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, 2008, for a discussion of the uncertainties, risks and assumptions associated with these statements.

OVERVIEW

Business

TESCO is a global leader in the design, manufacture and service delivery 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. Our product and service offerings include proprietary technology, including TESCO CASING DRILLING® ("CASING DRILLING"), TESCO's Casing Drive System ™ ( "CDS") and TESCO's Multiple Control Line Running System™ ( "MCLRS"). TESCO® is a registered trademark in Canada and the United States. TESCO CASING DRILLING® is a registered trademark in the United States. CASING DRILLING® is a registered trademark in Canada and CASING DRILLING™ is a trademark in the United States. Casing Drive System™, CDS™, Multiple Control Line Running System™ and MCLRS™ are trademarks in Canada and the United States.

Our four business segments are: Top Drives, Tubular Services, CASING DRILLING and Research and Engineering. Historically, we organized our activities into three business segments: Top Drives, Casing Services and Research and Engineering. Effective December 31, 2008, we determined that the CASING DRILLING segment no longer met the criteria which allowed it to be aggregated with the Tubular Services segment and therefore changed the presentation of our Tubular Services activities and CASING DRILLING activities into two separate segments. The financial and operating data for the three and six months ended June 30, 2008 have been recast to be presented consistently with this structure.

Our Top Drive segment sells equipment and provides services to drilling contractors and oil and gas operating companies throughout the world. We primarily manufacture top drives that are used in drilling operations to rotate the drill string while suspended from the derrick above the rig floor. We also provide top drive rental services on a day-rate basis for land and offshore drilling rigs, and we provide after-market sales and support for our customers.

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, which uses certain components of our CASING DRILLING technology, in particular the 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 MCLRS, a proprietary and patented technology which improves the quality of the installation of high-end well completions.

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, connection testing services and power swivels for new well construction and in work-over and re-entry operations.

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 June 30, 2009 and 2008

Our revenues, operating income and net income for the three months ended June 30, 2009 decreased compared to the same period in 2008 primarily due to decreased top drive product sales, decreased top drive rental activities, decreased conventional Tubular Services revenues, and decreased CASING DRILLING activity, partially offset by increased activities in proprietary Tubular Services. Revenues, operating income and net income for the three months ended June 30, 2009 and 2008 were as follows:

                                                    Three Months Ended June 30,
                                                2009                           2008
                                                        % of                           % of           %
                                                      Revenues                       Revenues       Change
REVENUES
Top Drive
-Sales                                 $ 27,824                      $  36,600                         (24 )
-After-market support(1)                 11,902                         16,125                         (26 )
-Rental services                         18,074                         26,811                         (33 )

Total Top Drive                          57,800             65          79,536             63          (27 )
Tubular Services(2)
-Conventional                             4,498                         20,134                         (78 )
-Proprietary(1)                          23,425                         18,697                          25

Total Tubular Services                   27,923             32          38,831             31          (28 )
CASING DRILLING                           2,704              3           7,790              6          (65 )

Total Revenues                         $ 88,427            100       $ 126,157            100          (30 )

OPERATING (LOSS) INCOME
Top Drive                              $ 10,167             18       $  26,382             33          (61 )
Tubular Services                         (1,730 )           (6 )         3,546              9         (149 )
CASING DRILLING                          (4,865 )         (180 )        (3,549 )          (46 )        (37 )
Research and Engineering                 (1,845 )          n/a          (2,794 )          n/a           34
Corporate and Other                      (8,945 )          n/a          (6,591 )          n/a          (36 )

Total Operating (Loss) Income          $ (7,218 )           (8 )     $  16,994             13         (142 )

NET (LOSS) INCOME                      $ (3,601 )           (4 )     $  12,682             10         (128 )

(1) At the end of 2008, we identified sales of certain accessories that were previously included as part of our top drive after-market support activities. However, since these accessories are directly related to our proprietary and patented Tubular Services technology, we now include them with our proprietary information. Accordingly, we have reclassified prior year revenues and operating income of approximately $0.6 million and $0.4 million, respectively, related to these sales from top drive after-market support to proprietary Tubular Services to conform to our current year presentation.

Revenues for the three months ended June 30, 2009 were $88.4 million, compared to $126.2 million in the same period in 2008, a decrease of $37.8 million, or 30%. This decrease is due to a $21.8 million decrease in the Top Drive segment, a $10.9 million decrease in the Tubular Services segment and a $5.1 million decrease in the CASING DRILLING segment. Each segment is discussed in further detail below.

