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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





Form 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2010

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number 333-150853-4





Forbes Energy
Services Ltd.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Bermuda                                                        |  | 98-0581100                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|3000 South Business Highway 281
Alice, Texas                   |  | 78332                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code:

(361) 664-0549





Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90
days.     ̈  Yes    x  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).     ̈  Yes     ̈  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  |  ̈
|                        |  |                                                  | 
|Non-accelerated filer   |  | x  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule
12b-2).     ̈  Yes    x  No

Shares outstanding of each of the registrants classes of common stock as of November 12, 2010:



|                             |  |                                    
|---------------------------- |  | -----------------------------------
|Class                        |  | Outstanding as of November 12, 2010
|Common Stock, $.01 par value |  | 83,673,700                         









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FORBES ENERGY SERVICES LTD. AND SUBSIDIARIES (a/k/a the Forbes Group)

TABLE OF CONTENTS



|                               |  |                                                                                       |    |      |    | 
|------------------------------ |  | ------------------------------------------------------------------------------------- | -- | ---- | -- | 
|                               |  |                                                                                       |    | Page |   
|Part I  Financial Information | 
|Item 1.                        |  | Condensed Consolidated Financial Statements                                           |    |      | 5  | 
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations |    |      | 34 | 
|Item 3.                        |  | Quantitative and Qualitative Disclosures About Market Risk                            |    |      | 44 | 
|Item 4T.                       |  | Controls and Procedures                                                               |    |      | 45 | 
|                              
|Part II  Other Information    | 
|Item 1.                        |  | Legal Proceedings                                                                     |    |      | 47 | 
|Item 1A.                       |  | Risk Factors                                                                          |    |      | 47 | 
|Item 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |    |      | 47 | 
|Item 3.                        |  | Defaults Upon Senior Securities                                                       |    |      | 48 | 
|Item 4.                        |  | Reserved                                                                              |    |      | 48 | 
|Item 5.                        |  | Other Information                                                                     |    |      | 48 | 
|Item 6.                        |  | Exhibits                                                                              |    |      | 48 | 
|Signatures                     |  |                                                                                       | 51 |     



2



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FORWARD-LOOKING
STATEMENTS

This Quarterly Report on Form 10-Q and any oral statements made in connection with it include certain
forward-looking statements within the meaning of the federal securities laws. You can generally identify forward-looking statements by the appearance in such a statement of words like anticipate, believe,
continue, could, estimate, expect, intend, may, plan, potential, predict, project, should or will or
other comparable words or the negative of these words. When you consider our forward-looking statements, you should keep in mind the risk factors we describe and other cautionary statements we make in this Quarterly Report on Form 10-Q. Our
forward-looking statements are only predictions based on expectations that we believe are reasonable. Our actual results could differ materially from those anticipated in, or implied by, these forward-looking statements as a result of known risks
and uncertainties set forth below and elsewhere in this Quarterly Report on Form 10-Q. These factors include or relate to the following:



| |  |  | supply and demand for oilfield services and industry activity levels;
| | - |  | ---------------------------------------------------------------------



| |  |  | potential for excess capacity;
| | - |  | ------------------------------



| |  |  | spending by the oil and natural gas industry given the recent worldwide economic downturn;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | our level of indebtedness in the current depressed market;
| | - |  | ----------------------------------------------------------



| |  |  | possible impairment of our long-lived assets;
| | - |  | ---------------------------------------------



| |  |  | our ability to maintain stable pricing;
| | - |  | ---------------------------------------



| |  |  | competition;
| | - |  | ------------



| |  |  | substantial capital requirements;
| | - |  | ---------------------------------



| |  |  | significant operating and financial restrictions under our indentures;
| | - |  | ----------------------------------------------------------------------



| |  |  | technological obsolescence of operating equipment;
| | - |  | --------------------------------------------------



| |  |  | dependence on certain key employees;
| | - |  | ------------------------------------



| |  |  | concentration of customers;
| | - |  | ---------------------------



| |  |  | substantial additional costs of compliance with reporting obligations, the Sarbanes-Oxley Act and indenture covenants;
| | - |  | ----------------------------------------------------------------------------------------------------------------------



| |  |  | material weaknesses in internal controls over financial reporting;
| | - |  | ------------------------------------------------------------------



| |  |  | seasonality of oilfield services activity;
| | - |  | ------------------------------------------



| |  |  | dependence on equipment suppliers not party to written contracts;
| | - |  | -----------------------------------------------------------------



| |  |  | collection of accounts receivable;
| | - |  | ----------------------------------



| |  |  | environmental and other governmental regulation, including potential climate change legislation;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | the potential disruption of business activities caused by the physical effects, if any, of climate change;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | risks inherent in our operations;
| | - |  | ---------------------------------



| |  |  | market response to global demands to curtail use of oil and natural gas;
| | - |  | ------------------------------------------------------------------------



| |  |  | change of control;
| | - |  | ------------------



| |  |  | conflicts of interest between the principal equity investors and noteholders;
| | - |  | -----------------------------------------------------------------------------



| |  |  | results of legal proceedings;
| | - |  | -----------------------------



| |  |  | ability to fully integrate future acquisitions;
| | - |  | -----------------------------------------------



| |  |  | variation from projected operating and financial data;
| | - |  | ------------------------------------------------------



| |  |  | variation from budgeted and projected capital expenditures;
| | - |  | -----------------------------------------------------------



| |  |  | volatility of global financial markets;
| | - |  | ---------------------------------------



| |  |  | risks associated with our foreign operations;
| | - |  | ---------------------------------------------



| |  |  | risks associated with contracts; and
| | - |  | ------------------------------------



| |  |  | the other factors discussed under Risk Factors.
| | - |  | -------------------------------------------------



3



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We undertake no
obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. To the extent these risks, uncertainties and assumptions give rise to events that vary from our expectations, the
forward-looking events discussed in this Quarterly Report on Form 10-Q may not occur. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. The above description of risks and uncertainties is
by no means all-inclusive, but is designed to highlight what we believe are important factors to consider.



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PART I  FINANCIAL INFORMATION



|Item 1. | Condensed Consolidated Financial Statements
|------- | -------------------------------------------

Forbes Energy Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Balance Sheets (unaudited)



|                                                                                                                                                                  |  |                   |             |   |                  |   |             |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                                                                  |  | September 30,2010 |             |   | December 31,2009 |  
|Assets                                                                                                                                                            |  |                   |             |   |                  |   |             |  
|Current assets                                                                                                                                                    |  |                   |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                                                                         |  | $                 | 21,248,063  |   |                  | $ | 28,425,367  |  
|Restricted cash                                                                                                                                                   |  |                   | 2,874,271   |   |                  |   | 2,932,279   |  
|Accounts receivable  trade, net                                                                                                                                  |  |                   | 78,546,759  |   |                  |   | 52,765,601  |  
|Accounts receivable  related parties                                                                                                                             |  |                   | 170,144     |   |                  |   | 168,940     |  
|Accounts receivable  other                                                                                                                                       |  |                   | 5,060,472   |   |                  |   | 5,159,324   |  
|Prepaid expenses                                                                                                                                                  |  |                   | 1,518,741   |   |                  |   | 3,857,527   |  
|Other current assets                                                                                                                                              |  |                   | 949,361     |   |                  |   | 879,167     |  
|                                                                                                                                                                  |  |                   |             |   |                  |   |             |  
|Total current assets                                                                                                                                              |  |                   | 110,367,811 |   |                  |   | 94,188,205  |  
|Property and equipment, net                                                                                                                                       |  |                   | 283,369,046 |   |                  |   | 308,559,885 |  
|Intangible assets, net                                                                                                                                            |  |                   | 34,452,884  |   |                  |   | 36,598,781  |  
|Deferred financing costs, net                                                                                                                                     |  |                   | 9,449,868   |   |                  |   | 11,453,830  |  
|Restricted cash                                                                                                                                                   |  |                   | 6,657,912   |   |                  |   | 6,560,225   |  
|Other assets                                                                                                                                                      |  |                   | 46,149      |   |                  |   | 71,970      |  
|                                                                                                                                                                  |  |                   |             |   |                  |   |             |  
|Total assets                                                                                                                                                      |  | $                 | 444,343,670 |   |                  | $ | 457,432,896 |  
|                                                                                                                                                                  |  |                   |             |   |                  |   |             |  
|                                                                                                                                                                  |  |                  
|Liabilities and Equity                                                                                                                                            |  |                   |             |   |                  |   |             |  
|Current liabilities                                                                                                                                               |  |                   |             |   |                  |   |             |  
|Current maturities of long-term debt                                                                                                                              |  | $                 | 1,890,119   |   |                  | $ | 12,432,900  |  
|Accounts payable  trade                                                                                                                                          |  |                   | 27,002,506  |   |                  |   | 23,375,729  |  
|Accounts payable  related parties                                                                                                                                |  |                   | 1,337,757   |   |                  |   | 899,102     |  
|Income tax payable                                                                                                                                                |  |                   | 183,393     |   |                  |   |            |  
|Accrued interest payable                                                                                                                                          |  |                   | 3,104,885   |   |                  |   | 8,928,970   |  
|Accrued expenses                                                                                                                                                  |  |                   | 18,067,527  |   |                  |   | 14,201,278  |  
|                                                                                                                                                                  |  |                   |             |   |                  |   |             |  
|Total current liabilities                                                                                                                                         |  |                   | 51,586,187  |   |                  |   | 59,837,979  |  
|Long-term debt                                                                                                                                                    |  |                   | 213,221,539 |   |                  |   | 214,465,329 |  
|Deferred tax liability                                                                                                                                            |  |                   | 29,334,399  |   |                  |   | 36,622,111  |  
|                                                                                                                                                                  |  |                   |             |   |                  |   |             |  
|Total liabilities                                                                                                                                                 |  |                   | 294,142,125 |   |                  |   | 310,925,419 |  
|                                                                                                                                                                  |  |                   |             |   |                  |   |             |  
|Commitments and contingencies (Note 10)                                                                                                                           |  |                   |             |   |                  |   |             |  
|Temporary Equity                                                                                                                                                  |  |                   |             |   |                  |   |             |  
|Series B senior convertible preferred shares                                                                                                                      |  |                   | 14,571,989  |   |                  |   |            |  
|                                                                                                                                                                  |  |                   |             |   |                  |   |             |  
|                                                                                                                                                                  |  |                  
|Shareholders equity                                                                                                                                              |  |                   |             |   |                  |   |             |  
|Preference shares, $.01 par value, 10,000,000 shares authorized, none issued and outstanding at September 30, 2010 and
December 31, 2009                          |  |                   |            |   |                  |   |            |  
|Common shares, $.01 par value, 450,000,000 shares authorized, 83,673,700 and 54,173,700 shares issued and outstanding at
September 30, 2010 and December 31, 2009 |  |                   | 836,737     |   |                  |   | 541,737     |  
|Class B shares, $.01 par value, 40,000,000 shares authorized, none and 29,500,000 shares issued and outstanding at
September 30, 2010 and December 31, 2009       |  |                   |            |   |                  |   | 295,000     |  
|Additional paid-in capital                                                                                                                                        |  |                   | 185,233,140 |   |                  |   | 183,880,128 |  
|Accumulated other comprehensive income                                                                                                                            |  |                   | 263,579     |   |                  |   |            |  
|Accumulated deficit                                                                                                                                               |  |                   | (50,703,900 | ) |                  |   | (38,209,388 | )
|                                                                                                                                                                  |  |                   |             |   |                  |   |             |  
|Total shareholders equity                                                                                                                                        |  |                   | 135,629,556 |   |                  |   | 146,507,477 |  
|                                                                                                                                                                  |  |                   |             |   |                  |   |             |  
|Total liabilities and equity                                                                                                                                      |  | $                 | 444,343,670 |   |                  | $ | 457,432,896 |  
|                                                                                                                                                                  |  |                   |             |   |                  |   |             |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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Forbes Energy
Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Statements of Operations
(unaudited)



|                                                                   |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|------------------------------------------------------------------ |  | -------------------------------- | ---------- | - | ------------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                   |  | Three Months Ended September 30, |            |   | Nine Months Ended September 30, |  
|                                                                   |  | 2010                             |            |   | 2009                            |   |             | 2010 |  |   | 2009        |  
|Revenues                                                           |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Well servicing                                                     |  | $                                | 40,847,610 |   |                                 | $ | 23,853,912  |      |  | $ | 111,521,202 |   |  | $ | 80,907,991  |  
|Fluid logistics                                                    |  |                                  | 43,128,903 |   |                                 |   | 26,618,294  |      |  |   | 119,762,826 |   |  |   | 82,748,174  |  
|                                                                   |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Total revenues                                                     |  |                                  | 83,976,513 |   |                                 |   | 50,472,206  |      |  |   | 231,284,028 |   |  |   | 163,656,165 |  
|                                                                   |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|                                                                   |  |                                  |            |  
|Expenses                                                           |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Well servicing                                                     |  |                                  | 32,632,654 |   |                                 |   | 22,869,209  |      |  |   | 89,992,590  |   |  |   | 72,985,810  |  
|Fluid logistics                                                    |  |                                  | 32,262,539 |   |                                 |   | 21,812,340  |      |  |   | 92,554,158  |   |  |   | 64,972,027  |  
|General and administrative                                         |  |                                  | 5,535,451  |   |                                 |   | 4,644,809   |      |  |   | 17,747,263  |   |  |   | 14,315,264  |  
|Depreciation and amortization                                      |  |                                  | 10,089,067 |   |                                 |   | 9,982,121   |      |  |   | 29,927,159  |   |  |   | 29,448,456  |  
|                                                                   |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Total expenses                                                     |  |                                  | 80,519,711 |   |                                 |   | 59,308,479  |      |  |   | 230,221,170 |   |  |   | 181,721,557 |  
|                                                                   |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Operating income (loss)                                            |  |                                  | 3,456,802  |   |                                 |   | (8,836,273  | )    |  |   | 1,062,858   |   |  |   | (18,065,392 | )
|                                                                   |  |                                  |            |  
|Other income (expense)                                             |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Interest income                                                    |  |                                  | 11,694     |   |                                 |   | 34,064      |      |  |   | 110,603     |   |  |   | 10,767      |  
|Interest expense                                                   |  |                                  | (6,770,550 | ) |                                 |   | (6,232,071  | )    |  |   | (20,612,136 | ) |  |   | (19,292,059 | )
|Gain on early extinguishment of debt                               |  |                                  |           |   |                                 |   |            |      |  |   | 18,591      |   |  |   | 1,421,750   |  
|Other income (expense)                                             |  |                                  | 116,137    |   |                                 |   | (191,585    | )    |  |   | 7,871       |   |  |   | (133,671    | )
|                                                                   |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Loss before taxes                                                  |  |                                  | (3,185,917 | ) |                                 |   | (15,225,865 | )    |  |   | (19,412,213 | ) |  |   | (36,058,605 | )
|Income tax (benefit) expense                                       |  |                                  | (1,104,267 | ) |                                 |   | (5,616,145  | )    |  |   | (6,917,701  | ) |  |   | (12,875,659 | )
|                                                                   |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Net loss                                                           |  |                                  | (2,081,650 | ) |                                 |   | (9,609,720  | )    |  |   | (12,494,512 | ) |  |   | (23,182,946 | )
|Preferred shares dividends                                         |  |                                  | (278,432   | ) |                                 |   |            |      |  |   | (342,389    | ) |  |   |            |  
|                                                                   |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Net loss attributable to common shareholders                       |  | $                                | (2,360,082 | ) |                                 | $ | (9,609,720  | )    |  | $ | (12,836,901 | ) |  | $ | (23,182,946 | )
|                                                                   |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|                                                                   |  |                                  |            |  
|Loss per share of common stock attributable to common shareholders |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Basic and diluted                                                  |  | $                                | (0.03      | ) |                                 | $ | (0.15       | )    |  | $ | (0.15       | ) |  | $ | (0.37       | )
|Weighted average number of shares outstanding                      |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Basic and diluted                                                  |  |                                  | 83,673,700 |   |                                 |   | 62,111,200  |      |  |   | 83,673,700  |   |  |   | 62,111,200  |  

The accompanying notes
are an integral part of these condensed consolidated financial statements.



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Forbes Energy
Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Statements of Changes in
Shareholders Equity (unaudited)



|                                                          |  |        |            |  |        |        |         |                  |  |  |                           |  |  |                                     |            |  |                    |   |             |                           |  |   |         |  |  |   |             |   |  |   |             |  
|--------------------------------------------------------- |  | ------ | ---------- |  | ------ | ------ | ------- | ---------------- |  |  | ------------------------- |  |  | ----------------------------------- | ---------- |  | ------------------ | - | ----------- | ------------------------- |  | - | ------- |  |  | - | ----------- | - |  | - | ----------- | -
|                                                          |  | Shares |            |  | Amount |        |         | Preferred Shares |  |  | AdditionalPaid-In
Capital |  |  | AccumulatedOtherComprehensiveIncome |            |  | AccumulatedDeficit |   |             | TotalShareholders
Equity | 
|                                                          |  |        | Shares     |  |        | Amount |         |                  |  |  |                          
|Balance December 31, 2009                                 |  |        | 83,673,700 |  |        | $      | 836,737 |                  |  |  |                          |  |  |                                     |           |  |                    | $ | 183,880,128 |                           |  |   |        |  |  | $ | (38,209,388 | ) |  | $ | 146,507,477 |  
|Share-based compensation                                  |  |        |           |  |        |        |        |                  |  |  |                          |  |  |                                     |           |  |                    |   | 1,919,077   |                           |  |   |        |  |  |   |            |   |  |   | 1,919,077   |  
|Issuance                                                  |  |        |           |  |        |        |        |                  |  |  | 580,800                   |  |  | $                                   | 14,229,600 |  |                    |   |            |                           |  |   |        |  |  |   |            |   |  |   |            |  
|Net Loss                                                  |  |        |           |  |        |        |        |                  |  |  |                          |  |  |                                     |           |  |                    |   |            |                           |  |   |        |  |  |   | (12,494,512 | ) |  |   | (12,494,512 | )
|Comprehensive Income                                      |  |        |            |  |        |        |         |                  |  |  |                           |  |  |                                     |            |  |                    |   |             |                           |  | $ | 263,579 |  |  |   |             |   |  |   | 263,579     |  
|Preferred shares dividends, accretion, and offering costs |  |        |           |  |        |        |        |                  |  |  | 7,259                     |  |  |                                     | 342,389    |  |                    |   | (566,065    | )                         |  |   |        |  |  |   |            |   |  |   | (566,065    | )
|                                                          |  |        |            |  |        |        |         |                  |  |  |                           |  |  |                                     |            |  |                    |   |             |                           |  |   |         |  |  |   |             |   |  |   |             |  
|Balance September 30, 2010                                |  |        | 83,673,700 |  |        | $      | 836,737 |                  |  |  | 588,059                   |  |  | $                                   | 14,571,989 |  |                    | $ | 185,233,140 |                           |  | $ | 263,579 |  |  | $ | (50,703,900 | ) |  | $ | 135,629,556 |  
|                                                          |  |        |            |  |        |        |         |                  |  |  |                           |  |  |                                     |            |  |                    |   |             |                           |  |   |         |  |  |   |             |   |  |   |             |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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Forbes Energy
Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Condensed Consolidated Statements of Cash Flows
(unaudited)



|                                                                                         |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|---------------------------------------------------------------------------------------- |  | ---------------------------------------- | ---------- | - | --------------------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                                         |  | For the Three 
MonthsEnded September 30, |            |   | For the Nine 
MonthsEnded September 30, |  
|                                                                                         |  | 2010                                     |            |   | 2009                                    |   |             | 2010 |  |   | 2009        |  
|Cash flows from operating activities                                                     |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Net loss                                                                                 |  | $                                        | (2,081,650 | ) |                                         | $ | (9,609,720  | )    |  | $ | (12,494,512 | ) |  | $ | (23,182,946 | )
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Depreciation expense                                                                     |  |                                          | 9,354,205  |   |                                         |   | 9,266,902   |      |  |   | 27,761,699  |   |  |   | 27,302,799  |  
|Amortization expense                                                                     |  |                                          | 734,988    |   |                                         |   | 715,219     |      |  |   | 2,165,586   |   |  |   | 2,145,657   |  
|Amortization of Second Priority Notes OID                                                |  |                                          | 163,611    |   |                                         |   | 169,728     |      |  |   | 615,202     |   |  |   | 617,103     |  
|Share-based compensation                                                                 |  |                                          | 674,238    |   |                                         |   | 622,420     |      |  |   | 1,919,077   |   |  |   | 1,869,575   |  
|Deferred tax benefit                                                                     |  |                                          | (1,474,278 | ) |                                         |   | (4,789,918  | )    |  |   | (7,287,712  | ) |  |   | (12,182,466 | )
|(Gain)/loss on disposal of assets, net                                                   |  |                                          | 110,416    |   |                                         |   | (3,295      | )    |  |   | 220,266     |   |  |   | (88,281     | )
|Gain on early extinguishment of debt                                                     |  |                                          |           |   |                                         |   |            |      |  |   | (18,591     | ) |  |   | (1,421,750  | )
|Bad debt expense                                                                         |  |                                          | 93,068     |   |                                         |   | 164,793     |      |  |   | 995,186     |   |  |   | 2,497,879   |  
|Amortization of deferred financing cost                                                  |  |                                          | 542,213    |   |                                         |   | 510,882     |      |  |   | 1,657,051   |   |  |   | 1,425,189   |  
|Changes in operating assets and liabilities                                              |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Accounts receivable                                                                      |  |                                          | 2,194,674  |   |                                         |   | 2,804,407   |      |  |   | (26,020,239 | ) |  |   | 27,970,941  |  
|Accounts receivable - related party                                                      |  |                                          | 52,345     |   |                                         |   | (17,184     | )    |  |   | (1,204      | ) |  |   | (59,921     | )
|Prepaid expenses                                                                         |  |                                          | 1,237,274  |   |                                         |   | (160,482    | )    |  |   | 2,267,606   |   |  |   | 1,751,790   |  
|Other assets                                                                             |  |                                          | 3,489      |   |                                         |   | (110,202    | )    |  |   | 26,530      |   |  |   | 51,238      |  
|Accounts payable - trade                                                                 |  |                                          | 3,460,668  |   |                                         |   | (1,017,997  | )    |  |   | 6,138,986   |   |  |   | (12,060     | )
|Accounts payable - related party                                                         |  |                                          | 286,096    |   |                                         |   | 15,660      |      |  |   | 439,546     |   |  |   | 203,141     |  
|Accrued expenses                                                                         |  |                                          | (662,633   | ) |                                         |   | 722,514     |      |  |   | 3,824,594   |   |  |   | (1,968,636  | )
|Income taxes payable                                                                     |  |                                          | 183,393    |   |                                         |   | 853,605     |      |  |   | 183,393     |   |  |   | 339,799     |  
|Accrued interest payable                                                                 |  |                                          | (5,836,907 | ) |                                         |   | (6,487,802  | )    |  |   | (5,938,294  | ) |  |   | (6,682,601  | )
|                                                                                         |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Net cash provided by (used in) operating activities                                      |  |                                          | 9,035,210  |   |                                         |   | (6,350,470  | )    |  |   | (3,545,830  | ) |  |   | 20,576,450  |  
|                                                                                         |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Cash flows from investing activities                                                     |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Insurance proceeds                                                                       |  |                                          |           |   |                                         |   | 84,976      |      |  |   |            |   |  |   | 1,745,606   |  
|Restricted cash                                                                          |  |                                          | (11,366    | ) |                                         |   |            |      |  |   | (39,678     | ) |  |   |            |  
|Purchase of property and equipment                                                       |  |                                          | (2,376,938 | ) |                                         |   | (6,919,256  | )    |  |   | (5,621,687  | ) |  |   | (26,058,864 | )
|                                                                                         |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Net cash used in investing activities                                                    |  |                                          | (2,388,304 | ) |                                         |   | (6,834,280  | )    |  |   | (5,661,365  | ) |  |   | (24,313,258 | )
|                                                                                         |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Cash flows from financing activities                                                     |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Repayment of debt                                                                        |  |                                          | (1,792,798 | ) |                                         |   | (1,570,566  | )    |  |   | (5,151,773  | ) |  |   | (4,505,203  | )
|Borrowings under Credit Facility                                                         |  |                                          |           |   |                                         |   |            |      |  |   |            |   |  |   | 12,000,000  |  
|Proceeds from issuance of preferred stock                                                |  |                                          |           |   |                                         |   |            |      |  |   | 14,229,600  |   |  |   |            |  
|Retirement of Second Priority Notes                                                      |  |                                          |           |   |                                         |   |            |      |  |   | (6,778,750  | ) |  |   | (3,415,000  | )
|Other                                                                                    |  |                                          | (61,883    | ) |                                         |   | (100,000    | )    |  |   | (215,250    | ) |  |   | (104,294    | )
|                                                                                         |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Net cash provided by (used in) financing activities                                      |  |                                          | (1,854,681 | ) |                                         |   | (1,670,566  | )    |  |   | 2,083,827   |   |  |   | 3,975,503   |  
|                                                                                         |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Effect of currency translation on cash                                                   |  |                                          | (53,936    | ) |                                         |   |            |      |  |   | (53,936     | ) |  |   |            |  
|Net increase (decrease) in cash and cash equivalents                                     |  |                                          | 4,738,289  |   |                                         |   | (14,855,316 | )    |  |   | (7,177,304  | ) |  |   | 238,695     |  
|Cash and cash equivalents                                                                |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|Beginning of period                                                                      |  |                                          | 16,509,774 |   |                                         |   | 38,563,078  |      |  |   | 28,425,367  |   |  |   | 23,469,067  |  
|                                                                                         |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|End of period                                                                            |  | $                                        | 21,248,063 |   |                                         | $ | 23,707,762  |      |  | $ | 21,248,063  |   |  | $ | 23,707,762  |  
|                                                                                         |  |                                          |            |   |                                         |   |             |      |  |   |             |   |  |   |             |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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Forbes Energy
Services Ltd. and Subsidiaries (a/k/a the Forbes Group)

Notes to Condensed Consolidated Financial Statements

1. Organization and Nature of Operations

Nature of Business

Forbes Energy Services Ltd. (FES
Ltd) and its subsidiaries, Forbes Energy Services LLC (FES LLC), Forbes Energy Capital Inc. (FES CAP), C.C. Forbes, LLC (CCF), TX Energy Services, LLC (TES), Superior Tubing Testers, LLC
(STT) and Forbes Energy International, LLC (FEI LLC) are headquartered in Alice, Texas, and conduct business primarily in the state of Texas. On October 15, 2008, FES LLC and FEI LLC formed Forbes Energy Services
México, S. de R.L. de C.V. (FES Mexico), a Mexican limited liability partnership (sociedad de responsabilidad limitada de capital variable), to conduct operations in Mexico. On December 3, 2008, Forbes Energy Services Mexico
Servicios de Personal, S. de R.L de C. V. was formed to provide employee services to FES Mexico, and on June 8, 2009, FES Ltd formed a branch in Mexico. As used in these condensed consolidated financial statements, the Company, the
Forbes Group, we, or our means FES Ltd and all its direct and indirect subsidiaries.

