole and cased hole completion services and expands Superior’s operations and presence in Colorado and New Mexico. The operating assets included five cased hole and four open hole trucks and various tools and logging systems that are compatible with Superior’s existing systems. The acquisition resulted in approximately $2.9 million of goodwill. Intangible assets of approximately $800,000 consist of customer lists and covenants not to compete which are being amortized over an average life of 5 years. The Patterson acquisition was not material to the Company’s operations, financial position or cash flows.

Goodwill and Other Intangible Assets

In accordance with SFAS No. 142, no amortization is recorded for goodwill and /or intangible assets deemed to have indefinite lives for acquisitions completed after June 30, 2001. SFAS No. 142 requires that goodwill and non-amortizable assets be assessed annually for impairment. Superior completed the annual impairment test for 2006 and no impairment was determined. Superior’s intangible assets consist of $2.9 million of goodwill and $1.4 million of customer relationships and non-compete agreements that are amortized over their estimated useful lives which range from three to five years. For the years ended December 31, 2004, 2005 and 2006, Superior recorded amortization expense of $285,000, $285,000 and $345,000, respectively. The estimated amortization expense for the five succeeding years approximates $485,000, $390,000, $200,000, $200,000 and $141,000 for 2007, 2008, 2009, 2010 and 2011, respectively.

Concentration of Credit Risk

Substantially all of Superior’s customers are engaged in the oil and gas industry. This concentration of customers may impact overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic and industry conditions. Two customers individually accounted for 22% and 11% and 14% and 12% of Superior’s revenue, respectively, for the years ended December 31, 2004 and 2006. In 2005, one customer accounted for 18% of Superior’s revenue. Eight customers accounted for 55%, 51% and 45% of

Superior’s revenue for the years ended December 31, 2004, 2005 and 2006, respectively. At December 31, 2006, one customer accounted for 22% and eight customers accounted for 52% of Superior’s accounts receivable.

Stock Based Compensation

Effective January 1, 2006, Superior adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123R”). Under this standard, companies are required to account for equity-based awards using an approach in which the fair value of an award is estimated at the date of grant and recognized as an expense over the requisite service period. Compensation expense is adjusted for equity awards that do not vest because service or performance conditions are not satisfied. The year ended December 31, 2006 includes $1,740,000 of additional compensation expense as a result of the adoption of SFAS 123R. Superior had no stock based compensation prior to 2006.

Weighted average shares outstanding

The consolidated financial statements include “basic” and “diluted” per share information. Basic per share information is calculated by dividing net income by the weighted average number of shares outstanding. The weighted average number of shares used in the basic earnings per share computations were 19,568,749 for the twelve month periods ended December 31, 2006, respectively. Diluted per share information is calculated by also considering the impact of restricted common stock on the weighted average number of shares outstanding. The weighted average number of shares used in the fully diluted earnings per share computations were 20,138,732 and 19,568,749 for the three and twelve month periods ended December 31, 2006, respectively.

Although the restricted shares are considered legally issued and outstanding under the terms of the restricted stock agreement, they are still excluded from the computation of basic earnings per share. Once vested, the shares are included in basic earnings per share as of the vesting date. Superior includes unvested restricted stock with service conditions in the calculation of diluted earnings per share using the treasury stock method. Assumed proceeds under the treasury stock method would include unamortized compensation cost and potential windfall tax benefits. If dilutive, the stock is considered outstanding as of the grant date for diluted earnings per share computation purposes. If anti-dilutive, it would be excluded from the diluted earnings per share computation. The restricted shares were anti-dilutive for the three and twelve month periods ended December 31, 2006.

The weighted average shares outstanding for the computation of basic and diluted earnings per share has been computed taking into account the 14,103,474 shares issued to former partners in connection with the reorganization described in Note 2, effective immediately prior to the initial public offering, the 5,273,193 shares issued by Superior in the initial public offering, which included 840,000 shares sold by Superior to cover the underwriters’ over-allotment option, each from the respective date of issuance. This resulted in 19,317,436 average shares outstanding for the year ended December 31, 2005. For the pro-forma calculations of earnings per share for the year ended December 31, 2004, all shares are assumed to have been issued at the beginning of the period resulting in 19,376,667 average shares outstanding.

