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 JUNE 30, 2006

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

FOR THE TRANSITION PERIOD FROM                      TO                     .

Commission File No. 1-32058

Complete Production Services, Inc.

Delaware (State or Other Jurisdiction of Incorporation or Organization)		72-1503959 (I.R.S. Employer Identification No.)
11700 Old Katy Road, Suite 300 Houston, Texas (Address of principal executive offices)		77079 (Zip Code)

Registrant’s telephone number, including area code: (281) 372-2300

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. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act. (Check one):

Large accelerated filer o       Accelerated filero       Non-accelerated filer þ

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

Number of shares of the Common Stock of the registrant outstanding as of August 1, 2006: 70,571,981

 

 

INDEX TO FINANCIAL STATEMENTS

Complete Production Services, Inc.

				Page
		PART I—FINANCIAL INFORMATION
Item 1.		Financial Statements.
		Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005		3
		Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2006 and 2005		4
		Consolidated Statement of Stockholders’ Equity for the Six Months Ended June 30, 2006		5
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005		6
		Notes to Consolidated Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.		19
Item 3.		Quantitative and Qualitative Disclosures About Market Risk.		29
Item 4.		Controls and Procedures.		30
		PART II—OTHER INFORMATION
Item 1.		Legal Proceedings.		30
Item 1A.		Risk Factors.		30
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.		31
Item 3.		Defaults Upon Senior Securities.		31
Item 4.		Submission of Matters to a Vote of Security Holders.		31
Item 5.		Other Information.		32
Item 6.		Exhibits.		33
		Signature		34
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

COMPLETE PRODUCTION SERVICES, INC.

Consolidated Balance Sheets

		2006				2005
		(In thousands, except
		share data)
ASSETS
Current assets:
Cash and cash equivalents		$	10,373			$	11,405
Short-term investments			112,159				—
Trade accounts receivable, net			202,158				167,395
Inventory, net			51,501				41,290
Prepaid expenses			18,603				25,404
Other current assets			816				1,992
Total current assets			395,610				247,486
Property, plant and equipment, net			500,864				384,580
Intangible assets, net of accumulated amortization of $3,329 and $2,487, respectively			4,783				4,967
Deferred financing costs, net of accumulated amortization of $255 and $96, respectively			2,161				2,048
Goodwill			346,684				298,297
Other long-term assets			419				275
Total assets		$	1,250,521			$	937,653
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt		$	6,051			$	5,953
Accounts payable			65,387				50,693
Accrued liabilities			35,486				40,972
Unearned revenue			2,702				6,407
Notes payable			3,312				14,985
Taxes payable			13,101				1,193
Total current liabilities			126,039				120,203
Long-term debt			434,794				509,990
Deferred income taxes			59,682				54,334
Minority interest			2,614				2,365
Total liabilities			623,129				686,892
Commitments and contingencies Stockholders’ equity:
Common stock, $0.01 par value per share, 200,000,000 shares authorized, 69,782,732 (2005 — 55,531,510) issued			698				555
Preferred stock, $0.01 par value per share, 5,000,000 shares authorized, no shares issued and outstanding			—				—
Additional paid-in capital			535,242				220,786
Retained earnings			72,152				16,885
Treasury stock, 35,570 shares at cost			(202	)			(202	)
Deferred compensation			—				(3,803	)
Accumulated other comprehensive income			19,502				16,540
Total stockholders’ equity			627,392				250,761
Total liabilities and stockholders’ equity		$	1,250,521			$	937,653

See accompanying notes to consolidated financial statements.

COMPLETE PRODUCTION SERVICES, INC.

Consolidated Statements of Operations

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
		(In thousands, except per share data)
Revenue:
Service		$	234,420			$	141,628			$	469,539			$	273,615
Product			41,006				27,011				81,623				56,275
			275,426				168,639				551,162				329,890
Service expenses			139,323				87,440				274,834				167,110
Product expenses			30,949				20,294				61,322				42,877
Selling, general and administrative expenses			36,627				26,130				74,242				48,016
Depreciation and amortization			17,125				10,804				32,852				20,578
Income before interest, taxes and minority interest			51,402				23,971				107,912				51,309
Interest expense			9,488				5,634				20,170				9,649
Interest income			1,015				—				1,022				—
Income before taxes and minority interest			42,929				18,337				88,764				41,660
Taxes			15,936				6,607				33,353				14,963
Income before minority interest			26,993				11,730				55,411				26,697
Minority interest			(161	)			3,354				144				6,566
Net income		$	27,154			$	8,376			$	55,267			$	20,131
Earnings per share:
Basic		$	0.40			$	0.19			$	0.90			$	0.47
Diluted		$	0.39			$	0.17			$	0.86			$	0.43
Weighted average shares:
Basic			67,067				43,471				61,366				42,477
Diluted			69,065				48,378				63,953				47,126

Consolidated Statements of Comprehensive Income
Three Months and Six Months Ended June 30, 2006 and 2005 (unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
		(In thousands)
Net income		$	27,154			$	8,376			$	55,267			$	20,131
Change in cumulative translation adjustment			3,080				(1,061	)			2,962				(1,325	)
Comprehensive income		$	30,234			$	7,315			$	58,229			$	18,806

See accompanying notes to consolidated financial statements.

COMPLETE PRODUCTION SERVICES, INC.

Consolidated Statement of Stockholders’ Equity

																										Accumulated
										Additional																Other
		Number				Common				Paid-In				Treasury				Retained				Deferred				Comprehensive
		of Shares				Stock				Capital				Stock				Earnings				Compensation				Income				Total
		(In thousands, except share data)
Balance at December 31, 2005			55,531,510			$	555			$	220,786			$	(202	)		$	16,885			$	(3,803	)		$	16,540			$	250,761
Adoption of SFAS No. 123R			—				—				(3,803	)			—				—				3,803				—				—
Net income			—				—				—				—				55,267				—				—				55,267
Cumulative translation adjustment			—				—				—				—				—				—				2,962				2,962
Issuance of common stock:
Net proceeds from initial public offering			13,000,000				130				289,029				—				—				—				—				289,159
Acquisition of Parchman			1,000,000				10				23,490				—				—				—				—				23,500
Acquisition of MGM			164,210				2				3,857				—				—				—				—				3,859
Exercise of stock options			15,474				—				69				—				—				—				—				69
Expense related to employee stock options			—				—				488				—				—				—				—				488
Excess tax benefit from share-based compensation			—				—				109				—				—				—				—				109
Vested restricted stock			71,538				1				(1	)			—				—				—				—				—
Amortization of non-vested restricted stock			—				—				1,218				—				—				—				—				1,218
Balance at June 30, 2006			69,782,732			$	698			$	535,242			$	(202	)		$	72,152			$	—			$	19,502			$	627,392

See accompanying notes to consolidated financial statements.

COMPLETE PRODUCTION SERVICES, INC.