Operating (Loss) Income for the three months ended June 30, 2009 was a loss of $7.2 million, compared to income of $17.0 million in the three months ended June 30, 2008, a decrease of $24.2 million, or 142%. This decrease is primarily due to lower revenues in all of our segments, decreased margins due to severe pricing pressures associated with the current economic environment, a $1.8 million impairment of fixed assets held for sale, $1.6 million in increased legal fees associated with ongoing litigation, $1.6 million in severance costs and a $0.5 million loss recognized on the sale of operating assets, as discussed further below.

Net (Loss) Income for the three months ended June 30, 2009 was a loss of $3.6 million, compared to income of $12.7 million in the same period in 2008, a decrease of $16.3 million, or 128%. This decrease is primarily due to decreased operating income as discussed above and a $1.8 million decrease in foreign exchange losses (gains), partially offset by a $0.8 million decrease in interest expense and a $9.1 million decrease in income tax expense, as discussed below.

Top Drive Segment

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

Revenues-Revenues for the three months ended June 30, 2009 decreased $21.8 million, or 27%, compared to the same period in 2008, primarily driven by a $8.8 million decrease in top drive sales, a $8.7 million decrease in top drive rental operations and a $4.2 million decrease in after-market sales and service.

Revenues from top drive sales decreased $8.8 million to $27.8 million for the three months ended June 30, 2009 as compared to the same period in 2008. We sold 28 units (27 new and one used) during the three months ended June 30, 2009, compared to 30 units sold (24 new and 6 used) during the same period in 2008. The $8.8 million decrease in revenues described above is primarily due to a decrease in the number of used top drive units sold. 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 June 30, 2009 were $0.9 million, down from $6.3 million during the three months ended June 30, 2008.

Revenues from top drive rental service activities decreased $8.7 million to $18.1 million during the three months ended June 30, 2009 as compared to the same period in 2008, primarily due to a decrease in the number of rental operating days, primarily in North America, during the current year's period. Our rental fleet worked 3,682 operating days during the three months ended June 30, 2009, down from 5,660 operating days in the same period last year. Demand for our top drive rental services is directly tied to operating rig count; on a year-over-year basis, we estimate that the worldwide operating rig count has declined approximately 40%. In addition to the decrease in operating days, revenues during the three months ended June 30, 2009 were lower than the prior year due to pricing pressures, particularly in North America. As demand for rental services has decreased, we have lowered our quoted prices in certain areas in order to remain competitive. At June 30, 2009, we had 125 top drives in our rental fleet.

Revenues from after-market sales and service decreased $4.2 million to $11.9 million for the three months ended June 30, 2009 as compared to the same period in 2008, primarily due to the decline in industry conditions during the current year's period compared to the prior year. During 2009, weakened economic conditions

resulted in a dramatic decrease in operating rig count and drilling activities. Accordingly, our customers have decreased their demand for after-market parts and maintenance and repair services. This decrease in demand has resulted in increased competition from our peers, resulting in pricing pressures and thus, decreased revenues per job.

Operating Income-Top Drive operating income for the three months ended June 30, 2009 decreased $16.2 million to $10.2 million as compared to the same period in 2008. The decrease in operating income during the current period is primarily due to the decrease in the number of used top drives sold during the current period, as discussed above. We sold one used unit during the current period, compared to six used units last year. The used top drive units sold typically are our older units that operated in our rental fleet, and they have a lower basis, resulting in higher margins from the sales. In addition, operating margins were negatively impacted by pricing pressures on our rental services and after-market sales and services businesses, as described above. In response to industry conditions, we reduced our number of top drive personnel and recorded severance costs of $0.5 million in the top drive segment during the three months ended June 30, 2009.

