UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

OR

Commission file number 1-16337

OIL STATES INTERNATIONAL, INC.

(713) 652-0582

None

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b – 2 of the Exchange Act).

The Registrant had 49,912,986 shares of common stock outstanding as of April 19, 2005.

OIL STATES INTERNATIONAL, INC.

INDEX

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)

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

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands)

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

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

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

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OIL STATES INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

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

     Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosed amounts of contingent assets and liabilities and the reported amounts of revenues and expenses. If the underlying estimates and assumptions, upon which the financial statements are based, change in future periods, actual amounts may differ from those included in the accompanying unaudited consolidated condensed financial statements.

     The Company’s shares outstanding include all shares issuable upon the exercise of exchangeable shares of one of the Company’s Canadian subsidiaries.

     The calculation of diluted earnings per share include the effect of the Company’s outstanding stock options determined under the treasury stock method.

     From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (the “FASB”) which are adopted by the Company as of the specified effective date. Unless otherwise discussed, management believes the impact of recently issued standards, which are not yet effective, will not have a material impact on the Company’s consolidated financial statements upon adoption.

     The financial statements included in this report should be read in conjunction with the Company’s audited financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2004.

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2. DETAILS OF SELECTED BALANCE SHEET ACCOUNTS

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

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     Changes in the carrying amount of goodwill for the three month period ended March 31, 2005 are as follows (in thousands):

3. SEGMENT AND RELATED INFORMATION

     In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Company has identified the following reportable segments: Offshore Products, Wellsite Services and Tubular Services. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as a unit, and the management at the time of the acquisition was retained. Results of our Canadian well site services business related to the provision of work force accommodations, catering and logistics services are seasonal with significant activity occurring in the peak winter drilling season.

     Financial information by industry segment for each of the three month periods ended March 31, 2005 and 2004 is summarized in the following table (in thousands):

4. COMPREHENSIVE INCOME AND CHANGES IN COMMON STOCK OUTSTANDING:

     Comprehensive income for the three months ended March 31, 2005 and 2004 was as follows (in thousands):

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5. STOCK-BASED COMPENSATION

     In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock Based Compensation — Transition and Disclosure.” The Company has adopted the disclosure requirements of SFAS No. 148 and has elected to record employee compensation expense utilizing the intrinsic value method permitted under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.”

     The Company accounts for its employee stock-based compensation plan under APB Opinion No. 25 and its related interpretations. Accordingly, any deferred compensation expense would be recorded for stock options based on the excess of the market value of the common stock on the date the options were granted over the aggregate exercise price of the options. This deferred compensation would be amortized over the vesting period of each option. The Company is authorized to grant common stock based awards covering 5,700,000 shares of common stock under the 2001 Equity Participation Plan, as amended and restated (the “Stock Option Plan”), to employees, consultants and directors with amounts, exercise prices and vesting schedules determined by the compensation committee of the Company’s Board of Directors. An amendment to the plan, effective February 16, 2005, increased the number of shares in the plan by 2,000,000. This amendment is subject to shareholder approval and will be voted upon at the Company’s May 18, 2005 Annual Shareholders meeting. Since February 2001, all option grants have been priced at the closing price on the day of grant, except a variable option award granted in 2002 for up to 100,000 shares based on various performance criteria whose outcome was determined in 2003. This specific award ultimately totaled 67,000 option shares which were priced based on the 2002 award date price. In addition, all options vest 25% per year and have a life ranging from six to ten years. When the exercise price of options granted under the Stock Option Plan has been equal to or greater than the market price of the Company’s shares of common stock on the date of grant, no compensation expense related to this plan has been recorded. When the exercise price per share of the option award has been lower than the current market price per share, as was the case in the one instance of the 2002 variable option award, compensation expense was recognized for the intrinsic value of the award as required by APB Opinion No. 25.

