The following discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto included elsewhere in this report. This discussion contains forward-looking statements. Please see "Caution Regarding Forward-Looking Information; Risk Factors" above and "Risk Factors" below and in our Annual Report on Form 10-K for the year ended December 31, 2007, for a discussion of the uncertainties, risks and assumptions associated with these statements.

OVERVIEW

Business

We are a global leader in the design, manufacture and service of technology-based solutions for the upstream energy industry. We seek to change the way people drill wells by delivering safer and more efficient solutions that add real value by reducing the costs of drilling for and producing oil and gas.

We organize our activities into three business segments: Top Drive, Casing Services and Research and Engineering, and our financial and operating data are presented consistent with that structure. The Top Drive business segment consists of Top Drive sales, Top Drive rentals and after-market sales and service. The Casing Services business segment includes CASING DRILLING and our proprietary and conventional Tubular Services. The Research and Engineering ("R&E") segment consists of our research and development activities primarily related to our proprietary Casing Services technology and Top Drive model development.

Our Top Drive business segment sells equipment and provides services to drilling contractors and oil and gas operating companies throughout the world. We offer our customers a range of top drive systems which we manufacture based on proprietary design and engineering. These top drives, which can be installed in mast configurations including land, offshore and workover rigs, are used in drilling operations to rotate the drill string while suspended from the derrick above the rig floor. We both sell this equipment to our customers and provide rental units on a day-rate basis. Additionally, we provide after-market sales and service to customers who own TESCO Top Drives.

Our Casing Services business segment includes a Tubular Services business which was previously referred to as the Casing Running business and CASING DRILLING.

• Our Tubular Services business includes both proprietary and conventional services, which are typically offered as a "call out" service on a well-by-well basis.

† Our proprietary Tubular Service business is based on our Proprietary Casing Running Service technology ("PCRS"), which uses certain components of our TESCO CASING DRILLING™ ("CASING DRILLING") technology, in particular the Casing Drive System ™ ("CDS"), and provides an efficient method for running casing and, if required, reaming the casing into the hole. Additionally, our proprietary Tubular Service business includes the installation service of deep water smart well completion equipment using our Multiple Control Line Running System™ ("MCLRS"), a proprietary and patented technology which improves the quality of the installation of high-end well completions. Prior to January 1, 2008, MCLRS and certain part sales and services were included with conventional services. Since MCLRS is a proprietary and patented technology, we now include this and related activity with our proprietary information. Accordingly, we have reclassified prior year revenues related to MCLRS from conventional to proprietary in the tables below.

† Our conventional Tubular Service business provides equipment and personnel for the installation of tubing and casing, including power tongs, pick-up/lay-down units, torque monitoring services,

• Our CASING DRILLING business is based on our proprietary CASING DRILLING technology, which uses patented equipment and processes to allow an oil or gas well to be drilled using standard well casing pipe. In contrast, conventional or straight practice rotary drilling requires the use of specialized drill pipe and drillstring components. The demonstrated benefits of using well casing to drill the well compared with conventional drilling include a reduction in the risk of unscheduled downhole events that typically result in non-productive time and additional cost and operational risk to the drilling contractor and well operator.

RESULTS OF OPERATIONS

For the Three Months Ended September 30, 2008 and 2007

Our revenues, operating income and net income for the three months ended September 30, 2008 increased compared to the same period in 2007 primarily due to increased Top Drive product sales, higher after-market sales and service activity and increased activities in proprietary Casing Services and CASING DRILLING. Revenues, operating income and net income for the three months ended September 30, 2008 and 2007 were as follows:

                                          Three Months Ended September 30,
                                            2008                    2007
                                                   % of                    % of       %
                                                  Revenue                 Revenue   Change
  REVENUE
  Top Drive
  -Sales                            $  45,958               $  29,164                   58
  -After-market sales and service      17,443                  13,710                   27
  -Rental operations                   27,720                  29,144                   (5 )

