DAWSON PRODUCTION SERVICES INC, 10-Q, 1996-11-14

DAWSON PRODUCTION SERVICES INC
10-Q, 1996-11-14
OIL & GAS FIELD SERVICES, NEC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996.

[ ] 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 0-27732

DAWSON PRODUCTION SERVICES, INC.
(Exact name of registrant as specified in its charter)

TEXAS 74-2231546
(State or other jurisdiction (I.R.S. Employer
or organization) Identification No.)

901 N.E. Loop 410, Suite 700
San Antonio, Texas 78209-1306
(Address of principal executive offices) (Zip Code)

Registrants telephone number, including area code: (210) 828-1838

NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

The number of shares outstanding of each of the issuer's classes of common
stock., as of November 11, 1996: Common Stock, $0.01 par value - 6,391,125
shares.
<PAGE>
DAWSON PRODUCTION SERVICES, INC.
INDEX TO FORM 10-Q

PAGE 1
------
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets-
March 31, 1996 and September 30, 1996 ...................... 1

Consolidated Statements of Operations-
Three Months Ended September 30, 1995 and 1996
and Six Months Ended September 30, 1995 and 1996 ........... 2

Consolidated Statements of Cash Flows-
Six Months Ended September 30, 1995 and 1996 ............... 3

Notes to Interim Consolidated Financial Statements ......... 4

Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 6

PART II. OTHER INFORMATION .......................................... 10

SIGNATURE ................................................................. 12
<PAGE>
PART I

ITEM 1. FINANCIAL STATEMENTS (unaudited)

DAWSON PRODUCTION SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, September 30,
1996 1996
(unaudited)
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................................... $ 13,863,108 $ 9,364,032
Trade receivables (net of allowance for doubtful accounts of
$290,839 and $307,236, respectively) .......................... 8,773,156 13,687,635
Other receivables ................................................. 95,202 281,536
Income taxes receivable ........................................... 740,768 290,768
Prepaid expenses and other ........................................ 215,497 882,996
------------ ------------
Total current assets .................................... 23,687,731 24,506,967
Net property and equipment, substantially all pledged ................. 29,114,671 39,209,362
Goodwill and other assets .............................................. 3,565,555 10,375,613
------------ ------------
Total assets ............................................ $ 56,367,957 $ 74,091,942
============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable .................................................. $ 2,909,390 $ 4,114,105
Accrued liabilities ............................................... 2,825,926 3,237,185
Current portion of long-term debt ................................. 20,055 3,646,947
Current portion of obligations under capital leases ............... 1,167,384 1,707,665
------------ ------------
Total current liabilities ............................... 6,922,755 12,705,902
------------ ------------
Long-term debt, net of current portion ................................ 1,530,903 8,730,100
Obligations under capital leases, net of current portion .............. 2,163,610 1,478,405
Deferred income taxes .................................................. 56,310 3,244,169
Shareholders' equity :
Preferred stock, no par value 560,600 shares authorized, none
issued and outstanding ........................................ -- --
Common stock, $.01 par value, 20,560,600 shares authorized,
6,382,526 and 6,391,126 issued and outstanding, respectively .. 63,826 63,912
Paid-in capital .................................................... 41,458,254 41,522,152
Retained earnings .................................................. 4,314,177 6,489,180
Notes receivable from officers ..................................... (141,878) (141,878)
------------ ------------
Total shareholders' equity .............................. 45,694,379 47,933,366
Commitments and contingencies ------------ ------------
Total liabilities and equity ............................ $ 56,367,957 $ 74,091,942
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.

1
<PAGE>
DAWSON PRODUCTION SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------------- ----------------------------
1995 1996 1995 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues ...................................................... $ 13,240,504 $ 19,133,840 $ 25,888,387 $ 33,811,434
Costs and expenses:
Operating ................................................ 8,735,545 12,400,558 16,875,158 21,893,507
General and administrative ............................... 2,080,994 3,078,743 4,238,011 5,338,804
Depreciation and amortization ............................ 1,004,066 1,500,735 2,016,424 2,875,974
------------- ------------- ------------- -------------
Total costs and expenses ....................... 11,820,605 16,980,036 23,129,593 30,108,285
------------- ------------- ------------- -------------
Operating income ............................. 1,419,899 2,153,804 2,758,794 3,703,149
------------- ------------- ------------- -------------
Other income and expenses:
Interest expense ......................................... 474,089 230,642 952,872 296,022
Other expense (income), net ............................. (16,252) 781 (27,207) (121,820)
------------- ------------- ------------- -------------
Total other income and expenses ................ 457,837 231,423 925,665 174,202
------------- ------------- ------------- -------------
Income before minority interest and income taxes 962,062 1,922,381 1,833,129 3,528,947
Minority interest in consolidated subsidiary .................. 396,073 -- 787,001 --
------------- ------------- ------------- -------------
Income before income taxes .................................... 565,989 1,922,381 1,046,128 3,528,947
Provision for income taxes .................................... 244,007 762,984 398,000 1,353,944
------------- ------------- ------------- -------------
Net income .................................................... 321,982 1,159,397 648,128 2,175,003
------------- ------------- ------------- -------------
Preferred stock dividends ..................................... -- -- 50,086 --
------------- ------------- ------------- -------------
Net income applicable to common stock ......................... $ 321,982 $ 1,159,397 $ 598,042 $ 2,175,003
============= ============= ============= =============
Earnings per common share:
Primary .................................................. $ 0.12 $ 0.18 $ 0.25 $ 0.33
Fully diluted ............................................ $ 0.12 $ 0.18 $ 0.23 $ 0.33

Weighted average common and common equivalent
shares outstanding:
Primary .................................................. 2,420,294 6,502,933 2,384,359 6,510,428
Fully diluted ............................................ 3,124,792 6,540,618 3,095,826 6,527,796

</TABLE>
See accompanying notes to consolidated financial statements.

