SUPERIOR ENERGY SERVICES INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and applicable notes to our consolidated
financial statements and other information included elsewhere in this Annual
Report on Form 10-K, including "Risk Factors" disclosed in Part I, Item 1A. The
following information contains forward-looking statements, which are subject to
risks and uncertainties. Should one or more of these risks or uncertainties
materialize, our actual results may differ from those expressed or implied by
the forward-looking statements. See "Forward-Looking Statements" at the
beginning of this Annual Report on Form 10-K.

As used herein, "we," "us", "our" and similar terms refer to (i) prior to the
Emergence Date (as defined below), SESI Holdings, Inc. (formerly known as
Superior Energy Services, Inc.) ("Predecessor") and its subsidiaries and (ii)
after the Emergence Date, Superior Energy Services, Inc. (formerly known as
Superior Newco, Inc.) and its subsidiaries ("Successor"). Additionally, as used
herein, the following terms refer to our operations:

“Predecessor Period” January 1, 2021 by February 2, 2021
“Successor Period” February 3, 2021 by December 31, 2021


Executive Summary

General

We serve major national and independent oil and natural gas exploration and production companies worldwide and offer products and services relating to the different phases of a well’s economic life cycle.

2021 was a transformative year at Superior. Following our emergence from
bankruptcy, we embarked on a diligent effort to reconfigure our operations and
organization to maximize shareholder value, enhance margin growth and have a
more disciplined approach, both operationally and financially (the
"Transformation Project").

The transformation project revolves around three sequential phases:

Business Unit Review - analyzing strategic changes and executing various
non-core asset divestitures, which emphasized product optimization and margin
enhancement to maximize the cash flow profile of our business units and focus on
our core competencies (collectively, the "Business Unit Review");

Geographic focus – review our footprint and improve capital efficiency by focusing on low-risk, high-return geographies to maximize returns; and

Right Size Support - streamlining support to match optimized business units that
represent our core portfolio and consolidating our operational footprint to
align the size of our operations with current demand to provide a superior value
proposition and exhibit capital discipline.

The evaluation and implementation of the Business Unit Review is substantially
complete, which has resulted in lower revenue with increased margins. The Right
Size Support and Geographic Focus components are ongoing and should be completed
during 2022.

Historically, we provided a wide variety of services and products to many
markets within the energy industry. During 2021, we realigned our core
businesses to focus on products and services that we believe meet the criteria
of (1) being critical to our customers' oil and gas operations, (2) facing low
or no competition from the three largest global oilfield service companies, (3)
requiring deep technical expertise through the design or use of our product or
service, and (4) being unlikely to become a commoditized product or service to
our customers. The result of this approach is a portfolio of business lines
grounded in our core mission of providing high quality products and services
while maintaining the trust and serving the needs of our customers, with an
emphasis on free cash flow generation and capital efficiency for us.

In connection with our transformation projectour reportable segments have been replaced by rentals and well services.

Rental sector

Premium drill pipe (Workstrings International ("Workstrings") - Workstrings is a
global provider with an extensive inventory of high specification downhole
rental tubulars and accessories critical to the drilling and completion of the
most challenging wells. Workstrings has five decades of experience grounded in
technological innovation committed to meeting customer demands for ever changing
well designs and advancing rig capabilities. In addition to the significant
focus on meeting customer needs and maintaining their trust, this business
operates in a segment of the industry with other high

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barriers to entry including, but not limited to, providing solutions to
challenging technical problems, upfront capital requirements and the ability to
maintain and store significant quantities of drill pipe. Workstrings partners
with major operators, national oil companies and independents to innovate
technology and techniques to drill and complete wells safely and efficiently
with expected performance and minimal downtime. With inventory staged
strategically around the world, Workstrings can deploy quickly to meet customer
demands. In 2021, Workstrings achieved the milestone of completing over 3,000
engineered string designs, supplied the pipe used in a record-breaking 28,789
feet flowline cleanout operation in the Gulf of Mexico, and broke the world
record for landing string hook load recorded at 2,402 MM lbs.

Bottom hole drilling assembly accessories (Stabil Drill) - Provides
comprehensive Bottom Hole Assembly (BHA) support, ranging from custom component
engineering and fabrication to rental drilling tools and repairs. The
organization is focused on helping customers achieve optimal drilling
performance with an extensive inventory of reliable rental tools, from
stabilizers to subs. Stabil Drill has a global distribution system at 19
locations in seven countries, and in-house design and manufacturing giving
customers more control over component specifications, quality and logistics.
Stabil Drill boasts the largest fleets of BHA tools in the US with more than
50,000 tools ready to rent.

Offshore Accommodation Rentals (HB Rentals) – A market leading provider of temporary maritime accommodation for offshore projects. The company has highly specialized expertise in executing complex projects for its clients.

Well Services Segment

Engineering consulting, well containment and training (Wild Well Control ("Wild
Well")) - A leading provider of onshore and offshore well control emergency
response, pressure control, relief well planning, engineering, and training
services. Wild Well has over four decades of deep industry expertise in
providing consulting services that design programs to avoid and mitigate
challenging well problems and to provide emergency response services. The
combination of outstanding judgement with years of experience provides a strong
value proposition for our clients. Wild Well's over 45 years of experience and
dedicated engineering and operations team is unrivaled, responding to an
estimated 80% of the global well control response market. In 2021, Wild Well
reached the milestone of completing 80 relief well intersects to date. Wild Well
has nine training locations around the world and issues 25% of all IADC Well
Control certificates worldwide.

Hydraulic workover and snubbing (International Snubbing Services ("ISS")) - ISS
is a global provider of hydraulic workover, snubbing, P&A and well control
services and equipment. ISS manufactures and maintains custom built equipment
strictly for both live and dead well intervention applications. ISS's talented
and experienced team utilizes technology, innovation and operational judgement
to address challenging wells that have a problem with pressure, providing value
and meeting the needs of clients.

Sand control, stimulation, production, and injection well completions (Superior
Completion Services) - Global provider with deep experience in delivering timely
completion solutions and innovative technologies for the most challenging
environments. This operation offers timely and strategic solutions in downhole
sand control, stimulation, production, and injection well completions to
maximize the safety, efficiency, and profitability of wells in the most
challenging environments, such as deep water Gulf of Mexico and Brazil.

In addition to the specific product lines mentioned above, the Company operates
a basket of services globally called International Production Services (included
in the Well Services Segment). This business has value accretive operations
particularly in Argentina and Kuwait. International Production Services is a key
part of the "Geographic Focus" portion of our ongoing transformation efforts
discussed above as we look to focus on geographies that allow us to maximize
return on investments.