Recently Issued Guidance

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections, which replaced APB Opinion No. 20 and FASB Statement No. 3 (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements for voluntary changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions and makes a distinction between retrospective application of an accounting principle and the restatement of financial statements to reflect the correction of an error. Additionally, SFAS No. 154 requires that a change in depreciation, amortization or depletion method for long-lived, nonfinancial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 did not have an impact on Superior’s Consolidated Financial Statements.

In July 2006, The FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, effective for fiscal years beginning after December 15, 2006. FIN 48 prescribes a recognition threshold and measurement attribute, as well as criteria for subsequently recognizing, derecognizing and measuring tax positions for financial statement purposes and requires companies to make disclosures about uncertain tax positions, including detailed rollforward of tax benefits taken that do not qualify for financial statement recognition. Superior is currently evaluating the impact of FIN 48 on its financial statements.

In September 2006, the SEC staff issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB 108 was issued in order to eliminate the diversity of practice surrounding how public companies quantify financial statement misstatements. In SAB 108, the SEC staff established an approach that requires quantification of financial statement misstatements based on the effects of the misstatements on each of Superior’s financial statements and related financial statement disclosures. This model is commonly referred to as a “dual-approach”. The adoption of SAB 108 did not have an impact on Superior’s Consolidated Financial Statements.


3.	Notes Receivable — Limited Partners

Superior Well sold limited partnership interests, amounting to 40% ownership, to three individuals during the year ended December 31, 2000. Capital contributions made to Superior Well for these limited partnership interests aggregated $200,000, of which $87,000 was received in cash and $113,000 was received through issuance of notes receivable. The notes receivable were due in monthly installments totaling $1,338, including interest at 7.5%, through January 2010. The notes were repaid prior to the initial public offering.


4.	Debt

In October 2005, Superior entered into a revolving credit facility with its existing lending institution. The agreement provides for a $20 million revolving credit facility and matures in October 2008. Interest on the revolving credit facility will be at LIBOR plus a spread of 1% to 1.25%, based upon certain financial ratios. The loan is secured by Superior’s accounts receivable, inventory and equipment. The revolving credit facility requires Superior to maintain a maximum debt to EBITDA ratio and a minimum amount of adjusted net tangible worth, as defined under the credit agreement. At December 31, 2006, Superior had no amounts outstanding under the revolving credit facility, $15.8 million of borrowing availability, $4.2 million of outstanding letters of credit and was in compliance with its financial covenants. At December 31, 2005, Superior has no amounts outstanding under the revolving credit facility. The weighted average interest rate for the years ended December 31, 2005 and 2006 were 6.4% and 6.4%, respectively.

In August 2006, Superior entered into a standby term loan facility with its existing lending institution. The standby term loan facility provides an additional $30 million of borrowing capacity that can be used to finance equipment purchases. The standby term loan facility matures in August 2008, at which time the outstanding aggregate principle balance under the standby term loan facility will convert to a single amortizing 60 month term loan. Interest on the revolving credit facility will be at LIBOR plus a spread of 1% to 1.25%, based upon certain financial ratios. The standby term loan facility contains leverage ratio and net worth covenants similar to those in the revolving credit facility, as well as, a fixed charge coverage ratio covenant as specified in the standby term loan facility. The standby term loan facility is secured by Superior’s cash, investment property, accounts receivable, inventory, intangibles and equipment. At December 31, 2006, Superior had no outstanding borrowings under the standby term loan facility, $18 million of borrowing availability and was in compliance with its financial covenants. During 2006, the weighted average interest rate for the year ended December 31, 2006 was 6.4%.

Bradford had a $12.0 million mortgage note payable maturing in January 2010 that was repaid and terminated in August 2005. Interest on the mortgage note payable was at LIBOR plus 1.2%. During 2005, the weighted average interest rate was 4.1%.

Bradford had a $9.5 million note payable maturing January 2011 that was repaid and terminated in August 2005. Obligations under the agreement were guaranteed by Superior Well and the former limited partners of Bradford. Interest on the note payable was at LIBOR plus 1%. During 2005, the weighted average interest rate was 3.9%.