2
<PAGE>
DAWSON PRODUCTION SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
---------------------------
1995 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income .............................................. $ 648,128 $ 2,175,003
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in net income of subsidiary company ... 787,001 --
Depreciation and amortization ........................... 2,016,424 2,875,974
Allowance for doubtful accounts ......................... (48,088) 53,603
(Gain) loss on sale of assets ........................... (19,176) 81,826
Increase (decrease) in deferred income taxes ............ 26,740 978,192
Decrease (increase) in receivables ...................... (509,666) (721,886)
Decrease (increase) in prepaid expense and other ........ (604,779) (463,526)
Decrease (increase) in other assets ..................... 68,092 10,014
Increase (decrease) in accounts payable ................. 184,904 378,408
Increase (decrease) in income tax payable ............... (184,375) (17,980)
Increase (decrease) in accrued expenses ................. (38,762) (506,176)
----------- ------------
Net cash provided by operating activities ... 2,326,443 4,843,452
Cash flows from investing activities:
Acquisitions ............................................ -- (12,958,413)
Additions to property and equipment ..................... (2,689,532) (2,236,135)
Proceeds from sales of property ......................... 195,578 65,428
----------- ------------
Net cash used in investing activities ...... (2,493,954) (15,129,120)
Cash flows from financing activities:
Long-term borrowings .................................... 170,100 7,261,330
Payments on long-term debt .............................. (781,757) (462,451)
Capital lease payments .................................. (320,277) (1,076,271)
Exercise of common stock options and warrants ........... -- 63,984
Cash dividends on preferred stock ....................... (50,086) --
Subsidiary distributions to minority owner ............. (131,935) --
----------- ------------
Net cash (used) provided in
financing activities ..................... (1,113,955) 5,786,592
----------- ------------
Net increase (decrease) in cash ........... (1,281,466) (4,499,076)
Cash and cash equivalents at the beginning of the period 2,796,540 13,863,108
----------- ------------

Cash and cash equivalents at the end of the period ..... $ 1,515,074 $ 9,364,032
=========== ============

Supplemental disclosures of cash flow information:
Cash paid for:
Interest ..................................... $ 1,058,823 $ 261,681
Income taxes ................................. 640,000 214,000
Supplemental disclosures of non-cash transactions:
Assets acquired under capital lease ...................... 820,292 904,547
Conversion of long-term debt to common stock ............. 75,000 --
Note issued to seller in acquisition ..................... -- 1,750,000
</TABLE>

See accompanying notes to consolidated financial statements.

3
<PAGE>
PART I---FINANCIAL INFORMATION

DAWSON PRODUCTION SERVICES, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

The unaudited consolidated financial statements included herein have
been prepared without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted, pursuant to such
rules and regulations. These unaudited consolidated financial statements should
be read in conjunction with Dawson Production Services, Inc. (the "Company's" )
audited consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended March 31, 1996.

The unaudited consolidated financial information included herein
reflects all adjustments, consisting only of normal recurring adjustments, which
are necessary, in the opinion of management, for a fair presentation of the
Company's financial position or results of operations for the interim periods
presented. The interim information contained herein is not necessarily
indicative of the results to be expected for the full year.

2. ACQUISITIONS

In April 1996, the Company acquired the assets of two small production
testing companies in Louisiana. The aggregate purchase price was approximately
$673,000. Goodwill and a non-compete agreement were recognized on these
transactions which amounted to approximately $111,000. These items are being
amortized over a twenty and five year periods, respectively.

In May 1996, the Company acquired the Texas-based well servicing
division of a non-affiliated company. The aggregate purchase price was $779,000.

In July 1996, the Company acquired the assets of a trucking company in
Louisiana. The aggregate purchase price was approximately $400,000. Goodwill
recognized on the transaction amounted to $50,000 which is being amortized over
a twenty-year period.

4
<PAGE>
2. ACQUISITIONS (CONTINUED)

Effective July 29, 1996, the Company acquired all of the issued and
outstanding stock of Taylor Companies, Inc. for an aggregate purchase price of
$12,750,000, consisting of $11,100,000 in cash and $1,750,000 subordinated
promissory note payable to the selling shareholders. Goodwill recognized on this
transaction amounted to $6,690,000 which is being amortized over a twenty year
period. The Company reported this acquisition and related proforma effects on a
current report on Form 8-K .

The acquisitions have been accounted for as purchases and, accordingly,
the operating results have been included in the Company's statement of income
since the dates of acquisition. The effect on results of operations would not
have been material if such acquisitions had occurred at the beginning of the
year other than the Taylor acquisition.

On October 1996, the Company entered into a Letter of Intent to acquire
the oilfield service assets, principally related to liquid services, of Morley
Environmental Services, Inc. for $5.5 million.

