WILLBROS GROUP INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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, 2003

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 1-11953

WILLBROS GROUP, INC.
(Exact name of registrant as specified in its charter)

REPUBLIC OF PANAMA 98-0160660
(Jurisdiction of incorporation) (I.R.S. Employer Identification Number)

PLAZA 2000 BUILDING
50TH STREET, 8TH FLOOR
APARTADO 0816-01098
PANAMA 5, REPUBLIC OF PANAMA
TELEPHONE NO.: (507) 213-0947
(Address, including zip code, and telephone number, including
area code, of principal executive offices of registrant)

NOT APPLICABLE
- --------------------------------------------------------------------------------
(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 [ ]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The number of shares of the registrant's Common Stock, $.05 par value,
outstanding as of November 10, 2003 was 20,697,673.

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

See accompanying notes to condensed consolidated financial statements.

2

WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

3

WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

4

WILLBROS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

5

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

1. BASIS OF PRESENTATION

The condensed consolidated financial statements of Willbros Group, Inc.
and its majority-owned subsidiaries (the "Company") reflect all adjustments
which are, in the opinion of management, necessary to present fairly the
financial position, results of operations and cash flows of the Company as of
September 30, 2003 and for all interim periods presented. All adjustments are
normal recurring accruals.

Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the Company's December 31, 2002
audited consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002. The
results of operations for the period ended September 30, 2003 are not
necessarily indicative of the operating results to be achieved for the full
year.

Certain reclassifications have been made to 2002 balances in order to
conform to 2003 presentation.

2. STOCK-BASED COMPENSATION

The Company measures stock-based employee compensation using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations, and provides pro-forma disclosure as required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." As such, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
grant over the exercise price.

If compensation cost for the Company's stock options plans had been
determined using the fair value method in SFAS No. 123, the Company's net income
(loss) and income (loss) per share would have been as shown in the pro forma
amounts below:

6

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

2. STOCK-BASED COMPENSATION (CONTINUED)

In March 2002, certain officers of the Company borrowed a total of
$1,307 under the Employee Stock Purchase Program, which permits selected
executives and officers to borrow from the Company up to 100% of the funds
required to exercise vested stock options. The loans are full recourse,
noninterest-bearing for a period of up to five years and are collateralized by
the related stock. The difference of $553 between the discounted value of the
loans and the fair market value of the stock on the date of exercise was
recorded as compensation expense. The loan receivable is presented as a
reduction of stockholders' equity.

3. NEW ACCOUNTING PRINCIPLES

In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143
requires that an asset retirement cost should be capitalized as part of the cost
of the related long-lived asset and subsequently allocated to expense using a
systematic and rational method. The Company adopted SFAS No. 143 effective
January 1, 2003. The adoption of this statement did not have a material impact
on the Company's financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS No. 4,
44, and 64, Amendment of SFAS No. 13 and Technical Corrections." SFAS No. 145
provides guidance for income statement classification of gains and losses on
extinguishment of debt and accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback transactions. The Company
adopted SFAS No. 145 in January 2003. The adoption of this statement did not
have a material impact on the Company's financial position or results of
operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses accounting for
restructuring and similar costs. SFAS No. 146 supersedes previous accounting
guidance, principally Emerging Issues Task Force Issue No. 94-3. The Company
adopted the provisions of SFAS No. 146 for restructuring activities initiated
after December 31, 2002. SFAS No. 146 requires that the liability for costs
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue 94-3, a liability for an exit cost is recognized at the
date of the Company's commitment to an exit plan. SFAS No. 146 also establishes
that the liability should initially be measured and recorded at fair value.
Accordingly, SFAS No. 146 may affect the timing of recognizing future
restructuring costs as well as the amounts recognized.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34." This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. The Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and have not had a material effect on the Company's financial
statements.

7

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

3. NEW ACCOUNTING PRINCIPLES (CONTINUED)

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an Amendment of FASB
Statement No. 123." This Statement amends FASB Statement No. 123, "Accounting
for Stock-Based Compensation," to provide alternative methods of transition for
a voluntary change to the fair value method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of Statement No. 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosure modifications
are required for fiscal years and interim periods ending after December 15, 2002
and are included in these notes to the consolidated financial statements. As
described in Note 2, the Company measures stock-based employee compensation
using the intrinsic value method rather than the fair value method.

4. FOREIGN EXCHANGE RISK

The Company attempts to negotiate contracts which provide for payment
in U.S. dollars, but it may be required to take all or a portion of payment
under a contract in another currency. To mitigate non-U.S. currency exchange
risk, the Company seeks to match anticipated non-U.S. currency revenue with
expenses in the same currency whenever possible. To the extent it is unable to
match non-U.S. currency revenue with expenses in the same currency, the Company
may use forward contracts, options or other common hedging techniques in the
same non-U.S. currencies. The Company had no derivative financial instruments to
hedge currency risk at September 30, 2003, or December 31, 2002.

