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, 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 (State or other jurisdiction of incorporation or organization)		75-2379388 (I.R.S. Employer Identification No.)
1105 Peters Road Harvey, Louisiana (Address of principal executive offices)		70058 (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 August 1, 2007 was 81,460,253.

 

 

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Quarterly Report on Form 10-Q for
the Quarterly Period Ended June 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			26
Item 3. Quantitative and Qualitative Disclosures about Market Risk			33
Item 4. Controls and Procedures			34
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders			35
Item 6. Exhibits			35
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
June 30, 2007 and December 31, 2006
(in thousands, except share data)

		6/30/07				12/31/06
		(Unaudited)				(Audited)
ASSETS
Current assets:
Cash and cash equivalents		$	36,529			$	38,970
Accounts receivable, net			346,200				303,800
Income taxes receivable			—				2,630
Current portion of notes receivable			15,254				14,824
Prepaid insurance and other			47,139				59,563
Total current assets			445,122				419,787
Property, plant and equipment, net			958,915				804,228
Goodwill, net			482,798				444,687
Notes receivable			16,259				16,137
Equity-method investments			60,241				64,603
Intangible and other long-term assets, net			134,683				125,036
Total assets		$	2,098,018			$	1,874,478
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	75,456			$	65,451
Accrued expenses			139,902				141,684
Income taxes payable			8,857				—
Current portion of decommissioning liabilities			36,504				35,150
Current maturities of long-term debt			810				810
Total current liabilities			261,529				243,095
Deferred income taxes			122,311				112,011
Decommissioning liabilities			86,787				87,046
Long-term debt			746,324				711,505
Other long-term liabilities			13,989				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, 81,459,903 shares at June 30, 2007, and 80,617,337 shares at December 31, 2006			81				81
Additional paid in capital			431,200				411,374
Accumulated other comprehensive income, net			12,746				10,288
Retained earnings			423,051				288,945
Total stockholders’ equity			867,078				710,688
Total liabilities and stockholders’ equity		$	2,098,018			$	1,874,478

See accompanying notes to consolidated financial statements.

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

		Three Months								Six Months
		2007				2006				2007				2006
Oilfield service and rental revenues		$	348,589			$	228,134			$	674,484			$	435,132
Oil and gas revenues			48,164				33,625				85,193				49,096
Total revenues			396,753				261,759				759,677				484,228
Cost of oilfield services and rentals			162,973				101,286				305,402				194,541
Cost of oil and gas sales			18,833				18,702				36,891				32,907
Total cost of services, rentals and sales			181,806				119,988				342,293				227,448
Depreciation, depletion, amortization and accretion			45,242				25,727				84,086				48,642
General and administrative expenses			53,824				40,088				104,683				77,739
Income from operations			115,881				75,956				228,615				130,399
Other income (expense):
Interest expense, net			(8,463	)			(5,556	)			(16,741	)			(10,400	)
Interest income			929				1,559				1,508				2,222
Loss on early extinguishment of debt			—				(12,596	)			—				(12,596	)
Earnings (losses) from equity-method investments, net			1,164				1,148				(3,842	)			1,148
Income before income taxes			109,511				60,511				209,540				110,773
Income taxes			39,424				21,784				75,434				39,878
Net income		$	70,087			$	38,727			$	134,106			$	70,895
Basic earnings per share		$	0.86			$	0.49			$	1.66			$	0.89
Diluted earnings per share		$	0.85			$	0.48			$	1.63			$	0.87
Weighted average common shares used in computing earnings per share:
Basic			81,047				79,798				80,841				79,719
Incremental common shares from stock options			1,457				1,490				1,480				1,422
Incremental common shares from restricted stock units			58				36				58				36
Diluted			82,562				81,324				82,379				81,177

See accompanying notes to consolidated financial statements.