Consolidated Statements of Cash Flows

		Six Months Ended
		June 30,
		2006				2005
		(In thousands)
Cash provided by (used in):
Operating activities:
Net income		$	55,267			$	20,131
Items not affecting cash:
Depreciation and amortization			32,852				20,578
Deferred income taxes			4,853				8,968
Minority interest			144				6,566
Excess tax benefit from share-based compensation			(109	)			—
Non-cash compensation expense			1,706				254
Other			1,150				634
Changes in operating assets and liabilities:
Accounts receivable			(29,909	)			(24,019	)
Inventory			(9,609	)			(11,420	)
Prepaid expense and other current assets			5,451				(9,051	)
Accounts payable			13,161				10,278
Accrued liabilities and other			(1,517	)			11,446
			73,440				34,365
Investing activities:
Business acquisitions, net of cash acquired			(36,163	)			(9,833	)
Additions to property, plant and equipment			(132,423	)			(42,684	)
Purchase of short-term securities			(165,000	)			—
Proceeds from sale of short-term securities			52,841				—
Proceeds from disposal of capital assets/other			3,232				(160	)
			(277,513	)			(52,677	)
Financing activities:
Issuances of long-term debt			180,646				220,681
Repayments of long-term debt			(256,278	)			(182,977	)
Net repayments under lines of credit			—				(19,235	)
Repayment of convertible debentures			—				(4,069	)
Repayment of notes payable			(11,272	)			(732	)
Proceeds from issuances of common stock			290,407				10,452
Repurchase of common stock/warrants			—				(458	)
Deferred financing fees			—				(1,543	)
Excess tax benefit from share-based compensation			109				—
			203,612				22,119
Effect of exchange rate changes on cash			(571	)			32
Change in cash and cash equivalents			(1,032	)			3,839
Cash and cash equivalents, beginning of period			11,405				11,547
Cash and cash equivalents, end of period		$	10,373			$	15,386
Supplemental cash flow information:
Cash paid for interest		$	19,809			$	6,929
Cash paid for taxes		$	16,385			$	2,348
Significant non-cash investing and financing activities:
Common stock issued for acquisitions		$	27,359			$	19,065
Non-cash assets as acquisition consideration		$	—			$	2,899
Notes issued for acquisition		$	—			$	5,000
Debt acquired in acquisition		$	534			$	750

See accompanying notes to consolidated financial statements.

COMPLETE PRODUCTION SERVICES, INC.

Notes to Consolidated Financial Statements

1. General:

(a) Nature of operations:

     Complete Production Services, Inc. is a provider of specialized services and products focused on developing hydrocarbon reserves, reducing operating costs and enhancing production for oil and gas companies. Complete Production Services, Inc. focuses its operations on basins within North America and manages its operations from regional field service facilities located throughout the U.S. Rocky Mountain region, Texas, Oklahoma, Louisiana, Arkansas, Kansas, western Canada, Mexico and Southeast Asia.

     References to “Complete”, the “Company”, “we”, “our” and similar phrases are used throughout this Quarterly Report on Form 10-Q and relate collectively to Complete Production Services, Inc. and its consolidated affiliates.

     On September 12, 2005, we completed the combination (“Combination”) of Complete Energy Services, Inc. (“CES”), Integrated Production Services, Inc. (“IPS”) and I.E. Miller Services, Inc. (“IEM”) pursuant to which the CES and IEM shareholders exchanged all of their common stock for common stock of IPS. The Combination was accounted for using the continuity of interests method of accounting, which yields results similar to the pooling of interest method. Subsequent to the Combination, IPS changed its name to Complete Production Services, Inc.

     On April 20, 2006, we entered into an underwriting agreement in connection with our initial public offering and became subject to the reporting requirements of the Securities Exchange Act of 1934. On April 21, 2006, our common stock began trading on the New York Stock Exchange under the symbol “CPX”. On April 26, 2006, we completed our initial public offering. See Note 8, Stockholder’s Equity.

(b) Basis of presentation:

     The unaudited interim consolidated financial statements reflect all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the financial position of Complete as of June 30, 2006 and the statements of operations and the statements of comprehensive income for the three months and six months ended June 30, 2006, as well as the statement of stockholders’ equity at June 30, 2006 and the statements of cash flows for the six months ended June 30, 2006 and 2005. Certain information and disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2005. We believe that these financial statements contain all adjustments necessary so that they are not misleading.

     In preparing financial statements, we make informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we review our estimates, including those related to impairment of long-lived assets and goodwill, contingencies and income taxes. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates.

     The results of operations for interim periods are not necessarily indicative of the results of operations that could be expected for the full year. Certain reclassifications have been made to 2005 amounts in order to present these results on a comparable basis with amounts for 2006. These reclassifications had no impact on reported net income.

2. Business combinations:

     (a) Acquisitions During the Six Months Ended June 30, 2006:

(i)

Outpost Office Inc. (“Outpost”):

     On January 3, 2006, we acquired all of the operating assets of Outpost Office Inc., an oilfield equipment rental company based in Grand Junction, Colorado, for $6,542 in cash, and recorded goodwill of $2,348, which has been allocated entirely to the completion and production services business segment. We believe this acquisition supplemented our completion and production services business in the Rocky Mountain Region.

(ii)

The Rosel Company (“Rosel”):

     On January 25, 2006, we acquired all the equity interests of The Rosel Company, a cased-hole and open-hole electric-line business based in Liberal, Kansas, for approximately $11,953, net of cash acquired and debt assumed, and recorded goodwill of $7,997 resulting from this acquisition, which has been allocated entirely to the completion and production services business segment. We believe this acquisition expanded our presence in the Mid-continent region and enhanced our completion and production services business.

(iii)

The Arkoma Group of Companies (“Arkoma”):

     On June 30, 2006, we acquired certain operating assets of J&M Rental Tool, Inc. dba Arkoma Machine & Fishing Tools, Arkoma Machine Shop, Inc. and N&M Supply, LLC, collectively referred to as The Arkoma Group of Companies, a provider of rental tools, machining and fishing services in the Fayetteville Shale and Arkoma Basin, located in Ft. Smith, Arkansas. We paid $18,002 to acquire Arkoma, subject to a final working capital adjustment, and recorded goodwill totaling $9,257, which has been allocated entirely to the completion and production services business segment. We believe this acquisition provides a platform to further expand our presence in the Fayetteville Shale and Arkoma Basin and supplement our completion and production services business in that region.