5. INCOME TAXES

During the quarter ended September 30, 2003, the Company recorded a
$986 net income tax benefit on loss before income taxes of $9,732, resulting in
an effective income tax rate of 10% for the period. This effective rate differs
from the United States statutory federal income tax rate of 34% primarily as a
result of income taxes in certain countries being based on deemed profit rather
than taxable income and the fact that losses in one country cannot be used to
offset taxable income in another country.

6. DEBT

On June 14, 2002, the Company completed a $125,000 credit agreement
with a syndicated bank group. The facility may be used for standby and
commercial letters of credit, borrowings or a combination thereof. Borrowings
are limited to the lesser of 40% of the borrowing base or $50,000 and are
payable at termination on June 14, 2005. Interest is payable quarterly at a Base
Rate plus a margin ranging from 0.75% to 2.00% or a Eurodollar Rate plus a
margin ranging from 1.75% to 3.00%. A commitment fee on the unused portion of
the credit agreement is payable quarterly ranging from 0.50% to 0.75%. The
credit agreement is collateralized by substantially all of the Company's assets,
including stock of the principal subsidiaries, restricts the payment of cash
dividends and requires the Company to maintain certain financial ratios. The
borrowing base is calculated using the lesser of (1) varying percentages of
cash, accounts receivable, accrued revenue, contract cost and recognized income
not yet billed, property, plant and equipment, and spare parts, or (2) a
multiple of EBITDA. Debt issue costs of $3,071, net of accumulated amortization
of $2,048, associated with the new credit agreement are included in other assets
at September 30, 2003 and are being amortized over 24 months ending June 2004.
Borrowings under the agreement were $8,000 at September 30, 2003.

8

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

6. DEBT (CONTINUED)

For the quarter ended September 30, 2003, due to our operating results
and EBITDA levels, we obtained a Consent and Waiver Agreement (the "Agreement")
from our syndicated bank group to waive non-compliance with certain financial
covenants to our credit agreement and to agree to a method for calculating the
borrowing base that eliminates the multiple of EBITDA calculation through the
filing of the February 2004 borrowing base certificate. The Agreement provides
waivers for certain quarterly financial covenants through December 31, 2003. As
a result of the Agreement, cash borrowings under the credit agreement are
limited to $20,000 and the total borrowing base available for cash borrowing and
the issuance of standby letters of credit may not exceed $75,000. Borrowings
under the credit facility are classified as long-term due to their stated
maturity date and the future expected compliance with the covenants of the
credit facility. Effective March 31, 2004, the calculation of all covenants and
the borrowing base revert to the original calculations contained in our June 14,
2002 credit agreement. Additionally, at that date the availability returns to
$125,000 and cash borrowings are limited to 40% of the borrowing base or
$50,000. In the future, an acceleration of our debt under the credit facility
could occur if the credit agreement's covenants are not met and we are not
successful in obtaining waivers of compliance at that time.

7. EARNINGS PER SHARE

Basic and diluted earnings (loss) per common share for the three month
and nine month periods ended September 30, 2003 and 2002 are computed as
follows:

At September 30, 2003, there were 698,141 potential common shares
(228,686 at September 30, 2002) excluded from the computation of diluted
earnings per share because of their anti-dilutive effect.

9

WILLBROS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)

8. CONTINGENCIES, COMMITMENTS AND OTHER CIRCUMSTANCES

The Company provides construction, engineering and specialty services
to the oil, gas and power industries. The Company's principal markets are
currently Africa, the Middle East, South America and North America. Operations
outside the United States may be subject to certain risks which ordinarily would
not be expected to exist in the United States, including foreign currency
restrictions, extreme exchange rate fluctuations, expropriation of assets, civil
uprisings and riots, war and government instability. Management is not presently
aware of any material events of the type described in the countries in which it
operates that have not been provided for in the accompanying consolidated
financial statements. The Company insures substantially all of its equipment,
subject to 20 percent co-insurance, in countries outside North America against
certain political risks and terrorism.

The Company has the usual liability of contractors for the completion
of contracts and the warranty of its work. Where work is performed through a
joint venture, the Company also has possible liability for the contract
completion and warranty responsibilities of its joint venturers. Management is
not aware of any material exposure related thereto which has not been provided
for in the accompanying consolidated financial statements.

During the course of performing its contractual duties, the Company may
incur additional contract costs due to delays and changes outside the control of
the Company. The Company recognizes these additional costs as they are incurred.
In such cases, the Company has filed claims, or intends to file claims, with
these customers seeking additional contract revenue amounts. Management believes
that the contracts provide a legal and/or contractual basis for the claims;
however, due to the inherent uncertainties associated with the resolution of
such claims the Company has not recognized any of these amounts as income. The
Company will continue to seek amicable resolutions with the customers and pursue
recovery of amounts claimed. Any amounts related to claims will be recorded in
the periods in which the claims are agreed to by the customers.