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

		2007				2006
Cash flows from operating activities:
Net income		$	134,106			$	70,895
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion, amortization and accretion			84,086				48,642
Deferred income taxes			1,860				(4,714	)
Stock-based and performance share unit compensation expense			6,160				1,316
(Earnings) losses from equity-method investments, net			3,842				(1,148	)
Write-off of debt acquisition costs			—				2,817
Amortization of debt acquisition costs and note discount			1,771				510
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables			(37,274	)			(40,222	)
Other, net			14,193				(4,140	)
Accounts payable			3,327				4,408
Accrued expenses			(7,190	)			6,115
Decommissioning liabilities			(1,224	)			(2,255	)
Income taxes			10,390				40,461
Net cash provided by operating activities			214,047				122,685
Cash flows from investing activities:
Payments for capital expenditures			(199,629	)			(82,048	)
Acquisitions of oil and gas properties, net of cash acquired			—				(46,631	)
Acquisitions of businesses, net of cash acquired			(79,624	)			(9,822	)
Cash contributed to equity-method investment			—				(30,441	)
Cash proceeds from sale of business, net of cash sold			1,750				18,343
Other			9,189				(2,412	)
Net cash used in investing activities			(268,314	)			(153,011	)
Cash flows from financing activities:
Net borrowings from revolving credit facility			35,000				—
Proceeds from long-term debt			—				295,467
Principal payments on long-term debt			(405	)			(200,405	)
Payment of debt acquisition costs			(62	)			(6,203	)
Proceeds from exercise of stock options			8,017				2,393
Tax benefit from exercise of stock options			8,943				—
Net cash provided by financing activities			51,493				91,252
Effect of exchange rate changes on cash			333				463
Net increase (decrease) in cash			(2,441	)			61,389
Cash and cash equivalents at beginning of period			38,970				54,457
Cash and cash equivalents at end of period		$	36,529			$	115,846

See accompanying notes to consolidated financial statements.

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
Six Months Ended June 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 six months ended June 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 six 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 six months ended June 30, 2007 and 2006 was approximately $0.7 million and $0.4 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 six months ended June 30, 2007 and 2006 was approximately $1.3 million and $0.4 million, respectively, which is reflected in general and administrative expenses.

Restricted Stock Units

The Directors’ Restricted Stock Units Plan provides that each non-employee director is issued a number of restricted stock units having an aggregate value in a dollar amount determined by the Company’s Board of Directors. A restricted stock unit 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 restricted stock units for the six months ended June 30, 2007 and 2006 was approximately $0.5 million and $0.6 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 six months ended June 30, 2007 and 2006 was approximately $3.6 million and $1.1 million, respectively, which is reflected in general and administrative expenses. The Company has recorded a liability of approximately $8.1 million and $4.5 million at June 30, 2007 and December 31, 2006, respectively, for all outstanding PSUs which is reflected in accrued expenses.

Employee Stock Purchase Plan

In May 2007, the Company’s stockholders approved the Superior Energy Services, Inc. 2007 Employee Stock Purchase Plan under which 1,000,000 shares of common stock were reserved for issuance. Each eligible employee may purchase up to $10,000 of the Company’s common stock annually at a 15% discount. The 15% discount will represent compensation expense and will be recorded in general and administrative expenses.

(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).

(4) Acquisitions and Dispositions

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 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 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 six months ended June 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 payable to 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 June 30, 2007, the maximum additional contingent consideration payable was approximately $8.8 million, and will be determined and payable through 2010. In the six months ended June 30, 2007, the Company capitalized and paid additional consideration of approximately $0.6 million as a result of prior acquisitions.

