UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2007

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

For the Transition Period From                      to                     

SUPERIOR ENERGY SERVICES, INC.

Delaware		75-2379388
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
1105 Peters Road
Harvey, Louisiana		70058
(Address of principal executive offices)		(Zip Code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer þ Accelerated filer o Non-accelerated o

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

The number of shares of the registrant’s common stock outstanding on November 1, 2007 was 80,497,579.

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q for
the Quarterly Period Ended September 30, 2007

TABLE OF CONTENTS

		Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3. Quantitative and Qualitative Disclosures about Market Risk			35
Item 4. Controls and Procedures			36
PART II OTHER INFORMATION
Item 6. Exhibits			37
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2007 and December 31, 2006
(in thousands, except share data)

		9/30/07				12/31/06
		(Unaudited)				(Audited)
ASSETS
Current assets:
Cash and cash equivalents		$	63,809			$	38,970
Accounts receivable, net			346,081				303,800
Income taxes receivable			—				2,630
Current portion of notes receivable			15,616				14,824
Prepaid expense and other			58,348				59,563
Total current assets			483,854				419,787
Property, plant and equipment, net			1,032,764				804,228
Goodwill, net			475,068				444,687
Notes receivable			16,364				16,137
Equity-method investments			61,282				64,603
Intangible and other long-term assets, net			131,754				125,036
Total assets		$	2,201,086			$	1,874,478
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	72,817			$	65,451
Accrued expenses			178,659				141,684
Income taxes payable			4,410				—
Current portion of decommissioning liabilities			34,884				35,150
Current maturities of long-term debt			810				810
Total current liabilities			291,580				243,095
Deferred income taxes			147,784				112,011
Decommissioning liabilities			88,791				87,046
Long-term debt, net			711,440				711,505
Other long-term liabilities			14,202				10,133
Stockholders’ equity:
Preferred stock of $.01 par value. Authorized, 5,000,000 shares; none issued			—				—
Common stock of $.001 par value. Authorized, 125,000,000 shares; issued and outstanding, 81,490,025 shares at September 30, 2007, and 80,617,337 shares at December 31, 2006			81				81
Additional paid in capital			433,165				411,374
Accumulated other comprehensive income, net			15,942				10,288
Retained earnings			498,101				288,945
Total stockholders’ equity			947,289				710,688
Total liabilities and stockholders’ equity		$	2,201,086			$	1,874,478

See accompanying notes to consolidated financial statements.

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2007 and 2006
(in thousands, except per share data)
(unaudited)

		Three Months								Nine Months
		2007				2006				2007				2006
Oilfield service and rental revenues		$	347,228			$	252,309			$	1,021,712			$	687,441
Oil and gas revenues			51,696				38,208				136,889				87,304
Total revenues			398,924				290,517				1,158,601				774,745
Cost of oilfield services and rentals			159,683				109,525				465,085				304,066
Cost of oil and gas sales			18,954				19,562				55,845				52,469
Total cost of services, rentals and sales			178,637				129,087				520,930				356,535
Depreciation, depletion, amortization and accretion			49,881				28,831				133,967				77,473
General and administrative expenses			57,150				44,385				161,833				122,124
Gain on sale of business			7,483				—				7,483				—
Income from operations			120,739				88,214				349,354				218,613
Other income (expense):
Interest expense, net			(8,197	)			(5,989	)			(24,938	)			(16,389	)
Interest income			795				1,255				2,303				3,477
Loss on early extinguishment of debt			—				—				—				(12,596	)
Earnings (losses) from equity-method investments, net			1,395				2,704				(2,447	)			3,852
Income before income taxes			114,732				86,184				324,272				196,957
Income taxes			39,682				31,026				115,116				70,904
Net income		$	75,050			$	55,158			$	209,156			$	126,053
Basic earnings per share		$	0.92			$	0.69			$	2.58			$	1.58
Diluted earnings per share		$	0.91			$	0.68			$	2.53			$	1.55
Weighted average common shares used in computing earnings per share:
Basic			81,470				79,824				81,053				79,754
Incremental common shares from stock options			1,265				1,480				1,410				1,442
Incremental common shares from restricted stock units			58				36				58				36
Diluted			82,793				81,340				82,521				81,232

See accompanying notes to consolidated financial statements.

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2007 and 2006
(in thousands)
(unaudited)

		2007				2006
Cash flows from operating activities:
Net income		$	209,156			$	126,053
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion			133,967				77,473
Deferred income taxes			32,459				(1,085	)
Stock-based and performance share unit compensation expense			8,995				3,746
(Earnings) losses from equity-method investments, net			2,447				(3,852	)
Write-off of debt acquisition costs			—				2,817
Amortization of debt acquisition costs and note discount			2,669				857
Gain on sale of business			(7,483	)			—
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables			(35,028	)			(75,399	)
Other, net			6,779				(3,125	)
Accounts payable			(861	)			7,325
Accrued expenses			28,496				32,348
Decommissioning liabilities			(2,303	)			(2,255	)
Income taxes			5,817				64,142
Net cash provided by operating activities			385,110				229,045
Cash flows from investing activities:
Payments for capital expenditures			(325,868	)			(165,064	)
Acquisitions of businesses, net of cash acquired			(79,624	)			(9,822	)
Cash proceeds from sale of business, net of cash sold			18,100				18,343
Acquisitions of oil and gas properties			—				(46,631	)
Cash contributed to equity-method investment			—				(57,781	)
Other			8,981				(2,542	)
Net cash used in investing activities			(378,411	)			(263,497	)
Cash flows from financing activities:
Proceeds from long-term debt			—				295,467
Principal payments on long-term debt			(405	)			(200,405	)
Payment of debt acquisition costs			(83	)			(6,516	)
Proceeds from issuance of stock through employee benefit plans			324				—
Proceeds from exercise of stock options			8,422				2,631
Tax benefit from exercise of stock options			9,135				—
Net cash provided by financing activities			17,393				91,177
Effect of exchange rate changes on cash			747				700
Net increase in cash			24,839				57,425
Cash and cash equivalents at beginning of period			38,970				54,457
Cash and cash equivalents at end of period		$	63,809			$	111,882

See accompanying notes to consolidated financial statements.

