OIL STATES INTERNATIONAL INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

OR

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

For the transition period from ______________ to __________________

Commission file number 1-16337

OIL STATES INTERNATIONAL, INC.

---------------

(Exact name of registrant as specified in its charter)

Delaware 76-0476605
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Three Allen Center, 77002
333 Clay Street, Suite 3460, -----
Houston, Texas (Zip Code)
----------------------------
(Address of principal executive offices)

(713) 652-0582
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)

None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

YES [X] NO [ ]

The Registrant had 48,313,160 shares of common stock outstanding as of
November 8, 2002.

OIL STATES INTERNATIONAL, INC.

INDEX

2

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The accompanying notes are an integral part of
these financial statements.

3

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED, COMBINED AND PRO FORMA STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(1) See detailed pro forma statement of income and related footnotes on pages 13
to 16 of this Form 10-Q.

The accompanying notes are an integral part of
these financial statements.

4

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

The accompanying notes are an integral part of
these financial statements.

5

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

The accompanying notes are an integral part of these
consolidated financial statements.

6

OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED, COMBINED AND PRO FORMA
FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Oil States
International, Inc. (Oil States or the Company) and its consolidated
subsidiaries since February 14, 2001. On February 14, 2001, the Company acquired
the three companies (HWC Energy Services, Inc. - HWC; PTI Group, Inc. - PTI and
Sooner Inc. - Sooner) previously reported in the Combined and Pro Forma
financial statements presented herein. The combined financial statements include
the activities of Oil States, HWC and PTI, (collectively, the Controlled Group)
for the period prior to February 14, 2001, utilizing reorganization accounting.
The reorganization accounting method, which yields results similar to the
pooling of interests method, has been used in the preparation of the combined
financial statements of the Controlled Group (entities under common control of
SCF-III L.P. (SCF-III), a private equity fund that focuses on investments in the
energy industry). Under this method of accounting, the historical financial
statements of HWC and PTI are combined with Oil States for the period until
February 14, 2001 when Oil States, HWC and PTI merged and Oil States acquired
Sooner in exchange for its common stock (the Combination). After February 14,
2001, the consolidated financial statements of Oil States include the results of
all its subsidiaries including HWC, PTI and Sooner. The combined financial
statements have been adjusted to reflect minority interests in the Controlled
Group. All significant intercompany accounts and transactions between the
consolidated entities have been eliminated in the accompanying consolidated,
combined and pro forma financial statements.

The accompanying unaudited consolidated and combined financial statements of
the Company and its wholly-owned subsidiaries have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information in footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to these rules and regulations. The unaudited
financial statements included in this report reflect all the adjustments,
consisting of normal recurring adjustments, which the Company considers
necessary for a fair presentation of the results of operations for the interim
periods covered and for the financial condition of the Company at the date of
the interim balance sheet. Results for the interim periods are not necessarily
indicative of results for the year.

The financial statements included in this report should be read in
conjunction with Oil States' audited financial statements and accompanying notes
included in its 2001 Form 10-K, filed under the Securities Exchange Act of 1934,
as amended.

2. NEW ACCOUNTING PRONOUNCEMENT - GOODWILL AND OTHER INTANGIBLE ASSETS

Effective January 1, 2002, the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 142 - "Goodwill and Other Intangible
Assets" (FAS No. 142). In connection with the adoption of FAS No. 142, the
Company ceased amortizing goodwill. Also, as required by this statement, the
Company has completed its evaluation of goodwill for potential impairment. No
provision for goodwill impairment was required based on the evaluation
performed.

7

Changes in the carrying amount of goodwill for the nine months ended
September 30, 2002, are as follows (in thousands):

The following tables present what reported income before extraordinary items
and net income per share would have been in all periods presented exclusive of
amortization expense recognized in those periods related to goodwill.

3. INITIAL PUBLIC OFFERING, MERGER TRANSACTIONS, REFINANCING AND ACQUISITIONS

On February 9, 2001, the Company began trading its common stock on the New
York Stock Exchange under the symbol "OIS" pursuant to completion of its initial
public offering (the Offering). On February 14, 2001, the Company closed the
Combination and the Offering thereby acquiring the minority interests in PTI and
HWC and 100% of the Sooner operations. The Company recorded additional goodwill
of $61.9 million as a result of the acquisition of these minority interests.

Concurrent with the Offering, the Company acquired Sooner for $69.5 million.
The Company exchanged 7,597,152 shares of its common stock for all of the
outstanding common shares of Sooner. The Company accounted for the acquisition
using the purchase method of accounting and recorded approximately $40 million
in goodwill.

Concurrent with the closing of the Offering, the Company issued 4,275,555
shares of common stock to SCF-III and SCF-IV L.P. (SCF-IV) in exchange for
approximately $36.0 million of indebtedness of Oil States and Sooner which was
held by SCF-III and SCF-IV (the SCF Exchange).

With the proceeds received in the Offering, the Company repaid $43.7 million
of outstanding subordinated debt of the Controlled Group and Sooner, redeemed
$21.8 million of preferred stock of Oil States, paid accrued interest on
subordinated debt and accrued dividends on preferred stock aggregating $7.1
million, and repurchased common stock from non-accredited shareholders and
shareholders holding pre-emptive stock purchase rights for $1.6 million. The
balance of the proceeds were used to reduce amounts outstanding under bank lines
of credit.

On February 14, 2001, the Company entered into a $150 million senior secured
revolving credit facility. This new credit facility replaced existing bank
credit facilities.

In connection with the debt refinancing discussed above, the Company
incurred prepayment penalties and wrote-off unamortized debt issue costs
totaling $0.8 million which is reported as an extraordinary item.

In the first nine months of 2002, the Company acquired the following six
businesses for total consideration of approximately $72.5 million, which was
paid primarily in cash:

o Southeastern Rentals LLC, based in Mississippi, Edge Wireline
Rentals Inc. and certain affiliated companies, located in Louisiana,
and J.V. Oilfield Rentals & Supply, Inc. and certain affiliated
companies, located in Louisiana, all of which are suppliers of
rental tools to the oil and gas service

9

industry. These businesses were merged into the Company's existing
rental tool business included in the Well Site Services segment.
o Barlow Hunt, Inc., based in Oklahoma, an elastomer molding company
which will become part of the Company's existing elastomer business
within the Offshore Products segment.
o Certain assets and liabilities of Big Inch Marine Services, Inc., a
Texas-based subsidiary of Stolt Offshore, Inc., which provides
subsea pipeline equipment and repair services similar to those
provided by the Company's Offshore Products segment.
o Applied Hydraulic Systems, Inc., a Louisiana based offshore crane
manufacturer and crane repair service provider, which will become
part of the Company's Offshore Products segment.