     Results for each of these acquisitions have been included in our accounts and results of operations since the date of acquisition. We have not finalized the purchase price allocation for these acquisitions. The following table summarizes the preliminary purchase price allocations as of June 30, 2006:

		Outpost				Rosel				Arkoma				Totals
Net assets acquired:
Property, plant and equipment		$	4,297			$	5,615			$	6,587			$	16,499
Non-cash working capital			(225	)			379				2,008				2,162
Intangible assets			122				341				150				613
Deferred tax liabilities			—				(1,845	)			—				(1,845	)
Goodwill			2,348				7,997				9,257				19,602
Net assets acquired		$	6,542			$	12,487			$	18,002			$	37,031
Consideration:
Cash, net of cash and cash equivalents acquired		$	6,542			$	11,953			$	18,002			$	36,497
Debt assumed in acquisition			—				534				—				534
Total consideration		$	6,542			$	12,487			$	18,002			$	37,031

3. Inventory:

		June 30,				December 31,
		2006				2005
		(unaudited)
Finished goods		$	39,145			$	30,306
Manufacturing parts and materials			14,716				12,966
Bulk fuel			49				88
			53,910				43,360
Inventory reserves			2,409				2,070
		$	51,501			$	41,290

4. Accounts receivable:

		June 30,				December 31,
		2006				2005
		(unaudited)
Trade accounts receivable		$	186,732			$	158,585
Unbilled revenue			15,125				9,636
Notes receivable			140				193
Other receivables			1,976				883
			203,973				169,297
Allowance for doubtful accounts			1,815				1,902
		$	202,158			$	167,395

5. Property, plant and equipment:

						Accumulated				Net Book
June 30, 2006		Cost				Depreciation				Value
Land		$	5,301			$	—			$	5,301
Building			7,378				745				6,633
Field equipment			476,821				92,331				384,490
Vehicles			39,552				10,473				29,079
Office furniture and computers			8,676				2,029				6,647
Leasehold improvements			7,371				531				6,840
Construction in progress			61,874				—				61,874
		$	606,973			$	106,109			$	500,864

						Accumulated				Net Book
December 31, 2005		Cost				Depreciation				Value
Land		$	4,906			$	—			$	4,906
Building			6,798				609				6,189
Field equipment			376,979				64,272				312,707
Vehicles			37,848				8,692				29,156
Office furniture and computers			5,667				1,374				4,293
Leasehold improvements			4,083				507				3,576
Construction in progress			23,753				—				23,753
		$	460,034			$	75,454			$	384,580

     Construction in progress at June 30, 2006 and December 31, 2005 primarily included progress payments to vendors for equipment to be delivered in future periods and component parts to be used in final assembly of operating equipment, which in all cases were not yet placed into service at the time. For the six months ended June 30, 2006, we recorded capitalized interest of $157 related to assets that we are constructing for internal use and amounts paid to vendors under progress payments for assets that are being constructed on our behalf.

6. Notes Payable:

     On January 5, 2006, we entered into a note agreement with our insurance broker to finance our annual insurance premiums for the policy year beginning December 1, 2005 through November 30, 2006. As of December 31, 2005, we recorded a note payable totaling $14,584 and an offsetting prepaid asset which included a broker’s fee of $600. We are amortizing the prepaid asset to expense over the policy term, and expect to incur finance charges totaling $268 as interest expense related to this arrangement over the policy term. Of the total amount financed, $3,312 remains outstanding at June 30, 2006.

7. Long-term debt:

     The following table summarizes long-term debt as of June 30, 2006 and December 31, 2005:

		June 30,				December 31,
		2006				2005
U.S. term loan facility (a)		$	416,850			$	418,950
U.S. revolving credit facility (a)			—				58,096
Canadian revolving credit facility (a)			17,409				27,016
Subordinated seller notes (b)			3,450				8,450
Capital leases and other			3,136				3,431
			440,845				515,943
Less: current maturities of long-term debt and capital leases			6,051				5,953
		$	434,794			$	509,990

(a)

Concurrent with the consummation of the Combination on September 12, 2005, we entered into a syndicated senior secured credit facility (the “Credit Facility”) pursuant to which all bank debt held by IPS, CES and IEM was repaid and replaced with the proceeds from the Credit Facility. The Credit Facility was comprised of a $420,000 term loan credit facility that will mature in September 2012, a U.S. revolving credit facility of $130,000 that will mature in September 2010, and a Canadian revolving credit facility of $30,000 that will mature in September 2010. Interest on the Credit Facility was to be determined by reference to the London Inter-bank Offered Rate (“LIBOR”) plus a margin of 1.25% to 2.75% (depending on the ratio of total debt to EBITDA, as defined in the agreement) for revolving advances and a margin of 2.75% for term loan advances. Interest on advances under the Canadian revolving facility was to be calculated at the Canadian Prime Rate plus a margin of 0.25% to 1.75%. Quarterly principal repayments of 0.25% of the original principal amount are required for the term loans, which commenced in December 2005. The Credit Facility contains covenants restricting the levels of certain transactions including: entering into certain loans, the granting of certain liens, capital expenditures, acquisitions, distributions to stockholders, certain asset dispositions and operating leases. The Credit Facility is secured by substantially all of our assets.

			On March 29, 2006, our lenders amended and restated the Credit Facility to provide for, among other things: (1) an increase in the amount of the U.S. revolving credit facility to $170,000 from $130,000; (2) an increase in the level of capital expenditures permitted under the agreement for the years ended December 31, 2006 and 2007; (3) a waiver of the requirement to prepay up to $50,000 of term debt using the first $100,000 of proceeds from an equity offering in 2006; and (4) a reduction in the Eurocurrency margin on the term loan to LIBOR plus 2.50%. In addition, at any time prior to the maturity of the facility, and as long as no default or event of default has occurred (and is continuing), we have the right to increase the aggregate commitments under the amended Credit Facility by a total of up to $150,000, subject to receiving commitments from one or more lenders totaling this amount.
			On April 28, 2006, we repaid all outstanding borrowings under our U.S. revolving credit facility using a portion of the proceeds from our initial public offering totaling $127,500. See Note 8, Stockholder’s Equity. Subsequent borrowings under the swingline portion of this U.S. revolving facility were repaid with funds from current operations.
			We were in compliance with all debt covenants under the amended Credit Facility as of June 30, 2006. Borrowings outstanding under the term loan portion of the amended Credit Facility bore interest at 7.66% as of June 30, 2006, while borrowings under the Canadian revolving portion of the facility bore interest at 7.25%. For the three months and six months ended June 30, 2006, the weighted average interest rate on average borrowings under the amended Credit Facility was approximately 7.62% and 7.63%, respectively. There were letters of credit outstanding under the U.S. revolving portion of the facility totaling $10,238 which reduced the available borrowing capacity as of June 30, 2006. We incurred fees of 2.25% of the total amount outstanding under letter of credit arrangements through June 30, 2006.
	(b)		On February 11, 2005, we issued subordinated notes totaling $5,000 to certain sellers of Parchman common shares in connection with the acquisition of Parchman. These notes were unsecured, subordinated to all present and future senior debt and bore interest at 6.0% during the first three years of the note, 8.0% during year four and 10.0% thereafter. The notes matured in early May 2006 due to acceleration as a result of our initial public offering. On May 3, 2006, we repaid all principal and accrued interest outstanding pursuant to these note agreements totaling $5,029.
			We issued subordinated seller notes totaling $3,450 in 2004 related to certain business acquisitions. These notes bear interest at 6% and mature in March 2009.

