UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

Newpark Resources, Inc.

(504) 838-8222
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

     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 [ü] No [  ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act. Yes [ü] No [  ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [  ].

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act. Yes [ü] No [  ]

     At June 30, 2003, the aggregate market value of the voting stock held by non-affiliates of the registrant was $425.4 million. The aggregate market value has been computed by reference to the closing sales price on such date, as reported by The New York Stock Exchange.

     As of March 5, 2004, a total of 83.8 million shares of Common Stock, $0.01 par value per share, were outstanding.

Documents Incorporated by Reference

     Pursuant to General Instruction G(3) to this form, the information required by Items 10, 11, 12 and 13 of Part III hereof are incorporated by reference from the registrant’s definitive Proxy Statement for its Annual Meeting of Stockholders scheduled to be held on June 9, 2004.

Table of Contents

NEWPARK RESOURCES, INC.
INDEX TO FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2003

PART I

ITEM 1. Business

General

     Newpark Resources, Inc. is a service company whose principal market is the oil and gas exploration and production industry. Since 1997, we have been working to broaden geographic and customer markets from beyond the U.S. Gulf Coast. As a result of these efforts, we now also operate in west Texas, the U.S. Mid-continent, the U.S. Rocky Mountains, Canada and areas of Europe and North Africa surrounding the Mediterranean Sea. We provide, either individually or as part of a comprehensive package, the following products and services:

     We offer our drilling fluids, fluids processing, management and waste disposal services in an integrated package we call “Performance Services.” This allows our customers to consolidate the number of vendors providing outsourced services. The unique benefit of Performance Services is that it can accelerate the drilling process while reducing the amount of fluids consumed and the amount of waste created in the process and help to differentiate us from our competitors.

     In our drilling fluids business, we offer unique solutions to highly technical drilling projects involving complex subsurface conditions. These projects require critical engineering support of the fluids system during the drilling process to ensure optimal performance at the lowest total well cost. We have developed and market several proprietary and patented drilling fluid products and systems that replace environmentally harmful substances, principally salts and oils, which are commonly used in drilling fluids. These elements are typically of the greatest environmental concern in the waste stream created by drilling fluids.

     We have introduced and are continuing to develop the market for the DeepDrill™ and FlexDrill™ systems of high-performance, water-based drilling fluids and related specialty products incorporating our advanced technology products. We have introduced an oil-based drilling fluid system that incorporates a product from the DeepDrill™ family to replace salt, that we believe solves some of the environmental problems associated with oil-based fluids while improving drilling performance. We believe that these new products will make it easier for our customers to comply with increasingly strict environmental regulations affecting their drilling operations and improve the economics of the drilling process. (See discussion of Environmental Regulations below.)

     We provide drilling fluids to the U.S. Gulf Coast market, west Texas, the U.S. Mid-continent, the U.S. Rocky Mountains, western Canada and in areas of Europe and North Africa around the Mediterranean Sea. We have the service infrastructure necessary to participate in the drilling fluids market in these regions. This infrastructure includes our industrial minerals grinding capacity that provides barite, a critical raw material for our drilling fluids operations in the U.S. Gulf Coast and parts of Canada. We also sell a variety of industrial minerals, principally to industrial markets, from our main plant in Channelview, Texas and a plant in Dyersburg, Tennessee.

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     In our mat and integrated services business, we use both a patented interlocking wooden mat system and our Dura-Base™ composite mat system to provide temporary access roads and worksites in unstable soil conditions. These mats are used primarily to support oil and gas exploration operations along the U.S. Gulf Coast and are typically rented to the customer. Occasionally, however, we sell the mats to the customer for permanent access to a site or facility.

     We use our Dura-Base™ composite plastic mat system in our U.S. Gulf Coast rental market and increasingly in non-oilfield markets, and have begun selling the composite mats both within and outside of the oilfield market. During 2001, the majority of our sales were for oilfield applications in the western Canadian market. During 2002 and 2003, the majority of our sales were for oil and gas industry applications outside of North America, including Russia (Sakhalin Island), Indonesia, and Mexico. We initially believed that, in time, the Dura-Base™ mat would replace a significant portion of our traditional wooden mats in many rental applications and provide significant economic benefits because they are lighter, stronger, require fewer repairs and last longer than our wooden mats. Economic considerations have since proven that improved returns are available from use of the Dura-Base® mats outside of the oilfield industry. We have also dedicated significant time and resources to development of Dura-Base™ markets in industrial and construction applications, international markets and military and government applications. We believe that significant potential exists for future sales in these key markets. Certain other foreign markets appear to hold potential as rental markets, and we plan to open a rental business in Mexico early in 2004.

     We also provide other services for our customers’ oil and gas exploration and production activities that are principally included within our “Mat and Integrated Services” segment. These services include:

     We receive E&P waste generated by our customers that we then process and inject into environmentally secure geologic formations deep underground. A portion of material recycled from the waste stream is delivered to municipal landfill facilities for application as a commercial product as cell liner material or daily cover material. This reuse product meets all EPA specifications for reuse. Recently, approximately 25% to 30% of the total waste that we received has been processed for reuse. During 2003, we opened a facility in Wyoming to serve the disposal needs of exploration and production companies in the Jonah-Pinedale area.

     Since 1994, we have been licensed to process E&P waste contaminated with naturally occurring radioactive material, or NORM. (For more information on NORM, please refer to the discussion under Environmental Regulation beginning on page 15.) We currently operate under a license that authorizes us to directly inject NORM into dedicated disposal wells at our Big Hill, Texas facility. This is the only offsite facility in the U.S. Gulf Coast licensed for this purpose. Recent regulatory changes in the U.S. have begun to restrict the permissible concentration of NORM in drinking water. We are pursuing expanded license authority to accommodate these industrial NORM wastes at our facility. Since July 1999, we have operated a facility to dispose of non-hazardous industrial waste. This facility uses the same waste disposal technology we use for E&P waste and NORM waste disposal.

     Newpark was originally organized in 1932 as a Nevada corporation. In April 1991, we changed our state of incorporation to Delaware. Our principal executive offices are located at 3850 North Causeway Boulevard, Suite 1770, Metairie, Louisiana 70002. Our telephone number is (504) 838-8222.

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     Industry Fundamentals

     Demand for our services has historically been driven by several factors: (i) commodity pricing of oil and gas, (ii) oil and gas exploration and production expenditures and activity and the trend toward drilling in deeper geologic zones; (iii) the desire to drill in more environmentally difficult areas, such as the coastal marsh and inland waters near the coastline (transition zone) of the Gulf Coast, (iv) use of more complex drilling techniques that tend to generate more waste; and (v) increasing environmental regulation of the waste created while drilling for oil and gas (E&P waste).

     The demand for most of our services is related to the level, type, depth and complexity of oil and gas drilling. The most widely accepted measure of activity is the Baker-Hughes Rotary Rig Count. During the fourth quarter of 1997, the number of drilling rigs working in the U.S. Gulf Coast region reached its highest level since 1990. It then began a decline that continued into the second quarter of 1999, when it reached the lowest level ever recorded in the history of the indicator, which began over 50 years ago. Shortly afterwards, the rig count in our principal market began to increase, and that trend continued through early July 2001, when it peaked at 1,293 rigs working. The average rig count was 1,032 for 2003, compared to 830 for 2002, an increase of 202 rigs, or 24.3%, but all of the increase occurred in markets outside of the Gulf Coast. Rig activity in Newpark’s historic market was unchanged throughout 2003. Industry observers anticipate that recent high commodity prices for oil and gas could result in a slow improvement in this indicator.

     The shallower reserves available in the historic gas-producing basins of the U.S. are approaching full development and the remaining prospects appear to be of declining economic potential. Most operators have begun to shift the focus of their drilling programs towards deeper geologic structures. We believe that improved application of technological advances, such as computer-enhanced interpretation of three-dimensional seismic data and improved rig capacity, drilling tools and fluids, which facilitate faster drilling, will help reduce the risk and cost of finding oil and gas and are important factors in the economics faced by the industry. These advances have increased the willingness of exploration companies to drill in coastal marshes and inland waters where access is expensive, and to drill deeper wells in many basins. These projects rely heavily on services such as those that we provide. Deeper wells require larger, more expensive temporary locations to be constructed to accommodate larger drilling rigs and the equipment needed to handle increased volumes of drilling fluids and associated wastes. These locations are generally in service for significantly longer periods, generating additional mat rental revenues. Deeper wells also require more complex drilling fluid programs and generate larger waste volumes than those from simpler systems used in shallower wells. The total cost of a drilling fluids program for rigs in excess of 12,000 feet generally increases exponentially as rig depth increases.

     The oilfield market for environmental services has grown due to increasingly stringent regulations restricting the discharge of exploration and production wastes into the environment. Most recently, the U.S. EPA has published new regulations significantly limiting discharges of drilling wastes contaminated with synthetic-based mud (SBM) into the offshore Gulf of Mexico, which became effective on February 19, 2002. These new regulations have had a material effect on the industry’s disposal practices in the offshore market. Louisiana, Texas and other states have enacted comprehensive laws and regulations governing the proper handling of E&P waste and NORM, and regulations have been proposed in other states. As a result, waste generators and landowners have become increasingly aware of the need for proper treatment and disposal of this waste in both drilling of new wells and remediating production facilities.

     We receive non-hazardous industrial waste principally from generators in the Gulf Coast market. Those generators include refiners, manufacturers, service companies and municipalities that produce waste that is not characterized or listed as a regulated waste under The Resource Conservation and Recovery Act. We believe we can effectively serve the market that extends from Baton Rouge, Louisiana to Houston, Texas from the current facility located near the Texas-Louisiana state line.

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     The non-hazardous industrial waste market includes many recurring waste streams that are continually created by customers in the normal course of their business operations. In addition, “event” driven waste streams may result from specific business activities that do not happen often, such as a refinery “turnaround” or facility remediation projects. These wastes include contaminated soils, wastewater treatment residues, tank bottoms, process wastewater, storm water runoff, equipment wash water and leachate water from municipal landfills.

Business Strengths

     Proprietary Products and Services. Over the past 15 years, we have acquired, developed, and improved our patented or proprietary technology and know-how, which has enabled us to provide innovative and unique solutions to oilfield construction and waste disposal problems. We have developed and expect to continue to introduce similarly innovative products in our drilling fluids business. We believe that increased customer acceptance of our proprietary products and services will enable us to take advantage of upturns in drilling and production activity.

     Waste Injection. Since 1993, we have developed and used proprietary technology to dispose of E&P waste by low-pressure injection into unique geologic structures deep underground. In December 1996, we were issued patents covering our waste processing and injection operations. We believe that our injection technology is the most environmentally safe and the most cost-effective method for disposing oilfield wastes offsite and that this technology is suitable for disposing other types of waste. We completed and began operating a non-hazardous industrial waste injection disposal facility in July 1999.

     Patented Mats. We own or license several patents that cover our wooden mats and subsequent improvements. To facilitate entry into new markets and reduce our dependence on hardwood supplies, we have obtained the exclusive license for a new patented composite mat manufactured from plastics and other materials. We own 49% of a company that owns and operates the manufacturing facility that produces these mats. We began taking delivery of these mats in the fourth quarter of 1998. As of December 31, 2003, just over 39,000 mats in our rental inventory, equal to 30% of our capacity, were composed of the composite product.

     DeepDrill™ and FlexDrill™. We own the patent rights to these high-performance, completely biodegradable, water-based drilling fluid systems and related specialty products, which provide unique solutions to both performance and environmental concerns in many drilling situations. Some of the performance areas that DeepDrill™ and FlexDrill™ can address include hydrate suppression in deepwater drilling, torque and drag reduction, shale inhibition, minimized hole enlargement and enhanced ability to log results and utilize measurement tools. These systems offer superior environmental attributes to the commonly used oil-based and synthetic-based fluid systems, which are often used in environmentally sensitive areas due to performance requirements. Application of key components of these fluids systems has enabled us to offer salt-free oil-based drilling fluids that facilitate on-site composting of the waste stream in compliance with new regulations limiting the salt levels in the composted material returned to the environment in western Canada.

     Low Cost Infrastructure. We have assembled a low cost infrastructure to receive and process E&P waste in the U.S. Gulf Coast region that includes strategically located transfer stations for receiving waste, a large fleet of barges for the most cost-efficient transportation of waste and geologically-secure injection disposal sites.

     Integration of Services. We believe we are one of the few companies in the U.S. Gulf Coast able to provide a package of integrated services and offer a “performance services” approach to solving customers’ problems. Our mats provide the access roads and work sites for a majority of the land drilling in the Gulf Coast market. Our on-site and off-site waste management services are frequently sold in combination with our mat rental services. In addition, our entry into the drilling

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fluids business has created the opportunity for us to market drilling fluids with other related services, including technical and engineering services, disposal of used fluids and other drilling waste, construction services, site cleanup and site closure. Consequently, we believe that we are well positioned to take advantage of the industry trend towards outsourcing and vendor consolidation.