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2007 and 2006

(1) Basis of Presentation

Certain information and footnote disclosures normally in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission; however, management believes the disclosures which are made are adequate to make the information presented not misleading. These financial statements and footnotes should be read in conjunction with the consolidated financial statements and notes thereto included in Superior Energy Services, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2006 and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The financial information of Superior Energy Services, Inc. and subsidiaries (the Company) for the nine months ended September 30, 2007 and 2006 has not been audited. However, in the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations for the periods presented have been included therein. The results of operations for the first nine months of the year are not necessarily indicative of the results of operations that might be expected for the entire year. Certain previously reported amounts have been reclassified to conform to the 2007 presentation.

(2) Stock-Based and Long-Term Compensation

The Company maintains various stock incentive plans that provide long-term incentives to the Company’s key employees, including officers and directors, consultants and advisers (Eligible Participants). Under the incentive plans, the Company may grant incentive stock options, non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, other stock-based awards or any combination thereof to Eligible Participants.

Stock Options

The Company has issued non-qualified stock options under its stock incentive plans. The options generally vest in equal installments over three years and expire in ten years. Non-vested options are generally forfeited upon termination of employment. The Company’s compensation expense related to stock options for the nine months ended September 30, 2007 and 2006 was approximately $1.1 million and $0.6 million, respectively, which is reflected in general and administrative expenses.

Restricted Stock

The Company has issued shares of restricted stock under its stock incentive plans. Shares of restricted stock generally vest in equal annual installments over three years. Non-vested shares are generally forfeited upon the termination of employment. Holders of the shares of restricted stock are entitled to all rights of a stockholder of the Company with respect to the restricted stock, including the right to vote the shares and receive all dividends and other distributions declared thereon. The Company’s compensation expense related to shares of restricted stock outstanding for the nine months ended September 30, 2007 and 2006 was approximately $1.9 million and $0.7 million, respectively, which is reflected in general and administrative expenses.

Restricted Stock Units

The Company has issued restricted stock units (RSUs) under it stock incentive plans. Annually, each non-employee director is issued a number of RSUs having an aggregate value in a dollar amount determined by the Company’s Board of Directors. An RSU represents the right to receive from the Company, within 30 days of the date the director ceases to serve on the Board, one share of the Company’s common stock. The Company’s expense related to RSUs for each nine month period ended September 30, 2007 and 2006 was approximately $0.7 million, which is reflected in general and administrative expenses.

Performance Share Units

The Company has issued performance share units (PSUs) to its employees as part of the Company’s long-term incentive program. There is a three-year performance period associated with each PSU grant date. The two performance measures applicable to all participants are the Company’s return on invested capital and total stockholder return relative to those of the Company’s pre-defined “peer group.” The PSUs provide for settlement in cash or up to 50% in equivalent value in the Company’s common stock, if the participant has met specified continued service requirements. The Company’s compensation expense related to all outstanding PSUs for the nine months ended September 30, 2007 and 2006 was approximately $5.2 million and $1.7 million, respectively, which is reflected in general and administrative expenses. The Company has recorded a liability of approximately $9.7 million and $4.5 million at September 30, 2007 and December 31, 2006, respectively, for all outstanding PSUs, which is reflected in accrued expenses.

Employee Stock Purchase Plan

In August 2007, the Company implemented the Superior Energy Services, Inc. 2007 Employee Stock Purchase Plan (ESPP) under which 1,000,000 shares of common stock were reserved for issuance. Each eligible employee may direct up to 20% of their salary to a maximum of $8,500 per year toward the purchase of the Company’s common stock at a 15% discount. Through September 30, 2007, approximately 10,200 shares have been issued pursuant to this plan. The Company received $0.3 million related to shares issued under the ESPP in both the three and nine month periods ended September 30, 2007. The Company recorded compensation expense of approximately $60,000 for both the three and nine month periods ended September 30, 2007 related to the ESPP.

(3) Earnings per Share

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed in the same manner as basic earnings per share except that the denominator is increased to include the number of additional common shares that could have been outstanding assuming the exercise of stock options that would have a dilutive effect on earnings per share using the treasury stock method and the conversion of restricted stock units into common stock using the treasury stock method.

In connection with the Company’s outstanding senior exchangeable notes, there could be a dilutive effect on earnings per share if the price of the Company’s stock exceeds the initial exchange price of $45.58 per share for a specified period of time. In the event the Company’s common stock exceeds the initial exchange price of $45.58 per share, for the first $1.00 the price exceeds $45.58, the dilutive effect would be as much as 188,400 shares. The impact on the calculation of earnings per share would depend on when during the quarter the $45.58 per share price is reached (see note 8).