Goodwill recognized in those transactions amounted to $38.7 million, of
which $10.1 million is expected to be deductible for tax purposes. See Note 2
above for details of goodwill by segment. Additionally, the Company allocated
$2.4 million of the total consideration paid to certain non-compete agreements
which will be amortized over the life of the agreements.

4. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS

Additional information regarding selected balance sheet accounts is
presented below (in thousands):

5. SEGMENT AND RELATED INFORMATION

In accordance with SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company has identified the following
reportable segments: Offshore Products, Wellsite Services and Tubular Services.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology and marketing strategies. Most of the
businesses were acquired as a unit, and the management at the time of the
acquisition was retained.

Financial information by industry segment for each of the three-month and
nine-month periods ended September 30, 2002 and 2001 is summarized in the
following table (in thousands):

(1) EBITDA as defined consists of operating income (loss) before depreciation
and amortization expense. EBITDA as defined is not a measure of financial
performance under generally accepted accounting principles. You should not
consider it in isolation from or as a substitute for net income or cash flow

11

measures prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity. Additionally, our
EBITDA as defined calculation may not be comparable to other similarly
titled measures of other companies. We have included EBITDA as defined as a
supplemental disclosure because it may provide useful information regarding
our ability to service debt and to fund capital expenditures.

6. COMPREHENSIVE INCOME

Comprehensive income for the three and nine month periods ended September
30, 2002 and 2001 was as follows (in thousands):

7. COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims, lawsuits and other proceedings
relating to a wide variety of matters. While uncertainties are inherent in the
final outcome of such matters, and it is presently impossible to determine the
actual costs that ultimately may be incurred, management believes that the
resolution of such uncertainties and the incurrence of such costs will not have
a material adverse effect on the Company's consolidated financial position,
results of operations or liquidity.

We are aware that certain energy service companies that have in the past
used asbestos in connection with the manufacture of equipment or otherwise in
the operation of their business have become the subject of increased asbestos
related litigation. Certain of our subsidiaries are currently named as
defendants in two single plaintiff cases seeking damages, including punitive
damages, alleging that they have responsibility for the individuals developing
mesothelioma, asbestosis, lung cancer or other lung diseases as a result of
exposure to asbestos. Although these are the only cases of which management is
aware that are pending or threatened against us or our subsidiaries involving
allegations relating to asbestos exposure, additional asbestos related claims
may be made. Based on management's preliminary investigation, management does
not believe that these cases or future claims relating to asbestos exposure will
have a material adverse effect on our consolidated financial position, results
of operations, or liquidity.

12

UNAUDITED PRO FORMA CONSOLIDATED AND COMBINED FINANCIAL STATEMENT

The consolidated financial statements of Oil States International, Inc.
reflect the Company's financial position, results of operations and changes in
stockholders' equity for periods subsequent to February 14, 2001, the date of
our initial public offering and the combination of Oil States International,
Inc. (Oil States), HWC Energy Services, Inc. (HWC) and PTI Group Inc. (PTI)
(collectively, the Controlled Group).

As more fully described below, and in footnotes that follow, the combined
financial statements reflect the financial position, results of operations and
changes in stockholders' equity of the predecessor entities that now comprise
Oil States International, Inc. based on reorganization accounting. The pro forma
financial information that follows reflects our historical consolidated or
combined statements of operations, depending upon the period involved, and gives
effect to the pro forma transactions and adjustments more fully described below.

The following tables set forth unaudited pro forma consolidated and
combined financial information for Oil States giving effect to:

o the combination of Oil States, HWC and PTI as entities under the
common control of SCF-III L.P. (SCF III), based upon reorganization
accounting, which yields results similar to pooling of interest
accounting, effective from the dates each of these entities became
controlled by SCF III;

o the conversion of the common stock held by the minority interests of
each entity in the Controlled Group into shares of our common stock,
based on the purchase method of accounting;

o the conversion of all of the outstanding common stock of Sooner Inc.
(Sooner) into shares of our common stock, based on the purchase
method of accounting; and

o the exchange of 4,275,555 shares of our common stock for $36.0
million of debt of Sooner and Oil States; and

o our sale of 10,000,000 shares of common stock in our initial public
offering (the Offering) and the application of the net proceeds
totaling $84.1 million. With the proceeds received in the Offering,
the Company repaid $43.7 million of outstanding subordinated debt of
the Controlled Group and Sooner, redeemed $21.8 million of preferred
stock of Oil States, paid accrued interest on subordinated debt and
accrued dividends on preferred stock aggregating $7.1 million, and
repurchased common stock from non-accredited shareholders and
shareholders holding pre-emptive stock purchase rights for $1.6
million. The balance of the proceeds was used to reduce amounts
outstanding under bank lines of credit.

The audited December 31, 2001 consolidated balance sheet reflects all of the
transactions discussed above, which were completed on February 14, 2001.

The unaudited pro forma consolidated and combined financial statements do
not purport to be indicative of the results that would have been obtained had
the transactions described above been completed on the indicated dates or that
may be obtained in the future. The unaudited pro forma combined financial
statements should be read in conjunction with the historical consolidated and
combined financial statements and notes thereto included in our Annual Report on
Form 10-K.

13

PRO FORMA CONSOLIDATED AND COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

14

OIL STATES INTERNATIONAL, INC.

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED AND
COMBINED FINANCIAL STATEMENTS

Basis of Presentation

The purchase method of accounting has been used to reflect the acquisition
of the minority interests of each company in the Controlled Group concurrently
with the closing of the Offering. The purchase price is based on the fair value
of the shares owned by the minority interests, valued at the initial public
offering price of $9.00 per share. Under this accounting method, the excess of
the purchase price over the fair value of the assets and liabilities allocable
to the minority interests acquired has been reflected as goodwill. Where book
value of minority interests exceeded the purchase price, such excess reduced
property, plant and equipment. For purposes of the pro forma combined financial
statements, the goodwill recorded in connection with this transaction is being
amortized over 20 years using the straight-line method based on management's
evaluation of the nature and duration of customer relationships and considering
competitive and technological developments in the industry. Note, however, that
accounting for goodwill changed concurrently with the adoption of new accounting
pronouncements (See Note 2 to the Unaudited Consolidated, Pro Forma and Combined
Financial Statements in this Form 10-Q.)

