PART I

Item 1. Business.

General

TETRA Technologies, Inc. (the Company) is an oil and gas services company with an integrated calcium chloride and brominated products manufacturing operation that supplies feedstocks to energy markets, as well as other markets. The Company is comprised of three divisions – Fluids, Well Abandonment & Decommissioning (WA&D), and Production Enhancement.

The Company’s Fluids Division manufactures and markets clear brine fluids, additives and other associated products and services to the oil and gas industry for use in well drilling, completion, and workover operations both domestically and in certain regions of Europe, Asia, Latin America and Africa. The Division also markets certain fluids and dry calcium chloride manufactured at its production facilities to a variety of domestic and international markets outside the energy industry.

The Company’s WA&D Division provides a broad array of services required for the abandonment of depleted oil and gas wells and the decommissioning of platforms, pipelines, and other associated equipment. The Division services the onshore U.S. Gulf Coast region and the inland waters and offshore markets of the Gulf of Mexico. The Division is also an oil and gas producer from wells acquired in its well abandonment and decommissioning business and provides electric wireline, engineering, workover, and drilling services.

The Company’s Production Enhancement Division, previously known as the Testing & Services Division, provides production testing services to the Texas, Louisiana, Alabama, Mississippi, the offshore Gulf of Mexico and certain Latin American markets. In addition, it is engaged in the design, fabrication, sale, lease and service of wellhead compression equipment primarily used to enhance production from mature, low pressure natural gas wells located principally in the mid-continent, Rocky Mountain, Texas and Louisiana regions of the United States and western Canada. The Division also provides the technology and services required for the separation and recycling of oily residuals generated from petroleum refining operations.

The Company continues to pursue a growth strategy which includes expanding its existing businesses – both through internal growth as well as through the pursuit of suitable acquisitions – and by identifying opportunities to establish operations in additional niche oil service markets. For financial information for each of the Company’s segments, including information regarding revenues and total assets, see “Note Q – Industry Segments and Geographic Information” contained in the Notes to Consolidated Financial Statements.

TETRA Technologies, Inc. was incorporated in Delaware in 1981. All references to the Company include TETRA Technologies, Inc. and its subsidiaries. The Company’s corporate headquarters are located at 25025 Interstate 45 North, Suite 600, in The Woodlands, Texas. Its phone number is 281-367-1983 and its web site is accessed at www.tetratec.com. The Company makes available, free of charge, on its website, its Corporate Governance Guidelines, Code of Business Conduct and Ethics, Code of

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Ethics for Senior Financial Officers, Audit Committee Charter, Management and Compensation Committee Charter and Nominating and Corporate Governance Committee Charter as well as its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as is reasonably practicable after such materials are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). The Company will also make these available in print free of charge to any stockholder who requests such information from the Corporate Secretary.

Products and Services

Fluids Division

Liquid calcium chloride, sodium bromide, calcium bromide, zinc bromide and zinc calcium bromide produced by the Fluids Division are referred to as clear brine fluids (CBFs) in the oil and gas industry. CBFs are solids-free, clear salt solutions that, like conventional drilling “muds,” have high specific gravities and are used as weighting fluids to control bottomhole pressures during oil and gas completion and workover activities. The use of CBFs increases production by reducing the likelihood of damage to the wellbore and productive pay zone. CBFs are particularly important in offshore completion and workover operations due to the greater formation sensitivity, the significantly greater investment necessary to drill offshore, and the consequent higher cost of error. CBFs are distributed through the Company’s Fluids Division and are also sold to other companies who service customers in the oil and gas industry.

The Fluids Division provides basic and custom blended CBFs to domestic and international oil and gas well operators, based on the specific need of the customer and the proposed application of the product. The Division also provides these customers with a broad range of associated services, including onsite fluid filtration, handling and recycling, fluid engineering consultation and fluid management. The Division also repurchases used CBFs from operators and recycles and reconditions these materials. The utilization of reconditioned CBFs reduces the net cost of the CBFs to the Company’s customers and minimizes the need for disposal of used fluids. The Company recycles and reconditions the CBFs through filtration, blending and the use of proprietary chemical processes, and then markets the reconditioned CBFs.

The Division’s fluid engineering and management personnel use proprietary technology to determine the proper blend for a particular application to maximize the effectiveness and lifespan of the CBFs. The specific volume, density, crystallization temperature and chemical composition of the CBFs are modified by the Company to satisfy a customer's specific requirements. The Company’s filtration services use a variety of techniques and equipment for the onsite removal of particulates from CBFs, so that those CBFs can be recirculated back into the well. Filtration also enables recovery of a greater percentage of used CBFs for recycling.

The manufacturing group of the Fluids Division presently obtains product from twelve active production facilities that manufacture liquid and/or dry calcium chloride, sodium bromide, calcium bromide, zinc bromide and/or zinc calcium bromide for distribution primarily into energy markets. Liquid and dry calcium chloride are also sold into the water treatment, industrial, cement, food processing, dust control, ice melt, agricultural and consumer products markets. Liquid sodium bromide is also sold into the industrial water treatment markets, where it is used as a biocide in recirculated cooling tower waters.

The Fluids Division’s calcium chloride operations expanded significantly during 2004, primarily due to the September 2004 acquisition of the European calcium chloride manufacturing assets from Kemira Oyj (Kemira) of Helsinki, Finland. The acquisition enhanced the Company’s position as a leading producer and marketer of calcium chloride to both energy and industrial markets.

The Company obtains liquid calcium chloride from eight production facilities in the United States and Europe. Some of these plants are owned by the Company, and the Company obtains production from the non-owned plants under written agreements with the owner. Dry calcium chloride is produced at the Company’s Lake Charles, Louisiana plant, which has a production capacity of 100,000 tons of dry product per year. Dry calcium chloride is also produced at the Company’s Kokkola, Finland plant, which has a production capacity of 165,000 tons per year. The Company also has two solar evaporation plants

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located in San Bernardino County, California, which produce liquid calcium chloride from underground brine reserves for sale to markets in the western United States.

The manufacturing group manufactures and distributes sodium bromide, calcium bromide and zinc bromide from its West Memphis, Arkansas facility. A patented and proprietary production process utilized at this facility uses a low cost hydrobromic acid or bromine, along with various zinc sources, to manufacture its products. This facility also uses patented and proprietary technologies to recondition and upgrade used CBFs repurchased from the Company’s customers. The group has a facility at Dow Chemical’s Ludington, Michigan chemical plant that converts a crude bromine stream from Dow’s calcium/magnesium chemicals operation into bromine and liquid calcium bromide or liquid sodium bromide.

The Company also owns a plant in Magnolia, Arkansas that is designed to produce calcium bromide. Approximately 33,000 gross acres of bromine-containing brine reserves are under lease by the Company in the vicinity of the plant to support its production. The plant is not currently in operation, and the Company continues to evaluate its strategy related to these assets and their future development.

See “Note Q – Industry Segments and Geographic Information” in the Notes to Consolidated Financial Statements for financial information about this Division.

Well Abandonment & Decommissioning Division

The Well Abandonment & Decommissioning (WA&D) Division provides a broad array of services required for the abandonment of depleted oil and gas wells and the decommissioning of platforms, pipelines, and other associated equipment onshore and in the inland waters of Texas and Louisiana and offshore in the Gulf of Mexico. In addition, the Division provides electric wireline, engineering, workover and drilling services and is a producer of oil and gas.

The Division has service facilities located in Belle Chasse, Houma and Lafayette, Louisiana and in Bryan, Midland and Victoria, Texas. In providing its well abandonment and decommissioning services, the Company owns and operates onshore rigs, barge-mounted rigs, a platform rig, two heavy lift vessels and several offshore rigless packages. In addition, the Company rents certain equipment from third party contractors whenever necessary. The Division’s integrated package of services includes engineering services, project management and other operations required to plug wells, salvage tubulars and decommission wellhead equipment, pipelines and platforms. Its electric wireline operations provide pressure transient testing, reservoir evaluation, well performance evaluation, cased hole and memory production logging, perforating, bridge plug and packer service and pipe recovery to major oil and gas companies and independent operators, including the Company’s Maritech Resources, Inc. subsidiary (Maritech).

In April 2004, the Company acquired certain assets of a well abandonment company located in western Texas, which has allowed the Company to extend its onshore well abandonment operations into the western Texas and New Mexico region.

In September 2004, the Company purchased an 800 ton heavy lift derrick barge from Global Industries, Ltd. The addition of the TETRA Arapaho expands the Company’s decommissioning operations and gives the Company additional capabilities and capacity to perform heavy lift projects in the Gulf of Mexico.

Through Maritech, the WA&D Division acquires, manages and exploits producing oil and gas properties purchased in conjunction with its well abandonment business. Federal regulations generally require lessees to plug and abandon wells and decommission the platforms, pipelines and other equipment located on the lease within one year after the lease terminates. Maritech provides oil and gas companies with alternative ways of managing their well abandonment obligations, while effectively base-loading well abandonment and decommissioning work for the WA&D Division. This may include purchasing an ownership interest in the properties and operating them in exchange for assuming the proportionate share of the well abandonment and decommissioning obligations associated with such properties. In some transactions, cash may also be received or paid by Maritech.

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Maritech’s operations have expanded significantly in the past three years, principally due to the acquisition of offshore Gulf of Mexico producing properties and subsequent development activities on these properties. During 2002, Maritech purchased oil and gas producing properties in exchange for the assumption of approximately $15.0 million in associated decommissioning liabilities. During 2003, Maritech purchased oil and gas producing properties in six separate transactions, in exchange for the assumption of an aggregate of approximately $11.5 million in associated decommissioning liabilities. During 2004, Maritech purchased oil and gas producing properties in four separate transactions, in exchange for the assumption of an aggregate of approximately $12.0 million in associated decommissioning liabilities. In addition to the above acquisitions of producing oil and gas properties, Maritech also conducts oil and gas exploitation and development activities on the acquired properties. At December 31, 2004, Maritech had proved reserves of approximately 2.6 million barrels of oil and 22.4 billion cubic feet of natural gas, with undiscounted future net pretax cash flow of approximately $120.8 million.

See “Note Q – Industry Segments and Geographic Information” in the Notes to Consolidated Financial Statements for financial information about this Division.

Production Enhancement Division

The production testing component of the Production Enhancement Division provides flowback pressure and volume testing of oil and gas wells, predominantly in the Texas, Louisiana, Alabama, Mississippi, offshore Gulf of Mexico, Mexico and Venezuela markets. These services facilitate the sophisticated evaluation techniques needed for reservoir management and optimization of well workover programs. In early 2004, the Company entered into a joint venture to pursue the performance of similar services in Saudi Arabia.

The Company expanded its production testing operations in July 2002 with the acquisition of the assets of Precision Well Testing Company, further strengthening its presence in the offshore Gulf of Mexico and onshore areas. In June 2004, the Company expanded and enhanced its existing Venezuelan production testing operations with the acquisition of certain assets of a Venezuelan production testing company. The Division maintains one of the largest fleets of high pressure production testing equipment in the South Texas area, with operating locations in Edinburg, Laredo and Victoria, Texas. The Division also has operating locations in Palestine, Texas; New Iberia, Louisiana; Reynosa, Villahermosa, Poza Rica and Veracruz, Mexico; El Tejero, Cabimas, and Anaco, Venezuela; Macae, Brazil; and Dammam, Saudi Arabia.

In July 2004, the Company completed the acquisition of Compressco, Inc. (Compressco), which designs, fabricates, sells, leases and services low pressure natural gas wellhead compressors. Compressco has been involved in the oil and gas service industry since 1990. Compressco’s patented design compressor equipment and experienced personnel assist oil and gas operators in increasing daily produced volumes and extending the productive lives of low volume or marginal gas and oil wells. As of December 31, 2004, Compressco had 1,415 of its GasJack® units in service, which represents an increase of approximately 31% from the prior year.

The GasJack® compressor utilizes a 460 cubic inch V-8 engine, modified such that one bank of four cylinders uses natural gas from the well to power the other bank of four cylinders to provide compression. Engines and parts used in the fabrication of the compressor units are readily available from numerous sources. Compressco leases these compressor units to its customers, primarily on a month to month basis, or sells them. Compressco services its leased compressor fleet, as well as provides maintenance service on sold units, through a staff of mobile field technicians, which is based throughout Compressco’s market areas.

The process services group of the Production Enhancement Division applies a variety of technologies to separate oily residuals — mixtures of hydrocarbons, water and solids — into their components. The group provides its oil recovery and residuals separation and recycling services primarily to the petroleum refining market in the United States. This group utilizes various liquid/solid separation technologies, including a proprietary high temperature thermal desorption and recovery technology, hydrocyclones, centrifuges and filter presses. Oil is recycled for productive use, water is recycled or

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disposed of, and organic solids are recycled. Inorganic solids are treated to become inert, nonhazardous materials. The Division typically builds, owns and operates fixed systems that are located on its customers’ sites, providing these services under long-term contracts.

See “Note Q – Industry Segments and Geographic Information” in the Notes to Consolidated Financial Statements for financial information about this Division.

Sources of Raw Materials

The Fluids Division manufactures calcium chloride, sodium bromide, calcium bromide, zinc bromide and zinc calcium bromide for distribution to its customers. The Division also purchases calcium chloride, calcium bromide and sodium bromide from a number of domestic and foreign manufacturers, and it recycles calcium and zinc bromide CBFs repurchased from its oil and gas customers.

