The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with the audited consolidated financial statements for the year ended December 31, 2011 included in our Annual Report on Form 10-K. Any forward-looking statements made by or on our behalf are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that such forward-looking statements involve risks and uncertainties in that the actual results may differ materially from those projected in the forward-looking statements. Important factors that could cause actual results to differ include risks set forth in the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2011.

Overview

Forbes Energy Services Ltd., or FES Ltd, is an independent oilfield services contractor that provides a wide range of well site services to oil and natural gas drilling and producing companies to help develop and enhance the production of oil and natural gas. These services include fluid hauling, fluid disposal, well maintenance, completion services, workovers and recompletions, plugging and abandonment, and tubing testing. Our operations are concentrated in the major onshore oil and natural gas producing regions of Texas, with additional locations in Mississippi, in Pennsylvania and, prior to the disposition of our Mexican assets in January 2012, which is discussed below, in Mexico. We believe that our broad range of services, which extends from initial drilling, through production, to eventual abandonment, is fundamental to establishing and maintaining the flow of oil and natural gas throughout the life cycle of our customers' wells. Our headquarters and executive offices are located at 3000 South Business Hwy 281, Alice, Texas 78332. We can be reached by phone at
(361) 664-0549.

As used in this Quarterly Report on Form 10-Q, the "Company," the "Forbes Group," "we," and "our" mean FES Ltd and its subsidiaries, except as otherwise indicated. Unless otherwise indicated, all financial or operational data presented herein relates to our continuing operations, excluding our operations in Mexico, which were sold in January 2012.

We currently provide a wide range of services to a diverse group of companies. Through the six months ended June 30, 2012, we provided services to over 550 companies. Our blue-chip customer base includes Anadarko Petroleum Corporation, Chesapeake Energy Corporation, ConocoPhillips Company, Rosetta Resources, Inc., and Shell Oil Company, among others. John E. Crisp, Charles C. Forbes, and our senior management team, have cultivated deep and ongoing relationships with these customers during their average of over 35 years of experience in the oilfield services industry. For the three and six months ended June 30, 2012, we generated consolidated revenues of approximately $119.8 million and $251.3 million.

We currently conduct our operations through the following two business segments:

• Well Servicing. Our well servicing segment comprised 42.8% and 41.2% of consolidated revenues for the three and six months ended June 30, 2012. At June 30, 2012, our well servicing segment utilized our modern fleet of 162 owned well servicing rigs, which included 152 workover rigs, 10 swabbing rigs, and related assets and equipment. These assets are used to provide (i) well maintenance, including remedial repairs and removal and replacement of downhole production equipment, (ii) well workovers, including significant downhole repairs, re-completions and re-perforations, (iii) completion and swabbing activities, and
(iv) plugging and abandoning services. In addition, we have a fleet of nine tubing testing units that are used to conduct pressure testing of oil and natural gas production tubing.

• Fluid Logistics and Other. Our fluid logistics and other segment comprised 57.2% and 58.8% of consolidated revenues for the three and six months ended June 30, 2012. Our fluid logistics segment utilized our fleet of owned or leased fluid transport trucks and related assets, including specialized vacuum, high-pressure pump and tank trucks, frac tanks, water wells, salt water disposal wells and facilities, and related equipment. These assets are used to provide, transport, store, and dispose of a variety of drilling and produced fluids used in, and generated by, oil and natural gas production. These services are required in most workover and completion projects and are routinely used in daily operations of producing wells. Beginning in the fiscal year 2010, the Company began providing additional services in which Wolverine Construction, Inc., a related party, completed such services as a sub-contractor. These services involved site preparation and were complementary to the traditional services offered by the Company. The Company ceased offering these services in June 2011. Prior to such termination, we would pay Wolverine for their services and materials and then would bill the cost to the customer with a margin of approximately 5%. There was no revenue associated with the sub-contractor work for the three or six months ending June 30, 2012 and $2.0 million and $5.2 million for the three and six months ending June 30, 2011, respectively.

We believe that our two business segments are complementary and create synergies in terms of selling opportunities. Our multiple lines of service allow us to capitalize on our existing customer base to grow within existing markets, generate more business from existing customers, and increase our operating profits. By offering our customers the ability to reduce the number of vendors they use, we believe we help improve our customers' efficiency. This is demonstrated by the fact that 81.6% and 80.5% of our revenues for the three and six months ended June 30, 2012 , respectively, were from customers that utilized services from both of our business segments. Further, by having multiple service offerings that span the life cycle of the well, we believe we have a competitive advantage over smaller competitors offering more limited services.