2021 achievements and transformation initiatives

In 2021, we substantially completed the Business Unit Review segment of the
transformation initiative. We believe this positions us to build on a
simplified, post-transformation business model, which, through operational
efficiencies and improving market conditions, is driving enhanced margins and
returns. Additionally, we believe our strategy provides us with the opportunity
to grow our most value-added businesses such as premium drill pipe and bottom
hole drilling assembly rental businesses. We expect this, in turn, to reduce our
dependency on an increasingly competitive oilfield labor, and higher risk
company-owned transportation fleets.

We also narrowed our geographic focus to key countries the we believe are more
favorable to US based companies. We will continue to align our global footprint
with our strategy, staying streamlined, focused, and operating where customers
most value our products, services and expertise.


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Throughout the significant transformation initiatives, we have remained focused
on sustainability through the lens of Safety and Our Shared Core Values, with
businesses continuing to execute our plan that puts worker safety, environmental
stewardship and service quality as top priorities.

The core values of respect without discrimination and a commitment to being good
citizens in communities where we live and work are part of our culture. This is
most evident in how our employees show up for their colleagues in need. In 2021,
the employee-led Catastrophic Relief Fund provided grants to employees who
experienced property loss and damage due to the effects of winter storm Uri and
Hurricane Ida. This resulted in at least 50 grants for employees totaling more
than $120,000. We will continue to build on the trust and care we cultivate as
part of our culture moving into the next phases of our transformation.

In response to an active dialog with customers, who are focused on ESG
performance and accountability within their own supply chains, our strategic
initiatives and divestitures support the goal of having a continually improving
sustainability program. In 2021, the divestitures of our water hauling and
storage business and land service rigs greatly reduced our truck and trailer
fleet, reducing our overall carbon footprint.

Substantial transformation efforts in 2021 were focused on the divestitures and
liquidation of our US onshore service operations and assets, including our fluid
and well service businesses to consolidators. These businesses are labor
intensive and we believe would have required significant capital investment to
refurbish existing units and acquire new upgraded models in order to remain
competitive.

The onshore segment of HB Rentals' accommodations business and the Gulf of
Mexico coil tubing business were both divested as going concerns. We completed
the liquidation of hydraulic fracturing equipment, along with the US onshore
coiled tubing equipment of IPS and the non-P&A wireline and slickline assets of
Warrior's Gulf of Mexico shelf operations. In total, the divestitures of
non-core assets generated $98.3 million in cash and substantial go-forward G&A
savings.

With these divestitures, our employees were an important consideration; most of our employees have been retained by the acquirers.

Further strategic realignment within the remaining business units was critical
to improving our operational efficiencies and increasing our margins. We believe
we are realizing significant efficiencies by consolidating businesses that
operated primarily in South Louisiana. For example, our HB Rentals, ISS, Stabil
Drill, and Warrior businesses were merged into one division - Rental and
Specialty. These businesses continue to operate under their existing brands, but
now have common leadership and consolidated support services.

These tireless and continued efforts to execute on our transformation directives
position us as a streamlined and healthy business with the ability to withstand
industry cycles, focused on the operational excellence our businesses are known
for throughout the world.

Strategic Outlook

As we embark on 2022 and look ahead to the future, we believe Superior is
positioned as an attractive, value-added participant in the oilfield service
sector, demonstrating operational excellence and generating cash flow through
industry cycles. The company emerged from bankruptcy without any debt,
significant cash, and optionality to participate in accretive opportunities that
may arise through further sector consolidation. In 2022, we expect capital
expenditures to be invested primarily in our high-value product lines. While we
have been more focused recently on organic growth and operational excellence,
our significant and growing cash balance provides us with the opportunity to
consider both complementary product lines building on our existing portfolio as
well as returning capital to our shareholders in the form of dividends or stock
repurchases.

Throughout the remainder of 2022 and into 2023, we will continue our focus on
executing the final phases of the transformation strategies set forth in 2021,
reducing our geographic footprint and streamlining our operational support
function to align with the current size of our operations. Maintaining an
opportunistic and disciplined approach to growth, along with consolidating and
controlling costs within our portfolio of core product lines, will further our
mission of providing high quality products, maintaining the trust of our
customers, and creating value for our stakeholders.

Voluntary reorganization under Chapter 11

On December 4, 2020, we and certain of our direct and indirect wholly-owned
domestic subsidiaries (the "Affiliate Debtors") entered into an Amended and
Restated Restructuring Support Agreement (the "Amended RSA") that amended and
restated in its entirety the Restructuring Support Agreement (the "RSA"), dated
September 29, 2020, with certain holders of SESI, L.L.C.'s ("SESI") outstanding
(i) 7.125% senior unsecured notes due 2021 (the "7.125% Notes") and (ii) 7.750%
senior unsecured notes due 2024 (the "7.750% Notes"). The parties to the Amended
RSA agreed to the principal terms of a proposed financial restructuring of the
Affiliate Debtors, which was implemented through the Plan (as defined below).

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On December 7, 2020, the Affiliate Debtors filed the Chapter 11 Cases under
Chapter 11 of the Bankruptcy Code in the Bankruptcy Court, and, in connection
therewith, the Affiliate Debtors filed with the Bankruptcy Court the proposed
Joint Prepackaged Plan of Reorganization under the Bankruptcy Code (as amended,
modified or supplemented from time to time, the "Plan"). After commencement of
the Chapter 11 Cases, the Affiliate Debtors continued to operate their
businesses as "debtors-in-possession" under the jurisdiction of the Bankruptcy
Court and in accordance with the applicable provisions of the Bankruptcy Code
and orders of the Bankruptcy Court.

In connection with the Chapter 11 Cases, the Affiliate Debtors filed a motion
for approval of a debtor-in-possession financing facility, and on December 8,
2020, the Bankruptcy Court approved such motion and entered an interim order
approving the financing (the "Interim DIP Order"). In accordance with the
Interim DIP Order, on December 9, 2020, we, as guarantor and SESI, as borrower,
entered into a $120 million Senior Secured Debtor-in-Possession Credit Agreement
(the "DIP Credit Facility"). On January 9, 2021, the Bankruptcy Court approved
the Affiliate Debtors' entry into the DIP Credit Facility on a final basis.

At January 19, 2021the bankruptcy court entered an order, file no. 289, confirming and approving the plan.

Exiting from a Voluntary Chapter 11 Reorganization

At February 2, 2021 (the “Emergence Date”), the Plan Effectiveness Conditions have been satisfied or waived and we have exited Chapter 11.