The purchase method of accounting also has been used to reflect the
acquisition of the outstanding common stock of Sooner concurrently with the
closing of the Offering. The purchase price is based on the fair value of the
shares of Sooner, valued at the initial public offering price of $9.00 per
share. The excess of the purchase price over the fair value of the assets and
liabilities of Sooner has been reflected as goodwill. For purposes of the pro
forma combined financial statements, the goodwill recorded in connection with
this transaction is being amortized over 15 years using the straight-line method
based on management's evaluation of the nature and duration of customer
relationships and considering competitive and technological developments in the
industry. Note, however, that accounting for goodwill changed concurrent with
the adoption of new accounting pronouncements (See Note 2 to the Unaudited
Consolidated, Pro Forma and Combined Financial Statements in this Form 10-Q.)
The unaudited pro forma statements of operations for the nine months ended
September 30, 2001, include the historical financial statements of Sooner,
adjusted for the effects of purchase accounting, as presented below.

NOTE 1. COMBINING ADJUSTMENTS

Minority interest in (income) loss and related tax effect of the Controlled
Group are presented below (in thousands):

NOTE 2. ACQUISITION OF SOONER

To reflect the acquisition of all outstanding common shares of Sooner in
exchange for 7,597,152 shares of Oil States common stock valued at the estimated
offering price per share of $9.00 (in millions):

Purchase price.................................................................................. $ 69.5(1)
Less: fair value of net assets acquired......................................................... 29.7
-----
Goodwill........................................................................................ $ 39.8
======

Amortization for the period from January 1, 2001 to February 14, 2001........................... $ 33
======

- ---------------
(1) The purchase price for Sooner includes the estimated fair value of Sooner
stock options ($1.1 million) converted into Oil States stock options.

Certain reclassifications have been made to conform the presentation of
Sooner's financial statements to the Controlled Group.

15

NOTE 3. ACQUISITION OF MINORITY INTERESTS

To reflect the acquisition of the minority interests of each company in the
Controlled Group in exchange for shares of Oil States common stock and
elimination of the historical amounts reflected for the combined group (in
millions, except share and per share information):

NOTE 4. OFFERING

(A) To adjust interest expense for debt repaid with Offering proceeds and
as a result of the exchange of shares for subordinated debt.

(B) To eliminate preferred stock dividends due to the redemption of the
preferred stock.

(C) To adjust income tax expense for the reduction of deferred taxes due to
the formation of the combined group.

16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

You should read the following discussion and analysis together with our
Financial Statements and the notes to those statements included elsewhere in
this Quarterly Report on Form 10-Q. This discussion contains forward-looking
statements based on our current expectations, assumptions, estimates and
projections about us and our industry. These forward-looking statements involve
risks and uncertainties. Our actual results could differ materially from those
indicated in these forward-looking statements as a result of certain factors, as
more fully described under "Cautionary Statement for Purposes of the "Safe
Harbor" Provisions of the Private Securities Litigation Reform Act of 1995" in
"Item 1, Business" and elsewhere in our Annual Report on Form 10-K. Except to
the extent required by law, we undertake no obligation to update publicly any
forward-looking statements, even if new information becomes available or other
events occur in the future.

Critical Accounting Policies

In our selection of critical accounting policies, our objective is to
properly reflect our financial position and results of operations in each
reporting period in a manner that will be understood by those who utilize our
financial statements. Often we must use our judgment about uncertainties. There
are several critical accounting policies that we have put into practice that
have an important effect on our reported financial results.

We have contingent liabilities and future claims for which we have made
estimates of the amount of the eventual cost to liquidate these liabilities or
claims. These liabilities and claims sometimes involve threatened or actual
litigation where we have made an assessment of our exposure and recorded a
provision in our accounts to cover an expected loss. Other claims or liabilities
have been estimated based on our experience in these matters and, when
appropriate, the advice of outside counsel or other outside experts. Upon the
ultimate resolution of these uncertainties, our future reported financial
results will be impacted by the difference between our estimates and the actual
amounts paid to settle a liability. Examples of areas where we have made
important estimates of future liabilities include litigation, taxes,
postretirement benefits, warranty claims and contract claims.

The determination of impairment on long-lived assets, including goodwill, is
conducted as indicators of impairment are present. If such indicators were
present, the determination of the amount of impairment would be based on our
judgments as to the future operating cash flows to be generated from these
assets throughout their estimated useful lives. Our industry is highly cyclical
and our estimates of the period over which future cash flows will be generated,
as well as the predictability of these cash flows, can have a significant impact
on the carrying value of these assets. In periods of prolonged down cycles,
these estimates may result in impairment charges.

We recognize revenue and profit as work progresses on long-term, fixed price
contracts using the percentage-of-completion method, which relies on estimates
of total expected contract revenue and costs. We follow this method since
reasonably dependable estimates of the revenue and costs applicable to various
stages of a contract can be made. Recognized revenues and profit are subject to
revisions as the contract progresses to completion. Revisions in profit
estimates are charged to income or expense in the period in which the facts that
give rise to the revision become known.

Our valuation allowances, especially related to potential bad debts in
accounts receivable and to obsolescence or market value declines of inventory,
involve reviews of underlying details of these assets, known trends in the
marketplace and the application of historical factors that provide us with a
basis for recording these allowances. If market conditions are less favorable
than those projected by management, or if our historical experience is
materially different from future experience, additional allowances may be
required. We record a valuation allowance to reduce our deferred tax assets to
the amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, in the event we were to
determine that we would be able to realize our deferred tax assets in the future
in excess of our net recorded amount, an adjustment to the deferred tax asset
would increase income in the period such determination was made. Likewise, if we
determine that we would not be able to realize all or part of our net deferred
tax asset in the future, an adjustment to the deferred tax asset would be
charged to expense in the period such determination was made.

17

The selection of the useful lives of many of our assets requires the
judgments of our operating personnel as to the length of these useful lives. If
our estimates are too long or short, we might eventually report a
disproportionate number of losses or gains upon disposition or retirement of our
long-lived assets. We believe our estimates of useful lives are appropriate.

Overview

We provide a broad range of products and services to the oil and gas
industry through our offshore products, well site services and tubular services
business segments. Demand for our products and services is cyclical and
substantially dependent upon activity levels in the oil and gas industry,
particularly our customers' willingness to spend capital on the exploration and
development of oil and gas reserves. Demand for our products and services by our
customers is highly sensitive to current and expected oil and natural gas
prices. Our offshore products segment provides highly engineered and technically
designed products for offshore oil and gas development and production systems
and facilities. Sales of our offshore products and services depend upon the
development of offshore production systems, repairs and upgrades of existing
drilling rigs and construction of new drilling rigs. In this segment, we are
particularly influenced by deepwater drilling and production activities. In our
well site services business segment, we provide hydraulic well control services,
drilling rigs, pressure control equipment and rental tools and workforce
accommodations, catering and logistics services. Demand for our well site
services depends upon the level of worldwide drilling and workover activity.
Through our tubular services division, we distribute premium tubing and casing.
Sales of tubular products and services depend upon the overall level of drilling
activity and the types of wells being drilled. Demand for tubular products is
positively impacted by increased drilling of deeper horizontal and offshore
wells that generally require premium tubulars and connectors, large diameter
pipe and longer and additional tubular and casing strings.

