OMNI ENERGY SERVICES CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 2001

[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

COMMISSION FILE NUMBER 0-23383

OMNI ENERGY SERVICES CORP.
(Exact name of registrant as specified in our charter)

LOUISIANA 72-1395273
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

4500 N.E. EVANGELINE THRUWAY 70520
CARENCRO, LOUISIANA (Zip Code)
(Address of principal executive offices)

Registrant's telephone number, including area code: (337) 896-6664

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

None

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

Common Stock, $0.01 par value per share

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

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation 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. [ ]

The aggregate market value of the voting stock held by non-affiliates
of the registrant at March 25, 2002 was $ 11,078,100.

The number of shares of the Registrant's common stock, $0.01 par value
per share, outstanding at March 25, 2002 was 27,295,474.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for our 2002 annual
meeting of shareholders have been incorporated by reference into Part III of
this Form 10-K.

OMNI ENERGY SERVICES CORP.
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

-i-

PART I

ITEMS 1 AND 2. BUSINESS AND PROPERTIES

GENERAL

We, OMNI Energy Services Corp., are an oilfield service company
specializing in providing an integrated range of onshore seismic drilling,
permitting, survey and helicopter support services to geophysical companies
operating in logistically difficult and environmentally sensitive terrain in the
United States. Our principle market is the marsh, swamp, shallow water and
contiguous dry land areas along the U.S. Gulf Coast (the "Transition Zone"),
primarily in Louisiana and Texas, where we are the leading provider of seismic
drilling support services. During the latter part of 1997, we commenced
operations in the mountainous regions of the Western United States. Prior to
1999 we had operations in Canada and Bolivia, but in 1999 we ceased our
international operations pending improvements in the international marketplace.

We own and operate a fleet of specialized seismic drilling and
transportation equipment for use in the Transition Zone. We believe we are the
only company that currently can both provide an integrated range of seismic
drilling, permitting, survey and helicopter support services in all of the
varied terrains of the Transition Zone and simultaneously support operations for
multiple, large-scale seismic projects. We recently announced that we had
acquired all of the assets of AirJac Drilling, a division of Veritas Land DGC.
This acquisition creates the largest domestic provider of seismic drilling
services to geophysical companies. We maintain a fleet of helicopters, aviation
and turbine engine inventories and miscellaneous flight and other equipment used
in providing aviation services to our customers.

We were founded in 1987, as OMNI Drilling Corporation, to provide
drilling services to the geophysical industry. In July 1996, OMNI Geophysical,
L.L.C. acquired substantially all of the assets of OMNI Geophysical Corporation,
the successor to the business of OMNI Drilling Corporation. OMNI Energy Services
Corp. ("OMNI") was formed as a Louisiana corporation on September 11, 1997. On
December 4, 1997, we completed a share exchange, pursuant to which the holders
of common units in OMNI Geophysical, L.L.C. exchanged all of the outstanding
common units of OMNI Geophysical, L.L.C. for 12,000,000 shares of OMNI's common
stock, $0.01 par value per share (the "Common Stock"), and completed an initial
public offering of 3,450,000 shares of Common Stock.

INDUSTRY OVERVIEW

Seismic data generally consists of computer-generated three-dimensional
("3-D") images or two dimensional ("2-D") cross sections of subsurface geologic
formations and is used in the exploration for new hydrocarbon reserves and as a
tool for enhancing production from existing reservoirs. Onshore seismic data is
acquired by recording subsurface seismic waves produced by an energy source,
usually dynamite, at various points ("source points") at a project site.
Historically, 2-D surveys were the primary technique used to acquire seismic
data. However, advances in computer technology have made 3-D seismic data, which
provides a more comprehensive geophysical image, a practical and capable oil and
gas exploration and development tool. 3-D seismic data has proven to be more
accurate and effective than 2-D data at identifying potential
hydrocarbon-bearing geological formations. The use of 3-D seismic data to
identify locations to drill both exploration and development wells has improved
the economics of finding and producing oil and gas reserves, which in turn has
created increased demand for 3-D seismic surveys and seismic support services.

Oil and gas companies generally contract with independent geophysical
companies to acquire seismic data. Once an area is chosen for seismic analysis,
permits and landowner consents are obtained, either by us, the geophysical
company or special permitting agents. The geophysical company then determines
the layout of the source and receiving points. For 2-D data, the typical
configuration of source and receiving points is a straight line with a source
point and small groups of specialized sensors ("geophones") or geophone
stations, placed evenly every few hundred feet along the line. For 3-D data, the
configuration is generally a grid of perpendicular lines spaced a few hundred to
a few thousand feet apart, with geophone stations spaced evenly every few
hundred feet along one set of parallel lines, and source points spaced evenly
every few hundred feet along the perpendicular lines. This configuration is
designed by the geophysical company to provide the best imaging of the targeted
geological structures while taking into account surface obstructions such as
water wells, oil and gas wells, pipelines and areas where landowner consents
cannot be obtained. The source points and geophone locations are then marked by
a survey team, and the source points are drilled and loaded with dynamite.