Outlook-We had a third-party backlog of 10 top drive units as of June 30, 2009 compared to a third-party backlog of 35 units as of March 31, 2009 and 65 units as of December 31, 2008. As we outlined in our Annual Report on Form 10-K, we expect a slower order rate in 2009 based on current worldwide economic conditions. Due to the continuing decline in worldwide economies, the ensuing negative impact on credit availability and the current excess supply of oil and natural gas, we expect this decline will continue in the near term. With this drop in backlog, we have downsized our manufacturing operations substantially to better reflect current market conditions. We have maintained a core team, which can continue to deliver a reasonable number of top drives each month to meet current and expected demand. Our objective for the plant will be to minimize our cost for the next several quarters and improve our business processes so as to substantially improve efficiencies when the business turns around. Our customers have maintained their focus on lowering project costs and, given the continued pricing pressures, we expect to see margin compression over the remainder of 2009 and throughout 2010. Accordingly, we are focusing on lowering our cost structure by reducing headcount in locations experiencing significant activity declines, combining or closing under-performing operations and streamlining internal manufacturing and supply chain processes. We will continue to monitor our operations and cost structure in response to any further changes in demand. We continue to believe that the fundamentals driving our global business remain intact and that our financial condition will enable us to weather the current conditions and poise us for future growth when conditions improve.

Tubular Services Segment

Revenues-Revenues for the three months ended June 30, 2009 decreased $10.9 million, or 28%, to $27.9 million as compared to the same period in 2008. This was primarily due to a $15.6 million decrease in our conventional Tubular Services business, partially offset by a $4.7 million increase in our proprietary service offerings. The decrease in our conventional revenues is due to our continued focus to shift our customers to our proprietary product offerings and a 75% decline in our business in North America over the past 12 months. Our conventional business is primarily conducted in North America and is directly tied to the rig count which has sharply declined over the past 12 months. The increase in our proprietary business is primarily due to our shift from conventional offerings and a $2.2 million increase in the sales of proprietary equipment and accessories. This is offset by a decrease in MCLRS revenues from $2.4 million to $0.3 million for the three months ended June 30, 2009 compared to the same period last year due to a reduction in the number of MCLRS projects that were in progress during the three months ended June 30, 2009.

Operating Income-Tubular Services' operating income for the three months ended June 30, 2009 decreased $5.2 million to a $1.7 million loss compared to income of $3.5 million for the same period in 2008, primarily due to the decrease in revenues described above, a $1.8 million impairment of fixed assets held for sale and $0.2 million in severance costs recorded during the current period. During the three months ended June 30, 2009, we made the decision to sell certain Tubular Services operating assets located in North America within the

next 12 months for an amount expected to be less than the current carrying amount. As a result, we recorded a pre-tax impairment loss of approximately $1.8 million to write down the fixed assets to their estimated realizable value of $0.2 million during the three months ended June 30, 2009.

Outlook-We expect the current year's operations will continue to decline in the near term due to the current status of worldwide economies, the ensuing negative impact on credit availability and the current excess supply of oil and natural gas. Our customers have maintained their focus on lowering project costs and accordingly, given the continued pricing pressures, we expect to see continuing margin compression over the remainder of 2009 and throughout 2010. 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. We are also focusing on lowering our cost structure by reducing headcount in locations experiencing significant activity declines, combining or closing under-performing operations and streamlining internal processes. We will continue to monitor our operations and cost structure in response to any further changes in demand. We continue to believe that the fundamentals driving our global business remain intact and that our financial condition will enable us to weather the current conditions and poise us for future growth when conditions improve.

CASING DRILLING Segment

Revenues-Revenues for the three months ended June 30, 2009 were $2.7 million compared to $7.8 million in the same period last year, a decrease of $5.1 million or 65%. This decrease was due to a continuing decline in available work, particularly in the U.S., in connection with current industry operating conditions.

Operating Income-CASING DRILLING's operating loss for the three months ended June 30, 2009 was $4.9 million compared to $3.5 million last year primarily due to the decrease in revenues as described above, a loss on the sale of operating assets in the amount of $0.5 million, a $0.6 million provision for bad debts and $0.1 million in severance costs incurred during the three months ended June 30, 2009. Operating margins declined from a loss of 46% last year to a loss of 180% in the current period.

Outlook-As mentioned above, we expect the current year's operations will continue to decline in the near term due to the current status of worldwide economies, the ensuing negative impact on credit availability and the current excess supply of oil and natural gas. We remain confident that our CASING DRILLING business will be a valuable part of our future operations. Accordingly, we are focusing on maintaining our existing infrastructure around the world while reducing headcount in locations experiencing significant activity declines, combining under-performing operations and streamlining internal processes.