     In February 2005, 32,900 shares of restricted stock were awarded to certain employees. The fair market value of the awards will be charged to expense over the vesting period of the restricted stock award. Had compensation expense for the Stock Option Plan been determined consistent with SFAS No. 123 utilizing the fair value method, the Company’s net income and earnings per share at March 31, 2005 and 2004, would have been as follows (in thousands, except per share amounts):

6. INCOME TAXES

     Our primary deferred tax asset, which totaled approximately $12.5 million at December 31, 2004, is related to $35.8 million in available federal net operating loss carryforwards, or NOLs, as of that date. A valuation allowance of approximately $5.1 million was provided against the deferred tax asset associated with our NOLs at December 31, 2004. The NOLs will expire in varying amounts during the years 2008 through 2020 if they are not first used to offset taxable income generated by the Company. The Company’s ability to utilize a significant portion of the NOLs is currently limited under Section 382 of the Internal Revenue Code (“Code”) due to a change of control that occurred during 1995. A successive change in control was triggered in 2003 pursuant to Section 382 of the Code; however it did not significantly change the Company’s NOL utilization expectations.

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     The Company’s income tax provision for the three months ended March 31, 2005 totaled $14.8 million, or 36.9% of pretax income compared to $1.5 million, or 8.6% of pretax income, for the three months ended March 31, 2004. Our effective tax rate was lower in the first quarter of 2004 as a result of the recognition of a $5.4 million income tax benefit related to the partial reversal of the valuation allowance applied against NOLs which were recorded as of the prior year end.

     Based upon the loss limitation provisions of Section 382 of the Code, we should be able to utilize approximately $8 million of our NOLs to offset taxable income generated by the Company during the tax year ended December 31, 2005.

7. COMMITMENTS AND CONTINGENCIES

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

     On February 18, 2005, the Company announced that it had conducted an internal investigation prompted by the discovery of over billings totaling approximately $400,000 by one of its subsidiaries (the “Subsidiary”) to a government owned oil company in South America. The over billings were detected by the Company during routine financial review procedures, and appropriate financial statement adjustments were included in its previously reported fourth quarter 2004 results. The Company and independent counsel retained by the Company’s audit committee conducted separate investigations consisting of interviews and an examination of the facts and circumstances in this matter. The Company has voluntarily reported the results of its investigation to the Securities and Exchange Commission (the “SEC”) and will fully cooperate with any additional requests for information received from the SEC.

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     This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Exchange Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of important factors. For a discussion of important factors that could affect our results, please refer to “Item 1. Business” including the risk factors discussed therein and the financial statement line item discussions set forth in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K Annual Report for the year ended December 31, 2004 filed with the Securities and Exchange Commission on March 2, 2005 and Item 2., which follows. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements, even if new information becomes available or other events occur in the future.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     You should read the following discussion and analysis together with our financial statements and the notes to those statements included elsewhere in this Quarterly Report on Form 10-Q.

Critical Accounting Policies

     In our selection of critical accounting policies, our objective is to properly reflect our financial position and results of operations in each reporting period in a manner that will be understood by those who utilize our financial statements. Often we must use our judgment about uncertainties.

     There are several critical accounting policies that we have put into practice that have an important effect on our reported financial results. There have been no changes in these policies since the filing of our Annual Report on Form 10-K for the year ended December 31, 2004.

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

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

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

     Our valuation allowances, especially related to potential bad debts in accounts receivable and to obsolescence or market value declines of inventory, involve reviews of underlying details of these assets, known trends in the marketplace and the application of historical factors that provide us with a basis for recording these allowances. If market conditions are less favorable than those projected by management, or if our historical experience is materially different from future experience, additional allowances may be required. We record a valuation allowance

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to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not likely be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to expense in the period such determination was made. See also “Note 6 – Income Taxes” and “Tax Matters” herein.