  Total Top Drive                      91,121          65      72,018          63       27
  Casing Services
  -Conventional(1)                     18,882                  23,217                  (19 )
  -Proprietary(1)                      23,481                  15,016                   56
  -CASING DRILLING                      6,537                   3,639                   80

  Total Casing Services                48,900          35      41,872          37       17

  Total Revenue                     $ 140,021         100   $ 113,890         100       23

  OPERATING INCOME(2)
  Top Drive                         $  32,388          36   $  18,883          26       72
  Casing Services                       4,043           8        (736 )       n/a      649
  Research and Engineering             (2,560 )       n/a      (3,544 )       n/a       28
  Corporate and Other                  (8,471 )       n/a      (5,990 )       n/a      (41 )

  Total Operating Income            $  25,400          18   $   8,613           8      195

  NET INCOME                        $  17,581          13   $  10,839          10       62

(1) At the end of 2007, we commenced the presentation of Tubular Services revenue according to two categories: conventional and proprietary. Prior to January 1, 2008, MCLRS and certain part sales and services were included with conventional services. However, since these activities use proprietary and patented technology, we now include them with our proprietary information. Accordingly, we have reclassified prior year revenues of approximately $3.3 million related to these sales from conventional to proprietary to conform to our current year presentation.

Total revenues for the three months ended September 30, 2008 were $140.0 million, compared to $113.9 million in the same period in 2007, an increase of $26.1 million, or 23%. This increase is primarily due to increased activities in the Top Drive segment, particularly sales of Top Drive units and after-market sales and service and increased proprietary revenues and CASING DRILLING activity in the Casing Services segment.

Operating Income for the three months ended September 30, 2008 was $25.4 million, compared to $8.6 million in the three months ended September 30, 2007, an increase of $16.8 million or 195%. This increase is primarily attributable to a $13.5 million increase in the Top Drive Segment, a $4.7 million increase in operating income in the Casing services segment and lower research and engineering expenses, offset by higher corporate expenses.

Net Income for the three months ended September 30, 2008 was $17.6 million, compared to $10.8 million in the same period in 2007, an increase of $6.7 million or 62%. This increase is due primarily to increased operating income as discussed above and the comparative weakening of the Canadian dollar between the two periods, partially offset by an increase in our effective tax rate from a benefit of 22% in the third quarter of 2007 to a provision of 27% during the third quarter of 2008.

Top Drive Segment

Our Top Drive segment consists of Top Drive sales, after-market sales and service and Top Drive rental activities.

Revenues-Revenues for the three months ended September 30, 2008 increased $19.1 million compared to the same period in 2007, primarily driven by a $16.8 million increase in Top Drive sales and a $3.7 million increase in after-market sales and service, offset by a $1.4 million decrease in Top Drive rental operations.

Revenues from Top Drive sales increased $16.8 million to $46.0 million as compared to the same period in 2007, primarily due to a higher number of Top Drive units sold during the three months ended September 30, 2008. We sold 38 units (32 new and 6 used) during the three months ended September 30, 2008 as compared to the 25 units sold (23 new and 2 used) during the similar period in 2007. When Top Drive units from our rental fleet are sold, the sales proceeds are included in revenues and the net book value of the equipment sold is included in cost of sales and services. Revenues related to the sale of used Top Drive units during the three months ended September 30, 2008 and 2007 were $7.1 million and $2.7 million, respectively.

Revenues from after-market sales and service increased $3.7 million to $17.4 million as compared to 2007, primarily as a result of our continued efforts and focus on growing this business, and as a result of a larger installed base of our Top Drive units around the world. As we sell more Top Drive units, demand for our after-market parts and services has also increased.

Revenues from Top Drive rental activities decreased $1.4 million to $27.7 million during the three months ended September 30, 2008 as compared to the same period in 2007, primarily due to a decrease in the number of rental operating days during the current year's period. Our rental fleet worked 6,014 operating days during the three months ended September 30, 2008, down slightly from 6,137 operating days in the same period last year.

