ENERGY VENTURES INC /DE/, S-3, 1995-08-18

ENERGY VENTURES INC /DE/
S-3, 1995-08-18
OIL & GAS FIELD MACHINERY & EQUIPMENT

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 1995

REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
ENERGY VENTURES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
DELAWARE 04-2515019
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
BERNARD J. DUROC-DANNER
ENERGY VENTURES, INC.
5 POST OAK PARK, SUITE 1760 5 POST OAK PARK, SUITE 1760
HOUSTON, TEXAS 77027-3415 HOUSTON, TEXAS 77027-3415
(713) 297-8400 (713) 297-8400
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE,
PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
</TABLE>

Copies to:

<TABLE>
<S> <C>
CURTIS W. HUFF JOSHUA DAVIDSON
FULBRIGHT & JAWORSKI L.L.P. BAKER & BOTTS, L.L.P.
1301 MCKINNEY, SUITE 5100 ONE SHELL PLAZA
HOUSTON, TEXAS 77010-3095 910 LOUISIANA
(713) 651-5151 HOUSTON, TEXAS 77002-4995
(713) 229-1234
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(2) FEE
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value... 2,990,000 $19.44 $58,125,600 $20,044
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</TABLE>

(1) Includes 390,000 shares subject to an over-allotment option.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933 and based upon the
average of the high and low sale prices of a share of Common Stock as
reported by the New York Stock Exchange, Inc. on August 16, 1995.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE> 2
-------------------------------------------------------------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
-------------------------------------------------------------------------------
Subject to Completion, dated August 18, 1995
PROSPECTUS
2,600,000 SHARES

ENERGY VENTURES, INC.

COMMON STOCK

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

All 2,600,000 shares of Common Stock, par value $1.00 per share (the
"Common Stock"), offered hereby (this "Offering") are being offered and sold by
Energy Ventures, Inc. (the "Company"). The Common Stock is listed on the New
York Stock Exchange (the "NYSE") under the symbol "EVI". On August 16, 1995, the
last reported sale price of the Common Stock was $19 3/8 per share. See "Price
Range of Common Stock and Dividend Policy".

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

AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................................... $ $ $
----------------------------------------------------------------------------------------------------------
Total (3)........................................... $ $ $
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</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting".

(2) Before deducting expenses payable by the Company, estimated at $450,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 390,000 additional shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively. See
"Underwriting".

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

The shares of Common Stock offered by this Prospectus are offered by the
Underwriters subject to prior sale, to withdrawal, cancellation or modification
of the offer without notice, to delivery to and acceptance by the Underwriters
and to certain further conditions. It is expected that delivery of the
certificates for the shares of Common Stock offered will be made at the offices
of Lehman Brothers Inc., New York, New York on or about , 1995.

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

LEHMAN BROTHERS DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1995
<PAGE> 3

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
and financial statement schedules thereto, which may be inspected without charge
at the public reference facility maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of which may be obtained from
the Commission at prescribed rates. Statements made in this Prospectus
concerning the contents of any document referred to herein are not necessarily
complete. With respect to each such document filed with the Commission as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information filed by the
Company with the Commission can be inspected at the Public Reference Section of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and the Regional Offices of the Commission at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and 7
World Trade Center, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Such reports, proxy and information statements and other information
concerning the Company can also be inspected and copied at the offices of the
NYSE, 20 Broad Street, New York, New York 10005, on which the Common Stock is
listed.

2
<PAGE> 4

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents are incorporated herein by reference:

(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1994;

(b) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1995, and June 30, 1995; and

(c) The Company's Current Report on Form 8-K dated May 31, 1995, and
Current Report on Form 8-K dated July 13, 1995, as amended by the Current
Report on Form 8-K/A dated August 17, 1995.

All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of this Offering shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of the
filing of such documents. Any statement contained in this Prospectus or in a
document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any or all of the documents incorporated by reference
herein, other than the exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to the
Company at 5 Post Oak Park, Suite 1760, Houston, Texas 77027, Attention:
Secretary (Telephone number: (713) 297-8400).

3
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus. Unless the context otherwise requires, references in this Prospectus
to the "Company" shall mean Energy Ventures, Inc. and its subsidiaries. Unless
otherwise noted herein, the information contained in this Prospectus assumes the
Underwriters' over-allotment option will not be exercised. An investment in the
Common Stock offered hereby involves a high degree of risk, and investors should
carefully consider the information set forth under the heading "Risk Factors".

THE COMPANY

Energy Ventures, Inc. is an international manufacturer and supplier of
oilfield equipment and contract drilling services. The Company's oilfield
equipment segment manufactures and distributes drill pipe, premium tubulars and
artificial lift products. The Company's contract drilling services segment
primarily provides barge drilling and workover services in the United States and
internationally.

The Company is the world's largest manufacturer of drill pipe and the
second largest manufacturer of premium tubulars in North America. The Company's
artificial lift division is one of the two largest manufacturers of rod lift
equipment in the world, has a number of patented and proprietary products and is
the only fully integrated manufacturer and distributor of rod lift equipment.
The Company is also the second largest operator of barge rigs in the U.S. Gulf
Coast area with an estimated 40% market share.

The Company's strategy is to maintain a number one or two position in each
of its principal markets, realize growth through the continuing consolidation in
its industry and expand all of its businesses internationally to take advantage
of the general shift of exploration and production overseas. The Company intends
to be a leader in innovation through product development and a leader in quality
through modernization of its manufacturing facilities and the upgrading of its
rig fleet.

The Company has achieved significant growth in recent years through a
consistent strategy of focused acquisitions and internal development.
Acquisitions have focused on the core businesses assembling underutilized
assets, product lines and proprietary technology. Tubular growth has centered on
manufacturing, market development and international expansion. Revenues and
operating income have increased from $150.2 million and $5.9 million,
respectively, in 1990 to $248.5 million and $19.5 million, respectively, in
1994. For the six months ended June 30, 1995, the Company reported revenues and
operating income of $152.4 million and $13.5 million, respectively, representing
a 44% and 96% increase over the comparable 1994 period.

The principal products and services provided by the Company are as follows:

- Tubular Products

The Company's Grant Prideco tubular division ("Grant Prideco") manufactures
drill pipe and premium tubulars. Grant Prideco's products are designed and
engineered for high performance applications. Drill pipe serves as the principal
mechanical drilling tool needed to drill an oil or natural gas well. Drill pipe
must be designed and manufactured to provide a reliable connection from the
drilling rig to the drill bit thousands of feet below the surface. Premium
tubulars consist of the tubing and casing that are used in the production of oil
and natural gas in harsh downhole environments, such as deep natural gas and
offshore wells, where the pressure, temperature and corrosive elements are
extreme. The term "premium" refers to high alloy, seamless tubulars with
specific molecular structure and highly engineered connections.

Grant Prideco's tubular products are manufactured at nine locations
throughout the world and are marketed through its worldwide sales and service
support system. After many years of adverse market conditions characterized by
overcapacity, excess inventory and depressed prices, Grant Prideco's drill pipe
business has begun to realize the concurrent benefits of a reduction in the
worldwide inventory of used drill pipe and of industry consolidation. In the
first half of 1995, the Company realized a 35% increase in revenues from sales
of drill pipe and other tubular products over the first six months of 1994
despite low natural gas prices and a near record low domestic and worldwide rig
count. The Company expects that Grant Prideco's

4
<PAGE> 6

future revenues and profitability will benefit from this continuing trend.
Backlog at Grant Prideco at June 30, 1995, was $69.8 million compared to $35.2
million at December 31, 1994.

- Artificial Lift

The Company manufactures a complete line of proprietary and patented
artificial lift equipment and parts through its Highland Pump division
("Highland"). Artificial lift is the method by which production is accomplished
when oil does not flow naturally to the surface. Most oil wells in the early
stages of production flow naturally up the wellbore. Eventually, as a result of
the process of aging and pressure declines, most of the world's oil wells will
require some form of artificial lift. There are four kinds of artificial lift,
of which rod lift is the most widely used. Highland's artificial lift product
line is focused exclusively on rod lift, utilizes patented and proprietary
technology and is fully integrated from the downhole pump to the above-ground
motor and pumping unit. Highland is the industry's only producer of an
integrated rod lift product line.

Highland's artificial lift products include fluid packed pumps, progressive
cavity pumps, continuous and coupled sucker rods, pumping units, motors, control
systems and completion tools. Highland also provides installation and
maintenance services for its artificial lift customers. Many of Highland's
products, such as the Corod(TM) continuous sucker rod and the RotaFlex(R)
pumping unit, are unique and provide the customer with innovative and
cost-effective solutions to their production needs.

Highland's artificial lift products are manufactured at various locations
throughout the United States and Canada and have historically been primarily
distributed in North America through a network of over 60 distribution and
service centers. The Company believes that the international markets will
provide the greatest growth opportunities for Highland's products in the future
as the world's oil producing reservoirs mature. As a result, Highland has
established a manufacturing facility in China and is actively pursuing other
international expansion opportunities.

- Contract Drilling

The Company's contract drilling operations are conducted through its
Mallard Bay Drilling division ("Mallard"). Mallard's domestic operations are
concentrated in the area of barge drilling and workover in the shallow coastal
and inland waters of the United States Gulf Coast where conventional jack-up
rigs cannot operate. Mallard is the second largest operator of barge rigs in
this market with a fleet of 15 drilling rigs and 19 workover rigs and an
estimated 40% market share. Mallard also has a fleet of six platform rigs and
one jack-up rig in the Gulf of Mexico. Most of Mallard's rigs were acquired at
times when market conditions were depressed and at prices substantially below
replacement costs.

The domestic barge rig market has for more than a decade been characterized
by overcapacity and a heavy dependence on natural gas drilling. These market
conditions, combined with depressed and volatile natural gas prices, created an
operating environment that was characterized by low day rates and rig
utilization, and precipitated a consolidation in the industry. Since the early
1980s, the number of rigs in existence has declined from over 200 to less than
100 and the number of contractors has declined from over 20 to less than five.
As one of the two major surviving contractors, Mallard has begun to benefit from
these conditions through increased revenues and rig utilization. These market
improvements have occurred notwithstanding continued low natural gas prices and
a low domestic rig count. The Company expects domestic results to continue to
benefit from these conditions as well as from increased demand in the Gulf
Coast. These changes in demand stem from an increase in three-dimensional
seismic survey activity resulting in the identification of attractive deep
natural gas prospects in the inland and coastal waters of Louisiana and
increased lease activity in these areas following the 1994 settlement of a
production royalty dispute between the State of Louisiana and Texaco, Inc.
("Texaco"), Mallard's largest barge rig customer.

Internationally, Mallard operates three rigs in the coastal and offshore
waters of Nigeria and Peru and four land rigs in Argentina. International
drilling contracts are generally for longer periods than domestic contracts and
at more favorable rates. International drilling operations represented
approximately 33% and 34% of the revenue and operating income, respectively, for
this segment during the first six months of 1995. Mallard is currently in the
process of negotiating an agreement to expand its operations in Argentina with
an

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<PAGE> 7

addition of five workover rigs. Mallard is also pursuing other opportunities in
Argentina that could increase its drilling rig fleet in Argentina by up to five
rigs over the next 12 months.

RECENT DEVELOPMENTS

Prideco Acquisition

On June 30, 1995, the Company acquired Prideco, Inc. ("Prideco") for
approximately 2.25 million shares of Common Stock. Prideco was the second
largest manufacturer of drill pipe in the Western Hemisphere and one of the two
largest manufacturers of drill collars and heavyweight drill pipe in the world.
The Prideco acquisition complemented the Company's tubular product line by
adding drill collars, heavyweight drill pipe and premium casing to its already
extensive line of tubular products. The Company currently intends to expand the
market for Prideco's drill collars and heavyweight drill pipe internationally.
The Company also intends to jointly market Prideco's premium casing with the
Company's existing Atlas Bradford(TM) line of premium connectors.

The Company's acquisition of Prideco strengthened the Company's position as
the worldwide leader in drill pipe. The Company also expects to realize over $6
million in annual savings from the Prideco acquisition through a consolidation
of overhead and a rationalization of manufacturing operations once the
operations of Prideco have been fully integrated with those of the Company.
Revenues and operating income at Prideco for its fiscal year ended June 30,
1995, were $55.2 million and $4.2 million, respectively.

International Tubular Expansion

The Company is currently engaged in discussions with Oil Country Tubular
Ltd. ("OCTL") regarding an arrangement under which the Company would lease
OCTL's tubular facility located in Narketpally, India on a continuing basis. The
OCTL facility was built in 1990 under the direction of personnel who are
currently employed by Grant Prideco and is the most modern tubular fabricating
facility in the world. The facility would be utilized by the Company to pursue a
strategic expansion of its sales and operations in the Eastern Hemisphere. The
Company believes that the combination of Grant Prideco's product line with
OCTL's low manufacturing costs and proximity to major Eastern Hemisphere markets
should accomplish this objective. This expansion is intended to substantially
increase the Company's sales into the growing Eastern Hemisphere market, which
over the last few years has represented only approximately 5% of the Company's
total revenues.

The OCTL lease would be long-term and subject to an annual right of
termination by the Company. The Company would be required to make a one-time
payment of $8 million for the right to use the facility and would thereafter
make annual payments of $6 million plus certain royalties based on the volume of
products produced at the facility. The Company would pay all operating costs and
provide all working capital required to run the OCTL facility. To date, no
definitive agreement with OCTL has been reached and any agreement would be
subject to various conditions, including the receipt of all necessary
governmental and other approvals for the Company's lease of the OCTL's facility.
Accordingly, there can be no assurance that an agreement with OCTL will be
entered into or as to the ultimate timing and terms thereof.

YPF Contract and Artificial Lift Expansion

The Company is currently negotiating an agreement with Yacimientos
Petroliferos Fiscales Sociedad Anonima ("YPF") in Argentina to provide workover
services. The agreement contemplates a two-year contract for five workover rigs.
YPF has also expressed a preliminary indication of interest in having Mallard
provide it with up to an additional five drilling rigs over the next 12 months
as conditions merit.

The expansion of Mallard's drilling operations in Argentina presents the
Company with a unique opportunity for international expansion of Highland's
artificial lift products. Argentina is South America's fastest growing and
largest market for artificial lift products. The Company intends to utilize the
infrastructure of Mallard's drilling and workover operations as a base for the
sale and service of Highland's artificial lift products in Argentina. The use of
shared locations is expected to provide Highland with a cost-effective means of
penetrating the Argentina market.

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THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered hereby................... 2,600,000 shares

Common Stock to be Outstanding after
this Offering............................... 17,647,183 shares(1)

Use of Proceeds............................... Net proceeds will be used to finance the
expansion of the Company's domestic and
international tubular operations, to acquire
and deploy five workover rigs to Argentina
and to open sales and service locations for
Highland in Argentina and for other general
corporate purposes, including acquisitions,
working capital and debt reduction. The
tubular expansion, excluding any OCTL
expansion, is estimated to require between
$15 million and $20 million and the Argentina
workover rig contract and Highland expansion
is estimated to require approximately $8
million. A portion of the remaining net
proceeds may also be used for the OCTL
expansion if a definitive agreement with OCTL
is reached. See "Use of Proceeds".

NYSE symbol................................... EVI
</TABLE>

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(1) Excludes 729,000 shares of Common Stock subject to outstanding options
granted under the Company's 1981 Employee Stock Option Plan, 1992 Employee
Stock Option Plan and Non-Employee Director Stock Option Plan. See
"Description of Capital Stock".

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<PAGE> 9

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

The following table sets forth certain summary historical and pro forma
condensed consolidated financial data of the Company. The pro forma condensed
consolidated statements of income give effect to the acquisition of Prideco on
June 30, 1995, the sale of Common Stock offered hereby and the application of
the net proceeds therefrom as if these transactions occurred on January 1, 1994.
The as adjusted balance sheet data gives effect to the sale of Common Stock as
if it occurred on June 30, 1995 and assumes the repayment of all short-term
borrowings of the Company outstanding at June 30, 1995, pending the application
of the proceeds of this Offering. The pro forma information set forth below is
not necessarily indicative of the results that actually would have been achieved
had such transactions been consummated as of January 1, 1994, or that may be
achieved in the future. This information should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations, the Selected Consolidated Financial Data, the Pro Forma Condensed
Consolidated Statements of Income and the Company's Consolidated Financial
Statements and the related notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
PRO
FORMA
HISTORICAL HISTORICAL -------
-------------------------------- PRO FORMA -------------------- SIX
----------- MONTHS
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31, ENDED JUNE 30, JUNE 30,
-------------------------------- ------------- -------------------- ---------
1992 1993 1994 1994 1994 1995 1995
-------- -------- -------- ------------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues....................... $190,458 $246,017 $248,537 $ 299,191 $105,684 $152,407 $ 181,955
Cost of sales.................. 148,881 181,742 181,137 224,155 75,883 112,806 138,107
Selling, general and
administrative
expenses..................... 36,965 45,720 47,931 51,894 22,878 26,060 28,252
-------- -------- -------- -------- -------- -------- --------
Operating income............... 4,612 18,555 19,469 23,142 6,923 13,541 15,596
Interest expense, net.......... (5,033) (7,209) (13,505) (12,090) (5,698) (8,161) (6,150)
Other income (expense), net.... 759 1,465 484 274 306 (7) (92)
Income tax expense............. (57) (4,864) (1,806) (3,419) (549) (1,989) (3,555)
-------- -------- -------- -------- -------- -------- --------
Income from continuing
operations................... $ 281 $ 7,947 $ 4,642 $ 7,907 $ 982 $ 3,384 $ 5,799
======== ======== ======== ======== ======== ======== ========
Earnings per share from
continuing
operations................... $ 0.02 $ 0.66 $ 0.37 $ 0.45 $ 0.08 $ 0.27 $ 0.33
Weighted average
shares outstanding........... 12,057 12,067 12,629 17,530 12,588 12,672 17,514
OTHER DATA:
EBITDA (a)..................... $ 15,805 $ 32,301 $ 34,221 $ 39,357 $ 13,663 $ 22,231 $ 24,913
Depreciation and
amortization................. 10,434 12,281 14,268 15,941 6,434 8,697 9,409
Capital expenditures........... 22,413 14,885 19,607 -- 13,355 11,739 --
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1995(B)
-------------------------
AS
HISTORICAL ADJUSTED
------------- --------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets....................................................................... $ 428,585 $441,849
Net working capital................................................................ 90,615 137,895
Long-term debt..................................................................... 125,693 125,693
Stockholders' investment........................................................... 148,874 196,154
</TABLE>

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(a) EBITDA, or "earnings from continuing operations before interest expense,
interest income, income taxes, extraordinary items, depreciation and
amortization", is a supplemental financial measurement used by the Company
in the evaluation of its business and should not be construed as an
alternative to income from operations or to cash flow from operations and is
presented solely as a supplemental disclosure.

(b) Includes the acquisition of Prideco that was completed on June 30, 1995.

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RISK FACTORS

An investment in the Common Stock offered hereby involves a high degree of
risk. The following factors should be carefully considered, together with the
information provided elsewhere in this Prospectus, in evaluating an investment
in the Common Stock offered hereby.

INDUSTRY CONDITIONS

The demand and pricing for the Company's equipment and services are
substantially dependent upon domestic and worldwide levels of exploration and
production, including the number of oil and gas wells being drilled, the depth
and drilling conditions of the wells, the number of well completions and the
level of workover activity. Exploration and development activity is largely
dependent on prevailing oil and natural gas prices. Prices for oil and natural
gas have historically been extremely volatile and have reacted to actual and
perceived changes in demand and supply of oil and natural gas, domestic and
worldwide economic conditions and political instabilities in the oil producing
countries.

Prices for oil and natural gas are expected to continue to be volatile and
affect the demand and pricing of the Company's products and services. A material
decline in natural gas or crude oil prices could materially adversely affect the
demand for, and sales of, the Company's oilfield equipment and services.
Industry conditions will continue to be influenced by numerous factors over
which the Company has no control. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".

FOREIGN OPERATIONS

During 1994, 1993, 1992, approximately 36%, 40% and 37%, respectively, of
the Company's total revenues were earned outside the United States based upon
the ultimate destination in which equipment or services were sold, shipped or
provided to the customer by the Company. Operations and sales in foreign markets
are subject to substantial competition from large multi-national corporations
and government-owned entities and to a variety of local laws and regulations
requiring qualifications, use of local labor, the provision of financial
assurances or other restrictions and conditions on operations. Foreign
operations are also subject to risks associated with doing business outside the
United States, including risk of war, civil disturbances and governmental
activities that may limit or disrupt markets, restrict the movement of funds or
result in the deprivation of contract rights or the taking of property without
fair compensation. Foreign operations may also subject the Company to risks
relating to fluctuations in currency exchange rates. However, to date, currency
fluctuations have not had a material adverse impact on the Company.

The Company currently has material manufacturing operations in Canada and
Mexico and is operating rigs in Nigeria, Peru and Argentina. The Company is also
pursuing establishing a tubular manufacturing operation in India subject to the
receipt of appropriate governmental and regulatory approvals and consents. See
"Recent Developments -- International Tubular Expansion". The Company's
operations in each of these countries are subject to various political and
economic conditions existing in them which could disrupt operations. The Company
generally seeks to obtain, where economical, insurance against certain political
risks and attempts to structure its contracts and arrangements in the foreign
countries in which it operates in a manner that would minimize the exposure of
its assets to losses in those countries. Such efforts include structuring
substantially all of its sales and service contracts to be in United States
dollars and utilizing lease arrangements and joint ventures for manufacturing
facilities such as the one being proposed with OCTL so as not to require
substantial investment of funds in fixed assets in foreign countries. Although
the Company believes that its exposure to foreign risks is not materially
greater than that of its competitors, there can be no assurance that disruptions
will not occur in the Company's foreign operations or that any losses that do
occur will be covered by insurance. See "Business -- Foreign Operations".

OPERATING RISKS

The Company's operations are subject to hazards inherent in the oil and gas
industry, such as fire, explosion, blowouts and oil spills that can cause
personal injury or loss of life, damage to property, equipment, the environment
and marine life, and suspension of operations. In addition, claims for loss of
oil and gas

9
<PAGE> 11

production and damages to formations can occur in the completion and workover
business. Litigation arising from a catastrophic occurrence at a location where
the Company's equipment and services are used may in the future result in the
Company being named as a defendant in lawsuits asserting potentially large
claims.

The Company maintains insurance coverage that it believes to be customary
in the industry against these hazards, including product liability, and,
whenever possible, obtains agreements from customers providing for
indemnification against liability to others. However, insurance and
indemnification agreements may not provide complete protection against casualty
losses. Mallard is also partially self-insured for marine workers' compensation
claims and Grant Prideco has elected to opt out of the mandatory workers'
compensation pools and secure its workers compensation coverage through outside
insurance. There can be no assurance that the Company will be able to maintain
adequate insurance in the future at rates it considers reasonable. Further,
there can be no assurance that insurance will continue to be available on terms
as favorable as those for its existing arrangements. The occurrence of an
adverse claim in excess of the coverage limits maintained by the Company could
have a material adverse effect on the Company. See "Business -- Insurance
Costs".

COMPETITION

Competition in the oilfield service and equipment segments of the oil and
gas industry is intense and, in certain markets, is dominated by a small number
of large competitors, many of which have greater financial and other resources
than the Company. See "Business -- Oilfield Equipment -- Competition".

ENVIRONMENTAL MATTERS

The Company's operations are subject to governmental laws and regulations
relating to the protection of the environment and to health and safety. Many of
the Company's contract drilling operations take place in or near ecologically
sensitive areas, such as wetlands, beaches and inland waterways. Numerous
federal and state environmental laws regulate drilling activities and impose
liability for causing pollution in inland, coastal and offshore waters. State
and federal legislation also provide special protection to water quality and
animal and marine life that could be affected by the Company's activities. The
regulations applicable to the Company's operations include certain regulations
controlling the discharge of materials into the environment, requiring removal
and/or remediation and imposing civil and criminal penalties for violations.
Each of the primary statutory and regulatory programs that apply to the
Company's operations imposes civil penalties for violation of the requirements
of the programs as well as natural resource damages, potential injunctions,
cease and desist orders and criminal penalties.

Environmental regulation has led to higher drilling costs, a more difficult
and lengthy well permitting process and, in general, has adversely affected many
oil companies' decisions to drill wells in the U.S. Gulf Coast area and, in some
cases, in the international market. Prohibitions on drilling in some areas are
likely to remain in effect or even be extended. Such laws and regulations may
expose the Company to liability for the conduct of, or conditions caused by,
others or for acts of the Company that were in compliance with all applicable
laws at the time such acts were performed.

Laws and regulations protecting the environment have generally become more
stringent in recent years and could become more stringent in the future. Some
environmental statutes impose strict liability, rendering a person liable for
environmental damage without regard to negligence or fault on the part of such
person. See "Business -- Contract Drilling -- Government Regulation and
Environmental Matters" and "Business -- Environmental Regulation".

DIVIDEND POLICY

10
<PAGE> 12

THE COMPANY

The Company is an international manufacturer and supplier of oilfield
equipment and contract drilling services. The Company's oilfield equipment
segment manufactures and distributes drill pipe, premium tubulars and artificial
lift products. The Company's contract drilling services segment primarily
provides barge drilling and workover services in the United States and
internationally.

The Company was incorporated in 1972 as a Massachusetts corporation and was
reincorporated in Delaware in 1980. The Company's principal office is located at
5 Post Oak Park, Suite 1760, Houston, Texas 77027-3415, and its telephone number
is (713) 297-8400.

RECENT DEVELOPMENTS

PRIDECO ACQUISITION

On June 30, 1995, the Company acquired Prideco for approximately 2.25
million shares of Common Stock. Prideco was the second largest manufacturer of
drill pipe in the Western Hemisphere and one of the two largest manufacturers of
drill collars and heavyweight drill pipe in the world. The Prideco acquisition
complemented the Company's tubular product line by adding drill collars,
heavyweight drill pipe and premium casing to its already extensive line of
tubular products. The Company currently intends to expand the market for
Prideco's drill collars and heavyweight drill pipe internationally. The Company
also intends to jointly market Prideco's premium casing with the Company's
existing Atlas Bradford line of premium connectors.

INTERNATIONAL TUBULAR EXPANSION

The Company is currently engaged in discussions with OCTL regarding an
arrangement under which the Company would lease OCTL's tubular facility located
in Narketpally, India on a continuing basis. The OCTL facility was built in 1990
under the direction of personnel who are currently employed by Grant Prideco and
is the most modern tubular fabricating facility in the world. The facility would
be utilized by the Company to pursue a strategic expansion of its sales and
operations in the Eastern Hemisphere. The Company believes that

11
<PAGE> 13

the combination of Grant Prideco's product line with OCTL's low manufacturing
costs and proximity to major Eastern Hemisphere markets should accomplish this
objective. This expansion is intended to substantially increase the Company's
sales into the growing Eastern Hemisphere market, which over the last few years
has represented only approximately 5% of the Company's total revenues.

YPF CONTRACT AND ARTIFICIAL LIFT EXPANSION

The Company is currently negotiating an agreement with YPF in Argentina to
provide workover services. The agreement contemplates a two-year contract for
five workover rigs. YPF has also expressed a preliminary indication of interest
in having Mallard provide it with up to an additional five drilling rigs over
the next 12 months as conditions merit. The Company estimates that the cost of
acquiring and deploying the five workover rigs to Argentina will require
approximately $7 million over the next 12 months, including working capital,
which would be financed with a portion of the net proceeds of this Offering.

USE OF PROCEEDS

The net proceeds from the sale of Common Stock being offered hereby,
assuming an offering price of $ per share, are estimated to be $
million ($ million if the Underwriters' over-allotment option is exercised
in full). Such proceeds will be used to finance the continued expansion of the
Company's domestic and international tubular operations, to acquire and deploy
five workover rigs to Argentina, to open sales and service locations for
Highland in Argentina and for other general corporate purposes, including
acquisitions, working capital and debt reduction.

The funds used for the tubular expansion, excluding any expansion relating
to OCTL, would be used to finance capital expenditures to increase the current
production rates at Grant Prideco's domestic facilities, the integration of
Prideco's casing line with the Company's Atlas Bradford line of connectors and
for working capital related to the increased sales volumes at Grant Prideco.
Total expenditures relating to this expansion are estimated to be between $15
million and $20 million, of which up to $5 million would be for capital
expenditures and up to $15 million would be for working capital. The cost for
the acquisition and deployment of five workover rigs to Argentina and for
opening sales and service locations for Highland in Argentina is currently
estimated to be approximately $8 million. In addition, a portion of the
remaining net proceeds of this Offering may be used to fund a portion of the
OCTL expansion if a definitive agreement with OCTL is reached and all necessary
governmental approvals for the commencement of operations in India are received.
See "Recent Developments -- International Tubular Expansion".

Pending the use of the net proceeds of this Offering, such funds will be
used to reduce the Company's working capital lines of credit or invested in
short-term, interest-bearing, investment-grade securities. As of July 31, 1995,
the Company had outstanding approximately $42.4 million under its outstanding
lines of credit, bearing interest at its lender's prime rate plus 1 1/4% (10% at
July 31, 1995).

12
<PAGE> 14

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded on the NYSE under the symbol "EVI". The
following table sets forth, for the periods indicated, the high and low sale
prices per share for the Common Stock as reported on the NYSE from June 1994 and
by the Nasdaq National Market for 1993 and January through May 1994.

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Year ended December 31, 1993
First quarter...................................................... $16 3/4 $ 9 1/2
Second quarter..................................................... 18 1/2 15 1/2
Third quarter...................................................... 18 1/2 12 3/4
Fourth quarter..................................................... 18 1/4 10 3/4

Year ended December 31, 1994
First quarter...................................................... $16 1/4 $12
Second quarter..................................................... 14 3/4 11 1/4
Third quarter...................................................... 15 1/4 12 5/8
Fourth quarter..................................................... 14 3/4 11 1/4

Year ending December 31, 1995
First quarter...................................................... $14 5/8 $11 7/8
Second quarter..................................................... 20 5/8 13 1/4
Third quarter (through August 14, 1995)............................ 21 1/4 17 3/8
</TABLE>

The closing sale price of the Common Stock on August 16, 1995, as reported
on the NYSE, was $19 3/8. As of August 16, 1995, the Company had approximately
1,150 stockholders of record.

The Company has not paid any dividends on the Common Stock since 1984 and
currently anticipates that, for the foreseeable future, any earnings will be
retained for the development of the Company's business. Accordingly, no
dividends are expected to be declared or paid on the Common Stock for the
foreseeable future. The declaration of all dividends is at the discretion of the
Company's Board of Directors. The Company's dividend policy will be reviewed by
the Board of Directors at such future time as may be appropriate in light of
relevant factors at the time; however, the Company and the Company's principal
operating subsidiaries are subject to certain prohibitions on the declaration
and payment of dividends under the terms of their existing credit facilities. In
addition, under the terms of the Company's 10 1/4% Senior Notes due 2004
("Senior Notes"), the Company is limited in the amount of funds it may
distribute as dividends or distributions to stockholders to an amount generally
equal to (a) the sum of (i) its earnings subsequent to December 31, 1993, (ii)
the net consideration received from certain stock issuances since March 1994,
(iii) the value of certain investments in unrestricted subsidiaries redesignated
as restricted subsidiaries and (iv) $5 million, less (b) the amount of
dividends, distributions and other restricted payments made by the Company since
March 1994. As of June 30, 1995, the Company was limited in the amount of
dividends, distributions and other restricted payments that could be made by it
to approximately $60 million.

13
<PAGE> 15

CAPITALIZATION

The following table sets forth the historical consolidated capitalization
of the Company at June 30, 1995, and as adjusted to reflect the issuance of the
Common Stock offered by the Company hereby at an assumed price of $19 3/8 per
share and the application of the net proceeds therefrom. This table should be
read in conjunction with the Consolidated Financial Statements of the Company,
including the notes thereto, contained elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1995(A)
-----------------------------
AS
HISTORICAL ADJUSTED(B)
------------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term borrowings and current portion of long-term debt......... $ 38,572 $ 4,556
Long-term debt...................................................... 125,693 125,693
-------- -------
Total debt................................................ 164,265 130,249
-------- -------
Stockholders' investment:
Common Stock, $1.00 par value, 20,000,000 shares authorized;
15,047,183 shares issued and outstanding (17,647,183 shares as
adjusted)(c)................................................... 15,047 17,647
Capital in excess of par.......................................... 88,571 133,251
Retained earnings................................................. 52,240 52,240
Cumulative foreign currency adjustment............................ (5,430) (5,430)
Treasury stock, at cost........................................... (1,554) (1,554)
-------- -------
Total stockholders' investment............................ 148,874 196,154
-------- -------
Total capitalization................................................ $ 313,139 $ 326,403
======== =======
</TABLE>

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

(a) Includes the acquisition of Prideco that was completed on June 30, 1995.

(b) Assumes the repayment of all short-term borrowings of the Company
outstanding at June 30, 1995, pending the application of the net proceeds of
this Offering for expansion of operations and capital expenditures described
under "Use of Proceeds".

(c) Excludes 729,000 shares of Common Stock subject to outstanding options
granted under the Company's 1981 Employee Stock Option Plan, 1992 Employee
Stock Option Plan and Non-Employee Director Stock Option Plan. See
"Description of Capital Stock".

14
<PAGE> 16

PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME

The following tables set forth the unaudited pro forma condensed
consolidated statements of income for the Company for the year ended December
31, 1994, and the six months ended June 30, 1995, after giving effect to the
Company's acquisition on June 30, 1995, of Prideco in consideration of 2,255,198
shares of Common Stock and this Offering. The pro forma financial information
assumes that the acquisition and this Offering occurred as of January 1, 1994.
The Prideco acquisition was accounted for using the purchase method of
accounting.

The unaudited pro forma condensed consolidated statements of income are
based upon estimates and assumptions related to the accounting for the Prideco
acquisition which are subject to subsequent determination and more detailed
analyses, appraisals and evaluations of the specific assets and liabilities. The
final allocation of the purchase price of the Prideco acquisition may differ
from the amounts contained in these unaudited pro forma condensed consolidated
statements of income.

The following unaudited pro forma condensed consolidated statements of
income should be read in conjunction with the Consolidated Financial Statements
of the Company and the related notes thereto included elsewhere herein as well
as the audited consolidated financial statements of Prideco for the fiscal year
ended June 30, 1995 and related notes filed with the Company's Current Report on
Form 8-K dated July 13, 1995, as amended by the Current Report on Form 8-K/A
dated August 17, 1995, which is incorporated herein by reference. The historical
results of Prideco for the pro forma condensed consolidated statements of income
reflect the twelve-month period ended December 31, 1994 and the six-month period
ended June 30, 1995, which differs from the audited June 30, 1995 fiscal year
financial statements of Prideco. The pro forma information is not necessarily
indicative of the results that might have occurred had the Prideco acquisition
taken place at the beginning of the period specified and is not intended to be a
projection of future results. In this regard, the pro forma financial
information does not reflect the Company's projected annual savings from the
Prideco acquisition of $6 million or more.

