Superior Energy Services, Inc.

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Superior Energy Services, Inc.

1105 Peters Road
Harvey, Louisiana 70058
U.S.A.
Telephone: (504) 362-4321
Fax: (504) 362-1430
Web site: http://www.superiorenergy.com

Public Company
Incorporated: 1991 as Small's Oilfield Services Corp.
Employees: 3,150
Sales: $500.6 million (2003)
Stock Exchanges: New York
Ticker Symbol: SPN
NAIC: 213112 Support Activities for Oil and Gas Operations

Superior Energy Services, Inc. is a Louisiana-based oilfield services and equipment rental company, serving oil and gas companies operating in the Gulf of Mexico. Operations include well intervention services, marine services, and rental tools. Superior's well intervention services help oil and gas producers to stimulate wells by a variety of nondrilling methods. In addition, the company provides permanent and temporary plug and abandonment services for wells. (According to both state and federal laws nonproducing offshore wells must have their holes plugged with concrete and their rig and piping removed as far as 15 feet below the sea floor.) Superior also has begun acquiring mature shallow water oil and gas properties, with the intent of using the group's expertise to develop remaining reserves and then plug and decommission the wells. Superior's marine services is centered around a fleet of more than 50 liftboats, representing about one-quarter of all liftboats operating in the Gulf of Mexico, which can be used in conjunction with the company's well intervention services. Liftboats are self-propelled, self-elevating work platforms that also provide living accommodations. In addition, Superior manufactures, sells, and rents specialized equipment used in oil and gas well drilling, both onshore and offshore. The company maintains 36 rental tool operations in the Gulf of Mexico, located in all major staging points, offering such items as pressure control equipment, specialty tubular goods, connecting iron, drill pipe, tongs, power swivels, and stabilizers. Further, Superior maintains tool rental operations, offering a smaller range of equipment, in Venezuela, Trinidad, Canada, the United Kingdom, The Netherlands, and the Middle East. Superior also offers a variety of other oilfield services, such as platform and field management services, nonhazardous oilfield waste management and environmental cleaning services, and the manufacture and sale of specialized drilling rig instrumentation, electronic torque, and pressure control equipment.

Founding the Corporation in 1991

Superior's corporate lineage can be traced back to April 1991, with the incorporation of Small's Oilfield Services Corp., the predecessor of which had been founded by Carl W. Small some 25 years earlier. In conjunction with its incorporation, the company, based in Big Spring, Texas, traded stock to acquire Small Fishing and Rental, Inc.; Rentco Pipe and Tool Corp.; Curry Fishing and Rental, Inc.; and KCK Pipe Rentals Corp. Specializing in the rental of oil well equipment and fishing tools in west Texas and New Mexico, the company was taken public in 1992. It fared poorly, though, leading to its founder stepping down as president and chief executive in October 1993. In 1995 Small's lost $1.6 million and negotiations were begun to merge it with Superior Group of Belle Chasse, Louisiana.

Founding of Superior Group: 1984

Superior Group consisted of Superior Well Service, Inc.; Connection Technology, L.L.C.; Superior Tubular Services, Inc.; and Ace Rental Tools. Superior was founded by New Orleans attorney Terence E. Hall, who started out as a consultant in the oil and gas industry, and then in 1984 started Connection Technology, which manufactured computer monitoring systems to test drilling pipelines. Over the next five years he diversified into other oilfield services, forming Superior Tubular Services to manufacture and install tubing, and Superior Well Services Inc., a plug and abandonment company. In 1989 the three independently operated companies came under the common ownership of Superior Group.

Unlike Small's, Superior prospered in the early 1990s, producing strong results. Hall was attracted to Small's, believing he could turn around the business in a short period of time. Moreover, because Small's was a public company he would also be able to convert Superior into a public company through a reverse merger, and by way of a secondary stock offering he could raise cash he needed to support an aggressive expansion effort. The reverse merger was complicated and after more than a year had passed it finally was completed in December 1995. The owners of the Superior subsidiaries exchanged their holdings for shares in Small's and in the process gained a majority interest in the resulting company, which was subsequently renamed Superior Energy Services, Inc. Simultaneously, the company made a public offering of stock, netting $9.3 million. Some of that money, $2 million, along with 1.8 million shares of stock, was put to quick use in the acquisition of Oil Stop Inc., which made inflatable offshore oil cleanup booms. Superior also took immediate steps to rectify matters with Small's. A joint venture was forged with Abilene, Texas-based G&L Tool Co., whereby G&L bought Small's land for $300,000 and took over its rental equipment through a monthly payment agreement: $110,000 each month for two years, followed by three years of $80,000 monthly payments. After five years G&L had the option to buy Small's.