In connection with the Company's 10% interest in a joint venture in
Venezuela, the Company issued a corporate guarantee equal to 10% of the joint
venture's outstanding borrowings with two banks. The guarantee reduces as
borrowings are repaid, and expires in March 2004. The commitment as of September
30, 2003 totals approximately $2,900, which is the maximum amount of future
payments the Company could be required to make.

From time to time the Company enters into commercial commitments,
usually in the form of commercial and standby letters of credit, insurance bonds
and financial guarantees. Contracts with the Company's customers may require the
Company to provide letters of credit or insurance bonds with regard to the
Company's performance of contracted services. In such cases, the commitments can
be called upon in the event of failure to perform contracted services. Likewise,
contracts may allow the Company to issue letters of credit or insurance bonds in
lieu of contract retention provisions, in which the client withholds a
percentage of the contract value until project completion or expiration of a
warranty period. Retention commitments can be called upon in the event of
warranty or project completion issues, as prescribed in the contracts. At
September 30, 2003, the Company had $44,794 of letters of credit and insurance
bonds outstanding, representing the maximum amount of future payments the
Company could be required to make. The Company had no liability recorded as of
September 30, 2003, related to these commitments.

In connection with the Company's 50% interest in a joint venture
related to the Chad-Cameroon Pipeline Project, the Company is joint and
severally liable for the performance of the Company's joint venturer. In the
event the joint venturer is unable to fulfill its responsibilities associated
with the project, the Company would be required to fulfill its duties. In doing
so, the Company would recognize the income or losses, if any, associated with
the Company fulfilling the duties of its joint venturer. At September 30, 2003,
the project is approximately 99% complete and is estimated to produce contract
income. However, there is no limitation to the maximum future potential payments
the Company could be required to make in the event

10

the project were to result in contract losses. The Company has no liability
recorded as of September 30, 2003 related to this commitment.

The Company is a party to a number of legal proceedings. Management
believes that the nature and number of these proceedings are typical for a firm
of similar size engaged in a similar type of business and that none of these
proceedings is material to the Company's financial position.

11

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

The following discussion should be read in conjunction with the
unaudited consolidated financial statements for the periods ended September 30,
2003 and 2002, included in Item 1 of this report, and the consolidated financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations, including Critical Accounting Policies, included in our
Annual Report on Form 10-K for the year ended December 31, 2002.

GENERAL

We derive our revenue from providing construction, engineering and
specialty services to the oil, gas and power industries and government entities
worldwide. We obtain contracts for our work primarily by competitive bidding or
through negotiations with long-standing clients or prospective clients. Bidding
activity, backlog and revenue resulting from the award of contracts to us may
vary significantly from period to period. Contracts have durations from a few
weeks to several months or in some cases more than a year.

A number of factors relating to our business affect the recognition of
contract revenue. Revenue from fixed-price construction and engineering
contracts is recognized on the percentage-of-completion method. Under this
method, estimated contract income and resulting revenue is generally accrued
based on costs incurred to date as a percentage of total estimated costs, taking
into consideration physical completion. Total estimated costs, and thus contract
income, are impacted by changes in productivity, scheduling, and the unit cost
of labor, subcontractors, materials and equipment. Additionally, external
factors such as weather, client needs, client delays in providing approvals,
labor availability, governmental regulation and politics, may affect the
progress of a project's completion and thus the timing of revenue recognition.
Generally, we do not recognize income on a fixed-price contract until the
contract is approximately 5% to 10% complete, depending upon the nature of the
contract. Costs which are considered to be reimbursable are excluded from the
percentage-of-completion calculation. Accrued revenue pertaining to
reimbursables is limited to the cost of the reimbursables. If a current estimate
of total contract cost indicates a loss on a contract, the projected loss is
recognized in full when determined. Revenue from change orders, extra work and
variations in the scope of work is recognized when agreement is reached with
clients as to the scope of work and when it is probable that the cost of such
work will be recovered in a change in contract price. Profit on change orders,
extra work and variations in the scope of work is recognized when realization is
assured beyond a reasonable doubt. Revenue from claims is recognized when
agreement is reached with clients as to the value of the claims, which in some
instances may not occur until after completion of work under the contract.
Revenue from unit-price contracts is recognized as earned. Management believes
that our operating results should be evaluated over a relatively long time
horizon during which major contracts in progress are completed and change
orders, extra work, variations in the scope of work and cost recoveries and
other claims are negotiated and realized.

All U.S. government contracts and many of our other contracts provide
for termination of the contract for the convenience of the client. In the event
a contract would be terminated at the convenience of the client prior to
completion, we will typically be compensated for progress up to the time of
termination and any termination costs. In addition, many contracts are subject
to certain completion schedule requirements with liquidated damages in the event
schedules are not met as the result of circumstances within our control.