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

Overview

     We provide a broad range of products and services to the oil and gas industry through our offshore products, well site services and tubular services business segments. Demand for our products and services is cyclical and substantially dependent upon activity levels in the oil and gas industry, particularly our customers’ willingness to spend capital on the exploration for and development of oil and gas reserves. Demand for our products and services by our customers is highly sensitive to current and expected oil and natural gas prices. Generally, our tubular services and well site services segments respond more rapidly to shorter-term movements in oil and natural gas prices than our offshore products segment. Our offshore products segment provides highly engineered and technically designed products for offshore oil and gas development and production systems and facilities. Sales of our offshore products and services depend upon the development of offshore production systems, repairs and upgrades of existing drilling rigs and construction of new drilling rigs. In this segment, we are particularly influenced by deepwater drilling and production activities, which are driven largely by our customers’ outlook for longer-term future oil prices. In our well site services business segment, we provide hydraulic well control services, pressure control equipment and rental tools, drilling rigs and work force accommodations, catering and logistics services. Demand for our well site services depends upon the level of worldwide drilling and workover activity. We have also seen increased demand in our work force accommodation business as a result of oil sands development activities in Northern Alberta, Canada. Through our tubular services segment, we distribute a broad range of casing and tubing. Sales of tubular products and services depend upon the overall level of drilling activity, the types of wells being drilled and the level of oil country tubular goods (“OCTG”) pricing. Historically, tubular services gross margins expand during periods of rising OCTG prices and contract during periods of decreasing OCTG prices.

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

     The average North American rig count for the three months ended March 31, 2005 increased 153 rigs, or 9.3%, compared to the three months ended March 31, 2004. This overall increase in activity, while tempered somewhat by relatively flat activity levels in the U.S. Gulf of Mexico and Canada, did contribute to increased revenues in our well site services segment. Our well site services results for the first quarter of 2005 also benefited from well site services segment capital spending, which has totaled $57.9 million in the twelve months ended March 31, 2005, the

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acquisition of Elenburg Exploration Company on February 1, 2005 for $22 million, acquisitions made in our rental tool business in the second and third quarters of 2004 and the impact of activity levels and pricing gains in certain business lines. The Canadian rig count was flat comparing the first quarter of 2004 and 2005; however, our operations benefited from increased activity in support of oil sands development in the region. Our offshore products segment reported a much improved first quarter of 2005 compared to the first quarter of 2004 as a result of increased activity and greater fixed cost absorption. Our offshore products backlog totaled $99.8 million at March 31, 2005, $97.5 million at December 31, 2004 and $76.9 at March 31, 2004. We believe that the offshore construction and development business is characterized by lengthy projects and a long “lead-time” order cycle. While change in backlog levels from one quarter to the next does not necessarily evidence a long-term trend, we believe activity levels in our offshore products segment will increase in future quarters, given the growth in our backlog, when compared to March 31, 2004.

     On May 11, 2004, our tubular services segment purchased the OCTG distribution business of Hunting Energy Services, L.P. (“Hunting”) for $47.2 million, including purchase price adjustments. Under the terms of the transaction, we purchased Hunting’s U.S. tubular inventory, assumed certain customer contracts and entered into supply and distribution relationships with Hunting. Substantially all of the purchase price was assigned to the OCTG inventory acquired.

     Our tubular services segment shipped 82,000 tons of OCTG in the first quarter of 2005 compared to 67,300 tons in the first quarter of 2004. Our tubular services segment benefited in the past year from a 15.4% year over year increase in average U.S. land drilling activity, the acquisition of the Hunting OCTG distribution business and a significant increase in OCTG prices. Tubular services margins expanded since the first quarter of 2004 and have reached historically high levels given the significant increase in OCTG prices coupled with strong demand.

     During the first quarter of 2005, the results generated by our Canadian workforce accommodations, catering and logistics operations benefited from strengthening of the Canadian currency. The Canadian dollar vs. U.S. dollar conversion rate averaged $0.82 in the first quarter of 2005 compared to $0.76 in the first quarter of 2004.

     The Company’s income tax provision for the first quarter of 2005 totaled $14.8 million, or 36.9% of pretax income. Our effective tax rate increased in the first quarter of 2005 compared to the first quarter of 2004 which reflected an effective tax rate of 8.6%, due to greater NOL benefits recognized in 2004.