Operating Income-Top Drive operating income for the three months ended September 30, 2008 increased $13.5 million to $32.4 million compared to the same period in 2007. The increase in operating income during the current period is primarily due to the increased number of Top Drives sold during the current period, as discussed above, combined with increased margins on those sales. The average sales price for new Top Drive units sold during the quarter ended September 30, 2008 was approximately 6% higher than sales during the same period last year. Although the average sales price for used sales decreased slightly during the three months ended September 30, 2008 compared to the same period last year, margins increased 20% on used Top Drive sales due to a comparably lower carrying value of the used units sold. We also have improved operating income through the use of modularization, which involves outsourcing the assembly of certain component parts to lower-cost locations. In addition, Top Drive operating income was favorably affected by higher revenues and margins in our after-market sales and service business during the three months ended September 30, 2008 compared to the same period last year.

Outlook- As a result of the current global macro-economic picture, projection of future outlook is complicated. However, we believe top drive backlog is a leading indicator of how our business will be affected by changes in the global economy. As outlined above, our backlog continued to increase through the third quarter. However, we expect a slower order rate in the fourth quarter and into 2009. Based on our current backlog, we believe that revenues associated with the sales of new Top Drive units during the last quarter of 2008 will be similar to each of the first three quarters. Over the last three years, our average revenue per Top Drive unit sale has increased due to a shift in market demand to larger, more complex units. However, we have very recently seen an increase in the demand for smaller Top Drive units typically required for fast-moving new build rigs. The increase in demand for particular models in Top Drive sales is also reflected in the demand in our Top Drive rental business. Therefore, we are revitalizing our Top Drive rental fleet by selling some of our older used units and replacing them with newer, higher performance models. We are monitoring the size of our rental fleet to maintain optimal utilization. We intend to manage our fleet revitalization program such that disruptions to our rental operations are minimized. During the three months ended September 30, 2008, we added 7 new Top Drive units to our rental fleet and sold 6 units to customers. At September 30, 2008, we had 119 units in our rental fleet, up from 118 units as of June 30, 2008.

Demand for our Top Drive after-market sales and services has grown due to the increased number of Top Drive units sold to customers. We expect these revenues to continue to increase as our third-party installed base expands around the globe.

We had a third-party backlog of 77 Top Drive units as of September 30, 2008 compared to a third-party backlog of 52 units as of June 30, 2008. We have increased our manufacturing capacity to 10-14 units per month to meet our customer demand for new Top Drive units, as well as demand for after-market sales and our plans to revitalize our rental fleet. We believe that our Top Drive business needs to maintain manufacturing inventory of two quarters of production to allow us to effectively manage our supply chain and workforce while limiting our exposure in the event that the sales market softens. We also maintain some inventory of long lead-time items and semi-finished goods in excess of this two quarter production window to support our after-market business and for our manufacturing operations. During 2007, we installed a new inventory planning and purchasing system at our manufacturing plant to help us manage our inventory levels and reduce our manufacturing lead times. We continue to focus on lowering our manufacturing costs through better international sourcing and finding ways to minimize the impact of the fluctuations in the value of the US dollar on our sales margins.

Casing Services Segment

Our Casing Services segment includes Tubular Services and CASING DRILLING.