In our report on Form 10-K for the year ended December 31, 2002, we
identified and disclosed three critical accounting policies: (a) Revenue
Recognition: Percentage-of-Completion; (b) Income Taxes; and (c) Joint Venture
Accounting. There have been no changes to our critical accounting policies
during the nine month period ended September 30, 2003.

In September 2000, through a joint venture led by a subsidiary of ours,
we were awarded a significant project, the scope of which includes the
engineering, procurement and construction ("EPC") of a 665-mile (1,070
kilometer), 30-inch crude oil pipeline from the Doba Fields in Chad to an export
terminal on the coast of Cameroon in Africa (the "Chad-Cameroon Pipeline
Project"). Pipeline construction activities were completed and demobilization of
project equipment and personnel was nearly complete by September 30, 2003.

12

During 2001, our engineering group executed an alliance agreement with
Explorer Pipeline Company to provide project management, engineering,
procurement and construction services for their Mainline Expansion Project in
Texas, Oklahoma, Missouri, Illinois, and Indiana (the "Explorer Pipeline
Project"). This project includes construction of 12 grassroots pump stations,
modifications at 13 existing pump stations, the addition of 500,000 barrels of
storage at the Wood River, Illinois terminal and modifications at two other
terminals. The project was substantially complete as of September 30, 2003.

On May 14, 2002, we completed a public offering of our common shares at
$17.75 per share; 4,356,750 shares were sold by us. The underwriters exercised
options to purchase all shares available for over-allotments. We received $71.9
million in proceeds, after the underwriting discount and offering costs, which
were used to repay indebtedness under the prior credit agreement and for working
capital and general corporate purposes.

In June 2002, we completed a $125.0 million credit agreement with a
syndicated bank group. The terms of the new facility are discussed in the
Liquidity and Capital Resources section of Item 2 of this Form 10-Q.

On October 23, 2002, we completed the acquisition of four related
companies (collectively, "Mt. West Group"). Mt. West Group provides design-build
services, including engineering, procurement and construction services to the
energy industry, primarily in the western United States, and contributed $28.5
million of revenue during the nine months ended September 30, 2003.

The government of Venezuela, under Presidente Hugo Chavez, has
experienced extreme civil unrest culminating in a national labor strike
beginning in December 2002. We suspended all work in Venezuela in December 2002
and resumed work in February 2003 when the impact of the strike had moderated.
Although business and commercial activity has not yet returned to pre-strike
levels, it has continued to improve.

We use EBITDA (earnings before net interest, income taxes, depreciation
and amortization) as part of our overall assessment of financial performance by
comparing EBITDA between different accounting periods. We believe that EBITDA is
used by the financial community as a method of measuring performance and of
evaluating the market value of companies considered to be in businesses similar
to ours. EBITDA was $4.7 million for the nine month period ended September 30,
2003, a decrease of $41.8 million (90%) compared to the nine month period ended
September 30, 2002. It should be noted that EBITDA is not a calculation based on
generally accepted accounting principles and should not be considered as an
alternative to net earnings or operating income as an indication of our
financial performance.

A reconciliation of EBITDA to net income (loss) for the nine months
ended September 30, 2003 and 2002 is as follows:

We recognize anticipated contract revenue as backlog when the award of
a contract is assured, generally upon the execution of a definitive agreement or
contract. Anticipated revenue from post-contract award processes, including
change orders, extra work, variations in the scope of work and the effect of
escalation or currency fluctuation formulas, is not added to backlog until
realization is assured. New contract awards totaled $147.1 million during the
quarter ended September 30, 2003. Additions to backlog during the period were as
follows: construction, $109.2 million; engineering, $2.9 million; and specialty
services, $35.0 million.

13

Backlog decreases by type of service as a result of services performed during
the period were as follows: construction, $63.5 million; engineering, $5.7
million; and specialty services, $22.3 million. Backlog at September 30, 2003,
was up $55.6 million (34%) from June 30, 2003 to $220.0 million and consisted of
the following: (a) construction, $126.7 million, up $45.7 million; (b)
engineering, $5.3 million, down $2.8 million; and (c) specialty services, $88.0
million, up $12.7 million. Construction backlog consists primarily of
construction projects in Iraq, Venezuela, Oman, the United States and offshore
West Africa. Engineering backlog consists of engineering projects in the United
States. Specialty services backlog is primarily attributable to a ten-year
contracted gas processing fee at a natural gas processing plant that we own in
Opal, Wyoming, service contracts in Canada and the United States and a 16-year
water injection contract awarded in 1998 to a consortium in which the Company
has a 10 percent interest in Venezuela. We anticipate that approximately $80.0
million of the backlog at September 30, 2003, will be worked off during the
remainder of 2003.