3. LOAN COMMITMENTS

In September 1996, the Company signed a commitment letter for an
acquisition line of credit in the amount of $20.0 million and a working capital
line of credit in the amount of $10.0 million. Interest on advances on the
acquisition line of credit is to be computed at a per annum rate equal to the
lesser of (i) the prime rate of interest of the bank as adjusted from time to
time; (ii) a varying percentage ranging from 2% to 3% over the 180-day LIBOR
rate determined by the total funded debt to cash flow ratio and adjusted to
reflect changes in LIBOR or the total funded debt to cash flow ratio; or (iii)
the highest lawful rate. Interest on advances on the working capital line of
credit are to be computed at a per annum rate equal to the lesser of: (i) the
prime rate of the bank as adjusted from time to time; (ii) a varying percentage
rate ranging from 1.75% to 2.75% over the Company's choice of the 30-day, 90-day
or 180-day LIBOR rate of interest; or (iii) the highest rate permitted by
applicable law. Under terms of the agreement, the Company must maintain minimum
working capital, tangible net worth, current ratios and debt to capital ratios.
The Company intends to pursue efforts to close the above described term loan,
acquisition line of credit and working capital line of credit. However, there
can be no assurance that these loan agreements will be consummated.

4. COMMITMENTS AND CONTINGENCIES

The Company is involved in various claims and legal actions arising in
the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position or results of operation.

5
<PAGE>

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

Forward-Looking Information

This section of the Company's Quarterly Report on Form 10-Q contains
forward-looking statements. The statements herein regarding future financial
performance and results and the other statements which are not historical facts
are forward-looking statements and involve risks and uncertainties, including
but not limited to, the Company's ability to consummate the loan transactions
described below, the ability to locate and complete suitable acquisitions,
industry conditions, prices of crude oil and natural gas and other factors.

Results of Operations - Quarters Ended September 30, 1996 and 1995

Revenues. Revenues were $19.1 million for the quarter ended September 30,
1996, a 45% increase compared with revenues of $13.2 million for the quarter
ended September 30, 1995. Compared to the same period in 1995, revenues for the
quarter ended September 30, 1996 increased by 11%, 133% and 13% in the workover,
liquid and production services lines of business, respectively. The increase in
revenues is primarily attributable to the acquisition of a liquid services
business, Taylor Companies, Inc. ("Taylor"), in July 1996, the addition of
eleven salt water disposal trucks in March 1996, the addition of six workover
rigs acquired in May 1996 and increased demand in the workover, liquid services
and production services lines of business.

Costs and Expenses. The Company's costs and expenses for the quarter ended
September 30, 1996 were $17.0 million, a 44% increase compared to costs and
expenses of $11.8 million for the quarter ended September 30, 1995. Operating
expenses for the period increased $3.7 million reflecting the addition of Taylor
and higher demand for services in all lines of business. General and
administrative expenses, which include the field office general and
administrative expenses, increased $1.0 million primarily due to the addition of
Taylor.

Interest Expense. Interest expense for the quarter ended September 30, 1996
was $0.2 million compared to $0.5 million for the quarter ended September 30,
1995. The decrease of $0.3 million is attributable to the retirement of debt
from funds generated from the Company's initial public offering which was
completed in March 1996. The Company anticipates that interest expense will
increase in future periods due to the incurrence of $7.0 million of debt to
acquire Taylor.

Minority Interest. The decrease in minority interest of $0.4 million from
the quarter ended September 30, 1995 as compared to the quarter ended September
30, 1996 was due to the acquisition, in November 1995, of the remaining 39%
minority interest in the Company's subsidiary, Dawson Welltech, L.C.

Net Income. For the quarter ended September 30, 1996, the Company had net
income of $1.2 million, a 261% increase over the $0.3 million in net income for
the quarter ended September 30, 1995. The increase in net income reflects the
acquisition of Taylor , stronger overall market conditions, the purchase of the
remaining minority interest in Dawson Welltech, L.C. and interest savings
resulting from the retirement of debt using a portion of the funds generated
from the Company's initial public offering

<PAGE>
completed in March 1996.

Results of Operations - Six Months Ended September 30, 1996 and 1995

Revenues. Revenues were $33.8 million for the six months ended September
30, 1996, a 31% increase compared with revenues of $25.9 million for the six
months ended September 30, 1995. Compared to the same period in 1995, revenues
for the six months ended September 30, 1995 increased by 13%, 81% and 8% in the
workover, liquid and production services lines of business, respectively. The
increase in revenues is attributable primarily to the acquisition of the liquid
services business of Taylor in July 1996, the addition of eleven salt water
disposal trucks in March 1996, the addition of six workover rigs acquired in May
1996 and increased demand in the workover, liquid services and production
services lines of business.

Costs and Expenses. The Company's costs and expenses for the six months
ended September 30, 1996 were $30.1 million, a 30% increase compared to costs
and expenses of $23.1 million for the six months ended September 30, 1995.
Operating expenses for the period increased $5.0 million reflecting the addition
of Taylor and higher demand for services in all lines of business. General and
administrative expenses for the period, which include the field office, general
and administrative expenses, increased $1.1 million primarily due to the
addition of Taylor.

