Oil States Announces Third Quarter Earnings of $0.99 per Share

HOUSTON, Oct. 30 /PRNewswire-FirstCall/ -- Oil States International, Inc. today reported net income for the quarter ended September 30, 2006 of $50.1 million, or $0.99 per diluted share, a year-over-year increase of over 65%. These results compare to $30.3 million, or $0.60 per diluted share, reported in the third quarter of 2005. With continuing robust activity and contributions from recent capital investments and acquisitions, Oil States recognized year-over-year growth in revenues and EBITDA (defined as net income plus interest, taxes, depreciation and amortization) in the third quarter of 2006 of 22% and 47%, respectively.(A)

The Company generated $479.5 million of revenues and $93.9 million of EBITDA in the third quarter of 2006 compared to $394.1 million and $64.1 million, respectively, in the third quarter of 2005. Significant increases in Offshore Products' revenues and EBITDA coupled with year-over-year improvements in Well Site Services contributed to the strong third quarter results. Well Site Services reported greater revenues and EBITDA due to high levels of North American drilling activity, capital investments made in the past year and contributions from the acquisition of three drilling rigs in August 2006. Offshore Products generated significantly improved revenues and EBITDA due to the acceleration in deepwater development spending and related capital equipment upgrades by its customers. In addition, Offshore Products' backlog continued to improve, up 14% during the quarter to $321.2 million. Tubular Services reported a year-over-year improvement in revenues due to increased U.S. drilling activity. EBITDA for Tubular Services was lower than the prior year as a result of lower gross margins. The Company recognized an effective tax rate of 34.1% in the quarter compared to 36.9% in the third quarter of last year. During the third quarter of 2006, the Company repurchased $7.0 million in common stock (at an average price of $28.15 per share) under its current share repurchase program and spent $47.6 million in capital expenditures.

For the nine months ended September 30, 2006, the Company reported net income of $148.3 million, or $2.91 per diluted share, on revenues of $1.4 billion and EBITDA of $282.4 million. For the nine months ended September 30, 2005, the Company reported net income of $80.4 million, or $1.59 per diluted share, on revenues of $1.1 billion and EBITDA of $170.2 million. This performance represents year-over-year revenue and EBITDA increases of 33% and 66%, respectively. Net income in the first nine months of 2006 included the recognition of a non-cash, pre-tax gain of $11.3 million, or an after-tax gain of $0.12 per diluted share, on the sale of the Company's workover services business to Boots & Coots International Well Control, Inc. . Capital expenditures in the first nine months of 2006 totaled $104.6 million.

BUSINESS SEGMENT RESULTS

(Unless otherwise noted, the following discussion compares the quarterly results from the third quarter of 2006 to the results from the third quarter of 2005.)

Well Site Services

Well Site Services generated improved third quarter results due to the upturn in North American activity year-over-year and contributions from $126.5 million of capital investments made over the past year, partially offset by the sale of the hydraulic workover business completed in the first quarter of 2006. For the third quarter of 2006, Well Site Services generated revenues of $154.4 million and EBITDA of $62.0 million compared to $141.5 million and $38.4 million, respectively, in the third quarter of 2005. Higher revenues in drilling services and rental tools and improved margins in each of the Well Site Services business lines contributed to the 9% year-over-year increase in revenues and 61% increase in EBITDA. These results were partially offset by the conversion of the Company's investment in its workover services business (which accounted for $10.3 million in revenues and $2.1 million in EBITDA in the third quarter of 2005) to equity accounting with the sale of the business to Boots & Coots in March 2006.

For the third quarter of 2006, the accommodations business generated $64.0 million of revenues and $20.3 million of EBITDA compared to $67.2 million and $13.0 million, respectively, in the third quarter of 2005. Accommodations' revenues were down slightly year-over-year due to decreased third-party manufacturing work and lower international facility management revenues. However, year-over-year EBITDA improved dramatically due to increased contributions from higher margin camp rental and logistical services and improved manufacturing margins from oil sands related camps manufactured for third parties. The accommodations business also benefited from a 7% strengthening of the Canadian Dollar against the U.S. dollar. During the third quarter of 2006, rental equipment generated a 33% year-over-year increase in revenues and a 58% increase in EBITDA primarily due to increased completion activity in the U.S. and contribution from capital expenditures made over the past year. Drilling reported revenues and EBITDA of $37.1 million and $18.6 million, respectively, in the third quarter of 2006 compared to $24.0 million of revenues and $8.8 million of EBITDA in the third quarter 2005 due to improved utilization, pricing, contract terms and rig fleet expansion. We have added six rigs to the drilling rig fleet since August 15, 2005 including the acquisition of three rigs in Texas in August 2006. As previously announced, the Company has committed to build two fit-for-purpose drilling rigs to begin work in the Rockies in mid-2007 under long term contracts with a large independent E&P customer.