Factors Affecting Results of Operations

Oil and Natural Gas Prices

Demand for well servicing and fluid logistics services is generally a function of the willingness of oil and natural gas companies to make operating and capital expenditures to explore for, develop and produce oil and natural gas, which in turn is affected by current and anticipated levels of oil and natural gas prices. Exploration and production spending is generally categorized as either operating expenditures or capital expenditures. Activities by oil and natural gas companies designed to add oil and natural gas reserves are classified as capital expenditures, and those associated with maintaining or accelerating production, such as workover and fluid logistics services, are categorized as operating expenditures. Operating expenditures are typically more stable than capital expenditures and are less sensitive to oil and natural gas price volatility. In contrast, capital expenditures by oil and natural gas companies for drilling are more directly influenced by current and expected oil and natural gas prices and generally reflect the volatility of commodity prices.

Workover Rig Rates

Our well servicing segment revenues are dependent on the prevailing market rates for workover rigs. Rates and utilization for workover rigs increased in March 2010 through the third quarter of 2011, then rates and utilization stabilized in the fourth quarter 2011 and have continued through the first half of 2012.

Fluid Logistics Rates

Our fluid logistics and other segment revenues are dependent on the prevailing market rates for fluid transport trucks and the related assets, including specialized vacuum, high-pressure pump and tank trucks, frac tanks and salt water disposal wells. Pricing and utilization increased in the latter portion of the first quarter 2010 and have generally continued, although at a slower rate of increase in recent quarters. In fact, rates stabilized during the second half of 2011 and through the first half of 2012.

Operating Expenses

Utilization and demand increased in 2010 and 2011 and the first half of 2012, we have experienced cost pressures in areas such as labor where we have incurred additional cost increases primarily in the form of increased pay rates. So far, we have been able to cover these increased costs through rate increases passed on to our customers. Future earnings and cash flows will be dependent on our ability to manage our overall cost structure and either maintain our existing prices or obtain price increases from our customers as our operating costs increase.

Equipment rental cost continues to be a significant component of our operating expenses. As described in the following paragraph, we made certain capital expenditures in the first half of 2012 that are intended to replace certain leased or rented equipment. Nevertheless, we expect that we will continue to meet certain equipment needs through rental or leasing arrangements and, to that end, in the first half of 2012, we entered into operating leases with respect to 70 additional vacuum trucks, 11 vacuum trailers, 17 support trucks and a transport trailer for the coiled tubing units.

Capital Expenditures

During the first half of 2012 we purchased three 550 horsepower well service rig and related equipment, four pump-down units, 1,235 frac tanks, eight vacuum trucks and eight salt water disposal wells. capital expenditures for the six months ended june 30, 2012 were $91.3 million. Certain of these purchased assets are intended either to take the place of equipment that the Company had been leasing or renting or to allow the Company to provide services to customers that it had previously offered through third party contractors. Other purchases were made to increase the Company's overall capacity. In addition to the assets purchased in the first half of 2012, as of July, the Company has also placed orders for additional equipment, including five coil tubing spreads and related equipment that should be delivered in the third and fourth quarters of 2012, the first of which was received in July. The aggregate purchase price of this additional equipment on order is approximately $32 million. Other than equipment on order that has not yet been delivered, the Company does not plan on making any further significant capital expenditures in the immediate future.

We plan to finance some of the remaining equipment on order, including four additional coil tubing units, pursuant to an agreement with Regions Equipment Finance Corporation and Regions Commercial Equipment Finance, LLC, collectively, Regions Finance, discussed in further detail below. However, this agreement does not constitute a commitment to finance any additional operating lease or loan schedules. Nevertheless, we believe that our cash flows from operations and availability under our $75 million revolving credit facility, on their own, will be sufficient to fund or otherwise satisfy the obligations related to this equipment on order.

Operating Income Margins

We have experienced less margin pressure on our fluid logistics and other segment, which resulted in more favorable margins in that segment relative to the well servicing segment and this continues through the current period. A significant portion of the additional activity in the fluid logistics and other segment relates to expanded fracing operations in our market areas.