The Division manufactures calcium chloride using hydrochloric acid, limestone or brines. The Division also purchases calcium chloride from a number of chemical manufacturers. Some of the Division’s primary sources of hydrochloric acid are chemical co-product streams obtained from chemical manufacturers. The Company has written agreements with those chemical companies regarding the supply of hydrochloric acid or calcium chloride, and believes that there are alternative sources of supply as well. The Company also produces calcium chloride through evaporation at its two plants in San Bernardino County, California from underground brine reserves. These brines are deemed adequate to supply the Company’s foreseeable need for calcium chloride in that market area. Substantial quantities of limestone are also consumed when converting hydrochloric acid into calcium chloride. The Company uses a proprietary process that permits the use of less expensive limestone, while maintaining end-use product quality. The Company purchases limestone from several different sources. Currently, hydrochloric acid and limestone are generally available from numerous sources. In addition, the Company purchases liquid calcium chloride from a Delfzijl, Netherlands plant owned by a joint venture in which the Company has a 50% ownership interest.

To produce calcium bromide, zinc bromide and zinc calcium bromide at its West Memphis, Arkansas facility, the Company uses hydrobromic acid, bromine and various sources of zinc raw materials. The Company has several sources of bromine and co-product hydrobromic acid. The Company uses proprietary and patented processes that permit the use of cost-advantaged raw materials, while maintaining high product quality. There are multiple sources of zinc that the Company can use in the production of zinc bromide. The Company has an agreement with Dow Chemical Company to purchase crude bromine to feed its bromine derivatives plant in Ludington, Michigan. This plant produces bromine for use at the West Memphis facility as well as liquid calcium bromide and sodium bromide for resale.

The Company also owns a calcium bromide manufacturing plant near Magnolia, Arkansas that was constructed in 1985 and has a production capacity of 100 million pounds of calcium bromide per year. This plant was acquired in 1988 and is not presently in operation. The Company currently has approximately 33,000 gross acres of bromine-containing brine reserves under lease in the vicinity of this plant. While this plant is designed to produce calcium bromide, it could be modified to produce elemental bromine or select bromine compounds. The Company believes it has sufficient brine reserves under lease to operate a world-scale bromine facility for 25 to 30 years. Development of the brine field, construction of necessary pipelines and reconfiguration of the plant would take in excess of one year and require a substantial investment of additional capital.

The Company has a long-term supply agreement with a foreign producer of calcium bromide as well. This agreement affords the Company additional flexibility, beyond the development of the Magnolia, Arkansas plant, for the secure supply of its required bromine derivatives.

Market Overview and Competition

Fluids Division

The Fluids Division markets and sells CBFs, drilling and completion fluids systems, additives, and related products and services to major oil and gas exploration and production companies, onshore and offshore, in the United States and worldwide. Current areas of market presence include the U.S.

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onshore Gulf Coast, the U.S. Gulf of Mexico, the North Sea, Mexico, South America, the Far East, Europe, the Middle East and West Africa. The Division’s principal competitors in the sale of CBFs to the oil and gas industry are Baroid Corporation, a subsidiary of Halliburton Company; M-I L.L.C., a joint venture between Smith International Inc. and Schlumberger Limited; and BJ Services Company. This market is highly competitive and competition is based primarily on service, availability and price. Although all competitors provide fluid handling, filtration and recycling services, the Company believes that its historical focus on providing these and other value-added services to its customers has enabled it to compete successfully. Major customers of the Fluids Division include Anadarko, Apache Corporation, ATP, CNR, Devon, ExxonMobil, Kerr-McGee Corporation, LLOG Exploration, Newfield Exploration Company, Shell Oil, Spinnaker Exploration, M-I L.L.C. and Halliburton Company. The Division also sells its products through various distributors worldwide.

The Company's liquid and dry calcium chloride products have a wide range of uses outside the energy industry. The non-energy market segments to which the Company's products are marketed include the agricultural, industrial, governmental, mining, janitorial, construction, pharmaceutical and food industries. These products promote snow and ice melt, dust control, cement curing, food processing, dehumidification, and road stabilization and are also used as a source of calcium nutrients to improve agricultural yields in many regions of the country. Most of these markets are highly competitive. The acquisition of the Kemira calcium chloride assets in September 2004 allows the Company to strategically expand the marketing of its calcium chloride products to certain northern European and Russian markets. The Company’s major competitors in the calcium chloride market include Dow Chemical Company and Industrial del Alkali in North America, and Brunner Mond, Solvay and NedMag in Europe. The Company also sells sodium bromide into the industrial water treatment markets as a biocide under the BioRid® trade name.

Well Abandonment & Decommissioning Division

The WA&D Division provides well abandonment and decommissioning services offshore in the U.S. Gulf of Mexico and in the inland waters and onshore in Texas and Louisiana. Long-term demand for the services of the WA&D Division is predominately driven by government regulations. In the market areas in which the Company currently competes, regulations generally require wells to be plugged, offshore platforms decommissioned, pipelines abandoned and the wellsite cleared within twelve months after an oil or gas lease expires. The maturity and decline of Gulf of Mexico producing fields has over time caused an increase in the number of wells to be plugged and abandoned and platforms and pipelines to be decommissioned. Offshore platform decommissioning activities in the Gulf of Mexico are highly seasonal, with the majority of such operations performed during the months of April through October when weather conditions are most favorable. Critical factors required to participate in these markets include among other factors: the proper equipment to meet diverse market conditions; qualified, experienced personnel; technical expertise to address varying downhole and surface conditions; the financial strength to ensure all abandonment and decommissioning obligations are satisfied; and a comprehensive safety and environmental program. The Company believes its integrated service package satisfies these market requirements, allowing it to successfully compete.

The Division markets its services to major oil and gas companies, independent operators, and state governmental agencies. Major customers include ChevronTexaco, ExxonMobil, Shell Oil, Forest Oil, Hunt Oil, Devon, Unocal, ConocoPhillips, Apache, and Anadarko. These services are performed onshore primarily in Texas and Louisiana, in the Gulf Coast inland waterways and offshore in the U.S. Gulf of Mexico. The Company’s principal competitors in the offshore and inland waters markets are Global Industries Inc., Offshore Specialties, Inc., Horizon Offshore and Superior Energy Services, Inc. This market is highly competitive and competition is based primarily on service, equipment availability, safety record and price. The Company’s ability to successfully bid its services can fluctuate from year to year. Maritech competes with a wide number of independent Gulf of Mexico operators for the acquisition of producing oil and gas properties.

Production Enhancement Division

The Production Enhancement Division provides production testing services primarily to the natural gas segment of the oil and gas industry. In certain gas producing basins, water, sand and other abrasive materials will commonly accompany the initial production of natural gas, often under high

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pressures. The Division provides the equipment and qualified personnel to remove these impediments to production and to pressure test wells and wellhead equipment. The Division provides certain production testing and laboratory testing services for oil producing properties as well.

The production testing market is highly competitive and competition is based on availability of equipment and qualified personnel, as well as price, quality of service and safety record. The Company believes its equipment maintenance program and operating procedures give it a competitive advantage in the marketplace. Competition in onshore markets is dominated by numerous small, privately owned operators. Schlumberger Limited, Power Well Services, Expro International and GeoService are major competitors in offshore markets and international markets. The Company’s customers include ConocoPhillips, Shell Oil, Dominion Exploration and Production, Inc., Anadarko, El Paso Corporation, Devon, Newfield, St. Mary’s Oil & Gas, Valence Operating Co., W&T Offshore, PEMEX (the national oil company of Mexico), Petrobras (the national oil company of Brazil) and PDVSA (the national oil company of Venezuela).

The Division’s Compressco operations provide wellhead compression equipment and services primarily to operators of low volume or marginal gas and oil wells. Many mature gas fields in the United States are experiencing a loss of pressure and are requiring production enhancement at earlier stages to maintain production levels. Compressco’s core service areas are located primarily in the south central United States and Compressco plans to continue to expand into new and existing geographic operating areas, including throughout the mid-continent, Rocky Mountain, Texas and Louisiana regions of the United States and western Canada. Compressco’s competitors include Natural Gas Systems, Hanover, Plains Machinery and other companies, many of which use a screw compressor with a separate engine driver or a reciprocating compressor with a separate engine driver. Compressco believes that its patented technology helps it to maintain a competitive position in the market which it serves. Compressco’s major customers include BP, Chesapeake, Devon and Burlington Resources.

The Division also provides oily residuals processing services to refineries concentrated in Texas and Louisiana. Although U.S. refineries have alternative technologies and disposal systems available to them, the Company feels its competitive edge lies in its ability to apply its various liquid/solid separation technologies to provide an efficient processing alternative at competitive prices. The Division currently has major processing facilities at the following refineries: ExxonMobil – Baton Rouge, Louisiana; Hovensa – St. Croix, Virgin Islands; Premcor and Motiva – Port Arthur, Texas; Lyondell-Citgo – Houston, Texas; ConocoPhillips – Borger, Texas; Premcor – Memphis, Tennessee; and Citgo – Lake Charles, Louisiana. This Division’s major competitor in this market is Veolia Water North America.

Other Business Matters

Marketing and Distribution

The Fluids Division markets its CBF products and services domestically through its distribution facilities located principally in the Gulf Coast region of the United States. These facilities are in close proximity to both product supplies and customer concentrations. Since transportation costs can represent a large percentage of the total delivered cost of chemical products, particularly liquid chemicals, the Fluids Division believes that its strategic locations give it a competitive advantage over certain other suppliers of CBFs in the southern United States and California. In addition, the Fluids Division supplies CBFs to selected international markets including the U.K. and Norwegian sectors of the North Sea, Mexico, Venezuela, Brazil, West Africa, Europe, the Middle East and the Far East.

The non-oilfield calcium chloride products are also marketed through the Division’s sales offices and sales agents in California, Missouri, Florida, Texas and Wyoming, as well as through a network of distributors located throughout the United States and northern and central Europe. In addition to shipping products directly from its production facilities in the United States and Europe, the Division has distribution facilities strategically located to provide efficient product distribution.

Backlog

The level of backlog is not indicative of the Company’s estimated future revenues because a majority of the Company’s products and services either are not sold under long-term contracts or do not

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require long lead times to procure or deliver. The Company’s backlog consists of estimated future revenues associated with its well abandonment and decommissioning and process services businesses in the U.S. The estimated backlog for the well abandonment and decommissioning business consists primarily of the non-Maritech share of the well abandonment and decommissioning work associated with the oil and gas properties operated by Maritech. The Company’s estimated backlog on December 31, 2004, was $109.2 million, of which approximately $13.4 million is expected to be billed during 2005. This compares to an estimated backlog of $87.9 million at December 31, 2003.

Employees

As of December 31, 2004, the Company had 1,528 employees. None of the Company’s U.S. employees are presently covered by a collective bargaining agreement, other than the employees of the Company’s Lake Charles, Louisiana calcium chloride production facility who are represented by the Paper, Allied Industrial, Chemical and Energy Workers International Union. The Company’s international employees are generally members of the various labor unions and associations common to the countries in which the Company operates. The Company believes that its relations with its employees are good.

Patents, Proprietary Technology and Trademarks

As of December 31, 2004, the Company owned or licensed 20 issued U.S. patents and had six patent applications pending in the U.S. Internationally, the Company had eight issued foreign patents and 26 foreign patent applications pending. The foreign patents and patent applications are primarily foreign counterparts to U.S. patents or patent applications. The issued patents expire at various times through 2022. The Company has elected to maintain certain other internally developed technologies, know-how and inventions as trade secrets. While the Company believes that the protection of its patents and trade secrets is important to its competitive positions in its businesses, the Company does not believe any one patent or trade secret is essential to the success of the Company.

It is the practice of the Company to enter into confidentiality agreements with key employees, consultants and third parties to whom the Company discloses its confidential and proprietary information. There can be no assurance, however, that these measures will prevent the unauthorized disclosure or use of the Company’s trade secrets and expertise or that others may not independently develop similar trade secrets or expertise. Management of the Company believes, however, that it would require a substantial period of time, and substantial resources, to independently develop similar know-how or technology. As a policy, the Company uses all possible legal means to protect its patents, trade secrets and other proprietary information.

The Company sells various products and services under a variety of trademarks and service marks, some of which are registered in the U.S. or certain foreign countries.

Safety, Health and Environmental Affairs Regulations

The Company is subject to various federal, state, local and international laws and regulations relating to occupational health and safety and the environment including regulations and permitting for air emissions, wastewater and storm-water discharges, the disposal of certain hazardous and nonhazardous wastes, and wetlands preservation. Failure to comply with these occupational health and safety and environmental laws and regulations or associated permits may result in the assessment of fines and penalties and the imposition of investigatory and remedial obligations.