Energy and oilfield service activities are highly cyclical depending upon
crude oil and natural gas pricing, among other things. Beginning in late 1996
and continuing through the early part of 1998, stabilization of oil and gas
prices led to increases in drilling activity as well as the refurbishment and
new construction of drilling rigs. In the second half of 1998, crude oil prices
declined substantially and reached levels below $11 per barrel in early 1999.
With this decline in pricing, many of our customers substantially reduced their
capital spending and related activities. This industry downturn continued
through most of 1999. The price of crude oil and natural gas increased over 1999
levels in 2000 and 2001 due to improved demand for oil, supply reductions by
OPEC member countries and reductions in natural gas storage levels. However,
crude oil and natural gas prices decreased significantly from levels reached in
early 2001 by the end of 2001. The economic slowdown experienced in the United
States and the rest of the world through 2002, moderate weather in the winter of
2001/2002 and the resultant increased inventories of oil and gas, especially in
the United States, contributed to those price declines. Our customers have
responded with decreased drilling activity and spending on exploration and
development. Recently, oil and gas prices have risen above prices in the
corresponding period in 2001; however, there has not been a significant response
in the rig count to date.

We have a diversified product and service offering which has exposure
throughout the oil and gas cycle. Demand for our tubular services and well site
services is highly correlated to movements in the rig count in the United
States. The table below sets forth a summary of North American rig activity, as
measured by Baker Hughes Incorporated, for the periods indicated.

The rig count in the United States and Canada, as measured by Baker Hughes
Incorporated, fell from 1,481 rigs in February 1998 to 559 rigs in April 1999.
The downturn in activity in 1998 and 1999 had a material adverse effect on
demand for our products and services, and the results of our operations
decreased significantly. Our business benefited from the improvement in crude
oil and natural gas pricing in 2000 and 2001 and the resulting increases in the
rig count in 2000 and the first half of 2001. The U.S. rig count reached 1,293
in July 2001 but declined

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thereafter, reaching 738 rigs on April 15, 2002, its lowest level since 1999.
The U.S. rig count increased since then and totaled 860 as of September 30,
2002.

We believe that our offshore products segment lagged the general market
recovery in 2000 and 2001 because its sales primarily relate to offshore
construction and production facility development which generally occur later in
the exploration and development cycle. Worldwide offshore construction and
development activity has improved currently as the industry increasingly pursues
deeper water drilling and development projects. Backlog in our offshore products
segment increased from $70.7 million at September 30, 2001 to $104.0 million at
September 30, 2002. We expect approximately 56% of our backlog as of September
30, 2002 to be completed by December 31, 2002.

Management believes that fundamental oil and gas supply and demand factors
will lead to increased drilling activity in North America over time. However,
there can be no assurance that these expectations will be realized. Although the
diversified nature of our businesses has moderated the impact of North American
drilling activity declines, we are expecting a 12-15% revenue decline in 2002
compared to pro forma 2001 levels based upon our forecast of energy prices and
drilling activity levels.

The Combination

Prior to the Offering in February 2001, SCF-III, L.P. owned majority
interests in Oil States, HWC and PTI, and SCF-IV, L.P. owned a majority interest
in Sooner. L. E. Simmons & Associates, Incorporated is the ultimate general
partner of SCF-III, L.P. and SCF-IV, L.P. L.E. Simmons, the chairman of our
board of directors, is the sole shareholder of L.E. Simmons & Associates,
Incorporated. Concurrently with the closing of our initial public offering, the
Combination closed and HWC, PTI and Sooner merged with wholly owned subsidiaries
of Oil States. As a result, HWC, Sooner and PTI became our wholly owned
subsidiaries.

The financial results of Oil States, HWC and PTI have been combined for the
three years in the period ended December 31, 2000 as well as the beginning of
calendar 2001 until February 14, 2001 using reorganization accounting, which
yields results similar to the pooling of interests method. The combined results
of Oil States, HWC and PTI form the basis for the discussion of our results of
operations for those periods. The operations of Oil States, HWC and PTI
represent two of our business segments, offshore products and well site
services. Concurrently with the closing of our initial public offering on
February 14, 2001, Oil States acquired Sooner, and the acquisition was accounted
for using the purchase method of accounting. The pro forma financial statements
for the nine months ended September 30, 2001 reflect the acquisition of Sooner
effective as of January 1, 2001. Following the acquisition of Sooner, we
reported under three business segments.

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RESULTS OF OPERATIONS (IN MILLIONS, EXCEPT MARGIN PERCENTAGES)

THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues. Revenues decreased $18.9 million, or 10.9%, to $154.6 million
during the quarter ended September 30, 2002 compared to revenues of $173.5
million during the quarter ended September 30, 2001. Tubular Services revenues
decreased $31.5 million, or 36.5%, during the period as a result of reduced
drilling activity in the U.S. Well Site Services revenues declined $11.5
million, or 20.6%, while Offshore Products revenues increased $24.1 million, or
76.8%, during the same period. Well Site Services revenues declined compared to
the prior year primarily due to lower drilling and workover activity in North
America. Offshore Products revenues increased as a result of greater activity
supporting offshore production facility construction primarily in deepwater.

Cost of Sales. Cost of sales decreased by $18.6 million, or 13.2%, to $121.8
million in the three months ended September 30, 2002 compared to $140.4 million
in the three month period ended September 30, 2001. Decreased Tubular Services
activity was the principal reason for the reduction in cost of sales during the
period. Tubular Services cost of sales decreased from $81.5 million in the third
quarter of 2001 to $51.3 million in the third quarter of 2002, a decrease of
$30.2 million, or 37.1%.

Gross Margin. Our gross margins, which we calculate before a deduction for
depreciation expense, decreased $.3 million, or .9%, from $33.1 million in the
three months ended September 30, 2001 to $32.8 million in the three months ended
September 30, 2002. Well Site Services gross margins decreased $7.3 million, or
34.6%, to $13.8 million in the quarter. Within our Well Site Services segment,
our hydraulic workover, shallow drilling and specialty rental tool businesses'
gross margins declined $1.7 million, or 44.1%, $1.4 million, or 37.9%, and $1.1
million, or 22.5%, respectively, as a result of lower utilization and pricing
for our workover, drilling and rental tool assets. Also in Well Site Services,
our workforce accommodations, catering and logistics services and modular
building

20

construction services gross margins decreased by $3.1 million, or
36.8%, in the three months ended September 30, 2002 compared to the three months
ended September 30, 2001 because a greater mix of revenues was generated from
our lower-margin catering and modular building construction activities and
because of lower U.S. Gulf of Mexico rental revenues. Offshore Products gross
margins increased $7.9 million, or 104%, from $7.6 million in the three months
ended September 30, 2001 to $15.5 million in the three months ended September
30, 2002 primarily due to increased revenues, a favorable sales mix of our
higher-margin connector products, improved margins related to the fabrication
and repair of rig and vessel equipment and increased cost absorption at our
facilities. Tubular Services gross margins declined to $3.5 million, or 6.4% of
Tubular Services revenues in the three months ended September 30, 2002 compared
to $4.8 million, or 5.6% of Tubular Services revenues, in the three months ended
September 30, 2001 as a result of decreased drilling activity which decreased
demand for our Tubular Services products and services. Tubular Services gross
margin percentage improved in the 2002 period because of lower average inventory
costs.

