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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, 2004

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: 001-31346

W-H ENERGY SERVICES, INC.
(Exact name of registrant as specified in its charter)



TEXAS 76-0281502
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)


10370 RICHMOND AVENUE
SUITE 990
HOUSTON, TEXAS 77042
(Address of principal executive offices and zip code)

(713) 974-9071
(Registrant's telephone number, including area code)

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, as amended 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 Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

As of November 1, 2004 there were outstanding 27,726,055 shares of common
stock, par value $0.0001 per share, of the registrant.

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W-H ENERGY SERVICES, INC.

INDEX



PAGE
----

PART I
FINANCIAL INFORMATION
Item 1. Financial Statements............................... 1
Consolidated Balance Sheets (unaudited) -- September
30, 2004 and December 31, 2003..................... 1
Consolidated Statements of Operations and
Comprehensive Income (unaudited) -- Three and nine
months ended September 30, 2004 and 2003........... 2
Consolidated Statements of Cash Flows
(unaudited) -- Nine months ended September 30, 2004
and 2003........................................... 3
Notes to Consolidated Financial Statements
(unaudited)........................................ 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk........................................ 15
Item 4. Controls and Procedures............................ 16

PART II
OTHER INFORMATION
Item 6. Exhibits .......................................... 17
Signatures.................................................. 18


i


PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

W-H ENERGY SERVICES, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)



SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------

ASSETS
Current Assets:
Cash and cash equivalents................................. $ 13,174 $ 11,878
Accounts receivable, net of allowance of $4,264 and
$4,465, respectively................................... 93,425 80,888
Inventories............................................... 45,803 37,384
Deferred income taxes..................................... 5,193 6,600
Prepaid expenses and other................................ 6,517 5,930
Assets held for sale...................................... 4,979 30,652
-------- --------
Total current assets................................... 169,091 173,332
Property and equipment, net................................. 225,245 201,176
Goodwill and other intangibles, net......................... 117,413 116,876
Other assets, net........................................... 7,574 9,941
-------- --------
Total assets........................................... $519,323 $501,325
======== ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accrued liabilities....................................... $ 33,927 $ 26,388
Accounts payable.......................................... 24,906 16,120
Current maturities of long-term debt...................... -- 10,763
Liabilities associated with assets held for sale.......... 1,510 5,511
-------- --------
Total current liabilities.............................. 60,343 58,782
Long-term debt, net of current maturities................... 169,000 166,962
Deferred income taxes....................................... 25,554 25,269
Other long-term obligations................................. 2,850 2,852
-------- --------
Total liabilities...................................... 257,747 253,865
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $0.01 par value, 10,000,000 shares
authorized, none issued and outstanding................ -- --
Common stock, $0.0001 par value, 100,000,000 shares
authorized, 27,618,679 and 27,400,878 shares issued and
outstanding, respectively.............................. 3 3
Additional paid-in capital................................ 215,023 211,683
Deferred compensation..................................... (1,007) --
Other comprehensive income................................ 6,633 6,667
Retained earnings......................................... 40,924 29,107
-------- --------
Total shareholders' equity............................. 261,576 247,460
-------- --------
Total liabilities and shareholders' equity............. $519,323 $501,325
======== ========


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

1


W-H ENERGY SERVICES, INC.

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



FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ----------- -----------

Revenues..................................... $ 115,453 $ 96,404 $ 331,431 $ 272,588
Costs and expenses:
Cost of revenues........................... 67,544 56,326 193,991 153,941
Selling, general and administrative........ 22,288 18,732 64,159 51,959
Research and development................... 3,871 2,828 10,214 8,396
Depreciation and amortization.............. 11,785 9,064 33,554 26,196
---------- ---------- ---------- ----------
Total costs and expenses................ 105,488 86,950 301,918 240,492
---------- ---------- ---------- ----------
Operating income........................ 9,965 9,454 29,513 32,096
Other (income) expense:
Interest expense, net...................... 1,619 2,023 9,188 5,784
Other (income) expense, net................ 21 18 (67) 35
---------- ---------- ---------- ----------
Income before income taxes.............. 8,325 7,413 20,392 26,277
Provision for income taxes................. 3,205 2,883 7,851 10,234
---------- ---------- ---------- ----------
Income from continuing operations....... 5,120 4,530 12,541 16,043
Income (loss) from discontinued
operations, net of tax................ 135 149 (724) 264
---------- ---------- ---------- ----------
Net income.............................. $ 5,255 $ 4,679 $ 11,817 $ 16,307
========== ========== ========== ==========
Comprehensive income:
Net income................................. $ 5,255 $ 4,679 $ 11,817 $ 16,307
Foreign currency translation adjustment.... (20) 382 (34) 1,192
---------- ---------- ---------- ----------
Comprehensive income....................... $ 5,235 $ 5,061 $ 11,783 $ 17,499
========== ========== ========== ==========
Earnings per share:
Basic
From continuing operations.............. $ 0.19 $ 0.17 $ 0.46 $ 0.59
From discontinued operations............ -- -- (0.03) 0.01
---------- ---------- ---------- ----------
Total................................. $ 0.19 $ 0.17 $ 0.43 $ 0.60
========== ========== ========== ==========
Diluted
From continuing operations.............. $ 0.18 $ 0.16 $ 0.45 $ 0.57
From discontinued operations............ 0.01 0.01 (0.03) 0.01
---------- ---------- ---------- ----------
Total................................. $ 0.19 $ 0.17 $ 0.42 $ 0.58
========== ========== ========== ==========
Number of shares used in calculation of
earnings per share:
Basic...................................... 27,561,912 27,231,746 27,474,113 27,138,373
Diluted.................................... 28,321,330 28,025,390 28,146,237 27,909,487


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

2


W-H ENERGY SERVICES, INC.