RESULTS OF OPERATIONS

Our contract revenue and contract costs are primarily related to the
timing and location of development projects in the oil, gas and power industries
worldwide. Contract revenue and cost variations by country from year to year are
the result of (a) entering and exiting work countries; (b) the execution of new
contract awards; (c) the completion of contracts; and (d) the overall level of
activity in our services.

Our ability to be successful in obtaining and executing contracts can
be affected by the relative strength or weakness of the U.S. dollar compared to
the currencies of our competitors, our clients and our work locations. We do not
believe that our revenue or results of operations were adversely affected in
this regard during the nine month periods ended September 30, 2003 or 2002.

Three Months Ended September 30, 2003, Compared to Three Months Ended
September 30, 2002

Contract revenue decreased $60.2 million (40%) to $91.5 million due to
(a) decreased engineering revenue of $39.3 million (87%) due primarily to a
number of significant engineer, procure, and construct projects in progress in
the United States during the third quarter of 2002 that were not duplicated
during the same period in 2003; (b) decreased construction revenue of $29.7
million (32%) due primarily to lower levels of construction on the Chad-Cameroon
Pipeline Project and a construction project in Bolivia; partially offset by (c)
an increase of $8.8 million (65%) in specialty services revenue principally from
operations in Nigeria. Revenue in the United States decreased $31.5 million
(54%) due to a decrease in engineering, procurement and construction services,
partially offset by $7.3 million of revenue from Mt. West Group. Work that began
in 2002 on a project in Bolivia resulted in $19.6 million (98%) less revenue in
that country in 2003 as that project was substantially completed during the
second quarter of 2003. Chad-Cameroon revenue decreased $29.9 million (86%)
resulting from lower levels of construction work as the pipeline project in that
area neared completion. Revenue in Venezuela increased $4.6 million primarily as
a result of a large project in that area that commenced during the third quarter
of 2002. Revenue in the Dominican Republic decreased $6.8 million (100%) due to
completion of a project there during 2002. Revenue in Oman increased $11.2
million (243%) as a result of a pipeline project in 2003. Revenue in Canada
increased $3.9 million (156%) due to increased specialty services work. Revenue
from offshore West Africa increased $6.7 million (68%) as a result of increased
vessel utilization. The combined revenue in all other areas increased $1.2
million.

Contract costs decreased $42.8 million (33%) to $86.7 million due to
decreases of $32.5 million (82%) in engineering cost and $17.9 million (23%) in
construction services cost, net of an increase of $7.6 million (66%) in
specialty services cost. Variations in contract cost by country were closely
related to the variations in contract revenue.

Depreciation and amortization decreased $0.4 million (8%) to $5.5
million. The decrease is the result primarily of the elimination of depreciation
expense on a significant amount of light trucks that were used on the Bolivia
project. These vehicles were being depreciated over a very short period of time
and were sold locally upon completion of the project.

General and administrative expense increased $1.0 million (13%) to $8.8
million. The Mt. West Group, which was acquired in the fourth quarter of 2002,
accounted for $1.2 million of total general and administrative

14

expense during the period. Excluding the Mt. West Group, general and
administrative expense declined $0.2 million primarily as a result of lower
staff compensation and administrative services associated with the reduction in
revenue. As a percent of revenue, general and administrative expense increased
from 5% in 2002 to nearly 10% in 2003.

Operating income decreased $18.0 million from $8.5 million in 2002 to a
loss of $9.5 million in 2003. Operating income decreased largely as a result of
(a) lower revenue resulting from less activity in the United States, on the
project in Bolivia and on the Chad-Cameroon Pipeline Project; (b) lower margins
on work performed in the United States due to market conditions and the impact
of weather in the Southeast; (c) political and social unrest outside of North
America; and (d) weather and storms offshore West Africa.

Interest expense decreased $0.1 million from the prior year. In May
2002, we completed a common stock offering in which we received $71.9 million in
net proceeds. Borrowings under our prior credit agreement were paid in full.
Interest expense in 2003 results primarily from amortization of debt issue cost,
net of interest income.

Other income (expense) improved $0.4 million to $0.2 million of income.
The change is due primarily to losses on currency translations in 2002 related
to devaluation of the Venezuelan bolivar.

The provision for income taxes decreased $0.9 million to a tax benefit
of $1.0 million. In 2003, we recognized a $3.2 million income tax benefit in the
United States resulting from a $9.1 million pretax loss caused by the decline in
revenue and margins. This tax benefit was partially offset by the tax provisions
in countries where we have taxable income or where income taxes are based upon a
deemed profit rather than taxable income. The provision for income taxes is
impacted by the fact that losses in one country cannot be used to offset taxable
income in another country.