Subsequent Events

In October 2007, the Company purchased 1,000,000 shares of its common stock for an aggregate amount of $33.8 million under a stock repurchase program authorized by the Company’s Board of Directors. In September 2007, the Company’s Board of Directors authorized a $350 million share repurchase program of the Company’s common stock. The stock repurchase program will expire on December 31, 2009. Under the program, the Company can purchase shares through open market transactions at prices deemed appropriate by management.

(4) Acquisitions and Dispositions

In August 2007, the Company sold the assets of a non-core rental tool business for approximately $16.3 million in cash and $2.0 million in a note receivable bearing interest equal to prime rate per annum due in August 2010. As a result of the sale of these assets, the Company recorded a pre-tax gain on sale of business of approximately $7.5 million. In conjunction with the sale of this business, an additional $3.4 million will be receivable by the Company if specific conditions are met as determined through August 2011.

In April 2007, the Company acquired Advanced Oilwell Services, Inc. (AOS) for approximately $24.2 million in cash consideration. Additional consideration, if any, will be based upon the average earnings before interest, income taxes, depreciation and amortization expense of the business over a three-year period, and will not exceed $7.4 million. AOS is a provider of cementing and pressure pumping services primarily operating in the East Texas region. The acquisition has been accounted for as a purchase, and the results of operations have been included from the acquisition date. The pro forma effect of the operations of the acquisition was not material to the Condensed Consolidated Statements of Operations of the Company for the current period presented.

In January 2007, the Company acquired Duffy & McGovern Accommodation Services Limited (Duffy & McGovern) for approximately $47.5 million in cash consideration. Duffy & McGovern is a provider of offshore accommodation rentals operating in most deep water oil and gas territories with major operations in Europe, Africa, the Americas and South East Asia. The Company acquired Duffy & McGovern to further expand its rental tools segment internationally. The acquisition has been accounted for as a purchase, and the results of operations have been included from the acquisition date. The pro forma effect of the operations of the acquisition was not material to the Condensed Consolidated Statements of Operations of the Company for the current period presented.

In December 2006, the Company acquired Warrior Energy Services Corporation (Warrior) for a total purchase price of approximately $374.1 million. The total consideration was comprised of cash payments of approximately $237.8 million (including acquisition costs and repayment of Warrior’s debt) and equity consideration of approximately $136.3 million. Warrior is an oil and gas services company that provides various well intervention services including wireline, electric line, logging, perforating, mechanical services, pipe recovery, fishing and rental, plug and abandonment and hydraulic workover services. Warrior has over 30 operating bases in 10 states with operations concentrated in the major onshore and offshore oil and gas producing areas of the United States. The acquisition has been accounted for as a purchase, and the results of operations of Warrior have been included from the acquisition date. The allocation of the purchase price and the valuation of assets and liabilities will be subject to refinement as the Company gathers additional information with respect to income taxes, outstanding litigation and other items.

In July 2006, Beryl Oil and Gas L.P. (BOG), formerly known as Coldren Resources LP, completed the acquisition from Noble Energy, Inc. (Noble) of substantially all of Noble’s offshore Gulf of Mexico shallow water oil and gas properties. SPN Resources, LLC (SPN Resources), a wholly-owned subsidiary of the Company, acquired a 40% interest in BOG for an initial cash investment of approximately $57.8 million. The Company’s investment in BOG is accounted for under the equity-method of accounting.

In April 2006, SPN Resources acquired additional oil and gas properties through the acquisition of five offshore Gulf of Mexico leases. Under the terms of the transaction, the Company acquired the properties and assumed the related decommissioning liabilities. The Company paid cash in the amount of $46.6 million and recorded decommissioning liabilities of approximately $3.7 million and oil and gas producing assets of approximately $50.3 million.

The Company made other business acquisitions, which were not material on an individual or cumulative basis, requiring cash consideration of $11.5 million in the nine months ended September 30, 2007 and $9.8 million in the year ended December 31, 2006. The Company also sold the assets of its field management division in the second quarter of 2007 for approximately $1.8 million in cash. In conjunction with the sale of this division, an additional $0.5 million will be receivable by the Company if specific conditions are met as determined through 2008. The Company also sold its environmental subsidiary in the first quarter of 2006 for approximately $18.7 million in cash.

Several of the Company’s prior business acquisitions require future payments if specific conditions are met. As of September 30, 2007, the maximum additional contingent consideration payable was approximately $8.8 million and will be determined and payable through 2010. In the nine months ended September 30, 2007, the Company capitalized and paid additional consideration of approximately $0.6 million as a result of prior acquisitions.

Subsequent Event

In October 2007, the Company acquired a rental tool business located in Louisiana for approximately $17.0 million in cash consideration. Additional consideration, if any, will be based upon the annual revenue levels generated

from the acquired assets over a five-year period, and will not exceed $7.0 million. The acquisition will be accounted for as a purchase.

In October 2007, the Company acquired a business located in the Netherlands that provides hydraulic workover, snubbing and well control services to the international oil and gas industry with the majority of its activity in Europe for approximately $10.7 million in cash consideration. Additional consideration, if any, will be based upon the average earnings before interest, income taxes, depreciation and amortization expense of the business over a three-year period, and will not exceed $10.7 million based on current exchange rates. The acquisition will be accounted for as a purchase.

In November 2007, the Company acquired the assets of a rental tool inspection company located in Colombia for approximately $1.8 million in cash consideration. Additional consideration, if any, will be based upon the average earnings before interest, income taxes, depreciation and amortization expense of the business over a three-year period, and will not exceed $0.6 million. The acquisition will be accounted for as a purchase.