Presentation

The following discussion and analysis is presented on a consolidated basis to reflect the results of continuing operations and financial condition of the Forbes Group. The financial information as of and for the three and six months ended June 30, 2012 and June 30, 2011 is presented on a consolidated basis for FES Ltd and its subsidiaries. Unless otherwise indicated, all financial or operational data presented herein relates to our continuing operations, excluding our operations in Mexico, which were sold in January 2012. Notwithstanding the foregoing, financial information regarding cash flows presented herein includes cash flows from our discontinued operations.

Results of Operations

The following discussion, as well as the discussion found under "Liquidity and Capital Resources," compares our consolidated financial information for the three and six months ended June 30, 2012 to the three and six months ended June 30, 2011.

Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

Consolidated Revenues. For the three months ended June 30, 2012, revenues increased by $9.0 million, or 8.1%, to $119.8 million when compared to the same period in the prior year. This is a direct result of increased utilization in our well servicing segment in 2012 as compared to 2011.

Well Servicing-Revenues from the well servicing segment increased by $9.3 million for the period, or 22.1% to $51.3 million compared to the corresponding period in the prior year. Of this increase, approximately 23.3% was due to increased prices and 76.7% was due to increased rig hours for well services. We utilized 162 well service rigs as of June 30, 2012 and 2011. The average rate charged per hour during the three months ended June 30, 2012 as compared to the same period in 2011 increased approximately 4.4%. Average utilization of our well service rigs during the three months ended June 30, 2012 and June 30, 2011 was 91.0% and 80.4%, respectively, based on a twelve hour day, working five days a week, except holidays in the U.S.

Fluid Logistics and Other-Revenues from the fluid logistics segment and other for the three months ended June 30, 2012 decreased by $0.3 million, or 0.5%, to $68.5 million compared to the prior year primarily due to the cessation of the other contract services performed in the second quarter of 2011, but not in the second quarter of 2012. This decrease was offset by an increase in revenues from our core operating activities, in line with general industry trends. Our principal fluid logistics assets at June 30, 2012 and June 30, 2011 were as follows:

                                                                          %
                                                   June 30            Increase
                                              2012        2011       (Decrease)
        Fluid logistics and other segment:
        Vacuum trucks                            475         356            33.4 %
        High-pressure pump trucks                 21          19            10.5 %
        Other heavy trucks                        84          61            37.7 %
        Frac tanks                             3,114       1,400           122.4 %
        Salt water disposal wells                 23          15            53.3 %

Consolidated Operating Expenses-Our operating expenses increased to $86.8 million for the three months ended June 30, 2012, from $85.1 million for the three months ended June 30, 2011, an increase of $1.7 million, or 2.0%, due to

increases in utilization. Operating expenses as a percentage of revenues were 72.5% for the three months ended June 30, 2012, compared to 76.8% for the three months ended June 30, 2011. The decrease in operating expense as a percentage of our revenues is generally attributable to increases in utilization.

Well Servicing-Operating expenses from the well servicing segment increased by $3.1 million, or 8.9%, to $37.5 million. Well servicing operating expenses as a percentage of well servicing revenues were 73.0% for the three months ended June 30, 2012, compared to 81.8% for the three months ended June 30, 2011, a decrease of 8.8%. This increase in operating expense as a percentage of revenue was due to an increase in utilization to 91.0% for the three months ended June 30, 2012 from 80.4% for the three months ended June 30, 2011, which allowed the Company to spread its fixed costs over greater revenues, thereby increasing the gross margin. The large portion of the increase in expenses was due to the increase in employee count and resulted in an increase in labor of $3.6 million, or 23.2% to $19.4 million. The employee count at June 30, 2012 was 1,106, compared to 961 employees as of June 30, 2011. Fuel expense increased by $1.1 million or 45.3% due to an increase rig hours. These increases were partially offset by a decrease in the rental of equipment of $1.7 million or 79.0% due to the rigs purchased from AES, a related party, that were previously leased. The remaining $0.1 million is related to various expenses and is in line with management's expectations.