15
<PAGE> 17

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------------
COMPANY PRIDECO THIS PRO FORMA
HISTORICAL HISTORICAL PRIDECO OFFERING CONSOLIDATED
-------------- ---------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
Revenues.......................... $248,537 $ 50,654 $ -- $ -- $299,191
-------- ------- ----- ----- ------
Costs and expenses:
Cost of sales................... 181,137 43,018 -- -- 224,155
Selling, general and
administrative expenses...... 47,931 3,541 422(a) -- 51,894
-------- ------- ----- ----- ------
229,068 46,559 422 -- 276,049
-------- ------- ----- ----- ------
Operating income.................. 19,469 4,095 (422) -- 23,142
-------- ------- ----- ----- ------
Other income (expense):
Interest expense, net........... (13,505) (1,299) 1,236(b) 1,478(c) (12,090)
Other, net...................... 484 (210) -- -- 274
-------- ------- ----- ----- ------
(13,021) (1,509) 1,236 1,478 (11,816)
-------- ------- ----- ----- ------
Income before income taxes........ 6,448 2,586 814 1,478 11,326
Provision for income taxes........ (1,806) (921) (269)(d) (423)(d) (3,419)
-------- ------- ----- ----- ------
Income from continuing
operations...................... $ 4,642 $ 1,665 $ 545 $1,055 $ 7,907
======== ======= ===== ===== ======
Earnings per share from continuing
operations...................... $ 0.37 $ 0.45
======== ======
Weighted average shares
outstanding..................... 12,629 17,530
======== ======
Other Data:
EBITDA(e)....................... $ 34,221 $ 39,357
Depreciation and amortization... 14,268 15,941
</TABLE>

16
<PAGE> 18

PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
---------------------
COMPANY PRIDECO THIS PRO FORMA
HISTORICAL HISTORICAL PRIDECO OFFERING CONSOLIDATED
-------------- ---------- ------- -------- ------------
<S> <C> <C> <C> <C> <C>
Revenues............................ $152,407 $ 29,548 $ -- $ -- $181,955
-------- ------- ------ ------ --------
Costs and expenses:
Cost of sales..................... 112,806 25,301 -- -- 138,107
Selling, general and
administrative expenses........ 26,060 1,981 211(a) -- 28,252
-------- ------- ------ ------ --------
138,866 27,282 211 -- 166,359
-------- ------- ------ ------ --------
Operating income.................... 13,541 2,266 (211) -- 15,596
-------- ------- ------ ------ --------
Other income (expense):
Interest expense, net............. (8,161) (700) 685(b) 2,026(c) (6,150)
Other, net........................ (7) (1,502) 1,417(f) -- (92)
-------- ------- ------ ------ --------
(8,168) (2,202) 2,102 2,026 (6,242)
-------- ------- ------ ------ --------
Income before income taxes.......... 5,373 64 1,891 2,026 9,354
Provision for income taxes.......... (1,989) (378) (339)(d) (849)(d) (3,555)
-------- ------- ------ ------ --------
Income (loss) from continuing
operations........................ $ 3,384 $ (314) $ 1,552 $1,177 $ 5,799
======== ======= ====== ====== ========
Earnings per share from continuing
operations........................ $ 0.27 $ 0.33
======== ========
Weighted average shares
outstanding....................... 12,672 17,514
======== ========
Other Data:
EBITDA(e)......................... $ 22,231 $ 24,913
Depreciation and amortization..... 8,697 9,409
</TABLE>

17
<PAGE> 19

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME

GENERAL

The following notes set forth the assumptions used in preparing the
unaudited pro forma condensed consolidated statements of income. The pro forma
adjustments are based on estimates made by the Company's management using
information currently available. For purposes of preparing these unaudited pro
forma condensed consolidated statements of income, certain assumptions have been
made in allocating the purchase price of Prideco to the assets acquired and
liabilities assumed. As a result, the pro forma adjustments discussed below are
subject to change pending the completion of the detailed evaluation of the
assets acquired and liabilities assumed.

PRO FORMA ADJUSTMENTS

The adjustments to the accompanying unaudited pro forma condensed
consolidated statements of income are described below:

(a) To record amortization expense relating to the estimated $16.9
million excess of cost over the fair market value of the net tangible
assets acquired in connection with the acquisition of Prideco.

(b) To reduce interest expense to reflect the retirement of Prideco's
outstanding debt at the date of acquisition, including revolving lines of
credit.

(d) To reflect the estimated income tax provision related to the
effect of the pro forma adjustments.

(e) EBITDA, or "earning from continuing operations before interest
expense, interest income, income taxes, extraordinary items, depreciation
and amortization", is a supplemental financial measurement used by the
Company in the evaluation of its business and should not be construed as an
alternative to income from operations or to cash flow from operations and
is presented solely as a supplemental disclosure.

(f) To eliminate expenses incurred by Prideco relating to the
Company's acquisition of Prideco.

18
<PAGE> 20

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected historical consolidated financial information for
each of the five years ended December 31, 1994, and the unaudited consolidated
financial information for the six-month periods ended June 30, 1994 and 1995,
are derived from the Company's Consolidated Financial Statements. The statement
of operations data for the six months ended June 30, 1995 is not necessarily
indicative of results that may be expected for the year ending December 31,
1995. The consolidated financial information for the six-month periods ended
June 30, 1994 and 1995 are unaudited and, in the opinion of management, include
all adjustments that are of a normal recurring nature and necessary for a fair
presentation. The selected financial data set forth in the table below should be
read in conjunction with the Consolidated Financial Statements, including the
notes thereto, contained in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------ -----------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues............ $150,169 $177,794 $190,458 $246,017 $248,537 $105,684 $152,407
Cost of sales....... 112,150 132,960 148,881 181,742 181,137 75,883 112,806
Selling, general and
administrative
expenses.......... 32,085 35,002 36,965 45,720 47,931 22,878 26,060
-------- -------- -------- -------- -------- -------- --------
Operating income.... 5,934 9,832 4,612 18,555 19,469 6,923 13,541
Interest expense,
net............... (2,150) (2,274) (5,033) (7,209) (13,505) (5,698) (8,161)
Other income
(expense), net.... 1,734 1,045 759 1,465 484 306 (7)
Income tax
expense........... (3,264) (2,774) (57) (4,864) (1,806) (549) (1,989)
-------- -------- -------- -------- -------- -------- --------
Income from
continuing
operations........ $ 2,254 $ 5,829 $ 281 $ 7,947 $ 4,642(a) $ 982(a) $ 3,384
======== ======== ======== ======== ======== ======== ========
Earnings per share
from continuing
operations........ $ 0.22 $ 0.51 $ 0.02 $ 0.66 $ 0.37 $ 0.08 $ 0.27
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------ JUNE 30,
1990 1991 1992 1993 1994 1995(B)
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................... $170,259 $185,022 $230,596 $277,231 $350,688 $428,585
Long-term debt................... 7,648 5,878 37,304 38,982 125,690(c) 125,693
Redeemable common stock(d)....... 1,296 1,000 -- -- -- --
Stockholders' investment......... 76,631 101,123 101,156 107,736 110,913 148,874
Cash dividends per share......... -- -- -- -- -- --
</TABLE>

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

(a) Before nonrecurring charges of $3.8 million, after tax, attributable to the
prepayment penalty on the $34 million of 12.25% senior notes due 1997.

(b) Includes the acquisition of Prideco that was completed on June 30, 1995.

(d) Represents 72,000 shares held subject to a put option to the Company.

19
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

The Company manufactures and markets drill pipe and premium tubular
products, artificial lift and completion systems and provides rig contract
services for use in the exploration and production of oil and natural gas. The
level of exploration and production activity is influenced by worldwide economic
conditions, supply and demand and the political stability of oil producing
countries. However, natural gas and oil prices historically have been the
prevalent factor in determining the level of worldwide exploration and
production.

Revenues and operating income for the first six months of 1995 increased
44% and 96%, respectively, from 1994 levels, with increases realized in each of
the Company's principal operating divisions. The results reflect improved
industry conditions, higher international revenues and the Company's continuing
internal cost savings efforts.

Demand for the Company's tubular products and contract drilling services
benefitted during the first six months of 1995 from a continuing reduction in
the worldwide inventory of used drill pipe, increased demand for barge rigs in
the U.S. Gulf Coast area and industry consolidation. These trends have resulted
in increased drill pipe demand in the Company's tubular division and increased
day rates in the contract drilling segment. The Company's contract drilling
revenues also benefitted in the first half of 1995 from drilling contracts in
Peru and Nigeria.

Sales of the Company's artificial lift products benefitted from increased
sales attributable to the Company's acquisition of the Fluid Packed(TM) pump and
sucker rod businesses acquired from National-Oilwell in August 1994 and higher
pump sales in Canada.

The Company currently expects that the current trends benefitting its
tubular and domestic contract drilling businesses should continue through 1996.
The Company also expects that its recent acquisition of Prideco should
materially benefit results in the oilfield equipment segment through increased
revenues and consolidation savings. The Company's operations, however, will
continue to be subject to prevailing industry conditions and future results will
be dependent on and affected by price levels for oil and natural gas and other
factors affecting levels of exploration and development. Accordingly, there can
be no assurance as to future results or profitability.

RESULTS OF OPERATIONS

COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 VERSUS SIX MONTHS ENDED JUNE 30,
1994

For the first six months of 1995, income from continuing operations was
$3.4 million or $.27 per share on revenues of $152.4 million compared to income
from continuing operations of $982,000 or $.08 per share on revenues of $105.7
million for the first six months of 1994. Operating income for the first half of
1995 was $13.5 million compared to $6.9 million for the first half of 1994.

Oilfield Equipment Segment

Revenues and operating income for the oilfield equipment segment were
$114.5 million and $8.6 million, respectively, for the six months ended June 30,
1995, as compared to $81.3 million and $4.7 million, respectively, for the six
months ended June 30, 1994. The increase in revenues and operating income was
primarily attributable to the contribution from increased drill pipe sales,
higher Canadian pump sales and the addition of the Fluid Packed pump and sucker
rod businesses acquired from National-Oilwell in August 1994.

Sales of tubular products in the first six months of 1995 were $58.1
million compared to $43.2 million in the first six months of 1994. The Company
believes that the increased drill pipe sales realized by it during the first
half of 1995 are indicative of a reduction in the worldwide inventory of used
drill pipe and the continuing consolidation of the industry. Evidence of this
improvement is reflected in 35% increase in tubular sales despite lower natural
gas prices and a near record low domestic and worldwide rig count. Also
indicative of the decline in available used drill pipe were several large
purchases of drill pipe during the first six months of 1995

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by customers who have historically acquired used drill pipe for their needs.
Demand for drill pipe continues to be strong, with the Company's backlog for
drill pipe at June 30, 1995, being $69.8 million compared to $35.2 million at
December 31, 1994. This increase includes approximately $14.6 million of
Prideco. Prideco's backlog at December 31, 1994, was $10.5 million. The Company
anticipates that all of the backlog existing at June 30, 1995, will be shipped
during the next 12 months.

The oilfield equipment segment also benefited from lower average
manufacturing costs for its tubulars associated with increased sales and higher
gross margins at the Company's Mexican facility, which has a lower cost base
than the United States facilities.

The Company has recently experienced increases in its cost of green tubing,
the primary material used by it in the production of its tubular goods. To date,
the Company has been generally able to pass through the additional costs of this
raw material to its customers. However, there can be no assurances that it will
continue to be able to do so.

The Company's recent acquisition of Prideco is expected to further benefit
results in this segment through higher revenues and improved margins from
reductions in per unit costs for tubular goods. Although there can be no
assurance as to the ultimate savings that may be realized as a result of the
acquisition, the Company currently expects to realize annual savings in overhead
and distribution costs in excess of $6 million once the operations of Prideco
are fully integrated into those of the Company. The Company expects this
integration to be completed by the middle of 1996.

Revenues and operating income associated with the Company's artificial lift
division were $54.1 million and $4.8 million, respectively, for the six months
ended June 30, 1995, compared to $36.6 million and $2.4 million, respectively,
for the six months ended June 30, 1994. The increase in revenues and operating
income was primarily attributable to the Company's addition of the Fluid Packed
pump and sucker rod businesses acquired from National-Oilwell and higher
Canadian pump sales. Selling, general and administrative expenses increased due
primarily to higher sales. The Company is actively pursuing cost savings at
Highland through the consolidation of sales locations and distribution centers
and the rationalization of manufacturing operations at Highland's various
facilities. Savings from this effort are expected to be fully realized in 1996.

Contract Drilling Segment

Revenues and operating income for the contract drilling segment were $37.9
million and $7.6 million, respectively, for the six months ended June 30, 1995,
as compared to $24.4 million and $4.5 million, respectively, for the six months
ended June 30, 1994. The improved results in this segment reflect higher
international operating income in the 1995 period as new contracts in Peru and
Nigeria did not take effect until late in the second quarter of 1994. The
operations in Nigeria and Peru contributed $12.3 million in revenues and $2.6
million in operating income for the 1995 period.

In March 1995, the Company entered into a two-year land drilling contract
with YPF in Argentina, covering four drilling rigs. Drilling operations under
this contract began in June 1995 and are expected to benefit results for the
remainder of 1995. Under the terms of the Company's contract with YPF, the
Company receives a posted day rate of approximately $9,000 per day for each
operating rig. The Company is currently negotiating an agreement with YPF to
expand its operations in Argentina by five workover rigs. See "Recent
Developments -- YPF Contract and Artificial Lift Expansion".

The Company's platform drilling operations in Peru were recently placed on
standby at the request of the customer in an effort to reduce the customer's
operating expenses. Although the Company is currently receiving a standby rate
for these rigs and has been advised by the customer that it intends to resume
drilling at a later date, there can be no assurance that such standby rate will
continue to be paid or that the rigs will resume drilling operations. If the
Company were not to receive the standby rate or the rigs were not to resume
drilling operations, revenues and operating income from international drilling
could be materially affected. The impact of such an event, however, would be
more than offset by the anticipated increased revenues and operating income from
the Company's land drilling operations in Argentina.

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The Company's Nigerian rig was damaged during operations in May 1995, and
was out of operation for approximately 40 days for repairs. Nigerian operating
income for the second quarter of 1995 was approximately $476,000 less than
operating income for the first quarter of 1995. This reduction was primarily due
to the damage sustained by the Nigerian rig. The decrease in Nigerian operating
income was partially offset by strong domestic results and results from the
Company's Peruvian operations. The Company's Nigerian drilling contract was
recently extended through August 1996.

Domestic revenues and operating profit benefitted from increased
utilization rates and improved day rates related to increased demand for the
Company's contract drilling services in the Gulf Coast. Demand increases
reflected greater three-dimensional seismic survey activity and attractive deep
natural gas prospects in the inland and coastal waters of the Gulf Coast and
increased lease activity in that region following the settlement in mid-1994 of
a production royalty suit between Texaco and the State of Louisiana. Texaco is
currently the Company's largest domestic barge rig customer.

Results for the balance of 1995 and into 1996 are expected to continue to
benefit from the current domestic trends in the industry. Demand for the
Company's domestic contract drilling services, however, will continue to be
materially dependent on levels of exploration in the Gulf of Mexico and the
coastal waters of Louisiana. Because much of the exploration in these areas
relates to natural gas, prevailing prices for natural gas will be a material
factor affecting that demand. International operations are expected to continue
to improve for the remainder of 1995 with the level of improvement being
dependent upon the status of the Company's Peruvian rigs.

General

Selling, general and administrative expenses increased approximately 13.9%
to approximately $26.1 million in the first six months of 1995 from
approximately $22.9 million in the first six months of 1994. The increase in
1995 was principally attributable to substantially increased sales and
international expansion.

Interest expense increased during the first six months of 1995 to $8.2
million from $5.8 million for the first six months of 1994. The increase in
interest expense is attributable to higher levels of indebtedness due to
increases in the level of the Company's business.

COMPARISON OF FISCAL YEAR 1994 WITH FISCAL YEAR 1993

For the year ended December 31, 1994, the Company reported net income and
income from continuing operations of $858,000, or $0.07 per share, and $4.6
million, or $0.37 per share, respectively, on revenues of $248.5 million,
compared with net income and income from continuing operations of $5.9 million,
or $0.49 per share, and $7.9 million, or $0.66 per share, respectively, on
revenues of $246.0 million for fiscal year 1993. The 1994 results were adversely
affected by the extraordinary charge of $3.8 million, net of taxes, resulting
from the Company's refinancing of its outstanding indebtedness with the proceeds
of an issuance of $120 million in Senior Notes.

For the year ended December 31, 1994, the Company's operating income was
$19.5 million compared with $18.6 million for fiscal year 1993. For 1994,
operating income for the Company's oilfield equipment and contract drilling
segments was $8.2 million and $15.8 million, respectively. For 1993, operating
income for these segments was $10.8 million and $11.8 million, respectively.

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of $23 million for reimbursement of certain operating costs incurred and amounts
to be received in accordance with the terms of the workover drilling contract.
The Company also retained all rights to any funds collected or recovered by the
Company from NIOC and to the rigs and equipment deployed in Iran. The Company
adjusted the carrying value of the receivables, rigs and equipment, and
established reserves for demobilization, refurbishment and contract settlement
costs, all of which totaled approximately $18 million. The insurance settlement
which increased operating income by $4.8 million was reduced by operating losses
of $2.6 million relating to the Iranian operations for 1994. This benefit was
more than offset by the reduction in operating income in Nigeria and Peru.

The Company has removed all of its rigs and equipment from Iran and
redeployed three of the rigs to Argentina where they are currently operating
under a two-year contract with YPF. The fourth rig was sold in the fourth
quarter of 1994 at approximately its net book value. A subsidiary of the Company
currently has various amounts owed to it relating to its prior operations in
Iran and that were retained by it as part of its insurance settlement. Although
the Company has been receiving payments on these obligations under a four year
extended payment arrangement reached with the Central Bank of Iran and other
local banks, the timing and ultimate recovery is subject to various risks
relating to Iran, including the impact of the recently imposed United States
sanctions on and restrictions on trade with Iran. The net carrying value after
reserves of these obligations as of July 31, 1995, was approximately $3 million.

Oilfield Equipment Segment

Revenues for the oilfield equipment segment increased by 8% to $185.3
million in 1994 compared to $171.6 million in 1993. The increase was due
primarily to increased sales of tubular products partially offset by reduced
procurement revenues from the operations of International Tool and Supply
Company ("ITS"), which was acquired on June 30, 1993, and sold on December 30,
1993. The increase in tubular products revenues was primarily due to a change in
the sales mix to larger diameter drill pipe.

Operating income for the oilfield equipment segment was $8.2 million in
1994, as compared to $10.8 million in 1993. The reduction in operating income
resulted from certain costs incurred by the Company in the consolidation of
certain plants and product lines resulting from the acquisition of the Fluid
Packed lines of sucker rod pumps and sucker rods from National-Oilwell. In
addition the Company incurred reduced margins on tubular products and artificial
lift equipment due to lower oil prices, the steep decline in natural gas prices
in the second half of 1994 and sluggish domestic and international development
activity. The Company, however, benefitted from increased utilization of certain
facilities due to increased revenues.

Contract Drilling Segment

Revenues in the contract drilling segment decreased by approximately 15% to
$63.3 million for 1994 compared to $74.4 million for 1993. Domestic revenues
were slightly lower due to reduced drilling activity and international revenues
decreased primarily due to the termination of the land drilling contract with
NIOC in Iran. In addition, international revenues related to the Company's
operations in Peru and Nigeria were lower in 1994 as compared to 1993 as a
result of the Company's rigs in Nigeria and Peru going off contract in the
middle of 1993. The Company's rigs in Peru and Nigeria began new contracts in
the second half of 1994.

The contract drilling segment's operating income was $15.8 million in 1994,
as compared to $11.8 million in 1993. Domestic operating income increased by 36%
in 1994 compared to 1993 while international operating income increased by 31%
in 1994 compared to 1993. The increase in 1994 was principally due to higher
domestic day rates and the February 1994 acquisition of AWI and its twelve rigs.
The AWI acquisition improved operating income in 1994 because, prior to the
acquisition, eight of the twelve rigs had been under charter by the Company. The
increase was partially offset by the lower rig utilization during 1994 of 48%
from 52% in 1993 due to reduced activity in the Gulf Coast area.

The insurance settlement with respect to the NIOC contract increased
operating income by $4.8 million and was reduced by operating losses of $2.6
million relating to the Iranian operations for 1994. This benefit was more than
offset by the reduction in operating income in Nigeria and Peru.

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General

Selling, general and administrative expenses increased approximately 5% to
approximately $47.9 million in 1994 from approximately $45.7 million in 1993.
The increase in 1994 was primarily attributable to a full year of operations at
the Company's Mexico, Hungary and China facilities as well as a full year of
operations from the Production Oil Tools acquisition. These increases were
partially offset by the selling, general and administrative costs associated
with ITS which was sold on December 30, 1993.

Interest expense increased from $7.6 million for the year ended December
31, 1993 to $13.7 million for 1994, reflecting the increased cost associated
with the Company's $120 million of Senior Notes issued in March 1994.

The Company's effective tax rate on income from continuing operations
decreased to 28% in 1994 from 38% in 1993. The favorable impact on the 1994
effective tax rate was obtained through the utilization of net operating loss
carryforwards and was partially offset by foreign losses with no corresponding
tax benefit.

COMPARISON OF FISCAL YEAR 1993 AND FISCAL YEAR 1992

For the year ended December 31, 1993, the Company reported net income
and income from continuing operations of $5.9 million, or $0.49 per share, and
$7.9 million, or $0.66 per share, respectively, on revenues of $246.0 million,
compared with net income and income from continuing operations of $137,000, or
$0.01 per share, and $281,000, or $0.02 per share, respectively, on revenues of
$190.5 million for fiscal year 1992. For the year ended December 31, 1993, the
Company's operating income was $18.6 million compared with $4.6 million for
fiscal year 1992. For 1993, operating income for the Company's oilfield
equipment and contract drilling segments was $10.8 million and $11.8 million,
respectively. For 1992, operating income for these segments was $3.8 million
and $4.7 million, respectively.

Oilfield Equipment Segment

Revenues for the oilfield equipment segment increased by 23% to $171.6
million in 1993 compared to $139.3 million in 1992. The increase was due
primarily to increased sales of artificial lift equipment by $13.6 million and
the inclusion of approximately $14.6 million of revenues from the procurement
operations of ITS, which was acquired on June 30, 1993, and sold on December 30,
1993. Revenues from sales of tubular products were approximately the same in
1993 and 1992. The increase in artificial lift equipment revenues reflected the
introduction of the RotaLift(R) progressive cavity pump, the opening of
additional distribution centers in Canada and improved sales and market
acceptance of the Company's Corod continuous sucker rod. Revenues also
benefitted from increased drilling activity in Canada relating to reduced
governmental royalties for drilling in Canada. Increased sales volumes accounted
for substantially all of the increased revenues for 1993 in this segment.

Operating income for the oilfield equipment segment was $10.8 million in
1993 as compared to $3.8 million in 1992. The increase in 1993 is primarily
attributable to increased sales for artificial lift equipment and significant
reductions in average per unit manufacturing costs for tubular products. Margins
on sales of tubular products suffered in the fourth quarter of 1992 from
manufacturing inefficiencies at the Company's Atlas Bradford unit during the
relocation of its manufacturing operations to Navasota, Texas. These
inefficiencies were remedied in 1993 and, with additional efficiency gains,
contributed to the improvement in operating income for 1993. Although ITS
provided approximately 9% of 1993 segment revenues, its contribution to
operating income was minimal due to the nature of its business and related low
profit margins.

In 1992, results were adversely affected by an aggressive pricing strategy
for tubular products that was implemented to reduce surplus inventory levels of
certain product lines. This pricing strategy continued throughout 1993, but with
the different objective of improving market share and greater customer
acceptance of the Company's H-Series(TM) product line. While this strategy
resulted in an approximate 15% increase in tubular sales volumes for 1993 and
wider market acceptance of the Company's products, lower sales prices and a
market-wide trend toward lower cost, narrower diameter drill pipe translated
into only marginally higher total tubular product revenues.

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Operating income for 1992 included a $580,000 upward adjustment to the
carrying value of a tubular division receivable following the confirmation of a
plan of reorganization by the bankruptcy court. In the fourth quarter of 1993,
all of the assets in a trust created pursuant to the plan of reorganization to
fund the Company's receivable and the receivables of other creditors were sold
at a discounted price. In connection with this sale, the Company received cash
and certain contingent rights to future payments and reduced the remaining
amount of the receivable.

Contract Drilling Segment

Revenues in the contract drilling segment increased by approximately 46% to
$74.4 million for 1993 compared to $51.1 million for 1992. The increase was
primarily attributable to improved domestic demand, which resulted in higher day
rates and improved rig utilization as compared to 1992 when demand and day rates
were near historical low levels. Increases in 1993 were partially offset by
reduced revenues from the Company's operations in Nigeria and Peru following the
completion and termination of contracts in those regions. Such operations
represented approximately 14% and 22% of revenues in this segment for 1993 and
1992, respectively.

The contract drilling segment's operating income was $11.8 million in 1993
as compared to $4.7 million in 1992. The increase in 1993 was principally due to
higher domestic day rates and improved rig utilization rates. Average rig
utilization during 1993 increased to approximately 52% from 44% in 1992. The
increase in domestic operating income was offset by reduced revenues and profits
from the Company's international drilling operations due to the existence of
idle rigs in Nigeria and Peru for the latter part of 1993. Operating income for
these operations represented 29% and 86% of total operating income for this
segment in 1993 and 1992, respectively.

During the second quarter of 1993, the Company commenced operations under a
contract with NIOC to provide land drilling services in Iran. This work followed
a stage when the Company was selling tubulars to NIOC, which commenced in 1992.

General

Selling, general and administrative expenses increased approximately 24% to
approximately $45.7 million in 1993 from approximately $37.0 million in 1992.
The increase in 1993 was primarily the result of approximately $1.1 million in
two non-recurring items that reduced expenses in the 1992 period. The first item
was the settlement of a lawsuit for an amount that was approximately $550,000
less than originally estimated and the second item was a $580,000 increase in
the carrying value of a tubular receivable following confirmation of a plan of
reorganization by the bankruptcy court. Included in general and administrative
expense for 1993 was the cost associated with the opening of various new sales
and distribution stores in Canada and other locations throughout the world and
ongoing product development expenditures. Despite the additional cost associated
with the opening and operation of these stores, if the effect of the
nonrecurring items described above that reduced general and administrative
expense for 1992 is excluded, general administrative expenses as a percentage of
sales declined in 1993 as compared to 1992.

Included in results for 1993 was a gain on sale of business, gains on
equipment sales and an insurance recovery with respect to a rig loss aggregating
$2.0 million.

Interest expense increased from $5.4 million for the year ended December
31, 1992 to $7.6 million for 1993 due primarily to increased indebtedness under
working capital lines and as a result of the Company's $34 million senior notes
being outstanding for a full year as compared to nine months in 1992.

The Company's consolidated effective tax rate on income from continuing
operations for the year ended December 31, 1993 was approximately 38% compared
to approximately 17% for the prior year. The 1992 effective tax rate was
favorably impacted by the effect of an amendment to Internal Revenue Service
("IRS") regulations on the deductibility of losses on the sale of a subsidiary.
The Company's 1993 tax rate reflected the inability by the Company to claim U.S.
foreign tax credits for certain foreign taxes.

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DISCONTINUED OPERATIONS

In 1992, the Company established an environmental service group, Eastman
Cherrington Environmental Services ("Eastman Cherrington"), which provided
horizontal drilling and related services for the purpose of performing
environmental remediation, sampling containment and monitoring. During 1993, the
Company determined that, while there exists potential for substantial growth in
the environmental service industry, the continued operation of Eastman
Cherrington was not consistent with the Company's long-term strategic
objectives. On July 29, 1994, the Company exchanged Eastman Cherrington,
including a cash payment of approximately $2 million, for a tubular finishing
facility located in Bryan, Texas. The facility is being operated as part of the
Company's tubular division. The recorded net book value of Eastman Cherrington,
including losses from operations to the date of disposition, approximated the
appraised value of the facility in Bryan, Texas. As a result, there was no
material gain or loss realized on the exchange.

During 1992, the Company made the decision to sell its interests in
miscellaneous oil and gas properties for an aggregate sale price of $160,000
resulting in a gain of approximately $26,000, net of taxes. Such properties did
not include the Company's overriding royalty interests and related rights on
certain properties retained by the Company in connection with the 1990
dissolution of the Company's joint venture ("COLEVE") with Columbia Gas and
Development Corporation, which the Company continues to hold.

The results of operations for Eastman Cherrington and the exploration and
production segment are reflected in the accompanying Consolidated Statement of
Income as "Discontinued Operations, Net of Taxes". Revenues from discontinued
operations were approximately $3.3 million and $2 million for the years ended
December 31, 1993 and 1992, respectively. Discontinued operations reflected a
net loss of $2.1 million and $144,000 for the years ended December 31, 1993 and
1992, respectively. See Note 6 to Consolidated Financial Statements.

CHANGE IN ACCOUNTING

In the first quarter of 1992, the Company revised the estimated useful
lives of its domestic rigs from approximately 15 years to approximately 20 years
to more closely reflect expected remaining lives. As a result of this change,
depreciation expense was reduced by approximately $542,000 for the year ended
December 31, 1992.

In the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 109 -- Accounting for Income Taxes, which
supersedes SFAS No. 96. This statement provides, among other things, for
recognition and presentation of deferred tax assets and liabilities for the
future tax consequences of temporary differences between the financial statement
basis and the tax basis of assets and liabilities using the tax rates in effect
during the period when the taxes are actually paid or recovered. Accordingly,
income tax provisions may increase or decrease in the same period in which a
change in tax rates is enacted. Prior financial statements were not restated for
SFAS No. 109. The adoption of SFAS No. 109 did not have a material effect on the
Company's financial position or results of operations.

LIQUIDITY AND CAPITAL RESOURCES

At June 30, 1995, the Company had cash and cash equivalents of
approximately $2.3 million compared to approximately $3.1 million at December
31, 1994. At June 30, 1995, the Company's working capital was approximately $91
million compared to approximately $94 million at December 31, 1994, and
approximately $38 million at December 31, 1993. The increase in working capital
at December 31, 1994, compared to December 31, 1993, was due primarily to a
$28.9 million reduction at December 31, 1994, in the Company's debt outstanding
under its revolving lines of credit as a result of the placement of $120 million
in Senior Notes in March 1994. Accounts receivable increased by approximately
$20 million in 1994 over 1993 as a result of increased fourth quarter operating
activity in both the Company's tubular products and international operations
within the contract drilling segment.

At June 30, 1995 and December 31, 1994, the Company had in place various
working capital lines of credit secured by the inventory and receivables of the
Company's subsidiaries, providing for borrowings up to $55.5 million, subject to
availability requirements. Borrowings under the Company's lines of credit are

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generally based on the lender's determination of the collateral value of the
current assets securing the lines of credit. The lines of credit bear interest
at floating rates ranging from prime to prime plus 1 1/4% and are secured by
substantially all of the borrowing subsidiary's accounts receivable and
inventory. The Company and its subsidiaries are required to comply with various
affirmative and negative covenants relating to working capital, earnings and net
worth. The facilities also impose certain limitations on the use of funds by the
Company and its subsidiaries for acquisitions and capital expenditures, the
incurrence of additional indebtedness and other operational matters and certain
expenditures, and certain prohibitions on the declaration or payment of
dividends by the Company. At June 30, 1995 and December 31, 1994, approximately
$34 million and $17.3 million, respectively, had been borrowed under the
revolving lines of credit and approximately $3.4 million and $1 million,
respectively, had been used to support outstanding letters of credit. At June
30, 1995 and December 31, 1994, $18.1 million and $35.6 million, respectively,
was available for additional borrowing under these credit facilities. The
average interest rate under these facilities was 8.8% for 1994 and 10.5% for the
first half of 1995.

The Company currently has outstanding $120 million of Senior Notes with
semi-annual interest payments in March and September. The Senior Notes were
issued pursuant to the terms of an Indenture dated as of March 15, 1994. Certain
subsidiaries of the Company have unconditionally guaranteed the Company's
obligations under the Senior Notes. The Indenture relating to the Senior Notes
contains various customary affirmative and negative covenants that, among other
things, limit the ability of the Company and certain of its subsidiaries to (i)
incur certain additional indebtedness unless the Company's Consolidated Fixed
Charge Coverage Ratio (as defined in the Indenture) is at least 2.0 to 1.0, (ii)
make dividends, distributions and certain other restricted payments, (iii)
create certain liens, (iv) engage in certain transactions with its affiliates,
(v) engage in sale and leaseback transactions, (vi) make certain asset
dispositions and (vii) merge or consolidate with, or transfer all or
substantially all of its assets to another person. The Indenture also limits the
ability of the Company and certain of its subsidiaries to issue preferred stock
and creates restrictions on the ability of certain of its subsidiaries to pay
dividends and make other distributions.

The placement of the $120 million of Senior Notes provided the Company with
$116 million in net proceeds that was used to prepay the $34 million 12.25%
senior notes due 1997 and to repay substantially all of the Company's
outstanding indebtedness other than the Senior Notes. The remaining funds were
used for working capital and other general corporate purposes.

The Company's acquisition of Prideco with shares of Common Stock reduced
the Company's debt to total capitalization ratio from 57% at December 31, 1994,
to 52% at June 30, 1995. This ratio is expected to be further reduced upon the
completion of this Offering to less than 45%.

In August 1994, the Company received a letter from the IRS proposing to
increase the gain recognized by the Company upon the dissolution in October 1990
of COLEVE. In general, the IRS' proposal seeks payment of a tax liability of
approximately $14.1 million plus accrued interest thereon, and includes $3.4
million of taxes relating to the proposed disallowance of certain interest
deductions taken by the Company with respect to COLEVE that was the subject of a
similar letter received by the Company in the fourth quarter of 1993. The tax
liability with respect to these matters has been previously provided for as a
deferred tax liability in the Company's financial statements. The Company
disagrees with the IRS' position and is currently pursuing its rights of
administrative review and appeal and intends to vigorously contest this matter.
Although the resolution of these remaining issues could affect the timing of the
payment of previously accrued tax liabilities and require the use of a portion
of its available capital, the Company does not believe that the results of the
audit or the ultimate resolution of the IRS' proposed adjustments will have a
material impact on its results of operations or financial position.

The demand for the Company's tubular products and contract drilling
services are particularly affected by the price of natural gas while the demand
for the Company's artificial lift equipment is directly dependent on oil
production activity. Although the Company's international contract drilling
services are affected by the level of exploration activity in the countries in
which it provides those services, its domestic drilling operations are
materially dependent on the level of exploration activity in the Gulf Coast and
domestic natural gas prices.

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Sales of the Company's artificial lift products are currently concentrated in
North America and are affected by the level of oil production from older wells
as well as oil prices.

The Company's current sources of capital are cash generated from operations
and borrowings under its working capital lines of credit. The Company believes
that current reserves of cash and short-term investments, access to existing
credit lines and internally generated cash from operations are sufficient to
finance the projected cash requirements of its current operations.

The Company's expansion of operations in Argentina and the Grant Prideco
premium casing line will be financed through the proceeds of this Offering. Any
expansion utilizing the OCTL facility would likely require an initial investment
of between $25 million and $30 million to fund initial lease payments, deposits
and working capital. These funds would likely be financed with existing cash,
any remaining net proceeds from this Offering and borrowings under lines of
credit and other facilities.

The Company is continually evaluating new acquisitions with a focus on
proprietary technology and under-utilized assets to enhance operations. Future
acquisitions may be funded through cash flow from operations, borrowings under
lines of credit and other facilities and equity issuances if desirable.

CAPITAL EXPENDITURES, ACQUISITIONS AND DISPOSITIONS

On June 30, 1995, the Company acquired Prideco in a transaction which
involved the issuance of approximately 2.25 million shares of Common Stock. The
acquisition is expected to provide the Company with greater manufacturing and
marketing efficiencies by allowing for a consolidation of overhead, reduced
distribution and marketing costs and a rationalization of manufacturing
operations. Revenues and operating income at Prideco for its fiscal year ended
June 30, 1995, were $55.2 million and $4.2 million, respectively. The
acquisition of Prideco was accounted for using the purchase method of
accounting.

On September 1, 1994, the Company acquired the Fluid Packed pump line of
rod pumps, parts and accessories, and the sucker rod line from National-Oilwell
for $13.5 million in cash. The acquired assets have been integrated into
Highland. Included in the acquisition were leased and owned manufacturing
facilities and equipment in Woodward, Oklahoma, and Santa Teresa, New Mexico,
and product inventory.

On July 29, 1994, the Company acquired a tubular finishing facility located
in Bryan, Texas, in exchange for Eastman Cherrington. The exchange included a
cash payment by the Company of approximately $2 million. The facility is being
operated as part of the Company's drill pipe and tubular products division.

On February 9, 1994, the Company purchased all of the outstanding stock of
AWI for a purchase price of $1.5 million cash, $5.0 million in notes payable and
433,333 shares of the Company's Common Stock. The assets of AWI consisted
primarily of 12 barge drilling rigs, eight of which were under charter to the
Company at the time of acquisition. The acquired rigs have been integrated into
the Mallard contract drilling division and have been operating in substantially
the same manner as they were being operated by it prior to the acquisition.

In addition to funds used to finance acquisitions, capital expenditures by
the Company during the six months ended June 30, 1995 and the years ended
December 31, 1994 and 1993, totaled approximately $11.7 million, $19.6 million
and $14.9 million, respectively. During the first six months of 1995, capital
expenditures included approximately $4.5 million relating to the acquisition of
a land rig deployed to Argentina and equipment additions to the three existing
land rigs in Argentina.

Capital expenditures in 1994 included approximately $7.2 million relating
to equipment additions to the Company's Nigerian rig. Capital expenditures in
1993 included approximately $800,000 relating to the integration of the Atlas
Bradford manufacturing lines into the Company's Navasota, Texas, manufacturing
facility, $1.2 million relating to modernization of the Company's barge rigs and
$2.0 million for equipment and supplies deployed in connection with the
Company's Iranian operations.

Ongoing routine capital expenditures for the next 12 months are budgeted at
approximately $14 million. In addition, the Company is proposing to expend
approximately $4 million for capital expenditures relating to the acquisition
and deployment of five workover drilling rigs to Argentina and $5 million for
upgrading of its domestic rig fleet. Capital expenditures are expected to be
funded with available cash, cash flow from operations, proceeds from this
Offering and borrowings under lines of credit and other facilities.