     Management believes that fundamental oil and gas supply and demand factors will continue to support a high level of drilling activity in North America over time which should continue to positively impact the Company, particularly its well site services and tubular services businesses. We believe that oil and gas producers have increased their view of longer term oil and gas prices based on current supply and demand fundamentals, even though they are still at levels below current prices. As a result, our customers could increase their spending on deepwater offshore exploration and development which should benefit our offshore products segment. However, there can be no assurance that these expectations will be realized.

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Results of Operations (in millions, except margin percentages)

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Within our well site services segment, we have four reportable business units as follows:

THREE MONTHS ENDED MARCH 31, 2005 COMPARED TO THREE MONTHS ENDED MARCH 31, 2004

     Revenues. Revenues increased $127.7 million, or 62.5%, to $331.9 million during the current quarter compared to revenues of $204.2 million during the quarter ended March 31, 2004. Tubular services revenues and tons shipped increased $71.6 million, or 108.2%, and 14,700 tons, or 21.8%, respectively, in the three months ended March 31, 2005 compared to the three months ended March 31, 2004 due to the May 2004 Hunting OCTG distribution business acquisition, increased industry demand and higher OCTG prices. Our average OCTG selling prices increased 71% from the first quarter of 2004 to the first quarter of 2005. Well site services revenues increased $31.5 million, or 32.8%, and offshore products revenues increased $24.6 million, or 58.7%, during the same period. Well site services revenues increased compared to the prior year due primarily to increased oil sands development activity in Canada and drilling activity in the United States, favorable Canadian dollar exchange rates, the impact of capital expenditures, which totaled $57.9 million for this segment, made since the first quarter of 2004 and the acquisition of Elenburg Exploration Company for $22 million, which closed on February 1, 2005. Offshore products revenues increased as a result of higher activity supporting offshore production facility construction.

     Gross Margin. Our gross margins, which we calculate before a deduction for depreciation expense, increased $28.4 million, or 66.2%, from $42.9 million in the quarter ended March 31, 2004 to $71.3 million in the quarter ended March 31, 2005. Our overall gross margin as a percent of revenues increased from 21.0% in the first quarter of 2004 to 21.5% in the current quarter primarily because of higher offshore products and tubular services gross margins percentages offset by lower wellsite services gross margin percentages. Gross margin dollar contributions were higher in every segment of our business in the first quarter of 2005 compared to the first quarter of 2004. Well site services gross margins increased $9.4 million, or 31.5%, to $39.2 million in the quarter ended March 31, 2005 compared to the quarter ended March 31, 2004. Within our well site services segment, shallow drilling and

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specialty rental tool businesses’ gross margins increased $2.6 million, or 81.3%, and $1.9 million, or 27.9%, respectively, during the quarter ended March 31, 2005 compared to the quarter ended March 31, 2004 as a result of the Elenburg Exploration Company acquisition by our shallow drilling business, new rigs added to the fleet in February and December of 2004 as well as higher average dayrates received for our drilling rigs and contributions from rental tool acquisitions completed in the past year. Also in well site services, our work force accommodations, catering and logistics services and modular building construction services gross margins increased by $4.7 million, or 25.7%, in the three months ended March 31, 2005 compared to the three months ended March 31, 2004 primarily due to increased oil sands development activity in Canada. Our hydraulic workover gross margins increased by $0.2 million, or 13.3%, as a result of increased dayrates in the Middle East. Our well site services gross margin percent decreased to 30.7% in the current quarter compared to 31.0% in the first quarter of last year as a result of lower gross margins in our Canadian accommodations, catering and logistics services and modular building construction services businesses which were impacted by a greater mix of relatively low margin building construction services compared to the prior year. This decrease was partially offset by a higher land drilling gross margin percentage.

     Offshore products gross margins increased $6.9 million, or 95.8%, from $7.2 million in the three months ended March 31, 2004 to $14.1 million in the three months ended March 31, 2005 due to increased activity and increased fixed cost absorption. These same factors were the primary reason that offshore products gross margin percent increased from 17.2% of revenues in the first quarter of 2004 to 21.2% in the first quarter of 2005.

