(7)  Debt

On May 2, 2001, the Company issued $200 million of 8 7/8% senior notes due 2011 pursuant to an indenture to provide funds for the Company's acquisition of substantially all the assets of Power Offshore Services, L.L.C. and Reeled Tubing, L.L.C., reduce the Company's bank term loan to $50 million, repay all borrowings under the Company's revolving credit facility, and provide additional working capital. The indenture requires semi-annual interest payments which commence November 15, 2001 and continue through the maturity date of May 15, 2011. The Company also amended the existing bank credit facility to provide for a $120 million term loan and revolving credit facility consisting of a $50 million term loan and $70 million revolving credit facility. The term loan requires quarterly principal installments commencing June 30, 2001 in the amount of $2.5 million a quarter through March 31, 2005 and a balance of $10 million due on the facility maturity date of May 2, 2005.

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

In July 2001, the Financial Accounting Standards Board issued new pronouncements: Statement 141, Business Combinations, Statement 142, Goodwill and Other Intangible Assets, and Statement 143, Accounting for Asset Retirement Obligations. Statement 141, which requires the purchase method of accounting for all business combinations, applies to all business combinations initiated after June 30, 2001 and to all business combinations accounted for by the purchase period that are completed after June 30, 2001. Statement 142 requires that goodwill as well as other intangible assets be tested annually for impairment and is effective for fiscal years beginning after December 15, 2001. Statement 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Statement 143 is effective for fiscal years beginning after June 15, 2002. The Company is currently assessing the impact of Statement 141, 142 and 143 on its financial condition and results of operations.

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

Forward-Looking Statements

"Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements which involve risks and uncertainties. All statements other than statements of historical fact included in this section regarding our financial position and liquidity, strategic alternatives, future capital needs, business strategies and other plans and objectives of our management for future operations and activities, are forward-looking statements. These statements are based on certain assumptions and analyses made by our management in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances. Such forward-looking statements are subject to uncertainties that could cause our actual results to differ materially from such statements. Such uncertainties include but are not limited to: the volatility of the oil and gas industry, including the level of offshore exploration, production and development activity; risks of our growth strategy, including the risks of rapid growth and the risks inherent in acquiring businesses; changes in competitive factors affecting our operations; operating hazards, including the significant possibility of accidents resulting in personal injury, property damage or environmental damage; the effect on our performance of regulatory programs and environmental matters; seasonality of the offshore industry in the Gulf of Mexico and our dependence on certain customers. These and other uncertainties related to our business are described in detail in our Annual Report on Form 10-K for the year ended December 31, 2000. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update any of our forward-looking statements for any reason.

Overview

We are a leading provider of specialized oilfield services and equipment focused on serving the production-related needs of oil and gas companies in the Gulf of Mexico. We believe that we are one of the few companies capable of providing most post wellhead products and services necessary to maintain offshore producing wells as well as the plug and abandonment services necessary at the end of their life cycle. We believe that our ability to provide our customers with multiple services and to coordinate and integrate their delivery allows us to maximize efficiency, reduce lead time and provide cost-effective services for our customers.

Over the past several years, we have significantly expanded the geographical scope of our operations and the range of production-related services we provide through both internal growth and strategic acquisitions. Recent acquisitions have expanded our geographic focus to select international market areas and added complementary product and service offerings. We provide a full range of products and services for our customers, including well intervention services, marine services, rental tools, field management services and environmental services and other services.

Our financial performance is impacted by the broader economic trends affecting our customers. The demand for our services and equipment is cyclical due to the nature of the energy industry. Our operating results are directly tied to industry demand for our services, most of which are performed on the outer continental shelf in the Gulf of Mexico. While we have focused on providing production-related services where, historically, demand has not been as volatile as for exploration-related services, we expect our operating results to be highly dependent upon industry activity levels in the Gulf of Mexico. For additional segment financial information, see note 6 to our consolidated financial statements.

In the second quarter of 2001, our financial performance was favorably impacted by increased demand for our services as compared to the first quarter of 2001, as well as from acquisitions made during the second quarter of 2001. For the quarter ended June 30, 2001, revenue increased 20% to $109.6 million and net income before the cumulative effect of change in accounting principle increased 32% to $14.3 million over the quarter ended March 31, 2001. The primary factors driving our improved performance included increased activity for most of the services in our well intervention group, increased demand for our rental tools and increased day rates and utilization for our expanded liftboat fleet.

Our well intervention group segment's revenue increased $9.5 million or 30% to $41.6 million in the second quarter of 2001 as compared to the first quarter of 2001. This increase was attributable to both our internal growth which was primarily due to increased demand coupled with improved pricing particularly in our coiled tubing, slickline, electric line and mechanical wireline services and the acquisition of 21 coiled tubing units.

Our marine segment's revenue increased 42% in the second quarter of 2001 over the first quarter of 2001. This increase is primarily attributable to higher average day rates and utilization as well as the acquisition of 8 liftboats. Weighted average day rates for our liftboat fleet increased to approximately $5,900 in the second quarter of 2001 from approximately $5,000 in the first quarter of 2001.

