Three Months Ended September 30,                         Nine Months Ended September 30,
                             2008                        2007                        2008                         2007
Contract
drilling            $   498,510          82 %    $ 428,316          82 %    $ 1,335,494          81 %    $ 1,315,005          83 %
Pressure pumping         60,618          10         58,498          11          160,576          10          148,674           9
Drilling and
completion
fluids                   35,734           6         27,348           5          107,029           7           97,775           6
Oil and natural
gas                      13,670           2          9,840           2           36,270           2           32,207           2

                    $   608,532         100 %    $ 524,002         100 %    $ 1,639,369         100 %    $ 1,593,661         100 %

We provide our contract services to oil and natural gas operators in many of the oil and natural gas producing regions of North America. Our contract drilling operations are focused in various regions of Texas, New Mexico, Oklahoma, Arkansas, Louisiana, Mississippi, Alabama, Colorado, Utah, Wyoming, Montana, North Dakota, South Dakota, Pennsylvania and Western Canada, while our pressure pumping services are focused primarily in the Appalachian Basin. Our drilling and completion fluids services are provided to operators offshore in the Gulf of Mexico and on land in Texas, Southeastern New Mexico, Oklahoma and the Gulf Coast region of Louisiana. The oil and natural gas properties in which we hold working interests are primarily located in West and South Texas, Southeastern New Mexico, Utah and Mississippi.
Typically, the profitability of our business is most readily assessed by two primary indicators in our contract drilling segment: our average number of rigs operating and our average revenue per operating day. During the third quarter of 2008, our average number of rigs operating was 276 per day compared to 243 in the third quarter of 2007. Our average revenue per operating day was $19,620 in the third quarter of 2008 compared to $19,150 in the third quarter of 2007. Our consolidated net income for the third quarter of 2008 increased by $10.6 million or 11% as compared to the third quarter of 2007. This increase in consolidated net income was primarily due to our contract drilling segment experiencing an increase in the average number of rigs operating, partially offset by reduced profitability in our pressure pumping segment in the third quarter of 2008 as compared to the third quarter of 2007.
Our revenues, profitability and cash flows are highly dependent upon prevailing prices for natural gas and, to a lesser extent, oil. During periods of improved commodity prices, the capital spending budgets of oil and natural gas operators tend to expand, which results in increased demand for our contract services. Conversely, in periods when these commodity prices deteriorate, the demand for our contract services generally weakens and we experience downward pressure on pricing for our services. During recent months, there has been substantial volatility and a decline in oil and natural gas prices. There has also been substantial uncertainty in the capital markets and access to credit is uncertain. Due to these conditions, certain of our customers may begin to curtail their drilling programs which would result in a decrease in demand for our contract services. Furthermore, certain of our customers could experience an inability to pay suppliers, including us, in the event they are unable to access the capital markets to fund their business operations. Our operations are also highly impacted by competition, the availability of excess equipment, labor issues and various other factors which are more fully described as "Risk Factors" included as Item 1A in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
We believe that the liquidity reflected in our balance sheet as of September 30, 2008, which includes approximately $333 million in working capital (including $25.0 million in cash and cash equivalents) and approximately $316 million available under a $375 million line of credit, provides us with the ability to build new equipment, make improvements to our equipment, expand into new regions, pursue acquisition opportunities, pay cash dividends and survive downturns in our industry.
Commitments and Contingencies - As of September 30, 2008, we maintained letters of credit in the aggregate amount of $58.5 million for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which could become payable under the terms of the underlying insurance contracts. These letters of credit expire at various times during each calendar year and are typically renewed annually. As of September 30, 2008, no amounts had been drawn under the letters of credit.
As of September 30, 2008, we had commitments to purchase approximately $308 million of major equipment.
Trading and Investing - We have not engaged in trading activities that include high-risk securities, such as derivatives and non-exchange traded contracts. We invest cash primarily in highly liquid, short-term investments such as overnight deposits and money market accounts.
Description of Business - We conduct our contract drilling operations in Texas, New Mexico, Oklahoma, Arkansas, Louisiana, Mississippi, Alabama, Colorado, Utah, Wyoming, Montana, North Dakota, South Dakota, Pennsylvania and Western Canada. As of