Selling, General and Administrative Expenses. During the three months ended
September 30, 2002, selling, general and administrative expenses (SG&A) totaled
$12.7 million compared to SG&A of $13.0 million for the three months ended
September 30, 2001. The decrease of $0.3 million, or 2.3%, was due to cost
containment measures taken in light of lower activity levels in 2002.

Depreciation and Amortization. Depreciation expense increased $0.6 million
in the third quarter 2002 compared to the third quarter 2001 due primarily to
capital expenditures made in our Well Site Services segment during 2001 and to
recent acquisitions completed during the third quarter 2002. Amortization
expense decreased from $1.8 million in the third quarter 2001 to $.1 million in
the third quarter 2002 due to the adoption of a new accounting standard that
discontinued goodwill amortization. See Note 2 to our Consolidated and Combined
Financial Statements included in this Form 10-Q.

Operating Income. Our operating income represents revenues less (i) cost of
sales, (ii) SG&A and (iii) depreciation and amortization expense plus other
operating income (expense). Our operating income increased $.9 million, or 6.8%,
to $14.1 million for the three months ended September 30, 2002 from $13.2
million in the three month period ended September 30, 2001. Well Site Services
operating income decreased from $11.3 million during the period to $4.6 million
for the quarter ended September 30, 2002. Offshore Products operating income
increased from $2.1 million during the three months ended September 30, 2001 to
$9.4 million for the three months ended September 30, 2002. Tubular Services
operating income was $1.5 million for the three months ended September 30, 2002
compared to operating income of $2.3 million during 2001. The accounting change
affecting goodwill amortization for our company impacted "Corporate/Other"
operating income and contributed to the operating loss reduction in this segment
of $1.1 million.

Interest Expense. Interest expense decreased $1.0 million, or 47.6%, to $1.1
million for the quarter ended September 30, 2002 compared to $2.1 million for
the quarter ended September 30, 2001. Decreased interest expense is attributable
to lower debt levels throughout most of 2002 and lower interest rates.

Income Tax Expense. Income tax expense totaled $3.0 million, or 22.6% of
pretax income, during the quarter ended September 30, 2002 compared with $1.0
million, or 8.5% of pretax income, during the quarter ended September 30, 2001.
Decreased amounts of net operating loss carryforwards available to offset
currently taxable income has resulted in a higher estimated annual effective tax
rate for the year 2002 compared to 2001.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO PRO FORMA NINE MONTHS ENDED
SEPTEMBER 30, 2001

Revenues. Revenues decreased $84.3 million, or 15.6%, to $456.0 million
during the nine months ended September 30, 2002 compared to revenues of $540.3
million during the nine months ended September 30, 2001. Tubular Services
revenues decreased $106.0 million, or 39.9%, in the nine months ended September
30, 2002 compared to pro forma revenues in the nine months ended September 30,
2001 as a result of reduced drilling activity in the U.S. Well Site Services
revenues declined $19.7 million, or 10.9%, while Offshore Products revenues
increased $41.4 million, or 44.4%, during the same period. Well Site Services
revenues declined compared to the prior period primarily due to lower drilling
and workover activity in North America. Offshore Products revenues increased as
a result of greater activity supporting offshore production facility
construction primarily in deepwater.

21

Cost of Sales. Cost of sales decreased by $71.7 million, or 16.5%, to $363.6
million in the nine months ended September 30, 2002 compared to pro forma cost
of sales of $435.3 million in the nine month period ended September 30, 2001.
Decreased Tubular Services activity was the principal reason for the decrease in
cost of sales during the period. Tubular Services cost of sales decreased from
$248.4 million in the first nine months of 2001 to $150.8 million in the first
nine months of 2002, a decrease of $97.6 million, or 39.3%.

Gross Margin. Our gross margins, which we calculate before a deduction for
depreciation expense, decreased $12.6 million, or 12.0%, from $105.0 million in
the nine months ended September 30, 2001 to $92.4 million in the nine months
ended September 30, 2002. Well Site Services gross margins decreased $19.4
million, or 29.1%, to $47.3 million in the nine months ended September 30, 2002
compared to $66.7 million in the nine months ended September 30, 2001. Within
our Well Site Services segment, our hydraulic workover, shallow drilling and
specialty rental tool businesses' gross margins declined $3.3 million, or 33%,
$4.2 million, or 47.2%, and $2.9 million, or 20.1%, respectively, as a result of
lower utilization and pricing for our workover, drilling and rental tool assets.
Also in Well Site Services, our workforce accommodations, catering and logistics
services and modular building construction services gross margins decreased by
$9.0 million, or 26.8%, because a greater mix of revenues was generated from our
lower-margin catering and modular building construction activities and because
of lower U.S. Gulf of Mexico rental revenues. Offshore Products gross margins
increased $14.4 million, or 65.8%, from $21.9 million in the nine months ended
September 30, 2001 to $36.3 million in the nine months ended September 30, 2002
primarily due to increased revenues, a favorable sales mix of our higher-margin
connector products, improved margins related to the fabrication and repair of
rig and vessel equipment and increased cost absorption at our facilities.
Tubular Services gross margins declined to $8.8 million, or 5.5% of Tubular
Services revenues in the nine months ended September 30, 2002 compared to $17.2
million, or 6.5% of Tubular Services pro forma revenues, in the nine months
ended September 30, 2001 as a result of decreased drilling activity which
decreased demand for our Tubular products and services.

Selling, General and Administrative Expenses. During the nine months ended
September 30, 2002, SG&A totaled $36.9 million compared to pro forma SG&A of
$39.5 million for the nine months ended September 30, 2001. The decrease of $2.6
million, or 6.6%, was due to cost containment measures taken in light of lower
activity levels in 2002, partially offset by the related severance costs
associated with certain lay-offs made in the first quarter.