Interest Expense. Interest expense for the six months ended September 30,
1996 was $0.3 million compared with $1.0 million for the corresponding period in
1995. The decrease of $0.7 million is attributable to the retirement of debt
from funds generated from the Company's initial public offering completed in
March 1996. The Company anticipates that interest expense will increase in
future periods due to the incurrence of $7.0 million in debt to acquire Taylor.

Minority Interest. The decrease in minority interest of $0.8 million from
the six months ended September 30, 1995 as compared to the six months ended
September 30, 1996 was due to the acquisition in November 1995 of the remaining
39% minority interest in the Company's subsidiary, Dawson Welltech, L.C.

Net Income. For the six months ended September 30, 1996, the Company had
net income of $2.2 million, a 264% increase over the $0.6 million in net income
for the same period in 1995. The increase in net income reflects the acquisition
of Taylor, stronger overall market conditions, the purchase of the remaining
minority interest in Dawson Welltech, L.C. and interest savings resulting from
the retirement of debt using a portion of the funds generated from the Company's
initial public offering completed in March 1996.

Liquidity and Capital Resources

Cash Flows. The Company had cash and cash equivalents of $9.4 million at
September 30, 1996 compared to $13.9 million at March 31, 1996. Working capital
was $15.2 million and $16.8 million at September 30, 1996 and March 31, 1996,
respectively. The Company used a net $15.1 million for investing activities in
the six months ended September 30, 1996, primarily for the acquisition of Taylor
and for capital expenditures of $2.2 million. The Company used a net $2.5
million for investing activities in the six months ended September 30, 1995. The
Company anticipates that fiscal 1997 capital expenditures will consist of
approximately $7.0 million for improvements to its existing equipment and
capital additions. Under the Company's September 1996 $7.0 million loan
commitment discussed

<PAGE>
below, the Company will not be permitted to spend more than $7.0 million
annually on capital expenditures without obtaining a waiver from its lender.
Acquisitions of additional assets and businesses are expected to continue to be
an important part of the Company's strategy for growth. However, the Company
would, under certain circumstances, need to obtain additional financing to fund
such acquisitions. If the Company is unable to locate suitable acquisitions or
to obtain financing on acceptable terms, the Company's growth will be adversely
affected. While the Company believes it will be able to negotiate favorable
acquisitions and financing transactions, there can be no assurance that this
will be the case.

In a continuation of the Company's growth strategy, the Company announced
on November 1, 1996 that it had signed a Letter of Intent to acquire the
oilfield service assets, principally related to liquid services, of Mobley
Environmental Services, Inc. for $5.5 million. There can be no assurance that
this transaction will be consummated.

Credit Facilities and Long-Term Debt. The Company has available a bank line
of credit to finance temporary working capital requirements and to support the
issuance of letters of credit. The maximum availability is the lesser of (i)
$4.0 million or (ii) a calculated amount based on a percentage of accounts
receivable meeting certain criteria. This line of credit is secured by a first
lien security interest on the Company's accounts receivable. At September 30,
1996, the maximum availability was $4.0 million, none of which had been drawn in
cash, and $0.5 million of which was being utilized to support the issuance of
letters of credit related to the Company's workers' compensation coverage.

In July 1996, to finance a portion of the Taylor acquisition, the Company
obtained a loan from a bank in the amount of $7.0 million . The promissory note
carries an annual interest rate of 7.53% and has a maturity date of November 25,
1996. In September 1996, the Company obtained a take-out commitment for a term
loan in the amount of $7.0 million to replace the promissory note. Under the
terms of the commitment, the Company is required to pay monthly installments,
over a five year period, of $116,666.67 plus accrued interest on the outstanding
balance at the lesser of LIBOR plus 2.25% or the highest lawful rate. The
Company will grant the bank a first lien security interest in all assets
acquired in the Taylor acquisition, and the loan to value ratio with respect to
the secured assets may not exceed 70%. Included in the commitment agreement are
financial covenants under which the borrower must maintain (i) a current ratio
of no less than 1.25 to 1; (ii) a debt to worth ratio no greater than 1.10 to 1;
(iii) a total funded debt to cash flow ratio of no greater than 6 to 1; (iv) a
debt service coverage ratio no less than 1.25 to 1; (v) working capital of no
less than $2.0 million; and (vi) a tangible net worth of no less than $30.0
million. In addition, annual capital expenditures, excluding acquisitions of
businesses, cannot exceed $7.0 million. The Company is currently in compliance
with these provisions. The Company intends to pursue efforts to close the
above-described loan. However, there can be no assurance that this loan
agreement will be consummated.

8
<PAGE>
day LIBOR rate of interest; or (iii) the highest rate permitted by applicable
law. Under terms of the agreement, the Company must comply with certain
financial commitments, including but not limited to a minimum working capital
requirement, a tangible net worth requirement, current ratios and debt to
capital ratios. The Company intends to pursue efforts to close the above
described term loan, acquisition line of credit and working capital line of
credit. However, there can be no assurance that these loan agreements will be
consummated, and failure to consummate them could have a material adverse effect
on the Company's cash flow and working capital.

In addition to the foregoing, in connection with the Taylor acquisition,
the Company assumed $0.6 million of debt owed by Randy Taylor to a bank, and
guaranteed payment of approximately $1.5 million of indebtedness owed by Taylor
Services Company, Inc. to the same bank.