For the three months ended June 30, 2001, our revenues were $109.6 million resulting in net income of $14.3 million or $0.21 diluted earnings per share, as compared to revenue of $57.6 million and net income of $3.8 million or $0.06 diluted earnings per share for the second quarter of 2000. This increase is the result of an increased demand for our services and our acquisitions. The following discussion analyzes our operating results on a segment basis.

Well Intervention Group Segment

Revenue for our well intervention group for the three months ended June 30, 2001 was $41.6 million, 103% higher than the same period in 2000. This segment's gross margin increased from 33% in the three months ended June 30, 2000 to 48% in the three months ended June 30, 2001. Demand and pricing increased for all of our services as production-related activity increased significantly. In addition, we expanded our service offering by adding drilling and workover services and significantly expanded our coiled tubing services through our acquisitions.

Marine Segment

Our marine revenue for the three months ended June 30, 2001 increased 137% over the same period in 2000 to $18.5 million and the gross margin percentage increased from 42% to 57% as dayrates and utilization for most liftboat classes moved higher. The fleet's average dayrate increased 76% and utilization improved to 83% from 78% in the same period in 2000. We also benefited from the increased size of our liftboat fleet due to our acquisitions.

Rental Tools Segment

Revenue for the rental tools segment for the three months ended June 30, 2001 was $29.1 million, a 90% increase over the same period in 2000. The increase in this segment's revenue was driven by increased demand for all of our rental tools. Through our acquisitions, we expanded our rental tool inventory to include on-site accommodations and ancillary equipment and services. The gross margin percentage fell slightly to 64% in the three months ended June 30, 2001 from 68% in the same period in 2000 due to a change in the mix of our rental revenue.

Field Management Segment

Field management revenue for the three months ended June 30, 2001 was $14.4 million, a 65% increase over the same period in 2000. The gross margin percentage increased slightly to 13% in the three months ended June 30, 2001 from 12% in the same period in 2000. This segment experienced increased activity for offshore construction and fabrication services as well as higher demand for supplemental labor.

Environmental and Other Segment

Revenue from our environmental and other segment increased 15% to $6.0 million for the three months ended June 30, 2001 over the same period in 2000 and the gross margin percentage increased to 48% in the three months ended June 30, 2001 from 42% in the same period in 2000. These increases were driven mainly by increased offshore tank and vessel services, which is the highest gross margin business for this segment.

Depreciation and amortization

Depreciation and amortization increased to $8.1 million in the three months ended June 30, 2001 from $4.9 million in the same period in 2000. The increase mostly resulted from our larger asset base as a result of our acquisitions and capital expenditures during 2000 and 2001.

General and administrative

General and administrative expenses increased to $17.1 million in the second quarter of 2001 from $9.7 million in the same period in 2000. The increase is primarily the result of our acquisitions and our increased activity levels. General and administrative expenses as a percentage of revenue decreased to 16% for the quarter ended June 30, 2001 from 17% for the quarter ended June 30, 2000.

For the six months ended June 30, 2001, our revenues were $200.9 million resulting in income before cumulative effect of change in accounting principle of $25.2 million or $0.36 diluted earnings per share, as compared to revenue of $104.9 million and net income of $5.4 million or $0.09 diluted earnings per share for the same period in 2000. This increase is the result of an increased demand for our services and our acquisitions. The following discussion analyzes our operating results on a segment basis.

Well Intervention Group Segment

Revenue for our well intervention group was $73.7 million for the six months ended June 30, 2001, 95% higher than the same period in 2000. This segment's gross margin increased from 33% in the six months ended June 30, 2000 to 46% in the three months ended June 30, 2001. Demand and pricing increased for all of our services as production-related activity increased significantly. In addition, we expanded our service offering by adding drilling and workover services and significantly expanded our coiled tubing services through our acquisitions.

Marine Segment

Our marine revenue for the six months ended June 30, 2001 increased 141% over the same period in 2000 to $31.5 million and the gross margin percentage increased from 38% to 55% as dayrates and utilization for most liftboat classes moved higher. The fleet's average dayrate increased 76% and utilization improved to 82% from 73% in the same period in 2000. We also benefited from the increased size of our liftboat fleet due to our acquisitions.

Rental Tools Segment

Revenue for our rental tools segment for the six months ended June 30, 2001 was $56.5 million, a 96% increase over the same period in 2000. The increase in this segment's revenue was driven by increased demand for all of our rental tools. Through our acquisitions, we expanded our rental tool inventory to include on-site accommodations and ancillary equipment and services. The gross margin percentage fell slightly to 64% in the six months ended June 30, 2001 from 69% in the same period in 2000 due to a change in the mix of our rental revenue.

Field Management Segment

Field management revenue for the six months ended June 30, 2001 was $27.6 million, an 86% increase over the same period in 2000. The gross margin percentage increased to 14% in the six months ended June 30, 2001 from 10% in the same period in 2000. This segment experienced increased activity for offshore construction and fabrication services as well as higher demand for supplemental labor.