September 30, 2008, we had approximately 350 currently marketable land-based drilling rigs. We provide pressure pumping services to oil and natural gas operators primarily in the Appalachian Basin. These services consist primarily of well stimulation and cementing for completion of new wells and remedial work on existing wells. We provide drilling fluids, completion fluids and related services to oil and natural gas operators offshore in the Gulf of Mexico and on land in Texas, Southeastern New Mexico, Oklahoma and the Gulf Coast region of Louisiana. Drilling and completion fluids are used by oil and natural gas operators during the drilling process to control pressure when drilling oil and natural gas wells. We also invest, on a working interest basis, in oil and natural gas properties.
The North American land drilling industry has experienced periods of downturn in demand at various times during the last decade. During these periods, there have been substantially more drilling rigs available than necessary to meet demand. As a result, drilling contractors have had difficulty sustaining profit margins during the downturn periods.
In addition to adverse effects that future declines in demand could have on us, ongoing factors which could continue to adversely affect utilization rates and pricing, even in an environment of high oil and natural gas prices and increased drilling activity, include:
• movement of drilling rigs from region to region,

• reactivation of land-based drilling rigs, or

• construction of new drilling rigs.

As a result of an increase in drilling activity and increased prices for drilling services in 2005 and 2006, construction of new drilling rigs increased significantly in that time period. The addition of new drilling rigs to the market resulted in excess capacity compared to demand, and construction of new drilling rigs moderated in 2007. With an increase in demand in 2008, we believe that further construction of new drilling rigs has again increased. Recent decreases in prices of natural gas and oil are likely to reduce both the demand for our services and construction of new drilling rigs. We cannot predict either the future level of demand for our contract drilling services or future conditions in the oil and natural gas contract drilling business. Critical Accounting Policies
In addition to established accounting policies, our consolidated financial statements are impacted by certain estimates and assumptions made by management. No changes in our critical accounting policies have occurred since the filing of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
Liquidity and Capital Resources
As of September 30, 2008, we had working capital of $333 million including cash and cash equivalents of $25.0 million. For the nine months ended September 30, 2008, our sources of cash flow included:
• $460 million from operating activities,

• $8.7 million in proceeds from the disposal of property and equipment, and

• $41.8 million from the exercise of stock options and tax benefits related to stock-based compensation.

During the nine months ended September 30, 2008, we used $68.3 million to pay dividends on our common stock, $54.9 million to repurchase our common stock, $50.0 million to repay borrowings under our line of credit, and $329 million:
• to build new drilling rigs,

• to make capital expenditures for the betterment and refurbishment of our drilling rigs,

• to acquire and procure drilling equipment and facilities to support our drilling operations,

• to fund capital expenditures for our pressure pumping and drilling and completion fluids divisions, and

• to fund investments in oil and natural gas properties on a working interest basis.

We paid cash dividends during the nine months ended September 30, 2008 as follows:

                                                               Total
                                           Per Share      (in thousands)
             Paid on March 28, 2008       $      0.12     $        18,493
             Paid on June 27, 2008               0.16              25,011
             Paid on September 29, 2008          0.16              24,803

