Oil States International, Inc.

Three Allen Center
333 Clay Street, Suite 4620
Houston, Texas 77002
U.S.A.
Telephone: (713) 652-0582
Fax: (713) 652-0499
Web site: http://www.oilstatesintl.com

Public Company
Incorporated: as CE Holdings, Inc. in 1995
Employees: 3,940
Sales: $1.38 billion (2005)
Stock Exchanges: New York
Ticker Symbol: OSI
NAIC: 213112 Support Activities for Oil and Gas Operations

While its name suggests its business, Oil States International, Inc. does not actually produce oil but helps the drilling and production companies that do. Oil States provides a wide range of products and services to oil and gas drilling firms around the world, conducting business in the oil- and gas-producing regions of Canada, the Gulf of Mexico, South America, the Middle East, West Africa, and Southeast Asia. Oil States operates in three primary business segments—offshore products, tubular services, and well site services—and has established itself as a leader in each of these growing industries.

SERVING THE OIL INDUSTRY: 1930S TO EARLY 1990S

What is today's Oil States International, Inc. (OSI) began with several disparate companies. Henry Zarrow opened the first of these companies in Tulsa, Oklahoma, in 1937 to provide supplies for area oilfield drillers. Many of his products were tubular parts, essential to the local drillers in their ongoing search for oil. As the technology for drilling evolved, so did Zarrow's supplies, always providing customers with a growing range of products. Zarrow's ingenuity became the cornerstone for OSI's tubular products division. By the late 1990s Zarrow's company was a leading distributor of "OCTG," or oil country tubular goods. In 1999 Zarrow's company bought three rivals and merged their operations, becoming the United States' top OCTG manufacturer.

A second company, Oil States Industries of Arlington, Texas, revolved around rubber components and was founded in 1949. This firm designed and manufactured a growing line of innovative marine products, including the first flexible load bearings for bridges and the earliest laminated bearing products used in any building structure in 1955. Next came the Hydro-Couple in 1966, a "coupling" or joining product used to connect pipes underwater, followed by further laminated bearings and seals for flexible pipes used in drill rigs and nuclear submarines in the 1970s. The laminated bearings and joints became part of the very successful Flex-Joint line of products, considered one of the company's most technologically advanced and profitable ventures. In the 1980s came the Merlin, a nonrotating connector, and Hydra-Lock, a locking mechanism, for use in deep sea oil rig platforms.

By the 1990s additional products were developed, including diverless connections for use in undersea structures in depths of over 5,000 feet; the first rigid, extra long free-hanging riser; and the Top Entry Sub, a tool to help divers connect wiring and tubing underwater. The Top Entry Sub was available as a rental to companies worldwide for deep sea operations. Oil States Industries had also segued into portable accommodations as part of its well site services, providing housing and related needs for oil rig workers who put out to sea for either weeks or months at a time. Most of the company's housing could be delivered and set up, either offshore or by new land drilling sites, within 24 hours and often included catering services as well.

INCORPORATION AND CONSOLIDATION: 1995–99

Zarrow's expanding operations were incorporated as CE Holdings, Inc. in July 1995. Soon after, the firm acquired another oilpatch supply store chain called Continental Emsco Company, based in Garland, Texas. The deal included Continental's offshore products subsidiary, Oil States Industries, Inc. The following May, in 1996, Oil States bought the construction unit of Hunting Oilfield Services, Ltd., an offshore oil and gas products and services company. In November, the growing CE Holdings changed its name to Conemsco, Inc., to better reflect its operations. The company's headquarters was established in Houston with SCF Partners, an energy services and equipment investment firm founded and run by L. E. Simmons, owning the majority of the operations.

Conemsco continued to buy compatible companies in 1997 including HydroTech Systems, Inc., a manufacturer of offshore products; Skagit Products and Smatco Industries Inc., deep sea product manufacturers; and Gregory Rig Service & Sales Inc., which supplied drilling equipment and services. By early the following year, Conemsco bought Subsea Ventures, Inc. for its offshore rig work and Klaper (UK) Limited, another firm devoted to preventative maintenance and product supply for offshore drilling.