In the two years following the merger with Small's, Superior pursued its strategy of growth through acquisition, paying particular attention to the rental field as a way to lower dependence on plug and abandonment activities, which accounted for more than 80 percent of the company's revenues at this stage. Long term, the company's goal was to become a general "workover and remediation" company, able to provide the full range of services and equipment needed to restore wells. Both equipment rental and plug and abandonment capabilities were important facets of the plan. Superior also implemented a strategy of allowing acquired companies to operate as wholly owned subsidiaries, keeping their names and generally most of their management, thereby retaining name recognition, customer contacts, and goodwill accumulated over the years. Hall told New Orleans City Business in a June 1997 company profile, "We just try to lend some management expertise and help them run their business."

In July 1996 Superior completed the purchase of Baytron, Inc., paying $1.1 million in cash and 550,000 shares of stock, in a deal worth approximately $2.6 million. The Gretna, Louisiana-based company designed, manufactured, sold, and rented computerized rig data acquisition systems to monitor drilling activities in oilfields, a business that nicely complemented the activities of Connection Technology. Later in 1996 Superior added Dimensional Oil Field Services, Inc. in a deal valued at $3.5 million. The Louisiana company was a plug and abandonment services company that was a direct competitor of Superior Well Service, and its acquisition helped Superior to gain a majority position in the Gulf of Mexico plug and abandonment market. Next, Superior bolstered its Ace Rental Tools, Inc. division by acquiring the assets of Advance Oilfield Rental Tools, Inc., a Houma, Louisiana, company that provided customers in south Louisiana with specialized high-pressure hoses, manifolds, and valves. For the year, Superior posted $23.6 million in sales and a $3.9 million profit.

Superior picked up the pace of acquisitions in 1997. It added to its oilfield tool rental business with the purchase of Concentric Pipe & Tool Rentals, another Houma, Louisiana, company that served the Gulf of Mexico market. It also bought Nautilus Pipe & Tool Rental, Inc. and Superior Bearing & Machine Works, Inc. The company then enhanced its well intervention services with the acquisition of F&F Wireline Service, Inc., which provided production wireline services on land and the Gulf of Mexico. Next, Superior grew the rental side of its business, paying cash and stock totaling $11 million for Tong Rental and Supply Inc. With offices in Lafayette, Louisiana, and Houston and Alice, Texas, Tong Rental was one of the Gulf's largest rental companies for power swivels, power tongs, and related tools. Later in 1997 Superior paid $25 million in cash and notes to pick up Stabil Drill Specialties, Inc., which manufactured, for sale and rental, tools used in the bottom hole assembly, such as stabilizers, hole openers, and drill collars. At the same time, Superior completed the $7.4 million purchase of Fastorq, Inc., which provided hydrostatic test pump rentals as well as such oilfield services as hydraulic nipple up, wrench bolting, bolt turning, nut splitting, bolt removal, and mechanical pipe cutting. A further expansion of the rental business resulted from the $25 million purchase of Sub-Surface Tools, Inc., a Morgan City, Louisiana-based company that specialized in the rental of tubulars, tubular handling tools, and pressure control equipment. As a result of its rapid growth, Superior saw revenues increase in 1997 to $54.3 million and net income to $9.5 million.

Industry conditions were poor in 1998, leading Superior to slow down the acquisition pace, and the company even decided to sell off one of its subsidiaries, Baytron, to Tuboscope Inc. Over the course of the year, Superior added just three companies to its portfolio. It acquired Tong Specialty, Inc. and Lamb Services, Inc., both Lafayette companies that provided tubing and casing running services and drilling and rental tools. In addition, Superior acquired Hydro-dynamics Oilfield Contractors, Inc. Rather than always being the buyer, Superior was almost acquired itself in 1998. In October it reached a tentative agreement to be purchased by Tulsa, Oklahoma-based Parker Drilling for approximately $168 million in stock and assumed debt. Hall expressed his belief that the deal was in the best interests of Superior's shareholders. "But more importantly," he said in prepared remarks, "it will allow our existing business lines to grow by accessing Parker's well-established international platform." Parker, founded in 1934, offered drilling service and oil tool rentals in 14 countries. But the sale would not be completed, with the parties deciding in January 1999 to terminate the merger. The major problem was Parker's fluctuating stock price, which made it almost impossible to fix the value of Parker's offer. Despite difficult industry conditions, Superior improved its sales in 1998 to $91.3 million, although it suffered a net loss of $4.1 million.