-1-

After the source points have been drilled and loaded and the network of
geophones and field recording boxes deployed over a portion of the project area,
the dynamite is detonated at a source point. Seismic waves generated by the
blast move through the geological formations under the project area and are
reflected by various subsurface strata back to the surface where they are
detected by geophones. The signals from the geophones are collected and
digitized by recording boxes and transmitted to a central recording system. In
the case of 2-D data, the geophones and recording devices from one end of the
line are then shuttled, or "rolled forward," to the other end of the line and
the process is repeated. In the case of 3-D data, numerous source points,
typically located between the first two lines of a set of three or four parallel
lines of geophone stations, are activated in sequence. The geophone stations and
recording boxes from the first of those lines are then rolled forward to form
the next line of geophone stations. The process is repeated, moving a few
hundred feet at a time, until the entire area to be analyzed has been covered.

After the raw seismic data has been acquired, it is sent to a data
processing facility. The processed data can then be manipulated and viewed on
computer work stations by geoscientists to map the subsurface structures to
identify formations where hydrocarbons are likely to have accumulated and to
monitor the movement of hydrocarbons in known reservoirs. Domestically, seismic
drilling and survey services are typically contracted to companies such as OMNI
as geophysical companies have found it more economical to outsource these
services and focus their efforts and capital on the acquisition and
interpretation of seismic data.

DESCRIPTION OF OPERATIONS

We provide an integrated range of onshore seismic drilling, operational
support, permitting, survey and helicopter support services to geophysical
companies operating in logistically difficult and environmentally sensitive
terrain in the United States.

SEISMIC DRILLING SERVICES. Our primary activity is the drilling and
loading of source points for seismic analysis. Once the various source points
have been plotted by the geophysical company and a survey crew has marked their
locations, our drill crews are deployed to drill and load the source points.

In the Transition Zone, we use water pressure rotary drills mounted on
various types of vehicles to drill the source holes. The type of vehicle used is
determined by the nature, accessibility and environmental sensitivity of the
terrain surrounding the source point. Transition Zone source holes are generally
drilled to depths of 40 to 180 feet depending on the nature of the terrain and
the needs of the geophysical company, using ten-foot sections of drill pipe
which are carried with the drilling unit. Our Transition Zone vehicles are
typically manned with a driver and one or two helpers. The driver is responsible
for maneuvering the vehicle into position and operating the drilling unit, while
the helper sets and guides the drill into position, attaches the drilling unit's
water source, if drilling in dry areas, and loads the drill pipe sections used
in the drilling process. Once the hole has been drilled to the desired depth, it
is loaded with dynamite, which is carried onboard our vehicles in special
containers. The explosive charge is set at the bottom of the drill hole and then
tested to ensure that the connection has remained intact. Once the charge has
been tested, the hole is plugged in accordance with local, state and federal
regulations and marked so that it can be identified for detonation by the
geophysical company at a later date. This process is repeated throughout the
survey area until all source points have been drilled and loaded.

In seismic rock drilling, we use compressed air rotary/hammer drills to
drill holes that are typically shallower than Transition Zone holes. Rock drills
are manned by a two-man or three-man crew and are transported to and from
locations by hand, surface vehicle or helicopter. Once the hole has been drilled
to the desired depth, it is loaded with explosives which are delivered to the
job site in an explosive magazine carried by hand, vehicle or helicopter.

-2-

OPERATIONAL SUPPORT SERVICES. We are able to coordinate a variety of
related services to customers performing 3-D seismic data acquisition projects
that produce significant economies and value. Our substantial base of experience
gained from years of work supporting 3-D seismic projects enables us to provide
significant pre-job planning information to the customer during job design
analysis. Typical 3-D seismic data acquisition projects in the field involve
large amounts of equipment, personnel and logistics coordination. Coordination
of movements between permitting, drilling, survey and recording crews is of
critical importance to timely, safe and cost effective execution of the job. We
have a pool of senior field supervisors who have broad seismic industry
experience and are able to coordinate the activities of drill crews, permit
agents and survey teams with the recording crews to achieve improved results.
These personnel also have the ability to recommend changes to the customer field
representatives in the manner of executing the job in the field to improve
performance and reduce costs. By having the ability to perform significant field
coordination, we are able to streamline field decision making and information
flow and reduce customer overhead costs that otherwise would be required to
perform these supervisory tasks. We also have one of the industry's leading
Health, Safety and Environmental ("HSE") programs. The involvement of our
experienced personnel monitoring HSE field practices greatly reduces customer
involvement in this area. By offering the only integrated combination of seismic
drilling, permit acquisition, seismic survey and operational support, in
addition to an equipment fleet that is one of the largest in terms of number of
units and most diverse in the industry, we provide significant operational
advantages to the customer.