     Tubular services gross margins increased to $18.0 million, or 13.1% of tubular services revenues, in the three months ended March 31, 2005 compared to $5.9 million, or 8.9% of tubular services revenues, in the three months ended March 31, 2004 as a result of increased oil and gas drilling activity which increased demand for our tubular products and services and an increase in OCTG prices during the quarter.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses (SG&A) increased $4.4 million, or 29.8% in the first quarter of 2005 compared to the same period in 2004. During the three months ended March 31, 2005, SG&A totaled $19.1 million, or 5.7% of revenues, compared to SG&A of $14.7 million, or 7.2% of revenues, for the three months ended March 31, 2004. Increased SG&A expense associated with acquisitions completed since the first quarter of 2004, higher ad valorem taxes for OCTG inventory and higher professional fees associated with Sarbanes-Oxley compliance were the primary factors causing increased SG&A in 2005 compared to 2004.

     Depreciation and Amortization. Depreciation and amortization expense increased $1.7 million in the first quarter 2005 compared to the first quarter 2004 due primarily to acquisitions of businesses and capital expenditures made in the past year.

     Operating Income. Our operating income represents revenues less (i) cost of sales, (ii) selling, general and administrative expenses, (iii) depreciation and amortization expense, and (iv) other operating (income) expense. Our operating income increased $23.1 million, or 120.9%, to $42.2 million for the three months ended March 31, 2005 from $19.1 million for the quarter ended March 31, 2004. Well site services operating income increased $7.1 million during the period. Offshore products operating income increased $6.1 million and tubular services operating income increased $11.3 million. These increases were partially offset by higher corporate costs of $1.4 million.

     Interest Expense. Interest expense increased $0.7 million, or 40.5%, for the quarter ended March 31, 2005 compared to the quarter ended March 31, 2004. Increased interest expense attributable to higher debt levels resulting from acquisitions completed since the first quarter of 2004 in addition to capital expenditures combined with higher interest rates resulting in increased interest expense compared to the prior period.

     Income Tax Expense. Income tax expense totaled $14.8 million, or 36.9% of pretax income, during the quarter ended March 31, 2005 compared to $1.5 million, or 8.6% of pretax income, during the quarter ended March 31, 2004. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Tax Matters” discussion following.

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Liquidity and Capital Resources

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

     Cash totaling $6.1 million was used by operations during the three months ended March 31, 2005 compared to cash totaling $5.1 million provided by operations in the three months ended March 31, 2004. During the first quarter of 2005, $45.6 million was used to fund working capital. Significantly increased receivables in our Canadian operations due to seasonal activity levels and increased activity in the oil sands region contributed to a net usage of cash for the first quarter of 2005. In addition, tubular services inventory increased during the quarter primarily due to increases in the price paid for OCTG. Cash provided by operations in the first quarter of 2004 was generated by our net income plus depreciation and amortization which was partially offset by higher working capital invested in our Canadian remote accommodations and catering operations.

     Cash was used in investing activities during the three months ended March 31, 2005 and 2004 in the amount of $39.3 million and $41.6 million, respectively. Capital expenditures totaled $17.1 million and $8.9 million during the three months ended March 31, 2005 and 2004, respectively. Capital expenditures in both years consisted principally of purchases of assets for our well site services businesses and for consolidation of our offshore products manufacturing capacity. During the first quarter of 2005, the Company purchased Elenburg Exploration Company, Inc. (“Elenburg”) for $22 million, including $21.3 million of cash financed utilizing the existing bank credit facility. Elenburg provides shallow drilling services in the Rocky Mountain area utilizing its seven drilling rigs. We currently expect to spend a total of approximately $59.0 million for capital expenditures during 2005 for maintenance and upgrade of our equipment and facilities and also to expand our product and service offerings. We expect to fund these capital expenditures with internally generated funds and proceeds from borrowings under our revolving credit facilities.

     Net cash of $47.5 million was provided by financing activities during the three months ended March 31, 2005, primarily as a result of revolving credit borrowings which were utilized for capital expenditures, acquisitions and to fund seasonal working capital needs. The Company’s Board of Directors authorized the repurchase of shares of the Company’s common stock, par value $.01 per share, during the first quarter of 2005. A total of up to $50 million was authorized to repurchase shares over a two year period. Through March 31, 2005, there have been no purchases of the Company’s stock under this program.