The
Forbes Group 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. The Forbes Groups operations are concentrated in the major onshore oil and natural gas
producing regions of Texas, with locations in Baxterville, Mississippi, Washington, Pennsylvania and Poza Rica, Mexico.

2. Risk and
Uncertainties

As an independent oilfield services contractor that provides a broad range of drilling-related and
production-related services to oil and natural gas companies, primarily onshore in Texas, our revenue, profitability, cash flows and future rate of growth are substantially dependent on our ability to (1) maintain adequate equipment
utilization, (2) maintain adequate pricing for the services we provide, and (3) maintain a trained work force. Failure to do so could adversely affect our financial position, results of operations, and cash flows.

Because our revenues are generated primarily from customers who are subject to the same factors generally impacting the oil and natural
gas industry, our operations are also susceptible to market volatility resulting from economic, cyclical, weather related or other factors related to such industry. Changes in the level of operating and capital spending in the industry, decreases in
oil and natural gas prices, or industry perception about future oil and natural gas prices could materially decrease the demand for our services, adversely affecting our financial position, results of operations and cash flows.

3. Basis of Presentation

Interim Financial Information

The unaudited condensed consolidated financial statements of the Forbes Group are prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP
for interim financial reporting. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted. Therefore, these consolidated financial statements should be read
along with the annual audited consolidated financial statements and notes thereto included in Forbes Groups Annual Report on Form 10-K for the year ended December 31, 2009. In managements opinion, all adjustments necessary for a
fair statement are reflected in the interim periods presented. Interim results for the three and nine months ended September 30, 2010 may not be indicative of results that will be realized for the full year ending December 31, 2010. All
significant intercompany accounts and transactions have been eliminated in consolidation.

Transactions that are denominated
in a currency other than the functional currency are remeasured into the functional currency each reporting period. Transaction gains and losses that arise from exchange rate fluctuations on transactions and balances denominated in a currency other
than the functional currency are included in the results of operations and cash flows as incurred.



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Use of Estimates

The preparation of these consolidated financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Management believes that these estimates and assumptions provide a reasonable basis for the fair statement of the condensed consolidated financial statements.

Foreign Currency Gains and Losses

Effective July 1, 2010, our international location in Mexico changed its functional currency from the U.S. dollar to the Mexican peso in response to the growing volume of business required to be
transacted in the local currency. A significant portion of our contract revenue being collected is also in Pesos. Assets and liabilities are translated using the spot rate on the balance sheet date, while income and expense items are translated at
average rates of exchange during the period. The resulting gains or losses arising from the translation of accounts from the functional currency to the U.S. Dollar are included as a separate component of stockholders equity in other
comprehensive income. If our foreign entity enters into transactions that are denominated in currencies other than their functional currency, these transactions are initially recorded in the functional currency based on the applicable exchange rate
in effect on the date of the transaction. At the end of each month, these transactions are remeasured to an equivalent amount of the functional currency based on the applicable exchange rates in effect at that time. Any adjustment required to
remeasure a transaction to the equivalent amount of the functional currency at the end of the month is recorded in the income or loss of the foreign entity as a component of other income and expense. See  Note 17 Other Comprehensive Income.

Comprehensive Income

Comprehensive income consists of net income and other gains and losses affecting shareholders equity that, under generally accepted principles are excluded from net income. The financial statements
of the Companys foreign subsidiaries are translated into U.S. dollars in accordance with generally accepted accounting principles. Where the functional currency of a foreign subsidiary is its local currency, balance sheet accounts are
translated at the current exchange rate on the balance sheet date and income statement items are translated at the average exchange rate for the period. Exchange gains or losses resulting from the translation of financial statements of foreign
operations are accumulated in other comprehensive income. The foreign currency translation adjustments relate to investments that are permanent in nature and no adjustments for income taxes are made.

We display comprehensive income and its components in our financial statements, and we classify items of comprehensive income by their
nature in our financial statements and display the accumulated balance of other comprehensive income separately in our stockholders equity.

Differences Between US GAAP and Canadian GAAP

The financial
statements in this report have been prepared in accordance with generally accepted accounting principles in the United States or U.S. GAAP, and the reporting currency is the U.S. dollar. U.S. GAAP conforms in most respects to generally accepted
accounting principles in Canada, or Canadian GAAP except for the following:



| |  |  | In accordance with U.S. GAAP, debt issuance costs are classified as other assets on the condensed consolidated balance sheet of the Company. Under
Canadian GAAP, debt issuance costs are netted with debt in the balance sheet. For U.S. and Canadian GAAP, debt issuance costs are amortized over the period of the loan agreement as a component of interest expense and any differences in the
calculation are immaterial.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In accordance with U.S. GAAP, the $14.6 million of Series B Senior Convertible Preferred Shares are classified as temporary equity on the condensed
consolidated balance sheet of the Company. Under Canadian GAAP, the value of Series B Preferred Shares would be bifurcated, allocating the fair value of the conversion feature of the Series B Preferred Shares, initially estimated by the Company
as $2.7 million, to Shareholders Equity, and the remaining balance, of $11.9 million to long-term liability. The liability portion would then be accreted each period, using the effective interest rate method, in amounts which will
increase the liability to its full face amount of the convertible instrument as of the maturity date, with the accretion recorded as interest expense. This difference would not have material impact on the operations or cash flows of the condensed
consolidated financial statements of the Company in this report.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Recently Adopted
Accounting Pronouncements

The FASB issued Accounting Standards Update (ASU) No. 2010-13,
CompensationStock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This ASU codifies the consensus reached
in EITF Issue No. 09-J, Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. The amendments to the Codification clarify that an
employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entitys equity shares trades should not be considered to contain a condition that is not a market,
performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The company adopted this ASU as of January 1, 2010, and it did have any impact on the consolidated
financial statements.

The FASB issued ASU No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain
Recognition and Disclosure Requirements. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial
statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC
filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The adoption of this ASU did not have a material impact on
the Companys consolidated financial statements.

The FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10.
The FASBs objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require:



| |  |  | A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and
describe the reasons for the transfers; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about
purchases, sales, issuances, and settlements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, ASU 2010-06 clarifies the requirements of the
following existing disclosures:



| |  |  | For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring
fair value measurements.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ASU 2010-06 is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The adoption of this ASU is not expected to have a material impact on the Companys consolidated financial statements.

4. Intangible Assets

The following sets forth the identified intangible assets by major asset class:



|                        |  |                          |    |  |                         |   |            |                         |  |   |               |  |  |                      |            |  |                         |   |            |               |  |   |           |  |  |   |            | 
|----------------------- |  | ------------------------ | -- |  | ----------------------- | - | ---------- | ----------------------- |  | - | ------------- |  |  | -------------------- | ---------- |  | ----------------------- | - | ---------- | ------------- |  | - | --------- |  |  | - | ---------- | 
|                        |  | As of September 30, 2010 |    |  | As of December 31, 2009 |  
|                        |  | UsefulLife (years)       |    |  | Gross 
CarryingValue    |   |            | AccumulatedAmortization |  |   | Net BookValue |  |  | Gross 
CarryingValue |            |  | AccumulatedAmortization |   |            | Net BookValue | 
|Customer relationships  |  |                          | 15 |  |                         | $ | 31,895,919 |                         |  | $ | 5,847,585     |  |  | $                    | 26,048,334 |  |                         | $ | 31,895,919 |               |  | $ | 4,252,789 |  |  | $ | 27,643,130 | 
|Trade name              |  |                          | 15 |  |                         |   | 8,049,750  |                         |  |   | 1,475,788     |  |  |                      | 6,573,962  |  |                         |   | 8,049,750  |               |  |   | 1,073,300 |  |  |   | 6,976,450  | 
|Safety training program |  |                          | 15 |  |                         |   | 1,181,924  |                         |  |   | 216,686       |  |  |                      | 965,238    |  |                         |   | 1,181,924  |               |  |   | 157,590   |  |  |   | 1,024,334  | 
|Dispatch software       |  |                          | 10 |  |                         |   | 1,135,282  |                         |  |   | 312,203       |  |  |                      | 823,079    |  |                         |   | 1,135,282  |               |  |   | 227,055   |  |  |   | 908,227    | 
|Other                   |  |                          | 10 |  |                         |   | 58,300     |                         |  |   | 16,029        |  |  |                      | 42,271     |  |                         |   | 58,300     |               |  |   | 11,660    |  |  |   | 46,640     | 
|                        |  |                          |    |  |                         |   |            |                         |  |   |               |  |  |                      |            |  |                         |   |            |               |  |   |           |  |  |   |            | 
|                        |  |                          |    |  |                         | $ | 42,321,175 |                         |  | $ | 7,868,291     |  |  | $                    | 34,452,884 |  |                         | $ | 42,321,175 |               |  | $ | 5,722,394 |  |  | $ | 36,598,781 | 
|                        |  |                          |    |  |                         |   |            |                         |  |   |               |  |  |                      |            |  |                         |   |            |               |  |   |           |  |  |   |            | 



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The Company expenses
costs associated with extensions or renewals of intangible assets. There were no such extensions or renewals in the three and nine months ended September 30, 2010 and 2009. Amortization expense is calculated using the straight-line method over
the period indicated. Aggregate amortization expense of intangible assets for the three and nine months ended September 30, 2010 was approximately $0.7 million and $2.1 million, respectively, and $0.7 million and $2.1 million for the three and
nine months ended September 30, 2009, respectively. Amortization expense associated with identified intangible assets is expected to be approximately $2.9 million in each of the next five years. The weighted average amortization period
remaining for intangible assets is 12 years.

5. Share-Based Compensation

From time to time, the Company grants stock options to its employees, including executive officers, and directors from its Incentive
Compensation Plan. For the 2008 Incentive Compensation Plan standard options vest over a three-year period, with approximately one third vesting on the first, second and third anniversaries of the date of grant. For the 2010 stock option issuances,
the standard option vests over a two year period, with one fourth vesting on the six month anniversary of the award date and one fourth vesting every six months thereafter, until fully vested. For most grantees, options expire at the earlier of
either one year after the termination of grantees employment by reason of death, disability or retirement, ninety days after termination of the grantees employment other than upon grantees death, disability or retirement, or ten
years after the date of grant.

The following table presents a summary of the Companys stock option activity for the
nine months ended September 30, 2010.



|                                                  |  |        |           |  |                               |   |      |                                          |  |  |                         |  |  |  |        | 
|------------------------------------------------- |  | ------ | --------- |  | ----------------------------- | - | ---- | ---------------------------------------- |  |  | ----------------------- |  |  |  | ------ | 
|                                                  |  | Shares |           |  | Weighted-AverageExercisePrice |   |      | Weighted-AverageRemainingContractualTerm |  |  | AggregateIntrinsicValue | 
|Options outstanding at December 31, 2009:         |  |        | 2,680,000 |  |                               | $ | 7.00 |                                          |  |  |                         |  |  |  |        | 
|Stock options:                                    |  |        |           |  |                               |   |      |                                          |  |  |                         |  |  |  |        | 
|Granted                                           |  |        | 2,540,000 |  |                               |   | 0.65 |                                          |  |  |                         |  |  |  |        | 
|Exercised                                         |  |        |          |  |                               |   |     |                                          |  |  |                         |  |  |  |        | 
|Forfeited                                         |  |        |          |  |                               |   |     |                                          |  |  |                         |  |  |  |        | 
|                                                  |  |        |           |  |                               |   |      |                                          |  |  |                         |  |  |  |        | 
|Options outstanding at September 30, 2010:        |  |        | 5,220,000 |  |                               | $ | 3.91 |                                          |  |  | 8.75 years              |  |  |  | 97,470 | 
|                                                  |  |        |           |  |                               |   |      |                                          |  |  |                         |  |  |  |        | 
|                                                  |  |        |           | 
|Vested and expected to vest at September 30, 2010 |  |        | 1,786,667 |  |                               | $ | 3.91 |                                          |  |  | 8.75 years              |  |  |  | 97,470 | 
|                                                  |  |        |           |  |                               |   |      |                                          |  |  |                         |  |  |  |        | 
|                                                  |  |        |           | 
|Exercisable at September 30, 2010                 |  |        | 1,786,667 |  |                               | $ | 3.91 |                                          |  |  | 8.75 years              |  |  |  | 97,470 | 
|                                                  |  |        |           |  |                               |   |      |                                          |  |  |                         |  |  |  |        | 

During the three and nine months ended September 30, 2010 and three and nine months ended
September 30, 2009 the Company recorded total stock based compensation expense of $0.7 million, $1.9 million, $0.6 million and $1.9 million, respectively. No stock-based compensation costs were capitalized as of September 30, 2010. As of
September 30, 2010, total unrecognized stock-based compensation costs amounted to $2.8 million (net of estimated forfeitures) and is expected to be recorded over a weighted-average period of 1.2 years.

At September 30, 2010, there were no shares available for future grants under the 2008 Incentive Compensation Plan.



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6. Property and Equipment

Property and equipment consisted of the following:



|                          |  |                         |            |  |                    |   |              |                   |  |   |             |  
|------------------------- |  | ----------------------- | ---------- |  | ------------------ | - | ------------ | ----------------- |  | - | ----------- | -
|                          |  | EstimatedLife in 
Years |            |  | September 30, 2010 |   |              | December 31, 2009 | 
|Well servicing equipment  |  |                         | 3-15 years |  |                    | $ | 288,010,291  |                   |  | $ | 287,303,369 |  
|Autos and trucks          |  |                         | 5-10 years |  |                    |   | 81,188,858   |                   |  |   | 80,802,973  |  
|Disposal wells            |  |                         | 5-15 years |  |                    |   | 16,010,519   |                   |  |   | 14,989,517  |  
|Building and improvements |  |                         | 5-30 years |  |                    |   | 6,404,555    |                   |  |   | 6,125,320   |  
|Furniture and fixtures    |  |                         | 3-10 years |  |                    |   | 2,328,229    |                   |  |   | 2,247,541   |  
|Land                      |  |                         |            |  |                    |   | 581,242      |                   |  |   | 581,242     |  
|Other                     |  |                         | 3-15 years |  |                    |   | 19,562       |                   |  |   | 39,250      |  
|                          |  |                         |            |  |                    |   |              |                   |  |   |             |  
|                          |  |                         |           
|                          |  |                         |            |  |                    |   | 394,543,256  |                   |  |   | 392,089,212 |  
|Accumulated depreciation  |  |                         |            |  |                    |   | (111,174,210 | )                 |  |   | (83,529,327 | )
|                          |  |                         |            |  |                    |   |              |                   |  |   |             |  
|                          |  |                         |           
|                          |  |                         |            |  |                    | $ | 283,369,046  |                   |  | $ | 308,559,885 |  
|                          |  |                         |            |  |                    |   |              |                   |  |   |             |  

Depreciation expense was $9.4 million and $27.8 million for the three and nine months ended
September 30, 2010 and $9.3 million and $27.3 million for the three and nine months ended September 30, 2009, respectively.

7.
Long-Term Debt

Long-term debt at September 30, 2010 and December 31, 2009, consisted of the following:



|                                          |  |                    |             |   |                   |   |             |  
|----------------------------------------- |  | ------------------ | ----------- | - | ----------------- | - | ----------- | -
|                                          |  | September 30, 2010 |             |   | December 31, 2009 |  
|Second Priority Notes, gross              |  | $                  | 192,500,000 |   |                   | $ | 199,750,000 |  
|Less: Unamortized original issue discount |  |                    | (2,835,928  | ) |                   |   | (3,451,130  | )
|                                          |  |                    |             |   |                   |   |             |  
|                                          |  |                   
|Second Priority Notes, net                |  |                    | 189,664,072 |   |                   |   | 196,298,870 |  
|First Priority Notes                      |  |                    | 20,000,000  |   |                   |   | 20,000,000  |  
|Paccar notes                              |  |                    | 5,352,860   |   |                   |   | 6,612,859   |  
|Insurance notes                           |  |                    | 94,726      |   |                   |   | 3,986,500   |  
|                                          |  |                    |             |   |                   |   |             |  
|                                          |  |                   
|                                          |  |                    | 215,111,658 |   |                   |   | 226,898,229 |  
|Less: Current portion                     |  |                    | (1,890,119  | ) |                   |   | (12,432,900 | )
|                                          |  |                    |             |   |                   |   |             |  
|                                          |  |                   
|                                          |  | $                  | 213,221,539 |   |                   | $ | 214,465,329 |  
|                                          |  |                    |             |   |                   |   |             |  

Second Priority Notes

On February 12, 2008, FES LLC and FES CAP issued $205.0 million in principal amount of 11% Senior Secured Notes due 2015 (together with notes issued in exchange therefore, the Second Priority
Notes). The Forbes Group reflects $189.7 million of debt outstanding in its balance sheet as of September 30, 2010, which recognizes the original issue discount as the Second Priority Notes were issued at 97.635% of par and the repurchase
of certain Second Priority Notes as described below. The Second Priority Notes mature on February 15, 2015, and require semi-annual interest payments at an annual rate of 11% on February 15 and August 15 of each year until maturity.
No principal payments are due until maturity. The Second Priority Notes are senior obligations and rank equally in right of payment with other existing and future senior indebtedness and senior in right of payment to any subordinated indebtedness
that may be incurred by the Forbes Group in the future.

The Second Priority Notes are guaranteed by FES Ltd, the parent
company of FES LLC and FES CAP, as well as the domestic subsidiaries (the Guarantor Subs) of FES LLC, which includes CCF, TES, STT and FEI LLC. All of the Guarantor Subs are 100% owned and each guarantees the securities on a full and
unconditional and joint and several basis. FES Ltd has two 100% owned indirect subsidiaries, FES Mexico and a related employment company (the Non-Guarantor Subs) that have not guaranteed the Second Priority Notes, however, the Forbes
Group has granted a security interest in 65% of the equity interests of the Non-Guarantor Subs to secure the Second Priority Notes. FES Ltd has a branch office in Mexico and conducts operations independent of the Non-Guarantor Subs. The Guarantor
Subs represent the majority of the Companys operations.



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The indenture
governing the Second Priority Notes (the Second Priority Indenture), as amended, required the Forbes Group to pay $2.0 million in cash during the first quarter of 2009 and an additional $8.0 million in cash by the end of the second
quarter of 2010 to repurchase Second Priority Notes upon specified terms and conditions. Pursuant to this requirement, in the quarter ended March 31, 2009, the Forbes Group paid $2.0 million in cash to repurchase, at a discount, $3.25 million
of Second Priority Notes. Additionally, in the quarter ended June 30, 2009, the Forbes Group paid $1.4 million cash to repurchase, at a discount, $2.0 million of Second Priority Notes. In connection with these repurchases, the Forbes Group
realized a net gain of approximately $1.4 million after writing down a portion of the original bond discount and writing off a portion of the deferred financing costs. In the quarter ended June 30, 2010, the Forbes Group paid $6.8 million in
cash to repurchase, at a discount, $7.3 million of Second Priority Notes. In connection with this repurchase, the Forbes Group recognized a nominal net gain after writing down a portion of the original bond discount and writing off a portion of the
deferred financing costs.

The Forbes Group may, at its option, redeem all or part of the Second Priority Notes from time to
time at specified redemption prices and subject to certain conditions required by the Second Priority Indenture governing the Second Priority Notes. The Forbes Group is required to make an offer to purchase the notes and to repurchase any notes for
which the offer is accepted at 101% of their principal amount, plus accrued and unpaid interest, if there is a change of control or if the Forbes Group has excess cash flow. The Forbes Group is required to make an offer to repurchase the notes and
to repurchase any notes for which the offer is accepted at 100% of their principal amount, plus accrued and unpaid interest, following certain asset sales.

The Forbes Group is permitted under the terms of the Second Priority Indenture to incur additional indebtedness in the future, provided that certain financial conditions set forth in the Second Priority
Indenture are satisfied. The Forbes Group is subject to certain covenants contained in the Second Priority Indenture, including provisions that limit or restrict the Forbes Groups and certain future subsidiaries abilities to incur
additional debt, to create, incur or permit to exist certain liens on assets, to make certain dispositions of assets, to make payments on certain subordinated indebtedness, to pay dividends or certain other payments to equity holders, to engage in
mergers, consolidations or other fundamental changes, to change the nature of its business, to engage in transactions with affiliates or to make capital expenditures in excess of certain amounts based on the year in which such expenditures are made.