Offshore Products

During the third quarter of 2006, Offshore Products generated record quarterly results, reporting $110.0 million of revenues and $19.1 million in EBITDA compared to $64.3 million and $8.3 million, respectively, in the third quarter of 2005. Gross margin percentage for the third quarter increased to 24% from 22% in the third quarter of 2005 primarily due to increased activity and fixed cost absorption in the majority of the Company's manufacturing locations, increased revenues and gross profit contributions from each of its major product lines, particularly in the rig and vessel equipment and subsea pipeline businesses. Backlog topped second quarter record levels, reaching $321.2 million at September 30, 2006 compared to $280.6 million at June 30, 2006 and $110.7 million as of December 31, 2005.

Tubular Services

Tubular Services reported revenues of $215.0 million and EBITDA of $17.3 million for the third quarter of 2006 compared to $188.3 million and $20.4 million, respectively, in the third quarter of 2005. Tubular Services' OCTG shipments increased 15% to 120,000 tons from 104,100 tons in the third quarter of 2005. Gross margins in the third quarter of 2006 declined to 9.1% from 12.3% in the third quarter of 2005 because of relatively static OCTG mill pricing since the third quarter of 2005 and a higher percentage of carbon OCTG sales. The segment continued to see rising land based drilling activity, increasing our lower margin carbon grade sales. The Company's OCTG inventory as of September 30, 2006 was $279.9 million compared to $269.8 million at June 30, 2006 and $274.2 million as of December 31, 2005. As of September 30, 2006, approximately 64% of Oil States' OCTG inventory was committed to customer orders.

"Oil States reported strong results in the third quarter of 2006 due primarily to continued strength in Well Site Services and substantial growth in Offshore Products," stated Douglas E. Swanson, Oil States' Chief Executive Officer. "We continued to see higher North American drilling and completion activity benefiting our Well Site Services and Tubular Services segments. In addition, our third quarter results continued to demonstrate the importance of our exposure to deepwater capital spending and Canadian oil sands development, which benefited our Offshore Products and accommodations businesses. While there is currently some concern regarding the short term impact on North American activity due to high natural gas storage levels and reduced natural gas pricing, we believe the long term fundamentals remain intact. Fourth quarter activity could see softness in Canada and certain regions of the United States due to the impact of lower natural gas prices on customer spending coupled with holiday and year-end shutdowns. As a result, our current expectation for fourth quarter 2006 earnings is in a range of $0.87 to $0.92 per diluted share."

Oil States International, Inc. is a diversified oilfield services company. With locations around the world, Oil States is a leading manufacturer of products for deepwater production facilities and subsea pipelines, and a leading supplier of a broad range of services to the oil and gas industry, including production-related rental tools, work force accommodations and logistics, oil country tubular goods distribution and land drilling services. Oil States is organized in three business segments - Offshore Products, Tubular Services and Well Site Services, and is publicly traded on the New York Stock Exchange under the symbol OIS. For more information on the Company, please visit Oil States International's website at http://www.oilstatesintl.com/ .

The foregoing contains forward-looking statements within the meaning of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are those that do not state historical facts and are, therefore, inherently subject to risks and uncertainties. The forward-looking statements included herein are based on current expectations and entail various risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. Such risks and uncertainties include, among other things, risks associated with the general nature of the oilfield service industry and other factors discussed within the "Business" section of the Form 10-K for the year ended December 31, 2005 filed by Oil States with the SEC on March 2, 2006.