Depreciation and Amortization. Depreciation expense increased $1.4 million
in the first nine months of 2002 compared to the first nine months of 2001 due
primarily to capital expenditures made in our Well Site Services segment during
2001 and 2002. Amortization expense decreased from $5.9 million in the first
nine months of 2001 to $0.2 million in the first nine months of 2002 due to the
adoption of a new accounting standard that discontinued goodwill amortization.
See Note 2 to our Consolidated and Combined Financial Statements included in
this Form 10-Q.

Operating Income. Our operating income represents revenues less (i) cost of
sales, (ii) SG&A and (iii) depreciation and amortization expense plus other
operating income (expense). Our operating income decreased $5.8 million, or
13.0%, to $38.7 million for the nine months ended September 30, 2002 from $44.5
million in the nine month period ended September 30, 2001. Well Site Services
operating income decreased from $37.3 million to $20.5 million during the period
while Offshore Products operating income increased from $4.7 million to $19.5
million. Tubular Services operating income was $2.6 million for the nine months
ended September 30, 2002 compared to $9.5 million during 2001, a decrease of
$6.9 million, or 72.6%. The accounting change affecting goodwill amortization
for our company impacted "Corporate/Other" operating income and contributed to
the operating loss reduction in this segment of $3.1 million.

Interest Expense. Interest expense decreased $4.4 million, or 58.0%, to $3.2
million for the nine months ended September 30, 2002 compared to $7.6 million
for the nine months ended September 30, 2001. Decreased interest expense is
attributable to lower debt levels throughout most of 2002 and lower interest
rates.

Income Tax Expense. Income tax expense totaled $8.1 million, or 22.2% of
pretax income, in the nine months ended September 30, 2002 compared with $1.6
million, or 4.2% of pretax income, in the nine months ended September 30, 2001.
Decreased amounts of net operating loss carryforwards available to offset
currently taxable income has resulted in a higher estimated annual effective tax
rate for the year 2002 compared to 2001.

22

CONSOLIDATED AND COMBINED RESULTS OF OPERATIONS

Prior to the Sooner acquisition in February 2001, we reported under two
business segments, Offshore Products and Well Sites Services. Information for
these two segments, which represent the combined results of Oil States, HWC and
PTI using reorganization accounting, is presented in our financial statements
included elsewhere in this Form 10-Q and in the discussion included in "Nine
Months Ended September 30, 2002 Compared to Pro Forma Nine Months ended
September 30, 2001" above. Subsequent to the Combination, we reported under the
three business segments discussed above.

We believe that the pro forma results of operations discussed above reflect
the components of our current business operations and capital structure and
provide the most appropriate basis for comparison of our results of operations
for the indicated periods.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund capital expenditures, such as
expanding and upgrading our manufacturing facilities and equipment, increasing
our rental tool and workover assets, increasing our accommodation units and
funding new product development, and to fund general working capital needs. In
addition, capital is needed to fund strategic business acquisitions. Our primary
sources of funds have been cash flow from operations, proceeds from borrowings
under our bank facilities and proceeds from our initial public offering.

Cash was provided by operations during the nine months ended September 30,
2002 and 2001 in the amounts of $61.9 million and $29.2 million, respectively.
Cash provided by operations in 2002 was generated by our net income and lower
working capital invested, primarily in our Tubular Services segment. During the
nine months ended September 30, 2001, there were significant investments in
working capital made as a result of increased activity in our Well Site Services
segment.

Cash was used by investing activities in the amount of $80.2 million during

the nine months ended September 30, 2002 primarily as a result of acquisitions,
net of cash acquired, which totaled $64.9 million and capital expenditures
totaling $16.3 million. We completed five acquisitions in the third quarter of
2002 for total consideration of approximately $71.0 million, including debt
incurred or assumed. Substantially all of the consideration paid in these
acquisitions was cash financed under our existing bank credit facility.

Capital expenditures totaled $16.3 million and $21.5 million during the nine
months ended September 30, 2002 and 2001, respectively. Capital expenditures
during both of these periods consisted principally of purchases of assets for
our well site services businesses. We currently expect to spend a total of
approximately $28.3 million during 2002, excluding acquisitions, to upgrade our
equipment and facilities and expand our product and service offerings. We expect
to fund these capital expenditures with internally generated funds.

Net cash of $23.3 million was provided by financing activities during the
nine months ended September 30, 2002, primarily as a result of borrowings under
our bank credit facility to fund acquisitions.

As of September 30, 2002, we had $95.8 million outstanding under our bank
credit facility and an additional $7.7 million of outstanding letters of credit,
leaving $46.5 million available to be drawn under the facility. In addition, we
have another floating rate bank credit facility in the UK that had a balance of
$1.3 million at September 30, 2002. Our total debt represented 22% of our total
capitalization at September 30, 2002.

We believe that cash from operations and available borrowings under our
credit facility will be sufficient to meet our liquidity needs for the
foreseeable future. If our plans or assumptions change or are inaccurate, or we
make additional acquisitions, we may need to raise additional capital. However,
there is no assurance that we will be able to raise additional funds or be able
to raise such funds on favorable terms.

23

TAX MATTERS

For the year ended December 31, 2001, we had deferred tax assets, net of
deferred tax liabilities, of approximately $19.7 million for federal income tax
purposes before application of valuation allowances. Our primary deferred tax
assets are net operating loss carry forwards, or NOLs, which total approximately
$93.7 million. A valuation allowance is currently provided against the majority
of our NOLs. The NOLs expire over a period through 2020. Our NOLs are currently
limited under Section 382 of the Internal Revenue Code due to a change of
control that occurred during 1995. However, in 2002, approximately $40 million
of NOLs are available for use currently if sufficient income is generated.

Our 2001 effective tax rate approximated 4%. This low effective tax rate was
due to the partial utilization of net operating losses which benefited the
consolidated group after the Combination. We currently estimate our 2002
effective tax rate will be approximately 22%.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations", and No.
142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001 (the Statements). Under the new rules,
goodwill and intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.

We have applied the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the Statements is expected to result in an
increase in net income of approximately $8.0 million ($.16 per diluted share)
per year. During the first quarter of 2002, we performed the first of the
required impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002. We have completed our evaluation of goodwill and indefinite
lived intangible assets, and there was no impairment of assets recorded.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
"Accounting for Asset Retirement Obligations." This Statement is effective for
fiscal years beginning after June 15, 2002, and we expect to adopt the Statement
effective January 1, 2003. It is expected that this Statement will have an
immaterial effect on our consolidated financial statements.

In August 2001 the Financial Accounting Standards Board issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." We were
required to adopt this Statement effective January 1, 2002 and it did not have
an impact on our consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk. We have long-term debt and revolving lines of credit
subject to the risk of loss associated with movements in interest rates.