Details of two of the more significant restrictive covenants in the Second Priority Indenture are set forth below:



| |  |  | Limitation on the incurrence of additional debtIn addition to certain defined Permitted Debt (as defined in the Second Priority Indenture), the
Forbes Group may only incur additional debt if it is unsecured and if the Fixed Charge Coverage Ratio (as defined in the Second Priority Indenture) for the most recently completed four full fiscal quarters is at least 3.0 to 1.0 for years beginning
after December 31, 2009. As of September 30, 2010, the Forbes Group could incur no additional debt as Permitted Debt and under the Fixed Charge Coverage Ratio Test.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Limitations on capital expendituresSubject to certain adjustments, permitted Adjusted Capital Expenditures (as defined in the Second Priority
Indenture) that may be made by the Forbes Group are limited to $21.25 million for each quarter in the fiscal year ending December 31, 2010, provided that this base amount of permitted Adjusted Capital Expenditures for each quarter in 2010 will
be reduced to $11.25 million for any quarter where, in the immediately preceding quarter, either (a) the average daily spot price for WTI crude oil at Cushing, Oklahoma was less than $80 per barrel or (b) the average daily spot price for
natural gas at Henry Hub was less than $8 per MMbtu. As of September 30, 2010, the Forbes Group Capital expenditures for the three and nine months ended September 30, 2010 totaled $1.4 million and $3.0 million, respectively. Under the
Second Priority Indenture, the Forbes Group is permitted to carry over into 2010 $10 million in Adjusted Capital Expenditures, which were permitted but unused in 2009.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Revolving Credit
Facility

On April 10, 2008, the Forbes Group entered into a revolving credit facility (the Credit
Facility). As discussed below, on October 2, 2009, the Forbes Group repaid and terminated the Credit Facility, using the proceeds from the issuance of the First Priority Notes. Borrowings under the Credit Facility accrued interest, at the
option of the Forbes Group, at either (i) the greater of the Federal Funds Effective Rate in effect on such day plus 0.5% and the prime rate announced from time to time by Citibank, N.A., plus a margin of up to 1.25%, or
(ii) the London Interbank Offered Rate, plus a margin of 1.75% to 2.25%. Unpaid interest accrued on outstanding loans was payable quarterly. The Credit Facility was secured by first priority security interests in substantially all of the Forbes
Groups assets, including those of all of the domestic subsidiaries that rank senior to the security interest granted to the holders of the Second Priority Notes. The credit agreement governing the Credit Facility (the Credit
Agreement) also contained customary representations, warranties and covenants for the type and nature of the Credit Facility, including certain limitations or restrictions on the Forbes Groups and certain future subsidiaries
ability to incur additional debt, guarantee others obligations, create, incur or permit to exist liens on assets, make investments or acquisitions, make certain dispositions of assets, make payments on certain subordinated indebtedness, pay
dividends or other payments to equity holders, engage in mergers, consolidations or other fundamental changes, sell assets, change the nature of its business and engage in transactions with affiliates. The Credit Agreement also contained restrictive
financial covenants requiring us to maintain a certain Net Worth and certain ratios of Consolidated EBITDA to Consolidated Interest Expense, Senior Funded Debt to Consolidated Net Worth, and Consolidated Senior Funded Debt to Consolidated EBITDA.
The Credit Agreement also contained a provision that would have made the occurrence of any Material Adverse Change an event of default (the capitalized terms used in this and the previous sentence have the meaning set forth in the Credit Agreement).

First Priority Notes

On October 2, 2009, FES LLC and FES CAP issued to Goldman, Sachs & Co. $20.0 million in aggregate principal amount of First Lien Floating Rate Notes due 2014 (the First Priority
Notes), in a private placement in reliance on an exemption from registration under the Securities Act of 1933, as amended. After offering expenses, the Forbes Group realized net proceeds of approximately $18.8 million which was used, in part,
to repay and terminate the Credit Facility. The First Priority Notes mature on August 1, 2014, and require semi-annual interest payments on February 1 and August 1 of each year until maturity at a rate per annum, reset semi-annually,
equal to the greater of 4% or six month LIBOR plus 800 basis points. No principal payments are due until maturity. The First Priority are senior obligations and rank equally in right of payment with other existing and future senior indebtedness,
including the Second Priority Notes, and senior in right of payment to any subordinated indebtedness that may be incurred by the Forbes Group in the future.

The First Priority Notes are guaranteed by FES Ltd, as well as the Guarantor Subs. Each of the Guarantor Subs guarantees the securities on a full and unconditional and joint and several basis. The two
Non-Guarantor Subs have not guaranteed the First Priority Notes, however, the Forbes Group has granted a security interest in 65% of the equity interests of the Non-Guarantor Subs to secure the First Priority Notes. The Forbes Group may, at its
option, redeem all or part of the First Priority Notes from time to time at specified redemption prices and subject to certain conditions required by the indenture governing the First Priority Notes (the First Priority Indenture). The
Forbes Group is required to make an offer to purchase the notes and to repurchase any notes for which the offer is accepted at 101% of their principal amount, plus accrued and unpaid interest, if there is a change of control or if the Forbes Group
has excess cash flow. The Forbes Group is required to make an offer to repurchase the notes and to repurchase any notes for which the offer is accepted at 100% of their principal amount, plus accrued and unpaid interest, following certain asset
sales.

The First Priority Indenture contains certain covenants similar to those in the Second Priority Indenture, including
provisions that limit or restrict the Forbes Groups and certain future subsidiaries abilities to incur additional debt, guarantee other obligations, to create, incur or permit to exist certain liens on assets, make investments or
acquisitions, make certain dispositions of assets, to make payments on certain subordinated indebtedness, to pay dividends or certain other payments to equity holders, to engage in mergers, consolidations or other fundamental changes, to change the
nature of its business, to engage in transactions with affiliates or to make capital expenditures in excess of certain amounts based on the year in which such expenditures are made. The First Priority Indenture also provides for certain limitations
and restrictions on the Forbes Groups ability to move collateral outside the United States or dispose of assets. These covenants are subject to a number of important limitations and exceptions.

Details of two of the more significant restrictive covenants in the First Priority Indenture are set forth below:



| |  |  | Limitation on the incurrence of additional debtIn addition to certain defined Permitted Debt (as defined in the First Priority Indenture), the
Forbes Group may only incur additional debt if it is unsecured and if the Fixed Charge Coverage Ratio (as defined in the First Priority Indenture) for the most recently completed four full fiscal quarters is at least 3.0 to 1.0 for years beginning
after December 31, 2009. As of December 31, 2009, the Forbes Group could incur no additional debt under the Fixed Charge Coverage Ratio Test.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Limitations on capital expendituresSubject to certain adjustments, permitted Adjusted Capital Expenditures (as defined in the First Priority
Indenture) that may be made by the Forbes Group are limited to $21.25 million for each quarter in the fiscal year ending December 31, 2010, provided that this base amount of permitted Adjusted Capital Expenditures for each quarter in 2010 will
be reduced to $11.25 million for any quarter where, in the immediately preceding quarter, either (a) the average daily spot price for WTI crude oil at Cushing, Oklahoma was less than $80 per barrel or (b) the average daily spot price for
natural gas at Henry Hub was less than $8 per MMbtu. As of September 30, 2010, the Forbes Group Capital expenditures for the three and nine months ended September 30, 2010 totaled $1.4 million and $3.0 million, respectively. Under the
First Priority Indenture, the Forbes Group is permitted to carry over into 2010 $10 million in Adjusted Capital Expenditures, which were permitted but unused in 2009.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Each of the First Priority Indenture and Second Priority Indenture provides for events of default, which, if any of them occur, would, in
certain circumstances, permit or require the principal, premium, if any, and interest on all the then outstanding First Priority Notes or Second Priority Notes, respectively, to be due and payable immediately. Additionally, in certain circumstances
an event of default under the First Priority Indenture would cause an event of default under the cross-default provision of the Second Priority Indenture and vice versa. We were in compliance with the covenants of First and Second Priority
Indentures at September 30, 2010.

There are no significant restrictions on FES Ltds ability or the ability of any
guarantor to obtain funds from its subsidiaries by such means as a dividend or loan. See Note 15 for condensed consolidating information required by Rule 3-10 of Regulation SX.

Paccar Notes

During 2008, the Forbes Group financed the purchase of certain vehicles and equipment through commercial loans with Paccar Financial Group, with aggregate principal amounts outstanding as of
September 30, 2010 and December 31, 2009 of approximately $5.4 million and $6.6 million, respectively. These loans are repayable in 60 monthly installments with the maturity dates ranging from May 2013 to October 2013. Interest accrues at
rates ranging from 7.5% to 7.6% and is payable monthly. The loans are collateralized by equipment purchased with the proceeds of such loans.

Insurance Notes

During 2009 and 2010, the Forbes Group entered into
promissory notes with First Insurance Funding for the payment of insurance premiums in an aggregate principal amount outstanding as of September 30, 2010, and December 31, 2009 of approximately $0.1 million and $4.0 million, respectively. The
differences in the balances at the two dates results from the insurance renewal for all policies during October except Directors and Officers insurance. Therefore, as of September 30, 2010 all note balances except the Directors and Officers policy
were paid in full. The Directors and Officers policy had a balance of $0.1 million. These notes are or were payable in twelve monthly installments with maturity dates of September 15, 2010 and September 15, 2009. Interest accrues or
accrued at a rate of approximately 3.6% and 4.4% for 2010 and 2009, respectively, and is payable monthly. The amount outstanding could be substantially offset by the cancellation of the related insurance coverage.

8. Fair Value of Financial Instruments

The following is a summary of the carrying amounts and estimated fair values of our financial instruments as of September 30, 2010 and December 31, 2009. Fair value is defined as the amount that
would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Cash and cash equivalents, restricted cash, trade accounts receivable, accounts receivable-related parties, accounts payable and accrued expenses: These carrying amounts approximate fair value because of
the short maturity of these instruments. The carrying amount of our First Priority Notes approximates fair value due to the fact that the underlying instruments include provisions to adjust interest rates.



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|                            |  |                    |             |  |                   |   |             |                 |  |   |             |  |  |   |             | 
|--------------------------- |  | ------------------ | ----------- |  | ----------------- | - | ----------- | --------------- |  | - | ----------- |  |  | - | ----------- | 
|                            |  | September 30, 2010 |             |  | December 31, 2009 |  
|                            |  | Carrying Amount    |             |  | Fair Value        |   |             | Carrying Amount |  |   | Fair Value  | 
|11.0% Second Priority Notes |  | $                  | 192,500,000 |  |                   | $ | 175,175,000 |                 |  | $ | 199,750,000 |  |  | $ | 185,767,500 | 

The fair value of our
Second Priority Notes is based upon the quoted market prices at September 30, 2010 and December 31, 2009.

9. Related Party
Transactions

The Forbes Group enters into transactions with related parties in the normal course of conducting business.
Accounts receivablerelated parties and Accounts payablerelated parties result from transactions with related parties which are at terms consistent with those available to third-party customers and from third-party vendors.

Messrs, John E. Crisp, and Charles C. Forbes Jr., executive officers and directors of FES Ltd, are also owners and managers of Alice
Environmental Services, LP (AES). The Forbes Group has entered into the following transactions with AES and its subsidiaries:



| |  |  | AES owns aircraft that the Forbes Group uses on a regular basis.
| | - |  | ----------------------------------------------------------------



| |  |  | The Forbes Group has also entered into long-term operating leases with AES for well service rigs, vacuum trucks and related equipment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Forbes Group has entered into long-term real property, disposal well leases and disposal well operating agreements with AES.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------

During December 2008, the Forbes Group leased 10 workover rigs from AES under long-term operating
leases. In January 2010, the Forbes Group began renting additional equipment from AES on a monthly basis which includes trucks, tanks, swab units, and other equipment. For the three months ended September 30, 2010 and 2009 Forbes Group
recognized no revenue from AES, expenses of approximately $2.4 million and $2.0 million, respectively, and no capital expenditures, respectively. For the nine months ended September 30, 2010 and 2009 the Company recognized no revenues from AES,
expenses related to rental facilities and equipment, salt water disposals and contract services of approximately $6.9 million and $6.3 million, respectively, and no capital expenditures. Accounts payable to AES as of September 30, 2010 and
December 31, 2009, resulting from such transactions were $251,000 and $683,000 respectively. The Forbes Group had no accounts receivable from AES as of September 30, 2010 or December 31, 2009.

The Forbes Group rents or leases twelve separate properties from AES for separate parcels of land and buildings. Ten of the leases were
entered into at various dates subsequent to December 31, 2006. Each lease has a five-year term with the Forbes Group having the option to extend from between one and five years. Two of the leases are oral. Aggregate amounts paid for the twelve
rentals and leases were $0.3 million and $1.0 million for the three and nine months ended September 30, 2010, and $0.3 million and $0.9 million for the three and nine months ended September 30, 2009, respectively.

The Forbes Group entered into a waste water disposal operating agreement dated January 1, 2007, with AES pursuant to which AES
leases its rights in a certain well bore and receives payments in the form of a minimum fee of $5,000 per month plus $0.15 per barrel for any barrel injected over 50,000 barrels. Under this agreement, AES also receives a skim oil payment
of 20% of the amount realized by the Forbes Group for all oil and hydrocarbons removed from liquids injected into the premises. The agreement term is for three years and is renewable for successive three year terms as long as AES has rights to the
well.

The Forbes Group entered into a waste water disposal lease agreement dated April 1, 2007, with AES. Under the
agreement, the Forbes Group is entitled to use the leased land for the disposal of waste water for a term of five years with three successive three year renewal periods. The Forbes Group pays a monthly rental of $2,500 per month plus $.05 per barrel
for any barrel over 50,000 barrels of waste water injected per month. Additionally, the Forbes Group pays an amount equal to 10% of all oil or other hydrocarbons removed from liquids injected or any skim oil.



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Dorsal Services, Inc.
is a trucking service provider that provides services to the Forbes Group. Messr. Crisp is a partial owner of Dorsal Services, Inc. The Forbes Group recognized revenues of $1,000 and $13,000; expenses of approximately $140,000 and $31,000; and no
capital expenditures from transactions with Dorsal Services, Inc. for the three months ended September 30, 2010 and 2009, respectively. The Company recognized revenues of approximately $4,000 and $51,000; expenses of approximately $619,000 and
$117,000, and capital expenditures of approximately $38,000 and $0 from transactions with Dorsal Services, Inc. for the nine months ended September 30, 2010 and 2009, respectively. The Forbes Group had accounts receivable from Dorsal Services,
Inc. of $112,000 and $162,000 as of September 30, 2010 and December 31, 2009, respectively, resulting from such transactions. The Forbes Group had accounts payable to Dorsal Services, Inc. of $58,000 and $144,000 as of September 30,
2010 and December 31, 2009, resulting from such transactions.

Tasco Tool Services, Inc. is a down-hole tool company that
rents and sells tools to the Forbes Group from time to time. Messr. Forbes is a partial owner of Tasco Tool Services. The Forbes Group had revenues from Tasco of $200 and $300 and recognized expenses of approximately $10,000 and $11,000 and capital
expenditures of $0 and $57,000 related to transactions with Tasco for the three months ended September 30, 2010 and 2009, respectively. The Company had revenues from Tasco of $2,700 and $600 and recognized expenses of approximately $68,000 and
$49,000 and capital expenditures of $0 and $130,000 related to transactions with Tasco for the nine months ended September 30, 2010 and 2009, respectively. Accounts payable to Tasco as of September 30, 2010 and December 31, 2009 were
$6,000 and $20,000, respectively, resulting from these transactions.

The C. W. Hahl Lease, an oil and gas lease, is owned by
Messr. Forbes. The Forbes Group recognized no revenues for the three months ended September 30, 2010 and 2009. The Forbes Group recognized no revenues for the nine months ended September 30, 2010 and 2009. Accounts receivable as of
September 30, 2010 and December 31, 2009 were $1,000 and $1,000, respectively. The Forbes Group had no expenses or accounts payable from the C. W. Hahl Lease for either period.

FCJ Management LLC (FCJ) is a company that leases land and facilities to the Forbes Group and is owned by Messrs. Crisp and
Forbes and Messr. Robert Jenkins, a manager of one of the subsidiaries of FES Ltd. The Forbes Group recognized expenses of $9,000 and $5,000 for the three months ended September 30, 2010 and 2009, respectively. The Company recognized expenses
of $27,000 and $14,000 for the nine months ended September 30, 2010 and 2009, respectively. No revenues have been recognized from FCJ for any period. The Forbes Group had no accounts receivable from FCJ or accounts payable to FCJ as of
September 30, 2010 or December 31, 2009.

C&F Partners is an entity that is owned by Messrs. Crisp and Forbes.
The Forbes Group recognized expenses of $125,000 and $120,000 for the three months ended September 30, 2010 and 2009 respectively. The Forbes Group recognized expenses of $395,000 and $376,000 for the nine months ended September 30, 2010
and 2009, respectively. All expenses are related to aircraft rental. There were no capital expenditures for any period. There were no accounts receivable, and accounts payable were $42,000 and $0 as of September 30, 2010 and December 31,
2009.

Resonant Technology Partners is a computer networking group that provides services to the Forbes Group. A director of
the Forbes Group has an interest in the computer networking company. The Forbes Group recognized expenses of $86,000 and $28,000; and no capital expenditures for the three months ended September 30, 2010 and September 30, 2009
respectively. The Company recognized expenses of $205,000 and $158,000; and capital expenditures of approximately $28,000 and $0 for the nine months ended September 30, 2010 and 2009. The Forbes Group had accounts payable of approximately
$83,000 and $34,000 as of September 30, 2010 and December 31, 2009.

Wolverine Construction, Inc is a construction
and site preparation services company that is owned by a son of Messr. Crisp. The Forbes Group recognized capital expenditures of approximately $0 and $9,000, revenues of approximately $4,000 and $3,000 and expenses of approximately $1.0 million and
$126,000 for the three months ended September 30, 2010, and September 30, 2009, respectively. The Forbes Group recognized capital expenditures of approximately $0 and $119,000, revenues of approximately $52,000 and $5,000 and expenses of
approximately $2.1 million and $765,000 for the nine months ended September 30, 2010, and September 30, 2009, respectively. The Forbes Group had accounts receivable from Wolverine as of September 30, 2010 and December 31, 2009 of
approximately $57,000 and $6,000 respectively. The Forbes Group had accounts payable due to Wolverine of approximately $820,000 and $19,000 as of September 30, 2010 and December 31, 2009, respectively.



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Testco is a company
that provides valve and gathering system testing services to the Forbes Group. Messrs. Crisp and Forbes and a son of Messr. Crisp are partial owners of Testco. The Forbes Group recognized revenues of approximately $1,000 and zero, and expenses of
approximately $1,000 and $8,000 for the three months ended September 30, 2010 and 2009, respectively. The Forbes Group recognized $4,000 and $0 in revenues and expenses of approximately $4,000 and $8,000 for the nine months ended
September 30, 2010 and 2009, respectively. The Forbes Group had no accounts receivable from and no accounts payable to Testco as September 30, 2010 and December 31, 2009, respectively.

CJ Petroleum Service LLC (CJ Petroleum) is a company that owns saltwater disposal wells and is owned by Messrs. Forbes and
Crisp, two sons of Messr. Crisp, and a director of the Forbes Group. The Forbes group recognized no revenue, expenses of approximately $50,000 and zero, and no capital expenditures for the three months ended September 30, 2010 and
September 30, 2009, respectively. We recognized no revenues, expenses of approximately $53,000 and zero and no capital expenditures for the nine months ended September 30, 2010 and September 30, 2009, respectively. We had no accounts
receivable from CJ Petroleum as of September 30, 2010 and December 31, 2009. We had accounts payable of $21,000 to CJ Petroleum as of September 30, 2010 and zero as of December 31, 2009.

LA Contractors Ltd is a bulk material hauling company partially owned by Messr. Crisp and his sons, a son of Messr. Forbes, and a
director of the Forbes Group. The Forbes Group recognized revenue of zero and $2,000, expenses of $36,000 and $10,000 and no capital expenditures for the three months ended September 30, 2010 and September 30, 2009, respectively. We
recognized revenue zero and $2,000, expenses of $158,000 and $22,000 and capital expenditures of $77,000 and $34,000 for the nine months ended September 30, 2010 and September 30, 2009, for the nine months ended September 30, 2010 and
September 30, 2009, respectively. We had accounts payable to LA Contractors of $32,000 and $3,000 as of September 30, 2010 and December 31, 2009, respectively.

Energy Fishing and Rentals, Inc. (EFR) is a specialty oilfield tool company that is partially owned by Messrs. Crisp and Forbes. EFR rents and sells tools to the Forbes Group from time to
time. The Forbes Group had revenues from EFR of $0 and $0 and recognized expenses of approximately $16,000 and $19,000 and no capital expenditures to transactions with EFR for the three months ended September 30, 2010 and 2009, respectively.
The Company had revenues from EFR of $1,000 and $0 and recognized expenses of approximately $28,000 and $27,000 and capital expenditures of $11,000 and $331,000 related to transactions with EFR for the nine months ended September 30, 2010 and
2009, respectively. Accounts payable to EFR as of September 30, 2010 and December 31, 2009 were $16,000 and $18,000, respectively, resulting from these transactions.

The Forbes Group has a relationship with a bank in which the President, Chief Executive Officer, and director is also a director of the Forbes Group. As of September 30, 2010 and December 31,
2009, the Forbes Group had $6.6 million and $7.2 million on deposit with this bank.

Messr. Crisp is on the board and
Messr. Forbes is on the board and has an interest in a bank with which the Forbes Group conducts business. As of September 30, 2010 and December 31, 2009 the Forbes Group had $2.9 million and $1.3 million on deposit with this bank.

10. Commitments and Contingencies

Concentrations of Credit Risk

Financial instruments which subject
the Forbes Group to credit risk consist primarily of cash balances maintained in excess of federal depository insurance limits and trade receivables. The Forbes Group restricts investment of temporary cash investments to financial institutions with
high credit standings. The Forbes Groups customer base consists primarily of multi-national and independent oil and natural gas producers. The Forbes Group does not require collateral on its trade receivables. For the nine months ended
September 30, 2010 Forbes Groups largest customer, five largest customers, and ten largest customers constituted 14.4%, 35.9%, and 51.0% of revenues, respectively. The loss of any one of our top five customers would have a negative impact
on the revenues and profits of the company. Further, our trade accounts receivable are from companies within the oil and natural gas industry and as such the Forbes Group is exposed to normal industry credit risks. The Forbes Group continually
evaluates its reserves for potential credit losses and establishes reserves for such losses.



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Self-Insurance

The Forbes Group is self-insured under its Employee Group Medical Benefits Plan for the first $125,000 per individual
plus a $235,000 aggregate specific deductible. In October 2009 the Forbes Group eliminated the self-insured portion of workers compensation, general liability and automobile liability. Incurred and unprocessed claims as of September 30, 2010
and December 31, 2009 amount to approximately $2.0 million and $2.0 million, respectively. These claims are unprocessed, therefore their values are estimated and included in accrued expenses in the accompanying condensed consolidated balance
sheets. In addition to accruals for the self-insured portion of the Employee Group Medical Benefits Plan, the liability for incurred and unprocessed claims also includes estimated run off liabilities payable at future dates related to
the workers compensation, general liability and automobile liability self-insurance program that was eliminated in October 2009.

Litigation

The Forbes Group is subject to various other claims and
legal actions that arise in the ordinary course of business. We do not believe that any of these claims and actions, separately or in the aggregate, will have a material adverse effect on our business, financial condition, results of operations or
cash flows, although we cannot guarantee that a material adverse effect will not occur.