     Experience in the Regulatory Environment. We believe that our operating history provides us with a competitive advantage in the highly regulated oilfield waste disposal business. As a result of working closely with regulatory officials and citizens’ groups, we have gained acceptance for our proprietary injection technology and have received a series of permits for our disposal facilities, including a permit allowing the disposal of NORM at our Big Hill, Texas facility. These permits enable us to expand our business and operate cost-effectively. We believe that our proprietary injection method is superior to alternative methods of disposing oil field wastes, including land farming, because injection provides greater assurance that the waste is permanently isolated from the environment and will not contaminate adjacent property or groundwater. We further believe that increasing environmental regulation and activism will inhibit the widespread acceptance of other disposal methods and the permitting of additional disposal facilities.

     Experienced Management Team. Our executive and operating management team has built and augmented our capabilities over the past ten years, allowing us to develop a base of knowledge and a unique understanding of the oilfield construction and waste disposal markets. Our executive and operating management team has an average of 25 years of industry experience, and an average of 13 years with us. Several executives have been with us for 25 years or more. We have strengthened our management team by retaining key management personnel of the companies we have acquired and by attracting additional experienced personnel.

Business Strategy

     Broaden our geographic and customer markets. From a 1997 U.S. Gulf Coast base, we have expanded geographically and now also operate in west Texas, the U.S. Mid-continent, the U.S. Rocky Mountains, Canada and areas of Europe and North Africa surrounding the Mediterranean Sea. With the development of new technologies, we have broadened our customer base to markets outside of our principal oil and gas exploration and production industry market when such technology can be applied to those markets.

     Technical Drilling Fluids Products Leadership. Our strategy is to distinguish our fluids sales and engineering segment from our competitors by providing our customers with innovative systems and solutions that ensure their drilling success. Our DeepDrill™ and FlexDrill™ Fluids Systems were created in anticipation of both increasing environmental regulation and increasingly complex drilling processes. Our ability to provide these high-performance and environmentally safe systems, products, and services will play a major role in preventing or solving our customers’ drilling problems, while also reducing their total cost to drill a well.

     Implement Our Performance Services Concept. With our Performance Services Concept, we work with our customers in a collaborative environment. We can better align our strengths, experience and project goals with those of our customers. Our ability to incorporate fluid systems management, process equipment, site preparation, and waste disposal services can further help our customers achieve an overall well cost savings and further differentiate us from our competitors.

     Develop the Worldwide Market for Dura-Base™ Mats. We plan to continue the initiatives begun in fiscal 2002 that saw the Dura-Base™ mat introduced in several key markets world-wide. We believe that these composite mats have worldwide applications in oilfield, industrial, commercial, military and emergency response markets because the strength, durability, weight and shelf life of the composite mats have an advantage over traditional wooden mats and other alternate products. These include applications in support of the oil and gas industry in Russia (Sakhalin Island) and Mexico, and military applications in the Middle East. Other markets that we consider potentially

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important include Indonesia and Alaska in support of oil and gas development projects, and infrastructure construction and rehabilitation in the United Kingdom. As energy market conditions continue to improve, we anticipate a recovery in the western Canadian market, which has been the single largest consumer of these mats since we began the sales program. We are working to establish a mat rental operation in Mexico and expect it to begin operation early in 2004.

     Introduce and Market New Composite Mat Products. We have recently introduced the Bravo™ mat, (formerly identified as the SP 12 mat) a unit that weighs approximately 50 pounds and can readily be installed by a single individual without the need for mechanical assistance. These mats provide 12.25 square feet of surface area and interlock to provide a stable surface for pedestrian traffic and light equipment loads. We believe that a broad market for this new product potentially exists and will begin production of the mat early in 2004.

     Improve Rental Mat Utilization in the Gulf Coast Market. Improving the utilization of our rental mat fleet is an important part of our strategy. Over the past two years, adverse market conditions have produced a declining trend in pricing and utilization of our rental mats. Total industry inventory of rental mats has declined by 50%. Recent market activity does not support expansion of the rental fleet, and we plan to selectively reduce capacity in an attempt to improve pricing and utilization of our mats. We anticipate that improving application of advanced drilling technology will support an increase in deeper drilling projects in the coastal area and better results in this business.

     Service and Product Extensions. We believe we can apply the waste processing and injection technology we have pioneered and developed in the oil and gas exploration industry to other industrial waste markets. In 2003 we opened an innovative production water disposal facility to serve operators in the Jonah-Pinedale field in Wyoming. That facility uses freeze thaw evaporation technology to separate waste products from the water. We are actively engaged in applying other waste processing technologies that can be used to treat wastewater, and believe that it could be useful in both oilfield and industrial applications.

Description of Business

FLUIDS SALES AND ENGINEERING

     Our drilling fluids business is focused on technical drilling projects involving complex conditions, such as horizontal drilling, geographically deep drilling or deep water drilling. These projects require constant monitoring and critical engineering support of the fluids system during the drilling process. Through acquisitions, we expanded our drilling fluids operations to include west Texas, the U.S. Mid-continent, the U.S. Rocky Mountains, Canada and, most recently, areas surrounding the Mediterranean Sea, and have strengthened our market position on the Gulf Coast.

     In addition, we grind barite and other industrial minerals at facilities in Houston and Corpus Christi, Texas, New Iberia and Morgan City, Louisiana, and Dyersburg, Tennessee. We have also entered into a contract grinding agreement in Brownsville, Texas under which a contract mill grinds raw barite supplied by us for a fixed fee. The products are used in our drilling fluids business and are sold to industrial users. Expanding our milling capacity has provided us access to critical raw materials for our drilling fluids operations.

     In addition to our drilling fluids operations, we have historically provided environmental services to the drilling and production industry in Canada, including using composting technology. This technique bioremediates the drill cuttings and drilling waste on location. In eastern Canada, these services are performed at our own facilities. The customer-generated waste is mixed with wood chips and a proprietary recipe of water and nutrients and allowed to compost for a pre-determined period, during which the contaminants are naturally biodegraded below regulatory thresholds. Once remediation is completed, the remaining compost is returned to the customer for

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spreading or reseeding on their property. This technology is also being used in other markets, including Wyoming, and further market penetration is being pursued there. Composting technology provides us with another product that compliments our drilling fluids to provide the customer a total performance package.

     Recent changes in regulations in Canada that limit the amount of salt that may be left behind once the oil has been digested in the composted materials created an opportunity for us to introduce a new drilling fluids product in that market. Using one of the ingredients of our DeepDrill™ and FlexDrill™ systems, our technical staff created a salt-free drilling fluid now in use in Canada that allows the composting technique to continue to be used even after the new and more restrictive regulations were adopted. In addition, the new fluid was found to drill significantly faster than conventional oil-based systems. We expect that the synergies resulting from the linking together of our environmental services and drilling fluids technologies will continue to lead to new products and services by which we will distinguish ourselves from our competitors.

MAT AND INTEGRATED SERVICES

Mat services and sales.

     Since 1988, we have used a patented prefabricated interlocking wooden mat system for constructing drilling and work sites, which replaced the labor-intensive individual hardwood boards used for that purpose. In 1994, we began looking for other products that could substitute for wood in the mats. In 1997, we formed a joint venture to manufacture our DuraBase™ composite mat, which is lighter, stronger and more durable than the wooden mats currently in use. The manufacturing facility was completed in the third quarter of 1998 and immediately began producing the new composite mats. We believe the facility has the capacity to manufacture up to 42,000 units annually at full production. Production was suspended in May 2003 due to low third party sales volume resulting from weak market conditions. Current market conditions have made it difficult to earn a satisfactory return on investment in the rental business in the Gulf Coast market. We will evaluate opportunities to reduce capacity and improve pricing and utilization in this market in 2004. These opportunities may include moving mats to other markets, such as Mexico, or selling part of the fleet.

     Markets. We provide mats to the oil and gas industry to ensure all-weather access to exploration and production sites in the unstable soil conditions common along the onshore Gulf of Mexico. We also provide access roads and temporary work sites for pipeline, electrical utility and highway construction projects where soil protection is required by environmental regulations or to assure productivity in unstable soil conditions. We have supplied mats on a rental basis for projects nationwide and are working to broaden that customer base and expand this component of the business.

     Re-rentals and Sales. Customers rent our mats at oilfield drilling and work sites for a typical initial period of 60 days. This initial rental charge compensates us for the cost of installation and the initial period of use. Often, the customer extends the initial term for additional 30-day periods, resulting in additional revenues. These “re-rental revenues” provide higher margins than the initial installation revenues because only minimal incremental costs accrue to each re-rental period. Non-oilfield rentals are generally provided on a “day-rate” basis with rentals beginning the day the mats are transported from our facility and ending upon return to our site. Factors which may increase rental revenue from the oil and gas industry include a trend toward deeper drilling, taking a longer time to reach the desired target increased commercial success, requiring logging, testing, and completion (hook-up), extending the period during which access to the site is required. Occasionally, the customer purchases wooden mats for installation when a site is converted into a permanent worksite. Non-oilfield rentals should benefit from increased customer awareness of the product as we continue to develop the commercial and industrial market.

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     Since late in 2000 we have sold the Dura-Base® composite mats, initially to E&P companies, principally in western Canada, and for use in various industrial, commercial and military markets, as well as oilfield customers outside of Canada. Those customers value the advantage in strength, durability, weight and shelf life of the composite mats over traditional wooden mats and other alternate products. Revenue from sales during that period has totaled $57.5 million and has contributed $20 million to operating income.

     Canadian Market. We believe that western Canada will be a key long-term supplier of natural gas to the U.S. In the parts of Canada where drilling activity is most prevalent, soil conditions are similar to the marsh regions of the U.S. Gulf Coast. Drilling has historically taken place when this ground is frozen. During the break-up season, beginning in March or April and continuing until the ground freezes late in the year, drilling decreases dramatically because of reduced access to drilling sites. Our mat system provides year-round work-site access in these areas. We began working to develop a market in Canada in the first quarter of 1998. In 2003 we sold our rental inventory of wooden mats to local service providers and exited the rental business. We are now focused on western Canada as a sales market for Dura-Base® composite mats and wooden mats.

Other Integrated Services

     As increasingly more stringent environmental regulations affecting drilling and production sites are promulgated and enforced, the scope of services required by the oil and gas companies has increased. Often it is more efficient for the site operator to contract with a single company that can provide all-weather site access and provide the required onsite and offsite environmental services on a fully integrated basis. We provide a comprehensive range of environmental services necessary for our customers’ oil and gas exploration and production activities. These services include:

     Site Assessment. Site assessment work begins prior to installing mats on a drilling site, and generally begins with a study of the proposed well site. This includes site photography, background soil sampling, laboratory analysis and investigating flood hazards and other native conditions. The assessment determines whether the site has previously been contaminated and provides a baseline for later restoration to pre-drilling condition.

     Pit Design, Construction and Drilling Waste Management. Where permitted by regulations and landowners, under our Environmentally Managed Location (“EML”) Program, we construct waste pits at drilling sites and monitor the waste stream produced in drilling operations and the contents and condition of the pits with the objective of minimizing the amount of waste generated on the site. Where possible, we dispose of waste onsite by land farming, through chemically and mechanically treating liquid waste and by injection into an underground formation. Waste water treated onsite may be reused in the drilling process or, where lawful, discharged into adjacent surface waters.

     Regulatory Compliance. Throughout the drilling process, we assist the operator in interfacing with the landowner and regulatory authorities. We also assist the operator in obtaining necessary permits and in record keeping and reporting.

     Site Remediation.

     • E&P Waste (Drilling). When the drilling process is complete, under applicable regulations, wastewater on the site may be chemically and/or mechanically treated to eliminate its waste-like characteristics and discharged into surface waters. Other waste that may not remain on the surface of the site may be land-farmed on the site or injected into geologic formations to minimize the need for offsite disposal. Any waste that cannot, under regulations, remain onsite is manifested and transported to an authorized facility for processing and disposal at the direction of the generator or customer.

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     • E&P Waste (Production). We receive waste streams that are created during the production phase of drilling operations. We also provide services to remediate production pits and inactive waste pits, principally those from past oil and gas drilling and production operations. We provide the following remediation services: (1) analyzing contaminants present in the pit and determining whether remediation is required by applicable state regulation; (2) treating waste onsite and, where lawful, reintroducing that material into the environment; and (3) removing, containerizing and transporting E&P waste to our processing facility.

     • NORM (Production). Since 1994, we have been a licensed NORM contractor, allowing us to perform site remediation work at NORM contaminated facilities in Louisiana and Texas. (For more information on NORM, please refer to the discussion under Environmental Regulation beginning on page 15.) We subsequently have received licenses to perform NORM remediation in other states. Because of increased worker-protective equipment, extensive decontamination procedures and other regulatory compliance issues at NORM facilities, the cost of providing NORM remediation services is materially greater than at E&P waste facilities. These services generate proportionately higher revenues and operating margins than similar services at E&P waste facilities.

     Site Closure. Site closure services are designed to restore a site to its pre-drilling condition, replanted with native vegetation. Closure also involves delivering test results indicating that closure has been completed in compliance with applicable regulations. This information is important to the customer because the operator is subject to future regulatory review and audits. In addition, the information may be required on a current basis if the operator is subject to a pending regulatory compliance order.

     General Oilfield Construction Services. We perform general oilfield construction services throughout the Texas and Louisiana Gulf Coast. These services include preparing work sites for installing mats, connecting wells and placing them in production, laying flow lines and infield pipelines, building permanent roads, grading, lease maintenance (maintaining and repairing producing well sites), cleanup and general roustabout services. General oilfield services are typically performed under short-term time and material contracts, which are obtained by direct negotiation or bid.