With respect to the Company’s domestic operations, various environmental protection laws and regulations have been enacted and amended in the United States during the past three decades in response to public concerns over the environment. The U.S. operations of the Company and its customers are subject to these various evolving environmental laws and corresponding regulations. In the United States, these laws and regulations are enforced by the U.S. Environmental Protection Agency, the Minerals Management Service of the U.S. Department of the Interior (MMS), the U.S. Coast Guard and various other federal, state and local environmental authorities. Similar laws and regulations, designed to protect the health and safety of the Company’s employees and visitors to its facilities, are enforced by the U.S. Occupational Safety and Health Administration and other state and local agencies and authorities. The Company must comply with the requirements of environmental laws and regulations applicable to its

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operations, including the Federal Water Pollution Control Act of 1972; the Resource Conservation and Recovery Act of 1976 (RCRA); the Clean Air Act of 1977; the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA); the Superfund Amendments and Reauthorization Act of 1986 (SARA); the Federal Insecticide, Fungicide, and Rodenticide Act of 1947 (FIFRA); the Hazardous Materials Transportation Act of 1975; and the Pollution Prevention Act of 1990.

The Company’s operations outside the U.S. are subject to similar international governmental controls and restrictions pertaining to the environment, occupational health and safety, and other regulated activities in the countries in which the Company operates. The Company believes its operations are in substantial compliance with existing international governmental controls and restrictions and that compliance with these international controls and restrictions has not had a material adverse affect on operations.

At the Company’s production plants, the Company holds various permits regulating air emissions, wastewater and storm-water discharges, the disposal of certain hazardous and nonhazardous wastes, and wetlands preservation.

The Company believes that its manufacturing plants and other facilities are in general compliance with all applicable environmental and health and safety laws and regulations. Since its inception, the Company has not had a history of any significant fines or claims in connection with environmental or health and safety matters. However, risks of substantial costs and liabilities are inherent in certain plant operations and in the development and handling of certain products produced at the Company's plants; because of this, there can be no assurance that significant costs and liabilities will not be incurred in the future. Changes in environmental and health and safety regulations could subject the Company's handling, manufacture, use, reuse, or disposal of materials at plants to more rigorous scrutiny. The Company cannot predict the extent to which its operations may be affected by future regulatory and enforcement policies.

Certain Business Risks and Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995

Certain information included in this report, other materials filed or to be filed with the SEC, as well as information included in oral statements or other written statement made or to be made by us contain or incorporate by reference certain statements (other than statements of historical fact) that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used herein, the words “budget,” “budgeted,” “assumes,” “should,” “goal,” “anticipates,” “expects,” “believes,” “seeks,” “plans,” “intends,” “projects” or “targets” and similar expressions that convey the uncertainty of future events or outcomes are intended to identify forward-looking statements. Where any forward-looking statement includes a statement of the assumptions or bases underlying such forward-looking statement, we caution that while we believe these assumptions or bases to be reasonable and to be made in good faith, assumed facts or bases almost always vary from actual results and the difference between assumed facts or bases and actual results could be material, depending on the circumstances. It is important to note that actual results could differ materially from those projected by such forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable and such forward-looking statements are based upon the best data available at the date this report is filed with the SEC, we cannot assure you that such expectations will prove correct. Factors that could cause our results to differ materially from the results discussed in such forward-looking statements include, but are not limited to, the following: activity levels for oil and gas drilling, completion, workover, production and abandonment activities; volatility of oil and gas prices; foreign currency risks; operating risks inherent in oil and gas production; weather; our ability to implement our business strategy; uncertainties about estimates of reserves; environmental risks; and risks related to our foreign operations. All such forward-looking statements in this document are expressly qualified in their entirety by the cautionary statements in this paragraph, and we undertake no obligation to publicly update or revise any forward-looking statements.

With the previous paragraph in mind, you should consider the following important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by us or on our behalf:

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Certain Business Risks

We have identified the following important risk factors, which could affect our actual results and cause actual results to differ materially from any such results that might be projected, forecasted, or estimated by us in this report.

Market Risks:

Our operations are materially dependent on levels of oil and gas well drilling, completion, workover, production and abandonment activities, both in the United States and internationally.

Activity levels for oil and gas drilling, completion, workover, production and abandonment are affected both by short-term and long-term trends in oil and gas prices and supply and demand balance, among other factors. Oil and gas prices and, therefore, the levels of well drilling, completion, workover and production activities, tend to fluctuate. Worldwide military, political and economic events, including initiatives by the Organization of Petroleum Exporting Countries, have contributed to, and are likely to continue to contribute to, price volatility. In addition, a prolonged slowdown of the U.S. and/or world economy may contribute to an eventual downward trend in the demand and, correspondingly, the price of oil and natural gas.

Other factors affecting our operating activity levels include the cost of exploring for and producing oil and gas, the discovery rate of new oil and gas reserves, and the remaining recoverable reserves in the basins in which we operate. A large concentration of our operating activities is located in the onshore and offshore region of the U.S. Gulf of Mexico. Our revenues and profitability are particularly dependent upon oil and gas industry activity and spending levels in the Gulf of Mexico region. To a lesser extent, our operations may also be affected by technological advances, interest rates and cost of capital, tax policies and overall worldwide economic activity. Adverse changes in any of these other factors may depress the levels of well drilling, completion, workover and production activity and result in a corresponding decline in the demand for our products and services and, therefore, have a material adverse effect on our revenues and profitability.

Profitability of our operations is dependent on numerous factors beyond our control.

Our operating results in general, and gross margin in particular, are functions of market conditions and the product and service mix sold in any period. Other factors, such as unit volumes, heightened price competition, changes in sales and distribution channels, availability of skilled labor and contract services, shortages in raw materials due to untimely supplies or ability to obtain items at reasonable prices may also continue to affect the cost of sales and the fluctuation of gross margin in future periods.

We encounter and expect to continue to encounter intense competition in the sale of our products and services.

We compete with numerous companies in our oil and gas and chemical operations. Many of our competitors have substantially greater financial and other related resources than us. To the extent competitors offer comparable products or services at lower prices, or higher quality and more cost-effective products or services, our business could be materially and adversely affected. Certain competitors may also be better positioned to acquire producing oil and gas properties or other businesses for which we compete.

We are dependent upon third party suppliers for specific products and equipment necessary to provide certain of our products and services.

We sell a variety of CBFs, including brominated CBFs, such as calcium bromide, zinc bromide, sodium bromide and other brominated products, some of which we manufacture and some of which are purchased from third parties. We also sell calcium chloride, as a CBF and in other forms and for other applications. Sales of calcium chloride and brominated products contribute significantly to our revenues. In our manufacture of calcium chloride, we use hydrochloric acid and other raw materials purchased from

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third parties. In our manufacture of brominated products, we use bromine, hydrobromic acid and other raw materials, including various forms of zinc, that are purchased from third parties. We acquire brominated products from a variety of third party suppliers. If we are unable to acquire the brominated products, bromine, hydrobromic or hydrochloric acid, zinc or any other raw material supplies at reasonable prices for a prolonged period, our business could be materially and adversely affected.

A portion of the well abandonment and decommissioning services performed by our WA&D Division require the use of vessels and services which must be provided by third parties. We lease equipment and obtain services from certain providers, but are subject to the availability of third party equipment and services in the Gulf of Mexico region, and could be adversely affected by a lack of availability or availability at prohibitively high prices.

Our operating results and cash flows for certain of our subsidiaries are subject to foreign currency risk.

The operations of certain of our subsidiaries are exposed to fluctuations between the U.S. dollar and certain foreign currencies. In particular, we have exposure related to fluctuations in the dollar value of operating receivables and payables denominated in other currencies. In addition, in September 2004, related to the acquisition of the Kemira calcium chloride assets, we entered into long-term Euro-denominated borrowings, as we believe such borrowings provide a natural currency hedge for our Euro-based operating activities. Historically, exchange rates of foreign currencies, particularly Euros, have fluctuated significantly compared to the U.S. dollar, and this exchange rate volatility is expected to continue. Significant fluctuations in foreign currencies against the U.S. dollar could adversely affect our balance sheet and results of operations.

We are exposed to interest rate risk with regard to a portion of our outstanding indebtedness.

A portion of our outstanding long-term debt consists of floating rate loans, which bear interest at an agreed upon percentage rate spread above LIBOR. Accordingly, our cash flows and results of operations are subject to interest rate risk exposure associated with the level of the variable rate debt balance outstanding. We currently are not a party to an interest rate swap contract or other derivative instrument designed to hedge our exposure to interest rate fluctuation risk.

Our oil and gas revenues and cash flows are subject to commodity price risk.

Our revenues from oil and gas production are increasing significantly; therefore, we have increased market risk exposure in the pricing applicable to our oil and gas production. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot prices in the U.S. natural gas market. Historically, prices received for oil and gas production have been volatile and unpredictable, and this price volatility is expected to continue. Significant declines in prices for oil and natural gas could have a material effect on our results of operations and quantities of reserves recoverable on an economic basis. Our risk management activities involve the use of derivative financial instruments, such as swap agreements, to hedge the impact of market price risk exposures for a portion of its oil and gas production. Because of this, we are exposed to the volatility of oil and gas prices for the portion of its oil and gas production that is not hedged.

Operating Risks:

Our operations involve significant operating risks, and insurance coverage may not be available or cost effective.

We are subject to operating hazards normally associated with the oilfield service industry and offshore oil and gas production operations. These hazards include injuries to employees and third parties during the performance of our operations. Our operation of marine vessels and offshore production platforms involves a particularly high level of risk. Whenever possible, we obtain agreements from customers and suppliers that limit our exposure. However, the occurrence of certain operating hazards, including storms, could result in substantial losses to us due to injury or loss of life, damage to or destruction of property and equipment, pollution or environmental damage, and suspension of operations. We have maintained a policy of insuring our risks of operational hazards that we believe is typical in the

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industry. Limits of insurance coverage we have purchased are consistent with the exposures we face and the nature of our products and services. Due to economic conditions in the insurance industry, from time to time, we have increased our self-insured retentions and deductibles for certain policies in order to minimize the increased costs of coverage. In certain areas of our business, we from time to time have elected to assume the risk of loss for specific assets. To the extent we suffer losses or claims that are not covered, or are only partially covered by insurance, our results of operations could be adversely affected. There can be no assurance that any insurance will be adequate to cover losses or liabilities associated with operational hazards. We cannot predict the continued availability of insurance, or its availability at premium levels that justify its purchase.

Our operations, particularly those conducted in the Gulf of Mexico, are seasonal and depend, in part, on weather conditions.

The WA&D Division has historically enjoyed its highest vessel utilization rates during the months from April to October, when weather conditions are more favorable for offshore activities, and has experienced its lowest utilization rates in the months from November to March. This Division, under certain turnkey contracts, may bear the risk of delays caused by adverse weather conditions. Storms can also cause our oil and gas producing properties to be shut-in. In addition, demand for other products and services we provide are subject to seasonal fluctuations, due in part to weather conditions which cannot be predicted. Accordingly, our operating results may vary from quarter to quarter depending on weather conditions in applicable areas of the United States and in international regions.

We could incur losses on well abandonment and decommissioning projects.

Due to competitive market conditions, a significant portion of our well abandonment and decommissioning projects are performed on a turnkey or a modified turnkey basis, where defined work is delivered for a fixed price and extra work, which is subject to customer approval, is charged separately. The revenue, cost and gross profit realized on a turnkey contract can vary from the estimated amount because of changes in offshore conditions, the scope of site clearance efforts required, labor and equipment availability, cost and productivity from the original estimates, and the performance level of other contractors. In addition, unanticipated events such as accidents, work delays, significant changes in the condition of platforms or wells, downhole problems, environmental and other technical issues could result in significant losses on certain turnkey projects. These variations and risks may result in us experiencing reduced profitability or losses on turnkey projects, or on well abandonment and decommissioning work for our Maritech subsidiary.

We face risks related to our growth strategy.

Our growth strategy includes both internal growth and growth through acquisitions. Internal growth may require significant capital expenditure investments, some of which may become unrecoverable or fail to generate an acceptable level of cash flows. Internal growth may also require financial resources (including the use of available cash or the incurrence of additional long-term debt) and management and personnel resources. Acquisitions also require significant financial and management resources, both at the time of the transaction and during the process of integrating the newly acquired business into our operations. Our operating results could be adversely affected if we are unable to successfully integrate such new companies into our operations or are unable to hire adequate personnel. We may not be able to consummate future acquisitions on favorable terms. Additionally, any such recent or future acquisition transactions by us may not achieve favorable financial results. Future acquisitions by us could also result in issuances of equity securities, or the rights associated with the equity securities, which could potentially dilute earnings per share. Future acquisitions could also result in the incurrence of additional debt or contingent liabilities and amortization expenses related to intangible assets. These factors could adversely affect our future operating results and financial position.

Our expansion into foreign countries exposes us to unfamiliar regulations and may expose us to new obstacles to growth.

We plan to grow both in the United States and in foreign countries. We have established operations in, among other countries, Finland, Canada, Mexico, Venezuela, the United Kingdom, Norway, Nigeria, Sweden and Brazil and have entered into joint ventures in Saudi Arabia and The Netherlands.

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Foreign operations carry special risks. Although our business in foreign countries has not yet been affected, our business in the countries in which we currently operate and those in which we may operate in the future could be limited or disrupted by:

• government controls;

• import and export license requirements;

• political or economic insecurity;

• trade restrictions;

• changes in tariffs and taxes; and

• restrictions on repatriating foreign profits back to the U.S.