As of September 30, 2002, we had floating rate obligations totaling
approximately $97 million for amounts borrowed under our revolving lines of
credit. These floating-rate obligations expose us to the risk of increased
interest expense in the event of increases in short-term interest rates. If the
floating interest rate were to increase by 1% from September 30, 2002 levels,
our interest expense would increase by a total of approximately $1.0 million
annually based upon borrowing levels at September 30, 2002.

Foreign Currency Exchange Rate Risk. Our operations are conducted in various
countries around the world in a number of different currencies. As such, our
earnings are subject to change due to movements in foreign currency exchange
rates when transactions are denominated in currencies other than the U.S.
dollar, which is our functional currency. In order to mitigate the effects of
exchange rate risks, we generally pay a portion of our expenses in local
currencies and a substantial portion of our contracts provide for collections
from customers in U.S. dollars. We had no interest rate hedges at September 30,
2002. We had two

24

foreign currency exchange contracts as of September 30, 2002 which have not had
a material impact on our results of operations.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 day period prior to the filing date of this Quarterly Report
on Form 10-Q, we carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-14(c) of the
Securities Exchange Act of 1934). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in ensuring that material information is
accumulated and communicated to management, and made known to our Chief
Executive Officer and Chief Financial Officer, on a timely basis to allow
disclosure as required in this Quarterly Report on Form 10-Q. There have been no
significant changes in our internal controls or in other factors which could
significantly affect internal controls subsequent to the date we carried out our
evaluation.

25

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are a party to various pending or threatened claims, lawsuits and
administrative proceedings seeking damages or other remedies concerning our
commercial operations, products, employees and other matters, including claims
relating to matters occurring prior to our acquisition of businesses and also
relating to businesses we have sold. In certain cases, we are entitled to
indemnification from the sellers of businesses and in other cases, we have
indemnified the buyers of businesses from us. Although we can give no assurance
about the outcome of these or any other pending legal and administrative
proceedings and the effect such outcomes may have on us, we believe that any
ultimate liability resulting from the outcome of such proceedings, to the extent
not otherwise provided for or covered by insurance, will not have a material
adverse effect on our consolidated financial position, results of operations or
liquidity.

We are aware that certain energy service companies that have in the past
used asbestos in connection with the manufacture of equipment or otherwise in
the operation of their business have become the subject of increased asbestos
related litigation. Certain of our subsidiaries are currently named as
defendants in two single plaintiff cases seeking damages, including punitive
damages, alleging that they have responsibility for the individuals developing
mesothelioma, asbestosis, lung cancer or other lung diseases as a result of
exposure to asbestos. Although these are the only cases of which management is
aware that are pending or threatened against us or our subsidiaries involving
allegations relating to asbestos exposure, additional asbestos related claims
may be made. Based on management's preliminary investigation, management does
not believe that these cases or future claims relating to asbestos exposure will
have a material adverse effect on our consolidated financial position, results
of operations, or liquidity.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5. OTHER INFORMATION

The certifications by our Chief Executive Officer and Chief Financial
Officer required by Section 906 of the Sarbanes-Oxley Act of 2002 have been
provided to the Securities and Exchange Commission accompanying this Quarterly
Report on Form 10-Q.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

INDEX OF EXHIBITS

EXHIBIT NO. DESCRIPTION
----------- -----------

3.1 -- Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000, as filed with the Commission on March 30, 2001).

3.2 -- Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, as filed with the
Commission on March 30, 2001).

26

3.3 -- Certificate of Designations of Special Preferred Voting
Stock of Oil States International, Inc. (incorporated by
reference to Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, as filed
with the Commission on March 30, 2001).

4.1 -- Form of common stock certificate (incorporated by
reference to Exhibit 4.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

4.2 -- Amended and Restated Registration Rights Agreement
(incorporated by reference to Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000, as filed with the Commission on March 30, 2001).

10.1 -- Combination Agreement dated as of July 31, 2000 by and
among Oil States International, Inc., HWC Energy Services,
Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger
Sub-Sooner, Inc. and PTI Group Inc. (incorporated by
reference to Exhibit 10.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

10.2 -- Plan of Arrangement of PTI Group Inc. (incorporated by
reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2000, as
filed with the Commission on March 30, 2001).

10.3 -- Support Agreement between Oil States International, Inc.
and PTI Holdco (incorporated by reference to Exhibit 10.3
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, as filed with the Commission on
March 30, 2001).

10.4 -- Voting and Exchange Trust Agreement by and among Oil
States International, Inc., PTI Holdco and Montreal Trust
Company of Canada (incorporated by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, as filed with the Commission
on March 30, 2001).

10.5** -- 2001 Equity Participation Plan (incorporated by reference
to Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 2000, as filed with
the Commission on March 30, 2001).

10.6** -- Form of Deferred Compensation Plan (incorporated by
reference to Exhibit 10.6 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

10.7** -- Annual Incentive Compensation Plan (incorporated by
reference to Exhibit 10.7 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2000, as
filed with the Commission on March 30, 2001).

10.8** -- Executive Agreement between Oil States International, Inc.
and Douglas E. Swanson (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, as filed with the
Commission on March 30, 2001).

10.9** -- Executive Agreement between Oil States International, Inc.
and Cindy B. Taylor (incorporated by reference to Exhibit
10.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, as filed with the Commission
on March 30, 2001).

10.10** -- Form of Executive Agreement between Oil States
International, Inc. and other Named Executive Officers
(Messrs. Hughes and Chaddick) (incorporated by reference
to Exhibit 10.10 of Oil States' Registration Statement No.
333-43400 on Form S-1).

10.11** -- Form of Change of Control Severance Plan for Selected
Members of Management (incorporated by reference to
Exhibit 10.11 of Oil States' Registration Statement No.
333-43400 on Form S-1).

27

10.12 -- Credit Agreement among Oil States International, Inc.,
PTI Group Inc., the Lenders named therein, Credit Suisse
First Boston, Credit Suisse First Boston Canada, Hibernia
National Bank and Royal Bank of Canada (incorporated by
reference to Exhibit 10.12 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

10.13A** -- Restricted Stock Agreement, dated February 8, 2001,
between Oil States International, Inc. and Douglas E.
Swanson.

10.13B** -- Restricted Stock Agreement, dated February 22, 2001,
between Oil States International, Inc. and Douglas E.
Swanson.

10.14** -- Form of Indemnification Agreement (incorporated by
reference to Exhibit 10.14 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

10.15** -- Form of Executive Agreement between Oil States
International, Inc. And named Executive Officer (Mr.
Slator) (Incorporated by Reference to Exhibit 10.16 to
the Company's Annual Report On Form 10K for the year
ended December 31, 2001, as filed With the Commission on
March 4, 2002.