Research and Engineering Segment

Research and Engineering's operating expenses are comprised of our activities related to the design and enhancement of our top drive models and proprietary equipment and were $1.8 million for the three months ended June 30, 2009, a decrease of $1.0 million from operating expenses of $2.8 million for the three months ended June 30, 2008. This decrease is primarily due to our focus on reducing costs during the current year's period, partially offset by $0.2 million in severance costs incurred during the current quarter. We will continue to invest in the commercialization and enhancements of our proprietary technologies.

Corporate and Other Expenses

Corporate and Other Expenses primarily consist of the corporate level general and administrative expenses and certain operating level selling and marketing expenses. Corporate and Other's operating loss for the three months ended June 30, 2009 increased $2.3 million to $8.9 million, compared to $6.6 million for the same period in 2008. This increase is primarily due a $1.6 million increase in legal fees associated with ongoing litigation and $0.6 million in severance costs incurred during the three months ended June 30, 2009, partially offset by decreased employee benefit costs and other corporate expenses from the same period in 2008.

Net (Loss) Income

Net (loss) income for the three months ended June 30, 2009 and 2008 was as
follows (in thousands):



                                                Three Months Ended June 30,
                                              2009                       2008
                                                     % of                       % of
                                                    revenue                    revenue
    Operating (Loss) Income           $ (7,218 )         (8 )    $ 16,994           13
    Interest expense                       457            1         1,258            1
    Interest income                        (30 )         -           (126 )         -
    Foreign exchange losses (gains)        394           -         (1,399 )         (1 )
    Other expense                          192           -             77           -
    Income taxes                        (4,630 )         (5 )       4,502            3

    Net (Loss) Income                 $ (3,601 )         (4 )    $ 12,682           10

Interest Expense-Interest expense for the three months ended June 30, 2009 decreased $0.8 million compared to the same period in 2008. During the three months ended June 30, 2009, average daily debt balances were $45.2 million, approximately $31.0 million lower than the same period last year. In addition, the weighted average interest rate decreased by 326 basis points 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 June 30, 2009 decreased $0.1 million compared to the same period in 2008.

Foreign Exchange Losses (Gains)-Foreign exchange losses (gains) decreased to a loss of $0.4 million during the three months ended June 30, 2009 from a gain of $1.4 million during the same period in 2008, primarily due to the comparative strengthening of the Canadian dollar between the periods and a $0.8 million gain on settling and marking to market certain foreign currency contracts during the three months ended June 30, 2008. During the three months ended June 30, 2008, we settled one and terminated 12 monthly currency forward contracts, recognizing a gain for the period of $0.8 million. We were not party to foreign currency forward contracts during the three months ended June 30, 2009.

Other Expense-Other expense for the three months ended June 30, 2009 was relatively flat for both the three months ended June 30, 2009 and the prior year comparable period.

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 6 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 June 30, 2009 was 56% compared to 26% for the same period in 2008. The effective tax rate for the three months ended June 30, 2009 reflects the recognition of a $0.7 million tax benefit related to provision to return adjustments as a result of filing our Canadian income tax returns in June 2009 and cumulative net tax benefits of $1.8 million related to earnings or losses generated in jurisdictions with statutory tax rates higher or lower than the Canadian federal and provincial statutory tax rates. The effective tax rate for the three months ended June 30, 2009 also includes a $0.4 million charge related to an audit assessment received in a foreign jurisdiction and $0.5 million of tax expense associated with a reduction in deferred tax assets attributable to a change in the period in which we expect to utilize such assets.

As discussed in Note 6 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 Six Months Ended June 30, 2009 and 2008

Our revenues, operating income and net income for the six months ended June 30, 2009 decreased compared to the same period in 2008 primarily due to decreased top drive product sales, decreased top drive rental activities, decreased conventional Tubular Services revenues, and decreased CASING DRILLING activity, partially offset by increased activities in proprietary Tubular Services. Revenues, operating income and net income for the six months ended June 30, 2009 and 2008 were as follows:

                                                     Six Months Ended June 30,
                                                2009                           2008
                                                        % of                           % of           %
                                                      Revenues                       Revenues       Change
REVENUES
Top Drive
-Sales                                $  56,560                      $  75,079                         (25 )
-After-market support(1)                 27,711                         31,154                         (11 )
-Rental services                         41,655                         54,481                         (24 )

Total Top Drive                         125,926             63         160,714             63          (22 )
Tubular Services(2)
. . .