     Wood Product Sales. We own a sawmill in Batson, Texas that provides access to hardwood lumber to support our wooden mat business. The mill’s products include lumber, timber, wood chips, bark and sawdust. Pulp and paper companies in the area supply a large proportion of the hardwood logs processed at the sawmill and, in turn, are the primary customers for wood chips created in the milling process. We believe that, as the composite mats are introduced into the market, our dependence on the sawmill lumber will diminish. Therefore, other markets for the wood products are being developed, including marine lumber, construction skid material, timbers for crane mats and support lumber for packaging.

E & P WASTE DISPOSAL

     E&P Waste Processing. In most jurisdictions, E&P waste, if not treated for discharge or disposed on the location where it is generated, must be transported to a licensed E&P waste disposal or treatment facility. Three primary alternatives for offsite disposal of E&P waste are available to generators in the U.S. Gulf Coast: (1) underground injection (see “Injection Wells”); (2) disposal on surface facilities; and (3) processing and conversion into a reuse product. In addition, a portion of the waste can be recycled into a drilling fluids product.

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     The volume of waste handled by us in 2003, 2002 and 2001 is summarized in the table below:

     We operate seven receiving and transfer facilities located along the U.S. Gulf Coast, from Venice, Louisiana, to Corpus Christi, Texas. Waste products are collected at the transfer facilities from three distinct exploration and production markets: (1) offshore; (2) land and inland waters; and (3) remediation operations at well sites and production facilities. A fleet of 51 double-skinned barges certified by the U.S. Coast Guard to transport E&P waste supports these facilities. Waste received at the transfer facilities is moved by barge through the Gulf Intracoastal Waterway to our processing and transfer facility at Port Arthur, Texas, and trucked to injection disposal facilities at Fannett, Texas.

     Improved processing equipment and techniques and increased injection capacity have substantially reduced waste volumes processed for reuse and delivered to local municipal landfills as a reuse product. Recently, approximately 25% to 30% of the total waste that we received has been processed into a reuse product. Landfills are required by regulations to cover the solid waste received each day in the facility with earth or other inert material. Our reuse product is utilized at either the City of Port Arthur Municipal Landfill or the City of Beaumont Municipal Landfill as cover or construction material pursuant to contracts with these cities. We also have developed alternative uses for the product as road base material or construction fill material.

     NORM Processing and Disposal. Many alternatives are available to the generator for treating and disposing NORM. These include both chemical and mechanical methods designed to reduce volume, burying encapsulated NORM on-site within old well bores and soil washing and other techniques to dissolve and suspend the radium in solution to inject NORM liquids on-site. When these techniques are not economically competitive with offsite disposal, or not sufficient to bring the site into compliance with applicable regulations, the NORM must be transported to a licensed storage or disposal facility. We have been licensed to operate a NORM disposal business since September 1994. Since May 21, 1996, we have disposed of NORM by injection disposal at our Big Hill, Texas facility.

     Non-hazardous Industrial Waste. In September 1997, we applied for licensing authority to build and operate a facility that will process and dispose non-hazardous industrial waste. Permits were issued to us in February 1999, and operations began in the third quarter of 1999. Our market includes refiners, manufacturers, service companies and municipalities.

     Injection Wells. Our injection technology is distinguished from conventional methods in that it utilizes very low pressure, typically less than 100 pounds per square inch (“psi”), to move the waste into the injection zone. Conventional injection wells typically use pressures of 2,000 psi or more. If there were to be a formation failure or the face of the injection zone were to become blocked, this pressure could force waste material beyond the intended zone, posing a potential hazard to the environment. The low pressure used by us is inadequate to drive the injected waste from its intended geologic injection zone.

     We began using injection for E&P waste disposal in April 1993. Under a permit from the Texas Railroad Commission, we currently operate a 50-acre injection well facility in the Big Hill Field and a facility at a 400-acre site near Fannett, both located in Jefferson County, Texas. The Fannett site was placed in service in September 1995 and is our primary facility for disposing of E&P waste. We have subsequently acquired several additional injection disposal sites, and now hold

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an inventory of approximately 1,250 acres of injection disposal property in Texas and Louisiana. Recent geological studies of sites that we presently operate indicate a total volumetric capacity sufficient to inject approximately two billion barrels of slurry. We have injected a total of 40.7 million barrels of slurry into the formations at these sites since we began injection operations. Based on these studies, we have utilized less than 2% of the total injection capacity available at these sites.

     We have identified a number of additional sites in the U.S. Gulf Coast region as suitable for disposal facilities. We believe our current processing and disposal capacity will be adequate to provide for expected future demand for our oilfield and other waste disposal services. However, we continue to identify and, where appropriate, obtain permits for other locations as a contingency measure should transportation economics or changes in other market factors make it necessary to develop other sites in order to provide the most cost effective disposal solution to our customers.

Sources and Availability of Raw Materials and Equipment

     We believe that our sources of supply for materials and equipment used in our businesses are adequate for our needs and that we are not dependent upon any one supplier. Barite used in our drilling fluids business is primarily provided by our specialty milling company. In addition, barite is obtained from third-party mills under contract grinding arrangements. The raw barite ore used by the mills is obtained under supply agreements from foreign sources, primarily China and India. Due to the lead times involved in obtaining barite, a 90 day or greater supply of barite is maintained at the grinding facilities at all times. Other materials used in the drilling fluids business are obtained from various third party suppliers. No serious shortages or delays have been encountered in obtaining any raw materials, and we do not currently anticipate any shortages or delays.

     We obtain certain chemical compounds under long-term supply contracts with various chemical manufacturers, and we believe that we could arrange suitable supply agreements with other manufacturers if the current supplier became unable to provide the products in sufficient quantities.

     The new composite mats are manufactured through a joint venture in which we have a 49% interest. The resins, chemicals and other materials used to manufacture the mats are widely available.

     We acquire the majority of our hardwood needs in our mat business from our own sawmill. The hardwood logs are obtained from loggers who operate close to the mill. Logging generally is conducted during the drier weather months of July through November. During this period, inventory at the sawmill increases significantly for use throughout the remainder of the year.

Patents and Licenses

     We seek patents and licenses on new developments whenever feasible. On December 31, 1996, we were granted a U.S. patent on our E&P waste and NORM waste processing and injection disposal system. We have the exclusive, worldwide license for the life of the patent to use, sell and lease the wooden and composite mats that we use in our site preparation business. The licensor of the wooden mats continues to fabricate the mats for us and has the right to sell mats in locations where we are not engaged in business, but only after giving us the opportunity to take advantage of the opportunity. We have the exclusive right to use and resell the new composite mats. Both licenses are subject to a royalty, which we can satisfy by purchasing specified quantities of mats annually from the licensor. In our drilling fluids business, we have obtained patents related to our DeepDrill^TM and FlexDrill™ products and own the patent on the primary components and a number of related products.

     Using proprietary technology and systems is an important aspect of our business strategy. For example, we rely on a variety of unpatented proprietary technologies and know-how to process

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E&P waste. Although we believe that this technology and know-how provide us with significant competitive advantages in the environmental services business, competitive products and services have been successfully developed and marketed by others. We believe that our reputation in our industry, the range of services we offer, ongoing technical development and know-how, responsiveness to customers and understanding of regulatory requirements are of equal or greater competitive significance than our existing proprietary rights.

Customers

     Our customers are principally major and independent oil and gas exploration and production companies operating in the markets that we serve. During the year ended December 31, 2003, approximately 41% of our revenues were derived from 20 major customers, including two major oil companies. No one customer accounted for more than 10% of our consolidated revenues. Given current market conditions and the nature of the products involved, we do not believe that the loss of any single customer would have a material adverse effect on our business.

     We perform services either pursuant to standard contracts or under longer term negotiated agreements. As most agreements with our customers are cancelable upon limited notice, our backlog is not significant.

     We do not derive a significant portion of our revenues from government contracts of any kind.

Competition

     We operate in several niche markets where we are a leading provider of services. In our disposal business, we often compete with our major customers, who continually evaluate the decision to use internal disposal methods or to utilize a third-party disposal company, such as Newpark. We also compete in this business with several small, independent companies who generally serve specific geographic markets. The markets for our mat and integrated services business are fragmented and competitive, with five or six small competitors providing various forms of wooden mat products and services. No competitors provide a product similar to our composite mat system. In the drilling fluids industry, we face competition from larger companies that may have broader geographic coverage.

     We believe that the principal competitive factors in our businesses are price, reputation, technical proficiency, reliability, quality, breadth of services offered and managerial experience. We believe that we effectively compete on the basis of these factors. We also believe that our competitive position benefits from our proprietary, patented mat systems used in our site preparation business, our proprietary treatment and disposal methods for both E&P waste and NORM waste streams, the unique nature of our DeepDrill™ and FlexDrill™ fluids products, our ability to provide our customers with drilling fluids services on a “performance services basis” and our ability to provide integrated well site services, including environmental, drilling fluids and general oilfield services. It is often more efficient for the site operator to contract with a single company that can prepare the well site and provide the required onsite and offsite environmental services. We believe our ability to provide a number of services as part of a comprehensive program enables us to price our services competitively.

Environmental Disclosures

     We have sought to comply with all applicable regulatory requirements concerning environmental quality. We derive a significant portion of our revenue from environmental services provided to our customers. These services have become necessary in order for our customers to comply with regulations governing discharge of materials into the environment. We have made, and expect to continue to make, the necessary expenditures for environmental protection and compliance

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at our facilities, but we do not expect that these will become material in the foreseeable future. No material expenditures for environmental protection or compliance were made during 2003 or 2002.

Employees

     At January 31, 2004, we employed 1,363 full and part-time personnel, none of which are represented by unions. We consider our relations with our employees to be satisfactory.

Environmental Regulation

     We deal primarily with E&P waste, NORM, E&P waste containing NORM and nonhazardous industrial waste in our waste disposal business. These wastes are generally described as follows:

     E&P Waste. Oilfield exploration and production waste, or E&P waste, is waste generated in exploring for or producing oil and gas. These wastes typically contain levels of oil and grease, salts or chlorides, and heavy metals exceeding concentration limits defined by state regulations. E&P waste also includes soils that have become contaminated by these materials. In the environment, oil and grease and chlorides disrupt the food chain and have been determined by regulatory authorities to be harmful to plant and animal life. Heavy metals are toxic and can become concentrated in living tissues.

     NORM. Naturally occurring radioactive material, or NORM, is present throughout the earth’s crust at very low levels. Among the radioactive elements, only Radium 226 and Radium 228 are slightly soluble in water. Because of their solubility, Radium 226 and Radium 228 can be dissolved in the salt water that is produced with the hydrocarbons. Radium can co-precipitate with scale out of the production stream as it is drawn to the surface and encounters a pressure or temperature change in the well tubing or production equipment, forming a rust-like scale. This scale contains radioactive elements that can become concentrated on tank bottoms or at water discharge points at production facilities. Thus, NORM waste is E&P waste that has become contaminated with these radioactive elements above concentration levels defined by state regulations.

     Nonhazardous Industrial Waste. This category of waste is generated by industries not associated with the exploration or production of oil and gas. This would include refineries and petrochemical plants.

     For many years, prior to current regulation, industry practice was to allow E&P waste to remain in the environment. Onshore, surface pits were used for disposing E&P waste; offshore or in inland waters, E&P waste was discharged directly into the water. Since 1990, E&P waste has become subject to increased public scrutiny and increased federal and state regulation. These regulations have imposed strict requirements for ongoing drilling and production activities in certain geographic areas, as well as for remediating sites contaminated by past disposal practices and, in many respects, have prohibited the prior disposal practices. In addition, operators have become increasingly concerned about long-term liability for remediation, and landowners have become more aggressive in requiring land restoration. For these reasons, operators are increasingly retaining service companies such as Newpark to devise and implement comprehensive waste management techniques to handle waste on an ongoing basis and to remediate past contamination of oil and gas properties.

     Between 1990 and 1995, substantially all discharges of waste from drilling and production operations on land (the “onshore subcategory”) and in the transition zone (the “coastal subcategory”) were prohibited. This “zero discharge” standard has become the expected pattern for the industry. Effective December 4, 1997, discharges of waste from drilling operations in state territorial waters of the Gulf of Mexico (the “territorial waters subcategory”), were prohibited. We immediately noticed an increase in waste volume received from this subcategory in our daily operations. However, as

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drilling projects in progress as of that date were completed, most of the rigs subsequently moved outside of the area covered by those regulations. Since December 4, 1997, the offshore waters of the Gulf of Mexico have been the only surface waters of the United States into which these waste discharges are allowed. Recent EPA rulemaking efforts have been directed towards further restricting discharges into those waters. Final regulations establishing technology based effluent limitation guidelines and standards for the discharge of synthetic-based drilling fluids were published on January 22, 2001 in the Federal Register and became effective February 21, 2001. These requirements were incorporated into the National Pollutant Discharge Elimination System (NPDES) general permit for the Western Gulf of Mexico on December 18, 2001. The new permit became effective on February 19, 2002. This is another step in the stricter enforcement of the requirements of the Clean Water Act, which ultimately requires the elimination of discharges into the waters of the United States.