Foreign governments and agencies often establish permit and regulatory standards different from those in the U.S. If we cannot obtain foreign regulatory approvals, or if we cannot obtain them when we expect, our growth and profitability from international operations could be limited.

The acquisition of oil and gas properties and related well abandonment and decommissioning liabilities is based on estimated data that may be materially incorrect.

In conjunction with our purchase of oil and gas properties, we perform detailed due diligence review processes that we believe are consistent with industry practices. These acquired properties are generally in the later stages of their economic lives and require a thorough review of the expected cash flows acquired along with the associated abandonment obligations. The process of estimating natural gas and oil reserves is complex, requiring significant decisions and assumptions to be made in evaluating the available geological, geophysical, engineering and economic data for each reservoir. As a result, these estimates are inherently imprecise. Actual future production, cash flows, development expenditures, operating and abandonment expenses and quantities of recoverable natural gas and oil reserves may vary substantially from those initially estimated by us. Also, in conjunction with the purchase of certain oil and gas properties, we have assumed our proportionate share of the related well abandonment and decommissioning liabilities after performing detailed estimating procedures, analysis and engineering studies. If actual costs of abandonment and decommissioning are materially greater than original estimates, such additional costs could have an adverse effect on earnings.

Our success depends upon the continued contributions of our personnel, many of whom would be difficult to replace.

Our success will depend on our ability to attract and retain skilled employees. Changes in personnel, therefore, could adversely affect operating results.

Financial Risks:

We have significant long-term debt outstanding.

During 2004, we financed significant acquisitions and growth through long-term borrowings. As of December 31, 2004, we have approximately $143.8 million of long-term debt outstanding. Additional growth could result in increased debt levels in order to support our capital expenditure needs or acquisition activities. Debt service costs related to outstanding long-term debt represent a significant use of our operating cash flow and could increase our vulnerability to general adverse economic and industry conditions. Our long-term debt agreements contain customary covenants and dollar limits on the total amount of capital expenditures, acquisitions and asset sales, as well as other restrictions and requirements. In addition, the agreements require us to maintain certain financial ratio and net worth requirements. Significant deterioration of these ratios could result in a default under the agreements. The agreements also include cross-default provisions relating to any other indebtedness we have that is greater than $5 million. If any such indebtedness is not paid or is accelerated and such event is not remedied in a timely manner, a default will occur under the long-term debt agreements. Any event of default, if not timely remedied, could result in a termination of all commitments of the lenders and an acceleration of any outstanding loans and credit obligations.

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Certain of our businesses are exposed to significant credit risks.

Maritech purchases interests in certain end-of-life oil and gas properties in connection with the operations of our WA&D Division. As the owner and operator of these interests, Maritech is liable for the proper abandonment and decommissioning of the wells, platforms, pipelines and the site clearance related to these properties. We have guaranteed a portion of the abandonment and decommissioning liabilities of Maritech, which can be material in amount. In certain instances Maritech will be paid in the future for all or a portion of these obligations by the previous owner of the property once the liability is satisfied. We and Maritech are subject to the risk that the previous owner(s) will be unable to make these future payments. We and Maritech attempt to minimize this risk by analyzing the creditworthiness of the previous owner(s), and others who may be legally obligated to pay in the event the previous owner(s) are unable to do so, and obtaining guarantees, bonds, letters of credit or other forms of security when they are deemed necessary. In addition, if Maritech acquires less than 100% of the working interest in a property, its co-owners are responsible for the payment of their portions of the associated operating expenses and abandonment liabilities. However, if one or more co-owners do not pay their portions, Maritech and any other nondefaulting co-owners may be liable for the defaulted amount as well. If any required payment is not made by a previous owner or a co-owner and any security is not sufficient to cover the required payment, we could suffer material losses.

Maritech’s estimates of its oil and gas reserves and related future cash flows may be significantly incorrect.

Maritech’s estimates of oil and gas reserve information are prepared in accordance with Rule 4-10 of Regulation S-X, and reflect only estimates of the accumulation of oil and gas and the economic recoverability of those volumes. Maritech’s future production, revenues and expenditures with respect to such oil and gas reserves will likely be different from estimates, and any material differences may negatively affect our business, financial condition and results of operations. As a result, Maritech has experienced and may continue to experience significant revisions to its reserve estimates.

Oil & gas reservoir analysis is a subjective process which involves estimating underground accumulations of oil and gas that cannot be measured in an exact manner. Estimates of economically recoverable oil and gas reserves and of future net cash flows associated with such reserves necessarily depend upon a number of variable factors and assumptions. Because all reserve estimates are to some degree subjective, each of the following items may prove to differ materially from that assumed in estimating reserves:

• the quantities of oil and gas that are ultimately recovered,

• the production and operating costs incurred,

• the amount and timing of future development expenditures, and

• future oil and gas sales prices.

Furthermore, different reserve engineers may make different estimates of reserves and cash flow based on the same available data.

The estimated discounted future net cash flows described in this Annual Report for the year ended December 31, 2004 should not be considered as the current market value of the estimated oil and gas proved reserves attributable to Maritech’s properties. Such estimates are based on prices and costs as of the date of the estimate, in accordance with SEC requirements, while future prices and costs may be materially higher or lower. The SEC requires that we report our oil and natural gas reserves using the price as of the last day of the year. Using lower values in forecasting reserves will result in a shorter life being given to producing oil and natural gas properties because such properties, as their production levels are estimated to decline, will reach an uneconomic limit, with lower prices, at an earlier date. There can be no assurance that a decrease in oil and gas prices or other differences in Maritech’s estimates of its reserves will not adversely affect our financial position or results of operations.

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Our accounting for oil and gas operations may result in volatile earnings.

We account for our oil and gas operations using the successful efforts method. Costs incurred to drill and equip development wells, including unsuccessful development wells, are capitalized. Costs related to unsuccessful exploratory wells are expensed as incurred. All capitalized costs are accumulated and recorded separately for each field, and are depleted on a unit-of-production basis, based on the estimated remaining equivalent proved oil and gas reserves of each field. On a field by field basis, our oil and gas properties are assessed for impairment in value whenever indicators become evident, with any impairment charged to expense. Under the successful efforts method of accounting, we are exposed to the risk that the value of a particular property (field) would have to be written down or written off if an impairment were present.

Legal/Regulatory Risks:

Our operations are subject to extensive and evolving U.S., foreign, state and local laws and regulatory requirements which increase our operating costs and expose us to potential fines, penalties and litigation.

Laws and regulations strictly govern our operations and require permits relating to: corporate governance, environmental affairs, health and safety, waste management, and the manufacture, storage, handling, transportation, use and sale of chemical products. Our operation and decommissioning of offshore properties are also subject to and affected by various types of government regulation, including numerous federal and state environmental protection laws and regulations. These laws and regulations are becoming increasingly complex and stringent, and compliance is becoming increasingly expensive. Governmental authorities have the power to enforce compliance with these regulations and required permits, and violators are subject to civil and criminal penalties, including civil fines, injunctions or both. Third parties may also have the right to pursue legal actions to enforce compliance. It is possible that increasingly strict environmental laws, regulations and enforcement policies could result in substantial costs and liabilities to us and could subject our handling, manufacture, use, reuse, or disposal of substances or pollutants to increased scrutiny.

Our business exposes us to risks such as the potential for harmful substances escaping into the environment and causing damages or injuries, which could be substantial. Although we maintain general liability insurance, this insurance is subject to coverage limits and generally excludes coverage for losses or liabilities relating to environmental damage or pollution. We maintain limited environmental liability insurance covering named locations and environmental risks associated with contract services for oil and gas operations, refinery waste treatment operations and for its oil and gas production properties. The extent of this coverage is consistent with our other insurance programs. We could be materially and adversely affected by an enforcement proceeding or a claim that was not covered or was only partially covered by insurance.

In addition to increasing our risk of environmental liability, the promulgation of more rigorous environmental laws, regulations and enforcement policies has accelerated the growth of some of the markets we serve. Decreased regulation and enforcement in the future could materially and adversely affect the demand for the types of systems offered by our process services and the services offered by our well abandonment and decommissioning operations and, therefore, materially and adversely affect our business.

Our proprietary rights may be violated or compromised, which could damage our operations.

We own numerous patents, patent applications and unpatented trade secret technologies in the U.S. and certain foreign countries. There can be no assurance that the steps we have taken to protect our proprietary rights will be adequate to deter misappropriation of these rights. In addition, independent third parties may develop competitive or superior technologies.

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Item 2. Properties.

The Company’s properties consist primarily of chemical plants, processing plants, distribution facilities, barge rigs, well abandonment and decommissioning equipment, oil and gas properties, flowback testing equipment and compression equipment. The following information describes facilities leased or owned by the Company as of December 31, 2004. The Company believes its facilities are adequate for its present needs.

Fluids Division. Fluids Division facilities include seven chemical production plants (two of which are leased) located in the states of Arkansas, California, Louisiana and West Virginia, and the country of Finland. The total manufacturing area of these plants, excluding the two California locations, is approximately 496,000 square feet. The two California locations contain 35 square miles of acreage containing solar evaporation ponds and leased mineral acreage. In addition, the Fluids Division owns and leases bromine mineral reserves in Arkansas.

In addition to the above production plant facilities, the Fluids Division owns or leases twenty-six distribution facilities, twelve domestically and fourteen internationally. The Fluids Division also leases eight offices and sixteen terminal locations throughout the United States.

WA&D Division. The WA&D Division conducts its operations through seven offices and service facility locations (five of which are leased) located in Texas and Louisiana. See below for a discussion of the WA&D Division’s oil and gas property assets.

Production Enhancement Division. Production Enhancement Division facilities include six production testing distribution facilities (five of which are leased) in Texas and Louisiana and in Venezuela and Mexico. The Division’s eight process services facilities are located in Texas, Louisiana, Tennessee and the Virgin Islands. Compressco’s facilities include a leased fabrication and headquarters facility in Oklahoma, a leased fabrication facility located in Alberta, Canada, a leased service facility located in New Mexico, and ten sales offices located in Oklahoma, Texas, Colorado and Arkansas.

Corporate. The Company’s headquarters are located in The Woodlands, Texas, where it leases approximately 63,000 square feet of office space. The Company also owns 2.635 acres of land adjacent to its headquarters location. In addition, the Company owns a 20,000 square foot Tech Center facility to service its Fluids Division and process services operations.

Oil and Gas Properties.

The following tables show, for the periods indicated, reserves and operating information related to Maritech’s oil and gas interests in the Gulf of Mexico region. Maritech’s oil and gas properties are included within the Company’s WA&D Segment. See also “Note R – Supplemental Oil and Gas Disclosures” in the Notes to Consolidated Financial Statements.

Oil and Gas Reserves. The table below sets forth information with respect to the Company’s estimated proved reserves as of December 31, 2004. The standardized measure of discounted future net cash flows attributable to oil and gas reserves was prepared by the Company using constant prices as of the calculation date, net of future income taxes, discounted at 10% per annum. Reserve information is prepared in accordance with guidelines established by the SEC. Maritech’s reserves were estimated by Ryder Scott Company, L.P., independent petroleum engineers. All of Maritech’s reserves are located in U.S. state and federal offshore waters in the Gulf of Mexico region and onshore Louisiana.

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Maritech is not required to file, and has not filed on a recurring basis, estimates of its total proved net oil and gas reserves with any U.S. or non-U.S. governmental regulatory authority or agency other than the Department of Energy (the DOE) and the SEC. The estimates furnished to the DOE have been consistent with those furnished to the SEC. They are not necessarily directly comparable, however, due to special DOE reporting requirements. In no instance have the estimates for the DOE differed by more than five percent from the corresponding estimates reflected in total reserves reported to the SEC.

Production Information. The table below sets forth production, average sales price and average production cost per unit of oil and gas produced during 2004, 2003 and 2002:

Acreage and Wells. At December 31, 2004, Maritech owned interests in the following oil and gas wells and acreage:

Drilling Activity. Maritech participated in the drilling of four gross productive development wells (1.1 net wells) during 2004 and no wells during 2003 or 2002. As of December 31, 2004 there were no wells in the process of being drilled.

Item 3. Legal Proceedings.

The Company is a named defendant in numerous lawsuits and a respondent in certain other governmental proceedings arising in the ordinary course of business. While the outcome of such lawsuits and other proceedings cannot be predicted with certainty, management does not expect these matters to have a material adverse impact on the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders of the Company, through solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 2004.

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PART II

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters.

Price Range of Common Stock

The Common Stock is traded on the New York Stock Exchange under the symbol “TTI.” As of February 23, 2005, there were approximately 6,185 holders of record of the Common Stock. The following table sets forth the high and low sale prices of the Common Stock for each calendar quarter in the two years ended December 31, 2004, as reported by the New York Stock Exchange and as adjusted for a 3-for-2 stock split, which was declared and effected in August 2003.