(5) Segment Information

Business Segments

The Company has four reportable segments: well intervention, rental tools, marine, and oil and gas. The well intervention segment provides production related services used to enhance, extend and maintain oil and gas production, which include mechanical wireline, hydraulic workover and snubbing, well control, coiled tubing, electric line, pumping and stimulation and well bore evaluation services; well plug and abandonment services, and other oilfield services used to support drilling and production operations. The rental tools segment rents and sells stabilizers, drill pipe, tubulars and specialized equipment for use with onshore and offshore oil and gas well drilling, completion, production and workover activities. It also provides onsite accommodations and bolting services. The marine segment operates liftboats for production service activities, as well as oil and gas production facility maintenance, construction operations and platform removals. The oil and gas segment acquires mature oil and gas properties and produces and sells any remaining oil and gas reserves. Oil and gas eliminations represent products and services provided to the oil and gas segment by the Company’s three other segments. Certain previously reported amounts have been reclassified to conform to the presentation in the current period.

Summarized financial information concerning the Company’s segments for the three and nine months ended September 30, 2007 and 2006 is shown in the following tables (in thousands):

Three Months Ended September 30, 2007

																		Oil & Gas
		Well				Rental												Eliminations				Consolidated
		Intervention				Tools				Marine				Oil & Gas				& Unallocated				Total
Revenues		$	202,807			$	118,918			$	26,323			$	51,696			$	(820	)		$	398,924
Cost of services, rentals and sales			111,777				35,142				13,586				18,952				(820	)			178,637
Depreciation, depletion, amortization and accretion			12,979				18,115				1,986				16,801				—				49,881
General and administrative expenses			30,440				21,698				2,603				2,409				—				57,150
Gain on sale of business			—				7,483				—				—				—				7,483
Income from operations			47,611				51,446				8,148				13,534				—				120,739
Interest expense, net			—				—				—				—				(8,197	)			(8,197	)
Interest income			—				—				—				311				484				795
Earnings from equity-method investments, net			—				—				—				1,395				—				1,395
Income (loss) before income taxes		$	47,611			$	51,446			$	8,148			$	15,240			$	(7,713	)		$	114,732

Three Months Ended September 30, 2006

																		Oil & Gas
		Well				Rental												Eliminations				Consolidated
		Intervention				Tools				Marine				Oil & Gas				& Unallocated				Total
Revenues		$	122,205			$	98,262			$	36,013			$	38,208			$	(4,171	)		$	290,517
Cost of services, rentals and sales			68,438				30,786				14,472				19,562				(4,171	)			129,087
Depreciation, depletion, amortization and accretion			4,511				13,600				2,142				8,578				—				28,831
General and administrative expenses			20,428				18,776				3,231				1,950				—				44,385
Income from operations			28,828				35,100				16,168				8,118				—				88,214
Interest expense, net			—				—				—				—				(5,989	)			(5,989	)
Interest income			—				—				—				286				969				1,255
Earnings from equity-method investments, net			—				—				—				2,704				—				2,704
Income (loss) before income taxes		$	28,828			$	35,100			$	16,168			$	11,108			$	(5,020	)		$	86,184

Nine Months Ended September 30, 2007

																		Oil & Gas
		Well				Rental												Eliminations				Consolidated
		Intervention				Tools				Marine				Oil & Gas				& Unallocated				Total
Revenues		$	570,280			$	358,834			$	97,351			$	136,889			$	(4,753	)		$	1,158,601
Cost of services, rentals and sales			316,733				109,676				43,432				55,842				(4,753	)			520,930
Depreciation, depletion, amortization and accretion			34,592				49,971				6,379				43,025				—				133,967
General and administrative expenses			83,168				63,508				7,719				7,438				—				161,833
Gain on sale of business			—				7,483				—				—				—				7,483
Income from operations			135,787				143,162				39,821				30,584				—				349,354
Interest expense, net			—				—				—				—				(24,938	)			(24,938	)
Interest income			—				—				—				924				1,379				2,303
Losses from equity-method investments, net			—				—				—				(2,447	)			—				(2,447	)
Income (loss) before income taxes		$	135,787			$	143,162			$	39,821			$	29,061			$	(23,559	)		$	324,272

Nine Months Ended September 30, 2006

																		Oil & Gas
		Well				Rental												Eliminations				Consolidated
		Intervention				Tools				Marine				Oil & Gas				& Unallocated				Total
Revenues		$	335,953			$	262,629			$	100,171			$	87,304			$	(11,312	)		$	774,745
Cost of services, rentals and sales			191,793				83,307				40,278				52,469				(11,312	)			356,535
Depreciation, depletion, amortization and accretion			13,375				37,795				6,427				19,876				—				77,473
General and administrative expenses			56,566				50,525				8,816				6,217				—				122,124
Income from operations			74,219				91,002				44,650				8,742				—				218,613
Interest expense, net			—				—				—				—				(16,389	)			(16,389	)
Interest income			—				—				—				888				2,589				3,477
Loss on early extinguishment of debt			—				—				—				—				(12,596	)			(12,596	)
Earnings from equity-method investments, net			—				—				—				3,852				—				3,852
Income (loss) before income taxes		$	74,219			$	91,002			$	44,650			$	13,482			$	(26,396	)		$	196,957