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



FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
2004 2003
--------- --------

Cash Flows from Operating Activities:
Net income................................................ $ 11,817 $ 16,307
Adjustments to reconcile net income to cash provided by
operating activities -- Depreciation and
amortization........................................... 33,554 26,196
Gain on the sale of assets............................. (7,096) (5,736)
Deferred tax provision................................. 1,692 7,692
Amortization of deferred compensation.................. 311 303
Write-off of deferred financing costs.................. 3,123 --
Amortization of deferred financing costs............... 757 757
Tax benefit from employee stock option plan............ 1,002 699
Changes in operating assets and liabilities, excluding
effects of acquisitions and discontinued operations --
Increase in accounts receivable, net................. (12,575) (12,816)
(Increase) decrease in inventories................... (8,432) 460
Increase in prepaid expenses and other............... (590) (2,826)
Increase in other assets, net........................ (2,052) (2,006)
Increase in accounts payable and accrued
liabilities......................................... 16,314 768
--------- --------
Net cash provided by operating activities......... 37,825 29,798
--------- --------
Cash Flows from Investing Activities:
Additions to property and equipment....................... (60,666) (45,878)
Proceeds from sale of property and equipment.............. 12,336 9,464
Acquisition of business, net of cash acquired............. (2,354) --
--------- --------
Net cash used in investing activities............. (50,684) (36,414)
--------- --------
Cash Flows from Financing Activities:
Proceeds from the issuance of debt........................ 190,802 123,015
Payments on debt.......................................... (199,527) (97,956)
Proceeds from the exercise of stock options and stock
purchase warrants...................................... 1,020 481
--------- --------
Net cash (used in) provided by financing
activities...................................... (7,705) 25,540
--------- --------
Effect of exchange rate changes on cash..................... 188 1,597
Effect of discontinued operations on cash................... 21,672 (481)
Net increase in Cash and Cash Equivalents................... 1,296 20,040
Cash and Cash Equivalents, beginning of period.............. 11,878 9,098
--------- --------
Cash and Cash Equivalents, end of period.................... $ 13,174 $ 29,138
========= ========


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

3


W-H ENERGY SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BUSINESS ORGANIZATION

DESCRIPTION OF COMPANY

W-H Energy Services, Inc., a Texas corporation (together with its
subsidiaries, "W-H"), is a diversified oilfield service company that provides
products and services used primarily for the drilling, completion and production
of oil and natural gas wells. W-H has the following primary lines of business:
(i) drilling related products and services, which include logging-while-drilling
("LWD"), measurement-while-drilling ("MWD"), directional drilling ("DD"), rental
tools (including drill pipe), down-hole drilling motors and drilling fluids and
(ii) completion and workover related products and services, which include
cased-hole wireline logging and perforating, tubing conveyed perforating and
associated rental equipment, polymers and specialty chemicals, rental tools
(including tubing) and coiled tubing.

BASIS OF PRESENTATION

The unaudited Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and the instructions to Form 10-Q and Rule 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. For further information, refer to the
Consolidated Financial Statements and footnotes thereto included in W-H's Annual
Report on Form 10-K for the year ended December 31, 2003 filed with the
Securities and Exchange Commission. In the opinion of management, all necessary
adjustments (which include only normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for the
three and nine months ended September 30, 2004 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2004.

DISCONTINUED OPERATIONS

In March 2004, W-H committed to the divestiture of its maintenance and
safety related products and services segment. Accordingly, this segment has been
included in the Consolidated Statements of Operations and Comprehensive Income
as discontinued operations and in the Consolidated Balance Sheets as assets and
liabilities held for sale. On April 20, 2004, W-H completed the sale of Well
Safe, Inc., one of the two companies that comprised the maintenance and safety
related products and services segment, for cash consideration of $28.0 million.
Additionally, in June 2004, W-H wrote down the value of the remaining company
that made up its maintenance and safety segment based on independent indications
of market value received during the quarter. Summary financial results for this
segment are as follows:



THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------

Revenues...................................... $1,701 $7,950 $14,939 $23,245
Income (loss) before taxes.................... $ (80) $ 195 $(1,442) $ 238


RECLASSIFICATIONS

Certain prior period amounts have been reclassified to conform to the
current presentation.

ACCOUNTING POLICIES AND PROCEDURES

W-H has not added to or changed its accounting policies since December 31,
2003. For a description of these policies, refer to Note 2 of the consolidated
financials statements in W-H's Annual Report on Form 10-K for the year ended
December 31, 2003.

4


2. EARNINGS PER SHARE

Basic earnings per share excludes dilution and is computed by dividing net
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted earnings per share is computed
considering the dilutive effect of stock options and restricted shares. For the
three months ended September 30, 2004 and 2003, shares of 759,418 and 793,644,
respectively, resulting from the assumed exercise of outstanding options and
restricted shares, were added to the denominator because the inclusion of such
shares would be dilutive. For the nine months ended September 30, 2004 and 2003,
shares of 672,123 and 771,114, respectively, resulting from the assumed exercise
of outstanding options and restricted shares, were added to the denominator
because the inclusion of such shares would be dilutive. For the three months
ended September 30, 2004 and 2003, shares of 1,221,875 and 1,063,425,
respectively, were excluded from the computation of earnings per common share,
because the inclusion of such shares would be anti-dilutive. For the nine months
ended September 30, 2004 and 2003, shares of 1,753,000 and 1,170,925,
respectively, were excluded from the computation of earnings per common share,
because the inclusion of such shares would be anti-dilutive.