11. Supplemental Cash Flow Information



|                                                                     |  |                                  |            |  |                                 |   |            |      |  |   |            |  |  |   |             |  
|-------------------------------------------------------------------- |  | -------------------------------- | ---------- |  | ------------------------------- | - | ---------- | ---- |  | - | ---------- |  |  | - | ----------- | -
|                                                                     |  | Three Months Ended September 30, |            |  | Nine Months Ended September 30, |  
|                                                                     |  | 2010                             |            |  | 2009                            |   |            | 2010 |  |   | 2009       | 
|Cash paid for                                                        |  |                                  |            |  |                                 |   |            |      |  |   |            |  |  |   |             |  
|Interest                                                             |  | $                                | 11,901,901 |  |                                 | $ | 11,155,444 |      |  | $ | 24,684,120 |  |  | $ | 22,798,366  |  
|Taxes                                                                |  |                                  |           |  |                                 |   |           |      |  |   |           |  |  |   | 500,000     |  
|Supplemental schedule of non-cash investing and financing activities |  |                                  |            |  |                                 |   |            |      |  |   |            |  |  |   |             |  
|Changes in accrued capital expenditures                              |  | $                                | 1,074,119  |  |                                 | $ | (3,016,735 | )    |  | $ | 2,812,349  |  |  | $ | (11,122,662 | )
|Preferred shares dividends and accretion costs                       |  |                                  | 278,432    |  |                                 |   |           |      |  |   | 342,389    |  |  |   |            |  

12. Loss per Share

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average common shares
outstanding during the period (including for the periods prior to May 28, 2010, the Class B Shares convertible into common shares). Diluted net loss per share takes into account the potential dilution that could occur if securities or other
contracts to issue common shares, such as warrants, options and convertible preference shares, were exercised and converted into Common shares. Potential common stock equivalents that have been issued by the Forbes Group relate to outstanding stock
options, which are determined using the treasury stock method, and the Series B Senior Convertible Preferred Shares, which are determined using the if converted method. As of September 30, 2010 and 2009, there were zero and
2.7 million options to purchase common shares outstanding, and 588,059 and -0- Series B Senior Convertible Preferred Shares outstanding, respectively. We did not include any common shares covered by the options in the calculation of diluted
loss per share during any period presented as they would be antidilutive.

The Company has determined that the Series B
Preferred Stock is a participating security under ASC 260. Under ASC 260, a security is considered a participating security if the security may participate in undistributed earnings with common stock, whether that participation is conditioned upon
the occurrence of a specified event or not. In accordance with ASC 260, a company is required to use the two-class method when computing EPS when a company has a security that qualifies as a participating security. The two-class method
is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. A participating security is included
in the computation of basic EPS using the two-class method. Under the two-class method, basic EPS for the Companys Common Stock is computed by dividing net income applicable to common stock by the weighted-average common shares outstanding
during the period. Diluted EPS for the Companys Common Stock is computed using the more dilutive of the two-class method or the if-converted method.

In accordance with ACC 260, securities are deemed to not be participating in losses if there is no obligation to fund such losses. Since the Company reported a loss from operations for the three and nine
months ended September 30, 2010, the Series B Preferred Stock was not deemed to be a participating security for the three and nine months ended September 30, 2010 pursuant to ASC 260.



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The following table
sets forth the computation of basic and diluted earnings per share:



|                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|--------------------------------------------------- |  | --------------------------------------- | ---------- | - | -------------------------------------- | - | ---------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                    |  | For the Three MonthsEnded September 30, |            |   | For the Nine MonthsEnded September 30, |  
|                                                    |  | 2010                                    |            |   | 2009                                   |   |            | 2010 |  |   | 2009        |  
|Basic and Diluted:                                  |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Net loss                                            |  | $                                       | (2,081,650 | ) |                                        | $ | (9,609,720 | )    |  | $ | (12,494,512 | ) |  | $ | (23,182,946 | )
|                                                    |  |                                         |            |  
|Accumulated preferred stock dividends and accretion |  |                                         | (278,432   | ) |                                        |   |           |      |  |   | (342,389    | ) |  |   |            |  
|                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|Net loss attributable to common stockholders        |  |                                         | (2,360,082 | ) |                                        |   | (9,609,720 | )    |  |   | (12,836,901 | ) |  |   | (23,182,946 | )
|                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|                                                    |  |                                         |            |  
|Weighted average common shares                      |  |                                         | 83,673,700 |   |                                        |   | 62,111,200 |      |  |   | 83,673,700  |   |  |   | 62,111,200  |  
|                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  
|                                                    |  |                                         |            |  
|Basic and Diluted net loss per share                |  | $                                       | (0.03      | ) |                                        | $ | (0.15      | )    |  | $ | (0.15       | ) |  | $ | (0.37       | )
|                                                    |  |                                         |            |   |                                        |   |            |      |  |   |             |   |  |   |             |  

13. Income Taxes

The Companys benefit from application of the effective tax rate for the nine months ended September 30, 2010 was estimated to be 37.8% based on a pre-tax loss of $19.4 million. The difference
between the effective rate and 35% statutory rate is primarily related to the rate of Mexican flat tax. For the nine months ended September 30, 2009, the effective tax rate was 35.7%.

The Forbes Group is subject to the Texas Franchise tax. The Texas Franchise tax is a tax equal to one percent of Texas-sourced revenue
reduced by the greater of (a) cost of goods sold (as defined by Texas law), b) compensation (as defined by Texas law) or (c) thirty percent of the Texas-sourced revenue. The Forbes Group accounts for the revised Texas Franchise tax in
accordance with ASC 740, as the tax is derived from a taxable base that consists of income less deductible expenses. For the nine months ended September 30, 2010 and 2009, the Forbes Group recorded franchise tax expense of zero and $490,000,
respectively.

14. Business Segment Information

The Forbes Group has determined that it has two reportable segments organized based on its products and serviceswell servicing and fluid logistics. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies.

Well Servicing

The well servicing segment consists of operations in the U.S. and Mexico, which provides (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, the Forbes Group has tubing testing units that are used to conduct pressure testing of oil and natural gas production tubing.

Fluid Logistics

The fluid logistics segment consists of operations
in the U.S., which provide, transport, store and dispose of a variety of drilling and produced fluids used in and generated by oil and natural gas production activities. These services are required in most workover and completion projects and are
routinely used in daily producing well operations.



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The following table
sets forth certain financial information with respect to the Companys reportable segments:



|                                      |  |               |             |  |                |   |             |              |  |   |             | 
|------------------------------------- |  | ------------- | ----------- |  | -------------- | - | ----------- | ------------ |  | - | ----------- | 
|                                      |  | WellServicing |             |  | FluidLogistics |   |             | Consolidated | 
|Three months ended September 30, 2010 |  |               |             |  |                |   |             |              |  |   |             | 
|Operating revenues                    |  | $             | 40,847,610  |  |                | $ | 43,128,903  |              |  | $ | 83,976,513  | 
|Direct operating costs                |  |               | 32,632,654  |  |                |   | 32,262,539  |              |  |   | 64,895,193  | 
|                                      |  |               |             |  |                |   |             |              |  |   |             | 
|Segment profits                       |  | $             | 8,214,956   |  |                | $ | 10,866,364  |              |  | $ | 19,081,320  | 
|                                      |  |               |             |  |                |   |             |              |  |   |             | 
|Depreciation and amortization         |  | $             | 5,575,700   |  |                | $ | 4,513,367   |              |  | $ | 10,089,067  | 
|Capital expenditures                  |  |               | 587,106     |  |                |   | 778,998     |              |  |   | 1,366,104   | 
|Assets                                |  |               | 378,603,777 |  |                |   | 245,851,671 |              |  |   | 644,461,448 | 
|Three months ended September 30, 2009 |  |               |             |  |                |   |             |              |  |   |             | 
|Operating revenues                    |  | $             | 23,853,912  |  |                | $ | 26,618,294  |              |  | $ | 50,472,206  | 
|Direct operating costs                |  |               | 22,869,209  |  |                |   | 21,812,340  |              |  |   | 44,681,549  | 
|                                      |  |               |             |  |                |   |             |              |  |   |             | 
|Segment profits                       |  | $             | 984,703     |  |                | $ | 4,805,954   |              |  | $ | 5,790,657   | 
|                                      |  |               |             |  |                |   |             |              |  |   |             | 
|Depreciation and amortization         |  | $             | 5,481,239   |  |                | $ | 4,500,882   |              |  | $ | 9,982,121   | 
|Capital expenditures                  |  |               | 3,732,422   |  |                |   | 174,370     |              |  |   | 3,906,792   | 
|Assets                                |  |               | 369,140,098 |  |                |   | 244,683,178 |              |  |   | 613,823,276 | 
|Nine months ended September 30, 2010  |  |               |             |  |                |   |             |              |  |   |             | 
|Operating revenues                    |  | $             | 111,521,202 |  |                | $ | 119,762,826 |              |  | $ | 231,284,028 | 
|Direct operating costs                |  |               | 89,992,590  |  |                |   | 92,554,158  |              |  |   | 182,546,748 | 
|                                      |  |               |             |  |                |   |             |              |  |   |             | 
|Segment profits                       |  | $             | 21,528,612  |  |                | $ | 27,208,668  |              |  | $ | 48,737,280  | 
|                                      |  |               |             |  |                |   |             |              |  |   |             | 
|Depreciation and amortization         |  | $             | 16,496,184  |  |                | $ | 13,430,975  |              |  | $ | 29,927,159  | 
|Capital expenditures                  |  |               | 1,430,379   |  |                |   | 1,546,230   |              |  |   | 2,976,609   | 
|Assets                                |  |               | 378,603,777 |  |                |   | 265,857,671 |              |  |   | 644,461,448 | 
|Nine months ended September 30, 2009  |  |               |             |  |                |   |             |              |  |   |             | 
|Operating revenues                    |  | $             | 80,907,991  |  |                | $ | 82,748,174  |              |  | $ | 163,656,165 | 
|Direct operating costs                |  |               | 72,985,810  |  |                |   | 64,972,027  |              |  |   | 137,957,837 | 
|                                      |  |               |             |  |                |   |             |              |  |   |             | 
|Segment profits                       |  | $             | 7,922,181   |  |                | $ | 17,776,147  |              |  | $ | 25,698,328  | 
|                                      |  |               |             |  |                |   |             |              |  |   |             | 
|Depreciation and amortization         |  | $             | 16,047,021  |  |                | $ | 13,401,435  |              |  | $ | 29,448,456  | 
|Capital expenditures                  |  |               | 13,189,867  |  |                |   | 1,751,101   |              |  |   | 14,940,968  | 
|Assets                                |  |               | 369,140,098 |  |                |   | 244,683,178 |              |  |   | 613,823,276 | 



|                                                                 |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|---------------------------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                                                 |  | Three Months Ended September 30, |            |   | Nine Months Ended September 30, |  
|                                                                 |  | 2010                             |            |   | 2009                            |   |             | 2010 |  |   | 2009        |  
|Reconciliation of the Forbes Group Operating Income as Reported: |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Segment profits                                                  |  | $                                | 19,081,320 |   |                                 | $ | 5,790,657   |      |  | $ | 48,737,280  |   |  | $ | 25,698,328  |  
|General and administrative exp                                   |  |                                  | 5,535,451  |   |                                 |   | 4,644,809   |      |  |   | 17,747,263  |   |  |   | 14,315,264  |  
|Depreciation and amortization                                    |  |                                  | 10,089,067 |   |                                 |   | 9,982,121   |      |  |   | 29,927,159  |   |  |   | 29,448,456  |  
|                                                                 |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Operating income (loss)                                          |  |                                  | 3,456,802  |   |                                 |   | (8,836,273  | )    |  |   | 1,062,858   |   |  |   | (18,065,392 | )
|Other expenses, net                                              |  |                                  | 6,642,719  |   |                                 |   | (6,389,592  | )    |  |   | (20,475,071 | ) |  |   | (17,993,213 | )
|                                                                 |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  
|Loss before income taxes                                         |  | $                                | (3,185,917 | ) |                                 | $ | (15,225,865 | )    |  | $ | (19,412,213 | ) |  | $ | (35,058,605 | )
|                                                                 |  |                                  |            |   |                                 |   |             |      |  |   |             |   |  |   |             |  



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|                                                       |  |                         |              |   |                        |   |              |  
|------------------------------------------------------ |  | ----------------------- | ------------ | - | ---------------------- | - | ------------ | -
|                                                       |  | As atSeptember 30, 2010 |              |   | As atDecember 31, 2009 |  
|Reconciliation of the Forbes Group Assets as Reported: |  |                         |              |   |                        |   |              |  
|Total reportable segments                              |  | $                       | 644,461,448  |   |                        | $ | 618,586,297  |  
|Eliminate internal transactions                        |  |                         | (787,672,217 | ) |                        |   | (716,571,067 | )
|Parent                                                 |  |                         | 587,554,439  |   |                        |   | 555,417,666  |  
|                                                       |  |                         |              |   |                        |   |              |  
|Total assets                                           |  | $                       | 444,343,670  |   |                        | $ | 457,432,896  |  
|                                                       |  |                         |              |   |                        |   |              |  

Financial information about geographic areas

Revenues from the Companys non-U.S. operations were $11.7 million and $8.7 million for the three months end September 30, 2010
and September 30, 2009, respectively. Revenues from the Companys non-U.S. operations were $33.3 million and $18.4 million for the nine months ended September 30, 2010 and September 30, 2009, respectively. All other revenue
was generated by the Companys U.S. operations. Long-lived assets located in Mexico were approximately $25.4 million and $25.3 million as of September 30, 2010 and December 31, 2009, which includes the value of leased equipment
transferred to Mexico. All other long-lived assets were located in the U.S.



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15. Guarantor and Non-Guarantor
Condensed Consolidating Financial Statements

The Company has certain foreign significant subsidiaries that do not
guarantee the Second Priority Notes and the First Priority Notes discussed in Note 7 and is required to present the following condensed consolidating financial information pursuant to Rule 3-10 of Regulation S-X. These schedules are presented using
the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for the Companys share in the subsidiaries cumulative results of operations, capital
contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.

Supplemental financial information for Forbes Energy Services Ltd., the parent, Forbes Energy Services LLC and Forbes Energy Capital,
Inc., the issuers, our combined subsidiary guarantors and our non-guarantor subsidiaries is presented below.

Condensed
Consolidating Balance Sheet

As of September 30, 2010



|                                           |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|------------------------------------------ |  | ------ | ----------- | - | ------- | - | ----------- | ---------- |  | - | -------------- | - |  | ------------ | ---------- | - | ------------ | - | ------------ | - |  | - | ----------- | 
|                                           |  | Parent |             |   | Issuers |   |             | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |            |   | Consolidated |  
|Assets                                     |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|Current assets                             |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|Cash and cash equivalents                  |  | $      | 857,147     |   |         | $ | 1,247,897   |            |  | $ | 19,079,487     |   |  | $            | 63,532     |   |              | $ |             |   |  | $ | 21,248,063  | 
|Restricted cash                            |  |        |            |   |         |   | 2,874,271   |            |  |   |               |   |  |              |           |   |              |   |             |   |  |   | 2,874,271   | 
|Accounts receivable                        |  |        | 24,319,836  |   |         |   |            |            |  |   | 65,389,205     |   |  |              | 14,920,862 |   |              |   | (20,852,528  | ) |  |   | 83,777,375  | 
|Other current assets                       |  |        | (1,728      | ) |         |   | 60,146      |            |  |   | 2,020,418      |   |  |              | 54,711     |   |              |   | 334,555      |   |  |   | 2,468,102   | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|Total current assets                       |  |        | 25,175,255  |   |         |   | 4,182,314   |            |  |   | 86,489,110     |   |  |              | 15,039,105 |   |              |   | (20,517,973  | ) |  |   | 110,367,811 | 
|Property and equipment, net                |  |        | 535,043     |   |         |   |            |            |  |   | 281,906,494    |   |  |              | 927,509    |   |              |   |             |   |  |   | 283,369,046 | 
|Investments in affiliates                  |  |        | 16,009,367  |   |         |   | 97,833,052  |            |  |   | (2,624,390     | ) |  |              |           |   |              |   | (111,218,029 | ) |  |   |            | 
|Intercompany receivables                   |  |        | 90,567,813  |   |         |   | 111,993,761 |            |  |   |               |   |  |              | (9,040,975 | ) |              |   | (193,520,599 | ) |  |   |            | 
|Intercompany note receivable               |  |        | 5,057,833   |   |         |   |            |            |  |   |               |   |  |              |           |   |              |   | (5,057,833   | ) |  |   |            | 
|Intangible assets, net                     |  |        |            |   |         |   |            |            |  |   | 34,452,884     |   |  |              |           |   |              |   |             |   |  |   | 34,452,884  | 
|Deferred financing costs, net              |  |        |            |   |         |   | 9,449,868   |            |  |   |               |   |  |              |           |   |              |   |             |   |  |   | 9,449,868   | 
|Restricted cash                            |  |        |            |   |         |   | 6,657,912   |            |  |   |               |   |  |              |           |   |              |   |             |   |  |   | 6,657,912   | 
|Other assets                               |  |        | 13,144      |   |         |   |            |            |  |   | 24,431         |   |  |              | 8,574      |   |              |   |             |   |  |   | 46,149      | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|Total assets                               |  | $      | 137,358,455 |   |         | $ | 230,116,907 |            |  | $ | 400,248,529    |   |  | $            | 6,934,213  |   |              | $ | (330,314,434 | ) |  | $ | 444,343,670 | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|Liabilities and Shareholders Equity       |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|                                           |  |        |             |   |         |  
|Current liabilities                        |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|Accounts payable                           |  | $      | 17,951,983  |   |         | $ | 958,289     |            |  | $ | 18,967,839     |   |  | $            | 1,003,617  |   |              | $ | (10,541,465  | ) |  | $ | 28,340,263  | 
|Accrued liabilities                        |  |        | 2,501,120   |   |         |   | 3,389,454   |            |  |   | 10,603,590     |   |  |              | 3,302,774  |   |              |   | 1,558,867    |   |  |   | 21,355,805  | 
|Current maturities of long-term debt       |  |        |            |   |         |   | 94,727      |            |  |   | 1,795,392      |   |  |              |           |   |              |   |             |   |  |   | 1,890,119   | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|Total current liabilities                  |  |        | 20,453,103  |   |         |   | 4,442,470   |            |  |   | 31,366,821     |   |  |              | 4,306,391  |   |              |   | (8,982,598   | ) |  |   | 51,586,187  | 
|Long-term debt, net of current maturities  |  |        |            |   |         |   | 209,664,072 |            |  |   | 3,557,467      |   |  |              |           |   |              |   |             |   |  |   | 213,221,539 | 
|Intercompany payables                      |  |        |            |   |         |   |            |            |  |   | 205,055,976    |   |  |              |           |   |              |   | (205,055,976 | ) |  |   |            | 
|Intercompany note payable                  |  |        | (194,643    | ) |         |   |            |            |  |   |               |   |  |              | 5,252,476  |   |              |   | (5,057,833   | ) |  |   |            | 
|Deferred tax liability                     |  |        | (33,101,549 | ) |         |   |            |            |  |   | 62,435,948     |   |  |              |           |   |              |   |             |   |  |   | 29,334,399  | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|Total liabilities                          |  |        | (12,843,089 | ) |         |   | 214,106,542 |            |  |   | 302,416,212    |   |  |              | 9,558,867  |   |              |   | (219,096,407 | ) |  |   | 294,142,125 | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|Series B Convertible Preferred Shares      |  |        | 14,571,989  |   |         |   |            |            |  |   |               |   |  |              |           |   |              |   |             |   |  |   | 14,571,989  | 
|Shareholders equity                       |  |        | 135,629,555 |   |         |   | 16,010,365  |            |  |   | 97,832,317     |   |  |              | (2,624,654 | ) |              |   | (111,218,027 | ) |  |   | 135,629,556 | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 
|Total liabilities and shareholders equity |  | $      | 137,358,455 |   |         | $ | 230,116,907 |            |  | $ | 400,248,529    |   |  | $            | 6,934,213  |   |              | $ | (330,314,434 | ) |  | $ | 444,343,670 | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |              |   |  |   |             | 



24



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##### Table of Contents



Condensed
Consolidating Balance Sheet

As of December 31, 2009



|                                           |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|------------------------------------------ |  | ------ | ----------- | - | ------- | - | ----------- | ---------- |  | - | -------------- |  |  | ------------ | ---------- |  | ------------ | - | ------------ | - |  | - | ----------- | 
|                                           |  | Parent |             |   | Issuers |   |             | Guarantors |  |   | Non-Guarantors |  |  | Eliminations |            |  | Consolidated |  
|Assets                                     |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|Current assets                             |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|Cash and cash equivalents                  |  | $      | 12,577,404  |   |         | $ | 7,860,204   |            |  | $ | 7,973,636      |  |  | $            | 14,123     |  |              | $ |             |   |  | $ | 28,425,367  | 
|Restricted cash                            |  |        |            |   |         |   | 2,932,279   |            |  |   |               |  |  |              |           |  |              |   |             |   |  |   | 2,932,279   | 
|Accounts receivable                        |  |        | 20,747,276  |   |         |   | 9,078       |            |  |   | 40,203,774     |  |  |              | 15,992,327 |  |              |   | (18,858,590  | ) |  |   | 58,093,865  | 
|Other current assets                       |  |        | (14,107     | ) |         |   | 401,021     |            |  |   | 4,231,170      |  |  |              | 118,610    |  |              |   |             |   |  |   | 4,736,694   | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|Total current assets                       |  | $      | 33,310,573  |   |         | $ | 11,202,582  |            |  | $ | 52,408,580     |  |  | $            | 16,125,060 |  |              | $ | (18,858,590  | ) |  | $ | 94,188,205  | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|Property and equipment, net                |  |        | 546,107     |   |         |   |            |            |  |   | 307,115,247    |  |  |              | 898,531    |  |              |   |             |   |  |   | 308,559,885 | 
|Investments in affiliates                  |  |        | 40,712,544  |   |         |   | 97,919,974  |            |  |   | 680,424        |  |  |              |           |  |              |   | (139,312,942 | ) |  |   |            | 
|Intercompany receivables                   |  |        | 63,984,843  |   |         |   | 143,549,204 |            |  |   |               |  |  |              |           |  |              |   | (207,534,047 | ) |  |   |            | 
|Intercompany note receivable               |  |        | 5,013,405   |   |         |   |            |            |  |   |               |  |  |              |           |  |              |   | (5,013,405   | ) |  |   |            | 
|Intangible assets, net                     |  |        |            |   |         |   |            |            |  |   | 36,598,781     |  |  |              |           |  |              |   |             |   |  |   | 36,598,781  | 
|Deferred financing costs, net              |  |        |            |   |         |   | 11,453,830  |            |  |   |               |  |  |              |           |  |              |   |             |   |  |   | 11,453,830  | 
|Restricted cash                            |  |        |            |   |         |   | 6,560,225   |            |  |   |               |  |  |              |           |  |              |   |             |   |  |   | 6,560,225   | 
|Other assets                               |  |        | 1,890       |   |         |   | 27,500      |            |  |   | 31,436         |  |  |              | 11,144     |  |              |   |             |   |  |   | 71,970      | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|Total assets                               |  | $      | 143,569,362 |   |         | $ | 270,713,315 |            |  | $ | 396,834,468    |  |  | $            | 17,034,735 |  |              | $ | (370,718,984 | ) |  | $ | 457,432,896 | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|                                           |  |        |             |   |         |  
|Liabilities and Shareholders Equity       |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|Current liabilities                        |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|Accounts payable                           |  | $      | 21,340,568  |   |         | $ | 445,376     |            |  | $ | 16,706,926     |  |  | $            | 5,137,388  |  |              | $ | (19,355,427  | ) |  | $ | 24,274,831  | 
|Accrued liabilities                        |  |        | 1,041,085   |   |         |   | 9,269,026   |            |  |   | 9,269,096      |  |  |              | 3,074,506  |  |              |   | 476,535      |   |  |   | 23,130,248  | 
|Current portion of long-term debt          |  |        |            |   |         |   | 10,736,500  |            |  |   | 1,696,400      |  |  |              |           |  |              |   |             |   |  |   | 12,432,900  | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|Total current liabilities                  |  |        | 22,381,653  |   |         |   | 20,450,902  |            |  |   | 27,672,422     |  |  |              | 8,211,894  |  |              |   | (18,878,892  | ) |  |   | 59,837,979  | 
|Long-term debt                             |  |        |            |   |         |   | 209,548,870 |            |  |   | 4,916,459      |  |  |              |           |  |              |   |             |   |  |   | 214,465,329 | 
|Intercompany payables                      |  |        |            |   |         |   |            |            |  |   | 204,384,800    |  |  |              | 3,128,945  |  |              |   | (207,513,745 | ) |  |   |            | 
|Intercompany note payable                  |  |        |            |   |         |   |            |            |  |   |               |  |  |              | 5,013,405  |  |              |   | (5,013,405   | ) |  |   |            | 
|Deferred tax liability (benefit)           |  |        | (25,319,770 | ) |         |   |            |            |  |   | 61,941,881     |  |  |              |           |  |              |   |             |   |  |   | 36,622,111  | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|Total liabilities                          |  |        | (2,938,117  | ) |         |   | 229,999,772 |            |  |   | 298,915,562    |  |  |              | 16,354,244 |  |              |   | (231,406,042 | ) |  |   | 310,925,419 | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|Shareholders equity                       |  |        | 146,507,479 |   |         |   | 40,713,543  |            |  |   | 97,918,906     |  |  |              | 680,491    |  |              |   | (139,312,942 | ) |  |   | 146,507,477 | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 
|Total liabilities and shareholders equity |  | $      | 143,569,362 |   |         | $ | 270,713,315 |            |  | $ | 396,834,468    |  |  | $            | 17,034,735 |  |              | $ | (370,718,984 | ) |  | $ | 457,432,896 | 
|                                           |  |        |             |   |         |   |             |            |  |   |                |  |  |              |            |  |              |   |              |   |  |   |             | 



