Business Overview

While our results of operations during the current year period once again reflected increased revenues and profitability compared to the prior year period, several events occurred during the third quarter of 2008 which adversely affected our operations compared to the second quarter and which will present significant challenges to be faced during the coming years. The overall decline of the U.S. and worldwide economic environment which manifested during the quarter will have lasting implications that will affect each of our businesses. The current constrained credit markets have significantly limited the financing options available to the industry. While as of November 7, 2008 we have approximately $196.7 million remaining available borrowing capacity pursuant to our revolving line of credit facility, the availability of new debt or equity capital may now be severely limited. The secondary impact that the current financing environment will have on our customers within the industry is also uncertain. The resulting decreased industry spending which many analysts are expecting during the coming months could negatively impact the demand for certain of our products and services. Some of our businesses, however, could be minimally affected or benefit from the current environment. During the third quarter, and continuing subsequent to September 30, 2008, oil and natural gas commodity prices have dropped significantly, directly impacting our Maritech Resources, Inc. (Maritech) subsidiary, and further tightening the available cash flows of our oil and gas service customers. As a result of the above factors, our operating cash flows, which are a significant source of our liquidity, have begun to be negatively affected. Although our most significant capital expenditure projects are continuing toward their completion during 2009, the balance of our planned capital expenditure activity is being reviewed carefully in light of current financing constraints. Finally, we are also assessing the impact of the September 2008 hurricanes, which damaged several of our operating facilities and a number of Maritech's offshore platforms, including three platforms and the associated wells which were completely destroyed. A significant portion of Maritech's offshore production is currently shut-in, and one of the destroyed offshore platforms served a key producing field. While repair and recovery efforts have been prioritized to restore Maritech's production as soon as possible, the production restoration, well intervention and debris removal efforts associated with the destroyed platforms are expected to continue beyond 2009 and result in a significant use of capital resources prior to insurance recoveries.

Despite the negative factors discussed above, the results of operations for the third quarter of 2008 reflected significant growth for many of our businesses when compared to the third quarter of the prior year. In particular, our Production Enhancement segment, consisting of our production testing and compression services operations, continued to outperform prior periods, primarily due to the continued expansion of our equipment fleet to meet the high demand for these services. Despite a decrease in its revenues due to hurricanes and other weather disruptions, our WA&D Services segment reported increased profitability during the quarter compared to the prior year quarter. The WA&D Services segment's dive services operations, which reflected increased diving activity and efficiencies following these storms, contributed significantly to the segment's improved profitability compared to the prior year period. Despite high oil and natural gas prices for much of the quarter, our Maritech subsidiary reported negative gross profit during the period due to the production interruptions suffered following the hurricanes, and also due to oil and gas property impairments that were recorded during the quarter. Currently, approximately 60% of Maritech's oil and gas production remains shut-in following the hurricanes, and certain of the efforts necessary to restore such production are dependent on the extent of damage and subsequent repairs needed on certain assets owned by third parties, the timing of which is outside of Maritech's control. Our Fluids Division reported modest growth during the third quarter compared to the prior year period, despite weather downtime, due to higher pricing and favorable product mix. Overall, gross profit as a percentage of revenue during the third quarter of 2008 was 17.5%, an increase from the 14.9% reported in the prior year period, again reflecting the overall higher demand for many of our products and services during the quarter. Increased profitability was also generated by decreased administrative expenses, primarily due to decreased incentive compensation, and due to increased other income, primarily from gains on sales of oil and gas properties during the quarter.

Our consolidated balance sheet as of September 30, 2008 included current assets of $421.9 million, total assets of $1.4 billion, and long-term debt of $380.6 million. During the first nine months of 2008, we generated operating cash flows of $179.7 million. Operating cash flows are expected to decrease, however, beginning in the fourth quarter of 2008, primarily reflecting the impact of production interruptions and reduced oil and gas commodity prices for our Maritech subsidiary. We expended $206.7 million on investing activities during the first nine months of 2008, and expect to reduce our capital expenditures for 2008 to an amount less than the $300 million planned for the year, given the current capital markets and decreasing operating cash flows. However, our most significant capital projects will continue, including the ongoing development of our Fluids Division's new Arkansas calcium chloride plant and the construction of a new corporate headquarters building. The completion of these projects, as well as other selected capital projects, will continue to be funded by our operating cash flows and from long-term borrowing. The revolving credit facility, which has a balance as of November 7, 2008 of approximately $77.7 million, is scheduled to mature on June 26, 2011. Our Senior Note obligations, which currently have an aggregate outstanding balance of approximately $310 million, are scheduled to mature beginning in 2011 and continuing through 2016. While we continue to consider suitable acquisitions pursuant to our growth strategy, the current environment may limit acquisitions to those which can be funded through available borrowing capacity, rather than through the issuance of new debt or equity.