     NORM regulations require more stringent worker protection, handling and storage procedures than those required of E&P waste under Louisiana regulations. Equivalent rules governing NORM disposal have also been adopted in Texas, and similar regulations have been adopted in Mississippi, New Mexico, and Arkansas.

     Our business is affected both directly and indirectly by governmental regulations relating to the oil and gas industry in general, as well as environmental, health and safety regulations that have specific application to our business. We also handle, process and dispose of nonhazardous regulated materials that are not generated from oil and gas activities. This section discusses various federal, state and provincial pollution control, health and safety programs that are administered and enforced by regulatory agencies, including, without limitation, the U.S. Environmental Protection Agency (“EPA”), the U.S. Coast Guard, the U.S. Army Corps of Engineers, the Texas, Commission on Environmental Quality, the Texas Department of Health, the Texas Railroad Commission, the Louisiana Department of Environmental Quality, the Louisiana Department of Natural Resources, the Wyoming Department of Environmental Quality, the Wyoming Oil & Gas Conservation Commission, the Oklahoma Corporation Commission, the Oklahoma Department of Environmental Quality, the Mississippi State Oil & Gas Board, the Mississippi State Department of Health, the Mississippi Department of Environmental Quality, Environment Canada, the Alberta Energy and Utilities Board, and the Canada-Nova Scotia Offshore Petroleum Board. These programs are applicable or potentially applicable to our current operations. Although we intend to make capital expenditures to expand our environmental services capabilities in response to customers’ needs, we believe that we are not presently required to make material capital expenditures to remain in compliance with federal, state and local provisions relating to protecting the environment.

     RCRA. The Resource Conservation and Recovery Act of 1976, as amended in 1984 (“RCRA”), is the principal federal statute governing hazardous waste generation, treatment, storage and disposal. RCRA and state hazardous waste management programs govern the handling and disposal of “hazardous wastes.” The EPA has issued regulations pursuant to RCRA, and states have promulgated regulations under comparable state statutes, that govern hazardous waste generators, transporters and owners and operators of hazardous waste treatment, storage or disposal facilities. These regulations impose detailed operating, inspection, training and emergency preparedness and response standards and requirements for closure, financial responsibility, manifesting of waste, record-keeping and reporting, as well as treatment standards for any hazardous waste intended for land disposal.

     Our primary operations involve E&P waste, which is exempt from classification as a RCRA-regulated hazardous waste. Many state counterparts to RCRA also exempt E&P waste from classification as a hazardous waste; however, extensive state regulatory programs govern the management of this waste. In addition, in performing other services for our customers, we are subject to both federal (RCRA) and state solid or hazardous waste management regulations as contractor to the waste generator. This act also defines the required characteristics of a waste that

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allow for disposal as a nonhazardous versus a hazardous waste. This differentiation is required for the profiling of waste into our nonhazardous industrial waste disposal facilities.

     Proposals have been made in the past to rescind the exemption that excludes E&P waste from regulation as hazardous waste under RCRA. If this exemption is repealed or modified by administrative, legislative or judicial process, we could be required to significantly change our method of doing business. There is no assurance that we would have the capital resources available to do so, or that we would be able to adapt our operations to the changed regulations.

     Subtitle I of RCRA regulates underground storage tanks in which liquid petroleum or hazardous substances are stored. States have similar regulations, many of which are more stringent in some respects than the federal regulations. The regulations require that each owner or operator of an underground tank notify a designated state agency of the existence of the underground tank, specifying the age, size, type, location and use of each tank. The regulations also impose design, construction and installation requirements for new tanks, tank testing and inspection requirements, leak detection, prevention, reporting and cleanup requirements, as well as tank closure and removal requirements.

     In the past, we have removed underground storage tanks that were subject to RCRA and applicable state programs. Violators of any of the federal or state regulations may be subject to enforcement orders or significant penalties by the EPA or the applicable state agency. We are not aware of any existing conditions or circumstances that would cause us to incur liability under RCRA for failure to comply with regulations relating to underground storage tanks.

     CERCLA. The Comprehensive Environmental Response, Compensation and Liability Act, as amended in 1986 (“CERCLA”), provides for immediate response and removal actions coordinated by the EPA in response to certain releases of hazardous substances into the environment and authorizes the government, or private parties, to respond to the release or threatened release of hazardous substances. The government may also order persons responsible for the release to perform any necessary cleanup. Liability extends to the present owners and operators of waste disposal facilities from which a release occurs, persons who owned or operated the facilities at the time the hazardous substances were released, persons who arranged for disposal or treatment of hazardous substances and waste transporters who selected the facilities for treatment or disposal of hazardous substances. CERCLA has been interpreted to create strict joint and several liability for removal and remediation costs, other necessary response costs and damages for injury to natural resources.

     Among other things, CERCLA requires the EPA to establish a National Priorities List (“NPL”) of sites at which hazardous substances have been or are likely to be released and that require investigation or cleanup. The NPL is subject to change, with additional sites being added and remediated sites being removed from the list. In addition, the states where we conduct operations have enacted similar laws and keep similar lists of sites that may need remediation.

     Although we primarily handle oilfield waste classified as E&P waste, this waste typically contains constituents designated by the EPA as hazardous substances under RCRA, despite the current exemption of the E&P waste itself from hazardous substance classification. Where our operations result in the release of hazardous substances, including releases at sites owned by other entities where we perform our services, we could incur CERCLA liability. Businesses we once owned may also have disposed or arranged for disposal of hazardous substances that could result in the imposition of CERCLA liability on us in the future. In particular, divisions and subsidiaries that we once owned were involved in extensive mining operations at facilities in Utah and Nevada and in waste generation and management activities in numerous other states. These activities involved substances that may be classified as RCRA hazardous substances. Any of those sites or activities potentially could be the subject of future CERCLA damage claims.

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     With the exception of the sites discussed in “Environmental Proceedings” below, we are not aware of any present claims against us that are based on CERCLA or comparable state statutes. Nonetheless, we could be subject to liabilities if additional sites are identified at which clean-up action is required. These liabilities could have a material adverse effect on our consolidated financial statements.

     The Clean Water Act. The Clean Water Act regulates the discharge of pollutants, including E&P waste, into waters of the United States. The Clean Water Act establishes a system of standards, permits and enforcement procedures for discharging pollutants from industrial and municipal wastewater sources. The law sets treatment standards for industries and waste water treatment plants, requires permits for industrial and municipal discharges directly into waters of the United States and requires pretreatment of industrial waste water before discharge into municipal systems. The Clean Water Act gives the EPA the authority to set pretreatment limits for direct and indirect industrial discharges.

     In addition, the Clean Water Act prohibits certain discharges of oil or hazardous substances and authorizes the federal government to remove or arrange for removal of this oil or hazardous substances. Under the Clean Water Act, the owner or operator of a vessel or facility from which oil or a hazardous substance is discharged into navigable waters may be liable for penalties, the costs of cleaning up the discharge and natural resource damage caused by the spill.

     We treat and discharge sanitary waste waters at certain of our facilities. These activities are subject to the Clean Water Act, and comparable state statutes, and federal and state enforcement of these regulations.

     The Clean Water Act also imposes requirements that are applicable to our customers and are material to our business. EPA Region 6, which includes our market, continues to issue new and amended National Pollutant Discharge Elimination System (“NPDES”) general permits. These permits further limit or restrict substantially all discharges of produced water from the Oil and Gas Extraction Point Source Category into waters of the United States.

     The Clean Air Act. The Clean Air Act provides for federal, state and local regulation of emissions of air pollutants into the atmosphere. Any modification or construction of a facility with regulated air emissions must be permitted. The Clean Air Act provides for administrative and judicial enforcement against owners and operators of regulated facilities, including substantial penalties. In 1990, the Clean Air Act was reauthorized and amended, substantially increasing the scope and stringency of the Clean Air Act’s requirements. The Clean Air Act has very little impact on our operations.

     Oil Pollution Act of 1990. The Oil Pollution Act of 1990 contains liability provisions for cleanup costs, natural resource damages and property damages resulting from discharges of oil into navigable waters, as well as substantial penalty provisions. The OPA also requires double hulls on all new oil tankers and barges operating in waters subject to the jurisdiction of the United States. All marine vessels operated by our E&P waste disposal operations meet this requirement.

     State Regulation. In 1986, the Louisiana Department of Natural Resources (“DNR”) promulgated Order 29-B. Order 29-B contains extensive rules governing pit closure and E&P waste generation, treatment, storage, transportation and disposal. Under Order 29-B, onsite disposal of E&P waste is limited and is subject to stringent guidelines. If these guidelines cannot be met, E&P waste must be transported and disposed of offsite in accordance with the provisions of Order 29-B. Moreover, under Order 29-B, most, if not all, active waste pits must be closed or modified to meet regulatory standards; those pits that continue to be allowed may be used only for a limited time. A material number of these pits may contain concentrations of radium that are sufficient to require the waste material to be categorized as NORM. A series of emergency rules were issued over the past

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year resulting in a study of oilfield waste disposed at commercial disposal facilities. The study is now complete and the DNR revised Order 29-B on November 20, 2001.

     Rule 8 of the Texas Railroad Commission also contains detailed requirements for managing and disposing of E&P waste and Rule 94 governs NORM management and disposal. In addition, Rule 91 regulates the cleanup of spills of crude oil from oil and gas exploration and production activities, including transportation by pipeline. In general, contaminated soils must be remediated to total petroleum hydrocarbons content of less than 1%. The State of Texas also has established an Oilfield Cleanup Fund to be administered by the Texas Railroad Commission to plug abandoned wells if the Commission deems it necessary to prevent pollution, and to control or clean up certain oil and gas wastes that cause or are likely to cause surface or subsurface water pollution. Other states where we operate have similar regulations.

     Many states maintain licensing and permitting procedures for constructing and operating facilities that emit pollutants into the air. In Texas, the Texas Commission on Environmental Quality (the “TCEQ”) requires companies that emit pollutants into the air to apply for an air permit or to satisfy the conditions for an exemption. We have obtained certain air permits related to our barite grinding and transfer sites, and believe we are exempt from obtaining other air permits at our Texas facilities, including our Port Arthur, Texas, E&P waste facility. We met with the TCEQ and filed for an air permit exemption for our Port Arthur facility in the fall of 1991, which exemption was granted. A subsequent renewal letter was filed and granted in 1995. Based upon communications with the TCEQ, we expect that our operations at the Port Arthur facility will continue to remain exempt from air permitting requirements. However, should it not remain exempt, we believe that compliance with the permitting requirements of the TCEQ would not have a material adverse effect on our consolidated financial statements.

     Other Environmental Laws. We are subject to the Occupation Safety and Health Act that imposes requirements for employee safety and health and applicable state provisions adopting worker health and safety requirements. Moreover, it is possible that other developments, such as increasingly stricter environmental, safety and health laws, and regulations and enforcement policies under these, could result in our being subject to substantial additional regulation and further scrutiny of how we handle, manufacture, use or dispose of substances or pollutants. We cannot predict the extent to which our operations may be affected by future enforcement policies as applied to existing laws or by the enactment of new statutes and regulations.

     The U.S. Department of Transportation (DOT) regulates our transportation activities. DOT regulations define labeling, marking and placarding requirements. This is specifically important in the shipment of NORM wastes.

Risk Management

     Our business exposes us to substantial risks. For example, our environmental services business routinely handles, stores and disposes of nonhazardous regulated materials and waste. We could be held liable for improper cleanup and disposal, which liability could be based upon statute, negligence, strict liability, contract or otherwise. As is common in the oil and gas industry, we often are required to indemnify our customers or other third-parties against certain risks related to the services we perform, including damages stemming from environmental contamination.

     We have implemented various procedures designed to ensure compliance with applicable regulations and reduce the risk of damage or loss. These include specified handling procedures and guidelines for regulated waste, ongoing employee training and monitoring and maintaining insurance coverage.

     We have also implemented a corporate-wide web-based environmental management system. This system, EMS Works™, is ISO14001 compliant. EMS Works™ is composed of modules designed

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to capture information related to the planning, decision-making, and general operations of environmental regulatory activities within our operations. EMS Works™ is also used to capture the information generated by third party audits that are regularly done to validate the findings of our internal monitoring and auditing procedures.

     We carry a broad range of insurance coverage that we consider adequate for protecting our assets and operations. This coverage includes general liability, comprehensive property damage, workers’ compensation and other coverage customary in our industries; however, this insurance is subject to coverage limits, and certain policies exclude coverage for damages resulting from environmental contamination. We could be materially adversely affected by a claim that is not covered or only partially covered by insurance. There is no assurance that insurance will continue to be available to us, that the possible types of liabilities that may be incurred will be covered by our insurance, that our insurance carriers will meet their obligations or that the dollar amount of any liability will not exceed our policy limits.

Available Information

     You can find more information about us at our Internet website located at www.newpark.com. Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports are available free of charge on or through our Internet website as soon as reasonably practicable after we electronically file these materials with the SEC.

ITEM 2. Properties

     We lease our corporate offices in Metairie, Louisiana, consisting of approximately 7,800 square feet, at an annual rental of approximately $147,000. The lease for this space expires in December 2005.

     We lease an office building in Lafayette, Louisiana, consisting of approximately 35,000 square feet. This building houses the administrative offices of our E&P waste disposal and mat and integrated services segments. The lease of this facility calls for annual rental of approximately $376,000 and expires in November 2017.