 Environmental and Other Segment

Revenue from our environmental and other segment for the six months ended June 30, 2001 increased 12% to $11.7 million over the same period in 2000 and the gross margin percentage increased to 46% in the six months ended June 30, 2001 from 42% in the same period in 2000. These increases were driven mainly by increased offshore tank and vessel services, which is the highest gross margin business for this segment.

Depreciation and amortization

Depreciation and amortization increased to $14.9 million in the six months ended June 30, 2001 from $9.7 million in the same period in 2000. The increase mostly resulted from our larger asset base as a result of our acquisitions and capital expenditures during 2000 and 2001.

General and administrative

General and administrative expenses increased to $31.7 million in the six months ended June 30, 2001 from $19.0 million in the same period in 2000. The increase is primarily the result of our acquisitions and our increased activity levels. General and administrative expenses as a percentage of revenue decreased to 16% for the six months ended June 30, 2001 from 18% for the six months ended June 30, 2000.

Our primary liquidity needs are for working capital, acquisitions, capital expenditures and debt service. Our primary sources of liquidity are cash flows from operations and borrowings under our revolving credit facility. We had cash and cash equivalents of $4.6 million at June 30, 2001 compared to $4.3 million at December 31, 2000.

In the six months ended June 30, 2001, we generated net cash from operating activities of $29.9 million. We supplemented our cash flow with the issuance of $200 million in senior notes.

We used the cash generated by our operating activities and borrowings to increase our asset base and enhance our earning potential. In the quarter ended June 30, 2001, we made two acquisitions for a total of $81.6 million. Additional consideration, if any, will be based upon the respective company's average EBITDA (earnings before interest, income taxes, depreciation and amortization expense) less certain adjustments and will not exceed $8.5 million. These acquisitions expanded our asset base by adding twenty-one coiled tubing units, eight liftboats ranging from 120 feet to 250 feet in leg length and expanded our business to include well control services and blow-out rental tools.

We also made capital expenditures of $37.8 million during the six months ended June 30, 2001, of which approximately $15.1 million was used to further expand our rental tool equipment inventory, $5.7 million was used for the marine segment inclusive of payments for vessel construction and approximately $5.8 million was used on property expansion, including our new facility in Broussard, Louisiana. We also made $11.2 million of other capital expenditures, including casing calipers, a high pressure coiled tubing unit, construction of new hydraulic drilling units and various expenditures on other machinery and equipment. We currently believe that we will make additional capital expenditures, excluding acquisitions and targeted asset purchases, of approximately $15 to $17 million during the year 2001 primarily to continue construction of three vessels and to further expand our rental tool inventory. We believe that our current working capital, cash generated from our operations and availability under our revolving credit facility will provide sufficient funds for our identified capital projects.

We issued $200 million of 8 7/8% senior notes due 2011 pursuant to an indenture in May 2001. The indenture requires semi-annual interest payments which commence November 15, 2001 and continue through the maturity date of May 15, 2011. We also amended the existing bank credit facility to reduce our term loan to $50 million and increase our revolving credit facility to $70 million. The term loan requires quarterly principal installments commencing June 30, 2001 in the amount of $2.5 million a quarter through March 31, 2005 and a balance of $10 million due on the facility maturity date of May 2, 2005. The credit facility bears interest at a LIBOR rate plus margins that depend on our leverage ratio. As of August 8, 2001, our amounts outstanding under the term loan and revolving credit facility were $47.5 million and $15 million, respectively, and the weighted average interest rate on the credit facility was 8.14% per annum. Indebtedness under the credit facility is secured by substantially all of our assets, including the pledge of the stock of our subsidiaries. The credit facility contains customary events of default and requires that we satisfy various financial covenants. It also limits our ability to make capital expenditures, pay dividends or make other distributions, make acquisitions, make changes to our capital structure, create liens or incur additional indebtedness.

We intend to continue implementing our growth strategy of increasing our scope of services through both internal growth and strategic acquisitions. Depending on the size of any future acquisitions, we may require additional equity or debt financing in excess of our current working capital and amounts available under our revolving credit facility.

In July 2001, the Financial Accounting Standards Board issued new pronouncements: Statement 141, Business Combinations, Statement 142, Goodwill and Other Intangible Assets, and Statement 143, Accounting for Asset Retirement Obligations. Statement 141, which requires the purchase method of accounting for all business combinations, applies to all business combinations initiated after June 30, 2001 and to all business combinations accounted for by the purchase period that are completed after June 30, 2001. Statement 142 requires that goodwill as well as other intangible assets be tested annually for impairment and is effective for fiscal years beginning after December 15, 2001. Statement 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived asset. Statement 143 is effective for fiscal years beginning after June 15, 2002. We are currently assessing the impact of Statement 141, 142 and 143 on our financial condition and results of operations.

Item 3.         Quantitative and Qualitative Disclosures about Market Risk

There have been no significant changes in our market risks since the year ended December 31, 2000. For more information, please read the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2000.

PART II.         OTHER INFORMATION

Item 4.        Submission of Matters to Vote of Security Holders

Item 6.         Exhibits and Reports on Form 8-K