25



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##### Table of Contents



Condensed
Consolidating Statement of Operations

For the Three Months Ended September 30, 2010



|                                      |  |        |            |   |         |   |            |            |  |   |                |   |  |              |           |   |              |   |            |   |  |   |            |  
|------------------------------------- |  | ------ | ---------- | - | ------- | - | ---------- | ---------- |  | - | -------------- | - |  | ------------ | --------- | - | ------------ | - | ---------- | - |  | - | ---------- | -
|                                      |  | Parent |            |   | Issuers |   |            | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |           |   | Consolidated |  
|Revenues                              |  |        |            |   |         |   |            |            |  |   |                |   |  |              |           |   |              |   |            |   |  |   |            |  
|                                      |  |        |            |   |         |  
|Well servicing                        |  | $      | 11,745,846 |   |         |   |           |            |  | $ | 29,796,857     |   |  | $            | 1,774,404 |   |              | $ | (2,469,497 | ) |  | $ | 40,847,610 |  
|Fluid logistics                       |  |        |           |   |         |   |           |            |  |   | 43,128,903     |   |  |              |          |   |              |   |           |   |  |   | 43,128,903 |  
|                                      |  |        |            |   |         |   |            |            |  |   |                |   |  |              |           |   |              |   |            |   |  |   |            |  
|Total revenues                        |  |        | 11,745,846 |   |         |   |           |            |  |   | 72,925,760     |   |  |              | 1,774,404 |   |              |   | (2,469,497 | ) |  |   | 83,976,513 |  
|                                      |  |        |            |   |         |   |            |            |  |   |                |   |  |              |           |   |              |   |            |   |  |   |            |  
|Expenses                              |  |        |            |   |         |   |            |            |  |   |                |   |  |              |           |   |              |   |            |   |  |   |            |  
|Well servicing                        |  |        | 10,393,229 |   |         |   |           |            |  |   | 23,006,973     |   |  |              | 2,343,228 |   |              |   | (3,110,776 | ) |  |   | 32,632,654 |  
|Fluid logistics                       |  |        |           |   |         |   |           |            |  |   | 32,262,539     |   |  |              |          |   |              |   |           |   |  |   | 32,262,539 |  
|General and administrative            |  |        | 880,955    |   |         |   | 1,529,781  |            |  |   | 3,107,922      |   |  |              | (616,639  | ) |              |   | 633,432    |   |  |   | 5,535,451  |  
|Depreciation and amortization         |  |        | 35,901     |   |         |   |           |            |  |   | 9,992,530      |   |  |              | 60,636    |   |              |   |           |   |  |   | 10,089,067 |  
|                                      |  |        |            |   |         |   |            |            |  |   |                |   |  |              |           |   |              |   |            |   |  |   |            |  
|Total expenses                        |  |        | 11,310,085 |   |         |   | 1,529,781  |            |  |   | 68,369,964     |   |  |              | 1,787,225 |   |              |   | (2,477,344 | ) |  |   | 80,519,711 |  
|                                      |  |        |            |   |         |   |            |            |  |   |                |   |  |              |           |   |              |   |            |   |  |   |            |  
|Operating income                      |  |        | 435,761    |   |         |   | (1,529,781 | )          |  |   | 4,555,796      |   |  |              | (12,821   | ) |              |   | 7,847      |   |  |   | 3,456,802  |  
|Interest income (expense), net        |  |        | 7,485      |   |         |   | (6,654,961 | )          |  |   | (102,194       | ) |  |              | (10,759   | ) |              |   | 1,573      |   |  |   | (6,758,856 | )
|Equity in income (loss) of affiliates |  |        | (3,738,131 | ) |         |   | 4,446,611  |            |  |   | (124,078       | ) |  |              |          |   |              |   | (584,402   | ) |  |   |           |  
|Other income, net                     |  |        | (85,931    | ) |         |   |           |            |  |   | 117,532        |   |  |              | 86,108    |   |              |   | (1,572     | ) |  |   | 116,137    |  
|                                      |  |        |            |   |         |   |            |            |  |   |                |   |  |              |           |   |              |   |            |   |  |   |            |  
|Income before taxes                   |  |        | (3,380,816 | ) |         |   | (3,738,131 | )          |  |   | 4,447,056      |   |  |              | 62,528    |   |              |   | (576,554   | ) |  |   | (3,185,917 | )
|Income tax expense                    |  |        | (1,290,885 | ) |         |   |           |            |  |   |               |   |  |              | 186,618   |   |              |   |           |   |  |   | (1,104,267 | )
|                                      |  |        |            |   |         |   |            |            |  |   |                |   |  |              |           |   |              |   |            |   |  |   |            |  
|Net income (loss)                     |  | $      | (2,089,931 | ) |         | $ | (3,738,131 | )          |  | $ | 4,447,056      |   |  | $            | (124,090  | ) |              | $ | (576,554   | ) |  | $ | (2,081,650 | )
|                                      |  |        |            |   |         |   |            |            |  |   |                |   |  |              |           |   |              |   |            |   |  |   |            |  



26



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##### Table of Contents



Condensed
Consolidating Statement of Operations

For the Three Months Ended September 30, 2009



|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|------------------------------------- |  | ------ | ----------- | - | ------- | - | ----------- | ---------- |  | - | -------------- | - |  | ------------ | ---------- | - | ------------ | - | ---------- | - |  | - | ----------- | -
|                                      |  | Parent |             |   | Issuers |   |             | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |            |   | Consolidated |  
|Revenues                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Well servicing                        |  | $      | 7,625,415   |   |         | $ |            |            |  | $ | 16,742,325     |   |  | $            | 796,646    |   |              | $ | (1,310,474 | ) |  | $ | 23,853,912  |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 26,618,294     |   |  |              |           |   |              |   |           |   |  |   | 26,618,294  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|Total revenues                        |  |        | 7,625,415   |   |         |   |            |            |  |   | 43,360,619     |   |  |              | 796,646    |   |              |   | (1,310,474 | ) |  |   | 50,472,206  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|Expenses                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Well servicing                        |  |        | 8,655,943   |   |         |   |            |            |  |   | 16,816,970     |   |  |              | (2,197,319 | ) |              |   | (406,385   | ) |  |   | 22,869,209  |  
|                                      |  |        |             |   |         |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 21,812,340     |   |  |              |           |   |              |   |           |   |  |   | 21,812,340  |  
|                                      |  |        |             |   |         |  
|General and administrative            |  |        | 1,777,993   |   |         |   | 1,358,927   |            |  |   | 2,228,444      |   |  |              | 274,046    |   |              |   | (994,601   | ) |  |   | 4,644,809   |  
|Depreciation and amortization         |  |        | (72,991     | ) |         |   |            |            |  |   | 9,923,604      |   |  |              | 49,746     |   |              |   | 81,762     |   |  |   | 9,982,121   |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Total expenses                        |  |        | 10,360,945  |   |         |   | 1,358,927   |            |  |   | 50,781,358     |   |  |              | (1,873,527 | ) |              |   | (1,319,224 | ) |  |   | 59,308,479  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Operating income (loss)               |  |        | (2,735,530  | ) |         |   | (1,358,927  | )          |  |   | (7,420,739     | ) |  |              | 2,670,173  |   |              |   | 8,750      |   |  |   | (8,836,273  | )
|                                      |  |        |             |   |         |  
|Interest income (expense), net        |  |        | 40,574      |   |         |   | (5,437,535  | )          |  |   | (794,450       | ) |  |              | (10,126    | ) |              |   | (19,767    | ) |  |   | (6,221,304  | )
|Equity in income (loss) of affiliates |  |        | (12,188,705 | ) |         |   | (5,513,067  | )          |  |   | 2,349,168      |   |  |              |           |   |              |   | 15,352,604 |   |  |   |            |  
|                                      |  |        |             |   |         |  
|Other income (loss), net              |  |        | (97,478     | ) |         |   | 120,824     |            |  |   | 18,604         |   |  |              | (221,255   | ) |              |   | 11,017     |   |  |   | (168,288    | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Income (expense) before taxes         |  |        | (14,981,139 | ) |         |   | (12,188,705 | )          |  |   | (5,847,417     | ) |  |              | 2,438,792  |   |              |   | 15,352,604 |   |  |   | (15,225,865 | )
|                                      |  |        |             |   |         |  
|Income tax expense (benefit)          |  |        | (5,371,419  | ) |         |   |            |            |  |   | (334,115       | ) |  |              | 89,389     |   |              |   |           |   |  |   | (5,616,145  | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |            |   |  |   |             |  
|Net income (loss)                     |  | $      | (9,609,720  | ) |         | $ | (12,188,705 | )          |  | $ | (5,513,302     | ) |  | $            | 2,349,403  |   |              | $ | 15,352,604 |   |  | $ | (9,609,720  | )



27



---

##### Table of Contents



Condensed
Consolidating Statement of Operations

For the Nine Months Ended September 30, 2010



|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|------------------------------------- |  | ------ | ----------- | - | ------- | - | ----------- | ---------- |  | - | -------------- | - |  | ------------ | ---------- | - | ------------ | - | ----------- | - |  | - | ----------- | -
|                                      |  | Parent |             |   | Issuers |   |             | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |            |   | Consolidated |  
|Revenues                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Well servicing                        |  | $      | 33,252,919  |   |         |   |            |            |  |   | 80,369,412     |   |  | $            | 12,487,655 |   |              | $ | (14,588,784 | ) |  | $ | 111,521,202 |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 119,762,826    |   |  |              |           |   |              |   |            |   |  |   | 119,762,826 |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Total revenues                        |  |        | 33,252,919  |   |         |   |            |            |  |   | 200,132,238    |   |  |              | 12,487,655 |   |              |   | (14,588,784 | ) |  |   | 231,284,028 |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Expenses                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Well servicing                        |  |        | 28,755,260  |   |         |   |            |            |  |   | 65,710,284     |   |  |              | 7,888,990  |   |              |   | (12,361,944 | ) |  |   | 89,992,590  |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 92,554,158     |   |  |              |           |   |              |   |            |   |  |   | 92,554,158  |  
|General and administrative            |  |        | 5,431,824   |   |         |   | 4,610,568   |            |  |   | 8,549,204      |   |  |              | 1,390,138  |   |              |   | (2,234,471  | ) |  |   | 17,747,263  |  
|Depreciation and amortization         |  |        | 117,650     |   |         |   |            |            |  |   | 29,627,422     |   |  |              | 182,087    |   |              |   |            |   |  |   | 29,927,159  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Total expenses                        |  |        | 34,304,734  |   |         |   | 4,610,568   |            |  |   | 196,441,068    |   |  |              | 9,461,215  |   |              |   | (14,596,415 | ) |  |   | 230,221,170 |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Operating income                      |  |        | (1,051,815  | ) |         |   | (4,610,568  | )          |  |   | 3,691,170      |   |  |              | 3,026,440  |   |              |   | 7,631       |   |  |   | 1,062,858   |  
|Interest income (expense), net        |  |        | 23,739      |   |         |   | (20,213,525 | )          |  |   | (287,433       | ) |  |              | (25,887    | ) |              |   | 1,573       |   |  |   | (20,501,533 | )
|Equity in income (loss) of affiliates |  |        | (21,522,435 | ) |         |   | 3,280,438   |            |  |   | (124,078       | ) |  |              |           |   |              |   | 18,366,075  |   |  |   |            |  
|Other income, net                     |  |        | 2,943,519   |   |         |   | 21,220      |            |  |   | 1,107          |   |  |              | (2,938,025 | ) |              |   | (1,359      | ) |  |   | 26,462      |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Income before taxes                   |  |        | (19,606,992 | ) |         |   | (21,522,435 | )          |  |   | 3,280,766      |   |  |              | 62,528     |   |              |   | 18,373,920  |   |  |   | (19,412,213 | )
|Income tax expense                    |  |        | (7,104,319  | ) |         |   |            |            |  |   |               |   |  |              | 186,618    |   |              |   |            |   |  |   | (6,917,701  | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  
|Net income (loss)                     |  | $      | (12,502,673 | ) |         | $ | (21,522,435 | )          |  | $ | 3,280,766      |   |  | $            | (124,090   | ) |              | $ | 18,373,920  |   |  | $ | (12,494,512 | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |            |   |              |   |             |   |  |   |             |  



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Condensed
Consolidating Statement of Operations

For the Nine Months Ended September 30, 2009



|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|------------------------------------- |  | ------ | ----------- | - | ------- | - | ----------- | ---------- |  | - | -------------- | - |  | ------------ | --------- | - | ------------ | - | ----------- | - |  | - | ----------- | -
|                                      |  | Parent |             |   | Issuers |   |             | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |           |   | Consolidated |  
|Revenues                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Well servicing                        |  | $      | 18,409,876  |   |         | $ |            |            |  | $ | 66,441,052     |   |  | $            | 9,415,713 |   |              | $ | (13,358,650 | ) |  | $ | 80,907,991  |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 82,748,174     |   |  |              |          |   |              |   |            |   |  |   | 82,748,174  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Total revenues                        |  |        | 18,409,876  |   |         |   |            |            |  |   | 149,189,226    |   |  |              | 9,415,713 |   |              |   | (13,358,650 | ) |  |   | 163,656,165 |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|                                      |  |        |             |   |         |  
|Expenses                              |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Well servicing                        |  |        | 18,826,178  |   |         |   |            |            |  |   | 59,923,413     |   |  |              | 4,986,248 |   |              |   | (10,750,029 | ) |  |   | 72,985,810  |  
|Fluid logistics                       |  |        |            |   |         |   |            |            |  |   | 64,972,027     |   |  |              |          |   |              |   |            |   |  |   | 64,972,027  |  
|General and administrative            |  |        | 3,676,595   |   |         |   | 4,823,914   |            |  |   | 7,159,644      |   |  |              | 1,245,775 |   |              |   | (2,590,664  | ) |  |   | 14,315,264  |  
|Depreciation and amortization         |  |        | 8,771       |   |         |   |            |            |  |   | 29,307,907     |   |  |              | 131,778   |   |              |   |            |   |  |   | 29,448,456  |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Total expenses                        |  |        | 22,511,544  |   |         |   | 4,823,914   |            |  |   | 161,362,991    |   |  |              | 6,363,801 |   |              |   | (13,340,693 | ) |  |   | 181,721,557 |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Operating income (loss)               |  |        | (4,101,668  | ) |         |   | (4,823,914  | )          |  |   | (12,173,765    | ) |  |              | 3,051,912 |   |              |   | (17,957     | ) |  |   | (18,065,392 | )
|                                      |  |        |             |   |         |  
|Interest income (expense), net        |  |        | 30,679      |   |         |   | (18,010,249 | )          |  |   | (1,281,724     | ) |  |              | (20,021   | ) |              |   | 23          |   |  |   | (19,281,292 | )
|                                      |  |        |             |   |         |  
|Equity in income (loss) of affiliates |  |        | (31,772,951 | ) |         |   | (10,481,815 | )          |  |   | 2,593,782      |   |  |              |          |   |              |   | 39,660,984  |   |  |   |            |  
|Other income (loss), net              |  |        | (102,974    | ) |         |   | 1,543,027   |            |  |   | 97,850         |   |  |              | (267,758  | ) |              |   | 17,934      |   |  |   | 1,288,079   |  
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Income (expense) before taxes         |  |        | (35,946,914 | ) |         |   | (31,772,951 | )          |  |   | (10,763,857    | ) |  |              | 2,764,133 |   |              |   | 39,660,984  |   |  |   | (36,058,605 | )
|Income tax expense (benefit)          |  |        | (12,763,968 | ) |         |   |            |            |  |   | (281,783       | ) |  |              | 170,092   |   |              |   |            |   |  |   | (12,875,659 | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  
|Net income (loss)                     |  | $      | (23,182,946 | ) |         | $ | (31,772,951 | )          |  | $ | (10,482,074    | ) |  | $            | 2,594,041 |   |              | $ | 39,660,984  |   |  | $ | (23,182,946 | )
|                                      |  |        |             |   |         |   |             |            |  |   |                |   |  |              |           |   |              |   |             |   |  |   |             |  



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Condensed
Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2010



|                                                     |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  
|---------------------------------------------------- |  | ------ | ----------- | - | ------- | - | ----------- | ---------- |  | - | -------------- | - |  | ------------ | ------- | - | ------------ | - | - |  |  | - | ----------- | -
|                                                     |  | Parent |             |   | Issuers |   |             | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |         |   | Consolidated |  
|Cash flows from operating activities                 |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  
|Net cash provided by operating activities            |  | $      | (25,949,857 | ) |         | $ | 4,089,468   |            |  | $ | 18,211,214     |   |  | $            | 103,345 |   |              | $ |  |  |  | $ | (3,545,830  | )
|                                                     |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  
|                                                     |  |        |             |   |         |  
|Cash flows from investing activities                 |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  
|Change in restricted cash                            |  |        |            |   |         |   | (39,678     | )          |  |   |               |   |  |              |        |   |              |   |  |  |  |   | (39,678     | )
|Purchase of property and equipment                   |  |        |            |   |         |   |            |            |  |   | (5,621,687     | ) |  |              |        |   |              |   |  |  |  |   | (5,621,687  | )
|                                                     |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  
|Net cash used in investing activities                |  |        |            |   |         |   | (39,678     | )          |  |   | (5,621,687     | ) |  |              |        |   |              |   |  |  |  |   | (5,661,365  | )
|                                                     |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  
|                                                     |  |        |             |   |         |  
|Cash flows from financing activities                 |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  
|Other                                                |  |        |             |   |         |   |            |            |  |   | (223,676       | ) |  |              |        |   |              |   |  |  |  |   | (223,676    | )
|Proceeds from issuance of preferred stock            |  |        | 14,229,600  |   |         |   |            |            |  |   |                |   |  |              |        |   |              |   |  |  |  |   | 14,229,600  |  
|Repayments of debt                                   |  |        |            |   |         |   | (10,662,097 | )          |  |   | (1,260,000     | ) |  |              |         |   |              |   |   |  |  |   | (11,922,097 | )
|                                                     |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  
|Net cash provided by (used in) financing activities  |  |        | 14,229,600  |   |         |   | (10,662,097 | )          |  |   | (1,483,676     | ) |  |              |        |   |              |   |  |  |  |   | 2,083,827   |  
|                                                     |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  
|Effect on currency translation in cash               |  |        |             |   |         |   |             |            |  |   |                |   |  |              | (53,936 | ) |              |   |   |  |  |   | (53,936     | )
|Net increase/(decrease) in cash and cash equivalents |  |        | (11,720,257 | ) |         |   | (6,612,307  | )          |  |   | 11,105,851     |   |  |              | 49,409  |   |              |   |  |  |  |   | (7,177,304  | )
|Cash and cash equivalents                            |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  
|                                                     |  |        |             |   |         |  
|Beginning of period                                  |  |        | 12,577,404  |   |         |   | 7,860,204   |            |  |   | 7,973,636      |   |  |              | 14,123  |   |              |   |  |  |  |   | 28,425,367  |  
|                                                     |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  
|End of period                                        |  | $      | 857,147     |   |         | $ | 1,247,897   |            |  | $ | 19,079,487     |   |  | $            | 63,532  |   |              | $ |  |  |  | $ | 21,248,063  |  
|                                                     |  |        |             |   |         |   |             |            |  |   |                |   |  |              |         |   |              |   |   |  |  |   |             |  



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Condensed
Consolidating Statement of Cash Flows

For the Nine Months Ended September 30, 2009



|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  
|---------------------------------------------------- |  | ------ | -------- | - | ------- | - | ---------- | ---------- |  | - | -------------- | - |  | ------------ | -------- | - | ------------ | - | - |  |  | - | ----------- | -
|                                                     |  | Parent |          |   | Issuers |   |            | Guarantors |  |   | Non-Guarantors |   |  | Eliminations |          |   | Consolidated |  
|Cash flows from operating activities                 |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  
|Net cash provided by operating activities            |  | $      | (115,868 | ) |         | $ | 15,985,037 |            |  | $ | 3,918,915      |   |  | $            | 788,366  |   |              | $ |  |  |  | $ | 20,576,450  |  
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  
|                                                     |  |        |          |   |         |  
|Cash flows from investing activities                 |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  
|Insurance proceeds                                   |  |        |         |   |         |   |           |            |  |   | 1,745,606      |   |  |              |         |   |              |   |  |  |  |   | 1,745,606   |  
|Purchase of property and equipment                   |  |        |         |   |         |   |           |            |  |   | (25,155,378    | ) |  |              | (903,486 | ) |              |   |  |  |  |   | (26,058,864 | )
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  
|Net cash used in investing activities                |  |        |         |   |         |   |           |            |  |   | (23,409,772    | ) |  |              | (903,486 | ) |              |   |  |  |  |   | (24,313,258 | )
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  
|                                                     |  |        |          |   |         |  
|Cash flows from financing activities                 |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  
|Payments related to issuance of common stock         |  |        |         |   |         |   |           |            |  |   | (100,000       | ) |  |              |         |   |              |   |  |  |  |   | (100,000    | )
|Stock offering costs                                 |  |        | (4,294   | ) |         |   |           |            |  |   |               |   |  |              |         |   |              |   |  |  |  |   | (4,294      | )
|Net borrowings under the Credit Facility             |  |        |         |   |         |   |           |            |  |   | 12,000,000     |   |  |              |         |   |              |   |  |  |  |   | 12,000,000  |  
|                                                     |  |        |          |   |         |  
|Repayments of debt                                   |  |        |         |   |         |   | (4,566,104 | )          |  |   | (3,364,099     | ) |  |              |         |   |              |   |  |  |  |   | (7,920,203  | )
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  
|Net cash provided by (used in) financing activities  |  |        | (4,294   | ) |         |   | (4,556,104 | )          |  |   | 8,535,901      |   |  |              |         |   |              |   |  |  |  |   | 3,975,503   |  
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  
|Net increase/(decrease) in cash and cash equivalents |  |        | (120,162 | ) |         |   | 11,428,933 |            |  |   | (10,954,956    | ) |  |              | (115,120 | ) |              |   |  |  |  |   | 238,695     |  
|Cash and cash equivalents                            |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  
|                                                     |  |        |          |   |         |  
|Beginning of period                                  |  |        | 136,891  |   |         |   | 196,738    |            |  |   | 23,115,657     |   |  |              | 19,781   |   |              |   |  |  |  |   | 23,469,067  |  
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  
|End of period                                        |  | $      | 16,729   |   |         | $ | 11,625,671 |            |  | $ | 12,160,701     |   |  | $            | (95,339  | ) |              | $ |  |  |  | $ | 23,707,762  |  
|                                                     |  |        |          |   |         |   |            |            |  |   |                |   |  |              |          |   |              |   |   |  |  |   |             |  

16. Equity Securities

Common Shares

Holders of Common Shares have no pre-emptive,
redemption, conversion, or sinking fund rights. Holders of Common Shares are entitled to one vote per share on all matters submitted to a vote of holders of Common Shares. Unless a different majority is required by law or by the Bye-laws,
resolutions to be approved by holders of Common Shares require approval by a simple majority of votes cast at a meeting at which a quorum is present. In the event of the liquidation, dissolution, or winding up of the Company, the holders of
Common Shares are entitled to share equally and ratably in the Companys assets, if any, remaining after the payment of all of its debts and liabilities, subject to any liquidation preference on any issued and outstanding Preference Shares.