Dividend Policy

The Company has never paid cash dividends on its Common Stock. The Company currently intends to retain earnings to finance the growth and development of its business. Any payment of cash dividends in the future will depend upon the financial condition, capital requirements and earnings of the Company as well as other factors the Board of Directors may deem relevant. The Company declared a dividend of one Preferred Stock Purchase Right per share of Common Stock to holders of record at the close of business on November 6, 1998. See “Note T – Stockholders’ Rights Plan” in the Notes to Consolidated Financial Statements attached hereto for a description of such Rights. In August 2003, the Company declared a 3-for-2 stock split, which was effected in the form of a stock dividend to all stockholders of record as of August 15, 2003. See “Note K – Capital Stock” in the Notes to Consolidated Financial Statements attached hereto for a description of this stock split. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” for a discussion of potential restrictions on the Company’s ability to pay dividends.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

In January 2004, the Board of Directors of the Company authorized the repurchase of up to $20 million of its common stock. Purchases will be made from time to time in open market transactions at prevailing market prices. The repurchase program may continue until the authorized limit is reached, at which time the Board of Directors may review the option of increasing the authorized limit. During 2004, the Company repurchased 140,000 shares of its Common Stock at a cost of approximately $3.3 million. There were no repurchases made during any month of the fourth quarter of 2004.

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Item 6. Selected Financial Data.

The following tables set forth selected consolidated financial data of the Company for the years ended December 31, 2004, 2003, 2002, 2001 and 2000. The selected consolidated financial data does not purport to be complete and should be read in conjunction with, and is qualified by, the more detailed information, including the Consolidated Financial Statements and related Notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this report. Please read “Certain Business Risks” beginning on page 10 for a discussion of the material uncertainties which might cause the selected consolidated financial data not to be indicative of the Company’s future financial condition or results of operations. During 2004, the Company completed the acquisitions of Compressco, Inc., the Kemira calcium chloride assets and an 800 ton heavy lift barge. These acquisitions significantly impact the comparison of the Company’s financial statements for 2004 to earlier years. In addition, the Company has reflected the operations of Damp Rid, Inc., the Company’s Norwegian process services operations and TETRA Micronutrients, Inc. as discontinued operations.

(1) Revenues for each of the periods presented retroactively reflect the reclassification of certain product shipping and handling costs as costs of goods sold, which had previously been deducted from product sales revenues. The reclassified amounts were $7,686 for 2003; $7,736 for 2002; $8,836 for 2001; and $7,938 for 2000.

(2) Net income (loss) per share and average share outstanding information reflects the retroactive impact of a 3-for-2 stock split, which was effected in the form of a stock dividend to holders of record as of August 15, 2003.

(3) Excluding goodwill amortization, net income per diluted share, before discontinued operations and cumulative effect of accounting change, was $1.08 for 2001 and $0.43 for 2000.

(4) For the year ended December 31, 2000, the calculation of average diluted shares outstanding excludes 519,000 shares from stock options, the inclusion of which would have had an antidilutive effect.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion is intended to analyze major elements of the Company’s consolidated financial statements and provide insight into important areas of management’s focus. This section should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes included elsewhere in this annual report.

Statements in the following discussion may include forward-looking statements. These forward-looking statements involve risks and uncertainties. See “Item 1. Business – Certain Business Risks and Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995,” for additional discussion of these factors and risks.

Business Overview

The Company was successful in its continuing growth strategy during 2004 with the completion of the three largest acquisition transactions in the Company’s history. In September 2004, the Company acquired the European calcium chloride manufacturing assets of Kemira Oyj of Helsinki, Finland. Also in September, the Company purchased an 800 ton heavy lift derrick barge to expand its Gulf of Mexico decommissioning operations. In July 2004, the Company acquired a growing oil and gas wellhead compression business, Compressco, Inc. (Compressco), which serves the onshore oil and gas markets principally in the mid-continent, Rocky Mountain, Texas and Louisiana regions of the United States and western Canada. Each of these acquisitions added strategic market and operating capabilities to their respective Company operating segment. Primarily due to these acquisition transactions, the Company’s total assets increased approximately 64.4% during the year, totaling $509.0 million at December 31, 2004. The acquisitions were funded from available cash and from funds obtained under the Company’s credit facility debt and from a fixed rate, unsecured private debt offering. The Company’s total outstanding long-term debt balance at December 31, 2004 was $143.8 million, which is scheduled to mature from 2009 through 2011.

The Company’s results of operations for the year ended December 31, 2004 reflect the steadily increasing demand for many of the Company’s products and services, as well as the impact during the last portion of the year from the recent acquisitions mentioned above. Demand for the Company’s products and services depends primarily on activity in the oil and gas exploration and production industry, which is significantly affected by the level of capital expenditures for the exploration and production of oil and gas reserves and for the plugging and decommissioning of abandoned oil and gas properties. These expenditures are influenced strongly by industry expectations of oil and gas commodity prices and the supply and demand for crude oil and natural gas. Industry expenditures for drilling, as indicated by onshore rig count statistics, have risen steadily during the past three years and reflect the industry’s response to higher crude oil and natural gas pricing during this period. The impact of such increased industry activity and spending is reflected in the Company’s revenues and operating cash flows during 2004. The Company expects that such increased industry spending levels will continue during 2005.

The Gulf of Mexico and selected international oil and gas rig counts are leading indicators for the Fluids Division. The maturity of Gulf of Mexico producing fields, oil and gas prices and government regulations are the primary long-term drivers for the WA&D Division. Natural gas prices and gas drilling rig counts in North and South America are key indicators for the Production Enhancement Division. Gulf of Mexico oil and gas rig counts were down during 2004, averaging 94 rigs compared to an average of 104 during 2003. International rig counts averaged 836 during 2004 compared to 771 during 2003, with a majority of the increase generated in Latin America, where the Company has its most significant international production testing operations. U.S. natural gas drilling increased during 2004 compared to the prior year, with an average gas rig count of 1,025 (1,068 average during the fourth quarter of 2004) compared to an 872 average during 2003. Over the longer term, the Company believes that there will continue to be growth opportunities for the Company’s products and services in both the U.S. and international markets. Such increased activity will be supported by:

• deeper gas drilling operations with more complex completions in the U.S.,

• faster reservoir depletion in the U.S.,

• more rigorous environmental and abandonment regulations,

• advancing age of offshore platforms in the U.S.,

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• increasing development of oil and gas reserves abroad, and

• increasing future demand for natural gas and oil in the U.S. and abroad.

The Fluids Division generates revenues and cash flows by manufacturing and selling completion fluids and providing filtration and associated products and engineering services to exploration and production companies worldwide. The Fluids Division sells products and services to domestic and international energy market customers. The demand for these products and services are particularly affected by drilling activity in the Gulf of Mexico, which has remained flat or decreased during the past several years due to the maturity of a majority of Gulf of Mexico producing fields. The Fluids Division implemented a market penetration strategy during 2004 in order to increase the sales volumes and revenues for its products during the year compared to 2003. The Fluids Division also markets certain liquid and dry calcium chloride manufactured at its production facilities to a variety of markets outside the energy industry. With the September 2004 acquisition of the Kemira calcium chloride assets, the Fluids Division has expanded its calcium chloride manufacturing operations into European markets and further reduced the Fluids Division’s dependence on Gulf of Mexico drilling activity for growth. The increased worldwide calcium chloride operations, combined with the Company’s current market position as a major supplier of oil and gas completion fluids, are expected to provide a further increase in revenues and cash flows for this Division in 2005.

The WA&D Division generates revenues and cash flows by performing well plug and abandonment, pipeline and platform decommissioning and removal and site clearance services for oil and gas companies. In addition, the Division provides electric wireline, workover, engineering and drilling services and, through its Maritech subsidiary, is a producer of oil and gas. Services are marketed primarily in the Gulf Coast region of the U.S. including onshore, offshore and in inland waters. Long-term platform decommissioning and well abandonment activity levels are driven primarily by MMS regulations and the age of Gulf of Mexico producing fields and production platforms and structures. In the shorter term, activity levels are driven by oil and gas commodity prices, sales activity of mature oil and gas producing properties and oil and gas company activity levels. While the continued strength of crude oil and natural gas prices during 2004 benefited Maritech’s revenues and cash flows, such prices led to the postponement during the year of well abandonment and decommissioning activities of many of the WA&D Division’s customers, including Maritech, who have delayed the sale or abandonment of mature producing properties. In addition, the Gulf of Mexico abandonment and decommissioning market is highly competitive, and the Division’s success in bidding to provide services can fluctuate from year to year. As a result of the above factors, WA&D revenues decreased significantly during 2004 compared to the prior year. During late 2003 and throughout 2004, however, many WA&D Division customers have sold numerous offshore Gulf of Mexico producing properties. In addition, given overall production declines and the advancing age of offshore platforms in the Gulf of Mexico, management’s long-term expectation is that the Division’s well abandonment and decommissioning activity levels should increase in the future. Maritech’s acquisition strategy is strongly affected by oil and gas prices and by the actions of competitors which affect its ability to acquire mature producing properties on acceptable terms. Maritech generated increased revenues and cash flows during 2004, resulting from higher commodity prices, the acquisitions of producing properties that were consummated in 2003 and 2004, and successful exploitation of existing properties.

The Production Enhancement Division (formerly the Testing & Services Division, and renamed following the acquisition of Compressco) generates revenues and cash flows by performing flowback pressure and volume testing and providing low pressure wellhead compression equipment and other services for oil and gas producers. The primary testing markets served are Texas, Louisiana, Mississippi, Alabama, offshore Gulf of Mexico, Mexico and Venezuela. Compressco’s primary markets include the mid-continent, Rocky Mountain, Texas and Louisiana regions of the United States and western Canada. The Production Enhancement Division also provides technology and services required for separation and recycling of oily residuals generated from petroleum refining, primarily to oil refineries in the United States. Production Enhancement Division revenues increased significantly during 2004 compared to the prior year, due to the July 2004 acquisition of Compressco. Management expects additional growth in this Division in 2005, due largely to the acquisition of Compressco and due to anticipated further increases in industry drilling and completion activities, both domestically and internationally.

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Critical Accounting Policies and Estimates

In preparing its consolidated financial statements, the Company makes assumptions, estimates and judgments that affect the amounts reported. The Company periodically evaluates its estimates and judgments related to potential impairments of long-lived assets (including goodwill), the collectibility of accounts receivable, and the current cost of future abandonment and decommissioning obligations. “Note B – Summary of Significant Accounting Policies” to the Consolidated Financial Statements contains the accounting policies governing each of these matters. The Company’s estimates are based on historical experience and on future expectations that are believed to be reasonable. The combination of these factors forms the basis for judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources. These judgments and estimates may change as new events occur, as new information is acquired, and with changes in the Company’s operating environment. Actual results are likely to differ from the Company’s current estimates, and those differences may be material. The following critical accounting policies reflect the most significant judgments and estimates used in the preparation of the Company’s financial statements.

Impairment of Long-Lived Assets – The determination of impairment of long-lived assets, including goodwill, is conducted periodically whenever indicators of impairment are present. If such indicators are present, the determination of the amount of impairment is based on the Company’s judgments as to the future operating cash flows to be generated from these assets throughout their estimated useful lives. The oil and gas industry is cyclical, and the Company’s estimates of the period over which future cash flows will be generated, as well as the predictability of these cash flows, can have significant impact on the carrying value of these assets and, in periods of prolonged down cycles, may result in impairment charges.

Oil and Gas Properties – Maritech accounts for its interests in oil and gas properties using the successful efforts method, whereby costs incurred to drill and equip development wells, including unsuccessful development wells, are capitalized and costs related to unsuccessful exploratory wells are expensed as incurred. All capitalized costs are accumulated and recorded separately for each field, and are depleted on a unit-of-production basis, based on the estimated remaining proved oil and gas reserves of each field. The process of estimating oil and gas reserves is complex, requiring significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. As a result, these estimates are inherently imprecise. Actual future production, cash flows, development expenditures, operating and abandonment expenses and quantities of recoverable oil and gas reserves may vary substantially from those initially estimated by Maritech. Any significant variance in these assumptions could materially affect the estimated quantity and value of proved reserves. Maritech’s oil and gas properties are assessed for impairment in value whenever indicators become evident, with any impairment charged to expense. Maritech purchases oil and gas properties and assumes the associated well abandonment and decommissioning liabilities. The acquired oil and gas producing properties are recorded at a cost equal to the estimated fair value of the decommissioning liabilities assumed, adjusted by the amount of any cash or other consideration received or paid. Any significant differences in the actual amounts of oil and gas production cash flows produced or decommissioning costs incurred, compared to the estimated amounts recorded, will affect the Company’s anticipated profitability.

Decommissioning Liabilities – The Company estimates the third party market values (including an estimated profit) to plug and abandon the wells, decommission the pipelines and platforms and clear the sites, and uses these estimates to record Maritech’s well abandonment and decommissioning liabilities, net of amounts allocable to joint interest owners and any contractual amount to be paid by the previous owners of the property (referred to as decommissioning liabilities). In estimating the decommissioning liabilities, the Company performs detailed estimating procedures, analysis and engineering studies. Whenever practical, Maritech utilizes the services of its affiliated companies to perform well abandonment and decommissioning work. When these services are performed by an affiliated company, all recorded intercompany revenues are eliminated in the consolidated financial statements. Any profit earned by the Company in performing such abandonment and decommissioning operations on Maritech’s properties is recorded as the work is performed. The recorded decommissioning liability associated with a specific property is fully extinguished when the property is completely abandoned. Once a Maritech well

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abandonment and decommissioning project is performed, any remaining decommissioning liability in excess of the costs of the work performed is recorded as additional profit on the project and included in earnings in the period in which the project is completed. Conversely, costs in excess of the decommissioning liability are charged against earnings in the period in which the project is completed. The Company reviews the adequacy of its decommissioning liability whenever indicators suggest that either the amount or timing of the estimated cash flows underlying the liability have changed materially. The timing and amounts of these cash flows are subject to changes in the energy industry environment and may result in additional liabilities recorded, which, in turn, would increase the carrying values of the related properties.