Nine Months Ended September 30, 2003, Compared to Nine Months Ended
September 30, 2002

Contract revenue decreased $134.0 million (30%) to $313.3 million due
to (a) decreased engineering revenue of $110.6 million (78%) due to a decrease
of engineering and procurement services in the United States; (b) $41.6 million
(16%) of decreased construction revenue due primarily to lower levels of
construction on the Chad-Cameroon Pipeline Project and a project in Bolivia as
both projects neared completion in 2003, partially offset by revenue from Mt.
West Group, which was acquired in October 2002; partially offset by (c) an
increase of $18.2 million (41%) in specialty services revenue principally from
revenue generated by projects in Nigeria and Canada. Revenue in the United
States decreased $84.0 million (45%) due to a decrease in engineering,
procurement and construction services, partially offset by $28.8 million of
revenue from Mt. West Group. Chad-Cameroon revenue decreased $48.5 million (49%)
resulting from lower levels of construction work as the pipeline project in that
area neared completion. Work that began in 2002 on a project in Bolivia resulted
in $33.7 million less revenue in that country in 2003 as that project neared
completion at the end of the second quarter of 2003. Revenue in Venezuela
increased $12.9 million primarily as a result of a larger project in that area
that commenced during the third quarter of 2002. Revenue in the Dominican
Republic decreased $9.8 million (98%) due to completion of a project there
during 2002. Revenue in Oman increased $13.9 million (109%) as a result of a
pipeline project in 2003. Revenue in Canada increased $6.4 million (67%) due to
increased specialty services work. Nigeria revenue increased $7.7 million due to
increased specialty services work. The combined revenue in all other areas
increased $1.1 million.

Contract costs decreased $91.3 million (24%) to $282.0 million due to
decreases of $84.2 million (69%) in engineering services cost and $20.2 million
(9%) in construction services cost, offset by an increase of $13.1 million (36%)
in specialty services cost. Variations in contract cost by country were closely
related to the variations in contract revenue.

Depreciation and amortization decreased $0.5 million (3%). The decrease
is the result primarily of the elimination of depreciation expense on a
significant amount of light trucks that were used on the Bolivia project. These
vehicles were being depreciated over a very short period of time and were sold
locally upon completion of the project.

General and administrative expense increased $1.0 million (4%) to $26.5
million. The Mt. West Group accounted for $2.9 million of total general and
administrative expense during the period. Excluding the Mt. West Group, general
and administrative expense declined $1.9 million primarily as a result of lower
staff

15

compensation and administrative services associated with the reduction in
revenue. As a percent of revenue, general and administrative expense increased
from 6% in 2002 to 8% in 2003.

Operating income decreased $43.2 million (138%) from $31.3 million in
2002 to a $11.9 million operating loss in 2003. Operating income decreased
largely as a result of (a) lower revenue resulting from less activity in the
United States, on the Chad-Cameroon Pipeline Project and on a pipeline project
in Bolivia; (b) lower margins on work performed in the United States due to
tight market conditions and unforeseen costs incurred on projects partially due
to weather; (c) additional costs incurred and project delays due to political
and social unrest outside of North America; and (d) lower margins on work
performed in Nigeria and West Africa due to weather and storms offshore. These
decreases were partially offset by increased operating income in Venezuela due
to the $12.9 million increase in revenue.

Interest expense decreased $0.1 million (6%) from the prior year. In
May 2002, we completed a common stock offering in which we received $71.9
million in net proceeds. Borrowings under our prior credit agreement were paid
in full. Interest expense in 2003 results primarily from amortization of debt
issue cost, net of interest income.

Other expense decreased $1.8 million to $0.1 million due primarily to
the loss on retirement of older assets in Venezuela and Oman in 2002 and losses
on currency translations in 2002 related to devaluation of the Venezuelan
bolivar.

The provision for income taxes decreased $11.9 million (151%) to a tax
benefit of $4.0 million. In 2003 we recognized a $6.9 million income tax benefit
in the United States resulting from a $19.5 million pretax loss caused by the
decline in revenue and margins. This tax benefit was partially offset by the tax
provisions in countries where we have taxable income or where income taxes are
based upon a deemed profit rather than taxable income. The provision for income
taxes is impacted by the fact that losses in one country cannot be used to
offset taxable income in another country.

LIQUIDITY AND CAPITAL RESOURCES

Our primary requirements for capital are to acquire, upgrade and
maintain our equipment, provide working capital for current projects, finance
the mobilization of employees and equipment to new projects, establish a
presence in countries where we perceive growth opportunities and finance the
possible acquisition of new businesses and equity investments. Historically, we
have met our capital requirements primarily from operating cash flows and from
borrowings under our credit facility.

Cash and cash equivalents decreased $29.3 million (59%) to $20.2
million at September 30, 2003, from $49.5 million at December 31, 2002. The
decrease was due to net cash outflows of $30.9 million used for investing
activities (the purchase of equipment and spare parts, and construction of the
Opal gas processing plant) and $6.9 million used for operations, net of $8.9
million of cash from financing activities.

On May 14, 2002, we completed a public offering of our common shares at
$17.75 per share; 4,356,750 shares were sold by us and 985,000 shares were sold
by certain selling stockholders. We received $71.9 million in net proceeds,
which were used to repay indebtedness under our prior credit facility and for
working capital and general corporate purposes.