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Class B Shares

On May 28, 2010, in connection with the issuance of the Series B Preferred Shares, holders of
Class B Shares holding greater than 662/3% of the
Class B Shares then issued and outstanding elected to convert their Class B Shares into an equal number of the Companys Common Shares, pursuant to Section 4.3 of the Companys Bye-laws. This resulted in the automatic conversion of
all issued and outstanding Class B Shares into the Companys Common Shares, on a one-for-one basis. There are no Class B Shares currently issued and outstanding.

Prior to Conversion, holders of Class B Shares had all of the rights of holders of Common Shares, except for the differences described in footnote 15 of the Companys Annual Report on Form 10-K for
the year ended December 31, 2009.

Series B Senior Convertible Preferred Shares

Under our Certificate of Designation, we are authorized to issue 825,000 shares of Series B Senior Convertible Preferred Shares (the
Series B Preferred Shares), par value $0.01 per share. On May 28, 2010 the Company completed a private placement of 580,800 Series B Preferred Shares to West Face Long Term Opportunities Limited Partnership, West Face Long Term
Opportunities (USA) Limited Partnership and West Face Long Term Opportunities Master Fund L.P. (collectively, the Investors) for total gross proceeds of $14,520,000. In connection with the private placement, the Company paid the
Investors a closing fee of $290,400. The Common Shares into which the Series B Preferred Shares are convertible have certain demand and piggyback registration rights.

The terms of the Series B Preferred Shares are as follows:

Rank The Series B Preferred Shares rank senior in right of payment to the Common Shares and any class or series of capital stock that is junior to the Series B Preferred Shares, and pari
passu with any series of the Companys preferred stock that by its terms ranks pari passu in right of payment as to dividends and liquidation with the Series B Preferred Shares.

Conversion The Series B Preferred Shares are convertible into the Companys common shares at an initial rate of 36
common shares per Series B Preferred Shares (subject to adjustment). If all such Series B Preferred Shares are converted, at the initial conversion rate, 20,908,800 Common Shares (representing 19.99% of the outstanding common shares after such
conversion) will be issued to the holders of the Series B Preferred Shares. Pursuant to Certificate of Designation, no holder of the Series B Preferred Shares is entitled to effect a conversion of Series B Preferred Shares if such conversion would
result in the holder (and affiliates) beneficially owning 20% or more of the Companys Common Shares. The Company has considered all applicable guidance related to the conversion feature and determined that bifurcation was not required.

Dividends Rights  The Series B Preferred Shares are entitled to receive preferential dividends equal to five
percent (5%) per annum of the original issue price per share, payable quarterly in February, May, August and November of each year. Such dividends may be paid by the Company in cash or in kind (in the form of additional Series B Preferred
Shares). In the event that the payment in cash or in kind of any such dividend would cause the Company to violate a covenant under its debt agreements, the obligation to pay, in cash or in kind, will be suspended until the earlier to occur of
(i) and only to the extent any restrictions under the debt agreements lapse or are no longer applicable or (ii) February 16, 2015. During any such suspension period, the preferential dividends shall continue to accrue and accumulate.
As shares of the Series B Preferred Shares are convertible into shares of our common stock, each dividend paid in kind will have a dilutive effect on our shares of common stock.

Liquidation  Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, no distribution shall
be made as follows:



| | (i) | to the holders of shares ranking junior to the Series B Preferred Shares unless the holders of Series B Preferred Shares shall have received an amount equal to the
original issue price per share of the Series B Preferred Shares (subject to adjustment) plus an amount equal to accumulated and unpaid dividends and distributions thereon to the date of such payment, and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | (ii) | to the holders of shares ranking on a parity with the Series B Preferred Shares, unless simultaneously therewith distributions are made ratably on the Series B
Preferred Shares and all other such parity stock in proportion to the total amounts to which the holders of Series B Preferred Shares are entitled.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Voting Rights  The holders of Series B Preferred Shares are not entitled to any voting rights except as provided in the following sentence in the Companys Bye-laws or otherwise under
the Company Act of 1981 of Bermuda. If the preferential dividends on the Series B Preferred Shares have not been declared and paid in full in cash or in kind for eight or more quarterly dividend periods (whether or not consecutive), the holders of
the Series B Preferred Shares shall be entitled to vote at any meeting of shareholders with the holders of Common Shares and to cast the number of votes equal to the number of whole Common Shares into which the Series B Preferred Shares held by such
holders are then convertible.

Redemption All or any number of the Series B Preferred Shares may be redeemed by
the Company at any time after May 28, 2013 at a redemption price determined in accordance with the Certificate of Designations and provided that the current equity value of our common stock exceeds specified levels. On May 28, 2017, the
Company is required to redeem any Series B Preferred Shares then outstanding at a redemption price determined in accordance with the Certificate of Designation. Such mandatory redemption may, at the Companys election, be paid in cash or in
common shares (valued for such purpose at 95% of the then fair market value of the common shares). In the event certain corporate transactions occur (such as a reorganization, recapitalization, reclassification, consolidation or merger) under which
the Companys common shares (but not the Series B Preferred Shares) are converted into or exchanged for securities, cash or other property, then following such transaction, each Series B Preferred Share shall thereafter be convertible into the
same kind and amount of securities, cash or other property.

Certain of the redemption features are outside of the
Companys control, and as a result, the Series B Preferred Shares have been reflected in the consolidated balance sheet as temporary equity.

Dividends

Preferred stock dividends are recorded at their fair
value. If paid in cash, the amount paid represents fair value. If paid in kind, the fair value of the preferred stock dividends is determined using valuation techniques that include a component representing the intrinsic value of the dividends
(which represents the fair value of the common stock into which the preferred shares could be converted) and an option component (which is determined using a Black-Scholes Option Pricing Model). Management currently expects to pay dividends in kind.
As we are in an accumulated deficit position, these dividends are treated as a reduction of additional paid-in capital.

The
Series B Preferred Shares are not redeemable as of September 30, 2010. The Company paid a closing fee to the Investors of $290,400 which is netted with the proceeds from the sale of the Series B Preferred Shares in temporary equity on the
consolidated balance sheet. The value of the Series B Preferred Shares is being accreted up to redemption value from the date of issuance to the earliest redemption date of the instrument using the effective interest rate method. If the
Series B Preferred Shares had been redeemed as of September 30, 2010, the redemption amount would have been approximately $14,762,856.

17. Other Comprehensive Income

The components of our accumulated other
comprehensive income are as follows:



|                                  |  |                                 |            |   |                                |   |            |      |  |   |             |   |  |   |             |  
|--------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                                  |  | Three Months EndedSeptember 30, |            |   | Nine Months
EndedSeptember 30, |  
|                                  |  | 2010                            |            |   | 2009                           |   |            | 2010 |  |   | 2009        |  
|Net (loss)                        |  | $                               | (2,081,650 | ) |                                | $ | (9,609,720 | )    |  | $ | (12,464,512 | ) |  | $ | (23,182,946 | )
|Foreign currency translation gain |  |                                 | 263,579    |   |                                |   |           |      |  |   | 263,579     |   |  |   |            |  
|                                  |  |                                 |            |   |                                |   |            |      |  |   |             |   |  |   |             |  
|Other comprehensive income        |  | $                               | (1,818,071 | ) |                                | $ | (9,609,720 | )    |  | $ | (12,200,933 | ) |  | $ | (23,182,946 | )
|                                  |  |                                 |            |   |                                |   |            |      |  |   |             |   |  |   |             |  



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The local currency is
the functional currency for our operations in Mexico. The cumulative translation gains and losses resulting from translating our foreign entitys financial statements from the Pesos to U.S. Dollars are included in other comprehensive income and
accumulated in stockholders equity until a partial or complete sale or liquidation of our net investment in the foreign entity.

18.
Subsequent Events

Subsequent events have been evaluated through the filing date of this Form 10-Q.



|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

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, 2009 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 Part II-Item 1A. Risk Factors included herein.

Overview

Forbes Energy Services Ltd., or FES Ltd, and its domestic subsidiaries, Forbes Energy Services LLC, or FES LLC, Forbes Energy Capital Inc., or FES CAP, C.C. Forbes, LLC, or CCF, TX Energy Services,
LLC, or TES, Superior Tubing Testers, LLC, or STT, and Forbes Energy International, LLC, or FEI LLC, are headquartered in Alice, Texas and conduct business primarily in the state of Texas. In late 2008, FES LLC and FEI LLC formed Forbes Energy
Services México, S. de R.L. de C.V., or FES Mexico and Forbes Energy Services México servictos de Personal, S. de R.L. de C.V., Mexican limited liability companies (sociedad de responsabilidad limitada de capital variable) to conduct
operations in Mexico.

As used in this Quarterly Report on Form 10-Q, the Company, the Forbes
Group, we, and our mean FES Ltd and its subsidiaries.

We are 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. The Forbes Groups operations are concentrated in the major onshore oil and natural gas producing regions of Texas, with locations in
Baxterville, Mississippi, Washington, Pennsylvania and Poza Rica, Mexico.

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



| |  |  | Well Servicing. Our well servicing segment comprised 48.6% and 48.2% of consolidated revenues for the three and nine months ended
September 30, 2010, respectively. At September 30, 2010, our well servicing segment utilized our modern fleet of 173 owned or leased well servicing rigs, which included 162 workover rigs and 11 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. Our fluid logistics segment comprised 51.4% and 51.8% of consolidated revenues for the three and nine months ended
September 30, 2010, respectively. 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.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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 68.5% and 72.6% of our
revenues for the three and nine months ended September 30, 2010, respectively, were from customers that utilized services of 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. Market day rates for workover rigs increased from 2003 through the first half of 2008, as high oil and
natural gas prices and declining domestic production resulted in a substantial growth of drilling activity and demand for workover services that are used primarily to maintain or enhance production levels of existing producing wells. Throughout 2009
and through the majority of the first quarter of 2010, we experienced pricing pressure that resulted from the general economic decline and, more specifically, the precipitous decline in oil and gas prices. However, during the nine months ended
September 30, 2010 utilization began to increase allowing us to increase rates in certain markets beginning in March 2010 and continuing through September 2010.

Fluid Logistics Rates

Our fluid logistics 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. Prior to the general economic decline that commenced in the
latter half of 2008, higher oil and natural gas prices resulted in growing demand for drilling and our services and, since the decline, lower oil and natural gas prices have resulted in reduced demand for drilling and our services. Required disposal
of fluids produced from wells and the increased number of wells in service through the first half of 2008 led to a higher demand for fluid logistics services. Throughout 2009, fluid logistics rates were under significant pressure. During the nine
months ended September 30, 2010 we experienced a significant upward trend in utilization which allowed us to increase rates during the period in selected markets. In large part this is due to the Companys exposure to the Eagle Ford shale
formation in South Texas where drilling activity has increased substantially in the last twelve months.

Operating Expenses

Prior to the general economic decline, a strong oil and natural gas environment resulted in a higher demand for operating
personnel and oilfield supplies and caused increases in the cost of those goods and services. Throughout 2009 and through much of the first quarter of 2010, a weaker oil and natural gas environment has resulted in lower demand for operating
personnel and oilfield supplies which has allowed us to decrease our costs, thereby offsetting a portion of the price decreases granted to our customers. As utilization and demand has started to increase in 2010, we are again experiencing cost
pressures in areas such as labor, where we have incurred additional costs in the form of increased pay rates. Future earnings and cash flows will be dependent on our ability to manage our overall cost structure and obtain price increases from our
customers.



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Capital
Expenditures and Debt Service Obligations

As a general matter, our capital expenditures to maintain our assets have been
relatively limited. Historically, we have incurred indebtedness to invest in new assets to grow our business. As a result, the indebtedness we incurred for our capital expenditures has significantly increased our debt service obligations. Most of
our new assets have been acquired through bank borrowings, short-term equipment vendor financings, cash flows from operations and other permitted financings. In the near term, we expect our capital expenditures to be minimal and will be subject to
the constraints of the covenants under our indentures, cash flow and our ability to access additional capital.

Capital
Expenditures and Operating Income Margins

The well servicing segment typically has higher operating income margins along
with higher capital expenditures when compared with the fluid logistics segment, which has lower operating margins but also lower capital expenditure requirements. However, with the recent industry downturn, we have experienced less margin pressure
on our fluid logistics segment, which has resulted in more favorable margins in that segment, relative to the well servicing segment. This is due to the fact that a large portion of the fluids business is not discretionary services, but required for
wells to continue producing.

Presentation

The following discussion and analysis is presented on a consolidated basis to reflect results of operations and the financial condition of the Forbes Group.

Results of Operations

The following discussion, as well as the discussion found under Liquidity and Capital Resources, compares our consolidated financial information as of and for the three and nine months ended
September 30, 2010 to the three and nine months ended September 30, 2009, respectively.

Three Months Ended
September 30, 2010 Compared to Three Months Ended September 30, 2009

Consolidated Revenues.For the three
months ended September 30, 2010, revenues increased by $33.5 million, or 66.4%, to $84.0 million when compared to the same period in the prior year. The third quarter of 2009 was the middle of the recent industry decline, resulting in
lower revenues and profits, as compared to the third quarter of 2010 where the energy services industry has experienced a turn-around with increasing utilization and pricing.

Well Servicing Revenues from the well servicing segment increased $17.0 million for the period, or 71.2% to $40.8 million compared to the corresponding period in the prior year. The increase
largely results from the increase in prices and rig hours for our well services. We utilized 173 and 170 well servicing rigs as of September 30, 2010 and 2009, respectively. Of the 173 rigs available as of September 30, 2010, 11 were
allocated to Mexico operations. The average rate charged per hour increased 11.8% during the three months ended September 30, 2010 as compared to the same period in 2009 due to price increases that began in early 2010. Average utilization of
our well service rigs during the three months ended September 30, 2010 and 2009 was 67.4% and 45.2%, respectively, based on a twelve hour day working five days a week, except holidays in the U.S., and seven days a week, 24 hours a day in
Mexico, except holidays. All 11 Mexico rigs were utilized during the quarter except for approximately two weeks in September where Pemex suspended operations for most all service providers in Mexico. Our contract with Pemex provides that we can
invoice Pemex our cost during a Pemex imposed suspension. Accordingly, we have accrued revenues equal to a portion of our costs that were incurred during this period.

Fluid Logistics  Revenues from the fluid logistics segment increased $16.5 million for the period, or 62.0%, to $43.1 million compared to the corresponding period in the prior year.
Utilization for trucks in service during the three months ended September 30, 2010 and September 30, 2009 was 97.3% and 65.2% respectively, based on working fourteen hours a day six days a week, except holidays. Our principal fluid
logistics assets for the three months ended September 30, 2010 and September 30, 2009 were as follows:



|                             |  |                     |       |  |      |  |       | 
|---------------------------- |  | ------------------- | ----- |  | ---- |  | ----- | 
|                             |  | As of September 30, |      
|Asset                        |  | 2010                |       |  | 2009 | 
|Vacuum trucks                |  |                     | 287   |  |      |  | 293   | 
|High-pressure pump trucks    |  |                     | 19    |  |      |  | 19    | 
|Other heavy trucks           |  |                     | 57    |  |      |  | 57    | 
|Frac tanks (includes leased) |  |                     | 1,368 |  |      |  | 1,370 | 
|Salt water disposal wells    |  |                     | 16    |  |      |  | 18    | 



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Consolidated
Operating Expenses. Our operating expenses increased to $64.9 million for the three months ended September 30, 2010, from $44.7 million for the three months ended September 30, 2009, an increase of $20.2 million or 45.2%. Operating
expenses as a percentage of revenues were 77.3% for the three months ended September 30, 2010, compared to 88.5% for the three months ended September 30, 2009. This decrease in operating expense as a percentage of our revenues is generally
attributable to the general industry decline that was taking place in 2008 and 2009. During the decline companies, including Forbes, were not able to reduce costs as fast as revenues were declining. As industry activity began to stabilize in late
2009 and early 2010, cost reductions were able to catch up and expense as a percentage of revenues began to decrease.

Well Servicing Operating expenses from the well servicing segment increased by $9.8 million, or 42.7%, to $32.6 million. Well servicing operating expenses as a percentage of well servicing
revenues were 79.9% for the three months ended September 30, 2010, compared to 95.9% for the three months ended September 30, 2009, a decrease of 16.0%. This decrease in the percentage was partially due to an increase of approximately
11.8% in average billing rates between the two quarters, as well as an increase in utilization to 67.4% for the three months ended September 30, 2010 from 45.2% for the three months ended September 30, 2009, which allowed the Company to
spread its fixed costs over greater revenues, therefore increasing the gross margin. The resulting increase in revenues was greater than the increased cost, thereby contributing to the decrease in well service expense as a percentage of revenues.

The dollar increase in well servicing operating costs between the two periods was due in large part to the increase in labor
cost of $5.0 million to approximately $14.4 million for the three months ended September 30, 2010 compared to approximately $9.4 million for the same period of the prior year. Labor cost as a percentage of revenues was 35.2% and 39.6% for the
three months ended September 30, 2010 and September 30, 2009, respectively. Employee count also increased to 1,092 as of September 30, 2010 as compared with 842 at September 30, 2009. Repairs and equipment maintenance cost
increased by $1.5 million, or 89.7% to $3.2 million. Repairs and equipment maintenance cost as a percentage of revenues was 7.9% and 7.1% for the three months ended September 30, 2010 and September 30, 2009, respectively. Rent equipment
cost increased $0.9 million or 73.8% to $2.0 million. Rent equipment cost as a percentage of revenue was 4.9% and 4.9% for the three months ended September 30, 2010 and September 30, 2009, respectively. Supplies and parts costs, out of
town expenses, fuel, oil costs, and safety expenses increased approximately $0.6 million, $0.5 million, $0.4 million and $0.3 million, respectively. Auto and truck expense and freight charges each increased by $0.2 million. The remaining $0.2
million is related to various expenses that were consistent with the activity of the business.

Fluid Logistics
Operating expenses for the fluid logistics segment increased by $10.4 million, or 47.9%, to $32.3 million. Fluid logistics operating expenses as a percentage of fluid logistics revenues were 74.8% for the three months ended September 30,
2010, compared to 81.9% for the three months ended September 30, 2009. This decrease in operating expenses as a percentage of revenues was partially due to an increase of approximately 25.2% in average billing rates between the two
quarters, as well as an increase in utilization to 97.3% for the three months ended September 30, 2010 from 65.2% for the three months ended September 30, 2009. The resulting increase in revenues was greater than the increased cost,
thereby contributing to the decrease in well service expense as a percentage of revenues.



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The dollar increase in
fluid logistics operating expenses of $10.4 million was due in large part to an increase in labor costs of $3.1 million or 41.8%, for the three months ended September 30, 2010 compared to the same period in the prior year as the result of the
addition of employees. Employee count at September 30, 2010 was 806 compared with 668 at September 30, 2009. Labor costs as a percentage of revenues were 24.0% and 27.4% for the three months ended September 30, 2010 and 2009,
respectively. Although the third quarter of 2010 includes labor rate increases, customer prices and utilization increased at a greater rate resulting in lower labor cost as a percentage of revenues. Contract service costs increased by $2.3 million
or 507.1% to $2.8 million due to activity increases in drilling and well services and the need to utilize outside services to satisfy customer demand, particularly in times of peak demand in South Texas. The majority of the increased costs were
primarily for renting additional fluid transport trucks and related services, as needed, to meet customer demands in South Texas. Although management has actively reallocated assets in an effort to avoid this additional cost, the day rentals were
required to respond to customer peak needs. Contract service costs as a percentage of revenues were 6.5% and 1.7% for the three months ended September 30, 2010 and 2009, respectively. Repairs and equipment maintenance cost increased $2.1
million, or 124.3% to $3.7 million as a result of activity increases. Truck hours increased 42.1% for the three months end September 30, 2010 compared to September 30, 2009. Repairs and equipment maintenance cost as a percentage of
revenues was 8.7% and 6.3% for the three months ended September 30, 2010 and September 30, 2009, respectively. Fuel costs increased $1.4 million, or 32.9% to $5.5 million due to activity increases in drilling and well services and fuel
price increases of 13.9%. Fuel cost as a percentage of revenues were 12.7% and 15.5% for the three months ended September 30, 2010 and September 30, 2009, respectively. Equipment rental cost increased $1.1 million, or 131.9% to $1.9
million. Equipment rental cost as a percentage of revenues was 4.4% and 3.1% for the three months ended September 30, 2010 and September 30, 2009, respectively. The remaining $0.4 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 increased by approximately $0.9 million, or 19.2%, to $5.5 million when compared to the three months ended September 30, 2009. General and Administrative expense as a percentage of revenues was 6.6% and 9.2%
for the three months ended September 30, 2010 and 2009, respectively. Expense for the three months ended September 30, 2010 also includes approximately $0.3 million of legal fees related to a potential equipment sale/lease back
transaction and a potential bond offering. Rent expense for equipment and facilities each increased $0.1 million. Office expenses and entertainment also increased by approximately $0.2 million and $0.1 million, respectively. The remaining $0.1
million is related to various expenses that were consistent with the activity of the business.

Depreciation and
Amortization. Depreciation and amortization expenses increased by $0.1 million, or 1.1%, to $10.1 million. Capital expenditures incurred for the three months ended September 30, 2010 were $1.4 million compared to $3.9 million for the three
months ended September 30, 2009. The change in depreciation expense is in line with managements expectations.

Interest and Other Expenses. Interest and other expenses were $6.6 million for the three months ended September 30, 2010,
compared to $6.4 million for the three months ended September 30, 2009. This increase is primarily due to the additional interest associated with the First Priority Floating Rate Notes due 2014, or the First Priority Notes, less a decrease in
interest expense associated with the re-purchase of certain bonds.

Income Taxes.We recognized an income tax benefit
of $1.1 million and $5.6 million for the three months ended September 30, 2010 and 2009, respectively, due to the loss recognized during each quarter. The effective tax rate for three months ended September 30, 2010 and 2009 was 37.8% and
35.7% respectively.

Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009

Consolidated Revenues.For the nine months ended September 30, 2010, revenues increased by $67.6 million, or
41.3%, to $231.3 million when compared to the same period in the prior year. The first nine months of 2009 was in the early stages of the recent industry decline, resulting in lower revenues and profits, as compared to the first half of 2010
where the energy services industry has experienced a turn-around with increasing utilization and pricing.

Well Servicing Revenues from the well servicing segment increased $30.6 million for the period, or 37.8% to $111.5 million compared to the corresponding period in the prior year. The increase largely results from the continued increase in prices and rig
hours for our well services. We utilized 173 and 171 well servicing rigs as of September 30, 2010 and 2009. Of the 173 rigs available at of September 30, 2010, 11 were allocated to Mexico operations. The average rate charged per hour
during the nine months ended September 30, 2010 as compared to the same period in 2009 was essentially flat due to the fact that prices were steadily decreasing during the 2009 period. The reverse was true during the same period in 2010,
prices were increasing. Average utilization of our well service rigs during the nine months ended September 30, 2010 and 2009 was 64.1% and 49.0%, respectively, based on a twelve hour day working five days a week, except holidays in the U.S.,
and seven days a week, 24 hours a day in Mexico, except holidays. All 11 Mexico rigs were utilized during the nine month period ended September 30, 2010.