10.16** -- Form of Executive Agreement between Oil States
International, Inc. and named executive officer (Mr.
Trahan). (Incorporated by reference to Exhibit 10.16 to
the Company's quarterly report on Form 10-Q for the three
months ended March 31, 2002, as filed with the Commission
on May 15, 2002).

10.17**,* -- Douglas E. Swanson contingent option award dated as of
February 11, 2002

16.1 -- Letter Regarding Change in Certifying Accountant
(incorporated by reference to Exhibit 16.1 of Oil States'
Registration Statement No. 333-43400 on Form S-1).

21.1 -- List of subsidiaries of the Company (incorporated by
reference to Exhibit 21.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

- ---------
* Filed herewith
** Management contracts or compensatory plans or arrangements.

(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the period
covered by this report.

28

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

OIL STATES INTERNATIONAL, INC.

By: /s/ Cindy B. Taylor
------------------------------------------------
Name: Cindy B. Taylor
Title: Senior Vice President and
Chief Financial Officer (Authorized Officer
And Principal Financial Officer)

By: /s/ Robert W. Hampton
------------------------------------------------
Name: Robert W. Hampton
Title: Vice President - Finance and Accounting and
Secretary (Principal Accounting Officer)

CERTIFICATIONS

I, Douglas E. Swanson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Oil States
International, Inc. ("Registrant");

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;

4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:

a. designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date");

c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;

5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's Board of Directors (or persons
performing the equivalent functions):

a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and
report financial data and have identified for the
Registrant's auditors any material weaknesses in internal
controls; and

b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and

6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to the
significant deficiencies and material weaknesses.

Date: November 13, 2002 /s/ Douglas E. Swanson
-------------------------------------
Douglas E. Swanson
President and Chief Executive Officer

30

I, Cindy Taylor, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Oil States
International, Inc. ("Registrant");

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;

4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:

a. designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b. evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date");

c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;

5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's Board of Directors (or persons
performing the equivalent functions):

d. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and
report financial data and have identified for the
Registrant's auditors any material weaknesses in internal
controls; and

e. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and

6. The Registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to the
significant deficiencies and material weaknesses.

Date: November 13, 2002 /s/ Cindy B. Taylor
----------------------------------
Cindy B. Taylor
Senior Vice President and Chief
Financial Officer

31

INDEX TO EXHIBITS

EXHIBIT NO. DESCRIPTION
----------- -----------

3.1 -- Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000, as filed with the Commission on March 30, 2001).

3.2 -- Amended and Restated Bylaws (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, as filed with the
Commission on March 30, 2001).

3.3 -- Certificate of Designations of Special Preferred Voting
Stock of Oil States International, Inc. (incorporated by
reference to Exhibit 3.3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 2000, as filed
with the Commission on March 30, 2001).

4.1 -- Form of common stock certificate (incorporated by
reference to Exhibit 4.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

4.2 -- Amended and Restated Registration Rights Agreement
(incorporated by reference to Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2000, as filed with the Commission on March 30, 2001).

10.1 -- Combination Agreement dated as of July 31, 2000 by and
among Oil States International, Inc., HWC Energy Services,
Inc., Merger Sub-HWC, Inc., Sooner Inc., Merger
Sub-Sooner, Inc. and PTI Group Inc. (incorporated by
reference to Exhibit 10.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

10.2 -- Plan of Arrangement of PTI Group Inc. (incorporated by
reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2000, as
filed with the Commission on March 30, 2001).

10.3 -- Support Agreement between Oil States International, Inc.
and PTI Holdco (incorporated by reference to Exhibit 10.3
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2000, as filed with the Commission on
March 30, 2001).

10.4 -- Voting and Exchange Trust Agreement by and among Oil
States International, Inc., PTI Holdco and Montreal Trust
Company of Canada (incorporated by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, as filed with the Commission
on March 30, 2001).

10.5** -- 2001 Equity Participation Plan (incorporated by reference
to Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 2000, as filed with
the Commission on March 30, 2001).

10.6** -- Form of Deferred Compensation Plan (incorporated by
reference to Exhibit 10.6 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

10.7** -- Annual Incentive Compensation Plan (incorporated by
reference to Exhibit 10.7 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2000, as
filed with the Commission on March 30, 2001).

10.8** -- Executive Agreement between Oil States International, Inc.
and Douglas E. Swanson (incorporated by reference to
Exhibit 10.8 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2000, as filed with the
Commission on March 30, 2001).

10.9** -- Executive Agreement between Oil States International, Inc.
and Cindy B. Taylor (incorporated by reference to Exhibit
10.9 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000, as filed with the Commission
on March 30, 2001).

10.10** -- Form of Executive Agreement between Oil States
International, Inc. and other Named Executive Officers
(Messrs. Hughes and Chaddick) (incorporated by reference
to Exhibit 10.10 of Oil States' Registration Statement No.
333-43400 on Form S-1).

10.11** -- Form of Change of Control Severance Plan for Selected
Members of Management (incorporated by reference to
Exhibit 10.11 of Oil States' Registration Statement No.
333-43400 on Form S-1).

10.12 -- Credit Agreement among Oil States International, Inc.,
PTI Group Inc., the Lenders named therein, Credit Suisse
First Boston, Credit Suisse First Boston Canada, Hibernia
National Bank and Royal Bank of Canada (incorporated by
reference to Exhibit 10.12 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

10.13A** -- Restricted Stock Agreement, dated February 8, 2001,
between Oil States International, Inc. and Douglas E.
Swanson.

10.13B** -- Restricted Stock Agreement, dated February 22, 2001,
between Oil States International, Inc. and Douglas E.
Swanson.

10.14** -- Form of Indemnification Agreement (incorporated by
reference to Exhibit 10.14 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

10.15** -- Form of Executive Agreement between Oil States
International, Inc. And named Executive Officer (Mr.
Slator) (Incorporated by Reference to Exhibit 10.16 to
the Company's Annual Report On Form 10K for the year
ended December 31, 2001, as filed With the Commission on
March 4, 2002.

10.16** -- Form of Executive Agreement between Oil States
International, Inc. and named executive officer (Mr.
Trahan). (Incorporated by reference to Exhibit 10.16 to
the Company's quarterly report on Form 10-Q for the three
months ended March 31, 2002, as filed with the Commission
on May 15, 2002).

10.17**,* -- Douglas E. Swanson contingent option award

16.1 -- Letter Regarding Change in Certifying Accountant
(incorporated by reference to Exhibit 16.1 of Oil States'
Registration Statement No. 333-43400 on Form S-1).

21.1 -- List of subsidiaries of the Company (incorporated by
reference to Exhibit 21.1 of Oil States' Registration
Statement No. 333-43400 on Form S-1).

- ---------
* Filed herewith
** Management contracts or compensatory plans or arrangements.