     Our primary bank credit facility (the “Credit Agreement”) provides for $325 million of revolving credit. The Credit Agreement, which matures in January 2010, contains customary financial covenants and restrictions, including restrictions on our ability to declare and pay dividends. Borrowings under the Credit Agreement are secured by a pledge of substantially all of our assets and the assets of our subsidiaries, and our obligations under the Credit Agreement are guaranteed by our significant subsidiaries. Borrowings under the Credit Agreement accrue interest at a rate equal to either LIBOR or another benchmark interest rate (at our election) plus an applicable margin based on our leverage ratio (as defined in the Credit Agreement). We must pay a quarterly commitment fee, based on the Company’s leverage ratio, on the unused commitments under the Credit Agreement. During the first quarter of 2005, our applicable margin over LIBOR ranged from 1% to 2% and it was 1% as of March 31, 2005.

     As of March 31, 2005, we had $217.8 million outstanding under the Credit Agreement and an additional $7.8 million of outstanding letters of credit, leaving $99.4 million available to be drawn under the facility. In addition, we have other floating rate bank credit facilities in the U.S. and the U.K. that provide for an aggregate borrowing capacity of $8.8 million. We had no borrowings outstanding under these facilities as of March 31, 2005. Our total debt represented 28.2% of our total capitalization at March 31, 2005.

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

Tax Matters

     Our primary deferred tax asset, which totaled approximately $12.5 million at December 31, 2004, is related to $35.8 million in available federal net operating loss carryforwards, or NOLs, as of that date. A valuation allowance of approximately $5.1 million was provided against the deferred tax asset associated with our NOLs at December 31, 2004. The NOLs will expire in varying amounts during the years 2008 through 2020 if they are not first used to offset taxable income generated by the Company. The Company’s ability to utilize a significant portion of the NOLs is currently limited under Section 382 of the Internal Revenue Code due to a change of control that occurred during 1995. A successive change in control was triggered in 2003 pursuant to Section 382; however it did not significantly change the Company’s NOL utilization expectations.

     The Company’s income tax provision for the three months ended March 31, 2005 totaled $14.8 million, or 36.9% of pretax income, compared to $1.5 million, or 8.6% of pretax income, for the three months ended March 31, 2004. Our effective tax rate was lower in the first quarter of 2004 as a result of the recognition of a $5.4 million income tax benefit related to the partial reversal of the valuation allowance applied against NOLs which were recorded as of the prior year end.

     We currently estimate that our effective tax rate for the full year 2005 will approximate 35% to 38%. Our actual effective tax rate could differ materially from this estimate, which is subject to a number of uncertainties, including future taxable income projections, the amount of income attributable to domestic versus foreign sources, the amount of capital expenditures and any changes in applicable tax laws and regulations. Based upon the loss limitation provisions of Section 382, we should be able to utilize approximately $8 million of our NOLs to offset taxable income generated by the Company during the tax year ended December 31, 2005.

     Recent Accounting Pronouncements

     In the fourth quarter of 2004, the FASB issued Statement No. 123 (revised 2004), or SFAS No. 123R, “Share-Based Payment,” which replaces Statement No. 123 “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R eliminates the alternative to use APB Opinion 25’s intrinsic value method of accounting that was provided in Statement No. 123 as originally issued. After a phase-in period for Statement No. 123R, pro forma disclosure will no longer be allowed. In the first quarter of 2005 the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 107 which provided further clarification on the implementation of SFAS No. 123R.