8. Stockholders’ equity:

(a) Initial Public Offering:

     On April 26, 2006, we sold 13,000,000 shares of our $.01 par value common stock in our initial public offering. These shares were offered to the public at $24.00 per share, and we recorded proceeds of approximately $292,500 after underwriter fees. In addition, we incurred transaction costs of $3,341 associated with the issuance that were netted against the proceeds of the offering. Our stock began trading on the New York Stock Exchange on April 21, 2006. We used approximately $127,500 of the proceeds from this offering to retire principal and interest outstanding under the U.S. revolving credit facility as of April 28, 2006. Of the remaining funds, approximately $165,000 was invested in tax-free or tax-advantaged municipal bond funds and similar financial instruments with a term of less than one year. We liquidated a portion of these short-term investments to purchase capital assets, acquire Arkoma and for other general corporate purposes. At June 30, 2006, our remaining investment in these municipal bond funds totaled $112,159, and was included in the accompanying consolidated balance sheet under the caption “Short-term Investments.” We consider these short-term investments to be held for sale in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” These investments do not appreciate or depreciate with changes in market value but rather provide only investment income. These investments are expected to be liquidated within the next twelve months to fund future acquisitions, capital expenditures and for other general corporate purposes. See Note 13, Subsequent Events.

     The following table summarizes the pro forma impact of our initial public offering on earnings per share for the three months and six months ended June 30, 2006 and 2005, assuming the 13,000,000 shares had been issued on January 1, 2005. No pro forma adjustments have been made to net income as reported.

		Three Months Ended								Six Months Ended
		June 30, 2006								June 30, 2006
		2006				2005				2006				2005
Net income as reported		$	27,154			$	8,376			$	55,267			$	20,131
Basic earnings per share:
As reported		$	0.40			$	0.19			$	0.90			$	0.47
Pro forma		$	0.39			$	0.15			$	0.80			$	0.36
Diluted earnings per share:
As reported		$	0.39			$	0.17			$	0.86			$	0.43
Pro forma		$	0.38			$	0.14			$	0.77			$	0.33

(b) Stock-based Compensation:

     We maintain each of the option plans previously maintained by IPS, CES and IEM. Under the three option plans, stock-based compensation could be granted to employees, officers and directors to purchase up to 2,540,485 common shares, 3,003,463 common shares and 986,216 common shares, respectively. The exercise price of each option is based on the fair value of the individual company’s stock at the date of grant. Options may be exercised over a five or ten-year period and generally a third of the options vest on each of the first three anniversaries from the grant date.

     We adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R on January 1, 2006. This pronouncement requires that we measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award, with limited exceptions, by using an option pricing model to determine fair value.

	(i)		Employee Stock Options Granted Prior to September 30, 2005:
			As required by SFAS No. 123R, we continue to account for stock-based compensation for grants made prior to September 30, 2005, the date of our initial filing with the Securities and Exchange Commission, using the intrinsic value method prescribed by Accounting Principles Board (“APB”) No. 25, whereby no compensation expense is recognized for stock-based compensation grants that have an exercise price equal to the fair value of the stock on the date of grant.
	(ii)		Employee Stock Options Granted Between October 1, 2005 and December 31, 2005:
			For grants of stock-based compensation between October 1, 2005 and December 31, 2005 (prior to adoption of SFAS No. 123R), we have utilized the modified prospective transition method to record expense associated with these stock-based compensation instruments. Under this transition method, we did not record compensation expense associated with these stock option grants during the period October 1, 2005 through December 31, 2005, but will provide pro forma disclosure, as appropriate. Beginning January 1, 2006, upon adoption of SFAS No. 123R, we began to recognize expense related to these option grants over the applicable vesting period. For the three months and six months ended June 30, 2006, we recognized expense totaling $77 and $154, respectively, resulting in a reduction of net income of $48 and $96, respectively. There was no impact on basic and diluted earnings per share as reported for the three months and six months ended June 30, 2006. The unrecognized compensation costs related to the non-vested portion of these awards was $703 as of June 30, 2006 and will be recognized over a three-year vesting period.
			During the period October 1, 2005 through December 31, 2005, we estimated the fair value of stock-based compensation using a risk free interest rate ranging from 4.23% to 4.47% and an expected life of 4.5 years. The weighted average fair value of options granted during this period was $2.05 per share.

	(iii)		Employee Stock Options Granted On or After January 1, 2006:
			For grants of stock-based compensation on or after January 1, 2006, we apply the prospective transition method under SFAS No. 123R, whereby we recognize expense associated with new awards of stock-based compensation ratably, as determined using a Black-Scholes pricing model, over the expected term of the award.
			During the quarter ended June 30, 2006, the Compensation Committee of our Board of Directors authorized the grant of 835,200 employee stock options and 64,800 non-vested restricted shares to our officers and employees. Of the stock options authorized, options to purchase 761,400 shares of our common stock were granted on April 20, 2006 and options to purchase 7,500 shares of our common stock were granted on May 25, 2006. These stock option grants have an exercise price of $24.00 and $23.15, respectively, representing the fair market value on the date of grant, and vest over a three-year term at 33 1/3% per year. Additionally, the directors’ annual grant of 35,000 options (5,000 per director) and director Matthew Ralls’ initial grant of 5,000 stock options were granted, each with a date of grant of April 20, 2006, at an exercise price of $24.00, and which will vest ratably over a four-year term. The directors also received an aggregate of 16,672 shares of non-vested restricted stock on April 20, 2006, representing the same initial and annual grants of restricted stock as for the above options, which will vest over a period of twelve months. The fair value of this stock-based compensation was determined by applying a Black-Scholes option pricing model based on the following assumptions:

		Option Grant Date
Assumptions:		April 20, 2006		May 25, 2006
Risk-free rate		4.99% to 5.02%			4.97	%
Expected term (in years)		2.2 to 5.1			3.7
Volatility		37%			37	%
Calculated fair value per option		$6.26 to $9.81		$	7.91

			We completed our initial public offering in April 2006. Therefore, we did not have sufficient historical market data in order to determine the volatility of our common stock. In accordance with the provisions of SFAS No. 123R, we analyzed the market data of peer companies and calculated an average volatility factor based upon changes in the closing price of these companies’ common stock for a three-year period. This volatility factor was then applied as a variable to determine the fair value of our stock options granted during the six months ended June 30, 2006.
			We projected a rate of stock option forfeitures based upon historical experience and management assumptions related to the expected term of the options. After adjusting for these forfeitures, we expect to recognize expense totaling $6,045 over the three-year vesting period of these stock options. For the period from the date of grant until June 30, 2006, we have recognized expense totaling $334, which represents a reduction of net income before taxes and minority interest. The impact on net income was a reduction of $208 for the quarter and six months ended June 30, 2006, or a reduction of $0.01 per diluted share for the respective periods. The unrecognized compensation costs related to the non-vested portion of these awards was $5,711 as of June 30, 2006 and will be recognized over the remaining vesting period.
			The non-vested restricted shares were granted at fair value on the date of grant, or $24.00 per share, for which we may recognize compensation expense related to grants to officers and employees totaling $1,555 over the three-year vesting period and compensation expense related to grants to directors totaling $400 over a twelve-month vesting period. For the period from the date of grant until June 30, 2006, we have recognized expense totaling $86 related to these non-vested restricted shares.