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<PAGE> 30

BUSINESS

GENERAL

The Company is an international manufacturer and supplier of oilfield
equipment and contract drilling services. The Company operates through two
business segments, oilfield equipment and contract drilling. The oilfield
equipment segment manufactures high-performance tubulars and a complete line of
artificial lift equipment. The Company's contract drilling rig fleet consists
primarily of barge rigs used by major and large independent oil and gas
companies for the exploration and development of natural gas in the U.S. Gulf
Coast area. The Company's tubular products and contract drilling operating
divisions provide products and services used primarily for natural gas
exploration and production. The artificial lift product lines are tied to the
maturation of oil producing formations.

Tubular products are provided through Grant Prideco. Tubular products are
manufactured at nine locations throughout the world, and distribution is
effected through a worldwide sales and service support system. This division's
products consist of proprietary drill pipe (H-Series), heavyweight drill pipe,
casing and premium tubulars (Atlas Bradford). As part of its premium tubular
business, Grant Prideco also designs, manufactures and markets Atlas Bradford
proprietary premium threaded connections for tubing and casing used in oil and
gas wells. Grant Prideco's products are designed and engineered for high
performance applications. Drill pipe serves as the principal mechanical drilling
tool needed to drill an oil or natural gas well. Drill pipe must be designed and
manufactured to provide a reliable connection from the drilling rig to the drill
bit thousands of feet below the surface. Grant Prideco is the largest
manufacturer and supplier of drill pipe in the world and is one of the two
largest manufacturers of premium tubulars in North America. Grant Prideco is
also one of the two largest manufacturers of drill collars and heavyweight drill
pipe in the Americas.

Artificial lift equipment is provided through Highland. Highland
manufactures, markets and services artificial lift equipment and parts used for
the production of crude oil. Highland provides a wide variety of proprietary and
patented products, including the RotaFlex pumping unit, the Corod continuous
sucker rod (through Highland's Corod unit ("Corod")), the RotaLift line of
progressive cavity pumps, the Fluid Packed pumps and EL(R) sucker rods and
Production Oil Tools packers. Highland uses its over 60 store distribution
network in the United States and Canada for the marketing and servicing of its
products. Highland is one of the two largest manufacturers and distributors of
rod lift equipment in the world and provides the only integrated product line in
this class of lift from the above ground equipment to the tools submersed in the
producing reservoir.

Contract drilling services are provided through Mallard. Mallard's U.S.
operations are concentrated in the area of barge drilling and workover in the
shallow coastal and inland waters of the United States Gulf Coast where
conventional jack-up rigs cannot operate. The Company is the second largest
operator of barge rigs in this market with an estimated 40% market share. The
Company's domestic barge rig fleet consists of 15 drilling rigs and 19 workover
rigs. The Company also has a fleet of six platform rigs and one jackup rig in
the Gulf of Mexico. Internationally, Mallard operates one barge rig in Nigeria
and two platform rigs in Peru. In addition, Mallard owns four land rigs that are
under a two-year contract with YPF. The Company is currently negotiating an
agreement to expand its land operations in Argentina. The Company also owns a
49% interest in a joint venture that owns two land rigs in Peru.

The Company made various acquisitions in 1994 and 1995 designed to
strengthen its existing product lines and operations in each of its core
businesses. The most significant of the Company's acquisitions was its recent
acquisition of Prideco. The Prideco acquisition completed the Company's tubular
product line by adding drill collars, heavyweight drill pipe and premium casing
to its already extensive line of tubular products. Prideco was the second
largest manufacturer of drill pipe in the United States and one of the two
largest manufacturers of drill collars and heavyweight drill pipe in the
Americas. The Company currently intends to expand the market for Prideco's drill
collars and heavyweight drill pipe internationally. The Company also intends to
actively market Prideco's premium casing with the Company's previously
introduced TC-II(TM) line of premium casing connectors and to substantially
increase production of this product over the next year.

29
<PAGE> 31

The Company's acquisition of Prideco is expected to further strengthen the
Company's position as the leader in the worldwide drill pipe market. The
acquisition is also expected to increase the profitability of the Company's
tubular business by providing it with greater manufacturing and marketing
efficiencies through a consolidation of overhead and a rationalization of
manufacturing operations. The Company is currently in the process of
consolidating the manufacturing of drill pipe and other tubular products to the
most efficient manufacturing locations for those products and is actively
marketing the new Prideco product lines internationally through the Company's
existing international sales force and distribution system.

The Company is also reviewing opportunities to increase its manufacturing
capabilities of drill pipe and premium tubulars outside the United States. In
this regard, the Company is currently engaged in discussions with OCTL regarding
an arrangement under which the Company would lease OCTL's tubular facility
located in Narketpally, India on a continuing basis. The OCTL facility was built
in 1990 under the direction of personnel who are currently employed by Grant
Prideco and is the most modern tubular fabricating facility in the world. The
facility would be utilized by the Company to pursue a strategic expansion of its
sales and operations in the Eastern Hemisphere. The Company believes that the
combination of Grant Prideco's product line with OCTL's low manufacturing costs
and proximity to major Eastern Hemisphere markets should accomplish this
objective. This expansion is intended to substantially increase the Company's
sales into the growing Eastern Hemisphere market, which over the last few years
has represented only approximately 5% of the Company's total revenues.

The OCTL lease would be long-term subject to an annual right of termination
by the Company. The Company would be required to make a one-time payment of $8
million for the right to use the facility and would thereafter make annual
payments of $6 million plus certain royalties based on the volume of products
produced at the facility. The Company would pay all operating costs and provide
all working capital required to run the OCTL facility. To date, no definitive
agreement with OCTL has been reached and any agreement would be subject to
various conditions, including the receipt of all necessary governmental and
other approvals for the Company's lease of the OCTL's facility. Accordingly,
there can be no assurance that an agreement with OCTL will be entered into or as
to the ultimate timing and terms thereof.

Other significant acquisitions included an acquisition of AWI in
February 1994, which increased Mallard's barge rig fleet by 12 rigs and
eliminated a charter fee previously paid by the Company for eight of these
rigs. The Company also acquired from National-Oilwell the Fluid Packed pump
line of rod pumps and sucker rod business in August 1994, which was integrated
into Highland's artificial lift product lines. In addition, the Company
acquired a state-of-the-art tubular finishing mill in Bryan, Texas, in exchange
for its environmental remediation business in July 1994.

From the Company's inception in 1972 through early 1986, the Company was
primarily an oil and gas exploration and production company. In January 1986,
the Company disposed of substantially all of its oil and gas properties other
than a minority interest in COLEVE. In 1990, the Company dissolved COLEVE and in
1992, the Company sold its remaining oil and gas properties (other than an
overriding royalty interest and certain related rights with respect to the
properties received on dissolution of COLEVE) and discontinued its exploration
and production segment.

The Company operates in two principal industry segments: oilfield equipment
and contract drilling. The results of the Company's exploration and production
segment that was discontinued in 1992 and its Eastman Cherrington group that was
discontinued in 1993 are reflected in the Company's Consolidated Statements of
Income as discontinued operations.

OILFIELD EQUIPMENT

The Company's oilfield equipment segment manufactures and markets tubular
products and services through Grant Prideco and manufactures and markets
artificial lift equipment and services through Highland.

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<PAGE> 32

TUBULAR PRODUCTS

Grant Prideco manufactures and markets two tubular product lines: (i) drill
pipe and related products and (ii) the Atlas Bradford and Prideco line of
premium tubulars and premium connections. Grant Prideco operates through ten
manufacturing facilities of which eight are located in the U.S., one in Mexico
and one in Hungary. Grant Prideco also has over 90 worldwide licensed
manufacturing and repair locations. Grant Prideco markets its product lines
through nine technical support sales offices and a worldwide network of agents
and suppliers.

Grant Prideco's tubular products are either used for drilling and
completion of oil and and gas wells or for production of oil and natural gas.
Grant Prideco's drilling products include drill pipe, drill collars, heavyweight
drill pipe and kellys, which constitute all components of the drill string used
to drill a well from the rig to the drill bit. Grant Prideco's production
tubulars are primarily premium tubing and casing.

Drill pipe is manufactured within specific metallurgical and engineering
guidelines to meet stringent requirements necessary for its use in the drilling
of oil and natural gas wells. Oil and gas companies consider drill pipe to be a
material portion of their overall drilling costs. Accordingly, purchasing
decisions are sensitive to price, quality, operational needs and fluctuations in
oil and gas prices.

Grant Prideco's drill pipe product line consists primarily of specialty
pipe that is marketed under the H-Series trade name. The H-Series product line
combines the proprietary and patented technology of the Hughes Tool Joint Drill
pipe fabrication system (acquired from Baker Hughes Incorporated in 1990) with
the Company's original drill pipe manufacturing capabilities. Grant Prideco owns
a number of patents on tool joint design and drill pipe manufacturing processes
and has licensed a number of foreign drill pipe manufacturers for the use of
Grant Prideco's H-Series patents, technologies and hardware.

Drill collars are the component of the drill string generally located
directly above the drill bit in a vertical well. A drill collar is machined from
a solid steel bar and is used to provide weight on the drill bit. Grant
Prideco's heavyweight drill pipe is a seamless tubular product that is less
rigid than a drill collar and provides a transitional zone between the drill
collar in a vertical well and the more flexible drill pipe. Heavyweight drill
pipe also serves to apply weight to the drill bit in a directional well. The
Company's drill collar and heavyweight drill pipe product lines were acquired
through the acquisition of Prideco.

Grant Prideco's premium tubular product line consists of premium tubing and
premium connections. The product line is marketed under the trade name Atlas
Bradford and utilizes a number of proprietary and patented processes for
threading and manufacturing premium tubulars. Atlas Bradford was a pioneer in
the development of high performance connections for premium tubulars. Premium
tubulars, like the lower performance variety known as API tubulars, are made up
of casing and tubing, products that respectively line the walls of a wellbore
and serve as a conduit for hydrocarbons up the wellbore. Grant Prideco's casing
products consist of larger outside diameter, thinner walled, seamless tubular
products previously manufactured by Prideco. Casing is used to line and maintain
the integrity of a wellbore. The term "premium" refers to high alloy, seamless
tubulars with specific molecular structure and highly engineered connections.
Such tubulars, whether casing or tubing, are designed and engineered to
withstand deep, high pressure, high temperature and high corrosive well
environments. Premium tubulars are generally used in deep natural gas and
offshore wells.

The Company recently introduced a new line of premium connections by Atlas
Bradford known as the TC-II line. The new line is a more highly engineered and
technologically advanced line of premium tubulars. The TC-II line is the result
of two and a half years of product development and testing. The TC-II product
line was developed to provide the worldwide oil and gas industry with premium
performance, and a design incorporating economical threading using high alloy
materials. The significance in developing and introducing the TC-II line was to
enhance Grant Prideco's ability to better compete internationally, which
currently represents three times the domestic market. Before the introduction of
the TC-II line, Grant Prideco's primary market for its premium tubulars was in
the United States and Canada. Although TC-II testing will continue through 1996,
this product line is expected to be ready for commercial applications by the end
of 1995. The Company intends to market its TC-II line in conjunction with
Prideco's casing product line in order to provide its customers with a uniform
casing product.

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<PAGE> 33

After many years of adverse market conditions characterized by overcapacity
and depressed prices, the Company's tubular business has begun to realize the
concurrent benefits of a reduction in the worldwide inventory of used drill pipe
and industry consolidation. These benefits are evidenced by results in the first
half of 1995 where the Company realized a 35% increase in tubular pipe revenues
over the first six months of 1994 despite low natural gas prices and a near
record low domestic and worldwide rig count. The Company expects that Grant
Prideco's future revenues and profitability will benefit from this continuing
trend as well as from its recent acquisition of Prideco.

Sales and Backlog

Total sales of drill pipe and tubular products for the six months ended
June 30, 1995, and years ended December 31, 1994, 1993 and 1992 were $58.1
million, $97.2 million, $74.6 million and $74.5 million, respectively,
representing approximately 38%, 39%, 30% and 39% of the Company's total sales
during such periods. The sales backlog for drill pipe and other tubular products
at June 30, 1995, totaled approximately $69.8 million compared to approximately
$35.2 million at December 31, 1994, and approximately $20.3 million at December
31, 1993. The increase in the 1995 backlog was primarily due to a general
increase in demand during the first half of 1995 and the Prideco acquisition.
The Company anticipates that all of the backlog existing at June 30, 1995, will
be shipped during the next 12 months. The Company is currently taking action to
reduce its backlog of drill pipe by increasing its current production rates at
its domestic facilities.

Competition

Grant Prideco is the largest manufacturer and supplier of drill pipe in the
world and the second largest manufacturer of premium tubulars in North America.
Grant Prideco is one of the two largest manufacturers of drill collars and
heavyweight drill pipe in the Western Hemisphere. Grant Prideco operates in a
highly competitive industry that has experienced depressed demand, overcapacity
and excess supplies for the past several years. Competition is based on price,
quality and service. The market for the Company's drill pipe is essentially
worldwide and the Company competes with five large international and domestic
manufacturers, some of whom are licensees of the Company, as well as
manufacturing operations in China and the Commonwealth of Independent States
("CIS"). Other large domestic and international manufacturers not currently in
the market also have the ability of competing with the Company. Market
conditions for drill pipe in recent years have been highly competitive. Prices
have recently improved with the decline in excess inventories of used pipe and
the associated increase in demand for new drill pipe.

In the United States, the Company competes with approximately four
manufacturers of premium tubular products. Competitors include large domestic
and foreign corporations and small specialty manufacturers. Internationally, the
Company competes with five manufacturers of premium tubing. Many of the
Company's competitors have greater financial resources than the Company. The
Company continues to expand its market for premium tubulars outside the United
States through the opening of new sales and service centers.

The market for casing is limited to some extent by transportation costs. As
a result, the Company's current market for these products is primarily in North
and South America. The Company competes with over four other manufacturers of
these products in these locations. Casing is currently manufactured by over five
large manufacturing companies.

Raw Materials

The Company uses plain end "green" steel tubing stock as raw material in
the manufacture of drill pipe, casing and premium tubing. The primary raw
material for drill collars is solid steel bars. Heavyweight drill pipe is
manufactured from heavy wall tubular products. The Company's suppliers are major
domestic and international steel mills. The Company has established relations
with several domestic and foreign mill sources that provide a competitive
availability of "green" tubing stock supplies. Prices for green tubing have
recently increased. The Company, however, has been able to date to pass through
these increased costs to its customers.

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<PAGE> 34

Facilities

The Company's drill pipe and premium tubulars are manufactured domestically
at seven locations in Texas, one location in Louisiana and one location in each
of Mexico and Hungary. The Company continues to focus on product development and
manufacturing efficiencies. The Company also has sales offices in Houston and
Dallas, Texas; New Orleans, Louisiana; Dubai, United Arab Emirates; Aberdeen,
Scotland; Pau, France; Caracas, Venezuela; The Hague, Netherlands and Singapore.

Customers and Markets

The customers for the Company's tubular products include both domestic and
international oil and gas companies and distributors of oilfield supplies.
Because the Company's tubular products are designed primarily for drilling and
production in deep wells and harsh environments, they are generally used in
connection with the exploration and production of natural gas and international
exploration. Accordingly, sales of these products are sensitive to fluctuations
in the price outlook for natural gas and related levels of exploration activity.

ARTIFICIAL LIFT EQUIPMENT

Headquartered in Odessa, Texas, Highland manufactures and markets a
complete line of artificial lift equipment and parts utilizing various
proprietary and patented technology, with a primary emphasis on rod lift. Rod
lift is one of four alternative artificial lift technologies currently used for
recovering oil from maturing fields, which lack sufficient pressure to flow
under their own power. These methods and related equipment are designed to
sustain the flow of oil production from such fields. Alternative lift
technologies include electrical submersible lift, gas lift and hydraulic lift.
Rod lift is a form of artificial lift technology in which oil is recovered
through a suction process utilizing an above ground drive system connected by
sucker rods to a downhole pump placed against the reservoir. Rod lift is
particularly suited for older oil wells of depths of up to 10,000 feet and with
production rates of up to 1,000 barrels per day. The Company estimates that rod
lift represents approximately 50% of the total artificial lift market in the
world, with electrical submersible lift having the next largest share at
approximately 40%.

Highland distinguishes itself from its competitors in three ways: (i) it
has a fully integrated product line, (ii) it utilizes new technologies for the
production of oil using artificial lift and (iii) it has a strong distribution
system in the United States and Canada. Highland's integrated product line
offers all artificial lift equipment from the wellhead to the reservoir. To the
Company's knowledge, none of its competitors has as broad a product line. Moving
from the wellhead downhole, Highland's principal products include (i) RotaFlex
pumping unit, (ii) Corod continuous sucker rods and EL sucker rods, (iii)
RotaLift progressive cavity pump systems, (iv) Fluid Packed pumps and (v)
Production Oil Tools packers.

Highland's products have traditionally been principally marketed in the oil
producing regions of North America. With the opening of the world oil markets in
China, the CIS and South America, Highland has been taking steps to introduce
its products into these markets where modern artificial lift equipment is both
needed and actively sought. The Company believes that these markets should
provide significant opportunities for Highland in the future. The Company,
however, believes that the North American markets will continue to provide
opportunities for the Company as the trend for domestic oil production moves
from the major oil companies to the independents and from large exploratory
projects to secondary recovery and development drilling.

Highland's products are focused on the production side of the oil and gas
industry, which the Company believes is less volatile than the exploration
segment of the industry. The Company further believes that the crude oil
production side of the industry is a growing market for artificial lift products
in that there is an increasing need for artificial lift to aid production as oil
fields mature worldwide. Thus, although domestic exploration for crude oil has
declined in recent years, this decline is not expected to materially affect the
demand for Highland's products. However, declines in prices of oil may reduce
demand for Highland's products due to reduced capital expenditures by customers
and decisions by customers not to pursue additional work on marginal wells.

33
<PAGE> 35

Highland maintains sales offices and service and repair centers throughout
the United States and Canada in order to efficiently distribute its products and
serve the needs of the exploration and production companies in those regions.
Products manufactured by Highland, as well as products manufactured by other
companies, are sold and distributed at these centers. The Company is currently
planning to introduce its line of artificial lift products in Argentina using
the infrastructure that is proposed to be established as part of its expansion
of land drilling and workover operations in that country. Other international
expansions are also being pursued.

RotaFlex "Pumping Unit"

RotaFlex is a 100% mechanical, long-stroke surface drive pump unit used to
artificially lift oil from deep or high volume wells as opposed to low volume
stripper wells. The unique patented design is approximately 40% more efficient
than the conventional pump drive unit that has been in use for over 50 years.
The Company has actively marketed the RotaFlex system for approximately three
years with increasing market acceptance. The Company also markets the RotaFlex
system in the Canadian, South American and Chinese markets.

In an effort to expand the market for the RotaFlex system, Highland has
developed a smaller middle range RotaFlex model. This model, which is less
expensive than the standard RotaFlex system, provides an alternative to
customers whose needs do not require all the capabilities of the standard system
but who could benefit from efficiencies provided by the RotaFlex technology.

RotaLift, Fluid Packed Pumps, "Downhole Pumps" and Sucker Rods

The Company produces and distributes a complete line of progressive cavity
pump systems under the tradename RotaLift using proprietary hydraulic gear boxes
and patented vertical electric drives. The rotor and stator components of the
Company's progressive cavity pump are manufactured for the Company pursuant to
an exclusive worldwide manufacture, distribution and license arrangement with
Robbins & Myers, Inc. ("Robbins & Myers"). The RotaLift progressive cavity pump
is particularly suited for shallow to medium depth wells with high volumes of
produced water, low gravity crude or sandy conditions. The Company believes that
the progressive cavity pump provides a desirable alternative to the traditional
rod pump and electric submersible pumps in these applications.

In 1994, the Company added the Fluid Packed pump line of rod pumps, parts
and accessories and the EL sucker rod business previously owned by
National-Oilwell to Highland's product line. As part of this addition, the
Company acquired leased and owned manufacturing facilities in Woodward, Oklahoma
and Santa Teresa, New Mexico. The Fluid Packed line offers a wide variety of API
pumps, specialty rod pumps and unique accessories. The Fluid Packed line of
specialty rod pumps is designed for pumping applications to meet special well
conditions. The sucker rod business includes both API grades and the premium
Electra(R) Series EL line. The Fluid Packed line is distributed through Highland
stores and the National-Oilwell distribution network.

Downhole pumps in rod lift come in one of two forms: progressive cavity
pumps and rod pumps. Progressive cavity pumps lift by using a rotating motion
and elastomer lined cavities. Rod pumps lift by using a vertical motion and a
set of mechanical valves. Both are connected to the prime mover above ground by
rods (either traditional coupled rods or Corod continuous rods). The Company
produces and distributes both types of pumps.

Corod "Continuous Sucker Rods"

The Company manufactures the only continuous sucker rod available in the
industry through its Corod unit located in Canada. A sucker rod is an integral
part of any sucker rod pumping system and is used to connect the surface drive
unit of an oil well, such as the RotaFlex system or a traditional drive system,
to a subsurface pump. The typical sucker rod requires a coupling every 25 to 30
feet. Corod's semi-elliptical smooth and continuous sucker rod does not have
such connections, which reduces wear and torque and produces a more efficient
and economical form of artificial lift. The manufacturing process of Corod is
proprietary and the servicing process is patented. Sales of Corod sucker rods
increased substantially in 1994 due to the eight distribution outlets that were
operational in Canada for all of 1994 and improved market

34
<PAGE> 36

conditions in Canada for drilling. The Company continues to market Corod's
products through its U.S. distribution network as well as in foreign markets
such as Venezuela and China.

Production Oil Tools "Packers" and Completion Systems

The Company manufactures downhole packers and completion systems through
its Production Oil Tools unit. Downhole packers are used in the completion and
production process of oil and gas wells. Packers maintain the separation between
productive zones in oil and gas wells and seal off the space between the tubing
and casing to protect the casing from reservoir pressures and corrosive
formation fluids.

The Production Oil Tools downhole packers are compatible with the packers
manufactured by Baker Hughes Incorporated, which is the largest manufacturer of
packers in the industry. The Company believes that Production Oil Tools packers
are the only ones in the industry that have compatibility characteristics. The
Company considers this compatibility as an important competitive attribute in
that much of the packer business is in the repair of existing installed
wellbases and over half of the existing packers are believed to be Baker Hughes
products. The Company believes that its packers provide its customers with a
viable cost effective alternative to those manufactured by Baker Hughes.

The Production Oil Tools packers are distributed through Highland's
distribution and service network. The Company manufactures packers at its
facilities in Powell, Wyoming, and Arlington, Texas. The Company is currently
reviewing opportunities to expand this product line internationally.

Distribution, Sales, Service and Repair

The Company's artificial lift equipment is marketed and serviced through a
network of stores owned and operated by Highland and its Corod unit throughout
the United States and Canada. As of June 30, 1995, Highland had over 60
distribution stores (including the Leamco(TM) unit locations) throughout the
United States in the principal oil producing areas in Texas, Oklahoma, Kansas,
New Mexico, California, Louisiana, Alabama, Michigan, Mississippi and the Rocky
Mountains. Through its Corod unit, the Company also has distribution and service
centers at eight locations throughout Canada. Highland's stores distribute
products and equipment manufactured by it and occasionally sell ancillary
products manufactured by other original equipment manufacturers. Highland also
provides downhole pump repair services through these locations. Most of the
stores are under renewable three to five-year leases. The Company also
distributes its RotaLift pumps in Canada through its Corod distribution centers
and markets Corod products in the United States through its Highland stores. The
Company also distributes the Fluid Packed pump line of products through
National-Oilwell's distribution network as well as through other third party
distributors.

In late 1994, Highland introduced its first supercenters in Odessa and
Snyder, Texas. The Company is currently in the process of opening two additional
supercenters in California and New Mexico. The supercenters provide a
diversified line of products, consistency in the quality of the repairs of pumps
and improved turnaround time.

Total sales for the Company's subsurface pump group for the six months
ended June 30, 1995, and the years ended December 31, 1994, 1993 and 1992 were
$41 million, $59 million, $56 million and $47 million, respectively,
representing 27%, 24%, 23% and 25% of the Company's total sales during such
periods.

Through its Leamco division, Highland also manufactures and installs
pumping unit replacement parts, primarily bearings and gearboxes for both
Highland products and products sold by competitors. Among the products provided
by Leamco is a proprietary line of self-lubricating Teflon(R) bearings. The
Leamco unit repairs, installs and services oilfield pumping units at 15
locations in Texas, Oklahoma and New Mexico. The market for repair of pumping
units is very fragmented in North America. The Company, however, believes Leamco
is the largest domestic provider of these services. Highland produces a full
line of motor and control units used in connection with oilfield pumping units.
These units include the Sargent(TM) line of ultra high slip electric motors and
controls that maximize the lift capacity of beam pumping units while reducing
unit load.

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<PAGE> 37

Competition

The market for artificial lift equipment parts, equipment and repair is
very competitive. Competition is based on product design and quality, ability to
meet delivery requirements and pricing. The RotaFlex system competes with
conventional pumping units, which are manufactured by Lufkin Industries. Corod's
sucker rods compete with conventional sucker rods, which are manufactured and
sold both by Highland and its major competitors, Axelson Incorporated, Trico
Industries, Incorporated and Norris Sucker Rods. The Company's progressive
cavity pumps compete with five major competitors. Highland has identified in the
industry six large competitors that individually have a significant share of the
entire artificial lift equipment market (inclusive of all other forms of lift).
The Company believes that it currently has the second or third largest market
share in the world, although its market share varies depending on the type of
product.

Customers and Markets

Highland's products and services are designed primarily for the operation
of maturing fields. Demand is, therefore, not significantly affected by
short-term changes in exploration and drilling activity. As the average age of
oil wells worldwide increases, the market for the Company's artificial lift
equipment is expected to increase. Currently, most of the Company's artificial
lift equipment is sold in the United States and Canada. However, the Company
believes that significant opportunities exist for its products in other areas
with maturing fields such as South America, the CIS and China. In recognition of
this opportunity, the Company has taken extensive efforts to expand Highland's
products internationally. Approximately 8% of the Company's revenues from the
sale of artificial lift equipment for 1994 and 1993 were derived from sales of
equipment provided outside the United States and Canada compared to 6% for 1992.

Facilities

Highland's products are manufactured at eight locations in the United
States, one location in Canada and one in China.

Backlog

Backlog of artificial lift equipment is generally not considered to be a
meaningful indication of future sales or results due to the nature of the
business.

CONTRACT DRILLING

The Company's contract drilling services in the United States are primarily
concentrated in the area of barge drilling and workover in the shallow coastal
and inland waters of the U.S. Gulf Coast where conventional jack-up rigs cannot
operate. Mallard is the second largest operator of barge rigs in this market.
Mallard's domestic barge rig fleet consists of 15 drilling rigs and 19 workover
rigs. Mallard also has a fleet of six platform rigs and one jackup rig in the
Gulf of Mexico.

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<PAGE> 38

Mallard owns all of its rigs. Mallard also has a 49% interest in a joint
venture that owns two land rigs in Peru. From its inception in 1987, Mallard has
devoted substantial efforts toward establishing itself as a leader in quality by
upgrading and refurbishing its rigs and has budgeted $20 million over the next
two years for this purpose.

The Company's fleet of barge and other rigs was acquired through a number
of acquisitions effected during the last ten years. These acquisitions were
concentrated on barge rigs that could be easily integrated into Mallard's fleet.
Because most of the purchases were made at a time during which there existed
substantial overcapacity and low demand in the offshore drilling market and from
companies desiring to leave the market, the rigs were acquired at what the
Company believes to be favorable prices substantially below replacement cost.

MARINE FLEET

As of July 31, 1995, Mallard's marine fleet consisted of the following
general types of rigs located in the following regions:

<TABLE>
<CAPTION>
TOTAL
FLEET
-----
<S> <C>
Inland Barge:
Gulf Coast.................................................. 34
Nigeria..................................................... 1
Platform:
Gulf of Mexico.............................................. 6
Peru........................................................ 2
Jack Up:
Gulf of Mexico.............................................. 1
-----
Total............................................... 44
====
</TABLE>

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<PAGE> 39

More detailed information with respect to Mallard's fleet of marine
drilling rigs, as of July 31, 1995, is set forth in the following table:

<TABLE>
<CAPTION>
MAXIMUM
YEAR BUILT OR DRILLING
HORSEPOWER REFURBISHED DEPTH (FEET) STATUS(A)
---------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Inland Barge:
Deep Drilling
Rig No. 50................................... 2,000 1993 25,000 Active
Rig No. 51................................... 2,000 1993 25,000 Active
Rig No. 52................................... 2,000 1993 25,000 Active
Rig No. 53................................... 2,000 1995 20,000 Active
Rig No. 54................................... 2,000 1995 30,000 Active
Rig No. 55................................... 2,000 1993 30,000 Active
Rig No. 56................................... 2,000 1992 30,000 Active
Rig No. 57................................... 3,000 1980 30,000 Stacked
Rig No. 58................................... 3,000 1982 30,000 Stacked
Rig No. 59................................... 3,000 1972 30,000 Stacked
Rig No. 71(b)................................ 3,000 1994 30,000 Active

Intermediate Drilling
Rig No. 8.................................... 1,700 1995 15,000 Active
Rig No. 11................................... 1,700 1994 15,000 Active
Rig No. 12................................... 1,200 1990 14,000 Active
Rig No. 17................................... 1,200 1993 13,000 Active
Rig No. 21................................... 1,200 1995 14,000 Active

Heavy Workover and Shallow Drilling
Rig No. 15................................... 800 1991 11,500 Stacked
Rig No. 16................................... 800 1994 11,500 Active
Rig No. 18................................... 800 1993 11,500 Active
Rig No. 19................................... 800 1993 11,500 Stacked
Rig No. 20................................... 800 1995 11,500 Active
Rig No. 23................................... 1,000 1993 13,000 Active
Rig No. 24................................... 1,000 1992 13,000 Active
Rig No. 25................................... 1,000 1993 13,000 Active
Rig No. 26................................... 1,000 1981 13,000 Stacked

Workover and Other
Rig No. 1.................................... 1,100 1980 -- Stacked
Rig No. 3.................................... 1,000 1980 -- Stacked
Rig No. 4.................................... 1,000 1990 -- Stacked
Rig No. 5.................................... 800 1991 -- Stacked
Rig No. 6.................................... 800 1995 -- Active
Rig No. 7.................................... 800 1995 -- Active
Rig No. 9.................................... 800 1992 -- Active
Rig No. 10................................... 800 1978 -- Stacked
Rig No. 27................................... 800 1987 11,500 Stacked
Rig No. 28................................... 800 1987 11,500 Stacked
</TABLE>

(Table continued on following page)

38
<PAGE> 40

<TABLE>
<CAPTION>
MAXIMUM
YEAR BUILT OR DRILLING
HORSEPOWER REFURBISHED DEPTH (FEET) STATUS(A)
---------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Platform:
Rig No. 36................................... 500 1977 -- Stacked
Rig No. 41................................... 950 1993 11,000 Active
Rig No. 42................................... 950 1993 11,000 Active
Rig No. 43................................... 650 1994 -- Active
Rig No. 46................................... 650 1988 -- Stacked
Rig No. 47................................... 750 1993 -- Active
Rig No. 40(c)................................ 950 1992 11,000 Active
Rig No. 48(c)................................ 950 1992 11,000 Active
Jack-Up:
Rig No. 33................................... 500 1995 -- Active
Total Rigs......................................44
</TABLE>

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

(a) "Active" denotes that the identified rig is currently under contract or
available for contract. As of August 16, 1995, 16 rigs were under contract.
"Stacked" denotes that the rig is currently cold stacked and would need to
be refurbished before being placed back into service. The Company believes
that its "stacked" rigs could be returned to service at a cost of between
$500,000 and $4 million per rig.

(b) Located in Nigeria.

Mallard's domestic operations are primarily conducted in the coastal (bays,
swamps and canals) and offshore waters of Louisiana, Texas and Alabama.
Mallard's business is directly dependent upon the level of oil and gas
exploration, development and workover activity in these geographic markets.
Because most of the current exploration and development activity in the Gulf
Coast area is concentrated on the exploration for and production of natural gas,
Mallard's operations are materially affected by market conditions for natural
gas.

The U.S. natural gas market has in recent periods been extremely volatile.
In 1993 and through the first half of 1994, natural gas prices increased from
the extremely low levels experienced in 1992. These increases resulted in
increased exploration and drilling activity in the Gulf of Mexico, which in turn
resulted in increased demand for barge drilling and workover services. The
increased demand combined with an overall shrinkage in fleets and a
consolidation in the industry, improved barge day rates and margins. However,
beginning in the middle of 1994 and continuing until early 1995, natural gas
prices again experienced a significant decline, which resulted in decline in
demand and utilization in 1994. Improvements in drilling technology, in
particular the greater use of three-dimensional seismic, in the coastal and
inland waters off of Louisiana and increased lease activity following the 1994
settlement of a production royalty dispute between the State of Louisiana and
Texaco, Mallard's largest barge rig customer, have also contributed to an
increase in exploration activity in the Gulf Coast in 1995, particularly for
deep wells seeking natural gas reserves.

Mallard's domestic rigs are primarily barge rigs that are capable of
performing medium and deep drilling operations. Barge rigs are mobile drilling
platforms that are submersible and are built to work in eight to twenty feet of
water. These rigs are towed by tug boats to the drill site with the derrick laid
down. The lower hull is then submerged by flooding until it rests on the sea
floor. The derrick is then raised and drilling and workover operations are
conducted with the barge in this position. There are two basic forms of barge
rigs, "posted" and "conventional". A posted barge is identical to a conventional
barge except that the hull and super structure are separated by 12 to 14 foot
columns, which increases the water depth capabilities of the rig.

Internationally, Mallard currently operates one 3,000 HP barge drilling rig
with a Varco TDS-3S Top Drive in the offshore waters of Nigeria and two platform
drilling rigs in the offshore waters of Peru. Mallard's rig in Nigeria is
currently under contract to Chevron Nigeria Limited. This contract was recently
renewed through August 1996.

39
<PAGE> 41

Mallard's platform rigs in Peru are currently under a three-year contract
expiring in 1997. These rigs were recently placed on standby status by the
Company's customer to reduce costs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations." The
Company's operations in Peru are conducted through a partnership. Under the
terms of the agreements relating to this partnership, Mallard is entitled to
approximately two-thirds of the income from the partnership's operations.

LAND DRILLING AND WORKOVER RIGS

Mallard currently owns four land rigs. These rigs are under a two-year
drilling contract with YPF in Argentina. Drilling operations commenced in June
1995 and are expected to benefit future results. Mallard is currently
negotiating an agreement with YPF for a five workover rig contract and is
pursuing other opportunities for additional land drilling rigs in Argentina.

In 1994, Mallard acquired a 49% interest in a joint venture that owns two
land rigs in Peru. This venture is actively pursuing land drilling opportunities
in Peru.

COMPETITION AND CUSTOMERS

Drilling in the U.S. Gulf Coast area served by Mallard ranges from shallow
wells (up to 12,000 feet) to deep wells (up to 30,000 feet). The shallow wells
generally take up to 20 days to drill and complete. Deeper wells generally take
disproportionately longer to drill than shallow wells due primarily to more
varied and difficult subsurface conditions and the frequent need to run
protective casing.

The Company's drilling rigs are generally operated under individual day
rate contracts between the Company and its customers. Drilling contracts
generally cover either the drilling of a specified well or wells or a stated
term. Historically, most domestic contracts have been on a well-to-well basis
while contracts in the international markets typically are offered on a term
basis. The Company, from time to time, operates under turnkey contracts. The
Company maintains redrill insurance to insure against certain costs in the event
the Company were required to redrill under a turnkey contract.

The Company obtains most of its contracts through competitive bidding
against other contractors in response to solicitations of bids by oil and gas
companies. Under the Company's day rate drilling contracts, it receives a fixed
amount per day for providing the rig, certain related equipment and the rig
operating crew, which works under the direction of a representative of the
operator who is in charge of drilling operations. The customer pays all other
costs of drilling the well. Under most such contracts, the customer also pays,
at a reduced day rate, for periods of travel or when operations are interrupted
or restricted by equipment breakdowns, adverse weather or water conditions or
other conditions beyond the control of the Company. The Company also makes
available the services of its fleet of approximately 55 crew boats as an extra
cost option. Mallard primarily competes with one other barge competitor in the
Gulf of Mexico, Falcon Drilling Company, Inc., although there exists a number of
smaller companies. Mallard also competes with other types of rigs. The Company
estimates that its share of the barge drilling and workover market in coastal
and inland waters in the Gulf Coast area is approximately 40%.