In 1999 Conemsco sold its tubular goods unit to the Oklahoma-based Sooner, Inc. and prepared to evolve from a privately held collection of companies to a public corporation with worldwide aspirations. To accomplish these goals, Douglas E. Swanson was hired as Conemsco's new president and chief executive officer effective the following January. Swanson had previously served as president of the Houston-based Cliffs Drilling Company, leaving upon its acquisition by R&B Falcon Corporation (itself later sold to offshore drilling giant Transocean Inc.). Conemsco finished 1999 with revenues of $487.4 million and net income of $8.9 million.

EVOLUTION AND EXPANSION: 2000S

In early 2000 Swanson took the reins of Conemsco and dove into several critical projects, including the development of an e-commerce web site for its oil and gas producers to buy tubular products and services online. Launched in February under the Sooner name (soon to become part of the new public company) the online service did extremely well and expanded its offerings throughout the year.

COMPANY PERSPECTIVES

Oil States International, Inc. is a diversified oilfield services company. With locations around the world, Oil States is a leading manufacturer of products for deepwater production facilities and subsea pipelines, and a leading supplier of a broad range of services to the oil and gas industry, including production-related rental tools, work force accommodations and logistics, oil country tubular goods distribution, hydraulic workover services and land drilling services. Oil States is organized in three business segments—Offshore Products, Tubular Services and Well Site Services—and is publicly traded on the New York Stock Exchange under the symbol OIS.

In July the company changed its name from Conemsco, Inc. to Oil States International, Inc. Oil States Industries (part of Conemsco) and three other companies—HWC Energy Services, Inc., PTI Group Inc., and Sooner Inc.—agreed to merge and do business as the soon-to-be public Oil States International, Inc. The deal was partially financed by SCF Partners and Simmons became OSI's chairman of the board. Papers were filed with the Securities and Exchange Commission in August. Oil States International, Inc. completed an initial public offering (IPO) on the New York Stock Exchange under the ticker symbol OSI on February 9, 2001, with shares priced at $9 each. Proceeds were used to pay down accumulated debt and to finance domestic and international expansion plans. For the year 2001, OSI owned and operated four of the highest producing U.S. oil rigs. The company owned 1,156 oil rigs in the United States (1,003 on land and 53 offshore) and an additional 266 in Canada.

While 2001 had seemed a prudent time to go public, in the months following the IPO business did not boom. Though share prices rose as high as $15 each, they soon fell back to their issue price. The company went ahead with a series of acquisitions, however, to build its three primary business segments: Well Site Services, Tubular Products, and Offshore Products. In 2002 Oil States spent a total of just over $72 million for six acquisitions: Mississippi's Southeastern Rentals LLC, the Louisiana-based Edge Wireline Rentals Inc. and J.V. Oilfield Rentals & Supply, Inc., for its well site services unit; and Oklahoma's Barlow Hunt, Inc., Texas-based Big Inch Marine Services, Inc., and Louisiana's Applied Hydraulic Systems, Inc. for offshore products.

In 2003 OSI continued its acquisitions spree, though to a slightly lesser degree than the previous year. Five businesses were bought for a total of $16.8 million, of which three were well site tool rental companies operating in Texas and Louisiana and the other two were folded into OSI's offshore products unit. During the year OSI's stock fluctuated between a low of $9.95 in the second quarter and a high of $14.84 reached in the fourth quarter.

Oil States continued to bolster its well site services division in 2004 with the purchase of more tool rental businesses in the south Texas area in January and April for a total of $39.6 million, and acquired a tubular goods distribution firm, Hunting Energy Services LP, for $47 million in May. Stock prices climbed throughout the year, responding to OSI's growth, with a low of $12.75 in the first quarter and an all-time high of $21.10 in the fourth quarter. Share prices reflected OSI's strong year with revenues topping $971 million and income surging to $59.4 million for 2004.