Long-term debt at December 31, 2005 and 2006 consisted of the following (amounts in thousands):


	2005		2006

Notes payable to sellers with nominal interest rates due through December 2010, collateralized by specific buildings and equipment	$	292	$	198
Mortgage notes payable to a bank with interest at rates approximating the bank’s prime lending rate minus 1%, payable in monthly installments of $8,622 plus interest through January 2021, collateralized by real property		1,145		1,331
Note payable to sellers with an interest rate of 7% due through September 2008, collateralized by equipment		—		450

		1,437		1,979
Less — Payments due within one year		179		382

Total	$	1,258	$	1,597

Principal payments required under our long-term debt obligations during the next five years and thereafter are as follows: 2007-$382,000, 2008-$382,000, 2009-$157,000, 2010-$139,000, 2011-$103,000 and thereafter $816,000.


5.	Note Payable

Superior Well had a $9.5 million revolving credit agreement (“Note Payable”) that was repaid in August 2005. The Note Payable was terminated in October 2005. Interest on the Note Payable was at London InterBank Offered Rate (LIBOR) plus 1%. During 2005, the weighted average interest rate on the outstanding borrowings was 3.9%.


6.	Income taxes

Superior accounts for income taxes and the related accounts under the liability method. Deferred taxes and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted rates expected to be in effect during the year in which the basis differences reverse.

As indicated in Note 2, the conveyance of the Partnerships to Superior represented a reorganization of entities under common control. Prior to becoming wholly-owned subsidiaries of Superior, the Partnerships were not taxable entities for federal or state income tax purposes and, accordingly, were not subject to federal or state corporate income taxes. At the date of reorganization, Superior recorded a non-cash adjustment of $8.6 million to record the deferred tax asset and liabilities arising from the differences in the financial statement and tax bases of assets and liabilities that existed at that time. Substantially all of the balance at reorganization is attributable to depreciation differences in property, plant and equipment. The adjustment resulted from the change in tax status from non-taxable entities to an entity which is subject to taxation.

A reconciliation of income tax expense using the statutory U.S. income tax rate compared with actual income tax expense is as follows:


	For the Year Ended December 31,
	2005			2006
	(Amounts in thousands)

Income before income taxes	$	23,293		$	52,714
Statutory U.S. income tax rate		35	%		35	%

Tax expense using statutory U.S. income tax rate		8,153			18,450
State income taxes		621			2,349
Deferred income taxes established at date of reorganization		8,708			—
Tax effect of pre-tax income prior to reorganization not subject to income taxes		(3,574	)		—
Other		(82	)		(8	)

Income tax expense	$	13,826		$	20,791

Effective income tax rate		59	%		39	%


7.	401(k) Plan

Superior Well has a defined contribution profit sharing/401(k) retirement plan (“the Plan”) covering substantially all employees. Employees are eligible to participate after six months of service. Under terms of the Plan, employees are entitled to contribute up to 15% of their compensation, within limitations prescribed by the Internal Revenue Code. Superior Well makes matching contributions of 25% of employee contributions up to 12% of their compensation and may elect to make discretionary contributions to the Plan, all subject to vesting ratably over a five-year period. In addition, Superior makes a discretionary annual profit sharing contribution. Contributions by Superior to the Plan were approximately $668,000, $944,000 and $1,965,000 in 2004, 2005 and 2006, respectively.


8.	Related-Party Transactions

Superior Well provides technical pumping services and down-hole surveying services to a customer owned by certain shareholders and directors of Superior. The total amounts of services provided to this affiliated party were approximately $4,248,000, $5,588,000 and $4,658,000 in 2004, 2005 and 2006, respectively. The accounts receivable outstanding from the affiliated party were $366,000 and $499,000 at December 31, 2005 and 2006, respectively.

Superior Well also regularly purchases, in the ordinary course of business, materials from vendors owned by certain shareholders and directors of Superior. The total amounts paid to these affiliated parties were approximately $1,623,000, $2,141,000 and $2,552,000 in 2004, 2005 and 2006, respectively. Superior Well had accounts payable to these affiliates of $173,000 and $442,000 at December 31, 2005 and 2006, respectively.