Identifiable Assets

		Well				Rental																Consolidated
		Intervention				Tools				Marine				Oil & Gas				Unallocated				Total
September 30, 2007		$	975,044			$	656,883			$	196,398			$	345,587			$	27,174			$	2,201,086
December 31, 2006		$	840,130			$	501,156			$	187,597			$	318,297			$	27,298			$	1,874,478

Geographic Segments

The Company attributes revenue to countries based on the location where services are performed or the destination of the sale of products. Long-lived assets consist primarily of property, plant and equipment and are attributed to the United States or other countries based on the physical location of the asset at the end of a period. The Company’s information by geographic area is as follows (amounts in thousands):

Revenues:

		Three Months Ended September 30,								Nine Months Ended September 30,
		2007				2006				2007				2006
United States		$	320,506			$	248,822			$	934,174			$	663,354
Other Countries			78,418				41,695				224,427				111,391
Total		$	398,924			$	290,517			$	1,158,601			$	774,745

Long-Lived Assets:

		September 30,				December 31,
		2007				2006
United States		$	871,062			$	715,899
Other Countries			161,702				88,329
Total		$	1,032,764			$	804,228

(6) Construction Contract

In July 2006, the Company contracted to construct a derrick barge that will be sold to a third party for approximately $53.7 million. The contract to construct the derrick barge to the customer’s specifications is recorded on the percentage-of-completion method utilizing engineering estimates and construction progress. This methodology requires the Company to make estimates regarding the progress against the project schedule and estimated completion date, both of which impact the amount of revenue and gross margin the Company recognizes in each reporting period. Contract costs primarily include sub-contract and program management costs. Provisions for unanticipated losses, if any, will be recorded in full when such losses become evident. Included in accrued expenses at September 30, 2007 and December 31, 2006 is approximately $19.5 million and $12.3 million, respectively, of billings in excess of costs and estimated earnings related to this contract.

(7) Equity-Method Investments

Investments in entities that are not controlled by the Company, but where the Company has the ability to exercise influence over the operations are accounted for using the equity-method. The Company’s share of the income or losses of these entities is reflected as earnings or losses from equity-method investments on its Condensed Consolidated Statements of Operations.

In May 2006, SPN Resources acquired a 40% interest in BOG. The Company’s total cash contribution for its equity-method investment in BOG was approximately $57.8 million. The Company has not made additional contributions since its initial investment. The Company’s equity-method investment balance in BOG is approximately $60.3 million at September 30, 2007 and $63.6 million at December 31, 2006. The Company recorded a loss from its equity-method investment in BOG of approximately $2.5 million for the nine months ended September 30, 2007. During the nine month period ended September 30, 2006, the Company recorded approximately $3.8 million of earnings from its equity-method investment in BOG mainly due to the mark-to-market accounting on its oil and gas derivatives.

The Company provides operating and administrative support services to BOG and receives reimbursement for general and administrative and direct expenses incurred on behalf of BOG. The Company also, where possible and at competitive rates, provides its products and services to assist BOG in producing and developing its oil and gas properties. As such, the Company has a receivable from BOG of approximately $2.6 million at September 30, 2007 and $3.0 million at December 31, 2006. The Company offset its general and administrative expenses by approximately $3.5 million for the reimbursements due from BOG for the nine months ended September 30, 2007. The Company also recorded revenue of approximately $7.6 million from BOG for the nine months ended September 30, 2007. The Company reduces its revenue and its investment in BOG for its 40% ownership when products and services are provided to and capitalized by BOG. The Company records these amounts in revenue as BOG records the related depreciation and depletion expenses. The Company recorded a net reduction to revenue and its investment in BOG of approximately $0.9 million for the nine months ended September 30, 2007. All amounts related to the three and nine month periods ended September 30, 2006 were not material.

Summarized balance sheet and statement of operations information for BOG is presented below (amounts in thousands):

Balance Sheet

		September 30,				December 31,
		2007				2006
Current assets		$	140,046			$	176,860
Property, plant and equipment, net			487,994				522,941
Other assets			8,761				23,135
Total assets		$	636,801			$	722,936
Current liabilities		$	28,781			$	27,922
Decommissioning and other long-term liabilities			95,285				89,610
Long-term debt			361,086				432,697
Total liabilities			485,152				550,229
Accumulated other comprehensive income, net			(1,060	)			13,861
Partners’ capital			152,709				158,846
Total capital			151,649				172,707
Total liabilities and partners’ capital		$	636,801			$	722,936

Income Statement

		Three Months Ended								Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2007				2006				2007				2006
Revenues		$	56,005			$	61,458			$	165,150			$	61,458
Lease operating expenses			(13,056	)			(17,615	)			(41,220	)			(17,615	)
Depreciation, depletion, amortization and accretion			(26,981	)			(35,874	)			(84,744	)			(35,874	)
General and administrative expenses			(4,395	)			(2,695	)			(11,132	)			(2,837	)
Interest expense			(9,961	)			(9,915	)			(31,958	)			(9,915	)
Interest income			949				688				3,190				688
Gain (loss) on derivatives			922				10,706				(5,423	)			13,679
Net income (loss)		$	3,483			$	6,753			$	(6,137	)		$	9,584

Also included in equity-method investments at September 30, 2007 and 2006 is approximately $1 million investment for a 50% ownership in a company that owns an airplane. Earnings from the equity-method investment in this company were not material for the nine months ended September 30, 2007 or 2006. The Company recorded approximately $156,000 and $175,000 in expense to lease the airplane (exclusive of operating costs) from this company for the nine months ended September 30, 2007 and 2006, respectively.