3. DEBT

CREDIT FACILITY

On June 30, 2004, W-H closed on a $237.5 million revolving credit facility
(the "Credit Facility") that matures on June 30, 2009. As of September 30, 2004,
W-H had an outstanding loan balance of $169.0 million and approximately $4.7
million in letters of credit issued under the Credit Facility leaving W-H with
available borrowing capacity of $63.8 million.

The Credit Facility bears interest, at W-H's election, at either a variable
rate equal to LIBOR, plus a margin ranging from 1.5% to 2.5% depending upon
W-H's leverage ratio, or an alternate base rate equal to the higher of (1) the
prime rate or (2) the federal funds rate plus 0.5%, plus a margin ranging from
0.5% to 1.5% depending upon W-H's leverage ratio. As of September 30, 2004, W-H
had elected to pay interest on its outstanding borrowings at LIBOR plus the then
applicable margin of 2.0%.

The Credit Facility is collateralized by a lien on substantially all of
W-H's property and assets, a pledge of all of the capital stock of W-H's
domestic subsidiaries and a pledge of not greater than 65% of the capital stock
of each of W-H's top tier foreign subsidiaries. In addition, the Credit Facility
is guaranteed by all of W-H's domestic subsidiaries. The Credit Facility
requires, among other things, that W-H maintain certain financial ratios,
including a leverage ratio and a debt service coverage ratio, and a specified
net worth. The Credit Facility further limits the amount of capital expenditures
W-H may make, the amount of debt W-H may incur outside of the Credit Facility,
the amount of future investments W-H may make, the ability of W-H to pay
dividends and the ability of W-H to engage in certain business combination
transactions.

As a result of the repayment of W-H's previous credit facility, W-H
wrote-off approximately $3.1 million in financing costs that had previously been
deferred. This write-off has been included in the Consolidated Statements of
Operations and Comprehensive Income as interest expense. Additionally, W-H
deferred financing costs associated with the Credit Facility of approximately
$1.5 million. These costs will be ratably amortized to interest expense over the
five year term of the Credit Facility.

5


4. STOCK OPTIONS

A summary of W-H's stock options as of September 30, 2004 and December 31,
2003 is as follows:



WEIGHTED AVERAGE
NUMBER OF EXERCISE PRICE
OPTIONS PER SHARE
--------- ----------------

Outstanding December 31, 2003............................. 3,633,458 $13.20
Granted................................................... 561,500 18.10
Exercised/exchanged....................................... (223,551) 4.62
Expired/canceled.......................................... (79,050) 20.38
---------
Outstanding September 30, 2004............................ 3,892,357 14.25
---------
Exercisable at September 30, 2004......................... 2,474,237 11.55
---------


The fair value of each option was estimated on the date of grant using the
Black-Scholes option valuation model. The following assumptions were used for
the historical option grants: risk-free interest rate of 4.12%; dividend rate of
zero; average expected life of 6.08 years and expected volatility of 51.43%. The
3,892,357 options outstanding as of September 30, 2004 have a weighted average
remaining contractual life of 7.2 years.

The Black-Scholes option valuation model and other existing models were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of and are highly sensitive to subjective assumptions,
including the expected stock price volatility. W-H's stock options have
characteristics significantly different from those of traded options and changes
in the subjective input assumptions can materially affect the fair value
estimate.

Had compensation expense for the stock options granted to employees and
directors been determined using the fair value method, net income and diluted
net income per share for the three and nine months ended September 30, 2004 and
2003 would have been reduced to the following pro forma amounts:



THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2004 2003 2004 2003
------- ------- ------- -------

Net income, as reported....................... $5,255 $4,679 $11,817 $16,307
Add: Total stock-based employee compensation
expense included in reported net income, net
of related tax effect....................... 124 62 191 186
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of
related tax effect.......................... (685) (691) (2,055) (2,072)
------ ------ ------- -------
Pro forma net income.......................... $4,694 $4,050 $ 9,953 $14,421
====== ====== ======= =======
Earnings per share:
As reported:
Basic.................................... $ 0.19 $ 0.17 $ 0.43 $ 0.60
Diluted.................................. $ 0.19 $ 0.17 $ 0.42 $ 0.58
Pro forma:
Basic.................................... $ 0.17 $ 0.15 $ 0.36 $ 0.53
Diluted.................................. $ 0.17 $ 0.14 $ 0.35 $ 0.52
Weighted-average fair value per share of
options granted............................. $19.83 $18.64 $ 18.10 $ 18.55
====== ====== ======= =======


6


5. EQUITY

On May 12, 2004, W-H's shareholders approved the grant of 75,000 shares of
restricted common stock to W-H's Chairman, President and Chief Executive
Officer. Deferred compensation of approximately $1.3 million generated by this
issuance has been recorded in shareholders' equity and is being amortized to
compensation expense under the provisions of Financial Accounting Standards
Board issued Interpretation No. 28, "Accounting for Stock Appreciation Rights
and Other Variable Stock Option or Award Plans -- an interpretation of APB
Opinions No. 15 and 25."

6. OPERATING SEGMENTS

Management has elected to aggregate W-H's business unit segments based on
the differences in each segment's customers, the products and services offered
and other economic characteristics. Based on these criteria, management has
identified the following reportable segments: (i) drilling related products and
services and (ii) completion and workover related products and services. The
accounting policies of the operating segments are the same as those described in
the summary of significant accounting policies.