(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 and machining 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 six months ended June 30, 2007 and 2006 is shown in the following tables (in thousands):

Three Months Ended June 30, 2007

																		Oil & Gas
		Well				Rental												Eliminations				Consolidated
		Intervention				Tools				Marine				Oil & Gas				& Unallocated				Total
Revenues		$	190,542			$	123,736			$	35,162			$	48,164			$	(851	)		$	396,753
Cost of services, rentals and sales			109,449				39,018				15,357				18,833				(851	)			181,806
Depreciation, depletion, amortization and accretion			11,255				16,606				2,205				15,176				—				45,242
General and administrative expenses			27,727				21,472				2,388				2,237				—				53,824
Income from operations			42,111				46,640				15,212				11,918				—				115,881
Interest expense, net			—				—				—				—				(8,463	)			(8,463	)
Interest income			—				—				—				322				607				929
Earnings from equity-method investments, net			—				—				—				1,164				—				1,164
Income (loss) before income taxes		$	42,111			$	46,640			$	15,212			$	13,404			$	(7,856	)		$	109,511

Three Months Ended June 30, 2006

																		Oil & Gas
		Well				Rental												Eliminations				Consolidated
		Intervention				Tools				Marine				Oil & Gas				& Unallocated				Total
Revenues		$	111,675			$	86,593			$	33,951			$	33,625			$	(4,085	)		$	261,759
Cost of services, rentals and sales			63,355				28,223				13,793				18,702				(4,085	)			119,988
Depreciation, depletion, amortization and accretion			4,329				12,482				2,133				6,783				—				25,727
General and administrative expenses			18,270				16,483				2,687				2,648				—				40,088
Income from operations			25,721				29,405				15,338				5,492				—				75,956
Interest expense, net			—				—				—				—				(5,556	)			(5,556	)
Interest income			—				—				—				302				1,257				1,559
Loss on early extinguishment of debt			—				—				—				—				(12,596	)			(12,596	)
Earnings from equity-method investments, net			—				—				—				1,148				—				1,148
Income (loss) before income taxes		$	25,721			$	29,405			$	15,338			$	6,942			$	(16,895	)		$	60,511

Six Months Ended June 30, 2007

																		Oil & Gas
		Well				Rental												Eliminations				Consolidated
		Intervention				Tools				Marine				Oil & Gas				& Unallocated				Total
Revenues		$	367,473			$	239,916			$	71,028			$	85,193			$	(3,933	)		$	759,677
Cost of services, rentals and sales			204,956				74,534				29,846				36,890				(3,933	)			342,293
Depreciation, depletion, amortization and accretion			21,613				31,856				4,393				26,224				—				84,086
General and administrative expenses			52,728				41,810				5,116				5,029				—				104,683
Income from operations			88,176				91,716				31,673				17,050				—				228,615
Interest expense, net			—				—				—				—				(16,741	)			(16,741	)
Interest income			—				—				—				613				895				1,508
Losses from equity-method investments, net			—				—				—				(3,842	)			—				(3,842	)
Income (loss) before income taxes		$	88,176			$	91,716			$	31,673			$	13,821			$	(15,846	)		$	209,540

Six Months Ended June 30, 2006

																		Oil & Gas
		Well				Rental												Eliminations				Consolidated
		Intervention				Tools				Marine				Oil & Gas				& Unallocated				Total
Revenues		$	213,748			$	164,367			$	64,158			$	49,096			$	(7,141	)		$	484,228
Cost of services, rentals and sales			123,355				52,521				25,806				32,907				(7,141	)			227,448
Depreciation, depletion, amortization and accretion			8,864				24,195				4,285				11,298				—				48,642
General and administrative expenses			36,138				31,749				5,585				4,267				—				77,739
Income from operations			45,391				55,902				28,482				624				—				130,399
Interest expense, net			—				—				—				—				(10,400	)			(10,400	)
Interest income			—				—				—				602				1,620				2,222
Loss on early extinguishment of debt			—				—				—				—				(12,596	)			(12,596	)
Earnings from equity-method investments, net			—				—				—				1,148				—				1,148
Income (loss) before income taxes		$	45,391			$	55,902			$	28,482			$	2,374			$	(21,376	)		$	110,773

Identifiable Assets

		Well				Rental																Consolidated
		Intervention				Tools				Marine				Oil & Gas				Unallocated				Total
June 30, 2007		$	927,822			$	630,816			$	192,966			$	317,769			$	28,645			$	2,098,018
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 June 30,								Six Months Ended June 30,
		2007				2006				2007				2006
United States		$	319,647			$	225,527			$	613,668			$	414,532
Other Countries			77,106				36,232				146,009				69,696
Total		$	396,753			$	261,759			$	759,677			$	484,228