(8) Debt

The Company has a $250 million bank revolving credit facility. Any amounts outstanding under the revolving credit facility are due on June 14, 2011. At September 30, 2007, the Company had no amounts outstanding under the revolving credit facility, but it had approximately $85.0 million of letters of credit outstanding, which reduce the Company’s borrowing availability under this credit facility. Amounts borrowed under the credit facility bear interest at a LIBOR rate plus margins that depend on the Company’s leverage ratio. Indebtedness under the credit facility is secured by substantially all of the Company’s assets, including the pledge of the stock of the Company’s principal subsidiaries. The credit facility contains customary events of default and requires that the Company satisfy various financial covenants. It also limits the Company’s ability to pay dividends or make other distributions, make acquisitions, make changes to the Company’s capital structure, create liens, incur additional

indebtedness or assume additional decommissioning liabilities. At September 30, 2007, the Company was in compliance with all such covenants.

The Company has $16.2 million outstanding at September 30, 2007, in U. S. Government guaranteed long-term financing under Title XI of the Merchant Marine Act of 1936, which is administered by the Maritime Administration (MARAD), for two 245-foot class liftboats. The debt bears interest at 6.45% per annum and is payable in equal semi-annual installments of $405,000, on every June 3^rd and December 3^rd through the maturity date of June 3, 2027. The Company’s obligations are secured by mortgages on the two liftboats. In accordance with this agreement, the Company is required to comply with certain covenants and restrictions, including the maintenance of minimum net worth, working capital and debt-to-equity requirements. At September 30, 2007, the Company was in compliance with all such covenants.

The Company has $300 million of 6 7/8% unsecured senior notes due 2014. The indenture governing the senior notes requires semi-annual interest payments on every June 1^st and December 1^st through the maturity date of June 1, 2014. The indenture contains certain covenants that, among other things, limit the Company from incurring additional debt, repurchasing capital stock, paying dividends or making other distributions, incurring liens, selling assets or entering into certain mergers or acquisitions. At September 30, 2007, the Company was in compliance with all such covenants.

The Company also has $400 million of 1.50% unsecured senior exchangeable notes due 2026. The exchangeable notes bear interest at a rate of 1.50% per annum and decrease to 1.25% per annum on December 15, 2011. Interest on the exchangeable notes is payable semi-annually on December 15^th and June 15^th of each year, beginning June 15, 2007. The exchangeable notes do not contain any restrictive financial covenants.

Under certain circumstances, holders may exchange the notes for shares of the Company’s common stock. The initial exchange rate is 21.9414 shares of common stock per $1,000 principal amount of notes. This is equal to an initial exchange price of $45.58 per share. The notes may be exchanged under the following circumstances:

	•		during any fiscal quarter (and only during such fiscal quarter) commencing after March 31, 2007, if the last reported sale price of the Company’s common stock is greater than or equal to 135% of the applicable exchange price of the notes for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter;
	•		prior to December 15, 2011, during the five business-day period after any ten consecutive trading-day period (the “measurement period”) in which the trading price of $1,000 principal amount of notes for each trading day in the measurement period was less than 95% of the product of the last reported sale price of the Company’s common stock and the exchange rate on such trading day;
	•		if the notes have been called for redemption;
	•		upon the occurrence of specified corporate transactions; or
	•		at any time beginning on September 15, 2026, and ending at the close of business on the second business day immediately preceding the maturity date of December 15, 2026.

In connection with the exchangeable note transaction, the Company simultaneously entered into agreements with affiliates of the initial purchasers to purchase call options and sell warrants on its common stock. The Company may exercise the call options it purchased at any time to acquire approximately 8.8 million shares of its common stock at a strike price of $45.58 per share. The owners of the warrants may exercise the warrants to purchase from the Company approximately 8.8 million shares of the Company’s common stock at a price of $59.42 per share, subject to certain anti-dilution and other customary adjustments. The warrants may be settled in cash, in shares or in a combination of cash and shares, at the Company’s option.

(9) Hedging Activities

The Company entered into hedging transactions in 2004 that expired on August 31, 2006 to secure a range of commodity prices for a portion of its future oil production and to reduce its exposure to oil price fluctuations. The Company does not enter into derivative transactions for trading purposes. The Company used financially-settled

crude oil swaps and zero-cost collars that provided floor and ceiling prices with varying upside price participation. The Company’s swaps and zero-cost collars were designated and accounted for as cash flow hedges. For the nine months ended September 30, 2006, hedging settlement payments reduced oil revenues by approximately $13.8 million, and no gains or loses were recorded due to hedge ineffectiveness.

(10) Decommissioning Liabilities

The Company records estimated future decommissioning liabilities related to its oil and gas producing properties pursuant to the provisions of Statement of Financial Accounting Standards No. 143 (FAS No. 143), “Accounting for Asset Retirement Obligations.” FAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation (decommissioning liabilities) in the period in which it is incurred with a corresponding increase in the carrying amount of the related long-lived asset. Subsequent to initial measurement, the decommissioning liability is required to be accreted each period to present value. The Company’s decommissioning liabilities consist of costs related to the plugging of wells, the removal of the related facilities and equipment, and site restoration.