DRILLING RELATED PRODUCTS AND SERVICES

The drilling related products and services segment provides products and
services used by oil and natural gas companies, drilling contractors and other
oilfield service companies for the drilling of oil and natural gas wells. These
products and services are used primarily throughout North America, Brazil and in
selected areas of the Eastern Hemisphere. This segment includes the following
business lines: (i) LWD; (ii) MWD; (iii) DD; (iv) down-hole drilling motors; (v)
rental tools (including drill pipe) and (vi) drilling fluids.

COMPLETION AND WORKOVER RELATED PRODUCTS AND SERVICES

The completion and workover related products and services segment provides
products and services primarily to customers onshore in the Gulf Coast region
and offshore in the Gulf of Mexico. These products and services include: (i)
cased-hole wireline logging and perforating, tubing conveyed perforating and
associated rental equipment; (ii) polymers and specialty chemicals; (iii) rental
tools (including tubing) and (iv) coiled tubing.

SUMMARY INFORMATION

W-H recognizes revenues, cost of revenues, selling, general and
administrative expense, research and development expense and depreciation and
amortization expense by segment. Interest expense and other income (expense) are
not monitored by segment. W-H also recognizes total assets and capital
expenditures by segment. Summarized information for W-H's reportable segments is
contained in the following tables (in thousands):

As of and for the three months ended September 30, 2004 (unaudited):



DRILLING COMPLETION CORPORATE TOTAL
-------- ---------- --------- --------

Revenues................................... $ 73,865 $ 41,588 $ -- $115,453
Operating income........................... 4,816 7,818 (2,669) 9,965
Depreciation and amortization.............. 7,559 4,153 73 11,785
Total assets, net of assets held for
sale..................................... 303,162 191,628 19,554 514,344
Capital expenditures....................... 16,475 7,850 109 24,434


7


As of and for the three months ended September 30, 2003 (unaudited):



DRILLING COMPLETION CORPORATE TOTAL
-------- ---------- --------- --------

Revenues................................... $ 65,803 $ 30,601 $ -- $ 96,404
Operating income........................... 7,093 4,934 (2,573) 9,454
Depreciation and amortization.............. 5,898 3,054 112 9,064
Total assets, net of assets held for
sale..................................... 257,074 171,116 30,642 458,832
Capital expenditures....................... 9,423 6,715 8 16,146


As of and for the nine months ended September 30, 2004 (unaudited):



DRILLING COMPLETION CORPORATE TOTAL
-------- ---------- --------- --------

Revenues................................... $214,758 $116,673 $ -- $331,431
Operating income........................... 14,787 22,452 (7,726) 29,513
Depreciation and amortization.............. 21,665 11,685 204 33,554
Total assets, net of assets held for
sale..................................... 303,162 191,628 19,554 514,344
Capital expenditures....................... 40,695 19,774 197 60,666


As of and for the nine months ended September 30, 2003 (unaudited):



DRILLING COMPLETION CORPORATE TOTAL
-------- ---------- --------- --------

Revenues................................... $177,026 $ 95,562 $ -- $272,588
Operating income........................... 19,248 19,858 (7,010) 32,096
Depreciation and amortization.............. 16,938 9,010 248 26,196
Total assets, net of assets held for
sale..................................... 257,074 171,116 30,642 458,832
Capital expenditures....................... 28,231 17,523 124 45,878


W-H operates in the United States, the North Sea and other geographic
regions. The following is summary information by geographic region (in
thousands) (unaudited):

REVENUES



FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- -------------------
2004 2003 2004 2003
--------- -------- -------- --------

United States............................... $106,293 $77,336 $295,035 $227,854
North Sea................................... 4,397 13,135 15,949 27,988
Other....................................... 4,763 5,933 20,447 16,746
-------- ------- -------- --------
Total..................................... $115,453 $96,404 $331,431 $272,588
======== ======= ======== ========


OPERATING INCOME



FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- --------------------
2004 2003 2004 2003
--------- -------- -------- --------

United States................................ $10,539 $6,973 $30,939 $27,114
North Sea.................................... (882) 1,802 (4,153) 2,442
Other........................................ 308 679 2,727 2,540
------- ------ ------- -------
Total...................................... $ 9,965 $9,454 $29,513 $32,096
======= ====== ======= =======


8


LONG-LIVED ASSETS



SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------

United States............................................... $322,643 $299,461
North Sea................................................... 15,623 18,262
Other....................................................... 11,966 10,270
-------- --------
Total..................................................... $350,232 $327,993
======== ========


9


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

FORWARD-LOOKING STATEMENTS

The following discussion and analysis may contain forward-looking
statements. The words "believe," "expect," "plan," "intend," "estimate,"
"project," "will," "could," "may," and similar expressions are intended to
identify forward-looking statements. Actual results may differ materially from
the results discussed in the forward-looking statements as a result of important
risk factors including, but not limited to, the current and expected future
prices of crude oil and natural gas, capital expenditures by customers, activity
levels in the oil and natural gas exploration and production industry, the
development and implementation of new technologies, weather conditions in
offshore markets, risks associated with the occurrence of personal injuries,
loss of life, damage or destruction of property, equipment or the environment
and suspension of operations, our ability to attract and retain skilled workers,
the loss of key members of management, competition in our industry, compliance
with and developments in environmental and other governmental regulations, loss
of use of certain technologies, the concentration of customers in the energy
industry, our ability to successfully integrate future acquisitions, political
and economic risks, an impairment of goodwill, as well as restrictions on our
ability to raise additional funds. For additional discussion of these risks,
please see the discussion set forth under the heading "Factors That May Affect
Future Results and Accuracy of Forward Looking Statements" contained in our most
recent Annual Report filed on Form 10-K with the Securities and Exchange
Commission.