Long-Lived Assets:

		June 30,				December 31,
		2007				2006
United States		$	808,818			$	715,899
Other Countries			150,097				88,329
Total		$	958,915			$	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 June 30, 2007 and December 31, 2006 is approximately $18.1 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 $59.3 million at June 30, 2007 and $63.6 million at December 31, 2006. The Company recorded a loss from its equity-method investment in BOG of approximately $3.8 million for the six months ended June 30, 2007. During the six month period ended June 30, 2006, the Company recorded approximately $1.1 million of earnings from its equity-method investment in BOG 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 $6.3 million at June 30, 2007 and $3.0 million at December 31, 2006. The Company offset its general and administrative expenses by approximately $2.5 million for the reimbursements due from BOG for the six months ended June 30, 2007. The Company also recorded revenue of approximately $5.3 million from BOG for the six months ended June 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 $0.5 million for the six months ended June 30, 2007.

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

Balance Sheet

		June 30,				December 31,
		2007				2006
Current assets		$	143,125			$	176,860
Property, plant and equipment, net			478,796				522,941
Other assets			9,605				23,135
Total assets		$	631,526			$	722,936
Current liabilities		$	26,747			$	27,922
Decommissioning and other long-term liabilities			92,287				89,610
Long-term debt			360,974				432,697
Total liabilities			480,008				550,229
Accumulated other comprehensive income, net			2,291				13,861
Partners’ capital			149,227				158,846
Total capital			151,518				172,707
Total liabilities and partners’ capital		$	631,526			$	722,936

Income Statement

		Three Months Ended								Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2007				2006				2007				2006
Revenues		$	54,554			$	—			$	109,145			$	—
Lease operating expenses			(14,105	)			—				(28,164	)			—
Depreciation, depletion, amortization															—
and accretion			(27,551	)			—				(57,763	)			—
General and administrative expenses			(2,297	)			(142	)			(6,737	)			(142	)
Interest expense			(10,609	)			—				(21,997	)			—
Interest income			979				—				2,241				—
Gain (loss) on derivatives			1,932				2,973				(6,345	)			2,973
Net income (loss)		$	2,903			$	2,831			$	(9,620	)		$	2,831

Also included in equity-method investments at June 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 six months ended June 30, 2007 or 2006. The Company recorded approximately $104,000 and $122,000 in expense to lease the airplane (exclusive of operating costs) from this company for the six months ended June 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 June 30, 2007, the Company had approximately $35 million outstanding under the revolving credit facility. Additionally, the Company had approximately $73.2 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 June 30, 2007, the Company was in compliance with all such covenants.

The Company has $16.2 million outstanding at June 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 and debt-to-equity requirements. At June 30, 2007, the Company was in compliance with all such covenants. This long-term financing ranks equally with the bank credit facility as both are secured by different collateral.

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, restrict 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 June 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 exchange price represents a 35% premium over the closing share price at the date of issuance. 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 six months ended June 30, 2006, hedging settlement payments reduced oil revenues by approximately $8.7 million, and no gains or loses were recorded due to hedge ineffectiveness. There were no outstanding contracts as of June 30, 2007.

(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 six months ended June 30, 2007 and 2006 (amounts in thousands):

		Six Months Ended
		June 30,
		2007				2006
Total decommissioning liabilities at December 31, 2006 and 2005, respectively		$	122,196			$	121,909
Liabilities acquired and incurred			—				3,554
Liabilities settled			(1,224	)			(2,255	)
Accretion			2,049				2,419
Revision in estimated liabilities			270				(5,064	)
Total decommissioning liabilities at June 30, 2007 and 2006, respectively			123,291				120,563
Current portion of decommissioning liabilities at June 30, 2007 and 2006, respectively			36,504				14,081
Long-term portion of decommissioning liabilities at June 30, 2007 and 2006, respectively		$	86,787			$	106,482