The Company estimates the cost that would be incurred if it contracted an unaffiliated third party to plug and abandon wells, abandon the pipelines, decommission and remove the platforms and pipelines and restore the sites of its oil and gas properties, and uses that estimate to record its proportionate share of the decommissioning liability. In estimating the decommissioning liability, the Company performs detailed estimating procedures, analysis and engineering studies. Whenever practical, the Company utilizes its own equipment and labor services to perform well abandonment and decommissioning work. When the Company performs these services, all recorded intercompany revenues and related costs of services are eliminated in the consolidated financial statements. The recorded decommissioning liability associated with a specific property is fully extinguished when the property is abandoned. The recorded liability is first reduced by all cash expenses incurred to abandon and decommission the property. If the recorded liability exceeds (or is less than) the Company’s total costs, then the difference is reported as income (or loss) within revenue during the period in which the work is performed. The Company reviews the adequacy of its decommissioning liabilities whenever indicators suggest that the estimated cash flows needed to satisfy the liability have changed materially. The timing and amounts of these expenditures are estimates, and changes to these estimates may result in additional (or decreased) liabilities recorded, which in turn would increase (or decrease) the carrying values of the related oil and gas properties. The Company reviews its estimates for the timing of these expenditures on a quarterly basis. The following table summarizes the activity for the Company’s decommissioning liabilities for the nine months ended September 30, 2007 and 2006 (amounts in thousands):

		Nine Months Ended
		September 30,
		2007				2006
Total decommissioning liabilities at December 31, 2006 and 2005, respectively		$	122,196			$	121,909
Liabilities acquired and incurred			300				3,554
Liabilities settled			(2,303	)			(2,255	)
Accretion			3,073				3,609
Revision in estimated liabilities			409				(4,924	)
Total decommissioning liabilities at September 30, 2007 and 2006, respectively			123,675				121,893
Current portion of decommissioning liabilities at September 30, 2007 and 2006, respectively			34,884				25,067
Long-term portion of decommissioning liabilities at September 30, 2007 and 2006, respectively		$	88,791			$	96,826

(11) Notes Receivable

Notes receivable consist primarily of contractual obligations of sellers of oil and gas properties to reimburse the Company a specified amount following the abandonment of acquired properties. The Company invoices the seller specified amounts following the performance of decommissioning operations (abandonment and structure removal) in accordance with the applicable agreements with the seller. These receivables are recorded at present value, and the related discounts are amortized to interest income, based on the expected timing of the decommissioning.

(12) Other Comprehensive Income

The following tables reconcile the change in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2007 and 2006 (amounts in thousands):

		Three Months Ended
		September 30,
		2007				2006
Accumulated other comprehensive income, June 30, 2007 and 2006, respectively		$	12,746			$	1,104
Other comprehensive income:
Other comprehensive income, net of tax
Hedging activities:
Adjustment for settled contracts, net of tax of $2,065 in 2006			—				3,516
Changes in fair value of outstanding hedging positions, net of tax of $28 in 2006			—				48
Foreign currency translation adjustment			3,196				1,789
Total other comprehensive income			3,196				5,353
Accumulated other comprehensive income, September 30, 2007 and 2006, respectively		$	15,942			$	6,457

		Nine Months Ended
		September 30,
		2007				2006
Accumulated other comprehensive income (loss), December 31, 2006 and 2005, respectively		$	10,288			$	(4,916	)
Other comprehensive income:
Other comprehensive income, net of tax
Hedging activities:
Adjustment for settled contracts, net of tax of $5,124 in 2006			—				8,726
Changes in fair value of outstanding hedging positions, net of tax of ($1,131) in 2006			—				(1,927	)
Foreign currency translation adjustment			5,654				4,574
Total other comprehensive income			5,654				11,373
Accumulated other comprehensive income, September 30, 2007 and 2006, respectively		$	15,942			$	6,457

(13) Income Taxes

In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109.” FIN 48 requires that the Company recognize in its financial statements the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position.

The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation, the Company recognized no material adjustment to the liability for unrecognized income tax benefits that existed as of December 31, 2006. At the date of adoption, the Company had approximately $6.2 million of unrecognized tax benefits in other long-term liabilities, all of which would impact the Company’s effective tax rate if recognized.

It is the Company’s policy to recognize interest and applicable penalties related to uncertain tax positions in income tax expense. As of the date of adoption, the Company had accrued approximately $1.1 million of interest and applicable penalties related to uncertain tax positions.

The Company files income tax returns in the U.S. federal and various state and foreign jurisdictions. The number of years that are open under the statue of limitations and subject to audit varies depending on the tax jurisdiction. The Company remains subject to U.S. federal tax examinations for years after 2002.

As of September 30, 2007, there have been no material changes to the liability for uncertain tax positions.

(14) Commitments and Contingencies

From time to time, the Company is involved in litigation and other disputes arising out of operations in the normal course of business. In management’s opinion, the Company is not involved in any litigation or disputes, the outcome of which would have a material effect on the financial position, results of operations or liquidity of the Company.

(15) Financial Information Related to Guarantor Subsidiaries

SESI, L.L.C. (Issuer), a wholly-owned subsidiary of Superior Energy Services, Inc. (Parent), has issued and outstanding $300 million of 6 7/8% senior notes due 2014 and $400 million of 1.5% senior exchangeable notes due 2026. The Parent, along with substantially all of its domestic subsidiaries, fully and unconditionally guaranteed the senior notes and the senior exchangeable notes and such guarantees are joint and several. All of the guarantor subsidiaries are wholly-owned subsidiaries of the Issuer. Domestic income taxes are paid by the Parent through a consolidated tax return and are accounted for by the Parent. The following tables present the Condensed Consolidating Balance Sheets as of September 30, 2007 and December 31, 2006 and the Condensed Consolidating Statements of Operations and Cash Flows for the three and nine months ended September 30, 2007 and 2006.