Mallard's customer base consists of independent and major oil companies.
For 1994, Texaco and Oryx Energy Co. accounted for 15% and 11%, respectively, of
Mallard's revenues. For 1993, Texaco accounted for 19% of Mallard's revenues.
For 1992, Texaco and Elf Nigeria Ltd. accounted for 25% and 16%, respectively,
of Mallard's revenues.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

The U.S. Gulf Coast market, and particularly the shallow-water areas where
the Company's contract drilling service operations are concentrated, are
ecologically sensitive. As a result, environmental issues have led to higher
drilling costs, a more difficult and lengthy well permitting process and, in
general, have adversely affected decisions of the oil companies to drill in
these areas. U.S. laws and regulations applicable to the Company's operations
include those controlling the discharge of materials into the environment,
requiring removal and cleanup of materials that may harm the environment, or
otherwise relating to the protection of

40
<PAGE> 42

the environment. The Company, as an operator of drilling rigs in navigable U.S.
waters and certain offshore areas, may be liable for damages and costs incurred
in connection with oil spills for which it is held responsible, subject to
certain limitations. An oil spill in a wetland or inland waterway could produce
substantial damage to the environment, including wildlife and ground water. Laws
and regulations protecting the environment have become more stringent in recent
years, and may, in certain circumstances, impose "strict liability", rendering a
person liable for environmental damage without regard to negligence or fault on
the part of such person. Such laws and regulations may expose the Company to
liability for the conduct of or conditions caused by others, or for acts of the
Company which were in compliance with all applicable laws at the time such acts
were performed. The application of these requirements or the adoption of the new
requirements could have a material adverse effect on the Company.

The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of domestic offshore facilities, may be liable for the costs of removal
and damages arising out of a pollution incident to the extent set forth in the
Federal Water Pollution Control Act, as amended by the Oil Pollution Act of 1990
("OPA") and the Outer Continental Shelf Lands Act. In addition, the Company may
also be subject to applicable state law and other civil claims arising out of
any such incident. Certain of the Company's facilities are also subject to
regulations of the Environmental Protection Agency ("EPA") that require the
preparation and implementation of spill prevention, control and countermeasure
plans relating to possible discharge of oil into navigable waters. Other
regulations of the EPA may require certain precautions in storing, handling and
transporting hazardous wastes. State statutory provisions relating to oil and
natural gas generally include requirements as to well spacing, waste prevention,
production limitations, pollution prevention and cleanup, obtaining drilling and
dredging permits and similar matters. The Company believes that it is in
compliance in all material respects with such laws, rules and regulations.

The OPA and regulations promulgated pursuant thereto impose a variety of
regulations on "responsible parties" related to the prevention of oil spills and
liability for damages resulting from such spills. A "responsible party" includes
the owner or operator of a facility or vessel, or the lessee or permittee of the
area in which an offshore facility is located. The OPA assigns liability to each
responsible party for oil removal costs and a variety of public and private
damages. While liability limits apply in some circumstances, a responsible party
for an Outer Continental Shelf facility must pay all spill removal costs
incurred by a federal, state or local government. The OPA establishes liability
limits (subject to indexing) for offshore drilling rigs. If functioning as an
offshore facility, the offshore drilling rigs are considered "tank vessels" for
spills of oil on or above the water surface, with liability limits of $1,200 per
gross ton or $10 million. To the extent damages and removal costs exceed this
amount, the offshore drilling rigs will be treated as an offshore facility and
the offshore lessee will be responsible up to higher liability limits for all
removal costs plus $75 million. A party cannot take advantage of liability
limits if the spill was caused by gross negligence or willful misconduct or
resulted from violation of a federal safety, construction or operating
regulation. If the party fails to report a spill or to cooperate fully in the
cleanup, liability limits likewise do not apply. Few defenses exist to the
liability imposed by the OPA. The OPA also imposes ongoing requirements on a
responsible party. These include proof of financial responsibility (to cover at
least some costs in a potential spill) and preparation of an oil spill
contingency plan. A failure to comply with ongoing requirements or inadequate
cooperation in a spill may even subject a responsible party to civil or criminal
enforcement action.

In addition, the Outer Continental Shelf Lands Act authorized regulations
relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf. Specific design and
operational standards may apply to Outer Continental Shelf vessels, rigs,
platforms, vehicles and structures. Violations of environmental-related lease
conditions or regulations issued pursuant to the Outer Continental Shelf Lands
Act can result in substantial civil and criminal penalties as well as potential
court injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.

The drilling industry is dependent on the demand for services from the oil
and gas exploration and development industry and, accordingly, is affected by
changing tax laws, price controls and other laws relating to the energy
business. The Company's business is affected generally by political developments
and by federal,

41
<PAGE> 43

state, local and foreign laws and regulations that may relate directly to the
oil and gas industry. The adoption of laws and regulations, both domestic and
foreign, that curtail exploration and development drilling for oil and gas for
economic, environmental and other policy reasons may adversely affect the
Company's operations by limiting available drilling opportunities.

The Company believes it is in material compliance with applicable federal,
state, local and foreign legislation and regulations relating to environmental
controls. In this regard, all of Mallard's operating domestic drilling rigs have
zero discharge capabilities as required by law. In addition, in recognition of
environmental concerns regarding dredging of inland waters and permitting
requirements, Mallard conducts minimal dredging operations and approximately
two-thirds of Mallard's drilling contracts involve directional drilling, which
minimizes the need for dredging. However, the existence of such laws and
regulations has had and will continue to have a restrictive effect on the
Company and its customers.

SEASONALITY

The contract drilling business is subject to seasonal variation.
Historically, the first two quarters of the calendar year are less active, while
the last two quarters usually have a higher level of activity.

FACILITIES

Mallard is headquartered in New Iberia, Louisiana where it operates a yard
and docking facility at the Port of Iberia. Mallard owns the facility and leases
the land on which it is located under a long-term lease, subject to extensions,
that will expire in 2018.

BACKLOG

Other than Mallard's foreign contracts, which are long-term in nature,
drilling and well servicing contracts have typically been for short terms,
usually the time required to drill one well.

RAW MATERIALS

The Company purchases a variety of raw materials for its manufacturing
operations, including plain end "green" tubing stock, steel bars and a variety
of parts and components fabricated by other manufacturers and suppliers. With
the exception of Robbins & Myers, which acts as the exclusive manufacturer of
two material components of Highland's progressive cavity pumps, the Company is
not dependent on any single source of supply for any of its raw materials and
components. However, a loss of one or more of such suppliers could disrupt
production.

PATENTS

The Company's oilfield equipment segment utilizes various patents and
proprietary technology in the manufacture of its products. Certain components
used in the RotaLift progressive cavity pump utilize technology owned and
licensed by Robbins & Myers and the tradename RotaLift is owned by a partnership
jointly owned by Highland and Robbins & Myers. Although the Company considers
its patents important to the operation of its business and a loss of one or more
patents could adversely affect a particular product, because of the proprietary
processes that the Company has developed in using its patents, and the nature of
the business conducted with the patents, it does not believe that any
significant portion of its business is materially dependent upon any single
patent or group of patents or generally upon patent protection.

INSURANCE COSTS

The Company has purchased Operators Extra Expense insurance to insure
itself against exposure to certain hazards unique to drilling and workover
operations and maintains redrill insurance with respect to its exposure relating
to turnkey contracts. There can be no assurance, however, that such insurance
will be sufficient to cover any future losses, or that such insurance will
continue to be available on commercially reasonable terms. The Company's
drilling and workover business is also subject to the usual hazards of oil and

42
<PAGE> 44

gas drilling operations (including blowouts, fires, cratering, pollution and
environmental damages), plus the additional dangers incident to marine
operations in coastal and offshore waters (including capsizing, collision,
grounding and adverse weather). The Company maintains insurance coverage that it
believes to be customary in the industry against these hazards and whenever
possible obtains agreements from customers providing for indemnification against
liability to others. The Company also maintains political risk insurance to
insure against certain risks of doing business in foreign countries. However,
neither insurance nor indemnity agreements can provide complete protection
against casualty losses. In addition, the Company is partially self-insured for
marine workers' compensation claims.

The Company is required to carry workers' compensation insurance to comply
with state laws and customer requirements. Grant Prideco has elected to opt out
of the mandatory workers' compensation pools and secures its workers
compensation through outside insurance. Although it has been able to reduce
insurance costs through this election, certain benefits provided under the
workers' compensation statutes may not be available to the Company. The cost of
insurance is subject to substantial fluctuation due to a variety of factors,
some of which are beyond the Company's control. Although the Company has
generally been able to obtain insurance on terms it considers to be reasonable,
there can be no assurance that such insurance will continue to be available on
terms as favorable as those for its existing arrangements. The Company is
partially self-insured for employee health insurance claims and certain workers'
compensation claims.

Although the Company maintains product liability insurance with respect to
its products, such insurance is limited in coverage. The occurrence of an
adverse claim in excess of the coverage limits maintained by the Company with
respect to its products could have a material adverse effect on the Company.

REGULATION

The Company's business is affected by changes in public policy and by
federal, state and local laws and regulations relating to the energy industry.
The adoption of laws and regulations curtailing exploration and development
drilling for oil and gas for economic, environmental and other policy reasons
may adversely affect the Company's operations by limiting available drilling and
other opportunities in the energy service industry. The Company is also subject
to various health and safety regulations as established by the Occupational
Safety and Health Administration. For information concerning regulations of the
contract drilling services provided by Mallard, see "-- Contract
Drilling -- Government Regulation and Environmental Matters".

43
<PAGE> 45

FOREIGN OPERATIONS

The Company's equipment and services are used in approximately 45 countries
by U.S. customers operating abroad and by foreign customers. Sales of equipment
and services outside the United States accounted for approximately 36%, 40% and
37% of total revenues for 1994, 1993 and 1992, respectively, based upon the
ultimate destination in which equipment or services were sold, shipped or
provided to the customer by the Company. The distribution of the Company's
revenues by geographic region is shown below:

<TABLE>
<CAPTION>
WESTERN HEMISPHERE EASTERN HEMISPHERE
----------------------- --------------------
UNITED STATES OTHER MIDDLE EAST OTHER ELIMINATIONS TOTAL
------------- ------- ----------- ------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1994
Operating revenues from
unaffiliated customers...... $ 162,344 $34,643 $ 5,801 $5,329 $ (3,304) $204,813
Export sales to unaffiliated
customers................... 43,724 -- -- -- -- 43,724
-------- ------- ------ ------ ------- --------
Total revenues................. 206,068 34,643 5,801 5,329 (3,304) 248,537
1993
Operating revenues from
unaffiliated customers...... $ 150,729 $31,722 $ 7,967 $4,675 $ (1,983) $193,110
Export sales to unaffiliated
customers................... 52,847 -- -- -- 60 52,907
-------- ------- ------ ------ ------- --------
Total revenues................. 203,576 31,722 7,967 4,675 (1,923) 246,017
1992
Operating revenues from
unaffiliated customers...... $ 123,398 $16,291 $ 2,772 $7,927 $ (4,231) $146,157
Export sales to unaffiliated
customers................... 44,301 -- -- -- -- 44,301
-------- ------- ------ ------ ------- --------
Total revenues................. 167,699 16,291 2,772 7,927 (4,231) 190,458
</TABLE>

See Note 15 to the Consolidated Financial Statements of the Company for
additional financial information related to the Company's revenues by geographic
region.

Operations and sales in foreign markets are subject to substantial
competition from large multi-national corporations and government-owned entities
and to a variety of local laws and regulations requiring qualifications, use of
local labor, the provision of financial assurances or other restrictions and
conditions on operations. Foreign operations are also subject to risks
associated with doing business outside the United States, including risk of war,
civil disturbances and governmental activities that may limit or disrupt
markets, restrict the movement of funds or result in the deprivation of contract
rights or the taking of property without fair compensation. Foreign operations
may also subject the Company to risks relating to fluctuations in currency
exchange rates. However, to date, currency fluctuations have not had a material
adverse impact on the Company.

The Company currently has material manufacturing operations in Canada and
Mexico and is operating rigs in Nigeria, Peru and Argentina. The Company is also
pursuing establishing a tubular manufacturing operation in India subject to the
receipt of appropriate governmental and regulatory approvals and consents. See
"Recent Developments -- International Tubular Expansion." The Company's
operations in each of these countries are subject to various political and
economic conditions existing in them which could disrupt operations. The Company
generally seeks to obtain, where economical, insurance against certain political
risks and attempts to structure its contracts and arrangements in the foreign
countries in which it operates in a manner that would minimize the exposure of
its assets to losses in those countries. Such efforts include structuring
substantially all of its sales and service contracts to be in United States
dollars and utilizing lease arrangements and joint ventures for manufacturing
facilities so as not to require substantial investment of funds in fixed assets
in foreign countries. Although the Company believes that its exposure to foreign
risks is

44
<PAGE> 46

not materially greater than that of its competitors, there can be no assurance
that disruptions will not occur in the Company's foreign operations or that any
losses that do occur will be covered by insurance.

ENVIRONMENTAL REGULATION

The Company's operations are subject to federal, state and local laws and
regulations controlling the discharge of materials into or otherwise relating to
the protection of the environment. In recent years, laws and regulations
protecting the environment have generally become more stringent and have sought
to impose greater liability on a larger number of potentially responsible
parties. However, the Company is not currently aware of any situation or
condition that it believes is likely to have a material adverse effect on its
results of operations or financial condition. For information concerning
environmental matters with respect to the contract drilling services provided by
Mallard, see "-- Contract Drilling -- Governmental Regulation and Environmental
Matters".

The Company's expenditures in 1994 in order to comply with applicable
environmental laws and regulations were not material, and the Company expects
that the costs of compliance with such laws and regulations for 1995 will be
minimal. The Company maintains insurance coverage with respect to environmental
liabilities relating to its marine drilling operations. Although the Company
believes that such coverage is adequate for the risks involved, there can be no
assurance that the coverage limits would not be exceeded or such insurance would
apply to all such liabilities. The Company does not believe that its costs for
compliance with applicable environmental laws and regulations is, on a relative
basis, greater than that of its competitors.

EMPLOYEES

As of July 31, 1995, the Company employed approximately 3,000 employees.
The Company considers its relations with its employees to be generally
satisfactory.

PROPERTIES

The principal offices of the Company and facilities used by the Company in
its oilfield equipment and contract drilling segments are set forth in the table
below. Most of the retail sales and service outlets used in the oilfield service
and equipment operations are leased, the rental obligations of which are not
material in the aggregate.

<TABLE>
<CAPTION>
FACILITY SIZE PROPERTY
LOCATION (SQ. FT.) SIZE (ACRES) TENURE UTILIZATION
------------------------------ ------------- ------------ ------ ------------------------------
<S> <C> <C> <C> <C>
OILFIELD EQUIPMENT:
Navasota, Texas............... 251,600 182.8 Owned Manufacture drill pipe and
premium threaded casing, liner
and tubing
Bastrop, Texas................ 108,300 21.0 Owned Manufacture tool joints
Bryan, Texas.................. 160,000 55.3 Owned Manufacture premium tubing
Budapest, Hungary............. 7,900 2.6 Leased Manufacture drill pipe
Vera Cruz, Mexico............. 214,000 42.0 Leased Manufacture drill pipe
Houston, Texas................ 12,400 -- Leased Principal offices of Grant
Prideco
68,500 13.5 Owned Manufacture drill pipe, drill
collars, heavyweight and
kellys
21,900 11.0 Owned Manufacture drill pipe, drill
collars, heavyweight and
kellys
31,500 10.0 Owned Manufacture drill pipe, drill
collars, heavyweight and
kellys
</TABLE>

(Table continued on following page)

45
<PAGE> 47

<TABLE>
<CAPTION>
FACILITY SIZE PROPERTY
LOCATION (SQ. FT.) SIZE (ACRES) TENURE UTILIZATION
------------------------------ ------------- ------------ ------ ------------------------------
<S> <C> <C> <C> <C>
Longview, Texas............... 40,000 22.1 Owned Manufacture pump barrels and
plungers
Odessa, Texas................. 97,000 7.2 Owned Manufacture of RotaFlex
pumping units
58,000 6.7 Owned Manufacture couplings, tubing
anchors, gears and principal
offices of Highland
Oklahoma City, Oklahoma....... 21,000 3.4 Owned Manufacture of internal pump
parts
9,500 1.2 Leased Manufacture and repair pumping
unit parts
Morgan City, Louisiana........ 19,300 2.4 Leased Repair drill pipe, drill
collars, heavyweight and
kellys
Arlington, Texas.............. 60,000 2.5 Leased Manufacture of downhole
packers and completion systems
Powell, Wyoming............... 16,000 1.8 Leased Manufacture of downhole
packers and completion systems
Midland, Texas................ 30,000 5.6 Owned Manufacture and repair pumping
unit parts
Woodward, Oklahoma............ 148,800 53.0 Leased Manufacture sucker rod pump
parts
Santa Teresa, New Mexico...... 43,000 7.5 Owned Manufacture sucker rods
Nisku, Alberta, Canada........ 15,900 8.3 Owned Manufacture continuous rods
16,000 -- Leased Manufacture progressive cavity
pumps
Edmonton, Alberta, Canada..... 10,600 -- Leased Fabrication and repair
facility
Baku, Azerbaijan.............. 100,000 -- Leased Manufacture pumps (not
currently operating)
Dongying City, People's
Republic of China........... 50,000 -- Leased Manufacture RotaFlex pumping
units
30,000 -- Leased Manufacture progressive cavity
pumps
CONTRACT DRILLING:
New Iberia, Louisiana......... 54,600 -- Owned Principal offices of Mallard
warehouse and repair shop
-- 14.0 Leased Docking facility
CORPORATE:
Houston, Texas................ 14,500 -- Leased Principal offices of the
Company
</TABLE>

46
<PAGE> 48

MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS

The following table provides information with respect to the directors and
executive officers of the Company. Each executive officer has been elected to
serve until his or her successor is duly appointed or elected by the Board of
Directors or his or her earlier removal or resignation from office.

<TABLE>
<CAPTION>
POSITION WITH
NAME OF DIRECTOR OR OFFICER AGE THE COMPANY
---------------------------------- --- ---------------------------------------------
<S> <C> <C>
Bernard J. Duroc-Danner........... 41 President, Chief Executive Officer and
Director

John C. Coble..................... 52 Executive Vice President and Chief Operating
Officer

Ghazi J. Hashem................... 60 Senior Vice President, Technical Operations

James G. Kiley.................... 38 Vice President-Finance, Treasurer and
Secretary

Frances R. Powell................. 40 Vice President-Accounting and Controller

David J. Butters.................. 54 Director and Chairman of the Board

Uriel E. Dutton................... 65 Director

Eliot M. Fried.................... 62 Director

Sheldon S. Gordon................. 59 Director

Sheldon B. Lubar.................. 66 Director

Robert B. Millard................. 44 Director

Robert A. Rayne................... 46 Director
</TABLE>

Bernard J. Duroc-Danner joined the Company in May 1987 upon inception of
the Company's strategic redeployment in the oilfield service and equipment
industry. He was elected President of the Company in January 1990 and Chief
Executive Officer in May 1990. In prior years, Mr. Duroc-Danner was with Arthur
D. Little Inc., a management consulting firm in Cambridge, Massachusetts. Mr.
Duroc-Danner holds a Ph.D. in economics from Wharton (University of
Pennsylvania).

John C. Coble has served as Chief Operating Officer of the Company since
December 1991 and Executive Vice President since April 1990. Mr. Coble served as
Vice President of the Company from August 1989 to April 1990. He also served as
Chief Operating Officer of a wholly owned subsidiary of the Company, Grant
Prideco, from November 1989 until April 1990, and served as Chief Financial
Officer of Grant Prideco for more than five years prior to August 1989.

Ghazi J. Hashem was elected Senior Vice President, Technical Operations of
the Company in May 1994 and Vice President, Technical Operations in November
1992. Mr. Hashem previously served as Chairman of the Board of Grant Prideco
from May 1992 to November 1992 and as President of Grant Prideco from April 1984
to May 1992.

James G. Kiley joined the Company in May 1994 and has served as Vice
President-Finance, Treasurer and Secretary of the Company since that time. From
April 1991 to April 1994, Mr. Kiley served as Treasurer of Baroid Corporation, a
provider of oilfield services. Prior to his position at Baroid, Mr. Kiley held
various positions, including Assistant Treasurer, at NL Industries, Inc., a
manufacturer of titanium dioxide pigments and specialty chemicals.

Frances R. Powell was elected Vice President-Accounting of the Company in
May 1994, Controller in November 1991 and has been employed by the Company since
1990. Ms. Powell was employed with GulfMark International, Inc. ("GulfMark")
from 1986 to 1990, where she served as Controller from 1988 to 1990.

David J. Butters is a Managing Director of Lehman Brothers ("Lehman
Brothers"), an investment banking firm and division of Lehman Brothers Inc.,
which is a subsidiary of Lehman Brothers Holdings, Inc.

47
<PAGE> 49

("Lehman Holdings"), where he has been employed for more than the past five
years. Mr. Butters is currently Chairman of the Board of Directors of GulfMark,
a director of Anangel-American Shipholdings, Ltd. and BT Shipping Ltd. and a
member of the Board of Advisors of Energy International, N.V. Mr. Butters is
also Chairman of the Board of Directors of the Company.

Uriel E. Dutton has been a Partner in Fulbright & Jaworski L.L.P., a law
firm, for more than the past five years.

Eliot M. Fried is a Managing Director of Lehman Brothers, where he has been
employed for more than the past five years. He is Co-Chairman of the firm-wide
Investment Committee and a member of the Investment Banking Commitment Committee
of Lehman Brothers. Mr. Fried is a director of American Marketing Industries,
Inc., Bridgeport Machines, Inc., Lear Seating Corporation, Sun Distributors
L.P., Walter Industries, Inc. and Vernitron Corporation.

Sheldon S. Gordon has been a limited partner of The Blackstone Group, L.P.
since May 1995 and Chairman of Blackstone Alternative Asset Management L.P.
since January 1993. Mr. Gordon has been employed with The Blackstone Group, L.P.
since April 1991, serving as a general partner from April 1991 until May 1995.
Prior to April 1991, Mr. Gordon was Chairman and Chief Executive Officer of
Stamford Capital Group, Inc. for four years ending August 1990. Mr. Gordon is a
director of Ametek, Inc. and Anangel-American Shipholdings Ltd.

Sheldon B. Lubar has been Chairman and Chief Executive Officer of
Christiana Companies, Inc. ("Christiana") and Chairman of Lubar & Co.
Incorporated for more than the past five years. Mr. Lubar is a director of
Ameritech, Massachusetts Mutual Life Insurance Company, Firstar Corporation and
MGIC Investment Corporation. Under the terms of the agreements relating to the
Company's acquisition of Prideco, the Company agreed to nominate Mr. Lubar or
another acceptable nominee of Christiana for election to the Board of Directors
of the Company as long as Christiana beneficially owns 8% or more of the
outstanding shares of Common Stock.

Robert B. Millard is a Managing Director of Lehman Brothers, where he has
been employed for more than the past five years. Mr. Millard is also a director
of GulfMark.

Robert A. Rayne has been an Executive Director of London Merchant
Securities plc (property investment and development with major investments in
leisure enterprises), a United Kingdom listed public limited company, for more
than the past five years.

48
<PAGE> 50

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to each
person who as of July 31, 1995, was known by the Company to be the beneficial
owner of more than 5% of the outstanding shares of Common Stock.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF PERCENT OF
BENEFICIALLY OWNED CLASS BEFORE CLASS AFTER
NAME AND ADDRESS OF AS OF THE THE OFFERING THE OFFERING
BENEFICIAL OWNER RECORD DATE(A) (%) (%)
------------------- ------------------ ------------ ------------
<S> <C> <C> <C>
GulfMark International, Inc................ 2,535,572(b) 16.9 14.4
5 Post Oak Park, Suite 1170
Houston, Texas 77027

Christiana Companies, Inc. and Sheldon B.
Lubar(c)................................. 1,948,731(c) 13.0 11.0
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202

Lehman Brothers Holdings Inc............... 1,120,000(b) 7.4 6.4
3 World Financial Center
New York, New York 10285
</TABLE>

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

(a) Unless otherwise indicated below, the persons or group listed have sole
voting and investment power with respect to their shares of Common Stock,
and none of such shares are deemed to be owned because the holder has the
right to acquire the shares within 60 days.

(b) Lehman Holdings beneficially owns 31.6% of the common stock of GulfMark.
The beneficial ownership of Common Stock of Lehman Holdings indicated in
the table above does not include any of the shares of Common Stock held by
GulfMark, beneficial ownership of which is disclaimed.

(c) Sheldon B. Lubar is the Chairman and Chief Executive Officer of Christiana
and is the beneficial owner, through a voting trust, of 49.9% of the common
stock of Christiana.

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $1.00 per share, and 3,000,000 shares of Preferred
Stock, par value $1.00 per share ("Preferred Stock"). At August 14, 1995,
15,047,183 shares of Common Stock were outstanding. In addition, at August 14,
1995, there were 1,230,000 shares of Common Stock reserved for issuance pursuant
to the Company's 1981 Employee Stock Option Plan, 1992 Employee Stock Option
Plan and Non-Employee Director Stock Option Plan, of which 729,000 shares of
Common Stock were reserved for issuance upon exercise of outstanding options. At
August 14, 1995, there were no shares of Preferred Stock issued or outstanding.
The holders of shares of Common Stock are not liable to further calls or
assessments by the Company. The description below is a summary of and is
qualified in its entirety by the provisions of the Company's Certificate of
Incorporation as currently in effect.

Subject to the rights of the holders of any outstanding shares of Preferred
Stock and those rights provided by law, (i) dividends may be declared and paid
or set apart for payment upon the Common Stock out of any assets or funds of the
Company legally available for the payment of dividends and may be payable in
cash, stock or otherwise, (ii) the holders of the Company stock have the
exclusive right to vote for the election of directors and, except as provided
below, on all other matters requiring stockholder action generally, with each
share being entitled to one vote, and (iii) upon the voluntary or involuntary
liquidation, dissolution or winding up of the Company, the net assets of the
Company will be distributed pro rata to the holders of the Common Stock in
accordance with their respective rights and interests to the exclusion of the
holders of any outstanding shares of Preferred Stock.

Although the holders of the Common Stock are generally entitled to vote for
the approval of amendments to the Company's Certificate of Incorporation, the
voting rights of the holders of the Common Stock are

49
<PAGE> 51

limited with respect to certain amendments to the Company's Certificate of
Incorporation that affect only the holders of the Preferred Stock. Specifically,
subject to the rights of any outstanding shares of any series of Preferred
Stock, the Company's Certificate of Incorporation provides that it may be
amended from time to time in any manner that would solely modify or change the
relative powers, preferences and rights and the qualifications or restrictions
of any issued shares of any series of Preferred Stock then outstanding with the
only required vote or consent for approval of such amendment being the
affirmative vote or consent of the holders of a majority of the outstanding
shares of the series of Preferred Stock so affected, provided that the powers,
preferences and rights and the qualifications and limitations or restrictions of
such series after giving effect to such amendment are no greater than the
powers, preferences and rights and qualifications and limitations or
restrictions permitted to be fixed and determined by the Board of Directors with
respect to the establishment of any new series of shares of Preferred Stock
pursuant to the authority vested in the Board of Directors as to such matters.

Holders of the Common Stock do not have any cumulative voting, redemptive
or conversion rights and have no preemptive rights to subscribe for, purchase or
receive any class of shares or securities of the Company. Holders of the Common
Stock have no fixed dividend rights. Dividends may be declared by the Board of
Directors at its discretion depending on various factors, although no dividends
are anticipated for the foreseeable future. In addition, the Company is
currently restricted from paying any cash dividends with respect to the Common
Stock. See "Price Range of Common Stock and Dividend Policy".

The Preferred Stock may be issued from time to time in one or more series,
with each such series having such powers, preferences and rights and
qualifications and limitations or restrictions as may be fixed by the Board of
Directors pursuant to the resolution or resolutions providing for the issuance
of such series.

Under Delaware law, a corporation may include provisions in its certificate
of incorporation that will relieve its directors of monetary liability for
breaches of their fiduciary duty to the corporation, except under certain
circumstances, including a breach of the director's duty of loyalty, acts or
omissions of the director not in good faith or which involve intentional
misconduct or a knowing violation of law, the approval of an improper payment of
a dividend or an improper purchase by the Company of stock or any transaction
from which the director derived an improper personal benefit. The Company's
Certificate of Incorporation provides that the Company's directors are not
liable to the Company or its stockholders for monetary damages for breach of
their fiduciary duty, subject to the above described exceptions specified by
Delaware law.

As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years following
the date such person became an interested stockholder unless (i) before such
person became an interested stockholder, the board of directors of the
corporation approved the transaction in which the interested stockholder became
an interested stockholder or approved the business combination; (ii) upon
consummation of the transaction that resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced (excluding stock held by directors who are also officers of the
corporation and by employee stock plans that do not provide employees with the
rights to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer); or (iii) following the transaction
in which such person became an interested stockholder, the business combination
is approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the corporation's
directors, if such extraordinary transaction is approved or not opposed by a
majority of the directors who were directors prior to any person becoming an
interested stockholder during the previous three years or were recommended for
election or elected to succeed such directors by a majority of such directors.
The Company has approved the acquisition by GulfMark, which

50
<PAGE> 52

beneficially owns 16.9% of the outstanding shares of Common Stock, and Lehman
Holdings, which beneficially owns 7.4% of the outstanding Common Stock and 31.6%
of the outstanding shares of common stock of GulfMark, of the shares of Common
Stock owned by them under Section 203 and GulfMark and Lehman Holdings are
therefore not subject to the restrictions under Section 203.

The Registrar and Transfer Agent for the Common Stock is American Stock
Transfer and Trust Company, New York, New York.

UNDERWRITING

The underwriters of the offering of the Common Stock named below (the
"Underwriters"), for whom Lehman Brothers Inc. and Donaldson, Lufkin & Jenrette
Securities Corporation are acting as representatives (the "Representatives"),
have severally agreed, subject to the terms and conditions contained in the
Underwriting Agreement, to purchase from the Company, and the Company has agreed
to sell to each Underwriter, the number of shares of Common Stock set forth
opposite their respective names below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Lehman Brothers Inc.......................................................
Donaldson, Lufkin & Jenrette Securities Corporation.......................

---------
Total........................................................... 2,600,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to various conditions. The nature of the
Underwriters' obligations are such that they are committed to take and pay for
all of the shares offered hereby if any are purchased.

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page hereof and to certain selected dealers (who
may include the Underwriters) at such price less a concession not in excess of
$ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
initial offering, the public offering price, the concession to selected dealers
and the reallowance to other dealers may be changed by the Representatives.

The Company has granted to the Underwriters an option to purchase up to an
additional 390,000 shares of Common Stock, at the public offering price less the
underwriting discounts and commissions shown on the cover page of this
Prospectus, solely to cover over-allotments, if any. Such option may be
exercised at any time up to 30 days after the date of this Prospectus. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase a number of additional
shares that is proportional to such Underwriter's initial commitment.

The Company, GulfMark, Lehman Holdings and the executive officers and
directors of the Company have agreed that they will not, without the prior
written consent of Lehman Brothers Inc., during the 90 days following the date
of this Prospectus, offer for sale, sell or otherwise dispose of any shares of
Common Stock or any securities convertible into, or exercisable or exchangeable
for, shares of Common Stock, or, as to the Company, sell or grant options,
rights, or warrants with respect to any shares of Common Stock, other than (i)
pursuant to existing benefit plans of the Company or its subsidiaries and (ii)
in accordance with the Underwriting Agreement. The stockholders who received
shares of Common Stock in connection with the Prideco acquisition have no
registration rights with respect to the shares of Common Stock they hold until
July 1996.

51
<PAGE> 53

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.

At August 14, 1995, Lehman Holdings, an affiliate of Lehman Brothers, owned
1,120,000 shares of the Common Stock (approximately 7.4% of the shares
outstanding) and approximately 31.6% of the outstanding common shares of
GulfMark, which owned as of such date 2,535,572 shares of the Common Stock
(approximately 16.9% of the shares outstanding). Messrs. David J. Butters, Eliot
M. Fried and Robert B. Millard, who are employees of Lehman Brothers, constitute
three of the eight members of the Board of Directors of the Company. Messrs.
Butters and Millard constitute two of the six members of the Board of Directors
of GulfMark. Mr. Butters is Chairman of the Company's and GulfMark's Board of
Directors. See "Management -- Directors and Executive Officers". As a result of
the foregoing ownership of Common Stock and director relationships, this
offering may be deemed a participation by Lehman Brothers in the distribution in
a public offering of the securities of an affiliate, a transaction subject to
the provisions of Schedule E of the Bylaws of the National Association of
Securities Dealers, Inc. This Offering is being made pursuant to the provisions
of such Schedule. In accordance with Schedule E, the Underwriters will not make
sales of shares of Common Stock offered hereby to customers' discretionary
accounts without the prior specific written approval of such customers.

EXPERTS

The Company's consolidated financial statements and the Company's related
consolidated financial statement schedules as of December 31, 1994 and 1993 and
for each of the three years in the period ended December 31, 1994, included or
incorporated by reference into this Prospectus and the Registration Statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included or incorporated
by reference herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.

The balance sheets of Prideco as of June 30, 1995 and 1994, and the
consolidated statements of income, retained earnings and cash flows for the
fiscal years ended June 30, 1995 and 1994, incorporated by reference into this
Prospectus and the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in accounting and auditing in giving said report.

LEGAL MATTERS

In connection with the Common Stock offered hereby, the validity of the
shares being offered will be passed upon for the Company by Fulbright & Jaworski
L.L.P., Houston, Texas. Uriel E. Dutton, a director of the Company, is a partner
of Fulbright & Jaworski L.L.P. Certain legal matters will be passed upon for the
Underwriters by Baker & Botts, L.L.P., Houston, Texas.

52
<PAGE> 54

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ENERGY VENTURES INC. AND SUBSIDIARIES:
Report of Independent Public Accountants............................................. F-2
Consolidated Balance Sheets -- December 31, 1994 and 1993.......................... F-3
Consolidated Statements of Income, for each of the three years in the period
ended December 31, 1994......................................................... F-4
Consolidated Statements of Stockholders' Investment, for each of the three years in
the period ended December 31, 1994.............................................. F-5
Consolidated Statements of Cash Flows, for each of the three years in the period
ended December 31, 1994......................................................... F-6
Notes to Consolidated Financial Statements......................................... F-7
Unaudited Consolidated Condensed Balance Sheet -- June 30, 1995...................... F-30
Unaudited Consolidated Condensed Statements of Income for the three and six month
periods ended June 30, 1995 and 1994............................................... F-31
Unaudited Consolidated Condensed Statements of Cash Flows for the six month periods
ended June 30, 1995 and 1994....................................................... F-32
Notes to Unaudited Consolidated Condensed Financial Statements....................... F-33
</TABLE>

F-1
<PAGE> 55

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO ENERGY VENTURES, INC.