On June 14, 2002, we completed a $125.0 million credit agreement with a
syndicated bank group, replacing the existing facility that was due to expire in
February 2003. The facility may be used for standby and commercial letters of
credit, borrowings or a combination thereof. Borrowings are limited to the
lesser of 40% of the borrowing base or $50.0 million and are payable at
termination on June 14, 2005. Interest is payable quarterly at a Base Rate plus
a margin ranging from 0.75% to 2.00% or a Eurodollar Rate plus a margin ranging
from 1.75% to 3.00%. A commitment fee on the unused portion of the credit
agreement is payable quarterly ranging from 0.50% to 0.75%. The credit agreement
is collateralized by substantially all of our assets, including stock of our
principal subsidiaries, restricts the payment of cash dividends and requires us
to maintain certain financial ratios. The borrowing base is calculated using the
lesser of (1) varying percentages of cash, accounts receivable, accrued revenue,
contract cost and recognized income not yet billed, property, plant and
equipment, and spare parts, or (2) a multiple of EBITDA. Debt issue costs of
$3.1

16

million, net of accumulated amortization of $2.0 million, associated with the
new credit agreement are included in other assets at September 30, 2003 and are
being amortized over a 24 month period.

For the quarter ended September 30, 2003, due to our operating results
and EBITDA levels, we obtained a Consent and Waiver Agreement (the "Agreement")
from our syndicated bank group to waive non-compliance with certain financial
covenants to our credit agreement and to agree to a method for calculating the
borrowing base that eliminates the multiple of EBITDA calculation through the
filing of the February 2004 borrowing base certificate. The Agreement provides
waivers for certain quarterly financial covenants through December 31, 2003. As
a result of the Agreement, cash borrowings under the credit agreement are
limited to $20.0 million and the total borrowing base available for cash
borrowing and the issuance of standby letters of credit may not exceed $75.0
million. Borrowings under the credit facility are classified as long-term due to
their stated maturity date and the future expected compliance with the covenants
of the credit facility. Effective March 31, 2004, the calculation of all
covenants and the borrowing base revert to the original calculations contained
in our June 14, 2002 credit agreement. Additionally, at that date the
availability returns to $125.0 million and cash borrowings are limited to 40% of
the borrowing base or $50.0 million. In the future, an acceleration of our debt
under the credit facility could occur if the credit agreement's covenants are
not met and we are not successful in obtaining waivers of compliance at that
time.

At September 30, 2003, $8.0 million was borrowed under the credit
agreement. We had $44.8 million in letters of credit outstanding leaving a total
of $33.4 million available for the issuance of letters of credit and borrowings.
Based on the Agreement discussed above, total cash borrowings may not exceed
$20.0 million.

At September 30, 2003, we have various other obligations totaling $1.4
million, including notes payable generally related to equipment financing and
revolving credit facilities. All are at market rates, are collateralized by
certain vehicles, equipment or real estate and mature over various terms through
2004.

We have unsecured credit facilities with banks in certain countries
outside the United States. Borrowings under these lines, in the form of
short-term notes and overdrafts, are made at competitive local interest rates.
Generally, each line is available only for borrowings related to operations in a
specific country. Credit available under these facilities is approximately $4.8
million at September 30, 2003 and $6.3 million at September 30, 2002.

We do not anticipate any significant collection problems with our
customers, including those in countries that may be experiencing economic and/or
currency difficulties. Since our customers generally are major oil companies and
government entities, and the terms for billing and collecting for work performed
are generally established by contracts, we historically have a very low
incidence of collectability problems.

We believe that cash flows from operations and borrowing capacity under
existing credit facilities, as modified under the Agreement, will be sufficient
to finance working capital and capital expenditures for ongoing operations
through September 30, 2004. We estimate capital expenditures for equipment and
spare parts to be approximately $32.5 to $37.5 million in 2003. We believe that
while there are numerous factors that could and will have an impact on our cash
flow, both positively and negatively, there are not one or two events that,
should they occur, could not be funded from our operations or borrowing
capacity. For a list of events which could cause actual results to differ from
our expectations and a discussion of risk factors that could impact cash flow,
please refer to the section entitled "Political and Economic Risks; Operational
Risks" contained in our report on Form 10-K, as amended, for the year ended
December 31, 2002.

NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51." ("FIN 46"). The interpretation states that certain variable interest
entities may be required to be consolidated into the results of operations and
financial position of the entity that is the primary beneficiary. FIN 46 applies
immediately to variable interest entities created after January 31, 2003 and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after
December 15, 2003, the revised

17

effective date, to variable entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. FIN 46 applies to public
enterprises as of the beginning of the applicable interim or annual period. We
do not expect the adoption of FIN 46 to have a material impact on our financial
position or results of operations.