In 2005 with robust sales and increased drilling in the United States, OSI's well site services segment was booming with an additional 153 rigs brought into production for the first three months of the year alone. The company had 1,800 rigs throughout North America, with 1,279 in the United States and 521 in Canada, a substantial increase from just five years earlier, when OSI had a total of 1,263 North American rigs (918 in the United States, 345 in Canada). To go with the increased flow, OSI embarked on several strategic acquisitions in 2005 including Elenburg Exploration Company, Inc. ($22 million) and Stinger Wellhead Protection, Inc. ($89 million) for its well site services segment; Phillips Casing and Tubing LP ($31 million) for its tubular services segment; and Noble Structures, Inc. ($9 million) for its offshore products unit.

Near the end of the year OSI announced it would merge Boots & Coots International Well Control, Inc. into its hydraulic products and service sector, part of the well site services unit based in Louisiana. Oil production highs carried OSI through the year, with revenues topping the billion-dollar mark for the first time at $1.38 billion in 2005.

OSI continued to grow at a phenomenal rate through early 2006, as stock prices climbed to over $42 per share. The company remained an industry leader by offering clients an ever expanding array of cutting edge products and services. Still North America's largest distributor of oil country tubular goods, Oil States offered the widest range of specialized rental tools for the oil and gas production industry, and accommodated the industry's workforce with extensive remote-site housing in both Canada and offshore sites in the Gulf of Mexico.

KEY DATES

1937:

Henry Zarrow opens an oilfield supply store in Tulsa, Oklahoma.

1949:

Oil States Industries is founded in Texas.

1995:

CE Holdings, Inc. is formed and buys Continental Emsco Company and its subsidiaries.

1996:

CE Holdings changes its name to Conemsco, Inc.

1997:

Conemsco buys three companies related to offshore marine and oil drilling.

1998:

The company buys two deep sea maintenance and component services companies.

2000:

Conemsco changes its name to Oil States International, Inc. (OSI).

2001:

The company makes its initial public offering on the New York Stock Exchange.

2002:

OSI completes six acquisitions to bolster its three business segments.

2003:

OSI purchases five additional companies during the year.

2005:

The company experiences record revenues and acquires four more companies.

PRINCIPAL SUBSIDIARIES

Capstar; General Marine Leasing; HydroTech; International Quarters; MCS; Oil States Industries, Inc.; PTI Group, Inc.; Skagit/Smatco; Sooner, Inc.; Specialty Rental Tools & Supply; Subsea Ventures.

PRINCIPAL DIVISIONS

Tubular Services; Wellsite Services; Offshore Products.

PRINCIPAL COMPETITORS

AmClyde Engineered Products Company, Inc.; Dril-Quip, Inc.; Cooper Cameron Corporation; FMC Technologies, Inc.; Stolt Offshore; Coflexip Stena Offshore; Red Man Pipe & Supply; Superior Energy Services, Inc.

FURTHER READING

De Rouffignac, Anne, "Equity Firm Drives Oil Service Consolidation," Houston Business Journal, July 2, 1999, p. 1.

Fletcher, Sam, "Sooner Buys Three Firms to Climb the Ranks of Tubular Distributors," Oil Daily, June 28, 1999.

Greer, Jim, "Wall Street Renews Energy Interest," Houston Business Journal, August 18, 2000, p. 1.

Marcial, Gene G., "Tempting Buys in Oil Drilling and Broadband Gear," Business Week, June 19, 2004, p. 92.

Moroney, Richard, "Oil States International," Medical Economics, December 2, 2005, p. 81.

Musero, Frank, "Lock-up Selling Down for August Releases," IPO Reporter, August 20, 2001.

"Oil and Gas Companies Come Together for IPO," Corporate Financing Week, September 4, 2000, p. 6.

"Oil Services Company Plans IPO to Pay Down Debt," Corporate Financing Week, October 2, 2000, p. 5.

"Oil States Industries, Inc.," Oil and Gas Journal, June 21, 1999, p. 61.

"Oil States International," Venture Capital Journal, April 1, 2001.

Rutledge, Tanya, "Continental Emsco of Garland Moving Headquarters to Houston," Houston Business Journal, February 9, 1996, p. 6A.