Revenues-Revenues for the three months ended September 30, 2008 increased $7.0 million, or 17%, to $48.9 million as compared to the same period in 2007. This was primarily due to an $8.5 million increase in our proprietary tubular services business and a $2.9 million increase in CASING DRILLING revenues, partially offset by a $4.3 million decrease in our conventional tubular service business. The increase in our proprietary revenues is associated with a 97% increase in our proprietary casing running services and a $0.4 million increase in CDS parts sales, partially offset by a decrease in MCLRS revenues from $2.7 million to $0.5 million for the three months ended September 30, 2008 compared to the same period last year. The decrease in MCLRS revenues was due to a reduction in the number of MCLRS projects that were in progress during the three months ended September 30, 2008, particularly in the U.S. Gulf of Mexico. Revenues for CASING DRILLING increased by $2.9 million, or 80%, to $6.5 million for the three months ended September 30, 2008 compared to $3.6 million in the same period last year. The increase in CASING DRILLING revenues was primarily due to increased demand for our services and higher revenues per project due to the drilling of more difficult wells. Revenues for the three months ended September 30, 2008 associated with our conventional tubular service business decreased $4.3 million, or 19%, compared to the same period in 2007 due to our shift in job focus from conventional to proprietary services and $0.9 million in lost revenues due to Hurricanes Gustav and Ike during the current period.

Operating Income-Casing Services' operating income for the three months ended September 30, 2008 increased $4.7 million to income of $4.0 million compared to a loss of $0.7 million for the same period in 2007. This increase was primarily due to increased activity in our proprietary casing running business and increased margins for both conventional tubular services and CASING DRILLING. During the three months ended September 30, 2007, we recognized a loss in Casing Services due to increased labor costs and a build-up of resource costs associated with delivering our CASING DRILLING services throughout the world.

Outlook- We expect our CDS proprietary casing running business to continue to increase in 2008 and 2009 compared to 2007 due to increased customer demand. We expect our conventional activity to remain at a level consistent with 2007. We continue to address the cost structure of our North American Tubular Services business by optimizing personnel and assets in operating areas that provide the highest returns. Additionally, we continue to expand our Tubular Services activities in certain international locations. However, our casing services margins are negatively impacted by competition for the retention and recruitment of experienced personnel and in our limited ability to increase prices to offset cost inflation. With respect to our CASING DRILLING business, we continue to invest in this business and believe that activity levels in this area should continue to increase in 2008 compared to 2007. During 2007, we incurred a substantial expense to build our resource base to expand our CASING DRILLING business, and we believe that these investments will continue to yield growth in our CASING DRILLING revenues in 2008 and beyond.

Research and Engineering Segment

R&E's operating loss consists of our activities related to the research and development of our proprietary technologies in Casing Services and Top Drive models. The R&E operating loss was $2.6 million for the three months ended September 30, 2008, compared to a loss of $3.5 million from the same period in 2007. The $0.9 million decrease in the loss was primarily due to expenses incurred to develop a prototype unit of a new generation of Top Drive units during the three months ended September 30, 2007.

Corporate and Other Expenses

Corporate and Other primarily consists of the corporate level general and administrative expenses and corporate level selling and marketing expenses. Corporate and Other's operating loss for the three months ended September 30, 2008 increased $2.5 million to a $8.5 million loss compared to a loss of $6.0 million the same period in 2007. This increase is primarily due to a $1.5 million increase in bonus accruals based on the company's improved financial performance, a $0.5 million increase in salaries and a $0.3 million increase in advertising and marketing expenses from the same period in 2007.

Net Income

Net income for the three months ended September 30, 2008 and 2007 was as follows
(in thousands):



                                          Three Months Ended September 30,
                                             2008                   2007
                                                   % of                   % of
                                                  revenue                revenue
           Operating Income          $ 25,400          18   $  8,613           8
           Interest expense             1,098           1      1,122           1
           Interest income                (45 )        -        (709 )        -
           Foreign exchange losses        422          -         523          -
           Other income                   (99 )        -      (1,177 )        (1 )
           Income taxes                 6,443           4     (1,985 )         2

Interest Expense-Interest expense for the three months ended September 30, 2008 was relatively flat compared to the same period in 2007. During the three months ended September 30, 2008, average daily debt balances were $62.1 million, approximately $22.0 million higher than the same period last year. This increase was partially offset by a 242-basis point decrease in the weighted average interest rate during the current year due to market conditions, resulting in lower interest expense during the current year period.