Critical Accounting Policies

There have been no material changes or developments in the evaluation of the accounting estimates and the underlying assumptions or methodologies pertaining to our Critical Accounting Policies and Estimates disclosed in our Form 10-K for the year ended December 31, 2007. In preparing our consolidated financial statements, we make assumptions, estimates, and judgments that affect the amounts reported. We periodically evaluate our estimates and judgments, including those related to potential impairments of long-lived assets (including goodwill), the collectibility of accounts receivable, and the current cost of future abandonment and decommissioning obligations. Our judgments and estimates are based on historical experience and on future expectations that are believed to be reasonable. The combination of these factors forms the basis for judgments made about the carrying values of assets and liabilities that are not readily apparent from other sources. These judgments and estimates may change as new events occur, as new information is acquired, and as our operating environment changes. Actual results are likely to differ from our current estimates, and those differences may be material.

Results of Operations

                                    Three Months Ended           Nine Months Ended
                                       September 30,               September 30,
                                    2008          2007          2008          2007
                                                    (In Thousands)
Revenues
Fluids Division                   $  65,399     $  60,669     $ 229,049     $ 214,447
WA&D Division
  WA&D Services                      84,341        87,086       215,219       262,135
  Maritech                           51,887        57,165       184,868       157,849
  Intersegment eliminations          (8,417 )     (10,275 )     (14,336 )     (23,187 )
   Total WA&D Division              127,811       133,976       385,751       396,797
Production Enhancement Division      56,100        45,544       164,240       126,848
Intersegment eliminations              (211 )      (1,331 )        (396 )      (1,584 )
                                    249,099       238,858       778,644       736,508
Gross profit
Fluids Division                      10,440         7,437        46,090        39,212
WA&D Division
  WA&D Services                      13,857         6,889        29,832        37,962
  Maritech                           (1,285 )       3,465        26,034        23,967
  Intersegment eliminations            (244 )          74           303         3,977
   Total WA&D Division               12,328        10,428        56,169        65,906
Production Enhancement Division      21,558        17,946        62,764        49,345
Other                                  (618 )        (161 )      (1,841 )        (743 )
                                     43,708        35,650       163,182       153,720
Income before taxes and discontinued operations
Fluids Division                       1,895           319        24,306        18,531
WA&D Division
  WA&D Services                       9,793         2,743        17,237        26,459
  Maritech                            1,814         1,668        26,757        21,357
  Intersegment eliminations            (243 )          74           303         3,977
   Total WA&D Division               11,364         4,485        44,297        51,793
Production Enhancement Division      16,166        13,539        48,565        37,171
Corporate overhead                  (10,259 )     (13,993 )     (41,167 )     (37,520 )
                                     19,166         4,350        76,001        69,975

The above information excludes the results of our Venezuelan and process services businesses, which have been accounted for as discontinued operations.

Three months ended September 30, 2008 compared with three months ended September 30, 2007.

Consolidated Comparisons

Revenues and Gross Profit - Our total consolidated revenues for the quarter ended September 30, 2008 were $249.1 million compared to $238.9 million for the third quarter of the prior year, an increase of 4.3%. Our consolidated gross profit increased to $43.7 million during the third quarter of 2008 compared to $35.7 million in the prior year quarter, an increase of 22.6%. Consolidated gross profit as a percentage of revenue was 17.5% during the third quarter of 2008 compared to 14.9% during the prior year period.

General and Administrative Expenses - General and administrative expenses were $25.6 million during the third quarter of 2008 compared to $26.1 million during the prior year period, a decrease of $0.5 million or 1.9%. This decrease was primarily due to approximately $1.6 million of decreased salary and other associated employee expenses primarily due to decreased incentive compensation compared to the prior year period. This decrease was partially offset by approximately $0.4 million of increased professional fees and insurance costs, and approximately $0.6 million of increased office and other general expenses. General and administrative expenses as a percentage of revenue were 10.3% during the third quarter of 2008 compared to 10.9% during the prior year period.