Bankruptcy claims

During the Chapter 11 Cases, the Affiliate Debtors filed with the Bankruptcy
Court schedules and statements setting forth, among other things, the assets and
liabilities of each of the Affiliate Debtors, subject to the assumptions filed
in connection therewith. Certain holders of pre-petition claims that were not
governmental units were required to file proofs of claim by the bar date of
January 7, 2021. Certain holders of pre-petition claims that were governmental
units were required to file proofs of claim by the bar date of June 7, 2021. The
Affiliate Debtors' have received proofs of claim, primarily representing general
unsecured claims, of approximately $1.7 billion. The Bankruptcy Court disallows
claims that have been acknowledged as duplicates. Claims totaling approximately
$1.4 billion have been withdrawn or disallowed. As a result of the claims
resolution process post-emergence, the Affiliate Debtors agreed to allow certain
claims classified per the Plan as Class 6 General Unsecured Claims against the
Parent. Per ASC 852-10, liabilities are measured at their allowed claim amount,
and the result of allowing these claims increased liabilities subject to
compromise prior to emergence.

On the Emergence Date and in accordance with the Plan:

Administrative expense claims, priority tax claims, other priority claims and
other secured claims were paid or will be paid in full in the ordinary course
(or receive such other treatment rendering such claims unimpaired);

The general unsecured creditors of the affiliated debtors remained intact and received payment in cash, in full, in the ordinary course;

General unsecured creditors of the predecessor received their proportionate share of a pool of cash in the amount of $125,000;

Eligible holders of the claims arising as a result of holding either the 7.125%
Notes or the 7.750% Notes against the Affiliate Debtors received their pro rata
share of:

A cash payment equal to 2% of the principal amount of the 7.125% Notes or 7.750% Notes held by all Holders who have not elected not to receive a cash payment; Where

Solely to the extent that such a holder timely and validly elected to opt out of
receiving the cash payout or was otherwise deemed to have opted out of receiving
the cash payout, (A) 100% of the Class A common stock issued and outstanding on
the Emergence Date, subject to dilution, and (B), to the extent such holder was
an "accredited investor" or "qualified institutional buyer" within the meaning
of the SEC's rules, subscription rights to participate in the Equity Rights
Offering;

The Affiliate Debtors conducted the Equity Rights Offering through an offering
of subscription rights for the purchase of Class A common stock on a pro rata
basis; and,

Predecessor equity interests were cancelled and new Class A common stock was
issued to settle claims arising as a result of holding either the 7.125% Notes
or the 7.750% Notes, as noted above.


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Prior to the emergence date, the equity rights offering was completed in accordance with the plan, resulting in the issuance of 735,189 Class A common shares. The Class A common shares issued under the share rights offering were exempt from registration under securities law by virtue of section 4(a)(2) of the Securities Law and/or Regulation D promulgated thereunder -this.

The costs of our efforts to restructure our capital, prior to and during the
Chapter 11 Cases, along with all other costs incurred in connection with the
Chapter 11 Cases, have been material.

On the Emergence Date, pursuant to the terms of the Plan, we filed an Amended
and Restated Certificate of Incorporation (the "Certificate of Incorporation")
and a Certificate of Amendment of Amended and Restated Certificate of
Incorporation (the "Certificate of Amendment").

Also, on the Emergence Date, and pursuant to the terms of the Plan, we adopted
the Amended and Restated Bylaws (the "Bylaws"). The descriptions of the
Certificate of Incorporation and the Bylaws are qualified in their entirety by
reference to the full texts of the Certificate of Incorporation, Bylaws, and
Certificate of Amendment which are incorporated by reference herein.

Credit facility

On the Emergence Date, pursuant to the Plan, we entered into a Credit Agreement
with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders
and letter of credit issuers named therein providing for a $120.0 million
asset-based secured revolving Credit Facility, all of which is available for the
issuance of letters of credit (the "Credit Facility"). The issuance of letters
of credit will reduce availability under the Credit Facility dollar-for-dollar.
On the Emergence Date, the Credit Facility replaced the DIP Credit Facility and
the undrawn letters of credit outstanding under the former DIP Credit Facility
were deemed outstanding under the Credit Facility. All accrued and unpaid fees
and other amounts outstanding thereunder were paid in cash in full as well. The
Credit Facility will mature on December 9, 2024.

The borrowing base under the Credit Facility is determined by reference to
SESI's and its subsidiary guarantors' (i) eligible accounts receivable, (ii)
eligible inventory, (iii) solely during the period from the Emergence Date until
the earlier of December 9, 2022 and the date that unrestricted cash of SESI and
its wholly-owned subsidiaries is less than $75.0 million, eligible premium
rental drill pipe and (iv) so long as there are no loans outstanding at such
time, certain cash of SESI and its subsidiary guarantors, less reserves
established by the administrative agent in its permitted discretion.

Availability under the Credit Facility will be the lesser of (i) the commitments
and (ii) the borrowing base. Subject to certain conditions, upon request and
with the consent of the participating lenders, the total commitments under the
Credit Facility may be increased to $170.0 million. SESI's obligations under the
Credit Facility are guaranteed by us and all of SESI's material domestic
subsidiaries and secured by substantially all of our, SESI's and the subsidiary
guarantors' assets, other than real property.

Any borrowings under the Credit Facility will bear interest, at SESI's option,
at either an adjusted LIBOR rate plus an applicable margin ranging from 3.00% to
3.50% per annum, or an alternate base rate plus an applicable margin ranging
from 2.00% to 2.50% per annum, in each case on the basis of the consolidated
fixed charge coverage ratio. In addition, SESI is required to pay (i) a letter
of credit fee, (ii) to the issuing lender of each letter of credit, a fronting
fee and (iii) commitment fees. Upon the cessation of LIBOR, the Credit Facility
provides for the use of alternative benchmark rates for the determination of the
borrowing rate, and the cessation of LIBOR will not have a material impact on
us.

The Credit Facility requires compliance with various covenants, including, but
not limited to, limitations on the incurrence of indebtedness, permitted
investments, liens on assets, making distributions, transactions with
affiliates, mergers, consolidations, dispositions of assets and other provisions
customary in similar types of agreements. The Credit Facility also requires
compliance with a fixed charge coverage ratio of 1.0 to 1.0 if (a) an event of
default has occurred and is continuing or (b) availability under the Credit
Facility is less than the greater of $20.0 million or 15% of the lesser of the
aggregate commitments and the borrowing base.