Inflation

Inflation has not had a significant impact on the Company's operations to
date.

9
<PAGE>
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See note 4 herein to the Notes to the Unaudited Consolidated Financial
Statements.

ITEM 2. CHANGES IN SECURITIES

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

No matters have been submitted to a vote of security holders
during the quarter ended September 30, 1996.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

Exhibit #
10.23 Frost National Bank - Promissory Note
10.24 Frost National Bank - Negative Pledge Agreement
11.1 Earnings per share computations

(b) Reports on Form 8-K
In a Current Report on Form 8-K and Form 8-KA dated July 29, 1996,
the Company reported the acquisition of 100% of the issued and
outstanding stock of Taylor Companies, Inc.

10
<PAGE>
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, thereto duly authorized.

DAWSON PRODUCTION SERVICES, INC.

By: /s/ P. MARK STARK
P. Mark Stark,
Chief Financial Officer

Date: November 14, 1996
11

EXHIBIT 10.23

PROMISSORY NOTE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$7,000,000.00 07-25-1996 11-25-1996 9001 500 0010 2211480 035
</TABLE>

References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.

<TABLE>
<CAPTION>
<S> <C> <C>
BORROWER: DAWSON PRODUCTION SERVICES, INC. (TIN: LENDER: THE FROST NATIONAL BANK
74-2231546) P.O. BOX 1600
901 NE LOOP 410, SUITE 700 SAN ANTONIO, TX 78296
SAN ANTONIO, TX 78209
</TABLE>
================================================================================
PRINCIPAL AMOUNT: INTEREST RATE: DATE OF NOTE:
$7,000,000.00 7.530% JULY 25, 1996

PROMISE TO PAY. DAWSON PRODUCTION SERVICES, INC. ("Borrower") promises
to pay to THE FROST NATIONAL BANK ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Seven Million & 00/100 Dollars
($7,000,000.00) or so much as may be outstanding, together with interest at the
rate of 7.530% per annum on the unpaid outstanding principal balance of each
advance. Interest shall be calculated from the date of each advance until
repayment of each advance or maturity, whichever occurs first.

PAYMENT. Borrower will pay this loan on demand, or if no demand is made,
in one payment of all outstanding principal plus all accrued unpaid interest on
November 25, 1996. In addition, Borrower will pay regular monthly payments of
accrued unpaid interest beginning August 25, 1996, and all subsequent interest
payments are due on the same day of each month after that. Interest on this Note
is computed on a 365/360 simple interest basis; that is, by applying the ratio
of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding, unless such calculation would result in a
usurious rate, in which case interest shall be calculated on a per diem basis of
a year of 365 or 366 days, as the case may be. Borrower will pay Lender at
Lender's address shown above on at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to accrued unpaid interest, then to principal, and any remaining
amount to any unpaid collection costs and late charges. Notwithstanding any
other provision of this Note, Lender will not charge interest on any undisbursed
loan proceeds. No scheduled installment, whether of principal of interest or
both, will be due unless sufficient loan funds have been disbursed by the
scheduled installment date to justify the payment.

PREPAYMENT. Borrower may pay without penalty all or a portion of the
amount owed earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue to make
payments of accrued unpaid interest. Rather, they will reduce the principal
balance due.

POST MATURITY RATE. The Post Maturity Rate on this Note is 18.000% per
annum. Borrower will pay interest on all sums due after final maturity, whether
by acceleration or otherwise, at that rate, with the exception of any amounts
added to the principal balance of this Note based on Lender's payment of
insurance premiums, which will continue to accrue interest at the pre-maturity
rate.

LENDER'S RIGHTS. Upon default, Lender may declare the entire indebtedness,
including the unpaid principal balance on this Note, all accrued unpaid
interest, and all other amounts, costs and expenses for which Borrower is
responsible under this Note or any other agreement with Lender pertaining to
this loan, immediately due, without notice, and then Borrower will pay that
amount. Lender may hire an attorney to help collect this Note if Borrower does
not pay, and Borrower will pay Lender's reasonable attorneys' fees. Borrower
also will pay Lender all other amounts actually incurred by Lender as court
costs, lawful fees for filing, recording, or releasing to any public office any
instrument securing this loan; the reasonable cost actually expended for
repossessing, storing, preparing for sale, and selling any security; and fees
for noting a lien on or transferring a certificate of title to any motor vehicle
offered as security for this loan, or premiums or identifiable charges received
in connection with the sale of authorized insurance. This Note has been
delivered to Lender and accepted by Lender in the State of Texas. If there is a
lawsuit, and if the transaction evidenced by this Note occurred in Bexar County,
Borrower agrees upon Lender's request to submit to the jurisdiction of the
courts of Bexar County, the State of Texas. Subject to the provisions on
arbitration, this Note shall be governed by and construed in accordance with the
laws of the State of Texas and applicable Federal laws.
<PAGE>

RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory
security interest in, and hereby assigns, conveys, delivers, pledges, and
transfers to Lender all Borrower's right, title and interest in and to
Borrower's accounts with Lender (whether checking, savings, or some other
account), including without limitation all accounts held jointly with someone
else and all accounts Borrower may open in the future, excluding however all
IRA, Keogh, and trust accounts. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on this Note
against any and all such accounts.