     We lease approximately 53,000 square feet of office space in Houston, Texas, which houses the administrative offices of our fluids sales and engineering segment and regional sales offices for our environmental services and mat sales and rental segments. The lease has an annual rent of approximately $1.2 million and expires in October 2009.

     We lease approximately 17,000 square feet of office space in Calgary, Alberta, which houses the administrative offices of our Canadian operations. The underlying leases have annual rents totaling approximately $365,000 and expire in September 2007.

     We lease approximately 5,500 square feet of office space in Rome, Italy, which houses the administrative offices of our Mediterranean operations. The lease has an annual rent of approximately $73,000 and expires in June 2004. We also lease three warehouses throughout the Mediterranean region. Total annual rents under these leases are approximately $203,000. These leases expire in December 2004.

     We own approximately 11,000 square feet of office space in Oklahoma City, Oklahoma, which houses the administrative and sales offices of the Mid-continent operations of our fluids sales and engineering segment. We also own four warehouse facilities in Oklahoma that serve as distribution points for these operations.

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     Our Port Arthur, Texas, E&P waste facility, which is used in our E&P waste disposal segment, is subject to annual rentals totaling approximately $522,000 under three separate leases. A total of six acres are under lease under several leases that originally expired during 2002. These facilities are currently under lease on a month to month arrangement while we negotiate extensions to the original leases.

     We own two injection disposal sites used in our E&P waste disposal segment. These disposal sites are both in Jefferson County, Texas, one on 50 acres and the other on 400 acres. Fifteen wells are currently operational at these sites. In January 1997, we purchased 120 acres adjacent to one of the disposal sites, on which we have constructed a non-hazardous industrial waste injection disposal facility. We also own an additional injection facility, which includes three active injection wells on 37 acres, adjacent to our Big Hill, Texas facility.

     In October 1997, we acquired land and facilities in west Texas at Andrews, Big Springs, Plains and Fort Stockton, Texas at which brine is extracted and sold and E&P waste is disposed in the bedded salt caverns created by the extraction process. A total of 125 acres was acquired in this transaction, which is used in our E&P waste disposal segment.

     We own 29 acres of land in the Boulder Oilfield Waste Recycling Facility near Boulder, Wyoming used in our disposal activities for the Jonah-Pinedale trend.

     We lease a fleet of 51 double-skinned barges used in our E&P waste disposal segment under leases with terms from five to ten years. The barges are used to transport waste to processing stations and are certified for this purpose by the U. S. Coast Guard. Annual rentals under the barge leases totaled approximately $3.9 million during 2003.

     We operate five specialty product grinding facilities in our fluids sales and engineering segment. One is on 6.6 acres of leased land in Channelview, Texas, with an annual rental rate of approximately $79,000, currently under a month-to-month leasing arrangement. We are presently in the process of moving these facilities to a new location in Channelview, Texas. The new facility is located on approximately 18 acres of owned land. The second plant is on 13.7 acres of leased land in New Iberia, Louisiana, with an annual rental rate of approximately $98,000 under a lease expiring in 2006. The third plant is in Morgan City, Louisiana on 13.82 acres of leased land pursuant to a lease purchase contract with an annual rental rate of $80,000, currently under a month-to-month leasing arrangement. The fourth plant is in Corpus Christi, Texas on 6.0 acres of leased land with annual rental payments of approximately $36,000 under a lease expiring in 2006. The fifth plant, which has recently been placed in service, is in Dyersburg, Tennessee and is on 13.2 acres of owned land.

     In our E&P waste disposal segment, we use seven leased transfer facilities located along the Gulf Coast, at an annual total rental of $1.5 million. These leases have various expiration dates through 2008. In our fluids sales and engineering segment, we serve customers from six leased bases located along the Gulf Coast, at an annual total rental rate of approximately $1.7 million. These leases also have various expiration dates through 2009.

     We own 80 acres occupied as a sawmill facility near Batson, Texas, which is used in our mat and integrated services segment.

ITEM 3. Legal Proceedings

     We are involved in litigation and other claims or assessments on matters arising in the normal course of our business. In the opinion of management, any recovery or liability in these matters should not have a material effect on our consolidated financial statements.

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     On August 25, 2003, OLS Consulting Services, Inc. (“OLS”), the grantor of an exclusive license to us for the sale and distribution of composite mats, purportedly on behalf of the Loma Company (“LOMA”), the manufacturer of the composite mats, filed a Petition for Damages and Declaratory Relief in the 15^th Judicial District, Parish of Lafayette, State of Louisiana, against us and several of our officers claiming breach of contract, breach of fiduciary duty and unfair trade practices arising out of the claims described in Note S of the Notes to Consolidated Financial Statements contained elsewhere in this report. We intend to vigorously contest this litigation, which we believe to be frivolous. As disclosed in Note A of the Notes to Consolidated Financial Statements contained elsewhere in this report, litigation is already pending concerning the pricing formula that LOMA utilizes to invoice us for mats. The pricing litigation was tried in November 2003. We have filed our post-trial brief and OLS and LOMA are expected to file their post-trial brief shortly. We do not believe that these matters will have a material adverse affect on our financial statements.

     In December 2003, one of our subsidiaries, Newpark Drilling Fluids, L.L.C., filed a lawsuit in the District Court of Harris County, Texas, 334th Judicial District, against Spirit Drilling Fluids, LTD, Spirit Fluids GP, L.L.C., Well Site Performance Services, L.L.C., J. Broadsources, L.L.C., and certain individuals alleging misappropriation of trade secrets and unfair competition and seeking a temporary restraining order, injunctive relief and damages. We allege that some or all of the individual defendants, all but one of whom are disgruntled former employees of our subsidiary, have systematically misappropriated our trade secrets and have used these trade secrets in connection with their services for the named entities.

     In response to the filing of the lawsuit, certain of the individual defendants alleged that our subsidiary and certain of our officers, employees and agents have engaged in misconduct, and, on February 10, 2004, these individuals filed stockholder derivative claims with respect to this alleged misconduct as a cross-complaint to the lawsuit. While we believe these allegations are without merit and filed solely in response to the lawsuit filed by our subsidiary, a Special Committee, with the assistance of independent legal counsel, is in the process of investigating these allegations. Once the Special Committee has completed its investigation, it will decide whether a derivative claim should be pursued.

Environmental Proceedings

     In the ordinary course of conducting our business, we become involved in judicial and administrative proceedings involving governmental authorities at the federal, state and local levels, as well as private party actions. Pending proceedings that allege liability related to environmental matters are described below. We believe that none of these matters involves material exposure. There is no assurance, however, that this exposure does not exist or will not arise in other matters relating to our past or present operations.

     We continue to be involved in the voluntary cleanup associated with the DSI sites in southern Mississippi. This includes three facilities known as Clay Point, Lee Street and Woolmarket. The Mississippi Department of Environmental Quality is overseeing the cleanup. The DSI Technical Group that represents the potentially responsible parties, including Newpark, awarded us a contract to perform the remediation work at the three sites. The cleanup of Clay Point and Lee Street has been completed. We believe that payments previously made into an escrow account by all potentially responsible parties are sufficient to cover any remaining costs of cleanup at the Woolmarket site.

     We were identified as a contributor of material to the MAR Services facility, a state voluntary cleanup site located in Louisiana. The Louisiana Department of Natural Resources is overseeing voluntary cleanup at the site. The oversight group awarded us the contract for the initial phase of cleanup at this site. In 2002, we agreed to pay $429,000 to Margone, LLC, a group of major

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oil and gas companies that have assumed full responsibility for final cleanup of the MAR facility. Upon signing of the agreement, we were indemnified by Margone, LLC against any future liability at the MAR facility.

     Recourse against our insurers under general liability insurance policies for reimbursement in the actions described above is uncertain as a result of conflicting court decisions in similar cases. In addition, certain insurance policies under which coverage may be afforded contain self-insurance levels that may exceed our ultimate liability.

     We believe that any liability incurred in the matters described above will not have a material adverse effect on our consolidated financial statements.

ITEM 4. Submission of Matters to a Vote of Shareholders

     None.

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PART II

ITEM 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

     Our common stock is traded on the New York Stock Exchange under the symbol “NR.”

     The following table sets forth the range of the high and low sales prices for our common stock for the periods indicated:

     At December 31, 2003, we had 2,579 stockholders of record as determined by our transfer agent.

     Our Board of Directors currently intends to retain earnings for use in our business, and we do not intend to pay any cash dividends in the foreseeable future, except for the dividends required under the terms of our outstanding series of preferred stock. In addition, our credit facility, the indenture relating to our outstanding Senior Subordinated Notes and the certificates of designations relating to our outstanding series of preferred stock contain covenants which significantly limit the payment of dividends on the common stock.

ITEM 6. Selected Financial Data

     The selected consolidated historical financial data presented below for the five years ended December 31, 2003, are derived from our audited consolidated financial statements. The following data should be read in conjunction with our Consolidated Financial Statements and the Notes thereto, which are included elsewhere in this Form 10-K, and with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 below.

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion of our financial condition, results of operations, liquidity and capital resources should be read together with our “Consolidated Financial Statements” and the “Notes to Consolidated Financial Statements” included elsewhere in this report.

Operating Environment and Recent Developments

     Our operating results depend in large measure on oil and gas drilling activity levels in the markets we serve, as well as on the depth of drilling, which governs the revenue potential of each well. These levels, in turn, depend on oil and gas commodities pricing, inventory levels and product demand. Rig count data is the most widely accepted indicator of drilling activity. Key average rig count data for the last five years ending December 31 is listed in the following table:

Key Market Developments

     Our primary Gulf Coast market includes: (1) South Louisiana Land; (2) Texas Railroad Commission Districts 2 and 3; (3) Louisiana and Texas Inland Waters; and (4) Offshore Gulf of Mexico. In addition to our primary Gulf Coast Market, we operate in several other key markets including Canada, the U.S. central region (including the U.S. mid-continent and U.S. Rocky Mountain regions), west Texas and areas surrounding the Mediterranean Sea. Unlike our primary Gulf Coast market, the majority of these markets experienced significant growth in 2003 as compared to 2002. Revenues by key markets are as follows (dollars in millions):

NM – Not meaningful

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     Our primary Gulf Coast market accounted for approximately 58% of 2003 revenues, as compared to 97% as recently as 1997. The decline in the percentage of Gulf Coast revenues is the result of relatively flat Gulf Coast market activity during 2003 as compared to growth in most other markets.

     The Canadian market accounted for approximately 14% of 2003 revenues, compared to 9% in 2002. The increase in Canadian rig activity over the prior year reflects the improving commodity gas market. Much of the terrain throughout the oil and gas producing region of Canada presents soil stability and access problems similar to those encountered in the marsh areas of the U.S. Gulf Coast region. Much of the drilling activity in Canada has historically been conducted when winter temperatures freeze the soil and stabilize it, allowing safe access. Quarterly fluctuations in the Canadian rig count generally reflect the seasonal nature of drilling activity related to these access issues.

     The U.S. Central region and West Texas regions accounted for approximately 16% of 2003 revenues, compared to 14% in 2002. Revenue growth in 2003 is primarily associated with the increase in rig activity and an increase in market share. The increase in market share is principally related to growth in the acceptance of our proprietary drilling fluids products and a reduction in the number of competitors in our liquid mud and fluids transportation business unit.

     Our Mediterranean operations were acquired in May 2002. These operations accounted for approximately 10% of 2003 revenues as compared to approximately 7% in 2002. This recent acquisition provides new market opportunities in the Mediterranean, Eastern Europe and North Africa.

Other Market Trends

     Current short-term industry forecasts suggest that we could see a slight increase in the number of rigs active in our primary Gulf Coast market, but this increase is expected to develop slowly as customers react to the changing risk profile of the market. We anticipate continued market penetration of critical, deep water and geologically deeper wells with our DeepDrill™ and FlexDrill™ families of products, which should help to provide revenue growth as the market recovers.

     Current long-term industry forecasts reflect a stable to growing demand for natural gas, predicated upon improving economic conditions. In addition, current gas reserves are being depleted at a rate faster than current replacement through drilling activities. Because many shallow fields in the Gulf Coast market have been heavily exploited, and because of improved economics, producers are increasing drilling depth to reach the larger gas reserves. We expect gas-drilling activity to be increasingly associated with deeper, more costly wells. We view this trend as favorable to demand for product offerings in all of our segments.

Recent Product Developments

     Over the last several years we have developed several new products and product enhancements in each of our business segments. We have invested a significant amount of financial and human resources in the development of these new products. A large portion of these investments in product developments and enhancements have been made during an extended period of market stagnation or decline, primarily in the Gulf Coast market. We believe that these investments will be the prime drivers of our anticipated growth in 2004.

     Fluids Sales and Engineering. We continue to develop a niche in the drilling fluids market by expanding our customer base, drawing upon increasing acceptance of our proprietary DeepDrill™ technology. We have recently expanded on this technology by introducing the FlexDrill™ system

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that draws from the technology introduced in the DeepDrill™ system several years ago. FlexDrill™ allows the key components of the system to be added to the fluid as the well progresses, reducing total system cost and simplifying the fluid management process. This product line extension has been well received, and we anticipate that, as our Gulf Coast customers increase their activity levels, FlexDrill™ will become a significant part of our revenue mix in that market.