Other Income and Expense - Other income and expense was $5.3 million of income during the third quarter of 2008 compared to $0.9 million of expense during the third quarter of 2007, primarily due to approximately $4.2 million of increased gains on sales of properties, $0.5 million of increased unconsolidated joint venture earnings, and $3.4 million of increased hedge ineffectiveness gains. These increases were partially offset by an approximate $1.4 million legal settlement during the current year period and $0.5 million of decreased foreign currency gains.

Interest Expense and Income Taxes - Net interest expense decreased slightly to $4.2 million during the third quarter of 2008 compared to $4.3 million during the third quarter of 2007, as increased borrowings of long-term debt used to fund our acquisitions and capital expenditure requirements since the beginning of 2007 were offset by the associated capitalized interest and lower interest rates on the outstanding revolving credit facility. Interest expense is expected to remain high in future periods, as additional borrowings are used to fund our hurricane repair efforts and capital expenditure plans. Our provision for income taxes during the third quarter of 2008 increased to $7.0 million compared to $1.3 million during the prior year period, due to increased earnings.

Net Income - Income before discontinued operations was $12.1 million during the third quarter of 2008 compared to $3.0 million in the prior year third quarter, an increase of $9.1 million. Income per diluted share before discontinued operations was $0.16 on 76,315,957 average diluted shares outstanding during the third quarter of 2008 compared to $0.04 on 76,351,065 average diluted shares outstanding in the prior year.

During the fourth quarter of 2007, we sold our process services operation for approximately $58.7 million, net of certain adjustments. During the fourth quarter of 2006, we made the decision to discontinue our Venezuelan fluids and production testing businesses due to several factors, including the changing political climate in that country. Net loss from discontinued operations was $0.5 million during the third quarter of 2008 compared to $0.8 million of net income from discontinued operations during the third quarter of 2007.

Net income was $11.7 million during the third quarter of 2008 compared to $3.9 million in the prior year third quarter, an increase of $7.8 million. Net income per diluted share was $0.15 on 76,315,957 average diluted shares outstanding during the third quarter of 2008 compared to $0.05 on 76,351,065 average diluted shares outstanding in the prior year quarter.

Divisional Comparisons

Fluids Division - Our Fluids Division revenues increased to $65.4 million during the third quarter of 2008 compared to $60.7 million during the third quarter of 2007, an increase of $4.7 million or 7.8%. This increase was primarily due to a $6.6 million increase in manufactured product sales, particularly domestically, due to increased pricing and volumes. These increases were partially offset by a $1.8 million decrease in worldwide brine sales volumes. Decreased brine sales, particularly offshore, are expected to continue during the remainder of the year and early 2009 due to decreases in expected demand, as operators recover from the third quarter 2008 hurricanes.

Our Fluids Division gross profit increased to $10.4 million during the third quarter of 2008, compared to $7.4 million during the prior year period, an increase of $3.0 million or 40.4%. Gross profit as a percentage of revenue increased to 15.9% during the current year period compared to 12.3% during the prior year period. This increase was primarily due to the decreased costs for certain brine products, and a favorable product mix during the period. A favorable long-term supply for certain of the Division's raw material needs has been secured, and the Division has begun to reflect lower product costs as a result.

Fluids Division income before taxes during the third quarter of 2008 totaled $1.9 million compared to $0.3 million in the corresponding prior year period, an increase of $1.6 million or 494.0%. This increase was generated by the $3.0 million increase in gross profit discussed above and a $0.2 million decrease in administrative expenses, which were partially offset by approximately $1.6 million of increased other expense, primarily due to a $1.4 million legal settlement during the period.

WA&D Division - Our WA&D Division revenues decreased from $134.0 million during the third quarter of 2007 to $127.8 million during the current year period, a decrease of $6.2 million or 4.6%. WA&D Division gross profit during the third quarter of 2008 totaled $12.3 million compared to $10.4 million during the

prior year third quarter, an increase of $1.9 million or 18.2%. WA&D Division income before taxes was $11.4 million during the third quarter of 2008 compared to $4.5 million during the prior year period, an increase of $6.9 million or 153.4%.