     The following tables provide a roll forward of stock options from December 31, 2005 to June 30, 2006 and a summary of stock options outstanding by exercise price range at June 30, 2006:

		Options Outstanding
						Weighted
						Average
						Exercise
		Number				Price
Balance at December 31, 2005			3,512,444			$	5.42
Granted			808,900			$	23.99
Exercised			(15,474	)		$	4.48
Cancelled			(106,462	)		$	4.87
Balance at June 30, 2006			4,199,408			$	9.02

		Options Outstanding												Options Exercisable
						Weighted				Weighted								Weighted
		Outstanding at				Average				Average				Exercisable at				Average
		June 30,				Remaining				Exercise				June 30,				Exercise
Range of Exercise Price		2006				Life (months)				Price				2006				Price
$2.00 — 2.20			763,154				34			$	2.04				503,839			$	2.04
$3.94			71,797				7			$	3.94				71,797			$	3.94
$4.48 — 4.80			1,239,433				35			$	4.68				639,704			$	4.61
$5.00			206,160				42			$	5.00				68,720			$	5.00
$6.69			630,196				105			$	6.69				181,526			$	6.69
$11.66			481,268				111			$	11.66				—				—
$23.15 — 24.00			807,400				118			$	23.99				—				—
			4,199,408				69			$	9.02				1,465,586			$	3.97

The total intrinsic value of stock options exercised during the six months ended June 30, 2006 was $294. The total intrinsic value of all vested outstanding stock options at June 30, 2006 was $28,829.

(b) Amended and Restated 2001 Stock Incentive Plan:

     On March 28, 2006, our Board of Directors approved an amendment to the 2001 Stock Incentive Plan which increased the maximum number of shares issuable under the plan to 4,500,000 from 2,540,485, pursuant to which we could grant up to 1,959,515 additional shares of stock-based compensation, as of that date, to our directors, officers and employees. On April 12, 2006, stockholders owning more than a majority of the shares of our common stock adopted the amendment to the 2001 Stock Incentive Plan.

(c) Non-vested Restricted Stock:

     At June 30, 2006, in accordance with SFAS No. 123R, we no longer present deferred compensation as a contra-equity account, but rather have presented the amortization of non-vested restricted stock as an increase in additional paid-in capital. At June 30, 2006, amounts not yet recognized related to non-vested stock totaled $5,022, which represents the unamortized expense associated with awards of non-vested stock granted to employees, officers and directors under our compensation plans, including $1,955 and $2,564 related to grants made during the quarter and six months ended June 30, 2006. Compensation expense associated with these grants of non-vested stock is determined as the fair value of the shares on the date of grant, and recognized ratably over the applicable vesting period. We recognized compensation expense associated with non-vested restricted stock totaling $596 and $1,218 for the quarter and six months ended June 30, 2006. At December 31, 2005, we presented unrecognized amortization as a contra-equity account called “Deferred Compensation” totaling $3,803.

     The following table summarizes the change in non-vested restricted stock from December 31, 2005 to June 30, 2006:

		Non-vested Restricted Stock
						Weighted
						Average
		Number				Grant Price
Balance at December 31, 2005			786,170			$	5.74
Granted			107,375			$	23.89
Vested			(79,752	)		$	6.04
Forfeited			(24,544	)		$	6.36
Balance at June 30, 2006			789,249			$	8.16

(d) Common Shares Issued for Acquisitions:

     In accordance with the agreements relating to the acquisitions of Parchman Energy Group, Inc. and MGM Well Services, Inc., entered into in February 2005 and December 2004, respectively, we issued 1,000,000 shares and 164,210 shares, respectively, to the former owners of these companies during the first quarter of 2006, based upon our operating results. As a result of these issuances, we recorded common stock and additional paid-in capital totaling $27,359 with a corresponding increase in goodwill.

9. Earnings per Share:

     We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common share includes the weighted average of additional shares associated with the incremental effect of dilutive employee stock options, non-vested restricted stock, contingent shares, stock warrants and convertible debentures, as determined using the treasury stock method prescribed by SFAS No. 128, “Earnings Per Share.” The following table reconciles basic and diluted weighted average shares used in the computation of earnings per share for the three months and six months ended June 30, 2006 and 2005:

		Three Months Ended								Six Months Ended
		June 30,								June 30, 2006
		2006				2005				2006				2005
		(unaudited, in thousands)
Weighted average basic common shares outstanding			67,067				43,471				61,366				42,477
Effect of dilutive securities:
Employee stock options			1,715				456				1,684				388
Non-vested restricted stock			283				430				295				413
Contingent shares (a)			—				—				608				—
Stock warrants (b)			—				4,021				—				3,848
Weighted average diluted common and potential common shares outstanding			69,065				48,378				63,953				47,126

(a)		Contingent shares represent potential common stock issuable to the former owners of Parchman and MGM pursuant to the respective purchase agreements based upon 2005 operating results. On March 31, 2006, we calculated and issued the actual shares earned totaling 1,214 shares.
(b)		All outstanding stock warrants were exercised or cancelled as of September 12, 2005, the date of the Combination.

     We excluded the impact of anti-dilutive potential common shares from the calculation of diluted weighted average shares for the three months and six months ended June 30, 2006 and 2005. If these potential common shares were included, the impact would have been a decrease in weighted average shares outstanding of 5,758 shares and 2,895 shares for the three months and six months ended June 30, 2006, respectively, resulting in diluted weighted average shares of 69,059,398 shares and 63,949,771 shares, respectively. The impact for the three months and six months ended June 30, 2005 would have been a decrease in weighted average shares of 150,067 shares and 193,532 shares, respectively, resulting in diluted weighted average shares of 48,227,967 shares and 46,932,588 shares, respectively. If these anti-dilutive potential common shares had been included in the calculation of diluted weighted average shares, there would have been no impact on diluted earnings per share as disclosed for all periods presented in the accompanying income statements.

10. Segment information:

     SFAS No. 131, Disclosure About Segments of an Enterprise and Related Information, establishes standards for the reporting of information about operating segments, products and services, geographic areas, and major customers. The method of determining what information to report is based on the way our management organizes the operating segments for making operational decisions and assessing financial performance. We evaluate performance and allocate resources based on net income before interest expense,

taxes, depreciation and amortization and minority interest (“EBITDA”). The calculation of EBITDA should not be viewed as a substitute for calculations under U.S. GAAP, in particular net income. EBITDA calculated by us may not be comparable to the EBITDA calculation of another company.

     We have three reportable operating segments: completion and production services (“C&PS”), drilling services and product sales. The accounting policies of our reporting segments are the same as those used to prepare our unaudited consolidated financial statements as of June 30, 2006. Inter-segment transactions are accounted for on a cost recovery basis.