     Mat and Integrated Services. We continue to develop the worldwide market for our Dura-Base™ composite mat system. Our marketing efforts for this product continue to be focused in nine key markets, including Canada, Alaska and the Arctic, Russia, the Middle East, South America, Mexico, Indonesia, the U.S. military and the U.S. utilities markets. We now have completed sales in all of these key markets.

     Over the past several years of marketing this product and evaluating customer acceptance, we have gained valuable information and have begun to modify our marketing and product development strategies accordingly. We have determined that for several of our markets, the current sales price and the long-term life of the Dura-Base™ mat does not correspond well with the short-term nature of customer projects or the unique budgetary constraints of governmental customers. As a result, we are pursuing more rental opportunities, particularly in markets developing in Mexico, and are considering product line extensions that would be more cost competitive.

     We have recently begun marketing the first production run of our new lightweight Bravo Mat™ system and believe that it will substantially broaden the opportunities in mat sales in 2004. This new mat system has been designed specifically for personnel applications by the U.S. military, including walkways and tent flooring, but is likely to have many other applications.

     E&P Waste Disposal. We continue to enter new markets for our environmental services as opportunities arise. During the third quarter of 2003 we opened a disposal facility serving Wyoming’s Jonah-Pinedale trend, and we have already committed to an expansion of that facility. Each geographic area has its unique challenges with respect to environmental matters, and we continue to meet these challenges by developing and applying new and innovative technologies.

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Results of Operations

     Summarized financial information concerning our reportable segments is shown below in the following table (dollars in millions):

     On January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (FAS 142). FAS 142, among other requirements, (i) provides that goodwill not be amortized in any circumstance, and (ii) requires that goodwill be tested for impairment based on a fair value concept. We completed our fair value testing of goodwill balances during the quarter ended March 31, 2002 and determined that our existing goodwill balances were not impaired under the new standard. Upon adoption of FAS 142 on January 1, 2002, we ceased to amortize our remaining goodwill balance. Goodwill amortization was approximately $4.9 million, or $3.8 million net of tax, for the year ended December 31, 2001.

     Effective January 1, 2004, we implemented a financial reporting change in our Canadian operations following a change in management reporting implemented earlier in 2003. As a result of this change, the operating results for the environmental services business unit in Canada will be reported as a component of the E&P waste disposal segment effective January 1, 2004 rather than as a component of the fluids sales and engineering segment. In addition, a portion of the operating costs of the Canadian business unit will begin to be reported as a component of G&A expenses effective January 1, 2004. In future filings, all previously reported segment data will be restated to reflect these changes.

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Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenues

     E&P Waste Disposal: Total revenue for this segment consists of the following for 2003 and 2002 (dollars in millions):

     E&P revenues increased $2.8 million or 6%, on a 10% increase in waste volumes received. During 2003, we received 3.6 million barrels of E&P waste, compared to 3.3 million barrels in 2002. The increase in waste volumes received exceeded the 3% increase in Gulf Coast market rigs active during the comparable periods. We believe this is an indication of the impact of the new discharge limitations on synthetic-based fluids that became fully effective in August 2002. The average revenue per barrel declined 3%, to $12.52, as compared to an average of $12.94 in 2002, as a result of changes in the mix of waste streams received. NORM revenues declined in 2003 due to a decline in event-driven projects.

     Based on new bid activity, we believe that the volume of waste received for remediation projects will increase in 2004 as a result of recent court decisions in landowner litigation. In addition, we continue to believe that the trend towards deeper drilling, particularly in our primary Gulf Coast market, should result in increased volumes of E&P waste receipts for 2004, even if rig activity in this market does not increase.

     As noted above, effective January 1, 2004, we implemented a management reporting change in our Canadian operations. As a result of this change, the operating results for the environmental services business unit in Canada will be reported as a component of the E&P waste disposal segment effective January 1, 2004 rather than as a component of the fluids sales and engineering segment. The Canadian business unit operations included results for the newly opened facilities in the Jonah-Pinedale field discussed below. Total revenues for the Canadian environmental services business unit were $15.4 million in 2003 and $11.0 million in 2002.

     Fluids Sales and Engineering: Total revenue by region for this segment was as follows for 2003 and 2002 (dollars in millions):

     The average number of rigs we serviced in the North American market increased by 14%, from 121 in 2002 to 138 in 2003. Average revenue per rig in the North American market remained relatively flat at approximately $1.4 million. The operations serving the Mediterranean market were acquired effective May 1, 2002.

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     Activity in our primary Gulf Coast market did not recover in 2003 as in other North American markets. After a slow 2003 in the Gulf Coast, we believe that our customer base in that market is showing signs of increased activity. As of January 1, 2004, we have over 22 customers for whom we are preferred providers or have annual contracts in place. We believe their choice of Newpark is driven in large part by acceptance of our proprietary high-performance water-based fluid technology. During 2003, we successfully provided these fluids to over 70 customers and 250 wells. An early indicator of that progress was reflected in record December revenue levels that have been sustained thus far in 2004, although we suspect that this trend will be unpredictable in its early stages.

     Revenues in the Canadian market increased 64% on a 41% increase in average rigs active in the Canadian market. We serviced an average of 27 rigs in the Canadian market in 2003, as compared to 21 in 2002, an increase of 29%. Revenues in the U.S. Central and West Texas regions increased 32%. We serviced an average of 64 rigs in these regions in 2003, as compared to 49 in 2002, an increase of 31%. The significant difference between the increase in revenues and the increase in the number of rigs serviced in these markets reflects the increase in the depth of wells serviced.

     During the second half of 2003, we opened a new liquid waste disposal facility to serve the Jonah-Pinedale field in Wyoming, a very active North American natural gas trend. As currently configured, the Jonah-Pinedale facility could add $2.5 million in annual revenue in 2004. We are currently working on applying a new technology that would boost the effective capacity of the facility and open the door to on-site processing in the field. We believe this would improve revenue and earnings by eliminating transportation cost and strengthening our competitive position in that market. The results for this facility, along with the results for the Canadian environmental business unit, will be reclassified to the E&P Waste Disposal Segment beginning January 1, 2004.

     Mat and Integrated Services: Total revenue for this segment consists of the following for 2003 and 2002 (dollars in millions):

     Average rental pricing for the mat rental market increased to $0.93 per square foot in 2003 from $0.74 per square foot in 2002, an increase of 26%. The highly competitive pricing in this market experienced in 2003 and 2002 began to subside in the fourth quarter as a result of lower mat inventories of all industry participants. The volume of mat installations increased to 16.6 million square feet in 2003 as compared to 15.4 million square feet in 2002, an increase of 8%. Re-rental income (i.e., revenues related to our customer’s extension of agreements beyond the initial contractual period) increased due to the continued trend to longer duration installations resulting from increased well depth. We expect the Gulf Coast mat rental market to show stronger results in 2004 as the industry’s inventory of rental mats continues to decline to new historic lows. Already in 2004 we have begun to see an increase in pricing on new projects, without a corresponding increase in industry activity, primarily as a result of the decline in industry capacity.

     Integrated services and other revenues, our lowest-margin business unit for this segment, includes a comprehensive range of environmental services necessary for our customers’ oil and gas exploration and production activities. These revenues also include the operations of our sawmill in

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Batson, Texas. The increase in 2003 revenues is principally associated with an increase in revenues at our sawmill. The operations of our sawmill are approximately break-even.

     The principal reason for the increase in Canadian revenue was the sale of the majority of the wooden mat rental inventory in 2003 without significant margin contribution. These sales, which totaled $6.4 million, were made in keeping with the strategic shift to become a seller of both wood and composite mats to regional service companies in the geographically diverse Canadian market.

     During 2003, we sold approximately 4,800 composite mats, resulting in $9.3 million in revenues, as compared to $12.7 million of revenue on approximately 7,700 mats sold in 2002. During the past three years, we have sold over 35,000 mats into nine targeted markets worldwide. Some of these markets will remain sales markets, while others will become rental markets over time. Based on market data gathered in 2003, we believe there is a significant rental opportunity in support of expanding exploration and development activity in Mexico. As a result, we plan on opening a new business unit in that country in the first quarter. We will be the majority owner of the business with the Mexican principals who are assisting us in development of the market holding a minority stake.

Operating Income

     E&P Waste Disposal: Operating income for this segment increased $3.4 million, or 42%, on a $2.2 million, or 4%, increase in revenues. The significant increase in operating margin as compared to the increase in revenues is principally due to cost reduction measures implemented beginning in late 2001 and completed by June 30, 2002. The cost reductions included, among other things, our decision not to exercise our option to renew a disposal agreement with U.S. Liquids beyond the June 30, 2002 expiration date. With the termination of this agreement and completion of other cost reduction measures, operating margins for this segment improved significantly beginning in the third quarter of 2002.

     As previously noted, effective January 1, 2004, we implemented a financial reporting change in our Canadian operations following a change in management reporting implemented earlier in 2003. As a result of this change, the operating results for the environmental services business unit in Canada will be reported as a component of the E&P waste disposal segment effective January 1, 2004 rather than as a component of the fluids sales and engineering segment. The Canadian business unit operations included results for the newly opened facilities in the Jonah-Pinedale field discussed above. Total operating income for the Canadian environmental services business unit were $1.5 million in 2003 and $883,000 in 2002.

     Fluids Sales and Engineering: Operating income from fluids sales and engineering increased $286,000, or 2%, in 2003 as compared to 2002. Operating margins for this segment declined from 6.5% in 2002 to 5.6% in 2003. The decline in operating margin principally reflects the decline in Gulf Coast revenues and the resulting operating loss for this business unit and continued market development costs in 2003 that added new customers for 2004. In addition, the operating margin declined as a result of an increase in lower-margin revenue from the Mediterranean and North African markets associated with the acquisition of AVA. The effects of the operating loss for the Gulf Coast business unit and the lower operating margin in our Mediterranean operations were not fully offset by operating profit increases in the other drilling fluids business units.

     We anticipate activity in the Gulf of Mexico market will increase in 2004. This market represents the premium-priced business for this segment. We expect to see margin improvement throughout 2004 as we continue to penetrate the offshore Gulf of Mexico market and gain wider customer acceptance of our higher-margin premium products, such as our DeepDrill™ and FlexDrill™ family of products.

     Mat and Integrated Services: Segment operating contribution declined by $3.1 million to $515,000 for the year. This decline in operating income in spite of the increase in revenues is due to

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higher marketing and operating costs, principally associated with composite mats, and changes in the mix of revenues in 2003 as compared to 2002. Declines in composite mat sales revenue were offset by increases in sales of wooden mats from our rental inventory in Canada and an increase in integrated services revenues with insignificant operating margin contribution.

     The keys to improvement in operating results for this segment in 2004 are anticipated to be increases in composite mat sales and rentals, the continued increase in utilization and, as a result, better pricing for our Gulf Coast inventory due to the decline in industry capacity, and increased non-oilfield projects which generate higher margins than our oilfield projects.

Provision for Uncollectible Accounts

     The provision for uncollectible accounts was recorded in the fourth quarter of 2003 and relates principally to changes in our evaluation of the collectibility of two receivable balances from customers that are in bankruptcy proceedings, and was based upon adverse developments in those proceedings. These customer balances were included in the assets of the Fluids Sales and Engineering Segment.

Impairment of Long-lived Assets

     The charge for impairment of long-lived assets was recorded in the fourth quarter and relates to our evaluation of the net realizable value of assets at our old barite grinding facilities in Channelview, Texas that will either be abandoned or sold when the relocation of these facilities is completed in 2004. The underlying assets were included in the assets of the Fluids Sales and Engineering Segment.

Foreign Currency Exchange Gains

     Net foreign currency gains were $831,000 in 2003 as compared to $170,000 in 2002. The principal components of this increase were realized and unrealized gains on short-term intercompany payable balances of our Canadian operations due to the significant decline in the U.S. dollar against the Canadian dollar in 2003.

Interest Income and Interest Expense

     Net interest expense was $14.6 million for 2003, an increase of $3.1 million, or 27%, as compared to $11.5 million for 2002. The increase in net interest cost is principally due to the absence in 2003 of the $2.2 million benefit recorded in 2002 from an interest rate swap arrangement settled on July 10, 2002. Interest expense was also higher in 2003 compared to the prior year due to an increase of $11.1 million in average outstanding borrowings, principally associated with a temporary year-end draw of $8.0 million to secure a letter of credit arrangement as further discussed in Liquidity and Capital Resources. The increase in the average outstanding borrowings was partially offset by a decline in the average effective interest rate from 8.4% in 2002 to 8.3% in 2003, exclusive of the effect of the swap. The decrease in the effective interest rate resulted from the general decline in interest rates experienced during 2002 and 2003, which were offset in part by higher pricing spreads on our credit facility due to lower earnings and the corresponding reduction in our debt coverage ratios.

Provision for Income Taxes

     We recorded income tax expense of $2.5 million in 2003 and $3.1 million in 2002. This equates to 54.2% of pre-tax income in 2003 and 39.8% of pre-tax income in 2002. The higher effective tax rate in 2003 results principally from the higher mix of foreign income to total consolidated income and from the level of non-deductible business expenses in relation to low pretax income.