Prior to Superior’s initial public offering in August 2005, administrative and management services were provided to Superior Well by affiliates that were owned by certain partners of Superior Well. The total amounts paid to these affiliated entities were approximately $1,298,000 and $594,000 in 2004 and 2005, respectively. Following Superior’s initial public offering, Superior Well no longer requires these administrative and management services.

In February 2006, Superior discovered it had paid $305,000 in state income taxes in November 2005 with respect to the operations of Superior Well that related to periods prior to the time Superior acquired Superior Well from the partners of Superior Well in August 2005. These former partners included, among others, certain executive officers and directors of Superior. After review, the Audit Committee of Superior’s Board of Directors determined that the contribution agreement under which Superior acquired Superior Wells from these former partners did not provide for the payment by Superior of such state tax payments that were incorrectly made by Superior. All of the former partners of Superior Well reimbursed Superior in March 2006 for the full amount of their respective portions of those state tax payments.


9.	Commitments and Contingencies

Minimum annual rental payments, principally for non-cancelable real estate and vehicle leases with terms in excess of one year, in effect at December 31, 2006, were as follows: 2007-$1,264,000; 2008-$1,143,000; 2009-$877,000; 2010-$577,000 and 2011-$139,000.

Total rental expense charged to operations was approximately $697,000, $968,000 and $1,915,000 in 2004, 2005 and 2006, respectively.

Superior had commitments of approximately $64.7 million for capital expenditures as of December 31, 2006.

Superior is involved in various legal actions and claims arising in the ordinary course of business. Management is of the opinion that the outcome of these lawsuits will not have a material adverse effect on the financial position, results of the operations or cash flow of Superior.


10.	Stock Incentive Plan

In July 2005, Superior adopted a stock incentive plan for its employees, directors, and consultants. The 2005 Stock Incentive Plan permits the grant of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards, phantom stock awards, performance awards, bonus stock awards or any combination of the foregoing to employees, directors and consultants. A maximum of 2,700,000 shares of common stock may be issued pursuant to awards under the 2005 Stock Incentive Plan. The Compensation Committee of the Board of Directors, which is composed entirely of independent directors, determines all awards made pursuant to the 2005 Stock Incentive Plan.

In January 2006, each of the non-employee directors of Superior was granted an award of 10,000 restricted shares of common stock in consideration of the unique obligations associated with being a director of a newly public company. The total non-employee director awards amounted to 50,000 shares. Each award is subject to a service requirement that requires the director to continuously serve as a member of the Board of Directors of Superior from the date of grant through the number of years following the date of grant as set forth in the following schedule. The forfeiture restrictions lapse with respect to a percentage of the aggregate number of restricted shares in accordance with the following schedule:


	Percentage of Total Number of
	Restricted Shares as to Which
Number of Full Years	Forfeiture Restrictions Lapse

Less than 1 year		0	%
1 year		15	%
2 years		30	%
3 years		45	%
4 years		60	%
5 years or more		100	%

During 2006, certain officers and key employees of Superior were awarded 241,000 restricted shares of common stock, of which 5,000 shares have since been forfeited. The officer awards amounted to 67,000 shares in the aggregate. The awards are subject to a service requirement that requires the individual to continuously serve as an employee of Superior from the date of grant through the number of years following the date of grant as set forth in the schedule above. The forfeiture restrictions lapse with respect to a percentage of the aggregate number of restricted shares in accordance with the schedule provided above.

The weighted average market price per share of the restricted share awards at award date was $28.48. The aggregate market value of the awards was approximately $8.3 million, before the impact of income taxes. At December 31, 2006, Superior’s compensation costs related to non-vested awards amount to $6.6 million. Superior is recognizing the expense in connection with the restricted share awards ratably over the five year vesting period. The common shares associated with the awards were issued in 2006.

approach in which the fair value of an award is estimated at the date of grant and recognized as an expense over the requisite service period. Compensation expense is adjusted for equity awards that do not vest because service or performance conditions are not satisfied.

Compensation expense related to the 2005 Stock Incentive Plan was $1,740,000 for the year ended December 31, 2006.

In January 2007, the non-employee directors of Superior were granted awards that amounted to 22,000 restricted shares of common stock. The award is subject to a service requirement that requires the director to continuously serve as a member of the Board of Directors of Superior from the date of grant through the number of years following the date of grant as set forth in the schedule above.