LINE OF CREDIT. This Note evidences a straight line of credit. Once the
total amount of principal has been advanced, Borrower is not entitled to further
loan advances. Advances under this Note may be requested orally by Borrower or
by an authorized person. Lender may, but need not, require that all oral
requests be confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed to Lender's
office shown above. Borrower agrees to be liable for all sums either; (a)
advanced in accordance with the instructions of an authorized person or (b)
credited to any of Borrower's accounts with Lender. The unpaid principal balance
owing on this Note at any time may be evidenced by endorsements on this Note or
by Lender's internal records, including daily computer print-outs. Lender will
have no obligation to advance funds under this Note if: (a) Borrower or any
guarantor is in default under the terms of this Note or any agreement that
Borrower or any guarantor has with Lender, including any agreement made in
connection with the signing of this Note; (b) Borrower or any guarantor ceases
doing business or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this Note or
any other loan with Lender; (d) Borrower has applied funds provided pursuant to
this Note for purposes other than those authorized by Lender; or (e) Lender in
good faith deems itself insecure under this Note or any other agreement between
Lender and Borrower.

ARBITRATION. Lender and Borrower agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Note or otherwise, including without limitation contract and
tort disputes, shall be arbitrated pursuant to the Rules of the American
Arbitration Association, upon request of either party. No act to take or dispose
of any collateral securing this Note shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or mortgage;
obtaining a writ of attachment or imposition of a receiver; or exercising any
rights relating to personal property, including taking or disposing of such
property with or without judicial process pursuant to Article 9 of the Uniform
Commercial Code. Any disputes, claims, or controversies concerning the
lawfulness or reasonableness of any act; or exercise of any right, concerning
any collateral securing this Note, including any claim to rescind, reform, or
otherwise modify any agreement relating to the collateral securing this Note,
shall also be arbitrated, provided however that no arbitrator shall have the
right or the power to enjoin or restrain any act of any party. Judgment upon any
award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Note shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable in
any arbitration proceeding, and the commencement of an arbitration proceeding
shall be deemed the commencement of an action for these purposes. The Federal
Arbitration Act shall apply to the construction, interpretation, and enforcement
of this arbitration provision.
<PAGE>
DISHONORED CHECK CHARGE. In the event a check offered in full or partial payment
on this loan is returned unpaid, Lender may charge a fee for the purpose of
defraying the expense incident to handling such returned check, and Borrower
agrees to pay such fee. The fee shall not exceed the maximum amount permitted
under applicable law.

OTHER CREDITS AFFECTING AVAILABILITY. Any other credits made available to
Borrower by Lender, such as other loans or letters or credit, may be advanced to
Borrower and/or issued under this line of credit commitment, and any such
advances or issuances shall, in addition to the outstanding advances on this
Note, reduce the outstanding availability on the line of credit.

GENERAL PROVISIONS. NOTICE: Under no circumstances (and notwithstanding any
other provisions of this Note) shall the interest charged, collected, or
contracted for on this Note exceed the maximum rate permitted by law. The term
"maximum rate permitted by law" as used in this Note means the greater of (a)
the maximum rate of interest permitted under federal or other law applicable to
the indebtedness evidenced by this Note, or (b) the higher, as of the date of
this Note, of the "Indicated Rate Ceiling" or the "Quarterly Ceiling" as
referred to in Article 5069-1.04(a)(1) and Article 5069-1.04(a)(2) respectively,
V.T.C.S. If any part of this Note cannot be enforced, this fact will not affect
the rest of the Note. In particular, this section means (among other things)
that Borrower does not agree or intend to pay, and Lender does not agree or
intend to contract for, charge, collect, take, reserve or receive (collectively
referred to herein as "charge or collect"), any amount in the nature of interest
or in the nature of a fee for this loan, which would in any way or event
(including demand, prepayment, or acceleration) cause Lender to charge or
collect more for this loan than the maximum Lender would be permitted to charge
or collect by federal law or the law of the State of Texas (as applicable). Any
such excess interest or unauthorized fee shall, instead of anything stated to
the contrary, be applied first to reduce the principal balance of this loan, and
when the principal has been paid in full, be refunded to Borrower. The right to
accelerate maturity of sums due under this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Lender does not intend to charge or collect any unearned
interest in the event of acceleration. All sums paid or agreed to be paid to
Lender for the use, forbearance or detention of sums due hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of the loan evidenced by this Note until payment in
full so that the rate or amount of interest on account of the loan evidenced
hereby does not exceed the applicable usury ceiling. Lender may delay or forgo
enforcing any of its rights or remedies under this Note without losing them.
Borrower and any other person who signs, guarantees or endorses this Note, to
the extent allowed by law, waive presentment, demand for payment, protest,
notice of dishonor, notice of intent to accelerate the maturity of this Note,
and notice of acceleration of the maturity of this Note. Upon any change in the
terms of this Note, and unless otherwise expressly stated in writing, no party
who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral without the consent of or
notice to anyone. All such parties also agree that Lender may modify this loan
without the consent of or notice to anyone other than the party with whom the
modification is made.

PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETE BORROWER:

DAWSON PRODUCTION SERVICES INC.
By: /s/ MICHAEL E. LITTLE
MICHAEL E. LITTLE, PRESIDENT/CHIEF EXECUTIVE OFFICER

================================================================================

EXHIBIT 10.24

NEGATIVE PLEDGE AGREEMENT

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
$7,000,000.00 07-25-1996 11-25-1996 9001 500 0010 2211480 035
</TABLE>

References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.