We have audited the accompanying consolidated balance sheets of Energy
Ventures, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, stockholders'
investment and cash flows for each of the three years in the period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Energy Ventures, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Houston, Texas
March 1, 1995

F-2
<PAGE> 56

ENERGY VENTURES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents............................................ $ 3,144 $ 4,799
Cash Equivalents, Restricted......................................... -- 5,000
Accounts Receivable, Net of Allowance for Uncollectible Accounts of
$564,000 in 1994 and $669,000 in 1993............................. 72,790 51,945
Inventories.......................................................... 74,938 62,339
Materials and Supplies............................................... 7,687 6,119
Prepaid Expenses..................................................... 3,751 2,876
Other Current Assets................................................. 2,493 4,271
-------- --------
164,803 137,349
-------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Land, Buildings and Other Property................................... 27,278 20,468
Rigs, Machinery and Equipment........................................ 152,096 105,669
Furniture and Vehicles............................................... 17,071 15,965
-------- --------
196,445 142,102
Less: Accumulated Depreciation....................................... 45,550 33,967
-------- --------
150,895 108,135
-------- --------
EXCESS OF COST OVER FAIR VALUE OF NET TANGIBLE
ASSETS OF BUSINESSES ACQUIRED, NET................................... 15,606 10,264
OTHER ASSETS........................................................... 19,384 21,483
-------- --------
$350,688 $277,231
======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines of Credit..... $ 17,265 $ 46,205
Current Maturities of Long-Term Debt................................. 3,189 2,989
Accounts Payable..................................................... 30,741 38,865
Accrued Salaries and Benefits........................................ 3,908 3,072
Other Accrued Liabilities............................................ 15,362 8,450
-------- --------
70,465 99,581
-------- --------
LONG-TERM DEBT......................................................... 125,690 38,982
DEFERRED INCOME TAXES.................................................. 37,239 27,250
OTHER LIABILITIES...................................................... 6,381 3,682
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock, $1 Par Value, Authorized 20,000,000 Shares,
Issued 12,754,249 Shares in 1994 and 12,315,756 Shares in 1993.... 12,754 12,316
Capital in Excess of Par Value....................................... 55,142 50,442
Retained Earnings.................................................... 48,856 47,998
Cumulative Foreign Currency Translation Adjustment................... (4,536) (2,111)
Treasury Stock, at Cost.............................................. (1,303) (909)
-------- --------
110,913 107,736
-------- --------
$350,688 $277,231
======== ========
</TABLE>

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

F-3
<PAGE> 57

ENERGY VENTURES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
REVENUES................................................... $248,537 $246,017 $190,458
-------- -------- --------
COSTS AND EXPENSES:
Cost of Sales............................................ 181,137 181,742 148,881
Selling, General and Administrative Attributable to
Segments.............................................. 43,183 41,690 33,098
Corporate General and Administrative..................... 4,748 4,030 3,867
-------- -------- --------
229,068 227,462 185,846
-------- -------- --------
OPERATING INCOME........................................... 19,469 18,555 4,612
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest Income.......................................... 210 366 388
Interest Expense......................................... (13,715) (7,575) (5,421)
Other, Net............................................... 484 1,465 759
-------- -------- --------
(13,021) (5,744) (4,274)
-------- -------- --------
INCOME BEFORE INCOME TAXES................................. 6,448 12,811 338
PROVISION FOR INCOME TAXES................................. 1,806 4,864 57
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS.......................... 4,642 7,947 281
DISCONTINUED OPERATIONS, NET OF TAXES...................... -- (2,057) (144)
-------- -------- --------
INCOME BEFORE EXTRAORDINARY CHARGE......................... 4,642 5,890 137
EXTRAORDINARY CHARGE, NET OF TAXES......................... (3,784) -- --
-------- -------- --------
NET INCOME................................................. $ 858 $ 5,890 $ 137
======== ======== ========
EARNINGS PER SHARE:
Continuing Operations.................................... $ .37 $ .66 $ .02
Discontinued Operations.................................. -- (.17) (.01)
Extraordinary Charge..................................... (.30) -- --
-------- -------- --------
Net Income Per Share..................................... $ .07 $ .49 $ .01
======== ======== ========
Weighted Average Shares Outstanding...................... 12,629 12,067 12,057
======== ======== ========
</TABLE>

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

F-4
<PAGE> 58

ENERGY VENTURES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT

<TABLE>
<CAPTION>
CUMULATIVE
CAPITAL FOREIGN
COMMON STOCK IN CURRENCY TREASURY STOCK TOTAL
-------------------- EXCESS RETAINED TRANSLATION ----------------- STOCKHOLDERS'
SHARES $1 PAR OF PAR EARNINGS ADJUSTMENT SHARES AMOUNT INVESTMENT
---------- ------- ------- -------- ----------- ------- ------- ------------
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991......... 11,983,998 $11,984 $47,246 $41,971 $ (78) -- $ -- $101,123
Net Income........................... -- -- -- 137 -- -- -- 137
Options Exercised.................... 6,672 7 412 -- -- -- -- 419
Issuance of Common Stock Grants...... 5,000 5 25 -- -- -- -- 30
Purchase of Treasury Stock, at Cost,
for Executive Deferred Compensation
Plan............................... -- -- -- -- -- (23,891) (289) (289)
Settlement of Put Option............. 72,000 72 738 -- -- -- -- 810
Foreign Currency Translation
Adjustment......................... -- -- -- -- (1,074) -- -- (1,074)
---------- ------- ------- ------- -------- -------- -------- --------
Balance at December 31, 1992......... 12,067,670 12,068 48,421 42,108 (1,152) (23,891) (289) 101,156
Net Income........................... -- -- -- 5,890 -- -- -- 5,890
Shares Issued in Connection with
Acquisitions....................... 206,849 207 1,826 -- -- -- -- 2,033
Options Exercised.................... 41,237 41 195 -- -- -- -- 236
Purchase of Treasury Stock, at Cost,
for Executive Deferred Compensation
Plan............................... -- -- -- -- -- (41,084) (620) (620)
Foreign Currency Translation
Adjustment......................... -- -- -- -- (959) -- -- (959)
---------- ------- ------- ------- -------- -------- -------- --------
Balance at December 31, 1993......... 12,315,756 12,316 50,442 47,998 (2,111) (64,975) (909) 107,736
Net Income........................... -- -- -- 858 -- -- -- 858
Shares Issued in Connection with
Acquisition........................ 433,333 433 4,692 -- -- -- -- 5,125
Options Exercised.................... 5,160 5 8 -- -- -- -- 13
Purchase of Treasury Stock, at Cost,
for Executive Deferred Compensation
Plan............................... -- -- -- -- -- (29,234) (394) (394)
Foreign Currency Translation
Adjustment......................... -- -- -- -- (2,425) -- -- (2,425)
---------- ------- ------- ------- -------- -------- -------- --------
Balance at December 31, 1994......... 12,754,249 $12,754 $55,142 $48,856 $(4,536) (94,209) $(1,303) $110,913
========== ======= ======= ======= ======== ======== ======== ========
</TABLE>

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

F-5
<PAGE> 59

ENERGY VENTURES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................... $ 858 $ 5,890 $ 137
Adjustments to reconcile Net Income to
Net Cash Provided (Used) by Operations:
Depreciation and Amortization......................... 14,268 12,281 10,434
Deferred Income Tax Provision (Benefit) from
Continuing Operations............................... (1,052) 96 2,284
Extraordinary Charge on Prepayment of Debt, Net....... 3,784 -- --
Insurance Settlement, Net............................. 23,000 -- --
Gain on Sale of Business and Disposal of Assets....... (100) (1,962) (132)
Provision for Uncollectible Accounts Receivable....... 158 204 198
(Increase) Decrease to Carrying Value of Accounts
Receivable.......................................... -- 369 (580)
Adjustment to Reserve for Lawsuit Settlement.......... -- -- (550)
Change in Assets and Liabilities, Net of Effects of
Businesses Acquired:
Accounts Receivable................................. (19,718) (1,608) (18,162)
Inventories......................................... (6,686) (24,283) 10,182
Prepaid Expenses and Other.......................... (1,126) 149 (4,824)
Accounts Payable.................................... (9,178) 9,926 11,311
Accrued Salaries and Benefits and Other............. (5,234) 156 1,341
Other Assets........................................ (6,013) (8,432) (5,037)
Other Liabilities................................... 492 1,175 53
Other, Net.......................................... 1,789 462 (4,829)
-------- -------- --------
Net Cash Provided (Used) by Operations........... (4,758) (5,577) 1,826
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Business........................... -- 3,500 --
Proceeds from Sale of Assets............................. 3,131 754 397
Acquisition of Businesses................................ (17,076) (933) (11,239)
Capital Expenditures for Property, Plant and Equipment... (19,607) (14,885) (22,413)
-------- -------- --------
Net Cash Used by Investing Activities................. (33,552) (11,564) (33,255)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Long-Term Debt................. 120,000 -- 34,000
Penalty on Early Retirement of Debt...................... (4,872) -- --
Debt Issuance Costs...................................... (4,155) -- (1,463)
Borrowings (Repayments) Under Revolving Lines of Credit,
Net................................................... (28,940) 21,590 2,065
Borrowings of Term Debt.................................. 2,284 3,571 1,785
Repayments on Term Debt.................................. (46,981) (6,409) (7,286)
Stock Options Exercised, Purchase of Treasury Stock
and Other, Net........................................ (381) (384) (461)
-------- -------- --------
Net Cash Provided by Financing Activities............. 36,955 18,368 28,640
-------- -------- --------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH................... (300) (468) 168
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (1,655) 759 (2,621)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR.................................................. 4,799 4,040 6,661
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 3,144 $ 4,799 $ 4,040
======== ======== ========
</TABLE>

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

F-6
<PAGE> 60

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Energy
Ventures, Inc. and all majority-owned subsidiaries and partnerships (the
"Company"). All material intercompany accounts and transactions have been
eliminated in consolidation.

INVENTORIES

Inventories are stated at the lower of average cost or market.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is carried at cost. Depreciation of domestic
property, plant and equipment is provided using the straight-line method over
the estimated useful lives for the respective categories. The useful lives of
the major classes of property, plant and equipment are as follows:

<TABLE>
<CAPTION>
LIFE
--------------
<S> <C>
Buildings..................................................... 15 - 40 years
Rigs, machinery and equipment................................. 5 - 20 years
Furniture and vehicles........................................ 3 - 7 years
</TABLE>

Due to differences between the international and U.S. rig contracting
markets, depreciation on international drilling rigs and related equipment is
provided using the units-of-production method. Under the units-of-production
method, depreciation is based on the utilization of the drilling rigs with a
minimum provision when the rigs are idle.

Interest costs related to major capital projects are capitalized as a
component of construction costs. Interest costs capitalized were $247,000,
$574,000 and $250,000 in 1994, 1993 and 1992, respectively. Maintenance and
repairs are expensed as incurred. The costs of renewals, replacements and
betterments are capitalized.

INTANGIBLE ASSETS AND AMORTIZATION

The excess of cost over the fair value of net tangible assets of businesses
acquired is being amortized on a straight-line basis over the lesser of expected
useful lives or 40 years. Other intangible assets, included in other assets, are
amortized over the years expected to be benefitted. Amortization expense for
goodwill and other intangible assets was $996,000, $1,578,000 and $1,153,000 for
1994, 1993 and 1992, respectively.

FOREIGN CURRENCY TRANSLATION

Results of operations for foreign subsidiaries with functional currencies
other than the U.S. dollar are translated using average exchange rates during
the period. Assets and liabilities of these foreign subsidiaries are translated
using the exchange rates in effect at the balance sheet date and the resulting
translation adjustments are included as a separate component of Stockholders'
Investment. Currency transaction gains and losses are reflected in income for
the period. The Company's Nigerian operations are in a "highly inflationary"
economy and use the U.S. dollar as the functional currency. Accordingly, the
gains or losses resulting from balance sheet translation are reflected in income
for the period.

INCOME TAXES

Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standard No. 109 ("SFAS No. 109"). The adoption of SFAS No. 109 did
not have a material effect on the Company's financial

F-7
<PAGE> 61

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
position or results of operations. Under the asset and liability method of SFAS
No. 109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. See Note 10.

WEIGHTED AVERAGE SHARES

Earnings per share has been computed based on the weighted average number
of common shares outstanding during the respective periods. Stock options
outstanding are excluded from the weighted average number of shares since the
dilutive effect is not material.

2. SUPPLEMENTAL CASH FLOW INFORMATION

For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents.

Cash paid during the years ended December 31, 1994, 1993, and 1992 for
interest (net of amounts capitalized) and income taxes was as follows:

<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest paid, net of amounts capitalized............. $ 13,487 $ 7,144 $ 3,653
Income taxes paid (refunded).......................... $ 1,903 $(1,818) $ (335)
</TABLE>

Refer to Note 5 for additional information concerning noncash investing and
financing activities.

3. CHANGE IN ACCOUNTING ESTIMATE

Effective January 1, 1992, the Company revised the estimated useful lives
of its domestic rigs from approximately 15 years to approximately 20 years to
more closely reflect expected remaining lives. The change in accounting estimate
resulted in a decrease in the Company's depreciation expense of $542,000 and an
increase in net income of $338,000 or $0.03 per share for the year ended
December 31, 1992.

4. INVENTORIES

Inventories by category are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and components..................................... $34,759 $33,135
Work in process.................................................. 12,861 8,813
Finished goods................................................... 27,318 20,391
------ ------
$74,938 $62,339
====== ======
</TABLE>

5. ACQUISITIONS AND DISPOSITIONS

On September 1, 1994, the Company completed the acquisition of the Fluid
PackedTM Pumps line of rod pumps, parts and accessories, and the sucker rod line
from National-Oilwell for $13.5 million in cash. The acquired assets have been
integrated into the Company's Highland Pump artificial lift division
("Highland"). Included in the acquisition are manufacturing facilities and
equipment in Woodward (Oklahoma) and Santa Teresa (New Mexico) and product
inventory.

F-8
<PAGE> 62

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. ACQUISITIONS AND DISPOSITIONS -- (CONTINUED)
On July 29, 1994, the Company acquired a tubular finishing facility located
in Bryan, Texas (Bryan facility). The Company exchanged Eastman Cherrington
Environmental, Inc. ("Eastman Cherrington") including a cash payment of
approximately $2 million for the Bryan facility. The acquired tubular finishing
mill is a 160,000 square foot industrial facility located on 55 acres. The
facility is being operated as part of the Company's Grant TFW drill pipe and
tubular products division ("Grant TFW"). The recorded net book value of Eastman
Cherrington, including operations to the date of disposition, approximated the
appraised value of the Bryan facility. As a result, there was no material gain
or loss realized on the exchange. See Note 6 for additional information on
Eastman Cherrington.

On February 9, 1994, the Company purchased all of the outstanding stock of
AWI Drilling & Workover, Inc. ("AWI"), for a purchase price of $1.5 million
cash, $5.0 million in notes payable and 433,333 shares of the Company's Common
Stock, $1.00 par value. The assets of AWI consist primarily of 12 barge drilling
rigs, eight of which were under charter to the Company at the time of
acquisition. Charter fees incurred by the Company were approximately $2.5
million and $1.2 million in 1993 and 1992, respectively.

In November 1993, the Company acquired Production Oil Tools ("Production"),
a manufacturer of downhole packers and completion systems, for approximately
$2.2 million, comprised of cash and shares of the Company's common stock.

On June 30, 1993, the Company acquired from Energy Service Company its
International Tool & Supply procurement division ("Procurement Division") and
tubular services division ("Tubular Services") for approximately $4.8 million
consisting of cash, notes payable and other obligations. Tubular Services has a
threading facility for oil country tubulars, specializing in premium tubulars
with large diameters. Tubular Services was integrated into Grant TFW. On
December 30, 1993, the Company sold the Procurement Division, together with
certain other assets of the Company. Proceeds from the sale were used to repay
the remaining principal balance of notes payable incurred to finance the
acquisitions.

On March 26, 1992, the Company completed the acquisition of substantially
all of the non-real estate operating assets of Atlas BradfordTM Corporation
("Atlas BradfordTM") for approximately $10.0 million in cash, a 2% annual
royalty for three years on thread-only sales over $30.0 million adjusted for
inflation, and approximately $700,000 in assumed trade accounts payable. The
purchase was financed with a portion of the net proceeds from the private
placement of $34.0 million principal amount of the Company's senior notes. See
Note 8. The business acquired from Atlas BradfordTM consists of the design,
manufacture and marketing of premium threaded connections for tubing and casing
used in the drilling and production of oil and gas wells, and has been fully
integrated with the operations of Grant TFW.

The acquisitions discussed above were accounted for using the purchase
method of accounting, and their results of operations are included in the
Consolidated Statements of Income from the date of acquisition. The results of
operations related to the acquisition of National-Oilwell's Fluid Packed Pump
product lines, the Bryan facility and the businesses acquired during 1993 are
not material, therefore, pro forma information is not presented.

F-9
<PAGE> 63

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. ACQUISITIONS AND DISPOSITIONS -- (CONTINUED)
The following table presents selected unaudited consolidated financial
information for the Company on a pro forma basis assuming that the AWI
acquisition and the issuance of $120 million of 10.25% Senior Notes due 2004 had
occurred on January 1, 1993.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1994 1993
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues....................................................... $248,537 $246,017
Income before extraordinary charge............................. $ 3,447 $ 5,160
Net Income (Loss).............................................. $ (337) $ 5,160
Net Income (Loss) per Share.................................... $ (.03) $ .43
</TABLE>

The pro forma information does not purport to be indicative of the results
that actually would have been obtained if the combined operation had been
conducted during the years presented and is not intended to be a projection of
future results.

6. DISCONTINUED OPERATIONS

On July 29, 1994, the Company disposed of Eastman Cherrington, including a
cash payment of approximately $2 million, in exchange for a tubular finishing
facility located in Bryan, Texas. Revenues from the discontinued operation of
Eastman Cherrington for 1994 and 1993 were $1.4 million and $3.3 million,
respectively. The discontinued operation of Eastman Cherrington reflected a net
loss of $797,000 and $2.1 million for 1994 and 1993, respectively. The recorded
net book value of Eastman Cherrington, including operations to the date of
disposition, approximated the appraised value of the Bryan facility. As a
result, there was no material gain or loss realized on the exchange.

During 1992, the Company made the decision to sell its remaining interests
in miscellaneous oil and gas properties. Such oil and gas properties, other than
the overriding royalty interests on certain properties retained by the Company
in connection with the 1990 dissolution of the Company's joint venture
("COLEVE"), were sold in October 1992 for an aggregate sale price of $160,000
resulting in a gain of approximately $26,000, net of taxes. Revenues and net
loss from discontinued operations of this segment for the year ended December
31, 1992 were $2 million and $144,000, respectively.

The results of operations for Eastman Cherrington and the exploration and
production segment are reflected in the accompanying Consolidated Statements of
Income as "Discontinued Operations, Net of Taxes".

F-10
<PAGE> 64

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. SHORT-TERM BORROWINGS AND LINES OF CREDIT

The Company's short-term borrowings at December 31, 1994 and 1993 consisted
of the following:

<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS,
EXCEPT PERCENTAGES)
<S> <C> <C>
Payable to banks under lines of credit, interest at prime to
prime plus 1 1/4% at December 31, 1994 and prime to prime plus
1 1/8% at December 31, 1993; principal and interest payable on
demand......................................................... $17,265 $46,205
Weighted average interest rate on notes outstanding during the
year........................................................... 8.8% 7.7%
Average borrowings during the year............................... $22,026 $35,683
Maximum outstanding during the year.............................. $48,310 $47,401
</TABLE>

At December 31, 1994, the Company had in place various working capital
lines of credit secured by the inventory and receivables of the Company's
subsidiaries providing for borrowings up to $55.3 million subject to
availability requirements. Borrowings under the Company's lines of credit are
generally based on the lender's determination of the collateral value of the
current assets securing the lines of credit. At December 31, 1993, the Company
also had $5.0 million invested in a certificate of deposit of a major financial
institution that was pledged to secure the Company's obligation under the
revolving credit facility. The certificate of deposit was released during 1994.
The Company and its subsidiaries are required to maintain various affirmative
and negative covenants relating to working capital, earnings and net worth. The
facilities also impose certain limitations on the use of funds by the Company
and its subsidiaries for acquisitions and capital expenditures, the incurrence
of additional indebtedness and other operational matters and certain
prohibitions on the declaration or payment of dividends by the Company.

At December 31, 1994, approximately $17.3 million had been borrowed under
the revolving lines of credit and approximately $1.0 million had been used to
support outstanding letters of credit. Additional borrowings of approximately
$35.6 million were available based on collateral values at December 31, 1994.

8. LONG-TERM DEBT

The Company's long-term debt at December 31, 1994 and 1993 consisted of the
following:

<TABLE>
<CAPTION>
1994 1993
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes due in 2004, interest at 10.25%.................... $120,000 $ --
Senior Notes due in 1997, interest at 12.25%.................... -- 34,000
Capitalized lease obligations under various leases with various
installment amounts........................................... 4,530 4,532
Other notes payable at various rates............................ 4,349 3,439
-------- -------
128,879 41,971
Less: current maturities of long-term debt...................... 3,189 2,989
-------- -------
$125,690 $38,982
======== =======
</TABLE>

F-11
<PAGE> 65

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. LONG-TERM DEBT -- (CONTINUED)
The following is a summary of scheduled debt maturities by year (in
thousands):

<TABLE>
<S> <C>
1995.............................................................. $ 3,189
1996.............................................................. 3,093
1997.............................................................. 1,989
1998.............................................................. 570
1999.............................................................. 38
Thereafter........................................................ 120,000
--------
$128,879
========
</TABLE>

On March 24, 1994, the Company sold pursuant to a private placement $120
million of 10.25% Senior Notes due 2004. In July 1994, substantially all of
these notes were exchanged for a substantially identical series of 10.25% Senior
Notes due 2004 with semi-annual interest payments in March and September. Both
issues of Senior Notes were issued pursuant to the terms of an Indenture dated
as of March 15, 1994. Certain subsidiaries of the Company have unconditionally
guaranteed the Company's obligations under the Senior Notes. See Note 17. The
Indenture relating to the Senior Notes contains various customary affirmative
and negative covenants that, among other things, limit the ability of the
Company and certain of its subsidiaries to (i) incur certain additional
indebtedness unless the Company's Consolidated Fixed Charge Coverage Ratio (as
defined in the Indenture) is at least 2.0 to 1.0, (ii) make dividends,
distributions and certain other restricted payments, (iii) create certain liens,
(iv) engage in certain transactions with its affiliates, (v) engage in sale and
leaseback transactions, (vi) make certain asset dispositions and (vii) merge or
consolidate with, or transfer all or substantially all of its assets to another
person. The Indenture also limits the ability of the Company and certain of its
subsidiaries to issue preferred stock and creates restrictions on the ability of
certain of its subsidiaries to pay dividends and make other distributions.

The placement of the $120 million Senior Notes provided the Company with
$116 million in net proceeds that were used to prepay the $34 million 12.25%
senior notes due 1997 and to repay substantially all of the Company's
outstanding indebtedness other than the Senior Notes. The remaining funds were
used for working capital and other general purposes. In connection with the
early retirement, the Company incurred a first quarter extraordinary charge of
approximately $3.8 million, net of taxes of approximately $1.9 million, or $.30
per share. The extraordinary charge represented the difference between the
reacquisition price and the net carrying value of the $34 million senior notes,
including unamortized debt issuance costs.

Accrued interest payable, which is included in Other Accrued Liabilities in
the financial statements, was approximately $3.7 million and $1.4 million at
December 31, 1994 and 1993, respectively.

9. COMMON STOCK OPTION AND PROFIT SHARING PLANS

STOCK OPTION PLANS

In May 1981, the Company's stockholders approved the Company's Employee
Stock Option Plan ("Option Plan"), a non-qualified stock option plan. The plan
expired in May 1991. Under the Option Plan, options were provided to officers
and key employees of the Company (including directors who are also key
employees) and its subsidiaries to purchase up to an aggregate of 1,000,000
shares of common stock of the Company.

In May 1991, the Company's stockholders approved the Company's Non-Employee
Director Stock Option Plan ("Director Plan"), a non-qualified stock option plan.
Under the Director Plan, options to purchase up to an aggregate of 300,000
shares of common stock of the Company may be granted to

F-12
<PAGE> 66

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMON STOCK OPTION AND PROFIT SHARING PLANS -- (CONTINUED)
non-employee directors of the Company. Options to purchase 15,000 shares of
common stock are automatically granted to each non-employee director on the date
of their initial election. At December 31, 1994, 225,000 shares were available
for the granting of options.

In May 1992, the Company's stockholders approved the Company's 1992
Employee Stock Option Plan ("ESO Plan") a non-qualified stock option plan. Under
the ESO Plan, options to purchase up to an aggregate of 600,000 shares of common
stock of the Company may be granted to officers and key employees of the Company
(including directors who are also key employees) and its subsidiaries. At
December 31, 1994, 203,000 shares were available for granting of such options.

Transactions under the above option plans are summarized as follows:

<TABLE>
<CAPTION>
NUMBER OPTION
OF PRICE/RANGE
SHARES PER SHARE
------- ------------------
<S> <C> <C>
Options outstanding, December 31, 1991.................. 437,472 $ 2.69 - $23.875
Granted............................................... 250,000 9.375 - 11.50
Exercised............................................. (6,672) 2.69
Canceled.............................................. (27,500) 18.25
-------
Options outstanding, December 31, 1992.................. 653,300 2.69 - 23.875
Granted............................................... 95,000 11.75 - 16.125
Exercised............................................. (41,237) 2.69 - 11.50
Canceled.............................................. (40,000) 16.50 - 18.25
-------
Options outstanding, December 31, 1993.................. 667,063 2.69 - 23.875
Granted............................................... 52,000 13.75 -
Exercised............................................. (5,160) 2.69 -
Canceled.............................................. (74,167) 11.50 - 18.25
-------
Options outstanding, December 31, 1994.................. 639,736 2.69 - 23.875
=======
Options exercisable as of December 31, 1994............. 472,734 2.69 - 23.875
=======
</TABLE>

PROFIT SHARING PLANS

The Company and certain of its subsidiaries have adopted retirement plans
which qualify under Section 401(k) of the Internal Revenue Code. The plans
generally provide for 20% matching contributions by the Company, up to a maximum
liability of 1.2% of each participating employee's annual compensation. The
Company, under each plan, also has the right to make additional discretionary
matching contributions. Total contributions by the Company under these plans
were $465,000, $447,000 and $205,000 during 1994, 1993 and 1992, respectively.

EXECUTIVE DEFERRED COMPENSATION PLAN

In May 1992, the Company's stockholders approved the Executive Deferred
Compensation Stock Ownership Plan (the "EDC Plan"). Under the EDC Plan, a
portion of the compensation for certain key employees of the Company and its
subsidiaries, including officers and employee directors, can be deferred for
payment after retirement or termination of employment.

The Company has established a grantor trust to fund the benefits under the
EDC Plan. The funds provided to such trust are invested by a trustee independent
of the Company primarily in Common Stock of the Company which is purchased by
the trustee on the open market. The assets of the trust are available to satisfy
the claims of all general creditors of the Company in the event of bankruptcy or
insolvency.

F-13
<PAGE> 67

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. COMMON STOCK OPTION AND PROFIT SHARING PLANS -- (CONTINUED)
Accordingly, the stock held by the trust has been consolidated for accounting
purposes and is included in the accompanying Consolidated Statements of
Stockholders' Investment as "Treasury Stock, at Cost" and reflected as such on
the Consolidated Balance Sheets. The compensation expense related to this plan
was not significant for each of the three years in the period ended December 31,
1994.

10. INCOME TAXES

As discussed in Note 1, effective January 1, 1993 the Company adopted SFAS
No. 109, which supersedes SFAS No. 96. This statement provides, among other
things, for the recognition and presentation of deferred tax assets and
liabilities for the future tax consequences of temporary differences between the
financial statement basis and the tax basis of assets and liabilities using the
tax rates in effect during the period when taxes are actually paid or recovered.
Accordingly, income tax provisions will increase or decrease in the same period
in which a change in tax rates is enacted. Prior year financial statements were
not restated for SFAS No. 109. The adoption of SFAS No. 109 did not have a
material effect on the Company's financial position or results of operations.

The domestic and foreign components of Income before Income Taxes from
Continuing Operations consisted of the following:

<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic.............................................. $ 1,162 $ 6,155 $(4,439)
Foreign............................................... 5,286 6,656 4,777
------- ------- -------
$ 6,448 $12,811 $ 338
======= ======= =======
</TABLE>

Total income tax expense (benefit) was recorded as follows:

<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income from Continuing Operations..................... $ 1,806 $ 4,864 $ 57
Discontinued Operations............................... -- (1,185) (11)
Extraordinary Charge.................................. (1,949) -- --
------- ------- -------
$ (143) $ 3,679 $ 46
======= ======= =======
</TABLE>

The Company's provision for income taxes of continuing operations consisted
of:

<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
U.S. Federal........................................ $ 648 $ 1,654 $(3,424)
Foreign............................................. 1,985 3,017 1,197
State............................................... 225 97 --
------- ------- -------
2,858 4,768 (2,227)
------- ------- -------
Deferred
U.S. Federal........................................ (1,229) (454) 2,055
Foreign............................................. 177 202 197
State............................................... -- 348 32
------- ------- -------
(1,052) 96 2,284
------- ------- -------
$ 1,806 $ 4,864 $ 57
======= ======= =======
</TABLE>

F-14
<PAGE> 68

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. INCOME TAXES -- (CONTINUED)
The difference between the tax provision at the statutory federal income
tax rate and the tax provision attributable to income from continuing operations
before income taxes in the accompanying Consolidated Statements of Income is
analyzed below:

<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate.................... 34.0% 34.0% 34.0%
Effect of state income tax, net...................... 2.3 2.3 22.4
Effect of non-deductible expenses.................... 3.7 .9 157.8
Recognition of subsidiary stock loss previously
deducted for
tax purposes....................................... -- -- (819.1)
Utilization of net operating loss carryforward....... (15.5) -- --
Effect of foreign income tax, net.................... (.1) 2.6 626.5
Non-benefitable foreign losses....................... 6.2 -- --
Other................................................ (2.6) (1.8) (4.7)
------ ------ ------
28.0% 38.0% 16.9%
====== ====== ======
</TABLE>

The deferred income tax provisions for Income before Income Taxes primarily
consisted of:

<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Excess of tax over financial deduction related to
depreciation.......................................... $ 1,262 $1,082 $1,719
Excess of tax over (under) financial deductions for
reserves.............................................. 1,379 (155) (42)
Benefit provided on losses of subsidiaries not included
in consolidated return................................ -- (477) --
Alternative minimum tax................................. (660) (461) --
Recognition of subsidiary stock loss previously deducted
for
tax purposes.......................................... -- -- (778)
Book accruals (reversals) not currently deductible...... (775) (368) 761
State and foreign income taxes.......................... 177 549 229
Utilization of net operating loss carryforward.......... (997) -- --
Foreign tax credits..................................... (1,281) -- --
Other, net.............................................. (157) (74) 395
------- ------ ------
$(1,052) $ 96 $2,284
======= ====== ======
</TABLE>

F-15
<PAGE> 69

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. INCOME TAXES -- (CONTINUED)
The components of the net deferred tax liability were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1993
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................... $ 5,433 $ 2,100
Alternative minimum tax credit carryforward................ 1,121 670
Book accruals/other........................................ 2,927 1,345
Foreign tax credit carryforwards........................... 3,074 --
Valuation allowance........................................ (6,101) (2,100)
-------- --------
Total deferred tax asset.............................. 6,454 2,015
-------- --------
Deferred tax liabilities:
COLEVE production payment.................................. (14,224) (14,381)
Depreciation............................................... (20,105) (11,994)
Other...................................................... (2,910) (875)
-------- --------
Total deferred tax liability.......................... (37,239) (27,250)
-------- --------
Net deferred tax liability................................... $(30,785) $(25,235)
======== ========
</TABLE>

The amount of federal operating loss carryforwards for tax purposes
generated by certain subsidiaries prior to their acquisition is $18,400,000,
which includes $2,421,000 of federal operating loss carryforwards previously
benefited for book purposes, and if not utilized will expire between 2001 and
2007. The use of pre-acquisition operating losses is subject to limitations
imposed by the Internal Revenue Code. The Company has $1,121,000 of alternative
minimum tax credit carryforwards, which may be used indefinitely to reduce
regular Federal income taxes. Additionally, at December 31, 1994, the Company
had $3,074,000 of unused foreign tax credit carryforwards which includes, for
U.S. Federal income tax purposes, $1,040,000 foreign tax credit carryforwards,
expiring principally during 1996-1999.

The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets in which realization is uncertain. The net change
in the valuation allowance for the year ended December 31, 1994 was an increase
of $4,001,000. The net change principally relates to additions of deferred tax
assets, recorded as a result of current year activity and 1994 acquisitions, of
which realization is uncertain.

COLEVE TAX MATTER

In August of 1994, the Company received a letter from the IRS proposing to
increase the gain recognized by the Company upon the dissolution in October 1990
of COLEVE with Columbia Gas and Development Corporation. In general, the IRS'
proposal seeks payment of a tax liability of approximately $14.1 million plus
accrued interest thereon, and includes $3.4 million of taxes relating to the
proposed disallowance of certain interest deductions taken by the Company with
respect to COLEVE that was the subject of a similar letter received by the
Company in the fourth quarter of 1993. The tax liability with respect to these
matters has been previously provided for as a deferred tax liability in the
Company's financial statements. The Company disagrees with the IRS' position and
is currently pursuing its rights of administrative review and appeal and intends
to vigorously contest this matter. Although the resolution of these remaining
issues could affect the timing of the payment of previously accrued tax
liabilities and require the use of a portion of its available capital, the
Company does not believe that the results of the audit or the ultimate
resolution of the IRS' proposed adjustments will have a material impact on its
results of operations or financial position.

F-16
<PAGE> 70

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. DISPUTES, LITIGATION AND CONTINGENCIES

LITIGATION AND OTHER DISPUTES

The Company is aware of various disputes and potential claims and is a
party in various litigation involving claims against the Company, some of which
are covered by insurance. Based on facts currently known to the Company, it
believes that the ultimate liability, if any, which may result from known
claims, disputes and pending litigation would not have a material adverse affect
on the Company's consolidated financial position or its results of operations.

INSURANCE

The Company is partially self-insured for employee health insurance claims
and for workers' compensation for certain of its employees. The Company believes
that adequate reserves have been provided for expected liabilities arising from
its self-insured obligations.

12. INSURANCE SETTLEMENT

On September 30, 1994, the Company settled all of its claims with its
insurance carriers with respect to the termination of its workover drilling
contract with the National Iranian Oil Company ("NIOC"). Under the terms of the
settlement with the Company's insurance carriers, the Company received a net
cash payment of $23 million for reimbursement of certain operating costs
incurred and amounts to be received in accordance with the terms of the workover
drilling contract. The Company also retained all rights to any funds collected
or recovered by the Company from NIOC and to the rigs and equipment deployed in
Iran. The rigs and the related equipment were moved out of Iran by December 31,
1994.

The Company adjusted the carrying value of the receivables, rigs and
equipment, and established reserves for demobilization, refurbishment and
contract settlement costs, all of which totaled approximately $18 million. The
insurance settlement which increased operating income by $4.8 million was
reduced by operating losses of $2.6 million relating to the Iranian operations
for 1994. This benefit was more than offset by the reduction in operating income
in Nigeria and Peru.

13. COMMITMENTS

The Company is committed under various noncancelable operating leases which
primarily relate to office space and equipment. Total lease expense incurred
under noncancelable operating leases was approximately $4,626,000, $3,055,000
and $3,745,000 for the years ended December 31, 1994, 1993, and 1992,
respectively.

Future minimum rental commitments under these operating leases are as
follows (in thousands):

<TABLE>
<S> <C>
1995............................................................... $ 3,513
1996............................................................... 2,809
1997............................................................... 2,464
1998............................................................... 2,058
1999............................................................... 73
Thereafter......................................................... --
-------
$ 10,917
=======
</TABLE>

14. RELATED PARTY TRANSACTIONS

The Company incurred legal fees of $748,000, $582,000, and $713,000 during
1994, 1993 and 1992, respectively, with a law firm in which a director of the
Company is a partner.

F-17
<PAGE> 71

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. RELATED PARTY TRANSACTIONS -- (CONTINUED)
The Company paid approximately $3,300,000 in 1994 and $990,000 in 1992 in
underwriting fees associated with the private placement of the $120 million of
10.25% Senior Notes and the $34 million of 12.25% senior notes, respectively.
The underwriting group for each of these transactions included Lehman Brothers,
an affiliate of Lehman Brothers Holdings Inc., a major stockholder of the
Company, as well as several other unrelated underwriters. The fee arrangements
associated with these offerings were on terms standard in the underwriting
industry.

15. SEGMENT INFORMATION

BUSINESS SEGMENTS

The Company operates through two business segments, oilfield equipment and
contract drilling. The oilfield equipment segment manufactures high performance
tubulars and a complete line of artificial lift equipment. These products are
marketed to oil and gas companies for their use in the exploration, drilling and
production of oil and natural gas. The Company's tubular products are used
primarily for natural gas exploration and production. The Company's contract
drilling segment consists primarily of a fleet of barge rigs used by major and
large independent oil and gas companies primarily for the exploration and
development of natural gas in the U.S. Gulf Coast area. Internationally, the
contract drilling segment ("Mallard") is currently operating under contract one
barge rig in Nigeria and two platform rigs in Peru. Mallard also owns three land
rigs that are currently being deployed with a fourth chartered rig to Argentina
under a two year contract. Additionally, the Company owns a 49% interest in a
joint venture that owns two land rigs in Peru.

Financial information by industry segment for each of the three years ended
December 31, 1994, is summarized below (in thousands). Identifiable assets
included in the Corporate and Other column includes the elimination of
intercompany transactions.