OVERVIEW OF THE MARKETS FOR OUR PRODUCTS AND SERVICES

We are a diversified oilfield service company that provides (1) drilling
related products and services and (2) completion and workover related products
and services. Our customers include major and independent oil and natural gas
companies, drilling contractors and other oilfield service companies.

Prices for oil and natural gas are subject to large fluctuations in
response to relatively minor changes in the supply of and demand for oil and
natural gas, market uncertainty and a variety of other factors. Any prolonged
increase or decrease in oil and natural gas prices affects the levels of
exploration, development and production activity as well as the entire health of
the oil and natural gas industry. Demand for our drilling related products and
services is directly affected by the level of exploration, development and
production activity of, and the corresponding capital spending by, oil and
natural gas companies. Demand for our completion and workover related products
and services depends more on oil and natural gas production activity, which is
less immediately affected by changes in oil and natural gas prices.

DRILLING RELATED PRODUCTS AND SERVICES

Revenue from our drilling related products and services segment constituted
approximately 65% of our total consolidated revenue for the first nine months of
2004. Approximately 83% of our drilling segment revenue for the first nine
months of 2004 was generated in the United States, including the Gulf of Mexico.
The remaining 17% was generated in various international locations, including
Canada, Brazil, Europe, North Africa and the Middle East. The majority of our
revenue continues to be generated domestically. In July 2001, exploration and
development activity levels in the United States peaked and began to decline
primarily as a result of lower natural gas prices. This decline continued
through April 2002, at which point the United States drilling rig count levels
reached a low of 738, which was comprised of 110 offshore rigs and 628 land
rigs. As natural gas prices climbed and remained relatively strong, rig count
levels began to recover in 2003. This increase, however, resulted entirely from
an increase in land-based rigs. According to statistics published by Baker
Hughes, the average number of rotary rigs operating in the United States was
830, 1,032 and 1,173 for 2002, 2003 and the nine months ended September 30,
2004, respectively. Of these figures, land rigs comprised 717, 924 and 1,077,
respectively, and offshore rigs comprised 113, 108 and 96, respectively, for the
same periods.

The recovery in exploration and development activity levels in the United
States has impacted our revenue and earnings generated in this market. Although
the overall rig count in the United States has increased, the offshore rig
count, where we experience our highest operating margins, has yet to respond to
the

10


higher levels of natural gas prices and has even declined slightly from 2003. We
believe that the overall outlook for natural gas exploration and development
activity, nonetheless, remains positive. Natural gas production continues to
decline, which should keep upward pressure on natural gas prices and should
eventually generate a recovery in offshore drilling activity. However, the
extent and timing of a recovery in offshore drilling activity remains difficult
to predict.

Outside of the United States, the North Sea remains our largest drilling
segment market. According to statistics published by Baker Hughes, the number of
rotary rigs operating in the North Sea declined from an average of 67 in January
2002 to an average of 35 in September 2004, after having reached a low of 31 in
July 2004. We expect only a marginal increase in activity levels in the North
Sea in the near term.

As offshore drilling activity in the United States has stagnated over the
last 24 months, the importance of maintaining market share has become critical.
In response to this market condition, in October 2002, we made a strategic
decision to enter the directional drilling ("DD") business in North America. As
a result of this decision and the growth of the United States land rig count, we
have successfully leveraged our new DD business to effect an increase in the
utilization of our measurement-while-drilling ("MWD") and down-hole drilling
motor fleet. The increased utilization of our MWD and down-hole drilling motor
fleet has helped to offset decreases in utilization of our
logging-while-drilling ("LWD") fleet, which is primarily driven by the United
States offshore rig count.

Additionally, during the third quarter of 2004, we began to market our
12 1/4" 3-Dimensional Rotary Steerable ("3DRS") and Array Wave Resistivity
("AWR") technologies. These technologies were the first to be developed by
PathFinder Energy Services, Inc., our MWD/LWD/DD subsidiary, since it was
acquired in March 1999. We anticipate the first meaningful commercial revenues
from these new technologies to occur in the fourth quarter of 2004. We expect
commercialization of the 3DRS technology to improve the utilization of our LWD,
MWD and DD services, as our customers are increasingly requiring this type of
technology to be provided as a prerequisite to submitting a bid for a drilling
project or contract. Introduction of our AWR technology is the first of our next
generation of LWD tools, and we expect that it will allow us to offer our
customers advanced resistivity measurements to include high pressure and high
temperature well conditions. We will initially deploy these technologies in the
Gulf of Mexico, Brazil and the North Sea. We are currently developing an 8 1/2"
3DRS tool and we expect to be able to offer this tool on a commercial basis in
the second half of 2005.

COMPLETION AND WORKOVER RELATED PRODUCTS AND SERVICES

This segment provided approximately 35% of our total consolidated revenue
for the first nine months of 2004. Revenues provided by the completion and
workover segment are almost entirely derived from the United States and the Gulf
of Mexico. Although activity levels in the completion and workover of existing
oil and natural gas wells are linked to commodity prices, our completion segment
is less commodity price sensitive than our drilling segment. As a result, our
completion and workover segment has provided stability during prolonged
downturns in drilling activity. We have increased our revenue capacity in this
segment through capital spending in 2002, 2003 and the first nine months of
2004, which, when combined with our acquisitions, has strengthened and further
diversified the operations of this segment.