(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 six months ended June 30, 2007 and 2006 (amounts in thousands):

		Three Months Ended
		June 30,
		2007				2006
Accumulated other comprehensive income (loss), March 31, 2007 and 2006, respectively		$	9,846			$	(3,353	)
Other comprehensive income:
Other comprehensive income, net of tax
Hedging activities:
Adjustment for settled contracts, net of tax of $1,736 in 2006			—				2,956
Changes in fair value of outstanding hedging positions, net of tax of ($455) in 2006			—				(776	)
Foreign currency translation adjustment			2,900				2,277
Total other comprehensive income			2,900				4,457
Accumulated other comprehensive income, June 30, 2007 and 2006, respectively		$	12,746			$	1,104

		Six Months Ended
		June 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 $3,059 in 2006			—				5,209
Changes in fair value of outstanding hedging positions, net of tax of ($1,160) in 2006			—				(1,975	)
Foreign currency translation adjustment			2,458				2,786
Total other comprehensive income			2,458				6,020
Accumulated other comprehensive income, June 30, 2007 and 2006, respectively		$	12,746			$	1,104

(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 June 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 June 30, 2007 and December 31, 2006 and the Condensed Consolidating Statements of Operations and Cash Flows for the three and six months ended June 30, 2007 and 2006.

SUPERIOR ENERGY SERVICES, INC. AND SUBSIDIARIES
Condensed Consolidating Balance Sheets
June 30, 2007
(in thousands)
(unaudited)

														Non-
										Guarantor				Guarantor
		Parent				Issuer				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash and cash equivalents		$	—			$	365			$	12,350			$	23,814			$	—			$	36,529
Accounts receivable, net			—				4,919				309,204				46,981				(14,904	)			346,200
Current portion of notes receivable			—				—				15,254				—				—				15,254
Prepaid insurance and other			42				5,615				36,400				5,082				—				47,139
Total current assets			42				10,899				373,208				75,877				(14,904	)			445,122
Property, plant and equipment, net			—				2,330				850,780				105,805				—				958,915
Goodwill, net			—				—				439,284				43,514				—				482,798
Notes receivable			—				—				16,259				—				—				16,259
Equity-method investments			124,271				550,925				59,260				—				(674,215	)			60,241
Intangible and other long-term assets, net			—				25,332				108,389				962				—				134,683
Total assets		$	124,313			$	589,486			$	1,847,180			$	226,158			$	(689,119	)		$	2,098,018
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	—			$	1,386			$	65,396			$	23,578			$	(14,904	)		$	75,456
Accrued expenses			631				26,293				103,538				9,440				—				139,902
Income taxes payable			2,443				—				—				6,414				—				8,857
Current portion of decommissioning liabilities			—				—				36,504				—				—				36,504
Current maturities of long-term debt			—				—				—				810				—				810
Total current liabilities			3,074				27,679				205,438				40,242				(14,904	)			261,529
Deferred income taxes			114,362				—				—				7,949				—				122,311
Decommissioning liabilities			—				—				86,787				—				—				86,787
Long-term debt			—				730,943				—				15,381				—				746,324
Intercompany payables/(receivables)			(191,949	)			(49,294	)			721,871				37,320				(517,948	)			—
Other long-term liabilities			6,197				7,413				—				379				—				13,989
Stockholders’ equity:
Preferred stock of $.01 par value			—				—				—				—				—				—
Common stock of $.001 par value			81				—				—				101				(101	)			81
Additional paid in capital			431,200				127,173				—				28,993				(156,166	)			431,200
Accumulated other comprehensive income, net			—				—				—				12,746				—				12,746
Retained earnings (deficit)			(238,652	)			(254,428	)			833,084				83,047				—				423,051
Total stockholders’ equity			192,629				(127,255	)			833,084				124,887				(156,267	)			867,078
Total liabilities and stockholders’ equity		$	124,313			$	589,486			$	1,847,180			$	226,158			$	(689,119	)		$	2,098,018

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 insurance 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			—				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 (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