In January 2007, certain officers and key employees of Superior were awarded 106,600 restricted shares of common stock, of which 26,000 shares were officer awards. The awards are subject to a service requirement that requires the individual to continuously serve as an employee of Superior from the date of grant through the number of years following the date of grant as set forth in the schedule above. The forfeiture restrictions lapse with respect to a percentage of the aggregate number of restricted shares in accordance with the schedule provided above.


11.	Subsequent event

In February 2007, Superior purchased substantially all the operating assets of ELI Wireline Services, Inc. (“ELI”) for approximately $7.9 million in cash. Eli provides open hole services and cased hold completion services. The operating assets include 3 cased hole trucks, 3 open hole trucks, 2 cavern storage logging units with sonar calipers and various tools and logging systems that are compatible with Superior’s existing systems. The acquired assets will be integrated into Superior’s Mid-Continent operations and expands its presence in Kansas, Oklahoma and Nebraska.


12.	Quarterly Financial Information (Unaudited)

Quarterly financial information for the years ended December 31, 2006 and 2005 is presented below:


	2006
	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(In thousands, except income per share information)

Revenue	$	47,687		$	54,589		$	67,205		$	75,145
Cost of revenue		31,736			37,704			45,152			51,285

Gross profit		15,951			16,885			22,053			23,860
Selling, general and administrative expenses		5,526			6,153			6,813			7,224

Operating income		10,425			10,732			15,240			16,636
Interest expense		(38	)		(49	)		(77	)		(314	)
Other (expense) income		141			50			1			(33	)
Income tax expense		(4,172	)		(4,302	)		(5,802	)		(6,515	)

Net income	$	6,356		$	6,431		$	9,362		$	9,774

Net income per common share	$	0.33		$	0.33		$	0.48		$	0.49
Basic	$	0.33		$	0.33		$	0.48		$	0.49
Diluted
Average Shares Outstanding
Basic		19,377			19,377			19,377			20,139
Diluted		19,377			19,377			19,377			20,139


	2005(1)
	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(In thousands, except income per share information)

Revenue	$	26,025		$	29,585		$	34,934		$	41,189
Cost of revenue		17,380			21,404			24,051			27,423

Gross profit		8,645			8,181			10,883			13,766
Selling, general and administrative expenses		3,281			3,585			4,743			6,200

Operating income		5,364			4,596			6,140			7,566
Interest expense		(159	)		(224	)		(169	)		(14	)
Other (expense) income		10			29			246			(92	)
Income tax expense		—			—			(10,860	)		(2,966	)

Net income	$	5,215		$	4,401		$	(4,643	)	$	4,494

Pro Forma income tax expense (unaudited)		(2,262	)		(1,804	)		—			—

Net income adjusted for pro forma income tax expense (unaudited)	$	2,953		$	2,597		$	(4,643	)	$	4,494

Net income per common share(2)	$	0.15		$	0.13		$	(0.24	)	$	0.23
Basic	$	0.15		$	0.13		$	(0.24	)	$	0.23
Diluted
Average Shares Outstanding
Basic		19,377			19,377			19,232			19,377
Diluted		19,377			19,377			19,232			19,377


(1)		All quarters reflect reclassification of certain repair and vehicle expenses associated with our shop operations, uniform cleaning expenses and maintenance expenses from “Selling, general and administrative expenses” into “Cost of revenue” in order to better segregate the expense items between those more closely related to serving our customers versus those expenses, which in nature are not directly related to servicing customers. The reclassifications had no impact on operating income for any of the periods presented.

(2)		Share and per share data have been retroactively restated to reflect our holding company restructuring. For the calculations of earnings per share for 2004 and the first and second quarters of 2005, all shares are assumed to have been issued at the beginning of the period resulting in 19,376,667 average shares outstanding.