THIS NEGATIVE PLEDGE AGREEMENT between DAWSON PRODUCTION SERVICES, INC.
("Borrower") and THE FROST NATIONAL BANK ("Lender") is made and executed on
the following terms and conditions. Borrower has received prior commercial loans
from Lender or has applied to Lender for a commercial loan or loans and other
financial accommodations, including those which may be described on any exhibit
or schedule attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial accommodations from
Lender to Borrower, are referred to in this Agreement individually as the
"Loan" and collectively as the "Loans." Borrower understands and agrees
that: (a) in granting, renewing, or extending any Loan, Lender is relying upon
Borrower's representations, warranties, and agreements, as set forth in this
Agreement; (b) the granting, renewing, or extending of any Loan by Lender at all
times shall be subject to Lender's sole judgment and discretion; and (c) all
such Loans shall be and shall remain subject to the following terms and
conditions of this Agreement.

TERM. This Agreement shall be effective as of July 25, 1996, and shall continue
thereafter until all indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.

DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.

AGREEMENT. The word "Agreement" means this Negative Pledge Agreement, as
this Negative Pledge Agreement may be amended or modified from time to
time, together with all exhibits and schedules attached to this Negative
Pledge Agreement from time to time.

BORROWER. The word "Borrower" means DAWSON PRODUCTION SERVICES, INC..
The word "Borrower" also includes, as applicable, all subsidiaries and
affiliates of Borrower as provided below in the paragraph titled
"Subsidiaries and Affiliates."

CERCLA. The word "CERCLA" means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.

COLLATERAL. The word "Collateral" means and includes without limitation
all property and assets granted as collateral security for a Loan, whether
real or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise.

ERISA. The word "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.

EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."

GRANTOR. The word "Grantor" means and includes without limitation each
and all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.

GUARANTOR. The word "Guarantor" means and includes without limitation
each and all of the guarantors, sureties, and accommodation parties in
connection with any indebtedness.
<PAGE>
INDEBTEDNESS. The word "Indebtedness" means and includes without
limitation all Loans, together with all other obligations, debts and
liabilities of Borrower to Lender, or any one or more of them, as well as
all claims by Lender against Borrower, or any one or more of them; whether
now or hereafter existing, voluntary or involuntary, due or not due,
absolute or contingent, liquidated or unliquidated; whether Borrower may be
liable individually or jointly with others; whether Borrower may be
obligated as a guarantor, surety, or otherwise.

LENDER. The word "Lender" means THE FROST NATIONAL BANK, its successors
and assigns.

LOAN. The word "Loan" or "Loans" means and includes without limitation
any and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidences,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.

NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.

RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection with
the indebtedness.

SECURITY AGREEMENT. The words "Security Agreement" mean and include
without limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.

SECURITY INTEREST. The words "Security Interest" mean and include
without limitation any type of collateral security, whether in the form of
a lien, charge, mortgage, deed of trust, assignment, pledge, chattel
mortgage, chattel trust, factor's lien, equipment trust, conditional sale,
trust receipt, lien or title retention contract, lease or consignment
intended as a security device, or any other security or lien interest
whatsoever, whether created by law, contract, or otherwise.

SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any indebtedness exists:
<PAGE>
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of Borrower's
incorporation and is validly existing and in good standing in all states in
which Borrower is doing business. Borrower has the full power and authority
to own its properties and to transact the businesses in which it is
presently engaged or presently proposes to engage. Borrower also is duly
qualified as a foreign corporation and is in good standing in all states in
which the failure to so qualify would have a material adverse effect on its
businesses or financial condition.

AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.

FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.

LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.
<PAGE>
PROPERTIES. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable. Borrower owns and has good title to all of
Borrower's properties free and clear of all Security interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.

RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

TRANSFER AND LIENS. Fail to continue to own all of Borrower's assets,
except for routine transfers, use or depletion in the ordinary course of
Borrower's business. Borrower agrees not to create or grant to any person,
except Lender, any lien, security interest, encumbrance, cloud on title,
mortgage, pledge or similar interest in any of Borrower's property, except
in the ordinary course of Borrower's business. Borrower agrees not to sell,
convey, grant, lease, give, contribute, assign, or otherwise transfer any
of Borrower's assets, except for sales of inventory or leases of goods in
the ordinary course of Borrower's business.

CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's stock (other than dividends payable in its
stock), provided, however that notwithstanding the foregoing, but only so
long as no Event of Default has occurred and is continuing or would result
from the payment of dividends, if Borrower is a "Subchapter S
Corporation" (as defined in the Internal Revenue Code of 1986, as
amended), Borrower may pay cash dividends on its stock to its shareholders
from time to time in amounts necessary to enable the shareholders to pay
income taxes and make estimated income tax payments to satisfy their
liabilities under federal and state law which arise solely from their
status as Shareholders of a Subchapter S Corporation because of their
ownership of shares of stock of Borrower, or (d) purchase or retire any of
Borrower's outstanding shares or alter or amend Borrower's capital
structure.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.

RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA, Keogh, and trust
accounts. Borrower authorizes Lender, to the extent permitted by applicable law,
to charge or setoff all sums owing on the indebtedness against any and all such
accounts.

EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:

DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.

OTHER DEFAULTS. Failure of Borrower to comply with or to perform when due
any other terms, obligation, covenant or condition contained in this
Agreement.

DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loan or perform their respective obligations
under this Agreement or any of the Related Documents.

FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.
<PAGE>
DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.

INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against
Borrower.

CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
reposession or any other method, by any creditor of Borrower, any
creditor of any Grantor against any collateral securing the
indebtedness, or by any governmental agency. This includes a
garnishment, attachment, or levy on or of any of Borrower's deposit
accounts with Lender.

EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with
respect to any Guarantor of any of the indebtedness or any Guarantor
dies or becomes incompetent, or revokes or disputes the validity of, or
liability under, any Guarantee of the Indebtedness.

CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent
(25%) or more of the common stock of Borrower.

ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the indebtedness is impaired.

INSECURITY. Lender, in good faith, deems itself insecure.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all Indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such accelerations shall be automatic
and not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS NEGATIVE PLEDGE
AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JULY
25, 1996

BORROWER:

DAWSON PRODUCTION SERVICES, INC.
BY: /s/ MICHAEL E. LITTLE
MICHAEL E. LITTLE, PRESIDENT/CHIEF EXECUTIVE OFFICER

LENDER:
THE FROST NATIONAL BANK

By:
Authorized Officer
================================================================================

EXHIBIT 11.1

DAWSON PRODUCTION SERVICES, INC.
EARNINGS PER SHARE COMPUTATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30, Six Months Ended September 30,
------------------------------- ------------------------------
1995 1996 1995 1996
-------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Primary Earnings Per Share
Net Income ................................................. $ 321,982 $ 1,159,397 $ 648,128 $ 2,175,003
Preferred stock dividends .................................. (25,811) -- (50,086) --
------------ ----------- ------------ -----------
Net income applicable to common stock ...................... $ 296,171 $ 1,159,397 $ 598,042 $ 2,175,003
------------ ----------- ------------ -----------
Shares used in earnings per share computation .............. 2,420,294 6,502,933 2,384,359 6,510,428
------------ ----------- ------------ -----------
Earnings per share ......................................... $ 0.12 $ 0.18 $ 0.25 $ 0.33
------------ ----------- ------------ -----------
Fully Diluted Earnings Per Share
Net Income ................................................. $ 321,982 $ 1,159,397 $ 648,128 $ 2,175,003
Interest on convertible debt, net of tax .................. 39,100 -- 76,628 --
------------ ----------- ------------ -----------
Net income applicable to common stock ...................... $ 361,082 $ 1,159,397 $ 724,756 $ 2,175,003
------------ ----------- ------------ -----------
Shares used in earnings per share computations ............. 3,124,792 6,540,618 3,095,826 6,527,796
------------ ----------- ------------ -----------
Earnings per share ......................................... $ 0.12 $ 0.18 $ 0.23 $ 0.33
------------ ----------- ------------ -----------

COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS-PRIMARY

Weighted average outstanding common shares ................. 1,695,942 6,391,125 1,688,816 6,390,984
Dilutive effect of stock and warrants issued within one year
prior to initial public offering ....................... 629,496 -- 629,494 --
Average other common equivalent shares-dilutive effect of
warrant shares ......................................... 94,856 111,808 66,049 119,444
------------ ----------- ------------ -----------
Shares used in earnings per share computations ............. 2,420,294 6,502,933 2,384,359 6,510,418
------------ ----------- ------------ -----------

COMPUTATION OF SHARES USED IN EARNINGS PER SHARE
COMPUTATIONS-FULLY DILUTED

Weighted average outstanding common shares ................. 1,695,942 6,391,125 1,688,816 6,390,984
Dilutive effect of stock and warrants issued within one year
prior to initial public offering ....................... 629,496 -- 629,494 --
Average other common equivalent shares-dilutive effect of
warrant shares ......................................... 94,856 149,493 66,048 136,812
Average shares attributable to preferred stock ............. 347,440 -- 347,440 --
Average shares attributable to convertible debt ............ 357,058 -- 364,028 --
------------ ----------- ------------ -----------
Shares used in earnings per share computation .............. 3,124,792 6,540,618 3,095,826 6,527,796
------------ ----------- ------------ -----------
</TABLE>

<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 9,364
<SECURITIES> 0
<RECEIVABLES> 14,567
<ALLOWANCES> (307)
<INVENTORY> 166
<CURRENT-ASSETS> 24,507
<PP&E> 54,698
<DEPRECIATION> 15,489
<TOTAL-ASSETS> 74,092
<CURRENT-LIABILITIES> 12,706
<BONDS> 0
0
0
<COMMON> 64
<OTHER-SE> 47,869
<TOTAL-LIABILITY-AND-EQUITY> 74,092
<SALES> 33,811
<TOTAL-REVENUES> 33,811
<CGS> 21,894
<TOTAL-COSTS> 21,894
<OTHER-EXPENSES> (122)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296
<INCOME-PRETAX> 3,529
<INCOME-TAX> 1,354
<INCOME-CONTINUING> 2,175
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,175
<EPS-PRIMARY> .33
<EPS-DILUTED> .33

</TABLE>