PERMITTING SERVICES. In November 2000, we created a "Geophysical Permit
Acquisition Division." Our staff of contract permit agents first conduct
research in public land title records to determine ownership of the lands
located in the seismic projects. The permit agents then contact, negotiate and
acquire permits and landowner consents for the survey, drilling and recording
crews to conduct their operations. Throughout the seismic data acquisition
process, the permit agents assist the crews in the field with landowner
relations and permit restrictions in order to reduce field-crew downtime for
noncompliance with landowner requests. Our permit services are enhanced with the
assistance of a proprietary database software program specifically designed for
efficient management of seismic projects.

At December 31, 2001 we had 9 permit agents under contract conducting
services throughout the Gulf Coast States. These agents have significant
experience in the permit acquisition and management process.

SURVEY SERVICES. Once all permits and landowner consents for a seismic
project have been obtained and the geophysical company has determined the
placement of source and receiving points, survey crews are sent into the field
to plot each source and receiving point prior to drilling. We employ both GPS
(global positioning satellite) equipment, which is more efficient for surveying
in open areas, and conventional survey equipment, which is generally used to
survey wooded areas. We have successfully integrated both types of equipment in
order to complete projects throughout the varied terrain of the Transition Zone
and elsewhere. In addition, the survey crews have access to our extensive fleet
of specialized transportation equipment, as opposed to most other survey
companies which must rent this equipment.

HELICOPTER SUPPORT SERVICES. Through our Aviation division, created
with the acquisition of substantially all of the assets of American Aviation
Incorporated ("American Aviation") in July 1997, we provide helicopter support
services to geophysical companies throughout the continental United States.
Also, we have ongoing offshore contracts with service companies operating in the
Gulf of Mexico, and we provide helicopter support to certain federal and state
governmental agencies when needed. We use long-line helicopters to shuttle
geophones and recorders used to collect seismic data between receiving points.
Once seismic data has been acquired from a portion of the project site, the
geophones and recorders must be moved into position to collect data from the
next area to be analyzed. By using helicopters, we are able to reduce delays in
completing stages of a seismic project by transporting the geophones and
recording boxes to the next receiving points in the survey area in an efficient
manner and with minimal environmental impact. Our helicopters are also used to
transport heli-portable drilling units into remote or otherwise inaccessible
terrain in an efficient and environmentally sensitive manner.

At December 31, 2001 we operated 12 helicopters, 11 of which were
owned. We have decided to reduce the number of aircraft used in our seismic
support services to improve the utilization of our fleet. Since December 31,
2001, we have sold one of the aircraft used in our seismic operations and we are
currently considering plans to sell additional aircraft. Our pilots have an
average of approximately 10,000 flight hours. We perform all routine maintenance
and repairs on our aircraft at our facilities in Carencro, Louisiana.

-3-

INTERNATIONAL OPERATIONS. We commenced line cutting and survey services
in South America in July 1998, in conjunction with the formation of our joint
venture, OMNI International Energy Services - South America, Ltd. During 1999,
we removed a portion of our equipment from South America and reduced operating
levels to a minimum pending improvements in market conditions. We are currently
trying to sell our remaining assets in South America.

FABRICATION AND MAINTENANCE. At our Carencro facilities, we perform all
routine repairs and maintenance for our Transition Zone and highland drilling
equipment. We design and fabricate aluminum marsh all terrain vehicles (ATVs), a
number of our support boats and pontoon boats, and the drilling units we use on
all of our Transition Zone equipment. We purchase airboats directly from the
manufacturer and then modify the airboats to install the drilling equipment. We
have also designed and built a limited number of highland drilling units by
installing our drilling equipment on tractors bought directly from the
manufacturer. We also fabricate rock drilling equipment and have the capability
of fabricating other key equipment, such as swamp ATVs. Because of our ability
to fabricate and maintain much of our equipment, we do not believe that we are
dependent on any one supplier for our drilling equipment or parts.

FACILITIES AND EQUIPMENT

Facilities. In early 1998, we completed the construction of two new
buildings which house our corporate headquarters, fabrication facility and
primary maintenance facility. The buildings are located on approximately 34
acres of land in Carencro, Louisiana. The buildings provide approximately 20,000
square feet of office space and 32,000 square feet of covered maintenance and
fabrication space. From 1999 to 2001, we leased from an affiliate two additional
buildings adjacent to our main headquarters. The buildings provided
approximately 2,500 square feet of office space and 19,000 square feet of
covered maintenance, fabrication and warehouse space. We used these buildings
for the storage and maintenance of a portion of our survey and aviation assets.
The lease on these facilities expired in 2001, at which point we moved the
remaining assets and personnel to our other facilities.