             Total cash dividends         $      0.44     $        68,307

On October 29, 2008, our Board of Directors approved a cash dividend on our common stock in the amount of $0.16 per share to be paid on December 30, 2008 to holders of record as of December 12, 2008. The amount and timing of all future dividend payments, if any, is subject to the discretion of the Company's Board of Directors and will depend upon business conditions, results of operations, financial condition, terms of our credit facilities and other factors.
On August 1, 2007, our Board of Directors approved a stock buyback program ("Program"), authorizing purchases of up to $250 million of our common stock in open market or privately negotiated transactions. During the nine months ended September 30, 2008, we purchased 2,002,047 shares of common stock under the Program at a cost of $50.4 million. As of September 30, 2008, we had authority remaining under the Program to purchase approximately $129 million of our outstanding common stock. Shares purchased under the Program are accounted for as treasury stock.
We have an unsecured revolving line of credit with a maximum borrowing capacity of $375 million. Interest is paid on outstanding LOC balances at a floating rate ranging from LIBOR plus 0.625% to 1.0% or the prime rate at our election. Any outstanding borrowings must be repaid at maturity on December 16, 2009. As of September 30, 2008, we had no borrowings outstanding under our $375 million revolving line of credit. However, we had $58.5 million in letters of credit outstanding and as a result, we had available borrowing capacity of approximately $316 million at September 30, 2008.
We believe that the current level of cash, short-term investments and borrowing capacity available under our revolving line of credit, together with cash generated from operations, should be sufficient to meet our capital needs. From time to time, acquisition opportunities are evaluated. The timing, size or success of any acquisition and the associated capital commitments are unpredictable. Should opportunities for growth requiring capital arise, we believe we would be able to satisfy these needs through a combination of working capital, cash generated from operations, our existing credit facility, additional debt or equity financing. However, there can be no assurance that such capital will be available on reasonable terms, if at all. Results of Operations
The following tables summarize operations by business segment for the three months ended September 30, 2008 and 2007:

                                                              2008              2007           % Change
Contract Drilling                                            (Dollars in thousands)
Revenues                                                  $   498,510        $ 428,316           16.4 %
Direct operating costs                                    $   282,698        $ 242,352           16.6 %
Selling, general and administrative                       $     1,382        $   1,616          (14.5 )%
Depreciation                                              $    57,187        $  56,105            1.9 %
Operating income                                          $   157,243        $ 128,243           22.6 %
Operating days                                                 25,403           22,362           13.6 %
Average revenue per operating day                         $     19.62        $   19.15            2.5 %
Average direct operating costs per operating day          $     11.13        $   10.84            2.7 %
Average rigs operating                                            276              243           13.6 %
Capital expenditures                                      $   125,892        $ 120,192            4.7 %

Revenues and direct operating costs increased in the third quarter of 2008 compared to the third quarter of 2007 primarily as a result of an increase in the number of operating days and to a lesser extent as a result of increases in the average revenue and average direct operating costs per operating day. Operating days increased in the third quarter of 2008 compared to the third quarter of 2007 due to increased demand for our contract drilling services. Significant capital expenditures have been incurred to build new drilling rigs, to modify and upgrade our existing drilling rigs and to acquire additional related equipment such as drill pipe, drill collars, engines, fluid circulating systems, rig hoisting systems and safety enhancement equipment.

                                                   2008            2007       % Change
     Pressure Pumping                            (Dollars in thousands)
     Revenues                                  $   60,618       $ 58,498         3.6 %
     Direct operating costs                    $   36,576       $ 28,682        27.5 %
     Selling, general and administrative       $    6,109       $  4,882        25.1 %
     Depreciation                              $    5,073       $  3,702        37.0 %
     Operating income                          $   12,860       $ 21,232       (39.4 )%
     Total jobs                                     3,732          4,065        (8.2 )%
     Average revenue per job                   $    16.24       $  14.39        12.9 %
     Average direct operating costs per job    $     9.80       $   7.06        38.8 %
     Capital expenditures                      $   17,607       $ 11,047        59.4 %