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Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Revenues

     E&P Waste Disposal: Total revenue for this segment consists of the following for 2002 and 2001 (dollars in millions):

     E&P waste disposal revenue declined $9.2 million, or 17%, on a 24% decline in waste volumes received. During 2002, we received 3.3 million barrels of E&P waste, compared to 4.3 million barrels in 2001. This decline in waste volumes received is due primarily to the 28% decline in average rigs. The average revenue per barrel increased 6.6% to $12.9 in 2002, as compared to an average of $12.1 in 2001, as a result of favorable changes in the mix of waste streams received, with an increasing proportion of the waste coming from the offshore market in response to regulatory changes.

     Results for the second half of 2002 were impacted by adverse tropical weather. In spite of these weather effects, the decline in receipts during the second half of 2002 as compared to the comparable period in 2001 was only 12%, significantly less than the 24% decline in active rigs in our primary market during this period. This was principally due to the impact of the new discharge limitations on synthetic-based fluids that had recently became fully effective.

     In the third quarter of 2002 we opened a new facility at Galveston, Texas that immediately began to receive waste from customers in that area. NORM revenues declined in 2002 due to a decline in event-driven projects.

     Fluids Sales and Engineering: Total revenue by region for this segment was as follows for 2002 and 2001 (dollars in millions):

NM – Not meaningful

     The average number of rigs we serviced in the North American market declined by 34%, from 183 in 2001 to 120 in 2002. The revenue decline was less than the decline in the number of rigs serviced, as we continued to benefit from our focus on deeper drilling projects in key markets. As a result of this trend, the average annual revenue per rig increased 21% to approximately $1.4 million in 2002, as compared to approximately $1.2 million in 2001. The increased revenue generation per rig is due principally to increasing market participation in the U.S. Gulf of Mexico market, and the improving quality (depth of drilling and difficulty of drilling) of work assigned to us by our customers.

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     In May 2002, we acquired 100% of the outstanding capital stock of AVA, S.p.A., a 48 year old company that provides drilling fluids and related products to exploration companies in the Mediterranean region, Eastern Europe and North Africa. Results of operations for AVA subsequent to the effective date of the acquisition provided $21.9 million in revenues during 2002.

     Mat and Integrated Services: Total revenue for this segment consists of the following for 2002 and 2001 (dollars in millions):

     Pricing of mats rented in the core Gulf Coast market declined substantially compared to a year ago due to reduced drilling activity in this market during 2002, while installation volume remained flat at 15.4 million square feet. Average rental pricing for this market declined to $0.74 per square foot in 2002 from $1.27 per square foot in 2001, a decline of 42%. The volume of re-rentals declined 63% during 2002, as compared to 2001, also as a result of reduced activity. The highly competitive pricing in the Gulf Coast mat rental market experienced in 2002 began to subside in the fourth quarter as a result of increased activity and lower mat inventories.

     During 2002, we sold approximately 7,700 composite mats, resulting in $12.7 million in revenues, as compared to $34.0 million of revenue on approximately 21,000 mats sold in 2001. The decline in Canadian wooden mat rental revenues was principally related to the significant decline in Canadian rig activity and the effects of our customers’ utilization of composite mats sold in 2001.

Operating Income

     E&P Waste Disposal: Operating income for this segment declined $6.8 million on a $9.8 million decline in revenues. As noted previously, in late 2001, we began to reduce costs in this segment, principally associated with our U.S. Liquids contract, in response to reduced market activities. These cost reductions were fully in place by June 30, 2002 and were slightly offset by the costs associated with opening our new Galveston facility and expanding two key service facilities.

     With completion of our cost reduction strategy and the termination of the USL agreement, operating margins for this segment improved significantly beginning in the third quarter of 2002.

     Fluids Sales and Engineering: Operating income from fluids sales and engineering declined $13.8 million, or 52%, in 2002 as compared to 2001. Operating margins for this segment declined from 12.2% in 2001 to 6.5% in 2002. This decline in operating income and operating margin is due in part to lower revenues in 2002, our internal operating leverage and the mix of product sales.

     The operating leverage of this segment was impacted in 2002 by our decision to increase our technical staffing during the downturn. This decision was made in anticipation of an improving market and expansion of our customer base. As a result of this decision, along with the AVA acquisition, operating costs for this segment increased during 2002, in spite of the decline in revenues.

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     The gross margin for this segment was 45.0% in 2002, as compared to 43.8% in 2001. Revenues in 2002 reflected an increase in sales of our higher-margin proprietary products, including our DeepDrill™ family of products. The increase in percentage of these higher-margin product revenues was partially offset by an increase in lower-margin revenue from the Mediterranean and North African markets associated with the acquisition of AVA.

     Mat and Integrated Services: Mat and integrated services operating income declined $29.3 million in 2002 as compared to 2001, on a $55.0 million decline in revenues. The large decline in operating income is primarily due to two factors. First, we experienced lower rental income in our primary oilfield rental business due to a reduction in pricing (from $1.27 to $0.74 per square foot installed) and a significant reduction in re-rental income of $9.6 million, or 63%. Second, we experienced lower composite mat sales in 2002. Composite mat sales generated a gross margin contribution of approximately 45% in 2001.

     In December 2001, we converted approximately $12.1 million of remaining obligations under operating leases for certain equipment to a capital lease. This conversion was made to reduce operating costs, reduce the interest rates charged and extend the payment terms. This conversion reduced operating costs in 2002 by approximately $2 million and helped to partially offset the effects of the revenue declines noted above.

Interest Income and Interest Expense

     Net interest expense was $11.5 million for 2002, a decrease of $2.6 million, or 18%, as compared to $14.1 million for 2001. The decrease in net interest cost is principally due to the interest rate swap arrangement entered into in November 2001 and settled on July 10, 2002. The total benefit from this arrangement, recognized entirely in 2002, was $2.2 million. In addition to the swap arrangement, interest expense was lower in 2002 compared to the prior year due to a decrease of $3.7 million in average outstanding borrowings and a decline in the average effective interest rate from 8.8% in 2001 to 8.4% in 2002, exclusive of the effect of the swap. The decrease in the effective interest rate resulted from the general decline in interest rates experienced during 2001 and 2002, which were partially offset by higher pricing spreads on our credit facility due to lower earnings and the corresponding reduction in our debt coverage ratios.

Provision for Income Taxes

     We recorded income tax expense of $3.1 million in 2002 and $17.9 million in 2001. This equates to 39.8% of pre-tax income in 2002 and 36.0% of pre-tax income in 2001. The higher effective tax rate in 2002 results from certain non-deductible business expenses in relation to low pretax income.

Liquidity and Capital Resources

     Our working capital position was as follows as of December 31:

     During the year ended December 31, 2003, our working capital position increased by $17.5 million. This increase in working capital was principally due to the temporary effect of $8.0 million in restricted cash at December 31, 2003 used to secure a letter of credit obligation and increases in drilling fluids raw materials inventory, principally barite. In January 2003, we acquired the entire raw barite inventory, which had previously been held on a consignment basis. This change from a consignment basis resulted in an increase in inventory of approximately $7.1 million in 2003.

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     During 2003, we reduced our purchase of composite mats to approximately 5,000 units. The manufacturing facility (“LOMA”) is currently not producing any mats due to low demand, and we have reduced the number of planned purchases of composite mats in 2004 to approximately 2,500 units, equal to the remaining inventory held by LOMA. Purchases in 2004 will be based on LOMA’s cash flow requirements until its inventory on hand is exhausted. With this decline in purchases, along with anticipated composite mat sales in 2004, we expect to reduce the level of composite mat inventory by the end of 2004.

     Net trade accounts receivable increased $2.3 million during 2003 on a $52 million increase in revenues. During 2003, days sales in receivable declined by 13 days, from 111 days in 2002 to 98 days in 2003. We continue to monitor our accounts receivable positions and anticipate a further reduction in our collection cycles in 2004, although not as significant as the reduction experienced in 2003.

     We anticipate that our working capital requirements for 2004 will increase as a result of the expected improvement in revenue, related principally to expected market penetration and to modest gains in rig activity. Some of this expected increase in working capital requirements should be offset by our continued focus on improving our collection cycle and anticipated reductions in composite mat inventory. If market conditions improve in 2004 as anticipated, we will likely have to supplement our operating cash flows with borrowings under our credit facility to fund the resulting increase in working capital. We believe we have adequate capacity under our revised credit facility to meet these anticipated working capital needs.

     Cash generated from operations during 2003 totaled $14.8 million, excluding the effects of the $8.0 million restricted cash investment discussed below. This cash was supplemented by net borrowing on our line of credit arrangements to principally fund net capital expenditures of $22.0 million. Net capital expenditures in 2003 were slightly above 2003 depreciation amounts and we anticipate that 2004 capital expenditures will be below 2004 depreciation. We have less than $1.1 million in commitments associated with capital projects for 2004, principally associated with expansion of our environmental operations in the Jonah-Pinedale market. The remaining amounts of 2004 capital improvements are expected to be used principally to expand drilling fluids and environmental service capacity in growing markets as and when needed. Our commitments to expand drilling fluids and environmental capacity will be monitored and adjusted depending on market conditions, our operating cash flows and other available cash resources. We expect to fund 2004 capital expenditures with cash generated from operations.

     Our long term capitalization was as follows as of December 31:

     On February 25, 2004 our bank credit facility the (“Credit Facility”) was amended and restated whereby the form of the facility was converted into an asset-based lending facility (the “New Credit Facility”). Under the New Credit Facility, we can borrow up to $85 million in the form of $15 million in term debt and $70 million in revolving debt. Availability under the revolving portion of the New Credit Facility is based on a percentage of our eligible consolidated accounts receivable and inventory as defined in the New Credit Facility. The New Credit Facility bears interest at either a

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specified prime rate or the LIBOR rate, plus a spread determined quarterly based upon a fixed charge coverage ratio.

     The New Credit Facility is secured by a pledge of substantially all of our domestic assets. The New Credit Facility contains a fixed charge coverage ratio covenant and a tangible net worth covenant. In addition, the New Credit Facility includes a requirement that we maintain a minimum excess availability of $5 million from May 15, 2004 to June 15, 2004.

     As a result of the conversion of the Credit Facility to the New Credit Facility we anticipate approximately a one percent reduction in the effective cost of outstanding borrowings. In addition, the number of financial covenants was significantly reduced in the New Credit Facility. Due to consistently low operating results in 2003, financial covenants under the Credit Facility were modified on numerous occasions, resulting in additional fees. We believe that the structure of the New Credit Facility provides a better source of capital given our current operating environment.

     AVA maintains its own credit arrangements, consisting primarily of lines of credit with several banks, with the lines renewed on an annual basis. Advances under these credit arrangements are typically based on a percentage of AVA’s accounts receivable or firm contracts with certain customers. As of December 31, 2003, AVA had a total of $10.6 million outstanding under these facilities. We do not provide a corporate guaranty of AVA’s debt.

     With respect to off balance sheet liabilities, we lease most of our office and warehouse space, rolling stock and certain pieces of operating equipment under operating leases. We have issued a guaranty of certain debt obligations of the manufacturer of our composite mats (“LOMA”). This guaranty is backed by a letter of credit. The amount of this guaranty as of December 31, 2003 was $8.0 million. In December 2003, we temporarily secured this letter of credit with a certificate of deposit while we negotiated an extension of the Credit Facility, drawing $8.0 million under the Credit Facility for that purpose. With the closing of the New Credit Facility, the obligation to secure this guarantee terminated, and in early March we will cash the certificate of deposit, which was reported as restricted cash in our balance sheet at December 31, 2003, and pay down the New Credit Facility with the proceeds.

     The underlying debt obligation of LOMA matures in approximately five years. The LOMA plant suspended production in May 2003 and has not resumed operations. The ability of LOMA to continue to repay its debt obligations is dependent upon sales of composite mats. We have agreed to purchase from LOMA the mats remaining in its inventory at December 31, 2003 during 2004. Should an increase in composite mat sales not occur, LOMA would not restart production and our guarantee may be called upon to fulfill LOMA’s debt obligation. Since our guarantee is secured by a letter of credit, there would not be any impact on the availability under our New Credit Facility should performance under the guarantee be required.

     We have also issued a guaranty for certain debt obligations of a joint venture (“MOCTX”), which supplies a portion of our wooden mats on a day rate leasing basis. The amount of this guaranty as of December 31, 2003 was $7.4 million.

     Except as described in the preceding paragraphs, we are not aware of any material expenditures, significant balloon payments or other payments on long-term obligations or any other demands or commitments, including off-balance sheet items to be incurred within the next 12 months. Inflation has not materially impacted our revenues or income.

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     A summary of our outstanding contractual and other obligations and commitments at December 31, 2003 is as follows (in millions):

           We anticipate that the obligations and commitments listed above that are due in less than one year will be paid from operating cash flows.

Critical Accounting Policies and Estimates

           Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles, which requires us to make assumptions, estimates and judgments that affect the amounts reported. We periodically evaluate our estimates and judgments related to uncollectible accounts and notes receivable, inventory, customer returns, impairments of long-lived assets, including goodwill and other intangibles and our valuation allowance for deferred tax assets. Note A to the consolidated financial statements contains the accounting policies governing each of these matters. Our estimates are based on historical experience and on our future expectations that are believed to be reasonable. The combination of these factors forms the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our current estimates and those differences may be material.