Fluid Logistics and Other-Operating expenses from the fluid logistics and other segment decreased by $1.3 million, or 2.6%, to $49.4 million. Fluid logistics operating expenses as a percentage of fluid logistics revenues were 72.1% for the three months ended June 30, 2012, compared to 73.7% for the three months ended June 30, 2011. The decrease in fluid logistics and other operating expenses of $1.3 million was partially due to a decrease in contract services cost of $6.7 million, or 78.3% to $1.9 million, when compared to the same period in the prior year. Rent equipment expense decreased $1.7 million or 27.3%, to $4.4 million. Both of these expenses decreased due to the acquisition of additional equipment to satisfy customer demand and decreasing the need to utilize outside services. The decrease in contract services also includes the Company terminating services in June of 2011 where Wolverine Construction, Inc., a related party, completed services as a sub-contractor. This decrease in contract services was partially offset by the increase in labor costs of $4.1 million, or 29.7% to $18.0 million as a direct result of workforce headcount increases. The employee count at June 30, 2012 was 1,217, as compared with 941 employees as of June 30, 2011. Supplies and parts expense increased $0.6 million or 629.7%, to $0.7 million. Fuel costs increased $0.5 million, or 6.6% to $8.6 million. Insurance costs increased $0.5 million, or 46.7% to $1.5 million. The remaining $1.4 million relates to various expenses in line with management's expectations.

General and Administrative Expenses. General and administrative expenses from the consolidated operations decreased by approximately $5.0 million, or 38.4%, to $8.1 million for the three months ended June 30, 2012. General and administrative expense as a percentage of revenues was 6.7% and 11.8% for the three months ended June 30, 2012 and June 30, 2011, respectively. The decrease of $5.0 million was due to additional expense of $6.9 million associated with a litigation settlement and the related legal fees incurred in 2011, which was offset by a net increase in compensation expense of approximately $1.6 million. Compensation expense for the current quarter included discretionary management bonuses of approximately $0.3 million and an accrual of approximately $0.6 million to reflect an estimate of the quarterly expense related to a newly implemented, performance based, management bonus plan.

Depreciation and Amortization. Depreciation and amortization expenses increased by $2.9 million, or 30.6%, to $12.5 million. The additional depreciation expense resulted from capital expenditures, including those incurred for the three months ended June 30, 2012 which were $37.6 million compared to $23.4 million for the three months ended June 30, 2011.

Interest and Other Expenses. Interest and other expenses decreased by approximately $35.4 million from the three months ended June 30, 2011 to the current quarter due to the loss on early extinguishment of debt resulting from the retirement of the First and Second Priority Notes. This financing cost was comprised of a penalty on the early redemption of the First Priority Notes of $0.6 million, total unamortized deferred financing charges written off in connection with the redemption of First and Second Priority Notes of $10.4 million and tender purchase price premium and consent fee related to the Second Priority Notes of $24.4 million.

Income Taxes. We recognized an income tax expense of $3.0 million and a benefit of $12.5 million for the three months ended June 30, 2012 and June 30, 2011, respectively. Our effective tax rate for the three months ended June 30, 2012 is 52.7% due to higher earnings in the quarter, non-deductible expenses, and related Texas margins tax.

Discontinued Operations-We recorded a net loss from discontinued operations of $1.6 million for the three months ended June 30, 2012, compared to net income from discontinued operations of $1.9 million for the three months ended June 30, 2011. The decrease in net income relates mainly to the winding down of operations in Mexico including bad debt expense of approximately $1.5 million. See Note 17-

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

Consolidated Revenues. For the six months ended June 30, 2012, revenues increased by $45.8 million, or 22.3%, to $251.3 million when compared to the same period in the prior year. This is a result of increased utilization in both our well servicing and fluid logistics segments in 2012 as compared to 2011.

Well Servicing-Revenues from the well servicing segment increased by $25.1 million for the six month period, or 32.0% to $103.6 million compared to the corresponding period in the prior year. Of this increase, approximately 27.4% was due to increased prices and 72.6% was due to increased rig hours for well services. We utilized 162 well service rigs as of June 30, 2012 and 172 well service rigs as of June 30, 2011. The average rate charged per hour during the six months ended June 30, 2012 as compared to the same period in 2011 increased approximately 7.3%. Average utilization of our well service rigs during the six months ended June 30, 2012 and June 30, 2011 was 93.4% and 76.2% , respectively, based on a twelve hour day, working five days a week, except holidays in the U.S.

Fluid Logistics and Other-Revenues from the fluid logistics segment and other for the six months ended June 30, 2012 increased by $20.7 million, or 16.3%, to $147.7 million compared to the prior year, as a result of the general industry increase in pricing and activity. Our revenue increased $20.7 million due to an increase in rates of approximately 1.2% in the six months ended June 2012 compared to the six months ended June 2011 and the remainder was due to an increase in hours offset in part by the cessation of the other contract services performed in the first half of 2011, but not in the first half of 2012.