     Alternative phase-in methods are allowed under Statement No. 123R, which was to be effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. The SEC announced in the second quarter of 2005 that it would extend this phase-in period and, therefore, the Company’s effective date for implementation of SFAS 123R is January 1, 2006. The Company expects it will use the modified-prospective phase-in method that requires entities to recognize compensation costs in financial statements issued after the date of adoption for all share based payments granted, modified or settled after the date of adoption as well as for any awards that were granted prior to the adoption date for which the required service has not yet been performed.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

     Interest Rate Risk. We have long-term debt and revolving lines of credit subject to the risk of loss associated with movements in interest rates. As of March 31, 2005, we had floating rate obligations totaling approximately $225.6 million for amounts borrowed under our revolving credit facilities. These floating-rate obligations expose us to the risk of increased interest expense in the event of increases in short-term interest rates. If the floating interest rate were to increase by 1% from March 31, 2005 levels, our consolidated interest expense would increase by a total of approximately $2.3 million annually.

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     Foreign Currency Exchange Rate Risk. Our operations are conducted in various countries around the world in a number of different currencies. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in currencies other than the U.S. dollar, which is our functional currency or the functional currency of our subsidiaries, which is not necessarily the U.S. dollar. In order to mitigate the effects of exchange rate risks, we generally pay a portion of our expenses in local currencies and a substantial portion of our contracts provide for collections from customers in U.S. dollars. We have hedged U.S. dollar balances and cash flows totaling $4.8 million in our U.K. subsidiary in the second through third quarters of 2005. Results of operations have not been materially affected by foreign currency hedging activity.

ITEM 4. Controls and Procedures

     As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2005 in ensuring that material information was accumulated and communicated to management, and made known to our Chief Executive Officer and Chief Financial Officer, on a timely basis to allow disclosure as required in this Quarterly Report on Form 10-Q. During the three months ended March 31, 2005, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934) or in other factors which have materially affected our internal control over financial reporting, or are reasonably likely to materially affect our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

     On February 18, 2005, the Company announced that it had conducted an internal investigation prompted by the discovery of over billings totaling approximately $400,000 by one of its subsidiaries (the “Subsidiary”) to a government owned oil company in South America. The over billings were detected by the Company during routine financial review procedures, and appropriate financial statement adjustments were included in its previously reported fourth quarter 2004 results. The Company and independent counsel retained by the Company’s audit committee conducted separate investigations consisting of interviews and an examination of the facts and circumstances in this matter. The Company has voluntarily reported the results of its investigation to the Securities and Exchange Commission (the “SEC”) and will fully cooperate with any requests for additional information received from the SEC.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

     None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     None

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

     None

ITEM 5. OTHER INFORMATION

     None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

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(a) REPORTS ON FORM 8-K.

	(1)	Form 8-K filed March 2, 2005 – Item 8. Other Events – Announcement of a stock repurchase program for up to $50 million of the Company’s common stock.
	(2)	Form 8-K filed February 18, 2005 – Item 8. Other Events – Report on results of internal investigation concerning an overbilling of approximately $400,000.
	(3)	Form 8-K filed February 9, 2005 – Item 2. Results of Operations and Financial Condition (Quarter and year ended December 31, 2004 Earnings Press Release)
	(4)	Form 8-K filed February 4, 2005 – Item 8. Other Events – Acquisition of Elenburg Acquisition Company, Inc. for $22 million.

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SIGNATURES

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

OIL STATES INTERNATIONAL, INC.

Date: April 29, 2005	By	/s/ CINDY B. TAYLOR
		Cindy B. Taylor
		Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

Date: April 29, 2005	By	/s/ ROBERT W. HAMPTON
		Robert W. Hampton
		Vice President -- Finance and Accounting and Secretary (Principal Accounting Officer)

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Exhibit Index

(a) REPORTS ON FORM 8-K.

	(1)	Form 8-K filed March 2, 2005 — Item 8. Other Events — Announcement of a stock repurchase program for up to $50 million of the Company’s common stock.
	(2)	Form 8-K filed February 18, 2005 — Item 8. Other Events — Report on results of internal investigation concerning an overbilling of $439,000.
	(3)	Form 8-K filed February 9, 2005 — Item 2. Results of Operations and Financial Condition (Quarter and year ended December 31, 2004 Earnings Press Release)
	(4)	Form 8-K filed February 4, 2005 — Item 8. Other Events — Acquisition of Elenburg Acquisition Company, Inc. for $22 million.