						Drilling				Product
		C&PS				Services				Sales				Corporate				Total
Three Months Ended June 30, 2006
Revenue from external customers		$	183,270			$	51,150			$	41,006			$	—			$	275,426
EBITDA, as defined		$	49,091			$	18,236			$	5,188			$	(3,988	)		$	68,527
Depreciation and amortization		$	14,001			$	2,284			$	575			$	265			$	17,125
Operating income (loss)		$	35,090			$	15,952			$	4,613			$	(4,253	)		$	51,402
Capital expenditures		$	57,483			$	12,990			$	2,575			$	379			$	73,427
As of June 30, 2006
Segment assets		$	867,351			$	168,398			$	93,577			$	121,195			$	1,250,521
Three Months Ended June 30, 2005
Revenue from external customers		$	112,866			$	28,762			$	27,011			$	—			$	168,639
EBITDA, as defined		$	23,739			$	8,647			$	3,516			$	(1,127	)		$	34,775
Depreciation and amortization		$	8,634			$	1,322			$	369			$	479			$	10,804
Operating income (loss)		$	15,105			$	7,325			$	3,147			$	(1,606	)		$	23,971
Capital expenditures		$	15,923			$	5,938			$	614			$	92			$	22,567
As of December 31, 2005
Segment assets		$	706,135			$	137,556			$	74,344			$	19,618			$	937,653

						Drilling				Product
		C&PS				Services				Sales				Corporate				Total
Six Months Ended June 30, 2006
Revenue from external customers		$	374,359			$	95,180			$	81,623			$	—			$	551,162
EBITDA, as defined		$	103,701			$	34,256			$	10,734			$	(7,927	)		$	140,764
Depreciation and amortization		$	26,835			$	4,302			$	1,078			$	637			$	32,852
Operating income (loss)		$	76,866			$	29,954			$	9,656			$	(8,564	)		$	107,912
Capital expenditures		$	97,832			$	25,706			$	6,138			$	2,747			$	132,423
Six Months Ended June 30, 2005
Revenue from external customers		$	218,259			$	55,356			$	56,275			$	—			$	329,890
EBITDA, as defined		$	49,848			$	16,519			$	7,453			$	(1,933	)		$	71,887
Depreciation and amortization		$	16,750			$	2,537			$	745			$	546			$	20,578
Operating income (loss)		$	33,098			$	13,982			$	6,708			$	(2,479	)		$	51,309
Capital expenditures		$	31,560			$	9,821			$	925			$	378			$	42,684

     The following table summarizes the changes in the carrying amount of goodwill by segment for the six months ended June 30, 2006:

						Drilling				Product
		C&PS				Services				Sales				Total
Balance at December 31, 2005		$	247,792			$	33,827			$	16,678			$	298,297
Acquisitions			19,602				—				—				19,602
Stock issued in accordance with earn-out provisions of purchase agreements			27,359				—				—				27,359
Contingency adjustment and other			(251	)			—				—				(251	)
Foreign currency translation			1,514				—				163				1,677
Balance at June 30, 2006		$	296,016			$	33.827			$	16,841			$	346,684

11. Legal Matters and Contingencies:

     We operate in a dangerous environment. In the normal course of our business, we are party to various pending or threatened claims, lawsuits and administrative proceedings seeking damages or other remedies concerning our commercial operations, products, employees and other matters, including warranty and product liability claims and occasional claims by individuals alleging exposure to hazardous materials, on

the job injuries and fatalities as a result of our products or operations. Many of the claims filed against us relate to motor vehicle accidents which can result in the loss of life or serious bodily injury. Some of these claims relate to matters occurring prior to our acquisition of businesses. In certain cases, we are entitled to indemnification from the sellers of businesses.

     Although we cannot know the outcome of pending legal proceedings and the effect such outcomes may have on us, we believe that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided for or covered by insurance, will not have a material adverse effect on our financial position, results of operations or liquidity.

12. Recent accounting pronouncements:

     In June 2006, the FASB issued an interpretation entitled “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109,” referred to as “FIN 48.” FIN 48 clarifies the accounting for uncertain tax positions that may have been taken by an entity. Specifically, FIN 48 prescribes a more-likely-than-not recognition threshold to measure a tax position taken or expected to be taken in a tax return through a two-step process: (1) determining whether it is more likely than not that a tax position will be sustained upon examination by taxing authorities, after all appeals, based upon the technical merits of the position; and (2) measuring to determine the amount of benefit/expense to recognize in the financial statements, assuming taxing authorities have all relevant information concerning the issue. The tax position is measured at the largest amount of benefit/expense that is greater than 50 percent likely of being realized upon ultimate settlement. This pronouncement also specifies how to present a liability for unrecognized tax benefits in a classified balance sheet, but does not change the classification requirements for deferred taxes. Under FIN 48, if a tax position previously failed the more-likely-than-not recognition threshold, it should be recognized in the first subsequent financial reporting period in which the threshold is met. Similarly, a position that no longer meets this recognition threshold, should be derecognized in the first financial reporting period that the threshold is no longer met. FIN 48 becomes effective for fiscal years beginning after December 15, 2006, with earlier adoption encouraged. We are currently evaluating the effect this pronouncement may have on our financial position, results of operations and cash flows.

13. Subsequent events:

     On July 17, 2006, we acquired all the assets of CHB Holdings Partnership, Ltd. (“CHB”), a fluid handling and disposal services business located in Henderson, Texas, for $12,738 in cash. The purchase price allocation related to this acquisition has not yet been finalized. We will include the accounts of CHB in our completion and production services business segment from the date of acquisition. We believe this acquisition is complementary to our fluid handling business in the Bossier Trend region of east Texas. We acquired CHB with a portion of the proceeds from our initial public offering, which had been invested in short-term investments as of June 30, 2006.

     On July 28, 2006, we acquired all of the outstanding equity interests of the Turner group of companies (Turner Energy Services, LLC, Turner Energy SWD, LLC, T. & J. Energy, LLC, T. & J. SWD, LLC and Loyd Jones Well Service, LLC) for $53,778 in cash, subject to a final working capital adjustment. The Turner group of companies (“Turner”) is based in the Texas panhandle in Canadian, Texas, and owns a fleet of well service rigs, and provides other wellsite services such as fishing, equipment rental, fluid handling and salt water disposal services. The purchase price allocation related to this acquisition has not yet been finalized. We will include the accounts of Turner in our completion and production services business segment from the date of acquisition. We believe this acquisition will supplement our completion and production services business in the Mid-continent region. We acquired Turner with a portion of the proceeds from our initial public offering, which had been invested in short-term investments as of June 30, 2006.

     On July 31, 2006, we acquired certain assets of Quinn Well Control Ltd. (“Quinn”), a slickline business located in Grande Prairie, Alberta, Canada, for $8,876 in cash. The purchase price allocation related to this acquisition has not yet been finalized. We will include the accounts of Quinn in our completion and production services business segment from the date of acquisition. We believe this acquisition will enhance our Canadian slick-line business and expand our geographic reach in northern Alberta and northeast British Columbia. We acquired Quinn with funds from current operations.