On May 13, 2021, SESI, SESI Holdings, Inc. and the subsidiary guarantors party
thereto entered into a first amendment and waiver to the Credit Facility (the
"First Amendment and Waiver to the Credit Facility") to, among other things, (i)
extend the deadline thereunder for the delivery of our consolidated unaudited
financial statements for the quarter ended March 31, 2021 to June 1, 2021 and
(ii) obtain a limited waiver of potential defaults under the Credit Facility
related to a delayed public filing of such financial statements after the
original deadline for delivery of such financial statements.

On May 28, 2021, SESI, L.L.C., SESI Holdings, Inc. and the subsidiary guarantors
party thereto entered into a waiver to the Credit Facility to (i) extend the
deadline under the Credit Agreement for the delivery of Superior Energy
Services, Inc.'s consolidated unaudited financial statements for the quarter
ended March 31, 2021 and the calendar months ending April 30, 2021 and May 31,
2021 to July 15,

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2021 and (ii) agree that until the unaudited financial statements and a revised
borrowing base certificate in connection therewith are delivered, the lenders
will not be required to make any advances requested. As discussed below, we have
filed the required financial statements and delivered the revised borrowing base
certificate in satisfaction of this requirement.

On July 15, 2021, SESI, the Former Parent, and the subsidiary guarantors party
thereto entered into a waiver to the Credit Facility with JPMorgan Chase Bank,
N.A., as administrative agent and lender, and certain other financial
institutions and other parties thereto as lenders to (i) extend the deadline
under the Credit Facility for the delivery of our consolidated unaudited
financial statements (x) as of and for the quarter ended March 31, 2021 to
September 30, 2021 and (y) as of and for the quarter ended June 30, 2021 and the
calendar months ending April 30, 2021, May 31, 2021, July 31, 2021 and August
31, 2021 to October 30, 2021, (ii) obtain a limited waiver of potential defaults
under the Credit Facility related to a delayed public filing of this quarterly
report on Form 10-Q with respect to the fiscal quarter ended June 30, 2021
(including related financial statements) after the original deadline (and
confirmation of such waiver as it pertains to the quarterly report on Form 10-Q
with respect to the fiscal quarter ended March 31, 2021), and (iii) agree that
until the quarterly unaudited financial statements and a revised borrowing base
certificate in connection with each such quarter is delivered, the lenders will
not be required to make any advances requested. We filed our consolidated
unaudited financial statements as of, and for, the quarters ended March 31, 2021
and June 30, 2021 and delivered a revised borrowing base certificate within the
required timeframe.

On November 15, 2021, we entered into a Second Amendment and Waiver to our
Credit Agreement to (i) extend the deadline under the Credit Agreement for the
delivery of our consolidated unaudited financial statements as of, and for, the
quarter ended September 30, 2021 and the calendar month ending October 31, 2021
to December 10, 2021, (ii) obtain a limited waiver of potential defaults under
the Credit Agreement related to a delayed public filing of the quarterly report
on Form 10-Q for the quarter ended September 30, 2021 after the original
deadline, and (iii) agree that until the quarterly unaudited financial
statements and a revised borrowing base certificate in connection with such
quarter are delivered, the lenders will not be required to make any advances
requested by Borrower. We filed our consolidated unaudited financial statements
as of, and for, the quarter ended September 30, 2021 and delivered a revised
borrowing base certificate within the required timeframe. In addition, the
Credit Agreement was amended to, among other things, permit the disposition of
the HB Onshore Rentals Business (as defined in the Credit Agreement).

On February 10, 2022, we entered into a Third Amendment to Credit Agreement to,
among other things, provide us with additional flexibility around making asset
sales. Specifically, the Credit Agreement was amended to refresh the amount of
properties sold, transferred or otherwise disposed of pursuant to the
"Substantial Portion" exception to $0 as of January 31, 2022. The "Substantial
Portion" exception allows us to sell, transfer or otherwise dispose of
properties so long as the aggregate value of all such properties sold,
transferred or otherwise disposed of do not exceed (a) 10% of our gross book
value of the assets during the four fiscal year quarter period ending with the
fiscal quarter in which such determination is made, or (b) 10% of our
consolidated net sales or net income during the four fiscal year quarter period
ending with the fiscal quarter in which such determination is made. The Credit
Agreement was also amended to add a new asset sale exception that allows us to
make additional asset sales up to $25.0 million so long as (a) liquidity is
greater than $100.0 million, (ii) unused availability under the Credit Agreement
is greater than $25.0 million, and (iii) we receive 100% cash consideration to
the extent that the property being sold is otherwise included in the calculation
of the borrowing base under the Credit Agreement.

On March 8, 2022, we entered into a Fourth Amendment and Waiver to Credit
Agreement to, among other things, permit us to file SES Energy Services India
Pvt. Ltd, a private limited company of India and an indirect subsidiary, for
bankruptcy under the Insolvency and Bankruptcy Code of India without triggering
a default under the Credit Agreement.

The foregoing description of the Credit Facility, including any amendments thereto, is a summary only and is qualified in its entirety by reference to the Credit Agreement, which is incorporated herein by reference.

Shareholders’ agreement

On the Emergence Date, in order to implement the governance related provisions
reflected in the Plan, the stockholder's agreement, dated February 2, 2021 (the
"Stockholders Agreement"), was executed, to provide for certain governance
matters. Other than the obligations related to Confidential Information (as
defined in the Stockholders Agreement), the rights and preferences of each
stockholder under the Stockholders Agreement will terminate when such
stockholder ceases to own any shares of Class A common stock.

The foregoing description of the Shareholders’ Agreement is qualified in its entirety by the full text of the document, which is incorporated herein by reference.

Amendments to the shareholders’ agreement

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We and stockholders holding a majority of our Class A common stock entered into
an amendment to the Stockholders Agreement, effective May 14, 2021, extending
the deadline to provide our stockholders unaudited consolidated quarterly
financial statements from 45 days after the conclusion of a quarter to 60 days
after such quarter (or, if applicable, the first business day thereafter).

We and stockholders holding a majority of our Class A common stock entered into
the Second Amendment to the Stockholders Agreement, effective May 31, 2021,
extending the deadline to provide our stockholders the unaudited consolidated
quarterly financial statements for the quarter ended March 31, 2021 to no later
than July 15, 2021.

We and stockholders holding a majority of our Class A common stock entered into
the Third Amendment to the Stockholders Agreement, effective as of July 14,
2021, extending the deadline to provide our stockholders the unaudited
consolidated quarterly financial statements for the quarters ended March 31,
2021 and June 30, 2021 to no later than September 30, 2021 and October 31, 2021,
respectively.

We and stockholders holding a majority of our Class A common stock entered the
Fourth Amendment to the Stockholders Agreement, effective as of November 15,
2021, extending the deadline to provide its stockholders the unaudited
consolidated quarterly financial statements for the quarters ended September 30,
2021 to no later than December 10, 2021 and making certain technical amendments
to the financial statement delivery mechanics.