Revenue Recognition – The Company generates revenue on certain well abandonment and decommissioning projects from billings under contracts, which are typically of short duration, that provide for either lump-sum turnkey charges or specific time, material and equipment charges which are billed in accordance with the terms of such contracts. With regard to turnkey contracts, revenue is recognized using the percentage-of-completion method based on the ratio of costs incurred to total estimated costs at completion. Total project revenue and cost estimates for turnkey contracts are reviewed periodically as work progresses, and adjustments are reflected in the period in which such estimates are revised. Provisions for estimated losses on such contracts are made in the period such losses are determined.

Bad Debt Reserves – Reserves for bad debts are calculated on a specific identification basis, whereby the Company estimates whether or not specific accounts receivable will be collected. A significant portion of the Company’s revenues come from oil and gas exploration and production companies. If, due to adverse circumstances, certain customers are unable to repay some or all of the amounts owed the Company, an additional bad debt allowance may be required.

Income Taxes – The Company provides for income taxes by taking into account the differences between the financial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date. This calculation requires the Company to make certain estimates about its future operations. Changes in state, federal and foreign tax laws, as well as changes in the Company’s financial condition, could affect these estimates.

Acquisition Purchase Price Allocations – The accounting for acquisitions of businesses using the purchase method requires the allocation of the purchase price based on the fair values of the assets and liabilities acquired. The Company estimates the fair values of the assets and liabilities acquired using accepted valuation methods, and in many cases such estimates are based on the Company’s judgments as to the future operating cash flows expected to be generated from the acquired assets throughout their estimated useful lives. The Company completed several acquisitions during 2004 and has accounted for the various assets (including intangible assets) and liabilities acquired based on its estimate of fair values. Goodwill represents the excess of acquisition purchase price over the estimated fair values of the assets and liabilities acquired. Certain of the Company’s estimates of fair value for assets acquired during 2004 are preliminary, and may change as additional information becomes available.

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Results of Operations

The following data should be read in conjunction with the Consolidated Financial Statements and the associated Notes contained elsewhere in this report.

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2004 Compared to 2003

Consolidated Comparisons

Revenues and Gross Profit – Total consolidated revenues for the year ended December 31, 2004 were $353.2 million, compared to $318.7 million in the prior year, an increase of 10.8% largely due to the acquisitions made during 2004. Consolidated gross profit increased 10.3%, from $73.8 million during 2003 to $81.4 million during 2004, also largely due to the acquisitions. Consolidated gross profit as a percent of revenue was 23.0% during the current year, compared to 23.2% during the prior year.

General and Administrative Expenses – General and administrative expenses were $53.8 million during 2004, an increase of $9.1 million, or 20.3%, compared to the prior year. This increase was reflective of the overall growth in the Company’s operations due to acquisitions and primarily consists of approximately $5.8 million of salary, incentive and employee benefit cost increases, $1.7 million of increased professional fees primarily for corporate compliance costs related to the Sarbanes-Oxley Act, plus approximately $0.7 million of increased insurance costs. General and administrative expenses as a percent of revenue increased to 15.2%, versus 14.0% in the prior year.

Interest Expense and Income Taxes – During 2004, the Company recorded $1.7 million of net interest expense, compared to $0.3 million of net interest expense in the prior year, primarily due to the significant increase in the outstanding balances of long-term debt beginning in the third quarter of 2004. Such borrowings, which were used to fund the acquisitions of Compressco, the Kemira calcium chloride assets and a heavy lift barge during the third quarter of 2004, consisted of borrowings under the Company’s line of credit facility and from the issuance of debt in a private debt offering. Future periods will reflect the increased interest expense related to these borrowings until they are repaid. The provision for income taxes was $8.3 million in 2004, a decrease of $1.6 million, primarily as a result of decreased earnings compared to the prior year. The effective tax rate for the year decreased to 31.5% during 2004 compared to 33.9% in 2003, due primarily to an increase in income from existing international operations as well as the operations from the newly acquired Kemira calcium chloride assets during the third quarter of 2004.

Net Income – Income before discontinued operations and cumulative effect of change in accounting principle was $18.1 million during 2004, compared to $19.4 million in the prior year, a decrease of 6.9%. Income per diluted share before discontinued operations and cumulative effect of change in accounting principle was $0.76 on 23,732,850 average diluted shares outstanding during 2004, compared to $0.84 on 23,005,108 average diluted shares outstanding in the prior year.

Discontinued operations during 2004 consist of the Norwegian process services operations. During 2003, discontinued operations also included the operations of Damp Rid, Inc., which was sold in September 2003. The Company recorded a gain of $4.9 million from the sale of Damp Rid, net of taxes of $2.4 million, and a loss of $1.3 million for the asset impairment related to the future disposal of the Norwegian process services facility, net of $0.7 million tax benefit.

In July 2001, the Financial Accounting Standards Board released SFAS No. 143, “Accounting for Asset Retirement Obligations,” which requires that costs associated with the retirement of tangible long-lived assets be recorded as part of the carrying value of the asset when the obligation is incurred. The Company adopted the provisions of SFAS No. 143 on January 1, 2003. Prior to 2003, the Company expensed the costs of retiring its non-oil and gas properties at the time of retirement. In addition, prior to 2003 the Company recorded the retirement obligations associated with its oil and gas properties at an undiscounted fair market value. The effect of adopting SFAS No. 143 was to record a charge of $1.5 million ($0.06 per diluted share), net of taxes of $0.8 million, during the first quarter of 2003, to expense the costs of retirement obligations associated with the Company’s existing long-lived assets and to accrete the liability to its present value as of January 1, 2003.

Net income was $17.7 million during 2004, compared to $21.7 million in the prior year period. Net income per diluted share was $0.75 on 23,732,850 average diluted shares outstanding, compared to $0.94 on 23,005,108 average diluted shares outstanding in the prior year period.

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Divisional Comparisons

Fluids Division – Fluids Division revenues increased $33.2 million, or 27.8%, during 2004 compared to the prior year, totaling $152.7 million during 2004. This increase was due to increased market share for certain of the Division’s products and services, despite the impact of reduced Gulf of Mexico drilling activity. A portion of this market share increase was due to the September 2004 acquisition of the Kemira calcium chloride assets, which generated revenues during the fourth quarter of 2004 of approximately $11.9 million.

Fluids Division gross profit during 2004 increased by $3.5 million, or 12.9%, compared to the prior year. The increased market share for certain of the Division’s products, including the impact of the acquisition mentioned above, generated approximately $7.3 million of increased gross profit. This increased gross profit was partially offset by the impact of decreased prices and increased net costs for certain of the Division’s products, including feedstocks, transportation and utilities, which decreased gross profit by approximately $3.8 million.

Fluids Division income before taxes during 2004 totaled $15.9 million, compared to $14.0 million during the prior year, an increase of $1.9 million or 13.6%, as the $3.5 million increase in gross margin discussed above was partially offset by increased administrative expenses.

WA&D Division – The WA&D Division generated revenues of $134.5 million during 2004, compared to $153.5 million in the prior year, a decrease of $19.0 million or 12.4%. The Division’s well abandonment and decommissioning operations reported decreased revenues of $25.7 million, primarily due to reduced overall abandonment and decommissioning activity in the Gulf of Mexico, and despite a $5.4 million increase in wireline and onshore well abandonment revenues. Much of the Gulf of Mexico abandonment and decommissioning activity was postponed by many WA&D Division customers, including Maritech, due to strong commodity prices during 2004. In addition, storm activity in the Gulf of Mexico during 2004 caused increased delays in well abandonment and decommissioning activity compared to the prior year. The Division’s success in bidding for such services can also fluctuate from year to year, given the substantial competition for its services in the Gulf of Mexico. Well abandonment and decommissioning revenues during the fourth quarter of 2004 did increase compared to the prior year quarter, however, which was partially due to the Division’s September 2004 purchase of a heavy lift barge. Maritech reported increased revenues of $6.8 million during 2004 compared to 2003, as an increase in realized commodity prices generated $3.5 million of additional revenues and increased production volumes generated $3.3 million of increased revenue. Such production volume increases were due to producing property acquisitions and exploitation efforts, and more than offset normal production declines. Maritech suffered storm damage to one of its offshore production platforms during Hurricane Ivan, causing one of its producing properties to remain shut in. Maritech is currently in the process of evaluating the extent of the damage, which is covered by insurance.

WA&D Division gross profit decreased $4.8 million, or 13.5%, to $30.6 million during 2004 from $35.4 million during the prior year. The long-term drivers for the well abandonment operations are primarily MMS regulations, the overall maturity of Gulf of Mexico fields and the age of the platforms and structures in the Gulf. However, the impact of short-term factors discussed above caused a decrease in the WA&D Division’s Gulf of Mexico well abandonment and decommissioning activity levels during 2004 and contributed to a reduction in equipment and personnel utilization, resulting in decreased gross profit of approximately $6.9 million for the well abandonment and decommissioning operations. As existing Gulf of Mexico fields continue to deplete and as offshore platforms continue to age, management’s long-term expectation is that well abandonment and decommissioning activities should increase in the future. Maritech’s gross profit increased by approximately $2.1 million during 2004, compared to the prior year. Maritech generated $3.5 million of additional gross profit from increased commodity prices and $2.5 million from higher production volumes due to property acquisitions and reserve volume increases. These increases more than offset $5.2 million of increased lease operating expenses, resulting from workover and exploitation projects conducted during 2004. The remaining net increase in Maritech’s gross profit of $1.4 million is due to the difference in the amount of property impairments recorded in 2003 of $1.7 million compared to $0.3 million recorded in 2004.

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WA&D Division income before taxes totaled $17.1 million during 2004, a decrease of $6.3 million, or 27.0%, compared to the prior year. This decrease was due to the $4.8 million decrease in gross profit described above, plus approximately $2.0 million of additional administrative expenses during the year primarily from increased salaries and employer’s liability insurance related expenses. This decrease was partially offset by a $0.4 million gain on the sale of an asset.

Production Enhancement Division – Production Enhancement Division revenues increased $19.2 million, or 40.8%, to $66.4 million during 2004, compared to $47.1 million during the prior year. This increase was primarily due to the July 2004 acquisition of Compressco, which generated $18.6 million of revenues during the last half of the year. The Division’s production testing revenues were relatively flat compared to the prior year, despite increased industry activity, primarily due to competitive pressures, the inactivity of a major domestic customer and due to contract interruptions in Latin America during a portion of the year. In addition, the Company’s process services operations generated a $0.7 million increase in revenues due to higher processed volumes at certain of its contract locations.

The Production Enhancement Division reported gross profit of $20.1 million during 2004 compared to $11.2 million during 2003, a 78.9% increase. The addition of Compressco, beginning in July 2004, increased gross profit by $8.4 million. In addition, the process services operations generated $0.9 million of added gross profit, primarily from increased efficiencies due to the higher volumes processed. Production testing gross profit decreased approximately $0.4 million during the year, primarily due to the Latin American contract interruptions.

Income before taxes for the Production Enhancement Division increased from $6.4 million during 2003 to $11.2 million during 2004. This 73.7% increase was primarily due to the increased gross profit discussed above, less approximately $3.6 million of increased administrative costs, primarily from the acquisition of Compressco. In addition, the Division’s results reflected approximately $0.5 million in additional gains during the prior year period from the sale of certain production testing equipment.

Corporate Overhead – The Company includes in corporate overhead general and administrative expense, interest income and expense, and other income and expense. Such expenses and income are not allocated to the Company’s business segments, as they relate to the Company’s general corporate activities. Corporate overhead increased from $14.6 million during 2003 to $17.8 million during the current year, primarily due to a $2.0 million increase in administrative expenses, primarily from increased salaries and professional fee expenses associated with increased corporate compliance costs related to the Sarbanes-Oxley Act. In addition, net interest expense increased $1.4 million during 2004, due to the increased long-term borrowings beginning in the third quarter of 2004, which were utilized to fund acquisitions during the period.

2003 Compared to 2002

Consolidated Comparisons

Revenues and Gross Profit – Total consolidated revenues for the year ended December 31, 2003 were $318.7 million compared to $238.4 million during 2002, an increase of 33.7%. Each of the Company’s operating divisions reflected an increase in revenues during 2003 compared to the prior year. Consolidated gross profit for 2003 was $73.8 million compared to $54.0 million during 2002, an increase of 36.7%. Overall, gross profit was 23.2% of revenues during 2003 compared to 22.7% of revenues during 2002.

General and Administrative Expenses – Consolidated general and administrative expenses increased $7.8 million to $44.7 million during 2003 compared to $36.9 million during the prior year, an increase of 21.1%. This increase was primarily caused by a $3.2 million increase in payroll and incentive compensation and a $3.1 million increase in professional fees consistent with the Company’s growth and with industry trends. The increase in professional fees was also due to unusually low professional fees during 2002 due to the recovery of $1.1 million of legal fees associated with a long-standing lawsuit. Also, beginning in 2003 the Company reflected $1.4 million of accretion expenses related to asset retirement obligations in accordance with Statement of Financial Accounting Standards (SFAS) No. 143 rules. Despite these increases in general and administrative costs, as a percentage of revenues, general and administrative expenses decreased to 14.0% of revenues during 2003 compared to 15.5% of revenues during 2002.