The Division's WA&D Services operations revenues decreased to $84.3 million during the third quarter of 2008 compared to $87.1 million in the prior year quarter, a decrease of $2.7 million or approximately 3.2%. This decrease was primarily due to reduced heavy lift activity during the period, primarily due to weather disruptions as a result of Hurricanes Gustav and Ike and three other named storms during the quarter. This decrease was partially offset by increased dive services and offshore abandonment activity and vessel utilization during the current year period. The Division aims to capitalize on the current and expected demand for well abandonment, decommissioning, diving and other service activity in the Gulf of Mexico, including the work to be performed over the next several years on offshore properties that were damaged or destroyed during the 2005 and 2008 hurricanes.

The WA&D Services segment of the Division reported gross profit of $13.9 million during the third quarter of 2008 compared to $6.9 million during the third quarter of 2007, a $7.0 million increase. In addition, the WA&D Services segment's gross profit as a percentage of revenues increased to 16.4% during the current year third quarter compared to 7.9% during the prior year period. This increase was primarily generated by the increased dive services activity, more favorable contract terms, as well as increased operating efficiencies and vessel utilization for the Division's heavy lift and well abandonment operations.

WA&D Services segment income before taxes increased from $2.7 million during the third quarter of 2007 to $9.8 million during the current year third quarter, an increase of $7.1 million or 257.0%. This increase was caused by the $7.0 million increase in gross profit described above, as administrative expenses and other income remained flat compared to the prior year period.

The Division's Maritech operations reported revenues of $51.9 million during the third quarter of 2008 compared to $57.2 million during the prior year period, a decrease of $5.3 million, or 9.2%. Approximately $12.2 million of decreased revenues were due to reduced production volumes during the current year quarter as production during the month of September 2008 was significantly interrupted by Hurricanes Gustav and Ike. Production volumes are expected to continue to be less than prior year levels during the fourth quarter of 2008 and early 2009, as Maritech works to restore production on damaged properties. Much of Maritech's daily production is processed through neighboring platforms, pipelines and processing facilities of other operators and third parties. While we anticipate that the majority of Maritech's shut-in properties will resume production during late 2008 and early 2009, the full resumption of Maritech's production levels depends on the extent of damage and the repairs needed on certain of these third party assets, the timing of which is outside of Maritech's control. Partially offsetting this decrease in production volumes was the impact of increased realized commodity prices, which generated approximately $6.6 million of increased revenues during the quarter compared to the prior year period. Maritech reflected average realized oil and natural gas prices during the third quarter of 2008 of $74.97/barrel and $9.59/Mcf, respectively. During the third quarter of 2008, and continuing subsequent to September 30, 2008, market prices for oil and natural gas have decreased significantly. Maritech has historically hedged a portion of its expected future production levels by entering into derivative hedge contracts, with current contracts extending through 2010. Following the impact from Hurricane Ike in September 2008, a portion of the derivative contracts associated with the remaining 2008 production are now ineffective, and the associated contract payments and changes in derivative fair value will be excluded from Maritech revenues during the remainder of the year and reflected in other income (expense). In addition to the above described impact from decreased production and improved pricing, Maritech reported $0.3 million of increased processing revenue during the current year quarter.

Maritech reported a $4.8 million decrease in gross profit during the third quarter of 2008, reporting negative $1.3 million during the current year period compared to $3.5 million during the third quarter of 2007, a decrease of 137.1%. The impact of Maritech's decreased production volumes was partially offset by approximately $0.5 million of decreased operating expenses, including $1.3 million of decreased depreciation, depletion, and amortization costs, as well as $5.1 million of decreased excess abandonment costs. These decreased costs were partially offset by $2.3 million of current period dry hole costs and $4.0 million of increased property impairments during the current year quarter compared to the prior year period due to changes in oil and gas prices as well as increased future well intervention costs following the 2008 hurricanes. Maritech has begun to incur initial hurricane repair expenses on certain of Maritech's offshore

platforms, and such repair costs in excess of applicable deductibles are expected to be recoverable pursuant to its insurance policies. A portion of the well intervention and decommissioning expenditures to be incurred on Maritech's three downed platforms, including removal of debris costs, have been added to Maritech's decommissioning liabilities, as similar costs from the 2005 hurricanes have not yet been reimbursed.