PART IV


Item 15.	*Exhibits and Financial Statement Schedules.*

(a) Exhibits


3	.1	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on August 3, 2005).
3	.2	Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Form 8-K filed on August 3, 2005).
4	.1	Specimen Stock Certificate representing our common stock (incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-1/A (Registration No. 333-124674) filed on June 24, 2005).
4	.2	Registration Rights Agreement dated as of July 28, 2005 by and among the Company and the stockholders signatory thereto (incorporated by reference to Exhibit 10.1 to Form 8-K filed on August 3, 2005).
4	.3	Form of Restricted Stock Agreement for Employees without Employment Agreements (filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8(Registration No. 333-130615) filed on December 22, 2005).
4	.4***	Form of Restricted Stock Agreement for Executives with Employment Agreements (filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-8(Registration No. 333-130615) filed on December 22, 2005).
4	.5***	Form of Restricted Stock Agreement for Non-Employee Directors (filed as Exhibit 4.3 to the Company’s Registration Statement on Form S-8(Registration No. 333-130615) filed on December 22, 2005).
10	.1***	Credit Agreement dated as of October 18, 2005, among Superior Well Services, Inc., Superior Well Services, Ltd., Bradford Resources, Ltd. and Citizens Bank of Pennsylvania (filed as Exhibit 10.1 to Form 8-K filed on October 21, 2005).
10	.2***	Employment Agreement between David E. Wallace and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.2 to Form 8-K filed on August 3, 2005).
10	.3***	Employment Agreement between Jacob B. Linaberger and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.3 to Form 8-K filed on August 3, 2005)
10	.4***	Employment Agreement between Thomas W. Stoelk and Superior Well Services, Inc., effective as of June 1, 2005 (incorporated by reference to Exhibit 10.4 to Form 8-K filed on August 3, 2005).
10	.5***	Employment Agreement between Rhys R. Reese and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.5 to Form 8-K filed on August 3, 2005).
10	.6***	Employment Agreement between Fred E. Kistner and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.6 to Form 8-K filed on August 3, 2005).
10	.7***	Indemnification Agreement between David E. Wallace and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.7 to Form 8-K filed on August 3, 2005).
10	.8***	Indemnification Agreement between Jacob B. Linaberger and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.8 to Form 8-K filed on August 3, 2005).
10	.9***	Indemnification Agreement between Thomas W. Stoelk and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.9 to Form 8-K filed on August 3, 2005).
10	.10***	Indemnification Agreement between Rhys R. Reese and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.10 to Form 8-K filed on August 3, 2005).
10	.11***	Indemnification Agreement between Fred E. Kistner and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.11 to Form 8-K filed on August 3, 2005).
10	.12***	Indemnification Agreement between Mark A. Snyder and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.12 to Form 8-K filed on August 3, 2005).
10	.13***	Indemnification Agreement between David E. Snyder and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.13 to Form 8-K filed on August 3, 2005).
10	.14***	Indemnification Agreement between Charles C. Neal and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.14 to Form 8-K filed on August 3, 2005).


10	.15***	Indemnification Agreement between John A. Staley, IV and Superior Well Services, Inc., dated August 3, 2005 (incorporated by reference to Exhibit 10.15 to Form 8-K filed on August 3, 2005).
10	.16***	Indemnification Agreement between Anthony J. Mendicino and Superior Well Services, Inc. dated August 30, 2005.
10	.17	Fifth Amended and Restated Promissory Note dated March 31, 2005 (incorporated by reference to Exhibit 10.8 to Registration Statement on Form S-1/A (Registration No. 333-124674) filed on July 15, 2005).
10	.21	Guaranty and Suretyship Agreement dated June 3, 2005 by Superior Well Services, Ltd. (incorporated by reference to Exhibit 10.12 to Registration Statement on Form S-1/A (Registration No. 333-124674) filed on July 15, 2005).
10	.22	Guaranty and Suretyship Agreement dated June 3, 2005 by Allegheny Mineral Corporation (incorporated by reference to Exhibit 10.13 to Registration Statement on Form S-1/A (Registration No. 333-124674) filed on July 15, 2005).
10	.23	Guaranty and Suretyship Agreement dated June 3, 2005 by Armstrong Cement & Supply Corporation (incorporated by reference to Exhibit 10.14 to Registration Statement on Form S-1/A (Registration No. 333-124674) filed on July 15, 2005).
10	.24	Guaranty and Suretyship Agreement dated June 3, 2005 by Glacial Sand & Gravel Company (incorporated by reference to Exhibit 10.15 to Registration Statement on Form S-1/A (Registration No. 333-124674) filed on July 15, 2005).
10	.25	Standby Term Loan Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on August 21, 2006).
10	.26	First Amendment to Credit Agreement (incorporated by reference to Exhibit 10.2 to Form 8-K filed on August 21, 2006).
23	.1*	Consent of Independent Registered Public Accounting Firm
24	.1*	Power of Attorney (included on signature page hereto).
31	.1*	Sarbanes-Oxley Section 302 certification of David E. Wallace for Superior Well Services, Inc. for the Annual Report on Form 10-K for the year ended December 31, 2006.
31	.2*	Sarbanes-Oxley Section 302 certification of. Thomas W. Stoelk for Superior Well Services, Inc. for the Annual Report on Form 10-K for the year ended December 31, 2006.
32	.1**	Sarbanes-Oxley Section 906 certification of David E. Wallace for Superior Well Services, Inc. for the Annual Report on Form 10-K for the year ended December 31, 2006.
32	.2**	Sarbanes-Oxley Section 906 certification of Thomas W. Stoelk for Superior Well Services, Inc. for the Annual Report on Form 10-K for the year ended December 31, 2006.