We and stockholders holding a majority of our Class A common stock entered into
the Fifth Amendment to the Stockholders Agreement, effective as of February 9,
2022, which provides that if an officer or other authorized agent has been
granted authority to approve a matter or take other action pursuant to a
board-approved delegation of authority matrix, prior approval of the board will
be deemed obtained without any further approval from the board.

COVID-19 pandemic and market conditions

Our operations continue to be disrupted due to the circumstances surrounding the
COVID-19 pandemic. The significant business disruption resulting from the
COVID-19 pandemic has impacted customers, vendors and suppliers in all
geographical areas where we operate. The closure of non-essential business
facilities and restrictions on travel put in place by governments around the
world have significantly reduced economic activity. In particular, as a result
of the COVID-19 pandemic and certain related government mandated restrictions,
we are currently experiencing and may continue to experience shortages and
delays in the shipments of key drilling tools and certain consumables from our
suppliers. See "Risk Factors - The COVID-19 pandemic has had and may continue to
have an adverse effect on our supply chain in ways that remain unpredictable."

Also, the COVID-19 pandemic has impacted and may further impact the broader
economies of affected countries, including negatively impacting economic growth,
the proper functioning of financial and capital markets, foreign currency
exchange rates, and interest rates. For example, the continued spread of
COVID-19 has led to disruption and volatility in the global capital markets,
which increases the cost of capital and adversely impacts access to capital.
Additionally, recognized health risks associated with the COVID-19 pandemic have
altered the policies of companies operating around the world, resulting in these
companies instituting safety programs similar to what both domestic and
international governmental agencies have implemented, including stay at home
orders, social distancing mandates, and other community oriented health
objectives. We are complying with all such ordinances in our operations across
the globe. Management believes it has proactively addressed many of the known
operational impacts of the COVID-19 pandemic to the extent possible and will
strive to continue to do so, but there can be no guarantee the measures will be
fully effective.

In addition, vaccine mandates may be announced in jurisdictions in which our
businesses operate. Our implementation of any such requirements if and when they
are deemed to be enforceable may result in attrition, including attrition of
critically skilled labor, and difficulty securing future labor needs, which
could have a material adverse effect on our business and financial condition,
and may result in costs of compliance that are difficult to quantify at this
time and may also impact our financial condition.

Commodity prices continue to be impacted by the global containment of the virus,
pace of economic recovery, as well as changes to OPEC+ production levels. There
is increased economic optimism as governments worldwide continue to distribute
the COVID-19 vaccines. However, although vaccination campaigns are underway,
several regions, including areas of the United States, have been and continue to
deal with a rebound in the pandemic. There is also concern about whether
vaccines will be effective against different strains of the virus that have
developed and may develop in the future. West Texas Intermediate ("WTI") oil
spot prices have recovered to pre-pandemic levels. WTI oil prices and rig count
averages have both increased during 2021 as compared to 2020. OPEC+ continues to
meet regularly to review the state of global oil supply, demand and inventory
levels. With the current shortage of other sources of energy, and the economic
growth associated with what appears to be a global emergence from the pandemic,
the demand for and price of oil has improved. In addition, Russia's military
incursion into Ukraine has led to, and could continue to, give a rise to
regional instability and result in heightened economic sanctions by the certain
members of the European Union, the United Kingdom, the United

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United States and certain other members of the international community which, in turn, could increase uncertainty regarding global financial markets and production in OPEC+ and other crude oil producing nations.

Industry trends

The oil and gas industry is both cyclical and seasonal. The level of spending by
oil and gas companies is highly influenced by current and expected demand as
well as future prices of oil and natural gas. Changes in spending resulted in an
increased or decreased demand for our services and products. Rig counts are an
indicator of the level of spending by oil and gas companies.

Our financial performance is significantly affected by the number of rigs in the we
onshore and offshore markets as well as oil and natural gas prices and the number of global rigs, which are summarized in the table below.


                                                      2021 to 2020                    2020 to 2019
                             2021         2020           Change            2019          Change
Worldwide Rig Count (1)
U.S.:
Land                            464           417                11 %         920               (55 )%
Offshore                         14            16               (13 )%         23               (30 )%
Total                           478           433                10 %         943               (54 )%
International (2)               755           825                (8 )%      1,098               (25 )%
Worldwide Total               1,233         1,258                (2 )%      2,041               (38 )%

Commodity Prices
(average)
Crude Oil (West Texas
Intermediate)              $  68.14     $   39.16                74 %    $  56.98               (31 )%
Natural Gas (Henry Hub)    $   3.91     $    2.03                93 %    $   2.57               (21 )%



(1)

Estimated drilling activity as measured by average active rig count based on rig count information from Baker Hughes Co..

(2)

Excludes the number of Canadian rigs.

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Comparison of operating results for the years ended December 31, 2021
and 2020

The following table sets forth consolidated results of operations for the
periods indicated. The Successor Period and the Predecessor Period are distinct
reporting periods as a result of our emergence from bankruptcy. References in
these results of operations to changes in comparison to the year ended December
31, 2020 combine the Successor Period and Predecessor Period (the "Combined
Year") results for the year ended December 31, 2021 in order to provide some
comparability of such information to the year ended December 31, 2020. While
this combined presentation is not presented according to generally accepted
accounting principles in the United States of America ("GAAP") and no comparable
GAAP measures are presented, management believes that providing this financial
information is the most relevant and useful method for making comparisons to the
year ended December 31, 2020 as reviewing the Successor Period results in
isolation would not be useful in identifying trends in or reaching conclusions
regarding our overall operating performance.