Interest Income-Interest income for the three months ended September 30, 2008 decreased $0.7 million compared to the same period in 2007, primarily due to interest received on a Mexico tax deposit during the three months ended September 30, 2007.

Foreign Exchange Losses-Foreign exchange losses decreased $0.1 million to a loss of $0.4 million primarily due to the comparative strengthening of the US dollar between the two periods. We were not party to any foreign currency forward contracts during the three months ended September 30, 2008 or 2007.

Other Income-Other income for the three months ended September 30, 2008 decreased $1.1 million to $0.1 million as compared to the same period in 2007, primarily due to the reversal of $1.4 million in accrued interest and penalties related to the favorable resolution of a Mexico tax claim during the three months ended September 30, 2007 (see Note 5 to the Condensed Consolidated Financial Statements included in Item 1 "Financial Statements (Unaudited)" above).

Income Taxes-TESCO is an Alberta, Canada corporation. We conduct business and are taxed on profits earned in a number of jurisdictions around the world. Our income tax expense is provided based on the laws and rates in effect in the countries in which operations are conducted or in which TESCO and/or its subsidiaries are considered residents for income tax purposes. Income tax expense as a percentage of pre-tax earnings fluctuates from year to year based on the level of profits earned in each jurisdiction in which we operate and the tax rates applicable to such profits. Please see Note 5 to the condensed consolidated financial statements included in Item 1, "Financial Statements (Unaudited)," above for a description of our Mexican tax matters.

Our effective tax rate for the three months ended September 30, 2008 was a provision of 27% compared to a benefit of 22% for the same period in 2007. The tax benefit recorded for the three months ended September 30, 2007 reflects the cumulative effect of a reversal of the valuation allowances recorded in 2006 on foreign tax credits, the recognition of a benefit for research and development credits related to 2005 and 2006, the recognition of a benefit related to the favorable resolution of a tax claim in Mexico, and the recognition of a benefit as a result of filing the our U.S. income tax returns in September 2007. Our effective tax rate for the nine months ended September 30, 2008 was 25% compared to 24% for the same period in 2007. The effective tax rates for the three and nine months ended September 30, 2008 are lower than the Canadian statutory tax rate due

to earnings generated in jurisdictions with statutory tax rates that are lower than the Canadian statutory tax rate and the effects of certain legal entity restructurings.

As discussed in Note 5 to the Condensed Consolidated Financial Statements included in Item 1 above, our tax returns are subject to examination in each of the jurisdictions in which we operate, and the audit outcomes and the timing of audit settlements are subject to significant uncertainty. Therefore, additional provisions on tax-related matters could be recorded in the future as revised estimates are made or the underlying matters are settled or otherwise resolved.

For the Nine Months Ended September 30, 2008 and 2007

Our revenues, operating income and net income for the nine months ended September 30, 2008 increased compared to the same period in 2007 primarily due to increased Top Drive product sales, after-market sales and service and increased Proprietary Tubular Service and CASING DRILLING activities. Revenues, operating income and net income for the nine months ended September 30, 2008 and 2007 were as follows:

                                           Nine Months Ended September 30,
                                            2008                    2007
                                                   % of                    % of       %
                                                  Revenue                 Revenue   Change
  REVENUE
  Top Drive
  -Sales                            $ 121,037               $  93,738                   29
  -After-market sales and service      49,614                  36,375                   36
  -Rental operations                   82,201                  81,342                    1

  Total Top Drive                     252,852          64     211,455          63       20
  Casing Services
  -Conventional(1)                     62,582                  66,702                   (6 )
  -Proprietary(1)                      59,419                  51,579                   15
  -CASING DRILLING                     20,693                   8,261                  150

  Total Casing Services               142,694          36     126,542          37       13

  Total Revenue                     $ 395,546         100   $ 337,997         100       17

  OPERATING INCOME(2)
. . .