The number of jobs completed decreased in the third quarter of 2008 compared to the third quarter of 2007 as we and our customers increased our focus on the emerging development of unconventional reservoirs in the Appalachian Basin and the larger jobs associated therewith. As a result of this focus on unconventional reservoirs we experienced a decrease in smaller traditional pressure pumping jobs, which resulted in an overall decrease in the number of total jobs. Revenues and direct operating costs increased as a result of increases in the average revenue and average direct operating costs per job. Increased average revenue per job was due to an increase in larger jobs being driven by demand for services associated with unconventional reservoirs as discussed above. Average direct operating costs per job increased as a result of increases in compensation, maintenance and the cost of materials used in our operations, as well as an increase in larger jobs. Selling, general and administrative expense increased primarily as a result of expenses to support the expanding operations of the pressure pumping segment. Significant capital expenditures have been incurred to add capacity, expand our areas of operation and modify and upgrade existing equipment. The increase in depreciation expense is a result of the capital expenditures discussed above.

                                                 2008            2007       % Change
      Drilling and Completion Fluids           (Dollars in thousands)
      Revenues                               $   35,734       $ 27,348        30.7 %
      Direct operating costs                 $   33,426       $ 24,153        38.4 %
      Selling, general and administrative    $    2,478       $  2,486        (0.3 )%
      Depreciation                           $      754       $    728         3.6 %
      Operating loss                         $     (924 )     $    (19 )       N/M
      Capital expenditures                   $    1,398       $    460       203.9 %

Revenues increased in the third quarter of 2008 compared to the third quarter of 2007 due to increased sales both on land and offshore in the Gulf of Mexico, as well as increased pricing for certain products. Direct operating costs increased due to increased sales as well as increases in the costs of raw materials, including barite ore. Direct operating costs in the third quarter of 2008 also include approximately $650,000 in losses associated with damage suffered as a result of hurricanes.

                                                      2008            2007       % Change
                                                    (Dollars in thousands,
Oil and Natural Gas Production and Exploration       except sales prices)
Revenues                                          $    13,670       $ 9,840         38.9 %
Direct operating costs                            $     4,338       $ 2,474         75.3 %
Selling, general and administrative               $         -       $   695       (100.0 )%
Depreciation, depletion and impairment            $     4,778       $ 5,784        (17.4 )%
Operating income                                  $     4,554       $   887        413.4 %
Capital expenditures                              $     7,852       $ 4,153         89.1 %
Average net daily oil production (Bbls)                   894           920         (2.8 )%
Average net daily natural gas production (Mcf)          3,946         4,199         (6.0 )%
Average oil sales price (per Bbl)                 $    116.86       $ 73.57         58.8 %
Average natural gas sales price (per Mcf)         $     11.19       $  6.58         70.1 %

Revenues increased due to higher average sales prices of oil and natural gas. This increase was partially offset by decreases in the average net daily production of oil and natural gas and by the elimination of well operations revenue due to the sale in the fourth quarter of 2007 of the operating responsibilities associated with oil and natural gas wells. Average net daily oil and natural gas production decreased primarily due to production declines. The increase in direct operating costs was primarily due to an increase in seismic costs incurred in the third quarter of 2008, as well as increased production taxes and other production costs. Selling, general and administrative expenses decreased in the third quarter of 2008 due to the sale of operating responsibilities mentioned above and the resulting elimination of headcount in our oil and natural gas production and exploration segment. Depreciation, depletion and

impairment expense in the third quarter of 2008 includes approximately $1.6 million incurred to impair certain oil and natural gas properties compared to approximately $1.9 million incurred to impair certain oil and natural gas properties in the third quarter of 2007. Depletion expense decreased approximately $614,000 due to lower production of oil and natural gas and higher commodity prices.