Oil States International, Inc. Unaudited Condensed Consolidated Statements of Income (in thousands, except per share amounts) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Revenues $479,463 $394,140 $1,439,053 $1,084,555 Costs and expenses: Cost of sales 363,007 308,267 1,094,926 853,631 Selling, general and administrative expenses 27,414 22,441 79,611 62,165 Depreciation and amortization expense 13,880 12,253 39,762 33,697 Other operating expense / (income) (330) (87) 56 (394) Operating income 75,492 51,266 224,698 135,456 Interest expense (4,797) (3,857) (14,531) (9,313) Interest income 714 77 1,670 313 Equity in earnings of unconsolidated affiliates 2,637 473 4,624 806 Sale of workover services business --- --- 11,250 --- Other income 1,866 72 2,111 231 Income before income taxes 75,912 48,031 229,822 127,493 Income tax expense (25,860) (17,723) (81,549) (47,045) Net income $50,052 $30,308 $148,273 $80,448 Net income per share Basic $1.01 $0.62 $2.99 $1.63 Diluted $0.99 $0.60 $2.91 $1.59 Weighted average number of common shares outstanding Basic 49,736 48,925 49,514 49,436 Diluted 50,475 50,108 50,909 50,442 Oil States International, Inc. Consolidated Balance Sheets (in thousands) Sep. 30, Jun. 30, Dec. 31, 2006 2006 2005 Assets (unaudited) (unaudited) (audited) Current assets Cash and cash equivalents $13,198 $14,141 $15,298 Accounts receivable, net 315,266 304,929 274,070 Inventories, net 401,537 378,227 360,926 Prepaid expenses and other current assets 9,408 13,357 13,450 Total current assets 739,409 710,654 663,744 Property, plant and equipment, net 360,212 328,216 310,452 Goodwill, net 333,699 333,611 339,703 Investments in unconsolidated affiliates 35,891 33,253 2,265 Other noncurrent assets 58,526 58,199 26,708 Total assets $1,527,737 $1,463,933 $1,342,872 Liabilities and stockholders' equity Current liabilities Accounts payable and accrued liabilities $203,772 $199,363 $214,504 Income taxes 5,072 7,408 7,023 Current portion of long-term debt 6,861 5,554 3,901 Deferred revenue 48,095 47,173 34,046 Other current liabilities 3,678 3,693 3,223 Total current liabilities 267,478 263,191 262,697 Long-term debt (B) 398,015 390,374 402,109 Deferred income taxes 37,746 36,996 35,259 Other liabilities 20,915 15,701 8,823 Total liabilities 724,154 706,262 708,888 Stockholders' equity Common stock 511 511 504 Additional paid-in capital 369,988 367,751 350,667 Retained earnings 438,266 388,214 289,993 Accumulated other comprehensive income 35,459 34,798 23,137 Treasury stock (40,641) (33,603) (30,317) Total stockholders' equity 803,583 757,671 633,984 Total liabilities and stockholders' equity $1,527,737 $1,463,933 $1,342,872 Oil States International, Inc. Segment Data (in thousands) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Revenues Accommodations $63,973 $67,173 $243,577 $215,356 Rental Tools 53,320 40,010 149,685 90,296 Drilling and Other (C) 37,126 24,005 97,349 60,599 Workover Services --- 10,349 8,544 29,712 Well Site Services 154,419 141,537 499,155 395,963 Offshore Products 110,038 64,345 281,984 194,695 Tubular Services 215,006 188,258 657,914 493,897 Total Revenues $479,463 $394,140 $1,439,053 $1,084,555 EBITDA (A) Accommodations $20,339 $12,982 $69,291 $42,356 Rental Tools 23,021 14,601 62,279 32,084 Drilling and Other (C) 18,626 8,778 48,769 20,083 Workover Services (D) --- 2,084 13,828 6,097 Well Site Services 61,986 38,445 194,167 100,620 Offshore Products 19,130 8,342 49,839 23,997 Tubular Services 17,256 20,417 53,026 54,239 Corporate / Other (4,497) (3,140) (14,587) (8,666) Total EBITDA $93,875 $64,064 $282,445 $170,190 Operating Income / (Loss) Accommodations $13,802 $9,479 $54,743 $32,803 Rental Tools 18,775 10,861 49,785 22,472 Drilling and Other (C) 14,473 7,282 39,860 15,984 Workover Services --- 1,108 1,922 3,189 Well Site Services 47,050 28,730 146,310 74,448 Offshore Products 16,342 5,885 41,592 16,649 Tubular Services 16,629 19,801 51,470 53,069 Corporate / Other (4,529) (3,150) (14,674) (8,710) Total Operating Income $75,492 $51,266 $224,698 $135,456 Oil States International, Inc. Additional Quarterly Segment and Operating Data (unaudited) Three Months Ended September 30, 2006 2005 Supplemental Operating Data Accommodations Operating Statistics Average Mandays Served 5,322 7,385 Average Camps Rented Canadian Side-by-Side Camps 25 17 US Offshore Steel Buildings (10 foot wide) 160 147 Land Drilling Operating Statistics Average Rigs Available 30 26 Utilization 94.3% 91.0% Implied Day Rate ($ in thousands per day) $14.3 $10.8 Implied Daily Cash Margin ($ in thousands per day) $6.7 $4.2 Offshore Products Backlog ($ in millions) $321.2 $119.4 Tubular Services Operating Data Shipments (Tons in thousands) 120.0 104.1 Quarter end Inventory ($ in thousands) $279,851 $241,543 Oil States International, Inc. Reconciliation of GAAP to Non-GAAP Financial Information (in thousands) (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Net income $50,052 $30,308 $148,273 $80,448 Income tax expense 25,860 17,723 81,549 47,045 Depreciation and amortization 13,880 12,253 39,762 33,697 Interest income (714) (77) (1,670) (313) Interest expense 4,797 3,857 14,531 9,313 EBITDA $93,875 $64,064 $282,445 $170,190 (A) The term EBITDA consists of net income plus interest, taxes, depreciation and amortization. EBITDA is not a measure of financial performance under generally accepted accounting principles. You should not consider it in isolation from or as a substitute for net income or cash flow measures prepared in accordance with generally accepted accounting principles or as a measure of profitability or liquidity. Additionally, EBITDA may not be comparable to other similarly titled measures of other companies. The Company has included EBITDA as a supplemental disclosure because its management believes that EBITDA provides useful information regarding our ability to service debt and to fund capital expenditures and provides investors a helpful measure for comparing its operating performance with the performance of other companies that have different financing and capital structures or tax rates. The Company uses EBITDA to compare and to monitor the performance of its business segments to other comparable public companies and as a benchmark for the award of incentive compensation under its annual incentive compensation plan. (B) As of September 30, 2006, the Company had approximately $90.7 million available under its revolving credit facility. (C) Includes results for the workover services business, which was sold to Boots & Coots International Well Control, Inc., subsequent to March 1, 2006. (D) Includes the $11.3 million non-cash, pre-tax gain from the sale of the workover services business to Boots & Coots International Well Control, Inc.