DISCONTINUED OPERATIONS

In March 2004, we committed to the divestiture of our maintenance and
safety related products and services segment. Accordingly, this segment has been
included in the Consolidated Statements of Operations and Comprehensive Income
as discontinued operations and in the Consolidated Balance Sheets as assets and
liabilities held for sale. On April 20, 2004, we completed the sale of Well
Safe, Inc., one of the two companies that comprised the maintenance and safety
related products and services segment, for cash consideration of $28.0 million.
Additionally, in June 2004, we wrote down the value of the remaining company
that made up our maintenance and safety segment based on independent indications
of market value received during the quarter. We anticipate that our future
operating performance will be enhanced by this divestiture, as we will be better
able to focus our attention on our core business segments.

11


RESULTS OF OPERATIONS

The following information should be read in conjunction with our
Consolidated Financial Statements and the accompanying notes presented elsewhere
in this Form 10-Q.

THREE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2003

Revenues. Revenues increased by $19.1 million, or approximately 20%, to
$115.5 million for the three months ended September 30, 2004 from $96.4 million
for the three months ended September 30, 2003. This increase was attributable to
increases in capacity driven by capital expenditures, higher demand for certain
of our products and services, particularly drilling/completion fluids,
cased-hole wireline and coiled tubing, as well as the revenue contributions of
businesses acquired in the fourth quarter 2003.

Revenues from our drilling related products and services increased by $8.1
million, or approximately 12%, to $73.9 million for the three months ended
September 30, 2004 from $65.8 million for the three months ended September 30,
2003. This increase was primarily attributable to increases in capacity driven
by capital expenditures, enhanced demand for our drilling fluids and rental tool
products and the impact of the acquisitions that we consummated during the
fourth quarter of 2003.

Revenues from our completion and workover related products and services
increased by $11.0 million, or approximately 36%, to $41.6 million for the three
months ended September 30, 2004 from $30.6 million for the three months ended
September 30, 2003. This increase was the result of increases in capacity driven
by capital expenditures, higher utilization of our coiled tubing and cased-hole
wireline fleet, demand for our completion fluids and the impact of the
acquisitions that we consummated during the fourth quarter of 2003.

Cost of Revenues. Cost of revenues increased by $11.2 million, or
approximately 20% to $67.5 million for the three months ended September 30, 2004
from $56.3 million for the three months ended September 30, 2003. As a
percentage of revenues, cost of revenues remained flat at 58% for the three
months ended September 30, 2004 and 2003.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $3.6 million, or approximately 19%, to
$22.3 million for the three months ended September 30, 2004 from $18.7 million
for the three months ended September 30, 2003. The increase was primarily
attributable to the operating expenses associated with the businesses we
acquired in the fourth quarter of 2003, as well as increased personnel costs
related to expansion efforts within our DD business and corporate compliance
initiatives as mandated by law. As a percentage of revenues, selling, general
and administrative expenses remained flat at 19% for the three months ended
September 30, 2004 and 2003.

Research and Development Expenses. Research and development expenses
increased by $1.1 million, or approximately 39%, to $3.9 million for the three
months ended September 30, 2004 from $2.8 million for the three months ended
September 30, 2003. This increase was the result of increased research and
development spending on our PathFinder technologies, including our 3DRS tools
and other research and development initiatives.

Depreciation and Amortization. Depreciation and amortization increased by
$2.7 million, or approximately 30%, to $11.8 million for the three months ended
September 30, 2004 from $9.1 million for the three months ended September 30,
2003. This increase was the result of depreciation associated with our continued
capital expenditures, as well as additional depreciation and amortization due to
our acquisitions.

Interest and Other Expense. Interest and other expense for the three
months ended September 30, 2004 was $1.6 million, a decrease of $0.4 million, or
approximately 20%, from $2.0 million for the three months ended September 30,
2003. This decrease was primarily due to the reduction in outstanding debt and
cost of capital under our new credit facility.

Net Income. Net income for the three months ended September 30, 2004 was
$5.3 million, an increase of $0.6 million, or approximately 13%, from the $4.7
million reported for the three months ended September 30, 2003.

12


NINE MONTHS ENDED SEPTEMBER 30, 2004 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2003

Revenues. Revenues increased by $58.8 million, or approximately 22%, to
$331.4 million for the nine months ended September 30, 2004 from $272.6 million
for the nine months ended September 30, 2003. This increase was attributable to
increases in capacity driven by capital expenditures, higher demand for certain
of our products and services, particularly drilling/completion fluids,
land-based DD services, cased-hole wireline and coiled tubing, as well as the
revenue contributions of businesses acquired in the fourth quarter 2003.

Revenues from our drilling related products and services increased by $37.8
million, or approximately 21%, to $214.8 million for the nine months ended
September 30, 2004 from $177.0 million for the nine months ended September 30,
2003. This increase was primarily attributable to increases in capacity driven
by capital expenditures, the growth of our North American DD business, driven by
the increase in land drilling activity levels in the United States, enhanced
demand for our drilling fluids and rental tool products and the impact of the
acquisitions that we consummated during the fourth quarter of 2003.

Revenues from our completion and workover related products and services
increased by $21.1 million, or approximately 22%, to $116.7 million for the nine
months ended September 30, 2004 from $95.6 million for the nine months ended
September 30, 2003. This increase was the result of increases in capacity driven
by capital expenditures, higher utilization of our coiled tubing and cased-hole
wireline fleet, demand for our completion fluids and the impact of the
acquisitions that we consummated during the fourth quarter of 2003.