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Other Income & Expense – Other income and expense was $0.6 million of income for 2003 compared to $0.1 million of income in the prior year. This change is primarily due to $0.7 million of gains on sales of property, plant and equipment during 2003, compared to a $0.2 million loss on such disposals in the prior year.

Interest Expense and Income Taxes – Net interest expense decreased from $2.6 million during 2002 to $0.3 million during 2003, a decrease of 88.2%, due to the Company’s reduction and eventual payment of the balance outstanding under its bank credit facility during 2003. Also, prior to paying the remaining balance of the facility, interest expense was reflected at lower interest rates during 2003 compared to the prior year’s expense, due partly to the Company’s 6.4% interest rate swap contract, which expired after the end of 2002. The Company’s average interest rate during 2003 was approximately 3%. The provision for income taxes was $9.9 million in 2003, an increase of $4.8 million, as a result of increased earnings compared to the prior year. The effective tax rate for the year decreased to 33.9% during 2003 compared to 35.3% in 2002, due primarily to a reduction in the impact of international income taxes.

Net Income – Net income before discontinued operations and cumulative effect of change in accounting principle was $19.4 million during 2003 compared to $9.4 million during 2002. Net income per diluted share before discontinued operations and cumulative effect of change in accounting principle was $0.84 with 23,005,108 shares outstanding compared to $0.42 with 22,342,952 shares outstanding.

In September 2003, the Company sold its subsidiary, Damp Rid, Inc., and made the decision to discontinue its Norwegian process services operation. The Company recorded a gain of $4.9 million from the sale of Damp Rid, net of taxes of $2.4 million, and a loss of $1.3 million for the asset impairment related to the disposal of the Norwegian process services facility, net of a $0.7 million tax benefit. Net income from discontinued operations per diluted share during 2003 was $0.16 compared to a net loss of $0.02 in the prior year, primarily due to the net gain on the disposal of Damp Rid.

In July 2001, the Financial Accounting Standards Board released SFAS No. 143, “Accounting for Asset Retirement Obligations,” which requires that costs associated with the retirement of tangible long-lived assets be recorded as part of the carrying value of the asset when the obligation is incurred. The Company adopted the provisions of SFAS 143 on January 1, 2003. Prior to 2003, the Company expensed the costs of retiring its non-oil and gas properties at the time of retirement. In addition, prior to 2003 the Company recorded the retirement obligations associated with its oil and gas properties at an undiscounted fair market value. The effect of adopting SFAS No. 143 was to record a charge of $1.5 million ($0.06 per diluted share), net of taxes of $0.8 million, to expense the costs of retirement obligations associated with the Company’s existing long-lived assets and to accrete the liability to its present value as of January 1, 2003.

Net income for the year ended December 31, 2003 was $21.7 million compared to $8.9 million in the prior year, an increase of $12.8 million or 143.4%. Net income per diluted share was $0.94 with 23,005,108 shares outstanding compared to $0.40 with 22,342,952 shares outstanding.

Divisional Comparisons

Fluids Division – Fluids Division revenues increased $2.4 million to $119.4 million during 2003 compared to $117.1 million during the prior year, an increase of 2.0%, primarily due to an approximate $3.1 million increase from higher domestic product sales volumes and approximately $2.5 million from pricing improvements. The Division also reflected increased revenues of approximately $1.6 million, resulting from improved utilization of filtration service equipment and an estimated $1.0 million from fluids product market share gains. These increases domestically were largely offset, however, by decreases in international fluids revenues, particularly in the United Kingdom and Norway, where decreased North Sea activity contributed to a revenue decrease of $6.0 million compared to the prior year.

Despite the overall revenue increase, gross profit for the Fluids Division decreased by $4.7 million to $27.2 million, a 14.7% decrease. Gross profit percentage for the Fluids Division decreased from 27.2% of revenues during 2002 to 22.8% of revenues during 2003, as approximately $4.7 million of increases in product and related costs, including feedstocks, transportation, utilities, repair and maintenance, payroll

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and insurance more than offset $2.5 million of pricing increases. Gross profits were also lower by approximately $0.5 million, due to lower-margin product sales in certain operating areas. Fluids Division profitability was particularly affected by a decline in activity related to the decrease in the average Gulf of Mexico rig count during 2003 compared to 2002. The above mentioned decrease in North Sea activity also resulted in an additional gross profit decrease of approximately $1.7 million related to the Division’s international operations.

Fluids Division income before taxes decreased by $4.0 million to $14.0 million during 2003, a 22.2% decrease compared to the prior year, due to the above mentioned $4.7 million decrease in gross profit, offset partially by approximately $0.7 million in decreased overall administrative costs for the Division.

WA&D Division – The WA&D Division reflected revenues of $153.5 million during 2003 compared to $78.6 million during the prior year, an increase of $74.9 million, or 95%. The largest revenue increase was generated by the Division’s offshore abandonment and decommissioning business, with an increase of $42.1 million, which captured an increased share of the overall increased activity levels in the Gulf of Mexico and, in particular, benefited from the timing during 2003 of several large projects for specific customers. The Division’s inland water well abandonment operations also reflected increased activity early in the year, with a $3.2 million increase (despite lower rates for its services due to competition) and its land operations contributed a $4.5 million increase, which includes approximately $2.2 million of added revenues from an acquisition during 2002. Also contributing to the increased WA&D Division revenues was its Maritech oil and gas production subsidiary, which contributed approximately $21.4 million of additional production revenues related to producing properties acquired in late 2002 and early 2003, and an approximate $3.9 million increase in revenues from higher oil and gas commodity prices during 2003.

WA&D Division gross profit also rose significantly, increasing from $11.0 million in 2002 to $35.4 million in 2003, an increase of $24.4 million, or 222.2%. Gross profit percentage for the WA&D Division increased to 23.1% of revenues from 14.0% of revenues in the prior year. These gross profit increases were also led by the Division’s offshore abandonment and decommissioning operations, which reflected a gross profit increase of $14.7 million, primarily from the successful completion of several large projects and a $1.1 million gain from the settlement of an insurance claim for the prior year’s damages to the Company’s heavy lift barge. The Division’s inland water plug and abandonment and rig operations reflected approximately a $0.1 million decrease in gross profit compared to the prior year, and were negatively affected during the second half of 2003 by lower rates and reduced activity related to the recent and pending ownership changes of many inland water properties. Maritech’s gross profit increased approximately $7.3 million due to the above mentioned producing property acquisitions as well as approximately $3.9 million from increased commodity prices. Such increases more than offset the $1.7 million charge for Maritech’s relinquishment of an oil and gas property during the year.

Income before taxes for the WA&D Division increased significantly to $23.5 million, a $20.3 million or 628.9% increase from the prior year. The above mentioned increase in gross profit of $24.4 million was offset partially by approximately $3.3 million of Division personnel infrastructure cost increases, consistent with the increased levels of activity. The Division also reflected $1.2 million of expense related to SFAS No. 143 accretion for Maritech’s abandonment and decommissioning liabilities beginning in 2003.

Production Enhancement Division – Production Enhancement Division revenues increased $2.6 million during 2003, from $44.5 million during 2002 to $47.1 million, an increase of 5.9%, largely due to a $2.8 million revenue increase from the domestic production testing operations, which reflected increased drilling and completion activity in Texas and Louisiana. This increase in domestic production testing activity more than offset a $0.6 million decline in production testing revenues in Mexico and Venezuela. Revenues for process services increased $0.5 million during 2003 compared to the prior year, due to higher demand and increased processed volumes.

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Gross profit for the Production Enhancement Division was $11.2 million during 2003 and 2002. Increased domestic production testing activity was more than offset by increased costs and the lower overall utilization of the operation’s resource base, resulting in a $0.5 million decrease in gross profit for this business. The increased process services demand resulted in throughput efficiencies which resulted in increased gross profit of approximately $0.4 million. Division gross profit as a percentage of revenues decreased from 25.2% to 23.8%.

Production Enhancement Division income before taxes decreased $0.7 million, from $7.1 million to $6.4 million, a 10.1% decrease compared to the prior year. Administrative costs for professional services increased during 2003, compared to the prior year, due to the recovery during 2002 of approximately $1.1 million of legal fees associated with a long standing lawsuit. Other administrative cost increases related to increased personnel infrastructure costs of approximately $0.3 million, primarily related to the domestic production testing operations. Such increases were partially offset by $0.7 million of gains on sales of production testing equipment during the year.

Corporate Overhead – The Company includes in corporate overhead general and administrative expense, interest income and expense, and other income and expense. Such expenses and income are not allocated to the Company’s business segments, as they relate to the Company’s general corporate activities. Corporate overhead increased from $13.8 million in 2002 to $14.6 million during 2003, a $0.8 million increase compared to the prior year. This increase was primarily caused by approximately $2.3 million of increased corporate salary and incentive compensation expenses, $1.1 million of increased professional services and public company expenses, and $0.3 million of increased corporate insurance expense. Such increases were partially mitigated by a $2.4 million decrease in interest expense, as a result of the decrease in long-term debt outstanding during 2003, and an approximate $1.1 million decrease in corporate insurance claims and other fringe benefit costs during the year.

Liquidity and Capital Resources

During the year ended December 31, 2004, the Company utilized a portion of its available capital resources to significantly increase its asset base, funding the three most significant business acquisition and asset purchase transactions in Company history for an aggregate acquisition cost of approximately $171.3 million, $21.0 million of which have been classified as purchases of property, plant and equipment. These transactions, along with approximately $34.1 million of other capital expenditure activities, were funded primarily through the addition of approximately $143.8 million of net long-term borrowings, approximately $56.4 million of cash provided from operating activities and approximately $11.1 million of cash on hand at the beginning of the year. Despite the significant borrowings during the year, at December 31, 2004, the Company continues to have excellent near term liquidity; long-term borrowings are not scheduled to mature until 2009 through 2011, and the Company has additional availability under its bank credit facility of approximately $77.2 million. Over the past three years, the Company generated approximately $117.2 million of net cash flow from operating activities, which it used to fund approximately $84.8 million of capital expenditures and partially fund the purchase of $165.6 million of business acquisitions.

Operating Activities – The Company continued to generate positive operating cash flow from each of its three operating divisions, resulting in total cash provided by operating activities of $56.4 million during 2004, compared to $36.4 million during 2003, an increase of 55.0%. Due to the timing of the Company’s acquisitions, particularly the late September 2004 purchases of the Kemira calcium chloride assets and the 800 ton heavy lift barge, the newly acquired operations did not significantly affect consolidated operating cash flow during 2004 but are anticipated to generate additional operating cash flow beginning in 2005. Future operating cash flow is largely dependent upon the level of oil and gas industry activity, particularly in the Gulf of Mexico region of the U.S. While the Company expects that such industry activity will increase in 2005, the resulting net cash flow will also be affected by the impact of competition, the prices for its products and services, and the operating and administrative costs required to deliver its products and services.

In addition to the above factors, future operating cash flow will also continue to be somewhat affected by the timing of expenditures required for the plugging, abandonment and decommissioning of Maritech’s oil and gas properties. The third party market value, including an estimated profit, of Maritech’s decommissioning liability was $39.1 million as of December 31, 2004. The cash outflow necessary to

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extinguish this liability is expected to occur over several years, shortly after the end of each property’s productive life. This timing is estimated based on the future oil and gas production cash flows as indicated by the Company’s oil and gas reserve estimates and, as such, is imprecise and subject to change due to changing commodity prices, revisions of these reserve estimates and other factors. The Company’s decommissioning liability is net of amounts allocable to joint interest owners and any contractual amount to be paid by the previous owners of the properties. In some cases the previous owners are contractually obligated to pay Maritech a fixed amount for the future well abandonment and decommissioning work on these properties as the work is performed, partially offsetting Maritech’s future obligation expenditures. As of December 31, 2004, Maritech’s total decommissioning obligation is approximately $96.7 million, including an estimated profit, of which approximately $57.6 million will be reimbursed to Maritech pursuant to such contractual arrangements with the previous owners.

Investing Activities – Cash capital expenditures for the year ended December 31, 2004 were approximately $55.1 million. Approximately $30.4 million of capital expenditures were spent by the WA&D Division, including $21 million for the purchase of the 800 ton heavy lift barge and approximately $10.5 million related to exploitation and development expenditures on Maritech’s offshore oil and gas properties. The Production Enhancement Division spent approximately $14.0 million, which includes approximately $8.0 million associated with Compressco compressor fleet expansion and approximately $4.8 million to replace and enhance a portion of the production testing equipment fleet. The Fluids Division reflected approximately $8.6 million of capital expenditures, primarily related to plant expansion projects during the year. Corporate capital expenditures were approximately $2.1 million, primarily related to computer system hardware and software upgrades.