Company Perspectives:

Your single resource for production, intervention, workover, well services and rental tools.

Acquiring Cardinal Holdings in 1999

Superior remained well positioned to benefit from an industry rebound and completed a pair of significant acquisitions in 1999 to strengthen its base. It used $197 million in stock to acquire Cardinal Holdings Corporation, a liftboat company with related well-servicing operations. By contributing $45 million of equity, Cardinal shareholders, led by First Reserve Corporation, a private equity firm, gained a 51 percent stake in the merged operation. Not only did Superior double its revenues in one stroke, it greatly enhanced its long-term strategy of becoming a start-to-finish oilfield services provider to oil and gas producers. The other acquisition completed in 1999 added a further key component. For stock and cash valued at $5.7 million Superior picked up Production Management Companies Inc., a Harvey, Louisiana, company that provided contract operating and supplemental labor services for offshore drilling operations, offshore construction and maintenance services, offshore and dockside environmental cleaning services, and sandblasting and platform coating services. Superior now possessed a competitive edge over other service companies. Cardinal liftboats could deliver the wide range of oilfield services Superior had to offer. For the year Superior generated sales of $113 million and recorded a net loss of $6.6 million, but with conditions improving in the oil and gas industry the company was poised to enjoy strong results going forward.

Superior completed several important purchases in 2000. It bought six liftboats from Trico Marine Services, Inc. for $14 million, expanding the company's fleet to 48 liftboats at an opportune time, with dayrates on the rise. In June 2000 Superior acquired HB Rentals, L.C., and its subsidiary Eagle Rentals Co., Inc., which served both the onshore and offshore oil and gas markets with onsite housing units. Later in the year Superior paid $9.5 million in cash to supplement its well intervention capabilities by acquiring assets of AMBAR, Inc.'s Production Services Division, which provided coiled tubing, pumping, stimulation, nitrogen, pipeline remediation, and related services to restore lost production from oil and gas wells in the Gulf region. Finally, Superior added International Snubbing Services, Inc. (ISS) and its affiliated companies, international providers of leading-edge well services such as hydraulic workover, drilling, and well control services. ISS operated offshore of the United States as well as Australia, Europe, Trinidad, and Venezuela. As a result of improved conditions, the addition of Cardinal and Production Management, and the centralization of operations, Superior posted impressive numbers in 2000. Sales more than doubled to $257.5 million and net income totaled $18.3 million. Also of importance was the company's increased exposure to the production side of the industry.

In 2001 Superior continued to grow by external means. It paid $80.5 million to acquire the assets of Power Offshore Service and Reeled Tubing, adding seven liftboats, 21 coiled tubing units, and 20 nitrogen units. Superior also bought Workstrings, LLC and its related company Technical Limited Drillstrings, Inc., which provided rental tubulars, accessories, and services. Once again, Superior reported excellent year-end results, with revenues improving to $449 million and net income soaring to $53.8 million. But in the fourth quarter activity in the Gulf of Mexico began to fall off, a situation that would have an impact on 2002. Sales were flat, receding to $443.1 million, and net income dropped to $21.9 million. Activity in the Gulf, however, began to pick up by year's end.

Superior enjoyed a strong year in 2003. It completed a major acquisition that offered international growth, adding Premier Oilfield Services, Ltd., a United Kingdom-based provider of oilfield equipment rentals, serving the North Sea, other European markets, northern Africa, and the Middle East. Also during 2003 Superior formed a new subsidiary, SPN Resources, LLC, to expand on its well intervention business by acquiring mature drilling properties, managing them until the end of their productive life, then decommissioning them. The focus was on wells with five or more years of reserve life located in the shallow waters of the Gulf of Mexico. In 2003, despite what was considered a soft year for the energy sector in the Gulf of Mexico, Superior reported record revenues, topping $500 million, and net income grew by almost 40 percent, to $30.5 million. Having taken steps to grow internationally and to move into the production side, Superior was well positioned to enjoy even greater long-term results.

Principal Subsidiaries

Ace Rental Tools, L.L.C.; Connection Technology, L.L.C.; H.B. Rentals, L.C.; International Snubbing Services, L.L.C.; Production Management Industries, L.L.C.; SPN Resources, L.L.C.

Key Dates:

1989:: Superior Group is formed.
1991:: Small's Oilfield Services Corp. is formed.
1992:: Small's is taken public.
1995:: Small's acquires Superior in a reverse merger, and Superior Energy Services is created.
1999:: Cardinal Holdings Corp. is acquired.
2003:: Subsidiary SPN Resources, LLC is formed.