Cost of Revenues. Cost of revenues increased by $40.1 million, or
approximately 26%, to $194.0 million for the nine months ended September 30,
2004 from $153.9 million for the nine months ended September 30, 2003. As a
percentage of revenues, cost of revenues increased to 59% for the nine months
ended September 30, 2004 from 56% for the nine months ended September 30, 2003.
The increase in cost of revenues as a percentage of revenues was due to the
continued effects of softness in pricing, increased insurance costs and our
revenue mix. In particular, our revenue mix was affected by sales increases in
our lower margin fluids products and DD services.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $12.2 million, or approximately 23%, to
$64.2 million for the nine months ended September 30, 2004 from $52.0 million
for the nine months ended September 30, 2003. The increase was primarily
attributable to the operating expenses associated with the businesses we
acquired in the fourth quarter of 2003, as well as increased personnel costs
related to expansion efforts within our DD business and corporate compliance
initiatives as mandated by law. As a percentage of revenues, selling, general
and administrative expenses remained flat at 19% for the nine months ended
September 30, 2004 and 2003.

Research and Development Expenses. Research and development expenses
increased by $1.8 million, or approximately 21%, to $10.2 million for the nine
months ended September 30, 2004 from $8.4 million for the nine months ended
September 30, 2003. This increase was the result of increased research and
development spending on our PathFinder technologies, including our 3DRS and AWR
tools and other research and development initiatives.

Depreciation and Amortization. Depreciation and amortization increased by
$7.4 million, or approximately 28%, to $33.6 million for the nine months ended
September 30, 2004 from $26.2 million for the nine months ended September 30,
2003. This increase was the result of depreciation associated with our continued
capital expenditures, as well as additional depreciation and amortization due to
our acquisitions.

Interest and Other Expense. Interest and other expense for the nine months
ended September 30, 2004 was $9.1 million, an increase of $3.3 million, or
approximately 57%, from $5.8 million for the nine months ended September 30,
2003. This increase was primarily due to the $3.1 million write-off of financing
costs related to our previous credit facility.

Net Income. Net income for the nine months ended September 30, 2004 was
$11.8 million, a decrease of $4.5 million, or approximately 28%, from the $16.3
million reported for the nine months ended September 30, 2003.

13


LIQUIDITY AND CAPITAL RESOURCES

Our primary uses for cash are working capital, capital expenditures,
acquisitions and principal and interest payments on indebtedness. To the extent
our cash requirements for working capital, capital expenditures, acquisitions
and principal and interest payments on indebtedness exceed our cash flow from
operations, we must fund our cash requirements primarily through debt and equity
financing activities.

CASH FLOW

Working capital, excluding assets and liabilities held for sale, was $105.3
million as of September 30, 2004 and $89.4 million as of December 31, 2003. Net
cash provided by operating activities was $37.8 million for the nine months
ended September 30, 2004 and $29.8 million for the nine months ended September
30, 2003. The increase in working capital and cash flow from operating
activities was principally attributable to higher operating levels across all
business segments.

Net cash used in investing activities was $50.7 million for the nine months
ended September 30, 2004 and $36.4 million for the nine months ended September
30, 2003. Net cash used in investing activities was principally the result of
capital expenditures, offset by lost-in-hole proceeds.

Net cash used in financing activities was $7.7 million for the nine months
ended September 30, 2004. Net cash provided by financing activities was $25.5
million for the nine months ended September 30, 2003. Changes in net cash
related to financing activities were primarily the result of borrowings and
repayments under our Credit Facility, which is described below.

For the nine months ended September 30, 2004, we made capital expenditures
of $60.7 million, primarily for rental tool inventory, LWD and MWD tools,
wireline equipment and coil tubing equipment, including expenditures for the
replacement of equipment lost-in-hole. In addition, we incurred $10.2 million in
research and development expenses for the nine months ended September 30, 2004.

OFF BALANCE SHEET FINANCING AND DERIVATIVE INSTRUMENTS

With the exception of operating leases on real property and automobile
leases, we have no off-balance sheet debt or other off-balance sheet financing
arrangements. We have not entered into any derivative or other financial
instruments for trading or speculative purposes.

CAPITAL RESOURCES

On June 30, 2004, we closed on a $237.5 million revolving credit facility
(the "Credit Facility") that matures on June 30, 2009. As of September 30, 2004,
we had an outstanding loan balance of $169.0 million and approximately $4.7
million in letters of credit issued under the Credit Facility which leaves us
with available borrowing capacity of $63.8 million.

The Credit Facility bears interest, at our election, at either a variable
rate equal to LIBOR, plus a margin ranging from 1.5% to 2.5% depending upon our
leverage ratio, or an alternate base rate equal to the higher of (1) the prime
rate or (2) the federal funds rate plus 0.5%, plus a margin ranging from 0.5% to
1.5% depending upon our leverage ratio. As of September 30, 2004, we had elected
to pay interest on our outstanding borrowings at LIBOR plus the then applicable
margin of 2.0%.

The Credit Facility is collateralized by a lien on substantially all of our
property and assets, a pledge of all of the capital stock of our domestic
subsidiaries and a pledge of not greater than 65% of the capital stock of each
of our top tier foreign subsidiaries. In addition, the Credit Facility is
guaranteed by all of our domestic subsidiaries. The Credit Facility requires,
among other things, that we maintain certain financial ratios, including a
leverage ratio and a debt service coverage ratio, and a specified net worth. The
Credit Facility further limits the amount of capital expenditures we may make,
the amount of debt we may incur outside of the Credit Facility, the amount of
future investments we may make, our ability to pay dividends and our ability to
engage in certain business combination transactions. As of September 30, 2004,
we were in compliance with these restrictive covenants.