           We believe the critical accounting policies described below affect our more significant judgements and estimates used in preparing our consolidated financial statements.

Revenue Recognition

           For the fluids sales and engineering segment, revenues are recognized for sales of drilling fluid materials upon shipment of the materials, less an allowance for product returns. Engineering and related services are provided to customers at agreed upon hourly or daily rates and are recognized when the services are performed. The reserve for estimated product returns is based on our historical experience of the percentage of returns, which in turn is based on the size and type of

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rig serviced and the nature of the products consumed by the customer. These percentages are periodically reviewed and updated and are applied to our drilling fluids product sales to determine the required reserve. Revisions to the return reserve are charged or credited to income in the period in which they occur.

     For the E&P waste disposal segment, revenues are recognized when we take title to the waste, which is upon its receipt.

     For the mat and integrated services segment, revenues are recognized on both fixed price and unit-priced contracts, which are short-term in duration, on the percentage of completion method as measured using specific units delivered or project milestones completed. This method is used because we believe it reflects the level of effort expended by us in proportion to the total effort required to complete the contract. Revenues for services provided to customers at agreed upon hourly or daily rates are recognized when the services are performed. Revenues for sales of composite mats are recognized when title passes to the customer.

     For revenues recognized on the percentage of completion basis, provisions for estimated losses on uncompleted contracts are made in the period in which these losses are determined. Changes in job performance, job conditions and estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Profit incentives are included in revenues when their realization is reasonably assured. An amount equal to contract costs attributable to claims is included in revenues when realization is probable and the amount can be reliably estimated.

Allowance for Doubtful Accounts

     Reserves for uncollectible accounts receivable and notes receivable are determined on a specific identification basis when we believe that the required payment of specific amounts owed to us is not probable. For notes receivable, our judgments with respect to collectibility includes evaluating any underlying collateral. The majority of our revenues are from mid-sized and international oil companies and government-owned or government-controlled oil companies, and we have receivables in several foreign jurisdictions. Changes in oil and gas drilling activity or changes in economic conditions in foreign jurisdictions could cause our customers to be unable to repay these receivables, resulting in additional allowances. Since amounts due from individual customers can be significant, future adjustments to the allowance can be material.

Inventory

     Reserves for inventory obsolescence are determined based on our historical usage of inventory on-hand as well as our future expectations related to our customers needs, market conditions and the development of new products. We have recently developed several new products, including our DeepDrill™ family of products and our Dura-Base™ composite plastic mat system. Our inability to obtain market acceptance of these products, changes in oil and gas drilling activity and the development of new technologies associated with the drilling industry could require additional allowances to reduce the value of inventory to the lower of its cost or net realizable value.

Asset Impairments

     We perform goodwill and intangible asset impairment tests on at least an annual basis in accordance with the guidance in Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (FAS 142). We perform long-lived asset impairment tests in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets” (FAS 144). In accordance with FAS 142, impairments are calculated based on a fair value concept. In accordance with FAS 144, impairments are calculated based on a future cash flow concept.

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     We assess the impairment of identifiable intangibles, long-lived assets and related goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered important, which could trigger an impairment review, include the following:

     When we determine that the carrying value of intangibles, long-lived assets and related goodwill may not be recoverable based on one or more of the above indicators, any impairment is calculated in accordance with FAS 142 and FAS 144 and recorded as an impairment loss.

     In 2002, Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” became effective and, as a result, we ceased to amortize our goodwill. In lieu of amortization, we are required to perform an annual impairment review of goodwill.

Income Taxes

     We have net deferred tax assets of $17.5 million at December 31, 2003. We provide for deferred taxes in accordance with FAS 109, “Accounting for Income Taxes.” Under FAS 109, a valuation allowance must be established to offset a deferred tax asset if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized. At December 31, 2003, we had recorded a valuation allowance for all state NOLs. We have considered future taxable income and tax planning strategies in assessing the need for our valuation allowance. Should we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the deferred tax assets would be charged to income in the period this determination was made.

New Accounting Standards

     In July 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (“FAS”) 141, “Business Combinations,” and FAS 142, “Goodwill and Other Intangible Assets.” We adopted these Standards on January 1, 2002, which among other requirements, (i) prohibit the use of the pooling-of-interests method of accounting for business combinations, (ii) create more specific criteria for identifying other intangible assets which are acquired in a business combination, (iii) provide that goodwill not be amortized in any circumstance, and (iv) require that goodwill be tested for impairment annually or when events or circumstances occurring between annual tests indicate that goodwill for a reporting unit might be impaired. FAS 142 established a new method for testing goodwill for impairment based on a fair value concept. We completed our fair value testing of goodwill balances during the quarter ended March 31, 2003 and determined that our existing goodwill balances were not impaired under the new standards. Upon adoption of the Standards on January 1, 2002, we ceased to amortize our remaining goodwill balance. Goodwill amortization was approximately $4.9 million for the year ended December 31, 2001.

     In June 2001, the FASB issued FAS 143, “Accounting for Asset Retirement Obligations”, which is effective for fiscal years beginning after June 15, 2002. FAS 143 requires legal obligations associated with the retirement of long-lived assets to be recognized at their fair value at the time that the obligations are incurred. Upon initial recognition of a liability, that cost should be

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capitalized as part of the related long-lived asset and allocated to expense over the useful life of the asset. Our principal retirement obligations consist of expected costs of site restoration and other cleanup costs at leased facilities for all of our business units, and costs to plug and abandon wells at our disposal facilities owned or leased by our E&P waste disposal segment. We anticipate that the majority of the costs related to asset retirement obligations will be incurred between the years 2022 and 2052. Based on our current business plans, no material expenditures for asset retirement obligations are expected prior to 2012.

     We adopted FAS 143 on January 1, 2003, at which time a liability of $343,000 was recorded as a component of other non-current liabilities, representing the fair value of the expected future liability for asset retirement obligations at the date of adoption. In addition, upon adoption, net assets of $184,000 were recorded, reflecting the unamortized value of the net assets that would have been recorded at the time the obligations originated, less accumulated depreciation from that date to the date of adoption. The gross difference between the net liability and net assets as of the date of adoption was $159,000 and has been recorded as a component of operating expenses. This amount was considered immaterial and was not disclosed as a cumulative effect of accounting change.

     In January 2003, the FASB issued Financial Interpretation Number (“FIN”) 46 “Consolidation of Variable Interest Entities,” which clarifies the application of Accounting Research Bulletin 51, “Consolidated Financial Statements”, to certain entities (called variable interest entities) in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The disclosure requirements of FIN 46 were effective for all financial statements issued after January 31, 2003. The consolidation requirements apply to all variable interest entities created after January 31, 2003. In addition, public companies must apply the consolidation requirements to variable interest entities that existed prior to February 1, 2003 and remain in existence as of the beginning of annual or interim periods beginning after March 15, 2004.

     We are currently assessing the impact of FIN 46 on the reporting for our two variable interest entities. These variable interest entities consist of the 49% interest in LOMA and in MOCTX. These variable interest entities are currently accounted for under the equity method and are not consolidated in our financial statements. It is possible that we could conclude, after completion of our assessment, that one or both of these entities would need to be consolidated in our financial statements. If this were to occur, the assets and the liabilities of the variable interest entity and the operating results of that entity would be consolidated into our financial statements. In addition, the recorded investments in these entities, representing our 49% interest in the equity of the entities, would be eliminated in consolidation and a minority interest, representing the 51% uncontrolled interest, would be recorded.

     If these entities were consolidated, the impact would not be considered material to our results of operations, since all of the operating activity of these variable interest entities is with Newpark or one of our wholly-owned subsidiaries and this activity would be eliminated in consolidation.

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     The unaudited assets and liabilities of LOMA that would be consolidated with our balance sheet, after consideration of elimination entries, at December 31, 2003 are as follows:

     In May 2003, the FASB issued FAS 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” FAS 150 requires that certain financial instruments issued in the form of shares that are mandatorily redeemable, as well as certain other financial instruments, be classified as liabilities in the financial statements. FAS 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise was effective beginning with our third quarter of 2003. The provisions of this statement did not have a material impact on our consolidated financial statements.

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

     We are exposed to certain market risks that are inherent in our financial instruments arising from transactions that are entered into in the normal course of business. Historically, we have not entered into derivative financial instrument transactions to manage or reduce market risk or for speculative purposes. However, in November 2001, we did enter into an interest-rate swap arrangement. A discussion of our primary market risk exposure in financial instruments is presented below.

Long-Term Debt

     We are subject to interest rate risk on our long-term fixed interest rate Senior Subordinated Notes. Our Credit Facility has a variable interest rate and, accordingly, is not subject to interest rate risk. All other things being equal, the fair market value of debt with a fixed interest rate will increase as interest rates fall. Conversely, the fair market value of this debt will decrease as interest rates rise. Our policy has historically been to manage exposure to interest rate fluctuations by using a combination of fixed and variable-rate debt.

     In November 2001, we entered into an interest-rate swap instrument, which effectively converted our Senior Subordinated Notes to a floating rate for a two-year period ending in December 2003. On July 10, 2002, we terminated the swap instrument and received a payment of $1,040,000. The total benefit recognized under the swap instrument as a reduction to interest expense, including the termination fee, was $2.2 million for the year ended December 31, 2002.

     Our Senior Subordinated Notes mature on December 15, 2007. There are no scheduled principal payments under the Notes prior to the maturity date. However, all or some of the Notes

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may be redeemed at a premium after December 15, 2002. We have no current plans to repay the Notes ahead of their scheduled maturity.

Foreign Currency

     Our principal foreign operations are conducted in Canada and, since the acquisition of AVA in 2002, in areas surrounding the Mediterranean Sea. There is exposure to future earnings due to changes in foreign currency exchange rates when transactions are denominated in currencies other than our functional currencies. We primarily conduct our business in the functional currency of the jurisdictions in which we operate. Historically, we have not used off-balance sheet financial hedging instruments to manage foreign currency risks when we enter into a transaction denominated in a currency other than our local currencies because the dollar amount of these transactions has not warranted our using hedging instruments.

FORWARD-LOOKING STATEMENTS

     The foregoing discussion contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” and similar expressions are intended to identify these forward-looking statements but are not the exclusive means of identifying them. These forward-looking statements reflect the current views of our management; however, various risks, uncertainties and contingencies, including the risks identified below, could cause our actual results, performance or achievements to differ materially from those expressed in, or implied by, these statements, including the success or failure of our efforts to implement our business strategy.

     We assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this report might not occur.

     Among the risks and uncertainties that could cause future events and results to differ materially from those anticipated by us in the forward-looking statements included in this report are the following:

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     For further information regarding these and other factors, risks and uncertainties affecting us, we refer you to the risk factors set forth in the Prospectus included in our Registration Statement on Form S-3 filed on May 8, 2002 (File No. 333-87840), and to the section entitled “Forward-Looking Statements” on page 17 of that Prospectus.

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ITEM 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Newpark Resources, Inc.

     We have audited the accompanying consolidated balance sheets of Newpark Resources, Inc. (a Delaware corporation) as of December 31, 2003 and 2002, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits. The financial statements of Newpark Resources, Inc. for the year ended December 31, 2001 were audited by other auditors who have ceased operations and whose report, dated February 22, 2002, expressed an unqualified opinion on those financial statements before the transitional disclosures described in Note C.

     We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the 2003 and 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Newpark Resources, Inc. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States.

     As discussed in Note A to the financial statements, effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“FAS 142”).

     As discussed above, the financial statements of Newpark Resources, Inc. as of December 31, 2001 and for the year then ended were audited by other auditors who have ceased operations. As described in Note C, these financial statements have been revised to include the transitional disclosures required by FAS 142. Our audit procedures with respect to the disclosures in Note C for 2001 included (a) agreeing the previously reported net income and net income applicable to common and common equivalent shares to the previously issued financial statements and the adjustments representing goodwill amortization expense (including any related tax effects) recognized in those periods to the Company’s underlying records obtained from management, and (b) testing the mathematical accuracy of the reconciliation of adjusted net income and adjusted net income applicable to common and common equivalent shares and the related earnings-per-share amounts. In our opinion, the disclosures described above for 2001 in Note C are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financials statements taken as a whole.

/s/ Ernst & Young LLP

New Orleans, Louisiana
March 1, 2004

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

     This is a copy of the audit report previously issued by Arthur Andersen LLP in connection with Newpark’s filing on Form 10-K for the fiscal year ended December 31, 2001. This audit report has not been reissued by Arthur Andersen LLP in connection with this filing on Form 10-K for the fiscal year ended December 31, 2003.

The Board of Directors and Stockholders
Newpark Resources, Inc.

     We have audited the accompanying consolidated balance sheets of Newpark Resources, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Newpark Resources, Inc. and subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

     As explained in Note A to the financial statements, effective January 1, 1999, the Company changed its method of accounting for depreciation on certain of its waste disposal assets and its barite grinding mills from the straight-line method to the units-of-production method.

/s/ Arthur Andersen LLP

New Orleans, Louisiana
February 22, 2002

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Newpark Resources, Inc.
Consolidated Balance Sheets
December 31,

See Accompanying Notes to Consolidated Financial Statements

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Newpark Resources, Inc.
Consolidated Statements of Operations
Year Ended December 31,