<TABLE>
<CAPTION>
CORPORATE
OILFIELD CONTRACT AND
EQUIPMENT DRILLING OTHER TOTAL
--------- -------- --------- --------
<S> <C> <C> <C> <C>
1994
Sales to unaffiliated customers............... $ 185,285 $ 63,252 $ -- $248,537
Operating income (loss)....................... 8,226 15,831 (4,588) 19,469
Identifiable assets........................... 230,592 125,927 (5,831) 350,688
Depreciation and amortization................. 9,302 4,870 96 14,268
Capital expenditures and acquisitions......... 32,533 33,938 91 66,562
1993
Sales to unaffiliated customers............... $ 171,638 $ 74,379 $ -- $246,017
Operating income (loss)....................... 10,788 11,797 (4,030) 18,555
Identifiable assets........................... 180,862 86,385 9,984 277,231
Depreciation and amortization................. 7,826 4,381 74 12,281
Capital expenditures and acquisitions......... 13,119 4,468 2,091 19,678
</TABLE>

F-18
<PAGE> 72

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. SEGMENT INFORMATION -- (CONTINUED)

<TABLE>
<CAPTION>
CORPORATE
OILFIELD CONTRACT AND
EQUIPMENT DRILLING OTHER TOTAL
--------- -------- --------- --------
<S> <C> <C> <C> <C>
1992
Sales to unaffiliated customers............... $ 139,349 $ 51,109 $ -- $190,458
Operating income (loss)....................... 3,811 4,668 (3,867) 4,612
Identifiable assets........................... 140,447 79,169 10,980 230,596
Depreciation and amortization................. 7,462 2,907 65 10,434
Capital expenditures and acquisitions......... 14,160 16,604 1,558 32,322
</TABLE>

MAJOR CUSTOMERS AND CREDIT RISK

Substantially all of the Company's customers are engaged in the energy
industry. This concentration of customers may impact the Company's overall
exposure to credit risk, either positively or negatively, in that customers may
be similarly affected by changes in economic and industry conditions. The
Company performs ongoing credit evaluations of its customers and does not
generally require collateral in support of its trade receivables. The Company
maintains reserves for potential credit losses, and actual losses have
historically been within the Company's expectations. Foreign sales also present
various risks, including risks of war, civil disturbances and governmental
activities that may limit or disrupt markets, restrict the movement of funds or
result in the deprivation of contract rights or the taking of property without
fair consideration. Most of the Company's foreign sales, however, are to large
international companies or are secured by letter of credit or similar
arrangements.

In 1994, 1993 and 1992, there were no customers who accounted for 10% of
consolidated revenues. With the exception of the contract drilling segment,
whose foreign rigs typically operate under long-term contracts, the Company does
not believe itself to be dependent to any material degree on any single
customer.

FOREIGN OPERATIONS AND EXPORT SALES

The Company's equipment and services are used in approximately 45 countries
by U.S. customers operating abroad and by foreign customers. Sales of equipment
and services outside the United States accounted for 36%, 40% and 37% of total
revenues in 1994, 1993 and 1992, respectively, based upon the ultimate
destination in which equipment or services were sold, shipped or provided to the
customer by the Company.

F-19
<PAGE> 73

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. SEGMENT INFORMATION -- (CONTINUED)
Summarized financial information by geographic area is as follows:

<TABLE>
<CAPTION>
WESTERN HEMISPHERE EASTERN HEMISPHERE
----------------------- ---------------------
UNITED STATES OTHER MIDDLE EAST OTHER ELIMINATIONS TOTAL
------------- ------- ----------- ------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
1994
Operating revenues from
unaffiliated customers..... $ 162,344 $34,643 $ 5,801 $ 5,329 $ (3,304) $204,813
Export sales to unaffiliated
customers.................. 43,724 -- -- -- -- 43,724
-------- ------- ------- ------- -------- --------
Total revenues................ 206,068 34,643 5,801 5,329 (3,304) 248,537
Operating profit (loss)....... 9,511 7,194 3,219 (170) (285) 19,469
Identifiable assets........... 269,646 41,413 12,866 26,763 -- 350,688
1993
Operating revenues from
unaffiliated customers..... $ 150,729 $31,722 $ 7,967 $ 4,675 $ (1,983) $193,110
Export sales to unaffiliated
customers.................. 52,847 -- -- -- 60 52,907
-------- ------- ------- ------- -------- --------
Total revenues................ 203,576 31,722 7,967 4,675 (1,923) 246,017
Operating profit.............. 9,744 7,372 802 599 38 18,555
Identifiable assets........... 200,771 32,281 28,316 15,863 -- 277,231
1992
Operating revenues from
unaffiliated customers..... $ 123,398 $16,291 $ 2,772 $ 7,927 $ (4,231) $146,157
Export sales to unaffiliated
customers.................. 44,301 -- -- -- -- 44,301
-------- ------- ------- ------- -------- --------
Total revenues................ 167,699 16,291 2,772 7,927 (4,231) 190,458
Operating profit (loss)....... (679) 2,992 111 2,512 (324) 4,612
Identifiable assets........... 177,106 23,358 17,354 12,778 -- 230,596
</TABLE>

F-20
<PAGE> 74

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. QUARTERLY FINANCIAL DATA (UNAUDITED)

The following tabulation sets forth unaudited quarterly financial data for
1994 and 1993.

<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QTR. QTR. QTR. QTR. TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1994
Revenues.............................. $55,118 $50,566 $68,079 $74,774 $248,537
Gross Profit.......................... 14,927 14,874 18,689 18,910 67,400
Income before Income Taxes............ 1,336 195 2,698 2,219 6,448
Income from Continuing Operations..... 855 127 1,679 1,981 4,642
Extraordinary Charge, Net of Taxes.... (3,784) -- -- -- (3,784)
Net Income (Loss)..................... (2,929) 127 1,679 1,981 858
Net Income (Loss) Per Share:
Continuing Operations.............. $ .07 $ .01 $ .13 $ .16 $ .37
Extraordinary Charge............... (.30) -- -- -- (.30)
------- ------- ------- ------- --------
Net Income (Loss) Per Share........ $ (.23) $ .01 $ .13 $ .16 $ .07
======= ======= ======= ======= ========
1993
Revenues.............................. $51,307 $52,136 $69,098 $73,476 $246,017
Gross Profit.......................... 13,687 13,883 18,227 18,478 64,275
Income before Income Taxes............ 1,809 2,270 3,990 4,742 12,811
Income from Continuing Operations..... 1,140 1,431 2,514 2,862 7,947
Discontinued Operations, Net of
Taxes.............................. (333) (476) (301) (947) (2,057)
Net Income............................ 807 955 2,213 1,915 5,890
Net Income (Loss) Per Share:
Continuing Operations.............. $ .10 $ .12 $ .21 $ .23 $ .66
Discontinued Operations............ (.03) (.04) (.03) (.07) (.17)
------- ------- ------- ------- --------
Net Income Per Share............... $ .07 $ .08 $ .18 $ .16 $ .49
======= ======= ======= ======= ========
</TABLE>

F-21
<PAGE> 75

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The $120 million Senior Notes which are described in Note 8 are
unconditionally guaranteed on a joint and several basis, by certain subsidiaries
of the Company. Accordingly, the following condensed consolidating balance
sheets as of December 31, 1994 and 1993 and the related condensed consolidating
statements of income and cash flows for each of the three years in the period
ended December 31, 1994 have been provided. The condensed consolidating
financial statements herein are followed by notes which are an integral part of
these statements.

CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents.................... $ 166 $ 1,593 $ 1,385 $ -- $ 3,144
Other Current Assets......................... 1,549 135,170 24,940 -- 161,659
-------- -------- ------- --------- --------
1,715 136,763 26,325 -- 164,803
-------- -------- ------- --------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST, NET OF
ACCUMULATED DEPRECIATION..................... 230 140,024 10,641 -- 150,895
INTERCOMPANY AND INVESTMENT IN SUBSIDIARIES,
NET.......................................... 229,873 (134,749) 18,058 (113,182) --
OTHER ASSETS................................... 9,326 24,748 916 -- 34,990
-------- -------- ------- --------- --------
$241,144 $166,786 $55,940 $(113,182) $350,688
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings........................ $ -- $ 13,627 $ 3,638 $ -- $ 17,265
Current Maturities of Long-Term Debt......... -- 1,480 1,709 -- 3,189
Accounts Payable and Other Accrued
Liabilities................................ 5,291 37,748 6,972 -- 50,011
-------- -------- ------- --------- --------
5,291 52,855 12,319 -- 70,465
-------- -------- ------- --------- --------
LONG-TERM DEBT................................. 120,062 4,605 1,023 -- 125,690
OTHER LIABILITIES.............................. 4,878 23,081 15,661 -- 43,620
-------- -------- ------- --------- --------
STOCKHOLDERS' INVESTMENT....................... 110,913 86,245 26,937 (113,182) 110,913
-------- -------- ------- --------- --------
$241,144 $166,786 $55,940 $(113,182) $350,688
======== ======== ======= ========= ========
</TABLE>

F-22
<PAGE> 76

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
-------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents..................... $ 1,444 $ 2,200 $ 1,155 $ -- $ 4,799
Cash Restricted............................... 5,000 -- -- -- 5,000
Other Current Assets.......................... 1,551 106,640 19,593 (234) 127,550
-------- -------- ------- -------- --------
7,995 108,840 20,748 (234) 137,349
-------- -------- ------- -------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST, NET OF
ACCUMULATED DEPRECIATION...................... 234 95,759 12,142 -- 108,135
INTERCOMPANY AND INVESTMENT IN SUBSIDIARIES,
NET........................................... 134,506 (58,779) 18,166 (93,893) --
OTHER ASSETS.................................... 2,926 29,590 1,853 (2,622) 31,747
-------- -------- ------- -------- --------
$145,661 $175,410 $52,909 $(96,749) $277,231
======== ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings......................... $ -- $ 41,521 $ 4,684 $ -- $ 46,205
Current Maturities of Long-Term Debt.......... -- 1,302 1,687 -- 2,989
Accounts Payable and Other Accrued
Liabilities................................. 1,913 45,631 2,843 -- 50,387
-------- -------- ------- -------- --------
1,913 88,454 9,214 -- 99,581
-------- -------- ------- -------- --------
LONG-TERM DEBT.................................. 34,000 1,908 3,074 -- 38,982
OTHER LIABILITIES............................... 2,012 13,971 14,253 696 30,932
-------- -------- ------- -------- --------
STOCKHOLDERS' INVESTMENT........................ 107,736 71,077 26,368 (97,445) 107,736
-------- -------- ------- -------- --------
$145,661 $175,410 $52,909 $(96,749) $277,231
======== ======== ======= ======== ========
</TABLE>

F-23
<PAGE> 77

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES......................................... $ -- $211,052 $37,485 $ -- $248,537
COSTS AND EXPENSES............................... 4,775 190,924 33,369 -- 229,068
------- -------- ------- -------- --------
OPERATING INCOME (LOSS).......................... (4,775) 20,128 4,116 -- 19,469
------- -------- ------- -------- --------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net................. (6,828) (6,187) (490) -- (13,505)
Equity in Subsidiaries, Net of Taxes........... 11,343 -- -- (11,343) --
Other, Net..................................... 35 459 (10) -- 484
------- -------- ------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES................ (225) 14,400 3,616 (11,343) 6,448
PROVISION (BENEFIT) FOR INCOME TAXES............. (4,867) 4,558 2,115 -- 1,806
------- -------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS................ 4,642 9,842 1,501 (11,343) 4,642
EXTRAORDINARY CHARGE, NET OF TAXES............... (3,784) -- -- -- (3,784)
------- -------- ------- -------- --------
NET INCOME (LOSS)................................ $ 858 $ 9,842 $ 1,501 $(11,343) $ 858
======= ======== ======= ======== ========
</TABLE>

CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES......................................... $ -- $205,278 $40,739 $ -- $246,017
COSTS AND EXPENSES............................... 4,226 186,863 36,373 -- 227,462
------- -------- ------- -------- --------
OPERATING INCOME (LOSS).......................... (4,226) 18,415 4,366 -- 18,555
------- -------- ------- -------- --------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net................. (2,334) (4,980) 105 -- (7,209)
Equity in Subsidiaries, Net of Taxes........... 11,565 -- -- (11,565) --
Other, Net..................................... 1,076 201 188 -- 1,465
------- -------- ------- -------- --------
INCOME BEFORE INCOME TAXES....................... 6,081 13,636 4,659 (11,565) 12,811
PROVISION (BENEFIT) FOR INCOME TAXES............. (1,866) 5,213 1,517 -- 4,864
------- -------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS................ 7,947 8,423 3,142 (11,565) 7,947
DISCONTINUED OPERATIONS, NET OF TAXES............ (2,057) -- -- -- (2,057)
------- -------- ------- -------- --------
NET INCOME (LOSS)................................ $ 5,890 $ 8,423 $ 3,142 $(11,565) $ 5,890
======= ======== ======= ======== ========
</TABLE>

F-24
<PAGE> 78

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES.......................................... $ -- $176,824 $13,634 $ -- $190,458
COSTS AND EXPENSES................................ 3,867 169,329 12,650 -- 185,846
------- -------- ------- ------- --------
OPERATING INCOME (LOSS)........................... (3,867) 7,495 984 -- 4,612
------- -------- ------- ------- --------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net.................... (650) (4,666) 283 -- (5,033)
Equity in Subsidiaries, Net of Taxes............ 3,218 -- -- (3,218) --
Other, Net...................................... -- 625 134 -- 759
------- -------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES................. (1,299) 3,454 1,401 (3,218) 338
PROVISION (BENEFIT) FOR INCOME TAXES.............. (1,580) 915 722 -- 57
------- -------- ------- ------- --------
INCOME FROM CONTINUING OPERATIONS................. 281 2,539 679 (3,218) 281
DISCONTINUED OPERATIONS, NET OF TAXES............. (144) -- -- -- (144)
------- -------- ------- ------- --------
NET INCOME (LOSS)................................. $ 137 $ 2,539 $ 679 $(3,218) $ 137
======= ======== ======= ======= ========
</TABLE>

F-25
<PAGE> 79

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income...................................... $ 858 $ 9,842 $ 1,501 $(11,343) $ 858
Insurance Settlement, Net....................... -- 23,000 -- -- 23,000
Equity in Earnings of Subsidiaries.............. (11,343) -- -- 11,343 --
Other Adjustments and Changes................... 11,329 (37,044) (2,901) -- (28,616)
--------- --------- ------- --------- ---------
Net Cash Provided (Used) by Operations........ 844 (4,202) (1,400) -- (4,758)
--------- --------- ------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Business and Assets....... -- 3,103 28 -- 3,131
Acquisition of Businesses....................... -- (17,076) -- -- (17,076)
Capital Expenditures for Property, Plant and
Equipment..................................... (91) (16,441) (3,075) -- (19,607)
--------- --------- ------- --------- ---------
Net Cash Used by Investing Activities......... (91) (30,414) (3,047) -- (33,552)
--------- --------- ------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Long-Term Debt........ 120,000 -- -- -- 120,000
Short-Term Borrowings, Net...................... -- (27,894) (1,046) -- (28,940)
Repayments on Term Debt, Net.................... (34,442) (8,188) (2,067) -- (44,697)
(Increase) Decrease in Amounts Due to and from
Subsidiaries, Net............................. (78,181) 70,091 8,090 -- --
Other, Net...................................... (9,408) -- -- -- (9,408)
--------- --------- ------- --------- ---------
Net Cash Provided (Used) by Financing
Activities.................................. (2,031) 34,009 4,977 -- 36,955
--------- --------- ------- --------- ---------
Effect of Translation Adjustment
on Cash......................................... -- -- (300) -- (300)
--------- --------- ------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents..................................... (1,278) (607) 230 -- (1,655)
Cash and Cash Equivalents at Beginning of Year.... 1,444 2,200 1,155 -- 4,799
--------- --------- ------- --------- ---------
Cash and Cash Equivalents at End of Year.......... $ 166 $ 1,593 $ 1,385 $ -- $ 3,144
========= ========= ======= ========= =========
</TABLE>

F-26
<PAGE> 80

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income..................................... $ 5,890 $ 8,423 $ 3,142 $(11,565) $ 5,890
Equity in Earnings of Subsidiaries............. (11,565) -- -- 11,565 --
Other Adjustments and Changes.................. (1,780) (1,037) (12,202) 3,552 (11,467)
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Operations....... (7,455) 7,386 (9,060) 3,552 (5,577)
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Business and Assets...... 3,500 447 307 -- 4,254
Acquisition of Businesses...................... (633) 51 (351) -- (933)
Capital Expenditures for Property, Plant and
Equipment.................................... -- (9,615) (5,270) -- (14,885)
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Investing
Activities................................. 2,867 (9,117) (5,314) -- (11,564)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-Term Borrowings, Net..................... -- 17,283 4,307 -- 21,590
(Repayments) Borrowings on Term Debt........... (3,801) (1,795) 2,758 -- (2,838)
(Increase) Decrease in Amounts Due to and from
Subsidiaries, Net............................ 9,434 (14,344) 8,462 (3,552) --
Other, Net..................................... (384) -- -- -- (384)
--------- --------- --------- --------- ---------
Net Cash Provided (Used) by Financing
Activities................................. 5,249 1,144 15,527 (3,552) 18,368
--------- --------- --------- --------- ---------
Effect of Translation Adjustment
on Cash........................................ -- -- (468) -- (468)
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents.................................... 661 (587) 685 -- 759
Cash and Cash Equivalents at Beginning of Year... 783 2,787 470 -- 4,040
--------- --------- --------- --------- ---------
Cash and Cash Equivalents at End
of Year........................................ $ 1,444 $ 2,200 $ 1,155 $ -- $ 4,799
========= ========= ========= ========= =========
</TABLE>

F-27
<PAGE> 81

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income..................................... $ 137 $ 2,539 $ 679 $(3,218) $ 137
Equity in Earnings of Subsidiaries............. (3,218) -- -- 3,218 --
Other Adjustments and Changes.................. (4,481) 6,238 (68) -- 1,689
--------- --------- ------- ------- ---------
Net Cash Provided (Used) by Operations....... (7,562) 8,777 611 -- 1,826
--------- --------- ------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Assets................... -- 204 193 -- 397
Acquisition of Businesses...................... (1,180) (10,059) -- -- (11,239)
Capital Expenditures for Property, Plant and
Equipment.................................... -- (21,108) (1,305) -- (22,413)
--------- --------- ------- ------- ---------
Net Cash Used by Investing Activities........ (1,180) (30,963) (1,112) -- (33,255)
--------- --------- ------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Long-Term
Debt......................................... 34,000 -- -- -- 34,000
Short-Term Borrowings, Net..................... -- 1,537 528 -- 2,065
(Repayments) Borrowings on Term Debt, Net...... -- (5,988) 487 -- (5,501)
(Increase) Decrease in Amounts Due to and from
Subsidiaries, Net............................ (28,632) 29,181 (549) -- --
Other, Net..................................... (1,924) -- -- -- (1,924)
--------- --------- ------- ------- ---------
Net Cash Provided by Financing Activities.... 3,444 24,730 466 -- 28,640
--------- --------- ------- ------- ---------
Effect of Translation Adjustment on Cash......... -- -- 168 -- 168
--------- --------- ------- ------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents.................................... (5,298) 2,544 133 -- (2,621)
Cash and Cash Equivalents at Beginning
of Year........................................ 6,081 243 337 -- 6,661
--------- --------- ------- ------- ---------
Cash and Cash Equivalents at End of Year......... $ 783 $ 2,787 $ 470 $ -- $ 4,040
========= ========= ======= ======= =========
</TABLE>

A. SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents, Restricted

At December 31, 1993, the Company secured its revolving credit facility
with cash collateral of $5.0 million. Cash collateral was not required for the
revolving credit facility at December 31, 1994.

Reclassifications

Certain reclassifications of prior year balances have been made to conform
such amounts to appropriate 1994 classifications.

Elimination Entries

Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.

F-28
<PAGE> 82

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
B. LONG-TERM DEBT

The Company's summary of scheduled debt maturities by year, description of
debt and other information is disclosed in Note 8.

C. COLEVE TAX MATTER

The Company received a letter from the IRS seeking payment of a tax
liability of approximately $14.1 million plus accrued interest thereon with
respect to COLEVE. See Note 10 for additional information regarding this tax
matter.

D. INSURANCE SETTLEMENT

On September 30, 1994, the Company received net proceeds of $23 million
from its insurance carriers as settlement for the termination of its workover
drilling contract with NIOC. See Note 12 for additional information regarding
this settlement.

E. OTHER

Notes 1 through 16 should be read in conjunction with the Condensed
Consolidating Financial Statements.

F-29
<PAGE> 83

ENERGY VENTURES INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 1995

F-30
<PAGE> 84

ENERGY VENTURES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
JUNE 30,
1995
--------
<S> <C>
(IN
THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents....................................................... $ 2,309
Accounts Receivable, Net of Allowance for Doubtful Accounts of $794,000......... 83,692
Inventories..................................................................... 101,722
Materials and Supplies.......................................................... 8,455
Prepaid Expenses and Other...................................................... 8,716
--------
204,894
--------
PROPERTY, PLANT AND EQUIPMENT, AT COST, NET OF ACCUMULATED DEPRECIATION........... 178,299
EXCESS OF COST OVER FAIR VALUE OF NET TANGIBLE ASSETS OF BUSINESSES ACQUIRED,
NET............................................................................. 32,227
OTHER ASSETS...................................................................... 13,165
--------
$428,585
========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings, Primarily Under Revolving Lines of Credit................ $ 34,016
Current Maturities of Long-Term Debt............................................ 4,556
Accounts Payable................................................................ 50,722
Other Accrued Liabilities....................................................... 24,985
--------
114,279
--------
LONG-TERM DEBT.................................................................... 125,693
DEFERRED INCOME TAXES............................................................. 32,014
OTHER LIABILITIES................................................................. 7,725
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' INVESTMENT:
Common Stock.................................................................... 15,047
Capital in Excess of Par Value.................................................. 88,571
Retained Earnings............................................................... 52,240
Cumulative Foreign Currency Translation Adjustment.............................. (5,430)
Treasury Stock, at Cost......................................................... (1,554)
--------
148,874
--------
$428,585
========
</TABLE>

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

F-31
<PAGE> 85

ENERGY VENTURES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------------- ----------------------
1995 1994 1995 1994
------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES...................................... $79,747 $50,566 $152,407 $105,684
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of Sales............................... 59,651 35,692 112,806 75,883
Selling, General and Administrative
Attributable to Segments................. 11,861 10,173 23,456 20,622
Corporate General and Administrative........ 1,348 1,200 2,604 2,256
------- ------- -------- --------
OPERATING INCOME.............................. 6,887 3,501 13,541 6,923
------- ------- -------- --------
OTHER INCOME (EXPENSE):
Interest Expense, Net....................... (4,196) (3,460) (8,161) (5,845)
Other, Net.................................. 52 154 (7) 453
------- ------- -------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY
CHARGE...................................... 2,743 195 5,373 1,531
PROVISION FOR INCOME TAXES.................... 990 68 1,989 549
------- ------- -------- --------
INCOME BEFORE EXTRAORDINARY CHARGE............ 1,753 127 3,384 982
EXTRAORDINARY CHARGE, NET OF
TAXES....................................... -- -- -- (3,784)
------- ------- -------- --------
NET INCOME (LOSS)............................. $ 1,753 $ 127 $ 3,384 $ (2,802)
======= ======= ======== ========
EARNINGS PER SHARE:
Income Before Extraordinary Charge.......... $ .14 $ .01 $ .27 $ .08
Extraordinary Charge........................ -- -- -- (.30)
------- ------- -------- --------
Net Income (Loss) Per Share................. $ .14 $ .01 $ .27 $ (.22)
======= ======= ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING........... 12,684 12,680 12,672 12,588
======= ======= ======== ========
</TABLE>

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

F-32
<PAGE> 86

ENERGY VENTURES, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
----------------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss).................................................. $ 3,384 $ (2,802)
Adjustments to Reconcile Net Income to Cash Provided (Used) by
Operations:
Depreciation and Amortization................................... 8,697 6,434
Deferred Income Tax Provision (Benefit)......................... 309 (2,594)
Extraordinary Charge on Prepayment of Debt, Net................. -- 3,784
Gain on Sale of Assets.......................................... (39) (92)
Provision for Doubtful Accounts Receivable...................... 170 97
Change in Operating Assets and Liabilities, Net of Effects of
Businesses Acquired............................................ (13,227) (21,747)
-------- --------
Net Cash Used by Operating Activities......................... (706) (16,920)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses, Net of Cash Acquired.................... (4,336) (1,485)
Capital Expenditures for Property, Plant and Equipment............. (11,739) (13,355)
Other, Net......................................................... 701 98
-------- --------
Net Cash Used by Investing Activities........................... (15,374) (14,742)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Long-Term Debt........................... -- 120,000
Borrowings (Repayments) Under Revolving Lines of Credit............ 16,751 (40,228)
Borrowings Under Term Debt......................................... 9 3,181
Repayments on Term Debt............................................ (1,839) (45,074)
Penalty on Early Retirement of Debt................................ -- (4,872)
Debt Issuance Costs................................................ -- (4,155)
Other, Net......................................................... 196 (159)
-------- --------
Net Cash Provided by Financing Activities....................... 15,117 28,693
-------- --------
EFFECT OF TRANSLATION ADJUSTMENT ON CASH............................. 128 (266)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS............................ (835) (3,235)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 3,144 4,799
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 2,309 $ 1,564
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest Paid, Net of Amounts Capitalized.......................... $ 7,740 $ 3,534
Income Taxes Paid.................................................. $ 1,127 $ 1,829
</TABLE>

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

F-33
<PAGE> 87

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL

The unaudited consolidated condensed financial statements included herein
have been prepared by Energy Ventures, Inc. (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission. These financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary for the fair presentation of
such financial statements for the interim periods presented. Although the
Company believes that the disclosures in these financial statements are adequate
to make the interim information presented not misleading, certain information
relating to the Company's organization and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted in this Registration
Statement pursuant to such rules and regulations. These financial statements
should be read in conjunction with the audited financial statements and notes
thereto included elsewhere herein. The results of operations for the three and
six months ended June 30, 1995 are not necessarily indicative of the results
expected for the full year.

2. INVENTORIES

Major components of inventories include:

<TABLE>
<CAPTION>
JUNE 30,
1995
---------
<S> <C>
(IN
THOUSANDS)
Raw materials and components................... $ 47,220
Work in process................................ 19,119
Finished goods................................. 35,383
------
$101,722
======
</TABLE>

3. ACQUISITIONS

On June 30, 1995, the Company acquired Prideco, Inc. ("Prideco") in a
transaction which involved the issuance of approximately 2.25 million shares of
Common Stock. The acquisition is expected to provide the Company with greater
manufacturing and marketing efficiencies by allowing for a consolidation of
overhead, reduced distribution and marketing costs and a rationalization of
manufacturing operations.

The Prideco acquisition was accounted for using the purchase method of
accounting. Accordingly, the respective assets and liabilities have been
recorded at their estimated fair values at the date of acquisition. The
allocation of the purchase price is based on the best estimates of the Company
using information currently available. Certain adjustments relating to the
acquisition are subject to change based upon final appraisals and determination
of the fair values of the assets acquired and liabilities assumed.

F-34
<PAGE> 88

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents selected consolidated financial information
for the Company on a pro forma basis assuming that the Prideco acquisition had
occurred on January 1, 1994. The pro forma information is not necessarily
indicative of the results that might have occurred had such transaction actually
taken place at the beginning of the period specified and is not intended to be a
projection of future results.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------------
1995 1994
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues....................................................... $181,955 $130,648
Income Before Extraordinary Charge............................. $ 4,547 $ 2,114
Net Income (Loss).............................................. $ 4,547 $ (1,670)
Earnings Per Share From Continuing Operations.................. $ .30 $ .14
Net Income (Loss) Per Share.................................... $ .30 $ (.11)
</TABLE>

4. LONG-TERM DEBT

On March 24, 1994, the Company sold pursuant to a private placement $120
million of 10.25% Senior Notes due 2004. In July 1994, substantially all of
these notes were exchanged for a substantially identical series of 10.25% Senior
Notes due 2004 with semi-annual interest payments in March and September. Both
issues of Senior Notes were issued pursuant to the terms of an Indenture dated
as of March 15, 1994. Certain subsidiaries of the Company have unconditionally
guaranteed the Company's obligations under the Senior Notes. See Note 7. The
placement of the $120 million Senior Notes provided the Company with $116
million in net proceeds that were used to prepay the $34 million 12.25% senior
notes due 1997 and to repay substantially all of the Company's outstanding
indebtedness other than the Senior Notes. The remaining funds were used for
working capital and other general purposes. In connection with the early
retirement, the Company incurred in the first quarter of 1994 an extraordinary
charge of approximately $3.8 million, net of taxes of approximately $1.9
million, or $.30 per share. The extraordinary charge represented the difference
between the reacquisition price and the net carrying value of the $34 million
senior notes, including unamortized debt issuance costs.

Accrued interest payable, which is included in Other Accrued Liabilities in
the financial statements, was approximately $3.7 million at June 30, 1995.

5. CONTINGENCIES

In August of 1994, the Company received a letter from the IRS proposing to
increase the gain recognized by the Company upon the dissolution in October 1990
of the Company's joint venture ("COLEVE") with Columbia Gas and Development
Corporation. In general, the IRS' proposal seeks payment of a tax liability of
approximately $14.1 million plus accrued interest thereon, and includes $3.4
million of taxes relating to the proposed disallowance of certain interest
deductions taken by the Company with respect to COLEVE that was the subject of a
similar letter received by the Company in the fourth quarter of 1993. The tax
liability with respect to these matters has been previously provided for as a
deferred tax liability in the Company's financial statements. The Company
disagrees with the IRS' position and is currently pursuing its rights of
administrative review and appeal and intends to vigorously contest this matter.
Although the resolution of this matter could affect the timing of the payment of
previously accrued tax liabilities and require the use of a portion of its
available capital, the Company does not believe that the results of the audit or
the ultimate resolution of the IRS' proposed adjustments will have a material
impact on its results of operations or financial position.

F-35
<PAGE> 89

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

6. RECLASSIFICATIONS

Certain reclassifications of prior period balances have been made to
conform such amounts to appropriate June 30, 1995 classifications.

7. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The $120 million Senior Notes which are described in Note 4 are
unconditionally guaranteed on a joint and several basis, by certain subsidiaries
of the Company. Accordingly, the following condensed consolidating balance sheet
as of June 30, 1995 and the related condensed consolidating statements of income
for the three and six month periods ended June 30, 1995 and 1994, and cash flows
for the six month period ended June 30, 1995 and 1994 have been provided. The
condensed consolidating financial statements herein are followed by notes which
are an integral part of these statements.

CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents.................... $ 156 $ 808 $ 1,345 $ -- $ 2,309
Other Current Assets......................... 1,852 170,962 29,771 -- 202,585
-------- -------- ------- --------- --------
2,008 171,770 31,116 -- 204,894
-------- -------- ------- --------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST, NET OF
ACCUMULATED DEPRECIATION..................... 191 165,453 12,655 -- 178,299
INTERCOMPANY AND INVESTMENT IN SUBSIDIARIES,
NET.......................................... 263,922 (159,997) 16,373 (120,298) --
OTHER ASSETS................................... 4,468 39,890 1,034 -- 45,392
-------- -------- ------- --------- --------
$270,589 $217,116 $61,178 $(120,298) $428,585
======== ======== ======= ========= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-Term Borrowings........................ $ -- $ 29,862 $ 4,154 $ -- $ 34,016
Current Maturities of Long-Term Debt......... -- 3,619 937 -- 4,556
Accounts Payable and Other Accrued
Liabilities................................ 2,905 63,592 9,210 -- 75,707
-------- -------- ------- --------- --------
2,905 97,073 14,301 -- 114,279
-------- -------- ------- --------- --------
LONG-TERM DEBT................................. 120,000 4,020 1,673 -- 125,693
DEFERRED TAXES, NET............................ (1,805) 18,213 15,606 -- 32,014
OTHER LIABILITIES.............................. 615 5,841 1,269 -- 7,725
-------- -------- ------- --------- --------
STOCKHOLDERS' INVESTMENT....................... 148,874 91,969 28,329 (120,298) 148,874
-------- -------- ------- --------- --------
$270,589 $217,116 $61,178 $(120,298) $428,585
======== ======== ======= ========= ========
</TABLE>

F-36
<PAGE> 90

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

7. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES.......................................... $ -- $126,450 $25,957 $ -- $152,407
COSTS AND EXPENSES................................ 2,604 114,763 21,499 -- 138,866
------- -------- ------- -------- --------
OPERATING INCOME (LOSS)........................... (2,604) 11,687 4,458 -- 13,541
------- -------- ------- -------- --------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net.................. (4,231) (3,954) 24 -- (8,161)
Equity in Subsidiaries, Net of Taxes............ 8,113 -- -- (8,113) --
Other, Net...................................... 33 298 (338) -- (7)
------- -------- ------- -------- --------
INCOME BEFORE INCOME TAXES........................ 1,311 8,031 4,144 (8,113) 5,373
PROVISION (BENEFIT) FOR INCOME TAXES.............. (2,073) 2,307 1,755 -- 1,989
------- -------- ------- -------- --------
NET INCOME (LOSS)................................. $ 3,384 $ 5,724 $ 2,389 $(8,113) $ 3,384
======= ======== ======= ======== ========
</TABLE>

CONDENSED CONSOLIDATING STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES.......................................... $ -- $ 89,551 $16,133 $ -- $105,684
COSTS AND EXPENSES................................ 2,256 82,236 14,269 -- 98,761
------- -------- ------- -------- --------
OPERATING INCOME (LOSS)........................... (2,256) 7,315 1,864 -- 6,923
------- -------- ------- -------- --------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net.................. (1,960) (3,855) 117 -- (5,698)
Equity in Subsidiaries, Net of Taxes............ 3,810 -- -- (3,810) --
Other, Net...................................... (75) 163 218 -- 306
------- -------- ------- -------- --------
INCOME BEFORE INCOME TAXES........................ (481) 3,623 2,199 (3,810) 1,531
PROVISION (BENEFIT) FOR INCOME TAXES.............. (1,463) 1,304 708 -- 549
------- -------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS................. 982 2,319 1,491 (3,810) 982
EXTRAORDINARY CHARGE, NET OF TAXES................ (3,784) -- -- -- (3,784)
------- -------- ------- -------- --------
NET INCOME (LOSS)................................. $(2,802) $ 2,319 $ 1,491 $(3,810) $ (2,802)
======= ======== ======= ======== ========
</TABLE>

F-37
<PAGE> 91

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

7. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES......................................... $ -- $66,037 $13,710 $ -- $79,747
COSTS AND EXPENSES............................... 1,348 60,226 11,286 -- 72,860
------- -------- ------- -------- --------
OPERATING INCOME (LOSS).......................... (1,348) 5,811 2,424 -- 6,887
------- -------- ------- -------- --------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net................. (2,098) (2,027) (71) -- (4,196)
Equity in Subsidiaries, Net of Taxes........... 4,031 -- -- (4,031) --
Other, Net..................................... 30 140 (118) -- 52
------- -------- ------- -------- --------
INCOME BEFORE INCOME TAXES....................... 615 3,924 2,235 (4,031) 2,743
PROVISION (BENEFIT) FOR INCOME TAXES............. (1,138) 836 1,292 -- 990
------- -------- ------- -------- --------
NET INCOME (LOSS)................................ $ 1,753 $ 3,088 $ 943 $(4,031) $ 1,753
======= ======== ======= ======== ========
</TABLE>

CONDENSED CONSOLIDATING STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
REVENUES............................................ $ -- $43,055 $ 7,511 $ -- $50,566
COSTS AND EXPENSES.................................. 1,200 39,154 6,711 -- 47,065
------- -------- ------- -------- --------
OPERATING INCOME (LOSS)............................. (1,200) 3,901 800 -- 3,501
------- -------- ------- -------- --------
OTHER INCOME (EXPENSE)
Interest Income (Expense), Net.................... (1,736) (1,738) 104 -- (3,370)
Equity in Subsidiaries, Net of Taxes.............. 2,106 -- -- (2,106) --
Other, Net........................................ (64) 121 7 -- 64
------- -------- ------- -------- --------
INCOME BEFORE INCOME TAXES.......................... (894) 2,284 911 (2,106) 195
PROVISION (BENEFIT) FOR INCOME TAXES................ (1,021) 802 287 -- 68
------- -------- ------- -------- --------
INCOME FROM CONTINUING OPERATIONS................... 127 1,482 624 (2,106) 127
EXTRAORDINARY CHARGE, NET OF TAXES.................. -- -- -- -- --
------- -------- ------- -------- --------
NET INCOME (LOSS)................................... $ 127 $ 1,482 $ 624 $(2,106) $ 127
======= ======== ======= ======== ========
</TABLE>

F-38
<PAGE> 92

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

7. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1995
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------ ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................... $ 3,384 $ 5,724 $ 2,389 $(8,113) $ 3,384
Equity in Earnings of Subsidiaries......... (8,113) -- -- 8,113 --
Other Adjustments and Changes.............. (2,932) (1,035) (123) -- (4,090)
--------- --------- ------- --------- ---------
Net Cash Provided (Used) by
Operations............................ (7,661) 4,689 2,266 -- (706)
--------- --------- ------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses.................... -- (4,336) -- -- (4,336)
Proceeds from Sale of Business and Assets.... -- 626 75 -- 701
Capital Expenditures for Property, Plant and
Equipment.................................. (5) (9,552) (2,182) -- (11,739)
--------- --------- ------- --------- ---------
Net Cash Used by Investing Activities...... (5) (13,262) (2,107) -- (15,374)
--------- --------- ------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-Term Borrowings, Net................... -- 16,235 516 -- 16,751
Repayments on Term Debt, Net................. -- (1,483) (347) -- (1,830)
(Increase) Decrease in Amounts Due to and
from Subsidiaries, Net..................... 7,460 (7,004) (456) -- --
Other, Net................................... 196 -- -- -- 196
--------- --------- ------- --------- ---------
Net Cash Provided (Used) by Financing
Activities............................... 7,656 7,748 (287) -- 15,117
--------- --------- ------- --------- ---------
Effect of Translation Adjustment
on Cash...................................... -- 40 88 -- 128
--------- --------- ------- --------- ---------
Net Decrease in Cash and Cash Equivalents...... (10) (785) (40) -- (835)
Cash and Cash Equivalents at Beginning
of Period.................................... 166 1,593 1,385 -- 3,144
--------- --------- ------- --------- ---------
Cash and Cash Equivalents at End of Period..... $ 156 $ 808 $ 1,345 $ -- $ 2,309
========= ========= ======= ========= =========
</TABLE>

F-39
<PAGE> 93

ENERGY VENTURES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)

7. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1994
(IN THOUSANDS)

<TABLE>
<CAPTION>
NON-
PARENT GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)........................... $ (2,802) $ 2,319 $ 1,491 $(3,810) $ (2,802)
Equity in Earnings of Subsidiaries........ (3,810) -- -- 3,810 --
Other Adjustments and Changes............. 4,517 (20,126) 1,491 -- (14,118)
--------- --------- ------- --------- ---------
Net Cash Provided (Used) by
Operations........................... (2,095) (17,807) 2,982 -- (16,920)
--------- --------- ------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Businesses................... -- 15 (1,500) -- (1,485)
Capital Expenditures for Property, Plant and
Equipment................................. (9) (10,726) (2,620) -- (13,355)
Other, Net.................................. -- 80 18 -- 98
--------- --------- ------- --------- ---------
Net Cash Used by Investing Activities..... (9) (10,631) (4,102) -- (14,742)
--------- --------- ------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-Term Borrowings, Net.................. -- (37,207) (3,021) -- (40,228)
Borrowings of Debt.......................... 120,000 2,654 527 -- 123,181
Repayments of Debt.......................... (34,000) (9,117) (1,957) -- (45,074)
(Increase) Decrease in Amounts Due to and
from Subsidiaries, Net.................... (76,081) 70,676 5,405 -- --
Other, Net.................................. (9,186) -- -- -- (9,186)
--------- --------- ------- --------- ---------
Net Cash Provided by Financing
Activities.............................. 733 27,006 954 -- 28,693
--------- --------- ------- --------- ---------
Effect of Translation Adjustment on Cash...... -- -- (266) -- (266)
--------- --------- ------- --------- ---------
Net Decrease in Cash and Cash Equivalents..... (1,371) (1,432) (432) -- (3,235)
Cash and Cash Equivalents at Beginning
of Period................................... 1,444 2,200 1,155 -- 4,799
--------- --------- ------- --------- ---------
Cash and Cash Equivalents at End of Period.... $ 73 $ 768 $ 723 $ -- $ 1,564
========= ========= ======= ========= =========
</TABLE>

A. SIGNIFICANT ACCOUNTING POLICIES

Reclassifications

Certain reclassifications of prior year balances have been made to conform
such amounts to appropriate 1995 classifications.