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Fluid Logistics
 Revenues from the fluid logistics segment increased $37.0 million for the period, or 44.7%, to $119.8 million compared to the corresponding period in the prior year. Utilization for trucks in service during the nine months ended
September 30, 2010 and September 30, 2009 was 90.4% and 67.5% respectively, based on working fourteen hours a day six days a week, except holidays. Our principal fluid logistics assets for the nine months ended September 30, 2010 and
September 30, 2009 were as follows:



|                             |  |                     |       |  |      |  |       | 
|---------------------------- |  | ------------------- | ----- |  | ---- |  | ----- | 
|                             |  | As of September 30, |      
|Asset                        |  | 2010                |       |  | 2009 | 
|Vacuum trucks                |  |                     | 287   |  |      |  | 293   | 
|High-pressure pump trucks    |  |                     | 19    |  |      |  | 19    | 
|Other heavy trucks           |  |                     | 57    |  |      |  | 57    | 
|Frac tanks (includes leased) |  |                     | 1,368 |  |      |  | 1,370 | 
|Salt water disposal wells    |  |                     | 16    |  |      |  | 18    | 

Consolidated
Operating Expenses. Our operating expenses increased to $182.5 million for the nine months ended September 30, 2010, from $138.0 million for the nine months ended September 30, 2009, an increase of $44.6 million or 32.3%. Operating
expenses as a percentage of revenues were 78.9% for the nine months ended September 30, 2010, compared to 84.3% for the nine months ended September 30, 2009. This decrease in operating expense as a percentage of our revenues is generally
attributable to the general industry decline that was taking place in 2009. During the decline companies, including Forbes, were not able to reduce costs as fast as revenues were declining. As industry activity began to stabilize in late 2009 and
early 2010, cost reductions were able to catch up and expense as a percentage of revenues began to decrease.

Well Servicing Operating expenses from the well servicing segment increased by $17.0 million, or 23.3%, to $90.0 million.
Well servicing operating expenses as a percentage of well servicing revenues were 80.7% for the nine months ended September 30, 2010, compared to 90.2% for the nine months ended September 30, 2009, a decrease of 9.5%. This decrease in
operating expenses as a percentage of revenues was partially due to an increase in utilization to 64.1% for the nine months ended September 30, 2010 from 49.0% for the nine months ended September 30, 2009, which allowed the Company to
spread its fixed costs over greater revenues, thereby increasing the gross margin. This was partially offset by an average price decrease of approximately 0.4% in average billing rates between the two nine month periods. This decrease was primarily
driven by the fact that rates for the nine months ended September 30, 2009 were still decreasing throughout the period and rates for the same period in 2010 have been increasing. The 2010 rates have not yet reached the levels of the first half
of 2009. Rates increased from the first quarter of 2010 to the third quarter of 2010 by approximately 12.1%.

The dollar
increase in well servicing operating costs between the two periods was due in large part to the increase in labor costs of $6.7 million or 20.5%, for the nine months ended September 30, 2010 compared to the same period in the prior year.
Employee count at September 30, 2010 was 1,092 compared with 842 at September 30, 2009. Labor costs as a percentage of revenues were 35.3% and 40.4% for the nine months ended September 30, 2010 and 2009, respectively. Repairs and
maintenance cost increased $2.6 million or 40.7% to $8.9 million. Repair and maintenance cost as a percentage of revenue was 8.0% and 7.8% for the nine months ended September 30, 2010 and September 30, 2009, respectively. Employee per
diems increased $1.6 million or 46.6% to $5.0 million. Employee per diems as a percentage of revenue was 4.5% and 4.2% for the nine months ended September 30, 2010 and September 30, 2009, respectively. Product and chemical costs increased
by approximately $1.3 million or 28.2% to $6.0 million as a result of increased activity and were roughly in line with the increase in revenues. Saltwater, and mud disposal expenses, supplies and parts, fuel and oil cost, rent expense, safety
expenses and auto and truck expenses all increased approximately $2.0 million, $1.2 million, $1.0 million, $0.8 million, $0.7 million, and $0.5 million respectively, in line with the increase in business activity. Bad debt expense decreased by
approximately $1.4 million.



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Fluid Logistics Operating expenses for the fluid logistics segment increased by $27.6 million, or 42.5%, to $92.6 million. Fluid logistics operating expenses as a percentage of fluid logistics revenues were 77.3% for the nine months ended
September 30, 2010, compared to 78.5% for the nine months ended September 30, 2009. This decrease in operating expenses as a percentage of revenues was partially due to an increase of approximately 10.8% in average billing rates
between the two quarters, as well as an increase in utilization to 90.4% for the nine months ended September 30, 2010 from 67.0% for the nine months ended September 30, 2009. The resulting increase in revenues was greater than the
increased cost, thereby contributing to the decrease in well service expense as a percentage of revenues.

The dollar increase
in fluid logistics operating expenses of $27.6 million was due in large part to an increase in labor costs of $7.0 million or 30.9%, for the nine months ended September 30, 2010 compared to the same period in the prior year as the result of the
addition of employees. Employee count at September 30, 2010 was 806 compared with 668 at September 30, 2009. Labor costs as a percentage of revenues were 24.6% and 27.1% for the nine months ended September 30, 2010 and 2009,
respectively. Although the third quarter of 2010 includes labor rate increases, customer prices and utilization increased at a greater rate resulting in lower labor cost as a percentage of revenues. Fuel costs increased $5.7 million, or 52.2% to
$16.5 million due to activity increases in drilling and well services and fuel price increases of 24.2%. Fuel cost as a percentage of revenues were 13.8% and 13.1% for the nine months ended September 30, 2010 and September 30, 2009,
respectively. Contract service costs increased by $5.5 million or 319.7% to $7.2 million due to activity increases in drilling and well services and the need to utilize outside services to satisfy customer demand, particularly in times of peak
demand in South Texas. The majority of these increased costs were primarily for renting additional fluid transport trucks as needed to service customer demand in South Texas. Although management has actively reallocated assets in an effort to avoid
this additional cost, the day rentals were required to respond to customer peak needs. Contract service costs as a percentage of revenues were 6.0 and 2.1% for the nine months ended September 30, 2010 and 2009, respectively. Repairs and
equipment maintenance cost increased $4.6 million, or 89.9% to $9.8 million as a result of activity increase. Truck hours increased 30.6% for the nine months ended September 30, 2010 compared to the nine months ended September 30,2009.
Repairs and equipment maintenance cost as a percentage of revenues was 8.2% and 6.2% for the nine months ended September 30, 2010 and September 30, 2009, respectively. Rent equipment cost increased $2.2 million, or 102.9% to $4.3 million.
Rent equipment cost as a percentage of revenues was 3.6% and 2.5% for the nine months ended September 30, 2010 and September 30, 2009, respectively. Salt water disposal well cost increased $1.3 million, or 40.5% to $4.5 million. Salt water
disposal well cost as a percentage of revenues was 3.8% and 3.9% for the nine months ended September 30, 2010 and September 30, 2009, respectively. Product and chemical costs cost increased $0.8 million, or 15% to $6.4 million. Product and
chemical cost as a percentage of revenues was 5.4% and 6.7% for the nine months ended September 30, 2010 and September 30, 2009, respectively. The remaining $0.5 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 increased by approximately $3.4 million, or 24.0%, to $17.7 million. General and administrative expense as a percentage of revenues was 7.7% and 8.7% for the nine months ended September 30, 2010 and 2009,
respectively. Professional fees comprising of engineering costs and technical software assistance increased by approximately $0.8 million. Equipment rental associated with travel, consulting services and Mexico taxes also increased
approximately $0.5 million, $0.4 million, and $0.4 million, respectively.

Depreciation and Amortization.
Depreciation and amortization expenses increased by $0.5 million, or 1.6%, to $29.9 million. This slight increase is related to our increase in capital expenditures. Capital expenditures incurred for the nine months ended September 30, 2010
were $3.0 million compared to $14.9 million for the nine months ended September 30, 2009.

Interest and Other
Expenses. Interest and other expenses were $20.5 million for the nine months ended September 30, 2010, compared to $17.9 million for the nine months ended September 30, 2009, an increase of $2.6 million, or 14.5%. This increase is
primarily due to the additional interest associated with the First Priority Notes, less a decrease in interest expense associated with the repurchase of certain of our 11% Senior Secured Notes due 2015, or the Second Priority Notes.

Income Taxes.We recognized an income tax benefit of $6.9 million and $12.9 million for the nine months ended September 30,
2010 and 2009, respectively, due to the losses recognized during such quarters of $19.4 million and $36.1 million. For the nine months ended September 30, 2010 and 2009 the effective tax rate was 37.8% and 35.7% respectively.



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Liquidity and
Capital Resources

Overview

We project that cash flows from operations will be adequate to meet our working capital requirements over the next twelve months.

As discussed in Note 7 of our Notes to Consolidated Financial Statements, in October 2009 we repaid and terminated our revolving credit facility with Citibank, N.A., or the Credit Facility, using the
proceeds from the issuance of the First Priority Notes. Notwithstanding the termination of the Credit Facility, the indenture governing our Second Priority Notes, or the Second Priority Indenture, and the newly executed indenture governing our First
Priority Notes, or the First Priority Indenture, and the debt outstanding thereunder impose significant restrictions on us and increase our vulnerability to adverse economic and industry conditions that could limit our ability to obtain additional
or replacement financing. Our inability to satisfy certain obligations under these indentures, such as the payment of interest could constitute an event of default. An event of default could result in all or a portion of our outstanding debt
becoming immediately due and payable. If this should occur, we might not be able to obtain waivers or secure alternative financing to satisfy all of our obligations simultaneously. Given current market conditions, our ability to access the capital
markets or to consummate any asset sales might be restricted at a time when we would like or need to raise capital. In addition, the current economic conditions could also impact our customers and vendors and may cause them to fail to meet their
obligations to us with little or no warning. These events could have a material adverse effect on our business, financial position, results of operations and cash flows and our ability to satisfy the obligations under our indentures.

Within certain constraints, we can conserve capital by reducing or delaying capital expenditures, deferring non-regulatory maintenance
expenditures and further reducing operating and administrative costs.

We have historically funded our operations, including
capital expenditures, with bank borrowings, vendor financings, cash flow from operations, the issuance of our Second Priority Notes, and First Priority Notes and the proceeds from our Canadian initial equity offering and simultaneous U.S. private
placement, our October 2008 and December 2009 common share offering, and our May 2010 Series B Preferred Share private placement.

As of September 30, 2010, we had $215.1 million in debt outstanding (including the Second Priority Notes based on $192.5 million aggregate principal amount at an issue price of 97.635% of par and the
First Priority Notes based on $20.0 million aggregate principal amount at an issue price of 100% of par).

As of
September 30, 2010, we had $21.2 million in cash and cash equivalents, $213.2 million in long-term debt outstanding, $1.9 million in short-term debt outstanding, and $5.4 million of short-term equipment vendor financings for well servicing rigs
and other equipment included in accounts payable. Our $1.9 million of short-term debt consisted of $1.8 million payable to equipment lenders under various installment notes, and $0.1 million payable related to financing of our insurance premiums. We
incurred $1.4 million and $3.0 million for capital equipment acquisitions during the three and nine months ended September 30, 2010, respectively, as compared to actual cash disbursements in payment of capital equipment purchases of $2.4
million and $5.6 million for the three and nine months ended September 30, 2010, respectively. Capital equipment added for the three and nine months includes equipment related to rigs (primarily for our Mexico operations), saltwater disposal
wells, and pickup trucks.

Cash Flows

Our cash flows depend, to a large degree, on the level of spending by oil and gas companies development and production activities. Sustained increases or decreases in the price of natural gas or oil
could have a material impact on these activities, and could also materially affect our cash flows. Certain sources and uses of cash, such as the level of discretionary capital expenditures, purchases and sales of investments, issuances and
repurchases of debt and of our common shares are within our control and are adjusted as necessary based on market conditions.



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Cash Flows from
Operating Activities

Net cash used in operating activities totaled $3.5 million for the nine months ended
September 30, 2010, compared to net cash provided by operating activities of $20.6 million for the nine months ended September 30, 2009, a decrease of $24.1 million. The primary reason for the decrease in net cash flow resulted from a
change in working capital related to an increase in accounts receivable of $43.9 million between the nine months ended September 30, 2010 and 2009. This significant swing is a reflection of the changes in the energy services business between
the two periods. During the nine months ended September 30, 2009 the industry was rapidly shrinking, causing a reduction in accounts receivable which resulted in cash flow as compared to the nine months ended September 30, 2010 where the
energy services industry, and specifically our business, was rapidly expanding causing an increase in accounts receivable which resulted in a use of cash. Other changes that generated cash benefited us during the nine months ended September 30,
2010 include a reduction in the net loss between the two periods of $10.6 million and an increase in accounts payable of $9.5 million.

Cash Flows Used in Investing Activities

Net cash used in investing
activities for the nine months ended September 30, 2010 amounted to $5.7 million, primarily related to purchase of property and equipment, compared to $24.3 million for the nine months ended September 30, 2009. The significant capital
expenditures in the first nine months of 2009 were reflective of the expansion of business during 2008 and 2009. Capital expenditures for the nine months ended September 30, 2010 were primarily for the payment of building improvements, vacuum
trailers, vehicles, and upgrades to saltwater disposal wells and pumps.

Cash Flows from Financing Activities

Cash provided by financing activities for the nine months ended September 30, 2010 amounted to $2.1 million compared
to $4.0 million for the nine months ended September 30, 2009. In the May 2010 we issued 580,800 shares of Series B Senior Convertible Preferred Shares for net proceeds of $14.3 million (see Note 16 to the condensed consolidated financial
statements included herein). In June 2010, we re-purchased and retired $7.25 million of Second Priority Notes for $6.8 million, which represents a discount of approximately 6.5% of par value.

Second Priority Notes

On February 12, 2008, we issued an aggregate of $205.0 million of 11.0% Second Priority Notes. As described in further detail in Note 7 to the condensed consolidated financial statements included
herein, pursuant to the requirements of the indenture governing the Second Priority Notes, we have repurchased 12.5 million in aggregate principal amount of Second Priority Notes, including $7.3 million of principal amount of Second Priority
Notes repurchased in the quarter ended June 30, 2010.

The Second Priority Notes are our senior secured obligations. The
Second Priority Notes are and will be guaranteed on a senior secured basis by each of our existing and future domestic restricted subsidiaries. The Second Priority Notes and the guarantees are secured by second priority liens on substantially all of
our assets, subject to certain exceptions and permitted liens. The Second Priority Notes are subject to redemption and to requirements that we offer to purchase the Second Priority Notes upon a change of control, following certain asset sales, and
if we have excess cash flow for any fiscal year. The Second Priority Indenture governing the Second Priority Notes limits our and our restricted subsidiaries ability to, among other things, transfer or sell assets; pay dividends; redeem
subordinated indebtedness; make investments or make other restricted payments; incur or guarantee additional indebtedness or issue disqualified capital stock; make capital expenditures that exceed certain amounts; create, incur or suffer to exist
liens; incur dividend or other payment restrictions affecting certain subsidiaries; consummate a merger, consolidation or sale of all or substantially all of our assets; enter into transactions with affiliates; designate subsidiaries as unrestricted
subsidiaries; engage in a business other than a business that is the same or similar to our current business and reasonably related businesses; and take or omit to take any actions that would adversely affect or impair in any material respect the
liens in respect of the collateral securing the Second Priority Notes.

First Priority Notes

On October 2, 2009, FES LLC and FES CAP issued to Goldman, Sachs & Co. $20 million in aggregate principal amount of First
Priority Notes in a private placement in reliance on an exemption from registration under the Securities Act of 1933, as amended. After offering expenses, the Forbes Group realized net proceeds of approximately $18.8 million which was used to repay
and terminate its Credit Facility with Citibank, N.A. The First Priority Notes mature on August 1, 2014, and require semi-annual interest payments on February 1 and August 1 of each year until maturity at a rate per annum, reset
semi-annually, equal to the greater of four percent or six month LIBOR, plus 800 basis points. The interest rate is currently 12%. No principal payments are due until maturity. The First Priority are senior obligations and rank equally in right of
payment with other existing and future senior indebtedness, including the Second Priority Notes, and senior in right of payment to any subordinated indebtedness that may be incurred by the Forbes Group in the future.



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The First Priority
Notes are guaranteed by FES Ltd, as well as the Guarantor Subs. Each of the Guarantor Subs guarantees the securities on a full and unconditional and joint and several basis. As with the Second Priority Notes, the two Non-Guarantor Subs have not
guaranteed the First Priority Notes, however, the Forbes Group has granted a security interest in 65% of the equity interests of the Non-Guarantor Subs to secure the First Priority Notes and the Second Priority Notes. The Forbes Group may, at its
option, redeem all or part of the First Priority Notes from time to time at specified redemption prices and subject to certain conditions required by the First Priority Indenture governing the First Priority Notes. The Forbes Group is required to
make an offer to purchase the notes and to repurchase any notes for which the offer is accepted at 101% of their principal amount, plus accrued and unpaid interest, if there is a change of control or if the Forbes Group has excess cash flow. The
Forbes Group is required to make an offer to repurchase the notes and to repurchase any notes for which the offer is accepted at 100% of their principal amount, plus accrued and unpaid interest, following certain asset sales.

The First Priority Indenture contains certain covenants similar to those in the Second Priority Indenture, including provisions that
limit or restrict the Forbes Groups and certain future subsidiaries abilities to incur additional debt; to create, incur or permit to exist certain liens on assets; to make payments on certain subordinated indebtedness; to pay dividends
or certain other payments to equity holders; to engage in mergers, consolidations or other fundamental changes; to change the nature of its business; to engage in transactions with affiliates or to make capital expenditures in excess of certain
amounts based on the year in which such expenditures are made. The First Priority Indenture also provides for certain limitations and restrictions on the Forbes Groups ability to move collateral outside the United States or dispose of assets.
These covenants are subject to a number of important limitations and exceptions. Further, each of the First Priority Indenture and Second Priority Indenture provides for events of default, which, if any of them occur, would, in certain
circumstances, permit or require the principal, premium, if any, and interest on all the then outstanding First Priority Notes or Second Priority Notes, respectively, to be due and payable immediately. Additionally, in certain circumstances an event
of default under the First Priority Indenture would cause an event of default under the cross-default provision of the Second Priority Indenture and vice versa. The rights of the trustee and collateral agent under the First Priority Indenture
vis-à-vis the trustee and collateral agent under the Second Priority Indenture are governed by an intercreditor agreement among the Forbes Group, Wilmington Trust FSB, the trustee and collateral agent under the First Priority Indenture, and
Wells Fargo Bank, National Association, the trustee and collateral agent under the Second Priority Indenture.

There are no
significant restrictions on FES Ltds ability or the ability of any guarantor to obtain funds from its subsidiaries by such means as a dividend or loan. See Note 15 for consolidating information required by Rule 3-10 of Regulation S-X.

Contractual Obligations and Financing

As described in Notes 16 to the condensed consolidated financial statements included herein, on May 28, 2017, the Company is required to redeem any of its Series B Preferred Shares then outstanding.
Such mandatory redemption may, at the Companys election, be paid in cash or Common Shares (valued for such purpose at 95% of the then fair market value of the Common Shares).

Seasonality

Our operations are impacted by seasonal factors. Historically, our business has been negatively impacted during the winter months due to inclement weather, fewer daylight hours, and holidays. Our well
servicing rigs are mobile, and we operate a significant number of oilfield vehicles. During periods of heavy snow, ice or rain, we may not be able to move our equipment between locations, thereby reducing our ability to generate rig or truck hours.
In addition, the majority of our well servicing rigs work only during daylight hours. In the winter months when daylight time becomes shorter, this reduces the amount of time that the well servicing rigs can work and, therefore, has a negative
impact on total hours worked. Finally, during the fourth quarter, we historically have experienced significant slowdowns during the Thanksgiving and Christmas holiday seasons.



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Critical
Accounting Policies and Estimates

There have been no changes in our critical accounting policies or estimates from
those presented in our Annual Report on Form 10-K for the year ended December 31, 2009.

Recently Adopted
Accounting Pronouncements

The FASB issued ASU No. 2010-13, CompensationStock Compensation (Topic 718):
Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. This ASU codifies the consensus reached in EITF Issue No. 09-J, Effect of
Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades. The amendments to the Codification clarify that an employee share-based payment award with an exercise
price denominated in the currency of a market in which a substantial portion of the entitys equity shares trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity
would not classify such an award as a liability if it otherwise qualifies as equity. The company adopted this ASU as of January 1, 2010, and it did have any impact on the consolidated financial statements.

The FASB issued Accounting Standards Update (ASU) No. 2010-09, Subsequent Events (Topic 855): Amendments to Certain Recognition
and Disclosure Requirements. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements
include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC filer should
disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The adoption of this ASU did not have a material impact on the
Companys consolidated financial statements.

The FASB issued ASU No. 2010-06, Fair Value Measurements and
Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10.
The FASBs objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, ASU 2010-06 amends Codification Subtopic 820-10 to now require:



| |  |  | A reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and
describe the reasons for the transfers; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about
purchases, sales, issuances, and settlements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, ASU 2010-06 clarifies the requirements of the
following existing disclosures:



| |  |  | For purposes of reporting fair value measurement for each class of assets and liabilities, a reporting entity needs to use judgment in determining the
appropriate classes of assets and liabilities; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring
fair value measurements.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ASU 2010-06 is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal years. The adoption of this ASU is not expected to have a material impact on the Companys consolidated financial statements.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------

In addition to the risks inherent in our operations, we are exposed to financial, market and economic risks. Changes in interest rates may result in changes in the fair market value of our financial
instruments, interest income and interest expense. Our financial instruments that are exposed to interest rate risk are long-term borrowings. The following discussion provides information regarding our exposure to the risks of changing interest
rates.



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Our primary debt
obligations are the outstanding Second Priority Notes and the First Priority Notes. Changes in interest rates do not affect interest expense incurred on our Second Priority Notes as such notes bear interest at a fixed rate. However, changes in
interest rates would affect their fair values. In general, the fair market value of debt with a fixed interest rate will increase as interest rates fall. Conversely, the fair market value of debt will decrease as interest rates rise. A hypothetical
change in interest rates of 10% relative to interest rates as of September 30, 2010 would have no impact on our interest expense for the Second Priority Notes.

The First Priority Notes have a variable interest rate and, therefore, is subject to interest rate risk. A 100 basis point increase in interest rates on our variable rate debt would result in
approximately $200,000 in additional annual interest expense after exceeding the interest rate floor of 12% based on the $20.0 million balance outstanding as of September 30, 2010.

Historically, we have not been exposed to significant foreign currency fluctuation; however, as we have expanded operations in Mexico, we
have become exposed to certain risks typically associated with foreign currency fluctuation as we collect revenues and pay expenses in Mexico in the local currency. Effective July 1, 2010, we changed the functional currency of our Mexican operations
from the U.S. dollar to the Mexican peso in response to the growing volume of business required to be transacted in the local currency. Nevertheless, as of September 30, 2010, a 10% unfavorable change in the Mexican Peso-to-U.S. Dollar
exchange rate would not materially impact our consolidated balance sheet. To date, we have not taken any action to hedge against any foreign currency rate fluctuations; however, we continually monitor the currency exchange risks associated with
conducting foreign operations.

We have not entered into any derivative financial instrument transactions to manage or reduce
market risk or for speculative purposes.



|Item 4. | Controls and Procedures
|------- | -----------------------

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2010. The
term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms.
Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the Companys management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the
evaluation of our disclosure controls and procedures as of September 30, 2010, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were not effective. See
Material Weaknesses below.

Change in Internal Control over Financial Reporting

Other than the remediation measure described below under Remediation no change in our internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.