Investing activities during 2004 also included approximately $153.7 million for the acquisition of businesses. In July 2004, the Company purchased Compressco for approximately $94 million in cash, including transaction costs, and additionally repaid Compressco’s outstanding bank debt of approximately $15.8 million. The Kemira calcium chloride assets were purchased in September 2004 for approximately $40.5 million, including transaction costs. In addition, the Company acquired the assets of an onshore well abandonment operation and a Venezuelan production testing operation during the year.

During 2004, Maritech purchased oil and gas producing properties in offshore Gulf of Mexico locations in exchange for the assumption of approximately $40.6 million of associated decommissioning obligations. The previous owners of the properties are contractually obligated to pay $28.6 million of these acquired obligations as the abandonment and decommissioning work is performed. These oil and gas producing assets were recorded at a cost equal to the fair value of the net decommissioning liabilities assumed of $12.0 million, less cash and other consideration received at closing of approximately $1.7 million. The Company continues to pursue the purchase of additional producing oil and gas properties as part of its strategy to support its WA&D Division. While future purchases of such properties are also expected to be primarily funded through the assumption of the associated decommissioning liabilities, the transactions may also involve the payment or receipt of cash at closing or the receipt of cash when associated well abandonment and decommissioning work is performed in the future.

The Company expects to continue its ongoing capital expenditure program in order to grow and expand its existing operations in each of its operating divisions. The Company expects to fund such capital expenditures in 2005 through cash flow from operations. The vast majority of the Company’s future cash capital expenditure plans is discretionary, however, and may be postponed or cancelled as conditions change. In addition, the Company’s continuing strategy includes the pursuit of suitable acquisition transactions and the identification of opportunities to establish operations in additional niche oil and gas service markets. Given the Company’s financial position, such acquisitions could be consummated using cash, debt, equity, or any combination thereof. To the extent the Company consummates a significant transaction, the Company’s liquidity position could be affected.

Financing Activities – To fund its capital and working capital requirements, the Company supplements its existing cash balances and cash flow from operating activities as needed from long-term borrowings, short-term borrowings, equity issuances and other sources of capital. During July 2004, in order to fund a portion of the acquisition purchase price of Compressco, the Company borrowed $75.0 million under its then existing bank credit facility. In September 2004, the Company entered into a new five year $140 million bank credit facility, which the Company may increase to a maximum of $200 million with the agreement of the existing or additional lenders. The facility is unsecured and guaranteed by certain of the Company’s domestic subsidiaries. Borrowings generally bear interest at LIBOR plus 0.75%

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to 1.75%, depending on a certain financial ratio of the Company. As of December 31, 2004, the average interest rate on the outstanding balance under the credit facility was 3.94%. The Company pays a commitment fee ranging from 0.20% to 0.375% on unused portions of the facility. The Company used borrowings under its new revolving credit facility to repay all outstanding obligations under the previous credit facility in the amount of $73.3 million, and terminated the previous credit facility.

The Company’s present credit facility agreement contains customary financial ratio covenants and dollar limits on the total amount of capital expenditures, acquisitions and asset sales. Access to the Company’s revolving credit line is dependent upon its ability to comply with certain financial ratio covenants set forth in the credit agreement. Significant deterioration of these ratios could result in a default under the credit agreement and, if not remedied, could result in termination of the agreement and acceleration of any outstanding balances under the facility. The credit facility agreement also includes cross-default provisions relating to any other indebtedness greater than $5 million. If any such indebtedness is not paid or is accelerated and such event is not remedied in a timely manner, a default will occur under the Company’s credit facility. The credit facility agreement also prohibits dividends and the Company’s repurchase of equity interests if the Company is in default or if such distribution or repurchase would result in an event of default. The Company was in compliance with all covenants and conditions of its credit facility as of December 31, 2004. The Company’s continuing ability to comply with these financial covenants centers largely upon its ability to generate adequate cash flow. Historically, the Company’s financial performance has been more than adequate to meet these covenants, and the Company expects this trend to continue. As of December 31, 2004, the Company had $50.6 million outstanding under the credit facility and $12.2 million in letters of credit outstanding, against a $140 million line of credit, leaving a net availability of $77.2 million.

Also in September 2004, the Company issued, and sold through a private placement, $55 million in aggregate principal amount of Series 2004-A Notes and 28 million Euros (approximately $38.2 million equivalent) in aggregate principal amount of Series 2004-B Notes pursuant to a Note Purchase Agreement (collectively the Senior Notes). The Series 2004-A Notes bear interest at a fixed rate of 5.07% and mature on September 30, 2011. The Series 2004-B Notes bear interest at a fixed rate of 4.79% and also mature on September 30, 2011. Interest on the Senior Notes is due semiannually on March 30 and September 30 of each year, commencing March 30, 2005. Pursuant to the Note Purchase Agreement, the Senior Notes are unsecured and guaranteed by substantially all of the Company’s wholly owned subsidiaries. The Note Purchase Agreement contains customary covenants and restrictions, requires the Company to maintain certain financial ratios and contains customary default provisions, as well as cross-default provisions relating to any other indebtedness of $20 million or more. The Company was in compliance with all covenants and conditions of its Senior Notes as of December 31, 2004. Upon the occurrence and during the continuation of an event of default under the Note Purchase Agreement, the Senior Notes may become immediately due and payable, either automatically or by declaration of holders of more than 50% in principal amount of the Senior Notes outstanding at the time.

The Company also has filed a universal acquisition shelf registration statement on Form S-4, which was declared effective by the Securities and Exchange Commission on June 7, 2004, that permits the Company to issue up to $400 million of common stock, preferred stock, senior and subordinated debt securities and warrants in one or more acquisition transactions that the Company may undertake from time to time. As part of the Company’s strategic plan, the Company evaluates opportunities to acquire businesses and assets and intends to pursue attractive acquisition opportunities, which may involve the payment of cash or issuance of debt or equity securities. Such acquisitions may be funded with existing cash balances, funds under the Company’s credit facility, or securities issued under the Company’s acquisition shelf registration on Form S-4.

In addition to the aforementioned revolving credit facility, the Company funds its short-term liquidity requirements from cash generated by operations, short-term vendor financing and, to a minor extent, from leasing with institutional leasing companies. The Company believes its principal sources of liquidity, cash flow from operations, revolving credit facility and other traditional financing arrangements are adequate to meet its current and anticipated capital and operating requirements through at least December 2005.

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In January 2004, the Company’s Board of Directors authorized the repurchase of up to $20 million of its common stock. During 2004, the Company purchased 140,000 shares of its common stock at a cost of approximately $3.3 million pursuant to this authorization. The Company has historically repurchased its stock at times when it felt that its stock price was undervalued in relation to its peer group. During 2003, the Company did not repurchase any shares of its stock. During the year 2002, the Company repurchased 151,800 shares at a cost of $2.0 million. The Company also received $5.4 million during 2004 from the exercise of stock options by employees.

Contractual Cash Obligations – The table below summarizes the Company’s contractual cash obligations as of December 31, 2004:

(1) Decommissioning liabilities related to oil and gas properties generally must be satisfied within twelve months after the property’s lease expires. Lease expiration occurs six months after the last producing well on the lease ceases production. The Company has estimated the timing of these payments based upon anticipated lease expiration dates, which are subject to many changing variables, including the estimated life of the producing oil and gas properties, which is affected by changing oil and gas commodity prices. The amounts shown represent the estimated fair values as of December 31, 2004.

Off Balance Sheet Arrangements – An “off balance sheet arrangement” is defined as any contractual arrangement to which an entity that is not consolidated with the Company is a party, under which the Company has, or in the future may have:

• Any obligation under a guarantee contract that requires initial recognition and measurement under U.S. Generally Accepted Accounting Principles;

• A retained or contingent interest in assets transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to that entity for the transferred assets;

• Any obligation under certain derivative instruments; or

• Any obligation under a material variable interest held by the Company in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or engages in leasing, hedging or research and development services with the Company.

As of December 31, 2004 and 2003, the Company had no “off balance sheet arrangements” that may have a current or future material affect on the Company’s consolidated financial condition or results of operations.

Commitments and Contingencies – The Company and its subsidiaries are named defendants in several lawsuits and respondents in certain governmental proceedings arising in the ordinary course of business. While the outcomes of lawsuits or other proceedings against the Company cannot be predicted with certainty, management does not expect these matters to have a material impact on the financial statements.

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In the normal course of its Fluids Division operations, the Company enters into agreements with certain manufacturers of various raw materials and finished products. Some of these agreements require the Company to make minimum levels of purchases over the term of the agreement. Other agreements require the Company to purchase the entire output of the raw material or finished product produced by the manufacturer. The Company’s purchase obligations under these agreements apply only with regard to raw materials and finished products that meet specifications set forth in the agreements. The Company recognizes a liability for the purchase of such products at the time they are received by the Company.

Related to its acquired interests in oil and gas properties, Maritech estimates the third party fair market values (including an estimated profit) to plug and abandon wells, decommission the pipelines and platforms and clear the sites, and uses these estimates to record Maritech’s decommissioning liabilities, net of amounts allocable to joint interest owners and any amounts contractually agreed to be paid in the future by the previous owners of the properties. In some cases, previous owners of acquired oil and gas properties are contractually obligated to pay Maritech a fixed amount for the future well abandonment and decommissioning work on these properties as such work is performed. As of December 31, 2004, Maritech’s decommissioning liabilities are net of approximately $57.6 million for such future reimbursements from these previous owners.

A subsidiary of the Company, TETRA Micronutrients, Inc. (TMI), previously owned and operated a production facility located in Fairbury, Nebraska. TMI is subject to an Administrative Order on Consent issued to American Microtrace, Inc. (n/k/a/ TETRA Micronutrients, Inc.) in the proceeding styled In the Matter of American Microtrace Corporation, EPA I.D. No. NED00610550, Respondent, Docket No. VII-98-H-0016, dated September 25, 1998 (the Consent Order), with regard to the Fairbury facility. TMI is liable for future remediation costs at the Fairbury facility under the Consent Order; however, the current owner of the Fairbury facility is responsible for costs associated with the closure of that facility. The Company has reviewed estimated remediation costs prepared by its independent, third-party environmental engineering consultant, based on a detailed environmental study. The estimated remediation costs range from $0.6 million to $1.4 million. Based upon its review and discussions with its third-party consultants, the Company established a reserve for such remediation costs of $0.6 million, undiscounted, which is included in Other Liabilities in the accompanying consolidated balance sheets at December 31, 2004 and 2003. The reserve will be further adjusted as information develops or conditions change.

The Company has not been named a potentially responsible party by the EPA or any state environmental agency.

Recently Issued Accounting Pronouncements – In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), Share-Based Payment (SFAS No. 123R), which is a revision of SFAS No. 123. The revised statement is effective at the beginning of the first interim period beginning after June 15, 2005. SFAS No. 123R must be applied to new awards and previously granted awards that are not fully vested on the effective date. The Company currently accounts for stock-based compensation using the intrinsic value method. Accordingly, compensation cost for previously granted awards that were not recognized under SFAS No. 123 will be recognized under SFAS No. 123R. However, had the Company adopted SFAS No. 123R in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share contained in Note B – Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flow in periods after adoption. While the Company cannot accurately estimate what those amounts will be in the future (as they depend on, among other things, when employees exercise stock options), the amount of operating cash flows recognized for such excess tax deductions were $2.5 million, $1.5 million and $2.3 million in 2004, 2003 and 2002, respectively.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Risk

Any balances outstanding under the Company’s floating rate portion of its bank credit facility are subject to market risk exposure related to changes in applicable interest rates. The Company borrowed funds during the third quarter of 2004, pursuant to the bank credit facility, to fund certain acquisitions. These instruments carry interest at an agreed-upon percentage rate spread above LIBOR. Based on the balances of floating rate debt outstanding as of December 31, 2004, each increase of 100 basis points in the LIBOR rate would result in a decrease in earnings of approximately $346,000.

The following table sets forth, as of December 31, 2004 and 2003, the Company’s principal cash flows for its long-term debt obligations (which bear a variable rate of interest) and weighted average effective interest rates by their expected maturity dates. The Company currently is not a party to an interest rate swap contract or other derivative instrument designed to hedge the Company’s exposure to interest rate fluctuation risk.

Exchange Rate Risk

The Company is exposed to fluctuations between the U.S. dollar and the Euro with regard to its Euro-denominated operating activities and related long-term Euro denominated debt. In September 2004, the Company borrowed Euros to fund the Kemira calcium chloride asset acquisition. The Company entered into long-term Euro-denominated borrowings, as it believes such borrowings provide a natural currency hedge for its Euro-based operating cash flow. The Company also has exposure related to operating receivables and payables denominated in Euros as well as other currencies; however, such transactions are not pursuant to long-term contract terms, and the amount of such foreign currency exposure is not determinable or considered material.

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The following table sets forth as of December 31, 2004 and 2003, the Company’s cash flows for its long-term debt obligations which are denominated in Euros. This information is presented in U.S. dollar equivalents. The table presents principal cash flows and related weighted average interest rates by their expected maturity dates. As described above, the Company utilizes the long-term borrowings detailed in the following table as a hedge to its investment in its acquired foreign operations and currently is not a party to a foreign currency swap contract or other derivative instrument designed to further hedge the Company’s currency exchange rate risk exposure. The Company’s exchange rate risk exposure related to these borrowings will generally be offset by the offsetting fluctuations in the value of its foreign investment.