     On August 1, 2006, we acquired substantially all of the assets of Pinnacle Drilling Co., L.L.C. (“Pinnacle”), a drilling company located in Tolar, Texas, for $31,633 in cash. Pinnacle operates three drilling rigs, two in the Barnett Shale region in north Texas and one in east Texas. The purchase price allocation for Pinnacle has not yet been finalized. We will include the accounts of Pinnacle in our drilling services business segment from the date of acquisition. We believe this acquisition will increase our presence in the Barnett Shale of north Texas and the Bossier Trend of east Texas and expand our capacity to drill deep and horizontal wells, which are sought by our customers in this region. We acquired Pinnacle with a portion of the proceeds from our initial public offering, which had been invested in short-term investments as of June 30, 2006.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes as of June 30, 2006 and for the three months and six month ended June 30, 2006 and 2005, included elsewhere herein. This discussion contains forward-looking statements based on our current expectations, assumptions, estimates and projections about us and the oil and gas industry. These forward-looking statements involve risks and uncertainties that may be outside of our control. Our actual results could differ materially from those indicated in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: market prices for oil and gas, the level of oil and gas drilling, economic and competitive conditions, capital expenditures, regulatory changes and other uncertainties, as well as those factors discussed in Item 1A of Part II of this quarterly report. In light of these risks, uncertainties and assumptions, the forward-looking events discussed below may not occur. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements, even if new information becomes available or other events occur in the future.

     References to “Complete”, the “Company”, “we”, “our” and similar phrases are used throughout this Quarterly Report on Form 10-Q and relate collectively to Complete Production Services, Inc. and its consolidated affiliates.

Overview

     We are a leading provider of specialized services and products focused on helping oil and gas companies develop hydrocarbon reserves, reduce operating costs and enhance production. We focus on basins within North America that we believe have attractive long-term potential for growth, and we deliver targeted, value-added services and products required by our customers within each specific basin. We believe our range of services and products positions us to meet the many needs of our customers at the wellsite, from drilling and completion through production and eventual abandonment. We manage our operations from regional field service facilities located throughout the U.S. Rocky Mountain region, Texas, Oklahoma, Louisiana, Arkansas, Kansas, western Canada, Mexico and Southeast Asia.

     On September 12, 2005, we completed the combination (“Combination”) of Complete Energy Services, Inc. (“CES”), Integrated Production Services, Inc. (“IPS”) and I.E. Miller Services, Inc. (“IEM”) pursuant to which the CES and IEM shareholders exchanged all of their common stock for common stock of IPS. The Combination was accounted for using the continuity of interests method of accounting, which yields results similar to the pooling of interest method. Subsequent to the Combination, IPS changed its name to Complete Production Services, Inc.

     On April 26, 2006, we completed our initial public offering and our common stock is currently trading on the New York Stock Exchange under the symbol “CPX”.

     We operate in three business segments:

	•		Completion and Production Services. Our completion and production services segment includes: (1) intervention services, which require the use of specialized equipment, such as coiled tubing units, pressure pumping units, nitrogen units, well service rigs and snubbing units, to perform various wellbore services, (2) downhole and wellsite services, such as wireline, production optimization, production testing and rental and fishing services, and (3) fluid handling services that are used to move, store and dispose of fluids that are involved in the development and production of oil and gas reservoirs.
	•		Drilling Services. Through our drilling services segment, we provide land drilling, specialized rig logistics and site preparation for oil and gas exploration and production companies.
	•		Product Sales. Through our product sales segment, we sell oil and gas field equipment, including completion, flow control and artificial lift equipment, as well as tubular goods.

     Substantially all service and rental revenue we earn is based upon a charge for a period of time (an hour, a day, a week) for the actual period of time the service or rental is provided to our customer. Product sales are recorded when the actual sale occurs and title or ownership passes to the customer.

General

     The primary factor influencing demand for our services and products is the level of drilling, completion and maintenance activity of our customers, which in turn, depends on current and anticipated future oil and gas prices, production depletion rates and the resultant levels of cash flows generated and allocated by our customers to their drilling, completion and maintenance budgets. As a result, demand for our services and products is cyclical, substantially depends on activity levels in the North American oil and gas industry and is highly sensitive to current and expected oil and natural gas prices. During the first six months of 2006, oil commodity prices increased due to worldwide demand for energy and other global and domestic economic factors, while natural gas prices decreased from recent record levels due to short-term oversupply in the market, but still remained high compared to historical averages. The price of a barrel of crude oil reached an all-time high in recent months and continues to remain higher in 2006 than for the comparable period in 2005.

     We believe there is a correlation between the number of active drilling rigs and the level of spending for exploration and development of new and existing hydrocarbon reserves by our customers in the oil and gas industry. These spending levels are a primary driver of our business, and we believe that our customers tend to invest more in these activities when oil and gas prices are at higher levels or are increasing. The average North American rotary rig count, as published by Baker Hughes Incorporated, is summarized in the following table for the quarter and six months ended June 30, 2006 and 2005:

		Quarter Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Operating rig counts:
United States			1,635				1,339				1,578				1,311
Canada			292				246				477				372
Gulf of Mexico			91				90				84				126
Total North America			2,018				1,675				2,139				1,809

     We continue to evaluate demand for our services and are currently investing in equipment in order to place more equipment into service to meet customer demand.

Outlook

     Our growth strategy includes a focus on internal growth in our current basins by increasing current equipment utilization, adding additional like kind equipment and expanding service and product offerings. In addition, we identify new basins in which to replicate this approach. We also augment our internal growth through strategic acquisitions.

     We use strategic acquisitions as an integral part of our growth strategy. We consider acquisitions that will add to our service offerings in a current operating area or that will expand our geographical footprint into a targeted basin. We invested $36.5 million to acquire three companies during the six months ended June 30, 2006 and an additional $107.0 million to acquire four other companies in July 2006 (see “Acquisitions”).

     During the quarter and six months ended June 30, 2006, we invested $73.5 million and $132.4 million, respectively, in equipment additions and other capital expenditures. We increased our capital expenditures budget for 2006 by $30.0 million to a total of approximately $230.0 million to purchase additional equipment in an effort to meet customer demand for our services and products. For the twelve months ended June 30, 2006, our capital expenditures have exceeded $217.0 million, the majority of which related to growth capital. Due to the timing of project completion and the logistics associated with placing equipment into service, we do not believe our operating results as of June 30, 2006 reflect the full benefit of this growth capital investment. We do expect to see this benefit in future quarters, reflected as revenue growth throughout 2006 and beyond associated with this and future capital investments. Our future results remain subject, however, to the risks described in our 10-Q for the quarter ended March 31, 2006.