Material Weaknesses

In connection with the preparation of the Forbes Groups consolidated financial statements for the year ended December 31, 2009
and the period ended September 30, 2010, we identified control deficiencies that constitute material weaknesses in the design and operation of our internal control over financial reporting. The following material weaknesses were present at
December 31, 2009 and at September 30, 2010.



| |  |  | We did not maintain an appropriate accounting and financial reporting organizational structure to support the activities of the Forbes Group.
Specifically, we did not maintain a sufficient complement of personnel with an appropriate level of accounting knowledge, experience and training to ensure the proper selection, application and implementation of GAAP.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | We did not design or maintain effective controls over the recording of revenue and expenses in our Mexico operations. Specifically, effective controls
were not designed and in place to ensure that revenues and expenses were recorded at the correct amounts in the appropriate period.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We did not design and maintain effective controls over the review of the accuracy and completeness of the income tax provision.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------

These control deficiencies could result in a future material misstatement to substantially all the accounts
and disclosures that would result in a material misstatement to the annual or interim combined financial statements that would not be prevented or detected. Accordingly, we have determined that each of the above control deficiencies represents a
material weakness.

Remediation

We have implemented, or are in the process of implementing and continue to implement, remedial measures to address the above deficiencies on a going-forward basis. In response to the lack of
appropriate accounting staff and financial reporting organizational structure, in 2009 we engaged a third party consulting group to assist us with financial reporting and non-routine accounting matters. In addition, we recently hired an
experienced Director of Financial Reporting. This person began employment the end of August 2010. The third party consulting firm will continue to complement the Director of Financial Reporting as needed.

In response to the Mexico operations revenue and expense recognition errors, we made the following personnel changes; we replaced
the controller in Mexico, hired a third party consultant to work in Mexico, and hired an experienced Spanish speaking internal auditor.

In response to our material weakness in the area of the design of effective controls over the review and completeness of the income tax provision, in 2009 we engaged a third party consulting group to
assist us with income tax calculations. In July 2010 we hired a tax accountant to begin preparing tax calculations and returns in-house. The third party consulting firm will continue to complement the tax accountant as needed. With
the addition of the above mentioned staff members, this will also make time available for our controller to review and become more involved in tax matters.



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PART II  OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------

There
are no pending material legal proceedings, and the Forbes Group is not aware of any material threatened legal proceedings, to which the Forbes Group is a party or to which its property is subject, other than in the ordinary course of business.



|Item 1A. | Risk Factors
|-------- | ------------

There were
no material changes from the risk factors previously disclosed in the registrants Annual Report on Form 10-K for the year ended December 31, 2009 in response to Item 1A. Risk Factors to Part II of Form 10-Q, except as set
forth below.

RISKS RELATED TO OUR COMMON SHARES

The dividend, liquidation and redemption rights of the holders of our Series B Preferred Shares may adversely affect our financial position and the rights of the holders of our common shares.

We have the obligation to pay to the holders of our Series B Preferred Shares quarterly dividends of five percent per
annum of the original issue price, payable quarterly in cash or in-kind. No dividends may be paid to holders of common shares while accumulated dividends remain unpaid on the Series B Preferred Shares. Further, we are required, at the seventh
anniversary of the issuance of the Series B Preferred Shares, to redeem any such outstanding shares at their original issue price, plus any accumulated and unpaid dividends, to be paid, at the election of the Company, in cash or common shares. The
payment of this dividend or the redemption price in cash will result in reduced capital resources available to the Company. The payment of the redemption price in common shares will directly dilute the common shareholders. The payment of the
dividend in-kind will also have a dilutive effect on the common shareholders (as any Series B Preferred Shares paid as dividends are themselves convertible into common shares). In the event that the Company is liquidated while Series B Preferred
Shares are outstanding, holders of the Series B Preferred Shares will be entitled to receive a preferred liquidation distribution, plus any accumulated and unpaid dividends, before holders of common shares receive any distributions.

Holders of the Series B Preferred Shares have certain voting and other rights that may adversely affect holders of our common shares, and the
holders of Series B Preferred Shares may have different interests from, and vote their shares in a manner deemed adverse to, holders of our common shares.

In the event that we fail to pay dividends, in cash or in-kind, on the Series B Preferred Shares for an aggregate of at least eight quarterly dividend periods (whether or not consecutive), the holders of
the Series B Preferred Shares will be entitled to vote at any meeting of the shareholders with the holders of the common shares and to cast the number of votes equal to the number of whole common shares into which the Series B Preferred Shares held
by such holders are then convertible. Further, amendments to our bye-laws that would adversely affect the rights of the Series B Preferred Shares, must be approved by the affirmative vote of the holders of 66 2/3% of the outstanding Series B
Preferred Shares, voting together as a single class.

The holders of Series B Preferred Shares may have different interests
from the holders of our common shares and could vote their shares in a manner deemed adverse to the holders of common shares.

RISKS RELATING
TO OUR BUSINESS

Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased
costs and additional operating restrictions or delays.

Hydraulic fracturing is an important and common practice that
is used to stimulate production of hydrocarbons, particularly natural gas, from tight formations. The process involves the injection of water, sand and chemicals under pressure into the formation to fracture the surrounding rock and stimulate
production. The process is typically regulated by state oil and gas commissions but is not subject to regulation at the federal level. The U.S. Environmental Protection Agency, or the EPA, has commenced a study of the potential environmental impacts
of hydraulic fracturing activities, and a committee of the U.S. House of Representatives is also conducting an investigation of hydraulic fracturing practices. Legislation has been introduced before Congress to provide for federal regulation of
hydraulic fracturing and to require disclosure of the chemicals used in the fracturing process. In addition, some states are considering adopting regulations that could restrict hydraulic fracturing in certain circumstances. If new laws or
regulations that significantly restrict hydraulic fracturing are adopted, such laws could make it more difficult or costly for producers to perform fracturing to stimulate production from tight formations. In addition, if hydraulic fracturing is
regulated at the federal level, fracturing activities could become subject to additional permitting requirements, and also to attendant permitting delays and potential increases in costs.



|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

On September 2, 2010, the Company issued 7,259 Series B Preferred Shares as a dividend in-kind on the outstanding Series B Preferred Shares. The Series B Preferred Shares outstanding on September 2, 2010
were purchased in a private placement on May 28, 2010 in reliance on Regulation S and Regulation D under the Securities Act of 1933, as amended.

Pursuant to the Certificate of Designation of the Series B Preferred Shares, the Company is required to pay to the holders of our Series B Preferred Shares quarterly dividends of five percent per annum of
the original issue price, payable quarterly in cash or in-kind. No dividends may be paid to holders of common shares while accumulated dividends remain unpaid on the Series B Preferred Shares. The Series B Preferred Shares are convertible into the
Companys common shares at an initial rate of 36 common shares per Series B Preferred Shares (subject to adjustment). If all such Series B Preferred Shares are converted, at the initial conversion rate, 20,918,424 Common Shares (representing
just less than of the outstanding common shares after such conversion) will be issued to the holders of the Series B Preferred Shares. Pursuant to Certificate of Designation, no holder of the Series B Preferred Shares is entitled to effect a
conversion of Series B Preferred Shares if such conversion would result in the holder (and affiliates) beneficially owning 20% or more of the Companys Common Shares.

All or any number of the Series B Preferred Shares may be redeemed by the Company at any time after May 28, 2013 at a redemption price determined in accordance with the Certificate of Designations
and provided that the current equity value of our common stock exceeds specified levels. On May 28, 2017, the Company is required to redeem any Series B Preferred Shares then outstanding at a redemption price determined in accordance with the
Certificate of Designation. Such mandatory redemption may, at the Companys election, be paid in cash or in common shares (value for such purpose at 95% of the then fair market value of the common shares). In the event certain corporate
transactions occur (such as a reorganization, recapitalization, reclassification, consolidation or merger) under which the Companys common shares (but not the Series B Preferred Shares) are converted into or exchanged for securities, cash or
other property, then following such transaction, each Series B Preferred Share shall thereafter be convertible into the same kind and amount of securities, cash or other property.



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The additional rights
and preferences of the Series B Preferred Shares are more fully summarized in footnote sixteen to the condensed consolidated financial statements included herein.



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|Item 4. | Reserved
|------- | --------

None.



|Item 5. | Other Information
|------- | -----------------

None.



|Item 6. | Exhibits**
|------- | ----------



|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------ |  | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  |   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                  
|       |  |  
|2.1    |  |  |  | Agreement and Plan of Reorganization effective January 1, 2008 among Forbes Energy Services LLC and the respective members of C.C. Forbes, LLC, TX Energy Services, LLC
and Superior Tubing Testers, LLC (incorporated by reference to Exhibit 2.1 to the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                        
|       |  |  
|2.2    |  |  |  | Agreement and Plan of Reorganization effective May 29, 2008 among Forbes Energy Services Ltd. and the members of Forbes Energy Services LLC (incorporated by reference to
Exhibit 2.2 to the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                     
|       |  |  
|3.1    |  |  |  | Memorandum of Association of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.11 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                       
|       |  |  
|3.2    |  |  |  | Amended and Restated Bye-laws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.12 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                   
|       |  |  
|4.1    |  |  |  | Indenture, dated as of February 12, 2008 among Forbes Energy Services LLC and Forbes Energy Capital Inc., as issuers, the guarantors party thereto and Wells Fargo Bank,
National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                   
|       |  |  
|4.2    |  |  |  | Supplemental Indenture (First Supplemental Indenture), dated as of May 29, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the
other Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
2008).  
|       |  |  
|4.3    |  |  |  | Supplemental Indenture (Second Supplemental Indenture), dated as of October 6, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital
Inc., the other Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2008).
|       |  |  
|4.4    |  |  |  | Third Supplemental Indenture, dated as of February 6, 2009 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the other Guarantors (as
defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated February 6, 2009).                                       
|       |  |  
|4.5    |  |  |  | Indenture dated as of October 2, 2009, by and among Forbes Energy Services LLC and Forbes Energy Capital Inc., as issuers, the guarantors party thereto and Wilmington Trust FSB,
as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated October 10, 2009).                                                                                                                              
|       |  |  
|4.6    |  |  |  | Notation of Guarantee from Forbes Energy Services Ltd. (incorporated by reference to Exhibit 4.5 to the Companys Annual Report on Form 10-K for the year ended December 31,
2008).                                                                                                                                                                                                                                                      



48



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##### Table of Contents

|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------ |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  |   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       |  |  
|4.7    |  |  |  | Notation of Guarantee from Forbes Energy International, LLC (incorporated by reference to Exhibit 4.6 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2008).                                                                                                                                                                                                                                                                                         
|       |  |  
|4.8    |  |  |  | Specimen 144A Global 11% Senior Secured Exchange Note due 2015 (incorporated by reference to Exhibit 4.5 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                                                          
|       |  |  
|4.9    |  |  |  | Rights Agreement dated as of May 19, 2008 between Forbes Energy Services Ltd. and CIBC Mellon Trust Company, as Rights Agent, which includes as Exhibit A the
Certificate of Designation of Series A Junior Participating Preferred Shares, as Exhibit B the form of Right Certificate and as Exhibit C the form of Summary of Rights to Purchase Shares (incorporated by reference to Exhibit 4.8 to
the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).
|       |  |  
|4.10   |  |  |  | Certificate of Designation of the Series B Senior Convertible Preferred Shares (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K filed
May 28, 2010).                                                                                                                                                                                                                                                                                        
|       |  |  
|10.1   |  |  |  | Credit Agreement dated as of April 10, 2008 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services LLC, as
guarantor, and Citibank, N.A., as lender, governing the Credit Facility (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                  
|       |  |  
|10.2   |  |   |  | Third Amendment to Credit Agreement dated effective as of July 10, 2009 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes
Energy Services LLC, as guarantor, and Citibank, N.A., as lender (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed July 15, 2009).                                                                                                                     
|       |  |  
|10.3   |  |  |  | Guaranty dated April 10, 2008, among Forbes Energy Services LLC and Forbes Energy Capital Inc., including the Guaranty Supplement, dated effective May 29, 2008, executed January
5, 2009, among Forbes Energy Services Ltd. and Citibank, N.A. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated January 8, 2009).                                                                                                                   
|       |  |  
|10.4   |  |  |  | Forbes Energy Services Ltd. Incentive Compensation Plan effective May 19, 2008 (incorporated by reference to Exhibit 10.1 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                         
|       |  |  
|10.5   |  |  |  | Employment Agreement effective May 1, 2008 by and between John E. Crisp and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.2 to the Companys
Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                 
|       |  |  
|10.6   |  |  |  | Employment Agreement effective May 1, 2008 by and between Charles C. Forbes and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.3 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                             
|       |  |  
|10.7   |  |  |  | Employment Agreement effective May 1, 2008 by and between L. Melvin Cooper and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.4 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                              
|       |  |  
|10.8   |  |  |  | Form of Indemnification Agreement for directors, officers and key employees (incorporated by reference to Exhibit 10.5 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                            
|       |  |  
|10.9   |  |  |  | Form of Executive Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                                                                                                 
|       |  |  
|10.10  |  |  |  | Form of Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.7 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                                                                                                  
|       |  |  
|10.11  |  |   |  | Commercial Equipment Lease Agreement, dated October 15, 2008 among Forbes Energy Services LLC and Alice Environmental Services, LP. (incorporated by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).                                                                                                                                                                                                         
|       |  |  
|10.12  |  |  |  | Notes Purchase Agreement dated September 25, 2009, by and among Forbes Energy Services LLC, Forbes Energy Capital Inc., C.C. Forbes, LLC, TX Energy Services, Superior Tubing
Testers, LLC, Forbes Energy International, LLC, Forbes Energy Services Ltd. and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated September 28,
2009).                                                                             



49



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##### Table of Contents

|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------ |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  |   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       |  |  
|10.13  |  |  |  | Translation of Unit Price Public Works Contract No. 424048860 dated September 26, 2008, including Agreement No. 1 Inclusion of Project and New Concepts with Additional
Increase of Contract Amount 424048860 dated December 4, 2009, entered into by and between PEMEX Exploración y Producción, Merco Ingenieria Industrial S.A. de C.V. and Forbes Energy Services Ltd. (incorporated by reference to
Exhibit 10.13 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).                                                                   
|       |  |  
|10.14  |  |  |  | Subscription Agreement dated as of May 17, 2010, by and among Forbes Energy Services Ltd., West Face Long Term Opportunities Limited Partnership, West Face Long Term
Opportunities (USA) Limited Partnership and West Face Long Term Opportunities Master Fund L.P, including the Form of Certificate of Designation of Series B Senior Convertible Preferred Shares and Form of Registration Rights Agreement attached as
exhibits thereto. (incorporated by reference to Exhibit 10.14 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).
|       |  |  
|16.1   |  |  |  | Letter from PricewaterhouseCoopers, LLP to the Securities and Exchange Commission dated June 26, 2009 (incorporated by reference to Exhibit 16.1 to the Companys Current
Report on Form 8-K dated June 26, 2009).                                                                                                                                                                                                                                                                                                                                                             
|       |  |  
|31.1*  |  |  |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       |  |  
|31.2*  |  |  |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       |  |  
|32.1*  |  |  |  | Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                                                                                                                                                                                                     
|       |  |  
|32.2*  |  |  |  | Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                                                                                                                                                                                                                                                                                                                                                                                     



|* | Filed herewith.
|- | ---------------



50



---

##### Table of Contents



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                  |  |                             |  |                                                
|----------------- |  | --------------------------- |  | -----------------------------------------------
|                  |  | FORBES ENERGY SERVICES LTD.
|                  |  |                            
|November 12, 2010 |  | By:                         |  | /S/    JOHN E.
CRISP                           
|                  |  |                             |  | John E. Crisp                                  
|                  |  |                             |  | Chairman, Chief Executive Officer and President
|                  |  |                             |  | (Principal Executive Officer)                  
|                  |  |                            
|November 12, 2010 |  | By:                         |  | /S/    L. MELVIN
COOPER                        
|                  |  |                             |  | L. Melvin Cooper                               
|                  |  |                             |  | Senior Vice President,                         
|                  |  |                             |  | Chief Financial Officer and Assistant Secretary
|                  |  |                             |  | (Principal Financial and Accounting Officer)   



51



---

##### Table of Contents



EXHIBIT INDEX**



|       |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------ |  | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |  |   |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       |  |  
|2.1    |  |  |  | Agreement and Plan of Reorganization effective January 1, 2008 among Forbes Energy Services LLC and the respective members of C.C. Forbes, LLC, TX Energy Services, LLC
and Superior Tubing Testers, LLC (incorporated by reference to Exhibit 2.1 to the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                
|       |  |  
|2.2    |  |  |  | Agreement and Plan of Reorganization effective May 29, 2008 among Forbes Energy Services Ltd. and the members of Forbes Energy Services LLC (incorporated by reference to
Exhibit 2.2 to the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                             
|       |  |  
|3.1    |  |  |  | Memorandum of Association of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.11 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                                                               
|       |  |  
|3.2    |  |  |  | Amended and Restated Bye-laws of Forbes Energy Services Ltd. (incorporated by reference to Exhibit 3.12 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                                                           
|       |  |  
|4.1    |  |  |  | Indenture, dated as of February 12, 2008 among Forbes Energy Services LLC and Forbes Energy Capital Inc., as issuers, the guarantors party thereto and Wells Fargo Bank,
National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                                                           
|       |  |  
|4.2    |  |  |  | Supplemental Indenture (First Supplemental Indenture), dated as of May 29, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the
other Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
2008).                                          
|       |  |  
|4.3    |  |  |  | Supplemental Indenture (Second Supplemental Indenture), dated as of October 6, 2008 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the
other Guarantors (as defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31,
2008).                                        
|       |  |  
|4.4    |  |  |  | Third Supplemental Indenture, dated as of February 6, 2009 among Forbes Energy Services Ltd., Forbes Energy Services LLC, Forbes Energy Capital Inc., the other Guarantors (as
defined in the Indenture referred to therein) and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated February 6, 2009).                                                                               
|       |  |  
|4.5    |  |  |  | Indenture dated as of October 2, 2009, by and among Forbes Energy Services LLC and Forbes Energy Capital Inc., as issuers, the guarantors party thereto and Wilmington Trust FSB,
as trustee (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K dated October 10, 2009).                                                                                                                                                                      
|       |  |  
|4.6    |  |  |  | Notation of Guarantee from Forbes Energy Services Ltd. (incorporated by reference to Exhibit 4.5 to the Companys Annual Report on Form 10-K for the year ended December 31,
2008).                                                                                                                                                                                                                                                                                              
|       |  |  
|4.7    |  |  |  | Notation of Guarantee from Forbes Energy International, LLC (incorporated by reference to Exhibit 4.6 to the Companys Annual Report on Form 10-K for the year ended December
31, 2008).                                                                                                                                                                                                                                                                                         
|       |  |  
|4.8    |  |  |  | Specimen 144A Global 11% Senior Secured Exchange Note due 2015 (incorporated by reference to Exhibit 4.5 to the Companys Form S-4/A filed June 27, 2008,
Registration No. 333-150853).                                                                                                                                                                                                                                                                                          
|       |  |  
|4.9    |  |  |  | Rights Agreement dated as of May 19, 2008 between Forbes Energy Services Ltd. and CIBC Mellon Trust Company, as Rights Agent, which includes as Exhibit A the
Certificate of Designation of Series A Junior Participating Preferred Shares, as Exhibit B the form of Right Certificate and as Exhibit C the form of Summary of Rights to Purchase Shares (incorporated by reference to Exhibit 4.8 to
the Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).
|       |  |  
|4.10   |  |  |  | Certificate of Designation of the Series B Senior Convertible Preferred Shares (incorporated by reference to Exhibit 4.1 to the Companys Current Report on Form 8-K
filed May 28, 2010).                                                                                                                                                                                                                                                                                        



52



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##### Table of Contents

|      |  |   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|----- |  | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |  
|10.1  |  |  |  | Credit Agreement dated as of April 10, 2008 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes Energy Services LLC, as
guarantor, and Citibank, N.A., as lender, governing the Credit Facility (incorporated by reference to Exhibit 4.1 to the Companys Annual Report on Form 10-K for the year ended December 31, 2008).                                                                                                                                                                                                 
|      |  |  
|10.2  |  |   |  | Third Amendment to Credit Agreement dated effective as of July 10, 2009 among C.C. Forbes, LLC, TX Energy Services, LLC and Superior Tubing Testers, LLC, as borrowers, Forbes
Energy Services LLC, as guarantor, and Citibank, N.A., as lender (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed July 15, 2009).                                                                                                                                                                                                                    
|      |  |  
|10.3  |  |  |  | Guaranty dated April 10, 2008, among Forbes Energy Services LLC and Forbes Energy Capital Inc., including the Guaranty Supplement, dated effective May 29, 2008, executed January
5, 2009, among Forbes Energy Services Ltd. and Citibank, N.A. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated January 8, 2009).                                                                                                                                                                                                                  
|      |  |  
|10.4  |  |  |  | Forbes Energy Services Ltd. Incentive Compensation Plan effective May 19, 2008 (incorporated by reference to Exhibit 10.1 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                                                        
|      |  |  
|10.5  |  |  |  | Employment Agreement effective May 1, 2008 by and between John E. Crisp and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.2 to the Companys
Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                                
|      |  |  
|10.6  |  |  |  | Employment Agreement effective May 1, 2008 by and between Charles C. Forbes and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.3 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                            
|      |  |  
|10.7  |  |  |  | Employment Agreement effective May 1, 2008 by and between L. Melvin Cooper and Forbes Energy Services LLC (incorporated by reference to Exhibit 10.4 to the
Companys Form S-4/A filed June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                             
|      |  |  
|10.8  |  |  |  | Form of Indemnification Agreement for directors, officers and key employees (incorporated by reference to Exhibit 10.5 to the Companys Form S-4/A filed
June 27, 2008, Registration No. 333-150853).                                                                                                                                                                                                                                                                                                                                                                           
|      |  |  
|10.9  |  |  |  | Form of Executive Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.6 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                                                                                                                                                                                                
|      |  |  
|10.10 |  |  |  | Form of Director Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.7 to the Companys Form S-4/A filed June 27, 2008, Registration No.
333-150853).                                                                                                                                                                                                                                                                                                                                                                                                 
|      |  |  
|10.11 |  |   |  | Commercial Equipment Lease Agreement, dated October 15, 2008 among Forbes Energy Services LLC and Alice Environmental Services, LP. (incorporated by reference to Exhibit 10.1 to
the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2008).                                                                                                                                                                                                                                                                                                        
|      |  |  
|10.12 |  |  |  | Notes Purchase Agreement dated September 25, 2009, by and among Forbes Energy Services LLC, Forbes Energy Capital Inc., C.C. Forbes, LLC, TX Energy Services, Superior Tubing
Testers, LLC, Forbes Energy International, LLC, Forbes Energy Services Ltd. and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated September 28, 2009).                                                                                                                                                                            
|      |  |  
|10.13 |  |  |  | Translation of Unit Price Public Works Contract No. 424048860 dated September 26, 2008, including Agreement No. 1 Inclusion of Project and New Concepts with Additional
Increase of Contract Amount 424048860 dated December 4, 2009, entered into by and between PEMEX Exploración y Producción, Merco Ingenieria Industrial S.A. de C.V. and Forbes Energy Services Ltd. (incorporated by reference to
Exhibit 10.13 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).                                                                    
|      |  |  
|10.14 |  |  |  | Subscription Agreement dated as of May 17, 2010, by and among Forbes Energy Services Ltd., West Face Long Term Opportunities Limited Partnership, West Face Long Term
Opportunities (USA) Limited Partnership and West Face Long Term Opportunities Master Fund L.P, including the Form of Certificate of Designation of Series B Senior Convertible Preferred Shares and Form of Registration Rights Agreement, attached as
exhibits thereto. (incorporated by reference to Exhibit 10.14 to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2010).



53



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|      |  |   |  |                                                                                                                                                                                                                   
|----- |  | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |  
|16.1  |  |  |  | Letter from PricewaterhouseCoopers, LLP to the Securities and Exchange Commission dated June 26, 2009 (incorporated by reference to Exhibit 16.1 to the Companys
Current Report on Form 8-K dated June 26, 2009).
|      |  |  
|31.1* |  |  |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                    
|      |  |  
|31.2* |  |  |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                    
|      |  |  
|32.1* |  |  |  | Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                        
|      |  |  
|32.2* |  |  |  | Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.                                                        



|* | Filed herewith.
|- | ---------------



54