                                Successor           Predecessor          Non-GAAP          Predecessor
                                 For the
                                  Period
                               February 3,        For the Period
                                   2021           January 1, 2021        For the
                                 through              through         Combined Year       For the Year
                               December 31,         February 2,       ended December     Ended December
                                   2021                2021              31, 2021           31, 2020          Change

Revenues                       $    648,754       $        45,928     $      694,682     $       667,249     $  27,433

Cost of revenues                    422,252                29,773            452,025             408,131        43,894
Depreciation, depletion,
amortization and accretion          219,859                 8,358            228,217             115,771       112,446
General and administrative
expenses                            117,575                11,052            128,627             205,773       (77,146 )
Restructuring expenses               22,952                 1,270             24,222              47,055       (22,833 )
Other expenses                       16,726                     -             16,726                   -        16,726
Reduction in value of assets              -                     -                  -              23,775       (23,775 )
Loss from operations               (150,610 )              (4,525 )         

(155,135 ) (133,256 ) (21,879 )

Other income (expense):
Interest income (expense),
net                                   2,331                   202              2,533             (92,426 )      94,959
Reorganization items, net                 -               335,560            335,560             (19,520 )     355,080
Other expense                        (7,128 )              (2,105 )           (9,233 )            (9,229 )          (4 )
Income (loss) from
continuing operations before
income taxes                       (155,407 )             329,132            173,725            (254,431 )     428,156
Income tax (expense) benefit         33,298               (60,003 )          (26,705 )            26,888       (53,593 )
Net income (loss) from
continuing operations              (122,109 )             269,129            147,020            (227,543 )     374,563
Loss from discontinued
operations, net of income
tax                                 (40,069 )                (352 )          (40,421 )          (168,687 )     128,266
Net income (loss)              $   (162,178 )     $       268,777     $     

106,599 ($396,230) $502,829



Net income for the Combined Year was $106.6 million, which compares to a net
loss for the prior year of $396.2 million. The Combined Year net income was
driven primarily by recognition of a $335.6 million gain in Reorganization
items, net primarily due to debt forgiveness as part of our emergence from
bankruptcy. Also included in the results for the Combined Year was a pre-tax
charge of $24.2 million related to restructuring activities and other expense of
$16.7 million, which primarily relate to charges associated with asset
disposals.

Revenues and Cost of Revenues

Revenue for the Combined Year was $694.7 million, an increase of $27.4 million,
or 4.1%, from the prior year. Cost of revenues for the Combined Year was $452.0
million, an increase of $43.9 million, or 10.8%, from the prior year. Both
revenues and cost of revenues in the prior year were severely impacted by the
effects of COVID-19, and the increase in our results in the Combined Year were
driven by improvements in our Well Services business related to operations in
Latin America and improvements in our well control services, partially offset by
declines in well completion services. Additionally, during the Combined Year, we
incurred shut down costs of $8.7 million at certain locations primarily in our
Well Services segment which include costs associated with the severance of
personnel and write-down of inventory at these locations.

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Depreciation, Depletion, Amortization and Accretion

Depreciation, depletion, amortization and accretion was $228.2 million during
the Combined Year compared to $115.8 million during the prior year. The increase
is related to both an increase in the carrying value of our assets and lower
average remaining useful lives as a result of fair value adjustments recorded as
a part of fresh start accounting. Depreciation expense in the Combined Year was
impacted by the valuation process under fresh start accounting. Certain fully
depreciated assets were assigned an estimated fair value of approximately $197.5
million and a remaining useful life of less than 36 months which significantly
increased the amount of depreciation expense recorded in the Combined Year.
Depreciation expense for these previously fully depreciated assets was $167.5
million for the Combined Year. Depreciation expense for the year ending December
31, 2022 is expected to decline significantly from the Combined Year.

General and administrative expenses

General and administrative expense was $128.6 million during the Combined Year
compared to $205.8 million during the prior year. The decrease is the result of
our continued focus on limiting spending and reducing our cost structure.

Restructuring costs

Restructuring expenses during the combined year were $24.2 million and primarily relate to severance and costs related to senior executives who resigned during the period as well as professional fees associated with our transformation project.

Restructuring expenses for the year ended December 31, 2020 were $47.1 million,
and include $31.5 million of advisory and professional fees relating to the
Chapter 11 Cases and $15.6 million related to the RSA premium paid to certain
Consenting Noteholders pursuant to the RSA (the "RSA Premium").

Other expenses

Other expenses during the Combined Year were $16.7 million. Other expenses
comprised $13.1 million related to our Wells Services segment, which includes
approximately $11.7 million from exit activities related to SES Energy Services
India Pvt. Ltd, and $3.6 million related to our Rentals segment. Other expenses
primarily relate to charges recorded as part of our strategic disposal of low
margin assets in line with our Transformation Project strategy and includes
gains/losses on asset sales, as well as impairments primarily related to
long-lived assets.

Reduction in the value of assets

The impairment of assets recorded in 2020 was $23.8 million and was related to the impairment of our long-lived assets, primarily in our Well Services segment.

Reorganization items, net

The reorganization elements, net, were $335.6 million over the combined year. See Note 3 – Fresh Start Accounting to our Consolidated Financial Statements for more information.

Interest income (expense), net

Interest income was $2.5 million for the Combined Year as compared to interest
expense of $92.4 million for the prior year. Interest expense for the prior year
was a result of outstanding debt which was subsequently eliminated as a
liability subject to compromise and settled in accordance with the Plan. See
Note 3 - Fresh Start Accounting to our consolidated financial statements for
additional information.

Income Taxes

The effective tax rate for the succession period and the replacement period was 21.4% and 18.2%, respectively.

The tax rate in the Successor Period is different from the blended federal and
state statutory rate of 22.5% primarily from non-deductible items and foreign
losses for which no tax benefit was recorded.

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The tax rate in the Predecessor Period is different from the blended federal and
state statutory rate of 22.5% primarily from the adoption of fresh start
accounting during the period. The cancellation of indebtedness income resulting
from the restructuring has significantly reduced our US tax attributes,
including but not limited to net operating loss carryforwards. We experienced an
ownership change under Sec. 382 of the Internal Revenue Code of 1986, as amended
(the "Code"), which is anticipated to limit certain remaining tax attributes.

The effective tax rate for the prior year was 10.6%. The tax rate is different from the mixed federal and state rate of 22.5%, mainly due to foreign losses for which no tax benefit has been recorded.

Discontinued operations

Loss from discontinued operations, net of tax, was $40.4 million for the
Combined Year as compared to $168.7 million for the prior year. See Note 14 -
Discontinued Operations to our consolidated financial statements for further
discussion.

Comparison of operating results for the years ended December 31, 2020
and 2019

For 2020, our revenue was $667.2 million, a decrease of $304.8 million or 31%,
as compared to 2019. Net loss from continuing operations was $227.5 million, and
net loss was $396.2 million. Included in the results for 2020 were pre-tax
charges of $47.1 million related to restructuring expenses, $23.8 million
related to a reduction in value of assets, and $19.5 million related to
reorganization items. For 2019, our revenue was $972.1 million, resulting in a
loss from continuing operations of $90.3 million, and a net loss of $255.7
million. Included in the results for 2019 was a pre-tax charge of $9.3 million
related to a reduction in value of assets.

The following table compares our operating results for 2020 and 2019 (in thousands). Revenue cost excludes depreciation, depletion, amortization and accretion for each of our lines of business.