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES

Condensed Consolidating Balance Sheets

September 30, 2007

(in thousands)

(unaudited)

														Non-
										Guarantor				Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	—			$	18,348			$	19,801			$	25,660			$	—			$	63,809
Accounts receivable, net			—				3,193				310,274				49,082				(16,468	)			346,081
Income taxes receivable			1,794				—				—				—				(1,794	)			—
Current portion of notes receivable			—				—				15,616				—				—				15,616
Prepaid expenses and other			21				6,896				45,816				5,615				—				58,348
Total current assets			1,815				28,437				391,507				80,357				(18,262	)			483,854
Property, plant and equipment, net			—				1,412				905,063				126,289				—				1,032,764
Goodwill, net			—				—				430,507				44,561				—				475,068
Notes receivable			—				2,000				14,364				—				—				16,364
Equity-method investments			124,271				545,605				60,298				—				(668,892	)			61,282
Intangible and other long-term assets, net			—				24,778				106,058				918				—				131,754
Total assets		$	126,086			$	602,232			$	1,907,797			$	252,125			$	(687,154	)		$	2,201,086
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	—			$	1,272			$	61,200			$	26,813			$	(16,468	)		$	72,817
Accrued expenses			490				37,778				130,051				10,340				—				178,659
Income taxes payable			—				—				—				6,204				(1,794	)			4,410
Current portion of decommissioning liabilities			—				—				34,884				—				—				34,884
Current maturities of long-term debt			—				—				—				810				—				810
Total current liabilities			490				39,050				226,135				44,167				(18,262	)			291,580
Deferred income taxes			139,518				—				—				8,266				—				147,784
Decommissioning liabilities			—				—				88,791				—				—				88,791
Long-term debt, net			—				696,059				—				15,381				—				711,440
Intercompany payables/(receivables)			(178,569	)			1,428				643,012				47,025				(512,896	)			—
Other long-term liabilities			6,197				7,643				—				362				—				14,202
Stockholders’ equity:
Preferred stock of $.01 par value			—				—				—				—				—				—
Common stock of $.001 par value			81				—				—				101				(101	)			81
Additional paid in capital			433,165				127,173				—				28,722				(155,895	)			433,165
Accumulated other comprehensive income, net			—				—				—				15,942				—				15,942
Retained earnings (accumulated deficit)			(274,796	)			(269,121	)			949,859				92,159				—				498,101
Total stockholders’ equity			158,450				(141,948	)			949,859				136,924				(155,996	)			947,289
Total liabilities and stockholders’ equity		$	126,086			$	602,232			$	1,907,797			$	252,125			$	(687,154	)		$	2,201,086

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
December 31, 2006
(in thousands)
(audited)

														Non-
										Guarantor				Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	—			$	1,608			$	14,775			$	22,587			$	—			$	38,970
Accounts receivable, net			—				3,764				275,477				39,390				(14,831	)			303,800
Income taxes receivable			7,242				—				—				—				(4,612	)			2,630
Current portion of notes receivable			—				—				14,824				—				—				14,824
Prepaid expenses and other			—				16,582				40,456				2,525				—				59,563
Total current assets			7,242				21,954				345,532				64,502				(19,443	)			419,787
Property, plant and equipment, net			—				2,622				738,446				63,160				—				804,228
Goodwill, net			—				—				417,979				26,708				—				444,687
Notes receivable			—				—				16,137				—				—				16,137
Equity-method investments			124,271				510,163				63,627				—				(633,458	)			64,603
Intangible and other long-term assets, net			—				23,823				101,097				116				—				125,036
Total assets		$	131,513			$	558,562			$	1,682,818			$	154,486			$	(652,901	)		$	1,874,478
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	—			$	1,045			$	58,528			$	20,709			$	(14,831	)		$	65,451
Accrued expenses			505				27,671				104,866				8,642				—				141,684
Income taxes payable			—				—				—				4,612				(4,612	)			—
Current portion of decommissioning liabilities			—				—				35,150				—				—				35,150
Current maturities of long-term debt			—				—				—				810				—				810
Total current liabilities			505				28,716				198,544				34,773				(19,443	)			243,095
Deferred income taxes			108,649				—				—				3,362				—				112,011
Decommissioning liabilities			—				—				87,046				—				—				87,046
Long-term debt, net			—				695,719				—				15,786				—				711,505
Intercompany payables/(receivables)			(224,208	)			(79,487	)			782,022				23,507				(501,834	)			—
Other long-term liabilities			6,197				3,936				—				—				—				10,133
Stockholders’ equity:
Preferred stock of $.01 par value			—				—				—				—				—				—
Common stock of $.001 par value			81				—				—				101				(101	)			81
Additional paid in capital			411,374				127,173				—				4,350				(131,523	)			411,374
Accumulated other comprehensive income, net			—				—				—				10,288				—				10,288
Retained earnings (accumulated deficit)			(171,085	)			(217,495	)			615,206				62,319				—				288,945
Total stockholders’ equity			240,370				(90,322	)			615,206				77,058				(131,624	)			710,688
Total liabilities and stockholders’ equity		$	131,513			$	558,562			$	1,682,818			$	154,486			$	(652,901	)		$	1,874,478