                                                2008            2007        % Change
      Corporate and Other                      (Dollars in thousands)
      Selling, general and administrative    $   7,500        $  6,914          8.5 %
      Depreciation                           $     206        $    204          1.0 %
      Other operating expenses               $   1,250        $    600        108.3 %
      Gain on disposal of assets             $    (505 )      $   (330 )       53.0 %
      Embezzlement recoveries                $       -        $ (1,145 )     (100.0 )%
      Interest income                        $     601        $  1,091        (44.9 )%
      Interest expense                       $     125        $    357        (65.0 )%
      Other income                           $      44        $     42          4.8 %
      Capital expenditures                   $     351        $      -          N/A %

Other operating expenses increased $650,000 due to an increase in bad debt expense in the third quarter of 2008. Embezzlement recoveries in the third quarter of 2007 consists of cash received from a court-appointed receiver.
The following tables summarize operations by business segment for the nine months ended September 30, 2008 and 2007:

                                                             2008               2007            % Change
Contract Drilling                                             (Dollars in thousands)
Revenues                                                 $ 1,335,494        $ 1,315,005            1.6 %
Direct operating costs                                   $   778,446        $   716,803            8.6 %
Selling, general and administrative                      $     4,203        $     4,467           (5.9 )%
Depreciation                                             $   170,421        $   156,075            9.2 %
Operating income                                         $   382,424        $   437,660          (12.6 )%
Operating days                                                69,881             66,931            4.4 %
Average revenue per operating day                        $     19.11        $     19.65           (2.7 )%
Average direct operating costs per operating day         $     11.14        $     10.71            4.0 %
Average rigs operating                                           255                245            4.1 %
Capital expenditures                                     $   260,918        $   403,381          (35.3 )%

Revenues and direct operating costs increased in the first nine months of 2008 compared to the first nine months of 2007 primarily as a result of an increase in the number of operating days. Average revenue per operating day decreased in the first nine months of 2008 while average direct operating costs per operating day increased in the same period. The increase in average direct operating costs per operating day includes costs incurred during 2008 in activating drilling rigs. Significant capital expenditures have been incurred to build new drilling rigs, to modify and upgrade our drilling rigs and to acquire additional related equipment such as drill pipe, drill collars, engines, fluid circulating systems, rig hoisting systems and safety enhancement equipment. The increase in depreciation expense was a result of the capital expenditures discussed above.

                                                   2008           2007        % Change
     Pressure Pumping                            (Dollars in thousands)
     Revenues                                  $   160,576     $ 148,674         8.0 %
     Direct operating costs                    $    97,587     $  75,610        29.1 %
     Selling, general and administrative       $    17,550     $  13,758        27.6 %
     Depreciation                              $    13,850     $  10,234        35.3 %
     Operating income                          $    31,589     $  49,072       (35.6 )%
     Total jobs                                     10,043        10,477        (4.1 )%
     Average revenue per job                   $     15.99     $   14.19        12.7 %
     Average direct operating costs per job    $      9.72     $    7.22        34.6 %
     Capital expenditures                      $    48,255     $  41,678        15.8 %

The number of jobs completed decreased in 2008 compared to 2007 as we and our customers increased our focus on the emerging development of unconventional reservoirs in the Appalachian Basin and the larger jobs associated therewith. As a result of this focus on unconventional reservoirs we experienced a decrease in smaller traditional pressure pumping jobs, which resulted in an overall decrease in the number of total jobs. Revenues and direct operating costs increased as a result of an increase in the average revenue and average direct operating costs per job. Increased average revenue per job was due to an increase in larger jobs being driven by demand for services associated with unconventional reservoirs as discussed above. Average direct operating costs per job

increased as a result of increases in compensation, maintenance and the cost of materials used in our operations, as well as an increase in larger jobs. Selling, general and administrative expense increased primarily as a result of expenses to support the expanding operations of the pressure pumping segment. Significant capital expenditures have been incurred to add capacity, expand our areas of operation and modify and upgrade existing equipment. The increase in depreciation expense is a result of the capital expenditures discussed above.

                                                 2008            2007       % Change
      Drilling and Completion Fluids           (Dollars in thousands)
      Revenues                               $   107,029      $ 97,775         9.5 %
      Direct operating costs                 $    93,408      $ 82,172        13.7 %
      Selling, general and administrative    $     7,621      $  7,319         4.1 %
      Depreciation                           $     2,202      $  2,121         3.8 %
. . .