*		Filed herewith.

**		Furnished herewith.

***		Management contract or compensatory plan or arrangement.

(b) Schedules

Schedule II Valuation and qualifying accounts.


	For the Year Ended December 31,
	2005		2006
	(Amounts in thousands)

Current:
State and local	$	852	$	2,524
U.S. federal		3,690		13,509

Total current		4,542		16,033
Deferred:
State and local		1,667		842
U.S. federal		7,617		3,916

Total deferred		9,284		4,758

Provision for income tax expense	$	13,826	$	20,791


	For the Year Ended December 31,
	2005			2006
	(Amounts in thousands)

Deferred tax assets:
Restricted stock	$	—		$	589
Accrued expenses and other		252			207
Allowance for doubtful accounts receivable		51			296

Total deferred tax assets		303			1,092

Deferred tax liabilities:
Depreciation differences on property, plant and equipment		(9,587	)		(15,133	)

Total deferred tax liabilities		(9,587	)		(15,133	)

Net deferred taxes	$	(9,284	)	$	(14,041	)


Col. A	Col. B		Col. C				Col. D		Col. E
			Additions
	Balance at		(1)		(2)
	Beginning		Charged to Costs		Charged to Other				Balance at End
Description	of Period		and Expenses		Accounts		Deductions		of Period

2004 — Allowance for uncollectible accounts receivable	$	—		5,300		—		5,300	$	—
2005 — Allowance for uncollectible accounts receivable	$	—		144,200		—		10,200	$	134,000
2006 — Allowance for uncollectible accounts receivable	$	134,000		637,636		—		—	$	771,636

/s/ David E. Wallace

/s/ Thomas W. Stoelk

David E. Wallace

Thomas W. Stoelk

Chief Executive Officer

Chief Financial Officer



PART II
Item 6.	Selected Financial Data	3

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5

Item 8.	Financial Statements and Supplementary Data	20

PART IV
Item 15.	Exhibits and Financial Statement Schedules	38
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2


	Years Ended December 31,
				2005			2006
	2004			(Superior Well			(Superior Well
	(Partnerships)			Services, Inc.)			Services, Inc.)

Revenue	$	76,041		$	131,733		$	244,626
Cost of revenue		54,447			90,258			165,877

Gross profit		21,594			41,475			78,749
Selling, general and administrative expenses		11,339			17,809			25,716

Operating income		10,255			23,666			53,033
Interest expense		(310	)		(566	)		(478	)
Other (expense) income		(148	)		193			159

Income before income taxes		9,797			23,293			52,714
Income taxes
Current					4,542			16,033
Deferred					9,284			4,758

					13,826			20,791

Net income	$	9,797		$	9,467		$	31,923

Pro forma data (unaudited):
Historical income before taxes	$	9,797
Pro forma income tax expense		4,249

Net income adjusted for pro forma income tax expense	$	5,548

Earnings per common share:
Basic and fully diluted				$	0.49		$	1.63

Pro forma basic and fully diluted (unaudited)	$	0.29