The Division's Maritech operations reported income before taxes of $1.8 million during the third quarter of 2008 compared to $1.7 million during the prior year period, an increase of $0.1 million or 8.7%. This increase occurred despite the $4.8 million decrease in gross profit discussed above due to a $4.5 million increase in other income primarily due to $4.4 million of increased gains on sales of oil and gas properties during the current year quarter, and a $0.4 million decrease in administrative expenses.

Production Enhancement Division - Production Enhancement Division revenues increased from $45.5 million during the third quarter of 2007 to $56.1 million during the current year quarter, an increase of $10.6 million. This 23.2% increase was primarily due to $9.3 million of increased revenues from the Division's production testing operations, primarily as a result of increased domestic demand and from increased Latin American activity. Compressco revenues increased by approximately $1.8 million compared to the prior year period, due to price increases and its overall growth domestically. In addition, the Division reflected $0.6 million of other revenues during the prior year period. The Division continues to add to its service equipment fleet to meet the growing demand for its products and services.

Production Enhancement Division gross profit increased from $17.9 million during the third quarter of 2007 to $21.6 million during the third quarter of 2008, an increase of $3.6 million or 20.1%. Gross profit as a percentage of revenues decreased slightly, however, from 39.4% during the third quarter of 2007 to 38.4% during the current year period, primarily due to increased operating expenses, particularly for certain of the Division's newly established international testing operations.

Income before taxes for the Production Enhancement Division increased 19.4%, from $13.5 million during the prior year third quarter to $16.2 million during the third quarter of 2008, an increase of $2.6 million. This increase was primarily due to the $3.6 million of increased gross profit discussed above, partially offset by approximately $0.8 million of increased administrative costs and $0.2 million of decreased other income primarily due to decreased foreign currency gains.

Corporate Overhead - Corporate Overhead includes corporate general and administrative expense, interest income and expense, and other income and expense. Such expenses and income are not allocated to the Company's operating divisions, as they relate to the Company's general corporate activities. Corporate overhead decreased from $14.0 million during the third quarter of 2007 to $10.3 million during the third quarter of 2008, primarily due to increased other income, which increased approximately $3.3 million due to hedge ineffectiveness gains during the quarter. In addition, corporate administrative costs decreased approximately $0.7 million due to approximately $1.1 million of decreased employee related costs, primarily from decreased equity compensation cost, offset by approximately $0.3 million of increased insurance and professional fee expense, and approximately $0.1 million of increased office and general expenses. Corporate interest expense decreased by approximately $0.2 million during the third quarter of 2008 compared to the prior year period, as the impact of the increased outstanding balance of long-term debt, which was used to fund the capital expenditure activities during the past year, was largely offset by the increased associated capitalized interest and decreased interest rates on the revolving credit facility. In addition, during the current year period, we reflected approximately $0.3 million of increased depreciation expense.

Nine months ended September 30, 2008 compared with nine months ended September 30, 2007.

Consolidated Comparisons

Revenues and Gross Profit - Our total consolidated revenues for the nine months ended September 30, 2008 were $778.6 million compared to $736.5 million for the first nine months of the prior year, an increase of 5.7%. Our consolidated gross profit increased to $163.2 million during the first nine months of 2008 compared to $153.7 million in the prior year period, an increase of 6.2%. Consolidated gross profit as a percentage of revenue was 21.0% during the first nine months of 2008 compared to 20.9% during the prior year period.

General and Administrative Expenses - General and administrative expenses were $78.8 million during the first nine months of 2008 compared to $74.4 million during the prior year period, an increase of $4.4 million or 5.9%. This increase was primarily due to our overall growth and included approximately $2.9 million of increased salary, incentives, benefits, contract labor costs, and other associated employee expenses, approximately $1.0 million of increased professional fees and insurance costs, and approximately $0.9 million in increased other general expenses. These increases were partially offset by approximately $0.4 million of decreased bad debt expense. General and administrative expenses as a percentage of revenue remained flat at 10.1% during the current and prior year periods.

Other Income and Expense - Other income and expense was $4.5 million of income during the first nine months of 2008 compared to $3.2 million of income during . . .