BJ Services has reported operating income $58 million, for the second quarter of fiscal 2009, down 74%, compared with the $220.4 million in the year-ago quarter and a 69% decrease compared to $186.5 million reported in the second quarter of fiscal 2008. Operating income as a percentage of revenue was 5.5% in the second quarter of fiscal 2009, compared with the 15.4% in the earlier quarter and 14.5% in the comparable quarter of the previous year.

Commenting on the results, chairman and chief executive officer Bill Stewart said, Lower demand for energy triggered by the global economic recession led to a precipitous decline in drilling activity this quarter, particularly in North America. North American drilling activity declined 28% sequentially and 27% year over year and, at the current level of 975 active rigs, the US drilling rig count has reached its lowest level in six years. This decline in activity and intensive competition led to severe price reductions for our services and products. Our international customers responded to the lower commodity price environment sooner than expected, with average rig count outside North America declining 9% sequentially and 6% year over year, negatively impacting our results in these markets.”

In response to these unfavorable market conditions, we have taken specific steps to align our cost structure with the business climate. We have reduced our global workforce by about 11%, most of which took place in the United States. Severance costs related to these personnel reductions totaled $6.2 million during the quarter. Capital spending and discretionary spending have been reduced and strong efforts to seek cost reductions throughout our supply chain are well underway.

We are maintaining our strong balance sheet with a focus on working capital reductions during this difficult period. Canada has entered its spring break-up period, and we expect that drilling activity in the United States will decline further over the next several quarters, and will not meaningfully improve until natural gas supply is in better balance with demand, which may occur some time next year. We expect some modest decline in drilling activity outside of North America in the near term, but not as severe as what we experienced in the second quarter.

BJ Services during the quarter, cash and cash equivalents raised $71.4 million to $244.8 million and debt increased $9 million to $562.3 million. Uses of cash during the quarter included capital expenditures of $121 million and the payment of $14.6 million in dividends. Debt repayable within the next twelve months is about $64 million, and the Company has no borrowings outstanding under its $400 million bank credit facility.

March Quarter Review

The company has reported that the US/Mexico pressure pumping services second quarter 2009 revenue of $475.6 million was 34% lower than the December 2008 quarter (sequential) with average active drilling rigs for the same period declining 27%. Most of the reduction was attributable to lower fracturing and cementing activity in the US, coupled with a major decline in pricing for the company’s services and products. Mexico revenues increased consecutively, due to increased activity both onshore and offshore. Compared to the March 2008 quarter (year over year), revenue decreased 25% on a 22% decline in average active drilling rigs. Operating income margin for US/Mexico decreased to 5% from 21% in the earlier quarter and 20% in the year-ago quarter. The lower operating income margin was mainly due to lower drilling activity and pricing for the company’s services and products. Additionally, BJ Services recorded $8.2 million of non-cash charges during the quarter related to excess or idle fixed assets in the US.

Canada pressure pumping services second quarter 2009 revenue of $95.4 million was 28% lower consecutively with average drilling rig activity down 19%. Year over year revenue decreased 31% with average drilling rig activity down 35%. Operating income margin for the second quarter of 2009 was 6%, down from 22% in the prior quarter and down from 10% in the same quarter in the earlier year. The margin decline was largely attributable to lower drilling activity and pricing.

International pressure pumping services second quarter 2009 revenue of $276.7 million decreased 16% consecutively with average active drilling rig levels decreasing 9% for the same period. Revenue compared to the same quarter last year decreased 5% with average active drilling rig count down 6%.

All of BJ Services International pressure pumping operating segments showed sequential revenue declines, with the exception of Europe which contributed modest improvement as a result of increased service activity in the Netherlands, the UK and continental Europe. The sequential decline in the Middle East and Asia Pacific is largely attributable to activity-related declines in nearly every country compared to the previous quarter, as various drilling programs have been delayed or decreased as a result of lower crude oil prices and the global economic downturn. Latin America also recorded a sequential decrease mainly as a result of lower activity in Argentina, Venezuela and Peru, partly counterbalanced by increased activity in Brazil.

The company has reported that the year over year, international pressure pumping revenue declined 5% with average active drilling rigs decreasing 6%. Revenue raised 17% in Asia Pacific, with average active drilling rigs increasing 1%, equalizes by decreases of 10% in the Middle East and 5% in Latin America, with average active drilling rigs decreasing 4% and 12%, correspondingly. The Asia Pacific raise reflects increased activity levels in Malaysia, Thailand and China. The Middle East decline was mainly the result of decreased activity in Saudi Arabia, India, Kazakhstan and Bangladesh partly equalized by increases in North Africa. Latin America was negatively impacted by labor strikes in Argentina and decreased activity in other areas.

BJ Services activity in Russia decreased consecutively and year-over-year as we closed one base upon the completion of a service contract. BJ Services continue to operate out of one base in Russia, mainly servicing one customer contract which will likely expire before the end of the fiscal year.

Operating income margin for international pressure pumping was 8% for the second quarter of fiscal 2009, compared to 14% reported in the prior quarter and 12% reported for the same quarter previous year. The lower margins were mainly the result of overall activity and revenue decline in the segment, along with some price reductions in certain markets. Additionally, BJ Services incurred a $4.3 million loss on the unfavorable resolution of a VAT refund claim in Indonesia during the quarter.

Oilfield Services Group has reported second quarter 2009 revenue of $207 million decreased 17% consecutively and 4% year over year.

All of the company’s oilfield services group’s operating segments reported sequential revenue declines in the second quarter of fiscal 2009. Completion fluids and completion tools showed the largest sequential decreases in revenue, mainly as a result of comparatively large project-related international sales in the first quarter that did not repeat in the second quarter and lower than anticipated activity in the Gulf of Mexico. Other sequential revenue declines in the oilfield service group were mainly attributable to lower market activity in the US and certain worldwide markets.