     We expect to continue to invest in equipment and to evaluate complementary acquisition targets. We believe North American oilfield activity levels will remain high, especially in the Rocky Mountain region, Barnett Shale of north Texas, Anadarko basin in the Mid-continent region, and Fayetteville Shale in Arkansas (a new basin we entered in late 2005 with the strategic acquisition of Big Mac). The outlook for 2006 remains positive from an activity and pricing perspective. Consistent with the prior year, we experienced a slight decline in sales in Canada, and, to a lesser extent, in the Rocky Mountain region during the second quarter of 2006, when compared to the first quarter of the year, due to seasonality as weather conditions make it difficult to conduct oil and gas field service operations in these regions during this time of the year.

Acquisitions

     During the first quarter of 2006, we acquired the operating assets of Outpost Office Inc., an oilfield equipment rental company in Grand Junction, Colorado (“Outpost”), for $6.5 million in cash, as well as the equity interests of The Rosel Company, a cased-hole and open-hole electric-line business based in Liberal, Kansas (“Rosel”), for approximately $12.0 million in cash, net of cash acquired and debt assumed. Since March 31, 2006, we acquired several complementary businesses, which are described below.

     On June 30, 2006, we acquired certain operating assets of J&M Rental Tool, Inc dba Arkoma Machine & Fishing Tools, Arkoma Machine Shop, Inc. and N&M Supply, LLC, collectively referred to as “Arkoma”, a provider of rental tools, machining and fishing services in the Fayetteville Shale and Arkoma Basin, located in Ft. Smith, Arkansas. We paid $18.0 million to acquire Arkoma, subject to a final working capital adjustment, and recorded goodwill totaling $9.3 million, which has been allocated entirely to the completion and production services business segment. We believe this acquisition provides a platform to further expand our presence in the Fayetteville Shale and Arkoma Basin and supplement our completion and production services business in that region.

     On July 17, 2006, we acquired all the assets of CHB Holdings Partnership, Ltd. (“CHB”), a fluid handling and disposal services business located in Henderson, Texas, for $12.7 million in cash. The purchase price allocation related to this acquisition has not yet been finalized. We will include the accounts of CHB in our completion and production services business segment from the date of acquisition. We believe this acquisition is complementary to our fluid handling business in the Bossier Trend region of east Texas. We acquired CHB with a portion of the proceeds from our initial public offering, which had been invested in short-term investments as of June 30, 2006.

     On July 28, 2006, we acquired all of the outstanding equity interests of the Turner group of companies (Turner Energy Services, LLC, Turner Energy SWD, LLC, T. & J. Energy, LLC, T. & J. SWD, LLC and Loyd Jones Well Service, LLC) for $53.8 million in cash subject to a final working capital adjustment. The Turner group of companies (“Turner”) is based in the Texas panhandle in Canadian, Texas, and owns a fleet of well service rigs, and provides other wellsite services such as fishing, equipment rental, fluid handling and salt water disposal services. The purchase price allocation related to this acquisition has not yet been finalized. We will include the accounts of Turner in our completion and production services business segment from the date of acquisition. We believe this acquisition will supplement our completion and production services business in the Mid-continent region. We acquired Turner with a portion of the proceeds from our initial public offering, which had been invested in short-term investments as of June 30, 2006.

     On July 31, 2006, we acquired certain assets of Quinn Well Control Ltd. (“Quinn”), a slickline business located in Grande Prairie, Alberta, Canada, for $8.9 million in cash. The purchase price allocation related to this acquisition has not yet been finalized. We will include the accounts of Quinn in our completion and production services business segment from the date of acquisition. We believe this acquisition will enhance our Canadian slick-line business and expand our geographic reach in northern Alberta and northeast British Columbia. We acquired Quinn with a portion of the proceeds from our initial public offering, which had been invested in short-term investments as of June 30, 2006.

     On August 1, 2006, we acquired substantially all of the assets of Pinnacle Drilling Co., L.L.C. (“Pinnacle”), a drilling company located in Tolar, Texas, for $31.6 million in cash. Pinnacle operates three drilling rigs, two in the Barnett Shale region of north Texas and one in east Texas. The purchase price allocation for Pinnacle has not yet been finalized. We will include the accounts of Pinnacle in our drilling services business segment from the date of acquisition. We believe this acquisition will increase our

presence in the Barnett Shale of north Texas and the Bossier Trend of east Texas and expand our capacity to drill deep and horizontal wells, which are sought by our customers in this region. We acquired Pinnacle with a portion of the proceeds from our initial public offering, which had been invested in short-term investments as of June 30, 2006.

     We account for these acquisitions using the purchase method of accounting, whereby the purchase price is allocated to the fair value of net assets acquired, including intangibles and property, plant and equipment at depreciated replacement costs with the excess to goodwill. Results of operations related to each acquired company will be included in our combined operations and accounts as of the date of acquisition.

Critical Accounting Policies and Estimates

     The preparation of our combined financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, and provide a basis for making judgments about the carrying value of assets and liabilities that are not readily available through open market quotes. Estimates and assumptions are reviewed periodically, and actual results may differ from those estimates under different assumptions or conditions. We must use our judgment related to uncertainties in order to make these estimates and assumptions.

     For a description of our critical accounting policies and estimates as well as certain sensitivity disclosures related to those estimates, see our prospectus filed on April 20, 2006 pursuant to Rule 424(b) of the Securities Act of 1933. Our critical accounting policies and estimates have not changed materially during the six months ended June 30, 2006, except that we adopted Statement of Financial Accounting Standards (“SFAS”) No. 123R on January 1, 2006, which impacted our accounting treatment of employee stock options. See further discussion in our Quarterly Report on Form 10-Q as of March 31, 2006.

Results of Operations

														Percent
		Quarter				Quarter				Change				Change
		Ended				Ended				2006/				2006/
		6/30/06				6/30/05				2005				2005
		(in thousands)
Revenue:
Completion and production services		$	183,270			$	112,866			$	70,404				62	%
Drilling services			51,150				28,762				22,388				78	%
Product sales			41,006				27,011				13,995				52	%
Total		$	275,426			$	168,639			$	106,787				63	%
EBITDA:
Completion and production services		$	49,091			$	23,739			$	25,352				107	%
Drilling services			18,236				8,647				9,589				111	%
Product sales			5,188				3,516				1,672				48	%
Corporate			(3,988	)			(1,127	)			(2,861	)			254	%
Total		$	68,527			$	34,775			$	33,752				97	%

														Percent
		Six Months				Six Months				Change				Change
		Ended				Ended				2006/				2006/
		6/30/06				6/30/05				2005				2005
		(in thousands)
Revenue:
Completion and production services		$	374,359			$	218,259			$	156,100				72	%
Drilling services			95,180				55,356				39,824				72	%
Product sales			81,623				56,275				25,348				45	%
Total		$	551,162			$	329,890			$	221,272				67	%
EBITDA:
Completion and production services		$	103,701			$	49,848			$	53,853				108	%
Drilling services			34,256				16,519				17,737				107	%
Product sales			10,734				7,453				3,281				44	%
Corporate			(7,927	)			(1,933	)			(5,994	)			310	%
Total		$	140,764			$	71,887			$	68,877				96	%