14


As a result of the repayment of our previous credit facility, we wrote-off
approximately $3.1 million in financing costs that had previously been deferred.
This write-off has been included in the Consolidated Statements of Operations
and Comprehensive Income as interest expense. Additionally, we deferred
financing costs associated with the Credit Facility of approximately $1.5
million. These costs will be ratably amortized to interest expense over the five
year term of the Credit Facility.

FUTURE CAPITAL REQUIREMENTS

We anticipate that acquisitions of complementary companies, assets and
product lines will continue to play an important role in our business strategy.
While there are currently no unannounced agreements or ongoing negotiations for
the acquisition of any material businesses or assets, such transactions can be
effected quickly and may occur at any time. Likewise, we will continue to need
to make capital expenditures for tools and equipment and to make research and
development expenditures to maintain and improve the quality of our products and
services. We have made capital expenditures of $60.7 million through September
30, 2004 and currently estimate that we will make an aggregate of approximately
$75 million of such expenditures in 2004. We have made research and development
expenditures of $10.2 million through September 30, 2004 and currently estimate
that we will make an aggregate of approximately $14 million of such expenditures
in 2004.

We believe that our internally generated cash flow, combined with access to
our Credit Facility will be sufficient to meet the liquidity requirements
necessary to fund our operations, capital expenditure requirements, research and
development and debt service requirements for at least the next 12 months.
However, our ability to maintain our Credit Facility and the sufficiency of our
internally generated cash flow can be impacted by economic conditions outside of
our control.

The continuation of our acquisition strategy will require substantial
capital. We currently intend to finance future acquisitions through issuances of
our equity or debt securities and through borrowings under our Credit Facility.
Using debt to complete acquisitions could substantially limit our operational
and financial flexibility, while using stock could dilute the ownership
interests of our existing shareholders. The extent to which we will be able or
are willing to use our common stock to make acquisitions will depend on its
market value at the time and the willingness of potential sellers to accept it
as full or partial payment. If we are unable to obtain additional capital on
acceptable terms, we may be unable to grow through acquisitions. On April 20,
2004, we received $28.0 million in cash in connection with the sale of Well
Safe, Inc. We have used these sale proceeds for capital expenditures, research
and development expenditures and to reduce our outstanding indebtedness.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk. Market risk is the potential loss arising
from adverse changes in market prices and rates. We have not entered into
derivative or other financial instruments for trading or speculative purposes.
Our market risk could arise from changes in interest rates and foreign currency
exchange rates.

Interest Rate Risk. We are subject to market risk exposure related to
changes in interest rates. Assuming our current level of borrowings, a 100 basis
point increase in interest rates under these borrowings would have increased our
interest expense by approximately $1.3 million for the nine months ended
September 30, 2004 and 2003.

Foreign Currency Exchange Risk. Our earnings and financial position are
affected by foreign exchange rate fluctuations. We currently do not hedge
against foreign currency translation risks and we believe that foreign currency
exchange risk is unlikely to be significant to our operations.

Stock Price Volatility. Our ability to raise capital at a reasonable cost
of capital and to use shares of our common stock as consideration in
acquisitions is, in part, affected by the market price of our stock. The market
price of our stock may be influenced by many factors including variations in our
earnings, variations in oil and natural gas prices, the level of exploration,
development and production activity of, and the

15


corresponding capital spending by, our customers, investor perceptions of us and
other oilfield service companies and the liquidity of the market for our common
stock.

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. We maintain controls and
procedures designed to ensure that we are able to collect the information we are
required to disclose in the reports we file with the SEC, and to process,
summarize and disclose this information within the time periods specified in the
rules of the SEC. Based on an evaluation of our disclosure controls and
procedures as of the end of the period covered by this report conducted by our
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, our Chief Executive Officer and Chief Financial Officer
believe that these controls and procedures are effective to ensure that we are
able to collect, process and disclose the information we are required to
disclose in the reports we file with the SEC within the required time periods.

(b) Internal Control over Financial Reporting. During the period covered
by this report, there have been no changes in our internal control over
financial reporting that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.

16


PART II

OTHER INFORMATION

ITEM 6. EXHIBITS

The documents listed on the Exhibit Index following the signature pages
hereto are filed with this Quarterly Report on Form 10-Q, and the contents of
such Exhibit Index are hereby incorporated herein by reference.

17


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.



W-H ENERGY SERVICES, INC.

Date: November 4, 2004 By: /s/ JEFFREY L. TEPERA
----------------------------------------------------------
Jeffrey L. Tepera
Vice President and Chief Financial Officer
(Principal Financial Officer)

Date: November 4, 2004 By: /s/ ERNESTO BAUTISTA, III
----------------------------------------------------------
Ernesto Bautista, III
Vice President and Corporate Controller
(Principal Accounting Officer)


18


EXHIBIT INDEX



NUMBER EXHIBIT TITLE
- ------ -------------

11.1* -- Computation of Per Share Earnings
31.1* -- Certification of Chief Executive Officer of W-H Energy
Services, Inc. pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
31.2* -- Certification of Chief Financial Officer of W-H Energy
Services, Inc. pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
32.1* -- Certification of Chief Executive Officer of W-H Energy
Services, Inc. pursuant 18 U.S.C. Section 1350
32.2* -- Certification of Chief Financial Officer of W-H Energy
Services, Inc. pursuant 18 U.S.C. Section 1350


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

* Filed herewith