Consolidated Operating Expenses-Our operating expenses increased to $180.8 million for the six months ended June 30, 2012, from $157.1 million for the six months ended June 30, 2011, an increase of $23.7 million, or 15.1%, due to increases in utilization. Operating expenses as a percentage of revenues were 71.9% for the six months ended June 30, 2012, compared to 76.4% for the six months ended June 30, 2011. The decrease in operating expense as a percentage of our revenues is generally attributable to increases in utilization and pricing. The Company was able to increase customer rates in amounts adequate to offset additional operating cost as well as increase margins.

Well Servicing-Operating expenses from the well servicing segment increased by $12.4 million, or 19.3%, to $76.5 million. Well servicing operating expenses as a percentage of well servicing revenues were 73.9% for the six months ended June 30, 2012, compared to 81.8% for the six months ended June 30, 2011, a decrease of 7.9%. The large portion of the increase in expenses was due to the increase in employee count and resulted in an increase in labor of $9.1 million, an increase in insurance premiums of $1.2 million, and an increase in safety expense of $0.4 million. The employee count at June 30, 2012 was 1,106 compared to 961 employees as of June 30, 2011. Fuel expense increased by $2.1 million or 44.2% due to an increase in rig hours in conformity with increased activity levels for the industry. These increases were partially offset by a decrease in the rental of equipment of $1.7 million or 58.9% due to the rigs purchased from AES, a related party, that were previously leased. The contract labor expense increased $1.3 million or 341.2% due to increase in rig count, rig hours and labor hours for the P & A division.

Fluid Logistics and Other-Operating expenses from the fluid logistics and other segment increased by $11.3 million, or 12.2%, to $104.2 million. Fluid logistics operating expenses as a percentage of fluid logistics revenues were 70.5% for the six months ended June 30, 2012, compared to 73.1% for the six months ended June 30, 2011. The increase in fluid logistics and other operating expenses of $11.5 million was partially due to an increase in labor costs of $9.4 million, or 36.2% to $35.5 million as a direct result of workforce headcount increases. The employee count at June 30, 2012 was 1,217, as compared with 941 employees as of June 30, 2011. Contract services cost decreased $7.4 million, or 47.8% to $8.1 million, when compared to the same period in the prior year due to the acquisition of additional equipment to satisfy customer demand and decreasing the need to utilize outside services. The decrease in contract services also includes the Company terminating services in June of 2011 where Wolverine Construction, Inc., a related party, completed services as a sub-contractor. Fuel costs increased $2.4 million, or 16.5% to $17.2 million for the six months ended June 30, 2012, due to fuel price increase of 4.9% and higher activity in drilling and well services when compared to the same period in the prior year. Repairs and maintenance cost increased $1.9 million, or 19.8% to $11.5 million as a result of activity increases. Insurance cost increased $1.3 million, or 70.5% to $3.3 million for the six months ended June 30, 2012, when compared to the same period in the prior year due to headcount increases and acquisition of additional equipment. Tire cost increased $1.1 million, or 59.0% to $2.9 million also due to acquisition of additional equipment. Supplies and parts costs increased $0.8 million, or 551.7% to $1.0 million. The remaining $2.0 million change is related to various expenses that were consistent with the activity of the business.

General and Administrative Expenses. General and administrative expenses from consolidated operations decreased by approximately $0.1 million, or 0.3%, to $18.7 million for the six months ended June 30, 2012. General and administrative expense as a percentage of revenues was 7.5% and 9.1% for the six months ended June 30, 2012 and June 30, 2011, respectively. The decrease of $0.1 million was due to a decrease litigation, settlement, and legal fees of $6.9 million, which was offset by an increase in compensation expense of approximately $5.6 million in the first half of 2012 related mainly to discretionary management bonuses of approximately $2.1 million, expense of approximately $1.3 million related to a newly implemented, performance based, management bonus plan and stock compensation expense of $1.8 million due to the issuance of stock options and restricted stock. The balance of the increase was in line with the normal growth of the business.

Depreciation and Amortization. Depreciation and amortization expenses increased by $4.7 million, or 24.3%, to $23.9 million. Capital expenditures incurred for . . .