FORWARD-LOOKING STATEMENTS

This Form 10-Q includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, included in this Form 10-Q which address
activities, events or developments which we expect or anticipate will or may
occur in the future, including such things as future capital expenditures
(including the amount and nature thereof), oil, gas and power prices, demand for
our services, the amount and nature of future investments by governments,
expansion and other development trends of the oil, gas and power industries,
business strategy, expansion and growth of our business and operations, and
other such matters are forward-looking statements. These statements are based on
certain assumptions and analyses we made in light of our experience and our
perception of historical trends, current conditions and expected future
developments as well as other factors we believe are appropriate in the
circumstances. However, whether actual results and developments will conform to
our expectations and predictions is subject to a number of risks and
uncertainties, which could cause actual results to differ materially from our
expectations including:

o Curtailment of capital expenditures in the oil, gas, and power
industries

o Political circumstances impeding the progress of work

o The timely award of one or more projects

o Cancellation of projects

o Inclement weather

o Project cost overruns and unforeseen schedule delays

o Failing to realize cost recoveries from projects completed or
in progress within a reasonable period after completion of the
relevant project

o Identifying and acquiring suitable acquisition targets on
reasonable terms

o Obtaining adequate financing

o The demand for energy diminishing

o Downturns in general economic, market or business conditions
in our target markets

o Changes in the effective tax rate in countries where the work
is performed

o Changes in laws or regulations

o The risk factors listed in this Form 10-Q and listed in our
filings with the Securities and Exchange Commission from time
to time

o Other factors, most of which are beyond our control.

Consequently, all of the forward-looking statements made in this Form
10-Q are qualified by these cautionary statements and there can be no assurance
that the actual results or developments we anticipated will be realized or, even
if substantially realized, that they will have the expected consequences to or
effects on our business or operations. We assume no obligation to update
publicly any such forward-looking statements, whether as a result of new
information, future events or otherwise.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our primary market risk is our exposure to changes in non-U.S. currency
exchange rates. We attempt to negotiate contracts which provide for payment in
U.S. dollars, but we may be required to take all or a portion of payment under a
contract in another currency. To mitigate non-U.S. currency exchange risk, we
seek to match anticipated non-U.S. currency revenue with expenses in the same
currency whenever possible. To the extent we are unable to match non-U.S.
currency revenue with expenses in the same currency, we may use forward
contracts, options or other common hedging techniques in the same non-U.S.
currencies. We had no forward contracts or options at September 30, 2003.

18

The carrying amounts for cash and cash equivalents, accounts
receivable, notes payable and accounts payable and accrued liabilities shown in
the consolidated balance sheets approximate fair value at September 30, 2003 due
to the generally short maturities of these items. We invest primarily in
short-term dollar denominated bank deposits, and at September 30, 2003 did not
have any investment in instruments with a maturity of more than a few days or in
any equity securities. We have the ability and expect to hold our investments to
maturity.

Our exposure to market risk for changes in interest rates relates
primarily to our long-term debt. At September 30, 2003, $8.9 million of our
indebtedness was subject to variable interest rates. The weighted average
effective interest rate on the variable rate debt for the nine months ended
September 30, 2003 was 5.1% The detrimental effect of a hypothetical 100 basis
point increase in interest rates would be to reduce income (loss) before income
taxes by less than $0.1 million for the nine-month period. At September 30,
2003, our fixed rate debt approximated fair value based upon discounted future
cash flows using current market prices.

ITEM 4. CONTROLS AND PROCEDURES

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 of September 30, 2003. Based upon that
evaluation, our Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective. Disclosure controls
and procedures are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in Securities and Exchange Commission rules and forms. During the period covered
by this Form 10-Q, there have been no changes in our internal controls over
financial reporting that have materially affected or are reasonably likely to
materially affect our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable

Item 2. Changes in Securities and Use of Proceeds

Not applicable

Item 3. Defaults upon Senior Securities

Not applicable

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

Not applicable

Item 5. Other Information

Not applicable

19

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits:

The following documents are included as exhibits to this Form
10-Q. Those exhibits below incorporated by reference herein are indicated as
such by the information supplied in the parenthetical thereafter. If no
parenthetical appears after an exhibit, such exhibit is filed or furnished
herewith.

10.1 Willbros Group, Inc. Severance Plan (as amended and
restated effective September 25, 2003).

31.1 Certification pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification pursuant to Rule 13a-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

32.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

(b) Reports on Form 8-K:

There were no current reports on Form 8-K filed during the
three months ended September 30, 2003.

20

SIGNATURE

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.

WILLBROS GROUP, INC.

Date: November 13, 2003 By: /s/ Warren L. Williams
-----------------------------------------
Warren L. Williams
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)

21

EXHIBIT INDEX

The following documents are included as exhibits to this Form 10-Q.
Those exhibits below incorporated by reference herein are indicated as such by
the information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed or furnished herewith.