                                               Year ended December 31,
                                                2020              2019            Change

Revenues                                   $      667,249     $     972,052     $ (304,803 )

Cost of revenues                                  408,131           558,265       (150,134 )
Depreciation, depletion, amortization
and accretion                                     115,771           146,791        (31,020 )
General and administrative expenses               205,773           244,403        (38,630 )
Restructuring expenses                             47,055                 -         47,055
Other expenses                                          -                 -              -
Reduction in value of assets                       23,775             9,293         14,482
Loss from operations                             (133,256 )          13,300       (146,556 )

Other income (expense):
Interest income (expense), net                    (92,426 )         (98,339 )        5,913
Reorganization items, net                         (19,520 )               -        (19,520 )
Other expense                                      (9,229 )          (2,484 )       (6,745 )
Income (loss) from continuing operations
before income taxes                              (254,431 )         (87,523 )     (166,908 )
Income tax (expense) benefit                       26,888            (2,733 )       29,621
Net income (loss) from continuing
operations                                       (227,543 )         (90,256 )     (137,287 )
Loss from discontinued operations, net
of income tax                                    (168,687 )        (165,465 )       (3,222 )
Net income (loss)                          $     (396,230 )   $    (255,721 )   $ (140,509 )



Revenues and Cost of Revenues

Revenue for 2020 was $667.2 million, a decrease of $304.8 million, or 31.4%,
from the prior year. Cost of revenues for 2020 was $408.1 million, a decrease of
$150.1 million, or 26.9%, from the prior year. Both revenues and cost of
revenues in 2020 were severely impacted by the effects of COVID-19, as we
experienced declines in each geographic market in which we operated, from
declines in demand and rig counts.


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Depreciation, Depletion, Amortization and Accretion

Depreciation, depletion, amortization and accretion decreased to $115.8 million
in 2020 from $146.8 million in 2019. The decrease in amortization, depletion, amortization and accretion is mainly due to impairments of long-lived assets in 2020 and 2019, in addition to assets becoming fully depreciated.

General and administrative expenses

General and administrative expenses decreased to $205.8 million during 2020 from
$244.4 million in 2019. Total general and administrative expenses decreased
primarily due to our continued focus on limiting spending and reducing our cost
structure.

Restructuring Expenses

Restructuring expenses were $47.1 million for the year ended December 31, 2020.
These prepetition restructuring expenses include $31.5 million of advisory and
professional fees relating to the Chapter 11 Cases and $15.6 million related to
the RSA Premium. There were no prepetition charges during 2019.

Reduction in the value of assets

The reduction in value of assets recorded in 2020 was $23.8 million as compared
to $9.3 million in 2019. The reduction in value of assets during both 2020 and
2019 was related to impairment of our long-lived assets, primarily in our Well
Services segment. See the Notes to our consolidated financial statements for
further discussion.

Reorganization Expenses

Reorganization expenses were $19.5 million for the year ended December 31, 2020.
These post-petition reorganization expenses are comprised primarily of
unamortized debt issuance costs, expenses related to rejected leases, and
post-petition professional fees related to the Chapter 11 Cases. There were no
reorganization expenses during 2019.

Income taxes

Our effective tax rate for 2020 was 10.6%, compared to a negative rate of 3.1% for 2019.

Discontinued operations

Loss from discontinued operations, net of tax, was $168.7 million for 2020 as
compared to $165.5 million for 2019. See the Notes to our consolidated financial
statements for further discussion.

Cash and capital resources

Cash flows depend, to a large degree, on the level of spending by oil and gas
companies for exploration, development and production activities. Certain
sources and uses of cash, such as our level of discretionary capital
expenditures and divestitures of non-core assets, are within our control and are
adjusted as necessary based on market conditions.

Also impacting liquidity is the state of the global economy, which impacts oil
and natural gas consumption. Our operations continue to be disrupted due to the
circumstances surrounding the COVID-19 pandemic. The significant business
disruption resulting from the COVID-19 pandemic has impacted customers, vendors
and suppliers in all geographical areas where we operate. The closure of
non-essential business facilities and restrictions on travel put in place by
governments around the world have significantly reduced economic activity. Also,
the COVID-19 pandemic has impacted and may further impact the broader economies
of affected countries, including negatively impacting economic growth, the
proper functioning of financial and capital markets, foreign currency exchange
rates and interest rates. There is increased economic optimism in 2022 as
governments worldwide continue to distribute the COVID-19 vaccines and
supplemental vaccine boosters. However, although vaccination campaigns are
underway, several regions, including areas of the United States, have been and
continue to deal with a rebound in the pandemic. There is also concern about
whether vaccines will be effective against different strains of the virus that
have developed and may develop in the future. Even though signs of economic
recovery centered on COVID-19 mitigation, global vaccine distribution, and
re-opening efforts make demand for oil and gas difficult to project, we believe
demand is recovering and prices will be positively impacted.

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Debt Instruments

On the Emergence Date, pursuant to the Plan, we entered into a Credit Agreement
with JPMorgan Chase Bank, N.A., as administrative agent, and the other lenders
and letter of credit issuers named therein providing for a $120.0 million
asset-based secured revolving Credit Facility, all of which is available for the
issuance of letters of credit. The issuance of letters of credit will reduce
availability under the Credit Facility dollar-for-dollar. The Credit Facility
will mature on December 9, 2024.

The borrowing base under the Credit Facility is determined by reference to
SESI's and its subsidiary guarantors' (i) eligible accounts receivable, (ii)
eligible inventory, (iii) solely during the period from the Emergence Date until
the earlier of December 9, 2022 and the date that unrestricted cash of SESI and
its wholly-owned subsidiaries is less than $75.0 million, eligible premium
rental drill pipe and (iv) so long as there are no loans outstanding at such
time, certain cash of SESI and its subsidiary guarantors, less reserves
established by the administrative agent in its permitted discretion.

Availability under the Credit Facility at any time is equal to the lesser of (i)
the aggregate commitments under the Credit Facility and (ii) the borrowing base
at such time. Subject to certain conditions, upon request and with the consent
of the participating lenders, the total commitments under the Credit Facility
may be increased to $170.0 million. SESI's obligations under the Credit Facility
are guaranteed by us and all of SESI's material domestic subsidiaries and
secured by substantially all of the personal property of ours, SESI and SESI's
material domestic subsidiaries, in each case, subject to certain customary
exceptions.

On the Emergence Date, the Credit Facility replaced the DIP Credit Facility, and
the undrawn letters of credit outstanding under the DIP Credit Facility were
deemed outstanding under the Credit Facility.