Elimination Entries

Revenues and related Cost of Sales by individual category have been
presented net of intercompany transactions.

B. OTHER

Notes 1 through 6 should be read in conjunction with the Condensed
Consolidating Financial Statements.

F-40
<PAGE> 94

<TABLE>
<S> <C>
------------------------------------------------------ ------------------------------------------------------
------------------------------------------------------ ------------------------------------------------------

No dealer, salesperson, or other person has been 2,600,000 SHARES
authorized to give any information or to make any
representations in connection with this offering
other than those contained or incorporated by reference
in this Prospectus, and, if given or made, such other
information or representations must not be relied
on as having been authorized by the Company or the
Underwriters. This Prospectus does not constitute an ENERGY VENTURES, INC.
offer to sell or a solicitation of an offer to buy any
securities other than the registered securities to
which it relates in any state to any person to whom
it is unlawful to make such offer or solicitation in such
state. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances,
create any implication that there has been no change
in the affairs of the Company since the date hereof or COMMON STOCK
that the information contained or incorporated by
reference herein is correct as of any time subsequent
to its date.
--------------------------
--------------------------- PROSPECTUS
, 1995
TABLE OF CONTENTS ---------------------------
</TABLE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
Available Information.................. 2
Incorporation of Certain Documents by
Reference............................ 3
Prospectus Summary..................... 4
Risk Factors........................... 9
The Company............................ 11
Recent Developments.................... 11
Use of Proceeds........................ 12
Price Range of Common Stock and
Dividend Policy...................... 13
Capitalization......................... 14
Pro Forma Condensed Consolidated
Statements of Income................. 15
Selected Consolidated Financial Data... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 20
Business............................... 29
Management............................. 47
Principal Stockholders................. 49
Description of Capital Stock........... 49
Underwriting........................... 51 LEHMAN BROTHERS
Experts................................ 52
Legal Matters.......................... 52 DONALDSON, LUFKIN & JENRETTE
Index to Consolidated Financial SECURITIES CORPORATION
Statements........................... F-1

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated expenses in connection with
the offering described in this Registration Statement:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 20,044
NASD Filing Fee........................................................... 6,181
Legal fees and expenses of all counsel.................................... 130,000
Blue Sky filing fees and expenses......................................... 10,000
Fees and expenses of transfer agent....................................... 5,000
Printing and engraving expenses........................................... 80,000
Accounting fees........................................................... 130,000
Miscellaneous............................................................. 68,775
--------
Total........................................................... $450,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Delaware law, a corporation may include provisions in its certificate
of incorporation that will relieve its directors of monetary liability for
breaches of their fiduciary duty to the corporation, except under certain
circumstances, including a breach of the director's duty of loyalty, acts or
omissions of the director not in good faith or which involve intentional
misconduct or a knowing violation of law, the approval of an improper payment of
a dividend or an improper purchase by the corporation of stock or any
transaction from which the director derived an improper personal benefit. The
Company's Certificate of Incorporation provides that the Company's directors are
not liable to the Company or its stockholders for monetary damages for breach of
their fiduciary duty, subject to the described exceptions specified by Delaware
law.

Section 145 of the Delaware General Law grants to the Company the power to
indemnify each officer and director of the Company against liabilities and
expenses incurred by reason of the fact that he is or was an officer or director
of the Company if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The By-laws of the Company provide for indemnification of
each officer and director of the Company to the fullest extent permitted by
Delaware law. Messrs. David J. Butters, Eliot M. Fried and Robert B. Millard,
employees of Lehman Brothers Inc. ("Lehman Brothers"), constitute three of the
eight members of the Board of Directors of the Company. Under the restated
certificate of incorporation, as amended to date, of Lehman Brothers and its
parent Lehman Brothers Holdings Inc. ("Holdings"), both Delaware corporations,
Messrs. Butters, Fried and Millard, in their capacity as directors of the
Company, are to be indemnified by Lehman Brothers and Holdings to the fullest
extent permitted by Delaware law. Messrs. Butters, Fried and Millard are serving
as directors of the Company at the request of Lehman Brothers and Holdings.

Section 145 of the Delaware General Corporation Law also empowers the
Company to purchase and maintain insurance on behalf of any person who is or was
an officer or director of the Company against liability asserted against or
incurred by him in any such capacity, whether or not the Company would have the
power to indemnify such officer or director against such liability under the
provisions of Section 145. The Company has purchased and maintains a directors'
and officers' liability policy for such purposes. Messrs. Butters, Fired and
Millard are insured against certain liabilities which they may incur in their
capacity as directors pursuant to insurance maintained by Holdings.

II-1
<PAGE> 96

ITEM 16. EXHIBITS

<TABLE>
<C> <S>
*1.1 -- Form of Underwriting Agreement.
4.1 -- Certificate of Incorporation of the Company, as amended through May
22, 1991 (incorporated by reference to Exhibit No. 4.1 to the
Registration Statement on Form S-3; Registration No. 33-40833).
4.2 -- By-laws as amended (incorporated by reference to Exhibit No. 3.2 to
Form 10-K, File 0-7265, filed March 1, 1994).
4.3 -- Indenture by and among the Company, certain subsidiaries of the
Company and Chemical Bank, as trustee, dated March 15, 1994
(incorporated by reference to the Current Report on Form 8-K, File
0-7265, filed April 5, 1994).
*4.4 -- First Supplemental Indenture by and among the Company, Prideco and
Chemical Bank, as trustee, dated as of June 30, 1995.
4.5 -- Specimen 10 1/4% Senior Note due 2004 of the Company (incorporated by
reference to the Current Report on Form 8-K, File 0-7265, filed April
5, 1994).
5.1 -- Opinion of Fulbright & Jaworski L.L.P.
23.1 -- Consent of Fulbright & Jaworski L.L.P. (to be included in Exhibit
5.1).
*23.2 -- Consent of Arthur Andersen LLP.
*23.3 -- Consent of Arthur Andersen LLP, with respect to financial statements
of Prideco, Inc.
*24.1 -- Powers of Attorney (included on Page II-4 hereof).
</TABLE>

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

* Filed herewith.

As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Company has
not filed with this Registration Statement certain instruments defining the
rights of holders of long-term debt of the Company and its subsidiaries because
the total amount of securities authorized under any of such instruments does not
exceed 10% of the total assets of the Company and its subsidiaries on a
consolidated basis. The Company agrees to furnish a copy of any such agreements
to the Securities and Exchange Commission upon request.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933 (the "Securities
Act"), each filing of the registrant's annual report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act")
(and, where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-2
<PAGE> 97

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 98

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on August 17, 1995.

ENERGY VENTURES, INC.

By: /s/ BERNARD J. DUROC-DANNER
Bernard J. Duroc-Danner
President, Chief Executive
Officer and Director
(Principal Executive Officer)

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Bernard J. Duroc-Danner, John C. Coble
and James G. Kiley, or any of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same and all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting said
attorney-in-fact and agent, and any of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------- --------------------------- ------------------
<S> <C> <C>
/s/ BERNARD J. DUROC-DANNER President, Chief Executive August 17, 1995
Bernard J. Duroc-Danner Officer and Director
(Principal Executive
Officer)

/s/ JAMES G. KILEY Vice President, Finance and August 17, 1995
James G. Kiley Treasurer (Principal
Financial Officer)

/s/ FRANCES R. POWELL Vice President, Accounting August 17, 1995
Frances R. Powell and Controller (Principal
Accounting Officer)

/s/ DAVID J. BUTTERS Director and Chairman of the August 17, 1995
David J. Butters Board

/s/ URIEL E. DUTTON Director August 17, 1995
Uriel E. Dutton
</TABLE>

II-4
<PAGE> 99

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------------------------------------------- ---------------- --------------------

<S> <C> <C>
/s/ ELIOT M. FRIED Director August 17, 1995
Eliot M. Fried

/s/ SHELDON S. GORDON Director August 17, 1995
Sheldon S. Gordon

/s/ SHELDON B. LUBAR Director August 17, 1995
Sheldon B. Lubar

/s/ ROBERT B. MILLARD Director August 17, 1995
Robert B. Millard

/s/ ROBERT A. RAYNE Director August 17, 1995
Robert A. Rayne
</TABLE>

II-5
<PAGE> 100

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C>
1.1 -- Form of Underwriting Agreement.
4.4 -- First Supplemental Indenture by and among the Company, Prideco and
Chemical Bank, as trustee, dated as of June 30, 1995.
23.2 -- Consent of Arthur Andersen LLP.
23.3 -- Consent of Arthur Andersen LLP, with respect to financial statements
of Prideco, Inc.

</TABLE>

<PAGE> 1

Draft of August 17, 1995

2,600,000 Shares

ENERGY VENTURES, INC.

Common Stock

UNDERWRITING AGREEMENT

September ___, 1995

LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
c/o Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285

Dear Sirs:

Energy Ventures, Inc., a Delaware corporation (the "Company"),
proposes, upon the terms and conditions set forth herein, to issue and sell to
the several underwriters named in Schedule I hereto (the "Underwriters") on
whose behalf you are acting as representatives (the "Representatives")
2,600,000 shares (the "Firm Shares") of common stock, par value $1.00 per share
(the "Common Stock"), of the Company. In addition, for the sole purpose of
covering overallotments in connection with the sale of the Firm Shares, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional 390,000 newly issued shares (the "Option Shares") of the Common
Stock. The Firm Shares and any Option Shares purchased pursuant to this
Underwriting Agreement (this "Agreement") are herein called the "Shares."

This is to confirm the agreement concerning the purchase of
the Shares from the Company by the Underwriters.

1. Representations, Warranties and Agreements of the
Company. The Company represents and warrants to, and agrees with, each
Underwriter that:

(a) A registration statement on Form S-3
(File No. 33-________) with respect to the Shares (i) has been prepared by the
Company in conformity with the requirements of

<PAGE> 2

the Securities Act of 1933, as amended (the "Securities Act"), and the rules
and regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, (ii) has been filed with the
Commission under the Securities Act and (iii) either has become effective under
the Securities Act and is not proposed to be amended or is proposed to be
amended by amendment or post-effective amendment. If the Company does not
propose to amend such Registration Statement and if any post-effective
amendment to such registration statement has been filed with the Commission
prior to the execution and delivery of this Agreement, the most recent such
amendment has been declared effective by the Commission. Copies of such
registration statement as amended to date have been delivered by the Company to
you. For purposes of this Agreement, "Effective Time" means the date and the
time as of which such registration statement, or the most recent post-effective
amendment thereto, if any, was declared effective by the Commission; "Effective
Date" means the date of the Effective Time; "Preliminary Prospectus" means each
prospectus included in such registration statement, or amendments thereof,
before it became effective under the Securities Act and any prospectus filed
with the Commission by the Company with the consent of the Representatives
pursuant to Rule 424(a) of the Rules and Regulations; "Registration Statement"
means such registration statement, as amended at the Effective Time, including
any documents incorporated by reference therein and, if the Effective Date is
on or before the date of this Agreement, all information contained in the final
prospectus filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations ("Rule 424(b)") in accordance with Section 5(a) hereof and deemed
to be a part thereof as of the Effective Time pursuant to paragraph (b) of Rule
430A of the Rules and Regulations; and "Prospectus" means the form of
prospectus relating to the Shares, as first used to confirm sales of the
Shares.

Reference made herein to any Preliminary Prospectus
or the Prospectus shall be deemed to refer to and include any documents
incorporated by reference therein as of the date of such Preliminary Prospectus
or Prospectus, as the case may be, and any reference to any amendment or
supplement to any Preliminary Prospectus or the Prospectus shall be deemed to
refer to and include any documents filed under the Securities Exchange Act of
1934 (the "Exchange Act") after the date of such Preliminary Prospectus or
Prospectus, as the case may be, and incorporated by reference in such
Preliminary Prospectus or Prospectus. The Commission has not issued any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus.

(b) If the Effective Date is on or
before the date of this Agreement, (i) the Registration Statement conforms, and
the Prospectus and any further amendments or supplements to the Registration
Statement or the Prospectus will, when they become effective or are first used
to confirm sales of the Shares, as the case may be, conform to the requirements
of the Securities Act and the Rules and Regulations, (ii) the Registration
Statement and any amendment thereto does not and will not, as of the applicable
effective date, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) the Prospectus and any amendment or
supplement thereto will not, as of the first date of its use to confirm sales
of the Shares, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. If the Effective Date is after the date of this
Agreement, (i) the Registration Statement and the Prospectus

-2-

<PAGE> 3

and any further amendments or supplements thereto will, when they become
effective or are first used to confirm sales of the Shares, as the case may be,
conform to the requirements of the Securities Act and the Rules and
Regulations, (ii) the Registration Statement and any amendment thereto will
not, as of the applicable effective date, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading and (iii) the
Prospectus and any amendment or supplement thereto will not, as of the date on
which the Prospectus and any amendment or supplement thereto is first used to
confirm sales of the Shares, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Notwithstanding the foregoing, the Company
makes no representation or warranty as to information contained in or omitted
from the Registration Statement or the Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by you, or by any
of the Underwriters through you, specifically for inclusion therein. There is
no contract or document required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration Statement or
to a document incorporated by reference into the Registration Statement which
is not described or filed as required.

(c) The Company is a corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware with full corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Prospectus, and is duly
registered and qualified to do business and is in good standing as a foreign
corporation in each jurisdiction, domestic or foreign, in which such
registration or qualification or good standing is required to conduct its
business (whether by reason of the ownership or leasing of property, the
conduct of its business or otherwise), except where the failure to so register
or qualify or be in good standing would not have a material adverse effect on
the business, financial condition or results of operations of the Company and
the Subsidiaries (as hereinafter defined), taken as a whole (a "Material
Adverse Effect").

(d) Schedule II hereto is a complete and
accurate schedule of (A) the names of all corporations, partnerships and joint
ventures (the "Subsidiaries") in which the Company has a majority equity
interest and which would be required to be listed on Exhibit 21 to an Annual
Report on Form 10-K of the Company if such report were dated and filed with the
Commission at the time of execution and delivery of this Agreement and (B)
information indicating the jurisdiction of incorporation of each such entity.
Each Subsidiary that is a corporation is duly organized, validly existing and
in good standing in the jurisdiction of its incorporation indicated on Schedule
II hereto, with full corporate power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectus, and
is duly registered and qualified to do business and is in good standing as a
foreign corporation, in each jurisdiction, domestic or foreign, in which such
registration or qualification or good standing is required to conduct its
business (whether by reason of the ownership or leasing of property, the
conduct of its business or otherwise), except where the failure so to register
or qualify or be in good standing would not have a Material Adverse Effect.
Each Subsidiary that is not a corporation is duly organized, validly existing
and in good standing in the jurisdiction of its organization indicated on
Schedule II hereto, with full authority to own, lease and operate its
properties and conduct its business as described in the Prospectus, and is duly

-3-

<PAGE> 4
registered or qualified to do business and is in good standing in each
jurisdiction, domestic or foreign, in which such registration or qualification
or good standing is required to conduct its business (whether by reason of the
ownership or leasing of property, the conduct of its business or otherwise),
except where the failure so to register or qualify or be in good standing would
not have a Material Adverse Effect. All the outstanding shares of capital
stock of each of the Subsidiaries that is a corporation have been duly
authorized and validly issued, are fully paid and nonassessable; all of the
outstanding partnership interests of each of the Subsidiaries that is a
partnership have been duly authorized by the partnership agreement of such
Subsidiary and are validly issued in accordance with such partnershp agreement
and are fully paid (to the extent required); and all of such shares of capital
stock or partnership interests are owned by the Company directly, or
indirectly through one of the other Subsidiaries, free and clear of any lien,
adverse claim, security interest or other encumbrance except as set forth on
Schedule II hereto.

(e) The authorized and outstanding
capital stock of the Company is as set forth in the Prospectus. All corporate
action required to be taken by the Company for the authorization, issuance,
sale, and delivery of the Shares has been validly and sufficiently taken. All
of the outstanding shares of Common Stock are, and the Shares, upon issuance
and delivery and payment therefor in the manner herein described, will be, duly
authorized, validly issued, fully paid, and nonassessable. Except as described
or referred to in the Prospectus: (i) there are no preemptive rights or other
rights to subscribe for or to purchase any shares of Common Stock, or any
restriction upon the voting or transfer of the Shares, pursuant to the
Company's certificate of incorporation, bylaws, or other governing documents or
any agreement or other instrument to which the Company or any of the
Subsidiaries is a party or by which any of them is bound; and (ii) there are no
outstanding options, warrants or rights to purchase any shares of capital stock
of the Company or any securities convertible into or exercisable or
exchangeable for any shares of the capital stock of the Company. Neither the
filing of the Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement give rise to any rights, other than those which
have been waived or satisfied, for or relating to the registration of shares of
Common Stock or other securities of the Company. The Common Stock conforms to
the description thereof contained under the caption "Description of Capital
Stock" in the Prospectus.

(f) The Company has all requisite
corporate power and authority to execute and deliver this Agreement and to
incur and perform each of its obligations provided herein. This Agreement
has been duly and validly authorized, executed and delivered by the Company and
constitutes a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except (A) as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other laws relating to or affecting creditors' rights
generally, (B) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to certain equitable defenses and to
the discretion of the court before which any proceedings therefor may be
brought and (C) as rights to indemnity and contribution hereunder may be
limited by applicable securities laws or the policies underlying such laws.

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<PAGE> 5

(g) Neither the Company nor any of the
Subsidiaries is in violation of its certificate or articles of incorporation or
by-laws or other organizational documents. Neither the Company nor any of the
Subsidiaries is in violation of any law, ordinance, administrative or
governmental rule or regulation applicable to the Company or any of the
Subsidiaries or of any judgment, order or decree of any court or governmental
agency or body or of any arbitrator having jurisdiction over the Company or any
of the Subsidiaries, or in default in the performance of any obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any agreement, indenture, lease or other
instrument to which the Company or any of the Subsidiaries is a party or by
which any of them or any of their respective properties may be bound, which
violations or defaults would, either individually or in the aggregate, have a
Material Adverse Effect.

(h) Neither the issuance and sale of the
Shares, the execution, delivery or performance of this Agreement by the
Company, nor the consummation by the Company of the transactions contemplated
hereby (A) requires any consent, approval, authorization or other order of or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency or official (except such as may be required
under the Securities Act or the Rules and Regulations or for the compliance
with the securities or the Blue Sky laws of various jurisdictions), or
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, the certificate or articles of incorporation or bylaws or
other organizational documents of the Company or any of the Subsidiaries or (B)
conflicts or will conflict with or constitutes or will constitute a breach of,
or a default under, any agreement, indenture, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by which any of them
or any of their respective properties may be bound, or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries pursuant to the terms of any
agreement or instrument to which any of them is a party or by which any of them
may be bound or to which any of the property or assets of any of them is
subject which conflict, default, violation, creation or imposition would, for
purposes of this clause (B) only, either individually or in the aggregate, have
a Material Adverse Effect.

(i) There is no action, suit or
proceeding before or by any court or governmental agency or body, domestic or
foreign, now pending or, to the knowledge of the Company or the Subsidiaries,
threatened against the Company or the Subsidiaries which, considered singly or
in the aggregate, may reasonably be expected to result in any material adverse
change in the business, financial condition or results of operations of the
Company and its Subsidiaries, taken as a whole (a "Material Adverse Change"),
or may reasonably be expected to materially adversely affect the consummation
of this Agreement or the issuance of the Shares.

(j) The historical consolidated
financial statements of the Company included or incorporated by reference in
the Preliminary Prospectus and the Prospectus present fairly the consolidated
financial position, the results of operations and the cash flows of the Company
and the Subsidiaries at the respective dates and for the respective periods to
which they apply; and such financial statements and related schedules and notes
have been prepared in conformity with generally accepted accounting principles
consistently applied throughout such periods, except as disclosed

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<PAGE> 6

therein. The information (other than pro forma information) set forth under
the caption "Selected Consolidated Financial Data" in the Preliminary
Prospectus and the Prospectus is fairly stated in all material respects in
relation to the financial statements from which it has been derived. The pro
forma financial information set forth in the Preliminary Prospectus and the
Prospectus complies in all material respects with the applicable accounting
requirements of Article 11 of Regulation S-X promulgated by the Commission.

(k) Arthur Andersen LLP, who have
certified the financial statements included in the Preliminary Prospectus and
the Prospectus (or any amendment or supplement thereto), are independent public
accountants within the meaning of the Securities Act and the Rules and
Regulations thereunder.

(l) Since the respective dates as of
which information is given in the Prospectus, except as otherwise stated
therein, (A) there has been no Material Adverse Change and no development that
could reasonably be expected to have a Material Adverse Change, (B) there have
not been any transactions entered into by the Company or any of the
Subsidiaries, other than those in the ordinary course of business, which are
material to the Company and its Subsidiaries taken as a whole, (C) there has
been no dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock and (D) there has not been any
material change in the capital stock, or material increase in the long-term
debt, of the Company and the Subsidiaries taken as a whole.

(m) Each of the Company and the
Subsidiaries has such material permits, licenses, franchises and authorizations
of governmental or regulatory authorities ("permits") as are necessary to own
its respective properties and to conduct its business in the manner described
in the Prospectus, subject in each case to such qualifications as may be set
forth in the Prospectus and except where the failure to have such permits would
not have a Material Adverse Effect; each of the Company and the Subsidiaries
has fulfilled and performed all its material obligations with respect to such
permits and no event has occurred which allows, or after notice or lapse of
time would allow, revocation or termination thereof or results in any other
material impairment of the rights of the holder of any such permits, subject in
each case to such qualifications as may be set forth in the Prospectus and
except where the failure so to fulfill or perform or the occurrence of such an
event would not have a Material Adverse Effect; and except as described in the
Prospectus, none of such permits contains any restriction that is materially
burdensome to the Company and the Subsidiaries taken as a whole.

(n) The Company is not an "investment
company", or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended (the "1940 Act"), and
is not subject to regulation as an "investment company" under the 1940 Act.

(o) The Company and each of the
Subsidiaries have filed all tax returns required to be filed (taking into
consideration any extension periods), which returns are complete and correct in
all material respects, and neither the Company nor any Subsidiary is in
default in the

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<PAGE> 7

payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto (taking into consideration any extension
periods), except to the extent the failure to file such return or pay such
tax would not have a Material Adverse Effect.

(p) The Company and the Subsidiaries
have good and marketable title to all properties owned by them, in each case
free and clear of all liens, encumbrances and defects except (a) as do not
materially interfere with the use made and proposed to be made of such
properties, (b) as described in the Prospectus or (c) where the failure to have
good title to such properties would not have a Material Adverse Effect.

(q) The Company has complied and will
comply with all of the provisions of Florida H.B. 1771, codified as Section
526.075 of the Florida statutes, and all regulations promulgated thereunder
relating to issuers doing business with Cuba.

(r) The outstanding shares of Common
Stock are, and the Shares will be, listed on the New York Stock Exchange (the
"NYSE").

(s) The Company has not taken and will
not take, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of shares of the Common Stock to
facilitate the sale or resale of the Shares.

(t) The conditions for use of Form S-3,
set forth in the General Instructions thereto, have been satisfied.

(u) The documents incorporated by
reference into the Registration Statement, at the time they were filed with the
Commission, complied in all material respects with the requirements of the
Exchange Act and the Rules and Regulations thereunder, and any document
hereafter filed that is incorporated by reference into the Registration
Statement will, when it is filed with the Commission, comply in all material
respects with the requirements of the Exchange Act and the Rules and
Regulations thereunder, and will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.

(v) Any certificate signed by any
officer of the Company and delivered, pursuant to this Agreement or in
connection with the payment of the purchase price and delivery of the
certificates for the Shares, to the Underwriters or counsel to the Underwriters
shall be deemed a representation and warranty by the Company to each of the
Underwriters as to the matters covered thereby.

2. Purchase of the Shares by the Underwriters. (a) Subject
to the terms and conditions and upon the basis of the representations and
warranties herein set forth, the Company agrees to issue and sell to the
Underwriters, and each of the Underwriters agrees, severally and not jointly,
to purchase from the Company, at a price of $______ per Share, the number of
Firm Shares

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<PAGE> 8

set forth opposite such Underwriter's name in Schedule I hereto. The
Underwriters agree to offer the Firm Shares to the public as set forth in
the Prospectus.

(b) The Company hereby grants to the Underwriters
an option to purchase from the Company, solely for the purpose of covering
overallotments in the sale of Firm Shares, all or any portion of the Option
Shares for a period of 30 days from the date hereof at the purchase price per
Share set forth above. Option Shares shall be purchased from the Company,
severally and not jointly, for the accounts of the several Underwriters in
proportion to the aggregate number of Firm Shares set forth opposite such
Underwriter's name in Schedule I hereto, except that the respective purchase
obligations of each Underwriter shall be adjusted by the Representatives so
that no Underwriter shall be obligated to purchase fractional Option Shares.

3. Delivery of and Payment for Shares. Delivery of
certificates for the Firm Shares and certificates for the Option Shares, if the
option to purchase the same is exercised on or before the third Business Day
(as defined in Section 14 hereof) prior to the First Closing Date, and payments
therefor shall be made at the offices of Lehman Brothers Inc., New York, New
York (or such other place as may be mutually agreed upon), at 10:00 a.m., New
York City time, on ___________, 1995 or on such other date as shall be
determined by you and the Company (the "First Closing Date").

The option to purchase Option Shares granted in Section 2
hereof may be exercised during the term thereof by written notice to the
Company from the Representatives. Such notice shall set forth the aggregate
number of Option Shares as to which the option is being exercised and the time
and date, not earlier than either the First Closing Date or the second Business
Day after the day on which the option shall have been exercised, whichever is
later, nor later than the third Business Day after the date of such exercise,
as determined by the Representatives, when the Option Shares are to be
delivered (the "Second Closing Date"). Delivery and payment for such Option
Shares shall be made at the offices set forth above for delivery and payment of
the Firm Shares. The First Closing Date and the Second Closing Date are
sometimes herein individually called the "Closing Date" and collectively called
the "Closing Dates."

Delivery of certificates for Shares being sold by the Company
shall be made by or on behalf of the Company to you, for the respective
accounts of the Underwriters, against payment of the purchase price therefor by
certified or official bank check payable in New York Clearing House (next day)
funds to the order of the Company. The certificates for the Shares shall be
registered in such names and denominations as you shall have requested at least
two full Business Days prior to the applicable Closing Date, and shall be made
available for checking and packaging at such location in New York, New York, as
may be designated by you at least one full Business Day before such Closing
Date. Time shall be of the essence, and delivery of certificates for the
Shares at the time and place specified in this Agreement is a further condition
to the obligations of each Underwriter.

4. Covenants of the Company. The Company covenants and
agrees with each Underwriter that:

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<PAGE> 9

(a) If the Effective Date is on or
before the date of this Agreement, the Company shall comply with the provisions
of and make all requisite filings with the Commission pursuant to Rule 424(b)
not later than the Commission's close of business on the second Business Day
following the execution and delivery of this Agreement or, if applicable, such
earlier time as may be required by Rule 430A(a)(3) of the Rules and
Regulations. The Company shall advise the Representatives, promptly after it
receives notice thereof, of the time when, if the Effective Date is on or
before the date of this Agreement, any amendment to the Registration Statement
or, if the Effective Date is after the date of this Agreement, the Registration
Statement or any amendment thereto, has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed. The
Company shall notify you promptly of any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus or
for additional information; and the Company shall prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or the Prospectus which, in your opinion, may be
reasonably necessary or advisable in connection with the distribution of the
Shares. The Company shall advise you promptly of the issuance by the
Commission of any stop order or other order suspending the effectiveness of the
Registration Statement, suspending or preventing the use of any Preliminary
Prospectus or the Prospectus, or of the institution of any proceedings for any
such purpose; and the Company shall use its reasonable efforts to prevent the
issuance of any stop order or other such order and, should a stop order or
other such order be issued, to obtain as soon as possible the lifting thereof.

(b) The Company shall furnish to each of
the Representatives and to counsel for the Underwriters a signed copy of the
Registration Statement as originally filed and each amendment thereto filed
with the Commission, including all consents and exhibits filed therewith, and
shall furnish to the Underwriters such number of conformed copies of the
Registration Statement, as originally filed and each amendment thereto
(excluding exhibits other than this Agreement), the Prospectus and all
amendments and supplements to any of such documents (including any document
filed under the Exchange Act and deemed to be incorporated by reference in the
Preliminary Prospectus or Prospectus), in each case as soon as available and in
such quantities as the Representatives may from time to time reasonably request.

(c) Within the time during which the
Prospectus relating to the Shares is required to be delivered under the
Securities Act, the Company shall comply with all requirements imposed upon it
by the Securities Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as is necessary to permit
the continuance of sales of the Shares as contemplated by the provisions hereof
and by the Prospectus. If during such period any event occurs as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances then existing, not
misleading, or if during such period it is necessary to amend the Registration
Statement or supplement the Prospectus or file any document to comply with the
Securities Act, the Company shall promptly notify you and, subject to Section
4(d) hereof, shall amend the Registration Statement or supplement the
Prospectus or file

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<PAGE> 10

any document (at the expense of the Company) so as to correct such statement
or omission or to effect such compliance.

(d) Prior to filing any amendment to the
Registration Statement or supplement to the Prospectus before the termination
of the offering of the Shares by the Underwriters, the Company shall furnish a
copy thereof to the Underwriters and counsel to the Underwriters, and will not
file or publish any such amendment or supplement to which the Underwriters
shall reasonably object by notice to the Company after a reasonable period to
review.

(e) The Company shall use reasonable
efforts to qualify the Shares for offer and sale under the securities laws of
such states and other jurisdictions in the United States as the Underwriters
shall reasonably request and maintain such qualifications for so long as may
be necessary for the distribution of the Shares; provided that, notwithstanding
the foregoing, the Company shall not, with respect to any such jurisdiction, be
required to qualify as a foreign corporation, to file a general consent to
service of process or to take any other action that would subject it to service
of process in suits other than those arising out of the offering of the Shares.

(f) The Company shall advise the
Underwriters promptly and, if requested by any of the Underwriters, shall
confirm such advice in writing, of the issuance by any state securities
commission or other regulatory body of any stop order suspending the
qualification or exemption from qualification of the Shares for offering or
sale in any jurisdiction, or the initiation of any proceeding for such purpose
by any state securities commission or other regulatory authority. The Company
shall use reasonable efforts to prevent the issuance of any stop order or order
suspending the qualification or exemption of the Shares under any state
securities or Blue Sky laws, and if at any time any state securities commission
or other regulatory authority shall issue an order suspending the qualification
or exemption of the Shares under any state securities or Blue Sky laws, the
Company shall use reasonable efforts to obtain the withdrawal or lifting of
such order at the earliest possible time.

(g) The Company shall make generally
available to its security holders (and shall deliver to the Representatives),
in the manner contemplated by Rule 158(b) under the Securities Act or
otherwise, as soon as practicable but in any event not later than 45 days after
the end of its fiscal quarter in which the first anniversary date of the
Effective Date occurs (or not later than 90 days after the end of such fiscal
quarter if such fiscal quarter is the last fiscal quarter of the fiscal year),
an earnings statement satisfying the requirements of Section 11(a) of the
Securities Act and covering a period of at least 12 consecutive months
beginning after the Effective Date.

(h) The proceeds of the sale of the
Shares will be applied as set forth in the Prospectus.

(i) For a period of three years after
the date hereof, the Company will furnish to you, as soon as practicable after
the end of each fiscal year, a copy of its annual report to stockholders for
such year; and during such period the Company will furnish to you (i) as soon
as

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<PAGE> 11

available, a copy of each report (other than reports on Form 11-K), excluding
exhibits, unless requested by you, and definitive proxy statement of the
Company filed with the Commission under the Exchange Act or mailed to the
Company's stockholders and (ii) from time to time, such other public
information concerning the Company as you may reasonably request.

(j) The Company shall not, without the
prior written consent of Lehman Brothers Inc., during the 90 days following the
date of the Prospectus, offer for sale, sell, or otherwise dispose of any
shares of the Common Stock or any securities convertible into, or exercisable
or exchangeable for, shares of Common Stock, or sell or grant options, rights,
or warrants with respect to any shares of Common Stock, other than (i) pursuant
to existing benefit plans of the Company or its subsidiaries and (ii) in
accordance with this Agreement or as expressly contemplated in the Prospectus.

(k) Whether or not this Agreement
becomes effective or is terminated or the sale of the Shares to the
Underwriters is consummated, the Company shall pay or cause to be paid (A) all
expenses (including stock transfer taxes) incurred in connection
with the issuance of the Shares and the delivery to the several Underwriters of
the Shares, (B) all fees and expenses (including, without limitation, fees and
expenses of the Company's accountants and counsel, but excluding fees and
expenses of counsel to the Underwriters) in connection with the preparation,
printing, filing, delivery and shipping of the Registration Statement
(including the financial statements therein and all amendments and exhibits
thereto), each Preliminary Prospectus, and the Prospectus, as amended or
supplemented, and the reproduction, delivery, and shipping of this Agreement
and other underwriting documents, including, but not limited to, underwriters'
questionnaires, underwriters' powers of attorney, blue sky surveys, agreements
among underwriters and selected dealer agreements, (C) all reasonable fees and
expenses incurred in connection with the qualification of the Shares under
state securities laws as provided in Section 4(c) hereof, including all filing
fees and disbursements and the reasonable fees of counsel to the Underwriters
incurred in connection therewith, (D) the filing fee payable to the National
Association of Securities Dealers, Inc., (E) any applicable fees relating to
the listing of the Shares on the NYSE, (F) the cost of printing certificates
representing the Shares, (G) the cost and charges of any transfer agent or
registrar, and (H) all other costs and expenses incident to the performance of
the Company's obligations hereunder for which provision is not otherwise made
in this Section 4(k). It is understood, however, that, except as is provided in
this Section 4(k), in Section 6 and Section 8 hereof, the Underwriters shall
pay all of their own costs and expenses, including the fees of their counsel,
stock transfer taxes on resale of any of the Shares by them, and any
advertising expenses connected with any offers they may make.

(l) If this Agreement is terminated by
the Company pursuant to Section 8(a) hereof, or by the Underwriters pursuant to
Section 8(b)(i) or 8(b)(ii) hereof (but only with regard to the failure of
conditions set out in Sections 5(a) through 5(i) hereof), the Company will
reimburse the Underwriters upon demand for all reasonable out-of-pocket
expenses (including the reasonable fees and disbursements of counsel to the
Underwriters) that shall have been incurred by them in connection with the
proposed issuance and sale of the Shares.

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<PAGE> 12

(m) Until termination of the offering of
the Shares, the Company will timely file all documents and any amendments to
previously filed documents required to be filed by it pursuant to Section 13,
14 or 15(d) of the Exchange Act.

5. Conditions to Underwriters' Obligations. The
obligations of the several Underwriters hereunder are subject to the accuracy,
as of the date hereof and each Closing Date (as if made on each Closing Date),
of the representations and warranties of the Company contained herein, to
performance by the Company of its obligations hereunder and to each of the
following additional terms and conditions:

(a) The Prospectus shall have been filed
with the Commission in a timely fashion in accordance with Section 4(a) hereof,
the Registration Statement and all post-effective amendments to the
Registration Statement shall have become effective, all filings required by
Rule 424 and Rule 430A of the Rules and Regulations shall have been made and no
such filings shall have been made without the consent of the Representatives,
which consent shall not have been unreasonably withheld; no stop order
suspending the effectiveness of the Registration Statement or any amendment or
supplement thereto or suspending the qualification of the Shares for offering
or sale shall have been issued; no proceedings for the issuance of any such
order shall have been initiated or threatened; and any request of the
Commission for additional information (to be included in the Registration
Statement or the Prospectus or otherwise) shall have been disclosed to you and
complied with to your reasonble satisfaction.

(b) No Underwriter shall have been
advised by the Company or shall have discovered and disclosed to the Company on
or prior to such Closing Date that the Registration Statement or the Prospectus
or any amendment or supplement thereto contains an untrue statement of a fact
which, in the reasonable opinion of the Underwriters, is material or omits to
state a fact which, in the reasonable opinion of such Underwriters, is
material, and is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and the Company shall
not have prepared and distributed any amendment to the Registration Statement
or supplement to the Prospectus without prior review by the Underwriters
pursuant to Section 4(d) herein.

(c) On each Closing Date, the Company
shall have furnished to you the opinion of Fulbright & Jaworski L.L.P., counsel
to the Company, addressed to you and dated such Closing Date, substantially in
the form attached as Exhibit A hereto.

(d) On or prior to such Closing Date,
you shall have received the opinion of Baker & Botts, L.L.P., counsel to the
Underwriters, addressed to you and dated such Closing Date, as to such matters
as you shall reasonably request, and such counsel shall have received such
documents and information as they request to enable them to pass upon such
matters.

(e) On each Closing Date there shall
have been furnished to you a certificate, dated such Closing Date and addressed
to you, signed by the Chief Executive Officer or Executive Vice President and
by the Chief Financial Officer, Treasurer or Controller of the

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<PAGE> 13

Company, to the effect that: (i) the representations and warranties of the
Company contained in this Agreement are true and correct as if made at and as
of such Closing Date; (ii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be complied with or satisfied on or
before such Closing Date; (iii) no stop order suspending the effectiveness of
the Registration Statement has been issued, and no proceeding for that purpose
has been initiated or, to their knowledge, threatened; (iv) all filings
required to be made by the Company under Rule 424 and Rule 430A of the Rules
and Regulations under the Securities Act have been timely made; and (v) since
the Effective Date, there has occurred no event required to be set forth in an
amendment or supplement to the Registration Statement or the Prospectus which
has not been so set forth.

(f) On or prior to the date hereof,
the Company shall have furnished to you a letter substantially in the form of
Exhibit B hereto from each executive officer and each director of the Company
and from GulfMark International, Inc. and Lehman Brothers Holdings Inc.

(g) You shall have been furnished by the
Company such additional documents and certificates as you may reasonably
request.

(h) On each Closing Date you shall have
received a letter of Arthur Andersen LLP, dated such Closing Date and addressed
to you, confirming that they are independent certified public accountants
within the meaning of the Securities Act and the Rules and Regulations
thereunder, and stating, as of the date of such letter (or, with respect to
matters involving changes or developments since the respective dates as of
which specified financial information is given in the Prospectus as of a date
not more than four days prior to the date of such letter), the conclusions and
findings of such firm with respect to the financial information and other
matters covered by its letter delivered to you concurrently with the execution
of this Agreement, and confirming (except for changes as noted therein that
are reasonably acceptable to you) the conclusions and findings set forth in
such prior letter.

(i) Since the Effective Date, neither
the Company nor any of the Subsidiaries shall have sustained any loss by fire,
flood, accident or other calamity, or shall have become a party to or the
subject of any litigation, which is materially adverse to the Company and the
Subsidiaries taken as a whole, nor shall there have occurred a Material Adverse
Change, regardless of whether arising in the ordinary course of business, which
loss, litigation or change, in your judgment, shall render it impractical or
inadvisable to proceed with the payment for and delivery of the Shares.

All such opinions, certificates, letters and
documents shall be in compliance with the provisions hereof only if they are
satisfactory in form and substance to you and to counsel for the Underwriters.
The Company shall furnish to you conformed copies of all such opinions,
certificates, letters and other documents, and any additional documents and
certificates reasonably requested by you or counsel to the Underwriters, in
such number as you shall reasonably request. If any of the conditions
specified in this Section 5 shall not have been fulfilled when and as required
by this Agreement, this Agreement and all obligations of the Underwriters
hereunder may be canceled at, or at any time prior to, each Closing Date, by
you. Any such cancellation shall be

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<PAGE> 14

without liability of the Underwriters to the Company. Notice of such
cancellation shall be given to the Company in writing, or by telegraph or
telephone and confirmed in writing.

6. Indemnification. (a) The Company shall indemnify and
hold harmless each Underwriter from and against any loss, claim, damage or
liability, joint or several, and any action in respect thereof, to which that
Underwriter may become subject, insofar as such loss, claim, damage, liability
or action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement made by the Company in Section 1 hereof, (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or in any blue sky application or other
document executed by the Company specifically for that purpose or based upon
written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the shares under the securities
laws thereof (any such application, document or information being hereafter
referred to as a "Blue Sky Application"), or (iii) the omission or alleged
omission to state therein a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and shall promptly reimburse such Underwriter for any legal and
other expenses reasonably incurred, as such legal and other expenses are
incurred, by such Underwriter in investigating, defending or preparing to
defend against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action, notwithstanding the possibility
that payments for such expenses might later be held to be improper, in which
case such payments shall be promptly refunded; provided that the Company shall
not be liable in any such case to the extent, but only to the extent, that any
such loss, claim, damage, liability or action arises out of, or is based upon,
an untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or any amendment or supplement thereto, or any Blue Sky Application in reliance
upon and in conformity with written information furnished to the Company by any
Underwriter specifically for inclusion therein; and provided further that this
indemnity agreement shall not inure to the benefit of any Underwriter on
account of any loss, claim, damage, liability or action arising from the sale
of Shares to any person by such Underwriter if such Underwriter failed to send
or give a copy of the Prospectus, as the same may be amended or supplemented,
to such person within the time required by the Securities Act, and the untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact in the Preliminary Prospectus was remedied or
corrected in the Prospectus, unless such failure resulted from non-compliance
by the Company with Sections 4(b) and 4(c) hereof. The foregoing indemnity
agreement is in addition to any liability which the Company may otherwise have
to any Underwriter.

(b) Each Underwriter, severally but not jointly,
shall indemnify and hold harmless the Company from and against any loss, claim,
damage or liability, joint or several, and any action in respect thereof, to
which the Company may become subject, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or any Blue Sky Application, or (ii) the omission or
alleged omission to state therein a material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, but

-14-

<PAGE> 15

in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter specifically for inclusion therein, and shall reimburse the Company
for any legal and other expenses reasonably incurred, as such legal and other
expenses are incurred, by the Company in investigating or defending or
preparing to defend against any such loss, claim, damage, liability or action,
notwithstanding the possibility that payments for such expenses might later be
held to be improper, in which case such payments shall be promptly refunded.
The foregoing indemnity agreement is in addition to any liability which any
Underwriter may otherwise have to the Company.

(c) Promptly after receipt by an indemnified party
under this Section 6 of notice of any claim or the commencement of any action,
the indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under this Section 6, notify the indemnifying
party in writing of the claim or the commencement of the action; provided that
the failure to notify the indemnifying party shall not relieve such
indemnifying party from any liability which it may have to an indemnified party
under this Section 6, except to the extent the indemnifying party was
materially prejudiced thereby, or from any liability which such indemnifying
party may have to an indemnified party otherwise than under Section 6. If any
such claim or action shall be brought against an indemnified party, and it
shall notify the indemnifying party thereof, the indemnifying party shall be
entitled to participate therein, and, to the extent that it wishes, to assume
the defense thereof with counsel reasonably satisfactory to the indemnified
party. After notice from the indemnifying party to the indemnified party of
its election to assume the defense of such claim or action, the indemnifying
party shall not be liable to the indemnified party under this Section 6 for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided that the indemnified party shall have the
right to employ counsel to represent all indemnified parties who may be subject
to liability arising out of any claim in respect of which indemnity may be
sought by indemnified parties against the indemnifying party under this Section
6 if the employment of such counsel shall have been authorized in writing by
the indemnifying party in connection with the defense of such action or the
indemnifying party shall not have reasonably promptly employed counsel to have
charge of the defense of such action or counsel for any of the indemnified
parties shall have reasonably concluded that there may be defenses available to
the indemnified parties which are in conflict with those available to the
indemnifying party and, in that event, the fees and expenses of one firm of
separate counsel (in addition to the fees and expenses of local counsel) shall
be paid by the indemnifying party.

(d) If the indemnification provided for in this
Section 6 shall for any reason be unavailable to or insufficient to hold
harmless any indemnified party under Section 6(a) or 6(b) hereof in respect of
any loss, claim, damage or liability, or any action in respect thereof, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in

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<PAGE> 16

such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and the Underwriters on the other with respect to the statements
or omissions which resulted in such loss, claim, damage or liability, or action
in respect thereof, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other with respect to such offering shall be deemed to be
in the same proportion as the total net proceeds from the offering of the
Shares (before deducting expenses) received by the Company bear to the total
underwriting discounts and commissions received by the Underwriters in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to whether the untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company on the one
hand or the Underwriters on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this subsection
(d) were to be determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purposes) or by any other method of allocation
that does not take into account the equitable considerations referred to in the
first sentence of this subsection (d). The amount paid or payable by an
indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 6(d) shall be
deemed to include, for purposes of this Section 6(d), any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating, preparing to defend or defending any action or claim which is
the subject of this subsection (d). Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages that such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (d) to contribute are several in
proportion to their respective obligations and not joint. Each party entitled
to contribution agrees that upon the service of the summons or other initial
legal process upon it in any action instituted against it in respect to which
contribution may be sought, it shall promptly give written notice of such
service to the party or parties from whom contribution may be sought, but the
omission so to notify such party or parties of any such service shall not
relieve the party from whom contribution may be sought for any obligation it
may have hereunder or otherwise, except to the extent such party was
materially prejudiced thereby.

(e) The obligations of the Company under this
Section 6 shall be in addition to any liability which the Company may otherwise
have, and shall extend, upon the same terms and conditions, to each person, if
any, who controls any Underwriter within the meaning of the Securities Act; and
the obligations of the Underwriters under this Section 6 shall be in addition
to any liability that the respective Underwriters may otherwise have, and shall
extend, upon the same terms and conditions, to each director of the Company
(including any person who, with his or her consent, is named in the
Registration Statement as about to become a director of the Company), to each
officer

-16-
<PAGE> 17

of the Company who has signed the Registration Statement, and to each person,
if any, who controls the Company within the meaning of the Securities Act.

7. Substitution of Underwriters. If any Underwriter
defaults in its obligation to purchase the number of Firm Shares or Option
Shares, as the case may be, which it has agreed to purchase under this
Agreement, the nondefaulting Underwriters shall be obligated to purchase (in
case of either the Firm Shares or the Option Shares, in the respective
proportions which the number of Shares set forth opposite the name of each
nondefaulting Underwriter in Schedule I hereto bears to the total number of
Shares set forth opposite the names of all the remaining nondefaulting
Underwriters in Schedule I hereto) the Shares that the defaulting Underwriter
agreed but failed to purchase; except that the nondefaulting Underwriters shall
not be obligated to purchase any of the Shares if the total number of Shares
that the defaulting Underwriter or Underwriters agreed but failed to purchase
exceeds 9.09% of the total number of Shares, and any nondefaulting Underwriter
shall not be obligated to purchase more than 110% of the number of Firm Shares
set forth opposite its name in Schedule I hereto plus the total number of
Option Shares purchasable by it pursuant to the terms of Section 3. If the
foregoing maxima are exceeded, the nondefaulting Underwriters, and any other
underwriters satisfactory to you who so agree, shall have the right, but shall
not be obligated, to purchase (in such proportions as may be agreed upon among
them) all of the Shares. If the nondefaulting Underwriters or the other
underwriters satisfactory to you elect not to purchase the Shares that the
defaulting Underwriter or Underwriters agreed but failed to purchase, this
Agreement shall terminate without liability on the part of any nondefaulting
Underwriter or the Company except for the payment of expenses to be borne by
the Company and the Underwriters as provided in Section 4(k) hereof and the
indemnity and contribution agreements of the Company and the Underwriters
contained in Section 6 hereof. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
paragraph.

Nothing contained herein shall relieve a defaulting
Underwriter of any liability it may have for damages caused by its default. If
the nondefaulting Underwriters or any other underwriters satisfactory to you
are obligated or agree to purchase the Shares of a defaulting Underwriter,
either you or the Company may postpone each Closing Date for up to seven full
Business Days in order to effect any changes that may be necessary in the
Registration Statement, the Prospectus, or in any other document or agreement,
and to file promptly any amendments or any supplements to the Registration
Statement or the Prospectus which in your opinion may thereby be made
necessary.

8. Effective Date and Termination.

(a) This Agreement shall become
effective (i) if the Effective Date is on or before the date of this Agreement,
at 11:00 a.m., New York City time, on the first full Business Day following the
date hereof, (ii) if the Effective Date is after the date of this Agreement, at
11:00 a.m., New York City time, on the first full Business Day following the
Effective Date, or (iii) at such earlier time after the Registration Statement
becomes effective under the Securities Act as you in your discretion shall
first release the Firm Shares for sale to the public. You shall notify the
Company immediately after you have taken any action that causes this Agreement
to become effective. Until this Agreement is effective, it may be terminated
by the Company by giving notice,

-17-
<PAGE> 18

as hereinafter provided, to you, or by you by giving notice, as hereinafter
provided, to the Company, except that the provisions of Section 4(k) and
Section 6 shall at all times be effective. For purposes of this Agreement, the
release of the Firm Shares for sale to the public shall be deemed to have been
made when you release, by telegram or otherwise, firm offers of the Firm Shares
to securities dealers or release for publication a newspaper advertisement
relating to the Firm Shares, whichever occurs first.

(b) The Underwriters, in their absolute
discretion, may terminate this Agreement by notice given to and received by the
Company at any time before payment is made to the Company on each Closing Date,
if prior to that time, (i) the Company shall have failed, refused or been
unable, at or prior to such Closing Date, to perform any agreement on its part
to be performed hereunder on or prior to such date, (ii) any other condition of
the Underwriters' obligation hereunder is not fulfilled, (iii) trading in
securities generally on the NYSE shall have been suspended or minimum prices
shall have been established on either of such exchanges or such market by the
Commission or such exchange or other regulatory body or governmental authority
having jurisdiction, (iv) a banking moratorium is declared by either Federal,
New York or Texas authorities, (v) the United States becomes engaged in
hostilities or there is an escalation of hostilities involving the United
States or there is a declaration of a national emergency or war by the United
States, or (vi) there shall have been such a material adverse change in general
economic, political or financial conditions, or the effect of international
conditions on the financial markets in the United States shall be such, as to,
in the judgment of the Underwriters, make it inadvisable or impracticable to
proceed with the offering or delivery of the Shares.

(c) If this Agreement is terminated
pursuant to this Section 8, such termination shall be without liability of any
party to any other party except as provided in Section 4(k) and Section 6
hereof.

9. Notices. Any notice or notification in any form to be
given hereunder shall be in writing and shall be delivered in person or sent by
telex, telephone or facsimile transmission (but in the case of a notification
by telephone, with subsequent confirmation by letter, telegraph or telex). Any
notice or notification to the Company shall be addressed to Energy Ventures,
Inc., 5 Post Oak Park, Suite 1760, Houston, Texas 77027, Attention:
President, with copies to Fulbright & Jaworski L.L.P., 1301 McKinney Street,
Houston, Texas 77010-3095, Attention: Curtis W. Huff. Any notice or
notification to the Underwriters shall be addressed to Lehman Brothers Inc., 3
World Financial Center, New York, New York 10285, Attention: Investment Banking
Group. Any notice or notification shall take effect at the time of receipt.

10. Information Furnished by Underwriters. The
Underwriters severally confirm that the statements set forth in the last
paragraph on the cover page in the Prospectus, the stabilization paragraph on
page 2 of the Prospectus, the information appearing in the list of names of,
and number of Shares to be purchased by, each of the Underwriters, under the
caption "Underwriting" in the Prospectus, and the statements in the second and
sixth paragraphs next following such list, constitute the written information
furnished by or on behalf of any Underwriter referred to in paragraph (b) of
Section 1 hereof and in paragraphs (a) and (b) of Section 6 hereof.

-18-
<PAGE> 19

11. Survival of Certain Provisions. The agreements
contained in Section 6 and the representations, warranties and agreements of
the Company in Sections 1 and 4 shall survive the delivery of the Shares and
shall remain in full force and effect, regardless of any investigation made by
or on behalf of any indemnified party.

12. Persons Entitled to Benefit of Agreement. This
Agreement shall inure to the benefit of and be binding upon the Underwriters,
the Company, any officer, director or controlling person referred to in Section
6(e) hereof and their respective successors. Nothing in this Agreement is
intended or shall be construed to give any person, other than the persons
referred to in this Section 12, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.

13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.

14. Definition of "Business Day". For purposes of this
Agreement, "Business Day" means any day on which the NYSE is open for trading.

15. Submission to Jurisdiction. The Company hereby
irrevocably and unconditionally submits for itself and its property in any
legal action or proceeding relating to this Agreement, or for recognition and
enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
for any thereof.

16. Counterparts. This Agreement may be executed in one or
more counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.

17. Headings. The headings herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement.

-19-

<PAGE> 20
If the foregoing correctly sets forth the agreement between
the Company and each of the Underwriters, please sign and return a counterpart
hereof, whereupon this instrument will become a binding agreement among the
Company and you in accordance with its terms.

ENERGY VENTURES, INC.

By: ______________________________

Name: ______________________________

Title: ______________________________

Accepted:

LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

For themselves and as Representatives
of the Several Underwriters named in
Schedule I hereto.

BY: LEHMAN BROTHERS INC.

By: _______________________________________
Authorized Signatory

-20-
<PAGE> 21
SCHEDULE I

<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriters to be Purchased
------------ ---------------
<S> <C>
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . . . . . . . . .

------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,600,000
============

</TABLE>

<PAGE> 22
SCHEDULE II

SUBSIDIARIES OF ENERGY VENTURES, INC.

<TABLE>
<CAPTION>
Significant Jurisdiction of
Name of Subsidiary Subsidiaries Organization
<S> <C> <C>
AWI Drilling & Workover, Inc. No Louisiana
BakTexas (1) No Azerbaijan
Bay Drilling Corporation No Louisiana
Channelview Real Property, Inc. No Delaware
Delta Crewboats, Inc. No Louisiana
Energy Ventures Foreign Sales Corporation No Barbados
Energy Ventures (Cyprus) Limited No Cyprus
Energy Ventures Far East Limited No Hong Kong
Energy Ventures International, Inc. No Cayman Islands
Energy Ventures Mid East, Inc. No Cayman Islands
ENGEMAQ No Brazil
ENGY, Inc. No Delaware
EV Offshore, Inc. No Louisiana
EVI - Highland Pump Company Yes Delaware
EVI International, Inc. No Delaware
Grant Prideco, Inc. Yes Delaware
Grant Tubular Finishing Ltd. No Hungary
Grant T.F. de Mexico S.A. de C.V.(2) No Mexico
Highland/Corod Inc. No Alberta
</TABLE>
----------------------------------
(1) 51% owned.

(2) Excludes directors qualifying shares.

<PAGE> 23

<TABLE>
<CAPTION>
Significant Jurisdiction of
Name of Subsidiary Subsidiaries Organization
<S> <C> <C>
Highland-Shengli Machinery Company No China
Limited, Dongying City (4)
Mallard Bay Drilling, Inc. Yes Louisiana
Mallard Bay Drilling (Nigeria) Limited(4) No Nigeria
Mallard Bay Drilling, Inc., Suits Drilling No Texas
Company, et al. (Partnership)(5)
PEPESA(6) No Peru
Prideco de Venezuela, S.A.(7) No Venezuela
Prideco Europe Limited No Scotland
Prideco Holdings, Inc. No Delaware
Prideco, Inc. Yes Texas
Production Oil Tools, Inc. No Wyoming
Suits Peru LLC(7) No Oklahoma
</TABLE>
----------------------------------
(4) 60% owned.

(5) 50% owned, but Mallard Bay Drilling, Inc. is entitled to
certain preferential distributions in excess of 50%.

(6) Wholly-owned by Suits Peru LLC

(7) 49% owned.

<PAGE> 24
EXHIBIT A

FORM OF OPINION OF FULBRIGHT & JAWORSKI L.L.P.

(i) The Company is a corporation duly
incorporated and validly existing in good standing under the laws of the State
of Delaware with full corporate power and authority to own or lease and operate
its properties and to conduct its business as described in the Prospectus.

(ii) Each of the Subsidiaries designated
as a "Significant Subsidiary" on Schedule II hereto (a "Significant Subsidiary"
and collectively the "Significant Subsidiaries") is a corporation duly
incorporated and validly existing in good standing under the laws of the
jurisdiction of its organization, with due corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Prospectus; and all the outstanding shares of capital stock of each of
the Significant Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable, and are held of record by the Company directly,
or indirectly through one of the other Significant Subsidiaries.

(iii) The Company's authorized
capitalization is as set forth in the Prospectus. The Company has all
requisite corporate power and authority to issue, sell, and deliver the Shares
in accordance with and upon the terms and conditions set forth in this
Agreement. The issuance of the Shares has been duly and validly authorized
and, when issued and paid for by the several Underwriters in accordance with
the terms of this Agreement, will be fully paid and nonassessable. No holder
of capital stock of the Company has any preferential or preemptive right to
purchase or acquire any of the Shares under the General Corporation Law of the
State of Delaware or the Company's certificate of incorporation or bylaws or,
to such counsel's knowledge, under any agreement to which the Company is a
party that has been identified to such counsel by the Company as being material
to the Company and the Subsidiaries taken as a whole. To the knowledge of such
counsel, except as disclosed in the Prospectus, there are no outstanding
options or warrants to purchase any shares of the capital stock of the Company
or securities convertible into or exercisable or exchangeable for any shares of
the capital stock of the Company. The Common Stock conforms in all material
respects to the description thereof contained in the Prospectus under the
caption "Description of Capital Stock."

(iv) To such counsel's knowledge, neither
the filing of the Registration Statement nor the offering or sale of the Shares
as contemplated by this Agreement gives rise to any right, other than those
which have been waived or satisfied, for or relating to the registration of any
shares of Common Stock or other securities of the Company.

(v) Neither the execution, delivery or
performance of this Agreement nor the offer, sale or delivery of the Shares
hereunder will violate, conflict with, or constitute a breach of or default
under, (A) the certificate of incorporation or bylaws of the Company, (B) any
agreement, indenture, or other instrument relating to the borrowing of money
known to such counsel to which the Company or any Significant Subsidiary is a
party or by which the Company or any Significant Subsidiary is bound, or any
other agreement identified to such counsel by the Company

<PAGE> 25

as being material to the Company and the Subsidiaries taken as a whole, or (C)
(except with respect to state securities or blue sky laws, as to which such
counsel need express no opinion, and except with respect to the federal
securities laws other than as stated in such counsel's opinion letter) any law,
administrative regulation, or court or governmental decree known to such counsel
to be applicable to the Company or any Significant Subsidiary.

(vi) No consent, approval, or
authorization of any federal or state governmental authority, agency or body
having jurisdiction over the Company is required to be obtained by the Company
in connection with the consummation of the transactions contemplated in this
Agreement, except such as may be required under the Securities Act, and except
as may be required under state securities or blue sky laws (with respect to
which such counsel need express no opinion).

(vii) The Company has corporate power and
authority to enter into this Agreement and to issue, sell and deliver the
Shares to you as provided herein, and this Agreement has been duly authorized,
executed and delivered by the Company.

(viii) The information contained in the
Prospectus under the caption "Description of Capital Stock" to the extent it
purports to summarize the provisions of the documents or agreements
specifically referred to therein or matters of law or legal conclusions is true
and correct in all material respects.

(ix) The Company is not an "investment
company" within the meaning of the 1940 Act.

(x) To the knowledge of such counsel,
there are no legal or governmental proceedings pending or threatened to which
the Company or any of the Significant Subsidiaries is a party or to which the
business or property of the Company or any of the Significant Subsidiaries is
subject that are required to be disclosed in the Registration Statement or the
Prospectus and that are not so disclosed.

(xi) The Registration Statement has
become effective under the Securities Act and, to the knowledge of such counsel,
no stop order suspending the effectiveness of the Registration Statement has
been issued and no proceedings for such purpose have been instituted or are
pending or threatened. Except as to (a) the financial statements or other
financial or statistical data contained in or incorporated by reference into the
Registration Statement or the Prospectus or (b) any information furnished in
writing by the Underwriters to the Company specifically for use therein, as to
which such counsel need not express any opinion, the Registration Statement and
the Prospectus comply as to form in all material respects with the requirements
of the Securities Act and the rules and regulations thereunder. Except as to
the financial statements or other financial or statistical data contained
therein, as to which such counsel need not express any opinion, each document
incorporated by reference in the Registration Statement as filed under the
Exchange Act complied when so filed as to form in all material respects with the
applicable requirements of the Exchange Act and the rules and regulations
thereunder. There are no contracts or other documents

-2-

<PAGE> 26

known to such counsel that are required to be filed as exhibits to the
Registration Statement other than those filed as exhibits thereto.

(xii) The statements in the Registration
Statement and the Prospectus, insofar as they constitute statements of law or
legal conclusions with regard to descriptions of contracts, agreements, or
other documents, are fair and accurate in all material respects.

(xiii) The Shares have been approved for
listing on the NYSE, subject only to official notice of issuance.

The foregoing opinions shall cover the laws of the United
States, the State of Texas, the State of Louisiana and the State of New York
and the corporate laws of the State of Delaware. In rendering such opinions,
such counsel may rely, to the extent it considers such reliance proper, (A)
upon an opinion or opinions, each dated each Closing Date, of other counsel
retained by it or the Company as to the laws of the State of Louisiana or any
other jurisdiction, provided that each such local counsel is acceptable to you
and a copy of each such opinion is delivered to you and (B) upon certificates
and representations of officers of the Company and the Subsidiaries and of
government officials. Such opinions may also be subject to customary
qualifications and limitations.

In addition, such counsel shall state that such counsel has
participated in conferences with officers and representatives of the Company,
counsel to the Underwriters, representatives of the independent public
accountants of the Company, and representatives of the Underwriters at which
the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although such counsel is not passing upon and does
not assume responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectus (except
to the extent stated above in its opinion), on the basis of the foregoing
(relying as to materiality to a large extent upon the statements of officers
and other representatives of the Company), no facts have come to the attention
of such counsel that lead it to believe that the Registration Statement, as of
its effective date, contained any untrue statement of a material fact
the attention of such counsel that lead it to believe that the Prospectus, as
of its issue date or as of the applicable Closing Date, contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading; it being understood that such counsel need express
no opinion as to the financial statements or other statistical or financial
data included in the Registration Statement or the Prospectus.

-3-

<PAGE> 27
EXHIBIT B

[Letterhead of officer, director or major stockholder of
Energy Ventures, Inc.]

Energy Ventures, Inc.
Public Offering of Common Stock

September ___, 1995

LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
As Representatives of the Several
Underwriters named in Schedule I hereto
c/o Lehman Brothers Inc.
3 World Financial Center
New York, New York 10285

Dear Sirs:

This letter is being delivered to you in connection with the
proposed Underwriting Agreement (the "Underwriting Agreement") among Energy
Ventures, Inc., a Delaware corporation (the "Company"), and each of you as
representatives of a group of underwriters named therein, relating to an
underwritten public offering of common stock, par value $1.00 per share (the
"Common Stock"), of the Company.

To induce you and the other underwriters to enter into the
Underwriting Agreement, the undersigned agrees that it will not, without the
prior written consent of Lehman Brothers Inc., during the 90 days following the
date of the Prospectus (as defined in the Underwriting Agreement), offer for
sale, sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock beneficially owned by the undersigned or any securities
convertible into, or exercisable or exchangeable for, shares of Common Stock.

If for any reason the Underwriting Agreement is terminated
before the First Closing Date (as defined in the Underwriting Agreement), the
agreement set forth above shall likewise be terminated.

Yours very truly,

[Signature of officer, director or major stockholder]

[Name and address of officer, director or major
stockholder]

<PAGE> 1
Exhibit 4.4

FIRST SUPPLEMENTAL INDENTURE

FIRST SUPPLEMENTAL INDENTURE (the "Supplement"), dated as of June 30,
1995, is entered into by and among Energy Ventures, Inc., a Delaware
corporation (the "Company"), Prideco, Inc., a Texas corporation and a wholly
owned subsidiary of the Company (the "New Guarantor"), and Chemical Bank, a New
York corporation, as Trustee (the "Trustee").

RECITALS OF THE COMPANY AND THE NEW GUARANTOR

WHEREAS, the Company, the Subsidiary Guarantors and the Trustee have
executed and delivered an Indenture, dated as of March 15, 1994, among the
Company, the Subsidiary Guarantors and the Trustee (the "Indenture") providing
for the issuance by the Company of $120,000,000 aggregate principal amount of
the Company's 10 1/4% Senior Notes due 2004 (the "Securities") and pursuant to
which the Subsidiary Guarantors have agreed, jointly and severally, to
unconditionally guarantee the due and punctual payment of the principal of,
premium, if any, and interest on the Securities and all other amounts due and
payable under the Indenture and the Securities by the Company ("Indenture
Obligations");

WHEREAS, the New Guarantor has become a Material Restricted Subsidiary
and pursuant to Sections 12.3(b) and (d) is obligated to enter into the
Supplement thereby guaranteeing the punctual payment of all Indenture
Obligations as provided in Article XII of the Indenture;

WHEREAS, pursuant to Section 8.1(f) of the Indenture, the Company, the
New Guarantor and the Trustee may enter into this Supplement without the
consent of any Holder;

WHEREAS, the execution and delivery of this Supplement have been duly
authorized by a Board Resolution of the respective Board of Directors of the
Company and the New Guarantor; and

WHEREAS, all conditions and requirements necessary to make the
Supplement valid and binding upon the Company and the New Guarantor, and
enforceable against the Company and the New Guarantor in accordance with its
terms, have been performed and fulfilled;

NOW, THEREFORE, in consideration of the above premises, each of the
parties hereto agrees, for the benefit of the others and for the equal and
proportionate benefit of the Holders of the Securities, as follows:

ARTICLE ONE
THE NEW GUARANTEE

Section 101. For value received, the New Guarantor, in accordance
with Article Twelve of the Indenture, hereby unconditionally guarantees (the
"New Guarantee"), jointly and severally among itself and the Subsidiary
Guarantors, to the Trustee and the Holders, the due and punctual payment of the
principal of, premium, if any, and interest on the Securities and all other
amounts due and payable under the Indenture and the Securities by the Company,
whether at maturity, by acceleration, redemption, repurchase or otherwise as
more specifically set forth in Section 12.1 of the Indenture, including,
without limitation, interest on the overdue principal of, premium, if any, and
interest on the Securities, to the extent lawful, all in accordance with the
terms of Article XII of the Indenture and subject to the limitations set

<PAGE> 2
forth in Section 12.5 of the Indenture. The agreements made and obligations
assumed hereunder by the New Guarantor shall constitute, and shall be deemed to
constitute, a Guarantee under the Indenture and for all purposes of the
Indenture, and New Guarantor shall be considered a Subsidiary Guarantor for all
purposes of the Indenture as if it was originally named therein as a Subsidiary
Guarantor.

Section 102. The New Guarantee shall be automatically and
unconditionally released and discharged upon the occurrence of the events set
forth in Sections 3.1 and 12.4 of the Indenture.

ARTICLE TWO
MISCELLANEOUS

Section 201. Except as otherwise expressly provided or unless the
context otherwise requires, all terms used herein which are defined in the
Indenture shall have the meanings assigned to them in the Indenture. Except as
supplemented hereby, the Indenture (including the Guarantees incorporated
therein) and the Securities are in all respects ratified and confirmed and all
the terms and provisions thereof shall remain in full force and effect.

Section 202. This Supplement shall be effective as of the execution
and delivery hereof.

Section 203. The recitals contained herein shall be taken as the
statements of the Company and the New Guarantor, and the Trustee assumes no
responsibility for the correctness. The Trustee makes no representations as to
the validity or sufficiency of this Supplement.

Section 204. This Supplement shall be governed by and construed in
accordance with the laws of the jurisdiction which govern the Indenture and its
construction.

Section 205. This Supplement may be executed in any number of
counterparts each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.

IN WITNESS WHEREOF, the parties hereto have caused this Supplement to
be duly executed and their respective seals to be affixed hereunto and duly
attested all as of the day and year first above written.

ENERGY VENTURES, INC.
[Corporate Seal]

By: /s/ JAMES G. KILEY
-----------------------------
James G. Kiley
Attest: Vice President

/s/ FRANCES R. POWELL
----------------------------
Frances R. Powell
Assistant Secretary

-2-
<PAGE> 3
PRIDECO, INC.
[Corporate Seal]

By: /s/ JAMES G. KILEY
---------------------------
James G. Kiley
Attest: Vice President

/s/ FRANCES R. POWELL
-----------------------------
Frances R. Powell
Assistant Secretary

CHEMICAL BANK
[Corporate Seal]

By: /s/ W. B. DODGE
----------------------
W. B. Dodge
Vice President
Attest:

/s/ Glenn G. McKeever
----------------------------------
Assistant Secretary

-3-

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated March 1, 1995
included in Energy Ventures, Inc.'s (the "Company") Form 10-K for the year ended
December 31, 1994, to the inclusion in this registration statement of our report
dated March 1, 1995 related to the Company's consolidated financial statements
for the year ended December 31, 1994 and to all references to our Firm included
in this registration statement.

ARTHUR ANDERSEN LLP

Houston, Texas
August 17, 1995

<PAGE> 1

EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated July 31, 1995 on
our audits of the consolidated financial statements of Prideco, Inc. and
subsidiaries included in the Energy Ventures, Inc. Form 8-K/A dated August 17,
1995 and to all references to our Firm included in this registration statement.

ARTHUR ANDERSEN LLP

Houston, Texas
August 17, 1995