Financial situation and sources of liquidity

Our primary sources of liquidity have been cash and cash equivalents, cash
generated from operations and asset sales, and availability under our Credit
Facility. As of December 31, 2021, we had cash, cash equivalents and restricted
cash of $394.5 million. During the Successor Period and the Predecessor Period
net cash provided by operating activities was $58.9 million and $5.4 million,
respectively. During the Successor Period and the Predecessor Period, $97.5
million and $0.8 million were received in cash proceeds from the sale of assets,
respectively.

From December 31, 2021the borrowing base under the credit facility was approximately $114.9 million and we had $37.1 million outstanding letters of credit which reduced the availability of borrowings under the revolving credit facility.

The energy industry faces growing negative sentiment in the market which may
affect our ability to access capital on terms favorable to us. While we have
confidence in the level of support from our lenders, this negative sentiment in
the energy industry has not only impacted our customers in North America, but
also affects the availability and pricing for most credit lines extended to
participants in the industry. From time to time we may enter into transactions
to dispose of businesses or capital assets that no longer fit our long-term
strategy.

Uses of liquidity

The primary uses of liquidity are to provide support for operating activities,
restructuring activities and capital expenditures. We spent $34.2 million of
cash on capital expenditures during the Successor Period and $3.0 million of
cash on capital expenditures during the Predecessor Period. We incurred
significant costs associated with the Chapter 11 Cases, including fees for
legal, financial and restructuring advisors to us, and certain of our creditors.
During the Predecessor Period, we incurred $18.3 million of advisory and
professional fees relating to the Chapter 11 Cases and $12.0 million of fees
paid in consideration for the commitment by the Backstop Commitment Parties to
provide the Delayed-Draw Term Loan Facility upon the emergence from bankruptcy
(which we did not ultimately utilize).

Significant Accounting Policies and Estimates

The accounting policies described below are considered critical in obtaining an
understanding of our consolidated financial statements because their application
requires significant estimates and judgments by management in preparing our
consolidated financial statements. Management's estimates and judgments are
inherently uncertain and may differ significantly from actual results achieved.
Management considers an accounting estimate to be critical if the following
conditions apply:

the estimate requires significant assumptions; and

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changes in estimate could have or, a material effect on our consolidated results
of operations or financial condition; or
•
if different estimates that could have been selected had been used, there could
be a material effect on our consolidated results of operations or financial
condition.

It is management's view that the current assumptions and other considerations
used to estimate amounts reflected in our consolidated financial statements are
appropriate. However, actual results can differ significantly from those
estimates under different assumptions and conditions. The sections below contain
information about our most critical accounting estimates.

Bankruptcy We applied Financial Accounting Standards Board ("FASB") Accounting
Standards Codification ("ASC") Topic No. 852 - Reorganizations ("ASC 852") in
preparing the consolidated financial statements. ASC 852 requires distinguishing
transactions associated with the reorganization separate from activities related
to the ongoing operations of the business. Accordingly, pre-petition liabilities
that could have been impacted by the Chapter 11 Cases were classified as
liabilities subject to compromise in our consolidated balance sheet as of
December 31, 2020. These liabilities were reported at the amounts we anticipated
would be allowed by the Bankruptcy Court. Additionally, certain expenses,
realized gains and losses and provisions for losses that were realized or
incurred during and directly related to the Chapter 11 Cases, including fresh
start valuation adjustments and gains on liabilities subject to compromise were
recorded as reorganization items, net in the consolidated statements of
operations. See Note 2 - Emergence from Voluntary Reorganization under Chapter
11 for more information on the events of the Chapter 11 Cases as well as the
accounting and reporting impacts of the reorganization during the Predecessor
Period.

Long-Lived Assets Valuation We review long-lived assets, such as property, plant
and equipment and purchased intangibles subject to amortization, for impairment
whenever events or changes in circumstances indicate that the carrying amount of
any such asset may not be recoverable. We record impairment losses on long-lived
assets to be held and used in operations when the fair value of those assets is
less than their respective carrying amount. Impairment losses are recorded in
the amount by which the carrying amount of such assets exceeds the fair value.
Fair value is measured, in part, by the estimated cash flows to be generated by
those assets. Our cash flow estimates are based upon, among other things,
historical results adjusted to reflect our best estimate of future market rates,
utilization levels and operating performance. Our estimates of cash flows may
differ from actual cash flows due to, among other things, changes in economic
conditions or changes in an asset's operating performance. Assets are generally
grouped by subsidiary or division for the impairment testing, which represent
the lowest level of identifiable cash flows. Assets held for sale are reported
at the lower of the carrying amount or fair value less estimated costs to sell.
Our estimate of fair value represents our best estimate based on industry trends
and reference to market transactions and is subject to variability. The oil and
gas industry is cyclical and our estimates of the period over which future cash
flows will be generated, as well as the predictability of these cash flows, can
have a significant impact on the carrying value of these assets and, in periods
of prolonged down cycles, may result in impairment charges.

Decommissioning liabilities Our decommissioning liabilities are associated with
our oil and gas property and include liabilities related to the plugging of
wells, removal of the related platform and equipment and site restoration. We
review the adequacy of our decommissioning liabilities whenever indicators
suggest that the estimated cash flows and/or relating timing needed to satisfy
the liability have changed materially. Estimates of our decommissioning
liabilities are calculated using the income approach. Estimates of future
retirement costs are adjusted for an estimated inflation rate over the expected
time period prior to retirement and future cash outflows are discounted by a
credit adjusted risk-free rate.

Income Taxes We use the asset and liability method of accounting for income
taxes. This method takes into account the differences between financial
statement treatment and tax treatment of certain transactions. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Our deferred tax calculation requires us to make
certain estimates about our future operations. Changes in state, federal and
foreign tax laws, as well as changes in our financial condition or the carrying
value of existing assets and liabilities, could affect these estimates. The
effect of a change in tax rates is recognized as income or expense in the period
that the rate is enacted.

Fair Value Measurements Fair value is defined as the price that would be
received to sell an asset or the price paid to transfer a liability in an
orderly transaction between market participants at the measurement date. Inputs
used in determining fair value are characterized according to a hierarchy that
prioritizes those inputs based on the degree to which they are observable. We
historically utilized unadjusted quoted prices in the market for measuring the
fair value of debt. We utilize unadjusted quoted prices for similar assets and
liabilities in active markets for measuring the fair value of non-qualified
deferred compensation plan assets and liabilities. We utilize unadjusted quoted
prices which are readily determinable for measuring the fair value of our
investment in equity securities. We use both cost and market estimates when
calculating fair value for long-lived assets for impairment.


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Recently adopted and published accounting guidelines

See Part II, Item 8, “Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies – New Accounting Pronouncements”.

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