We lease an operations base in Loveland, Colorado to support our rock
drilling operations. We own an office and warehouse facility in Santa Cruz,
Bolivia, which is currently for sale.

Transition Zone Transportation and Drilling Equipment. Because of the
varied terrain throughout the Transition Zone and the prevalence of
environmentally sensitive areas, we employ a wide variety of drilling vehicles.
We believe that we are the only company currently operating in the Transition
Zone that owns and operates all of the following types of equipment:

(1) Twenty-four of these drilling units are currently dedicated to seismic
rock drilling operations outside of the Transition Zone.

(2) Eight of these drilling units are currently being held for sale by us
(See Note 5 to the Consolidated Financial Statements).

Because of our extensive fleet of Transition Zone transportation and
seismic drilling equipment, much of which we fabricate, we believe that we are
the only company that currently can provide an integrated range of seismic
drilling and

-4-

survey services in all of the varied terrains of the Transition Zone and
simultaneously support operations for multiple, large-scale seismic projects.

Highland Drilling Units and Water Buggies. We currently own and operate
59 highland drilling units for seismic drilling in dry land areas, 24 of which
are currently dedicated to our seismic rock drilling operations outside of the
Transition Zone. These units generally consist of a tractor-like vehicle with a
drilling unit mounted on the rear of the vehicle. This highland drilling unit
can be driven over land from point to point and is accompanied by a unit
referred to as a "water buggy" that carries water required for water pressure
rotary drills. This type of vehicle is used around the world for this type of
terrain.

Marsh ATVs. The environmentally sensitive wetlands along the U.S. Gulf
Coast containing water grasses on dry land and in shallow water and areas mixed
with open water are referred to as marsh areas. When there is a minimum amount
of water in these areas, marsh ATVs, which are amphibious vehicles supported by
pontoons that are surrounded by tracks, are used to provide seismic drilling
services. The pontoons enable the marsh ATV to float while the tracks propel the
vehicle through the water and over dry marsh areas. Each marsh ATV is equipped
with a drilling unit and a small backhoe for digging and a small hole to collect
water necessary for drilling.

Some marsh areas have sufficient surrounding water to support drilling
without an external water source, but often water must be pumped into the area
from a remote water source or a portable supply must be carried by the marsh
ATV.

We own and operate 27 marsh ATVs, of which 8 are made of stainless
steel and 19 are made of aluminum. All of the stainless steel marsh ATVs are
being held for sale. The aluminum ATVs are lighter than steel vehicles and are
specifically designed for the environmentally sensitive areas typically found in
marsh terrain. Landowner consents will often require the use of aluminum ATVs in
an effort to reduce the environmental impact of seismic drilling. The aluminum
marsh ATV is the most widely accepted marsh vehicle for drilling operations in
all Louisiana state and federal refuges. We fabricate our own aluminum marsh
ATVs at our facilities in Carencro, Louisiana.

Airboat Drilling Units. We own and operate 35 airboat drilling units.
An airboat drilling unit consists of a drilling unit fabricated and installed by
us on a large, three-engine airboat. Because of their better mobility, airboat
drilling units are used in shallow waters and all marsh areas where sufficient
water is present.

Swamp ATVs and Pullboats. Wooded lowland typically covered with water
are referred to as the "swamp areas" of the Transition Zone. Our swamp ATVs are
used to provide drilling services in these areas. Swamp ATVs are smaller,
narrower versions of the marsh ATVs. The smaller unit is needed in swamp areas
due to the dense vegetation typical in the terrain. Because of its smaller size,
the swamp ATV uses a skid-mounted drilling unit installed in a pullboat, a
non-motorized craft towed behind the swamp ATV. We own and operate 25 swamp ATVs
and 16 pullboats. Swamp ATVs are also used in connection with survey operations
in swamp areas.

Pontoon Boats. We own and operate 16 pontoon boats that are used in
shallow or protected inland bays and lakes and shallow coastal waters. Each
pontoon boat uses a skid-mounted drilling unit installed on board.

Jack-Up Rigs. When a seismic survey requires source points to be
drilled in deeper inland bays or lakes or in deeper coastal waters, we use
jack-up rigs equipped with one of our skid-mounted drilling units. Seismic
activity in water deeper than approximately 20 feet is generally conducted by
using offshore seismic techniques that do not include the drilling and loading
of source points.

Skid-Mounted Drilling Units. A skid-mounted drilling unit is a drilling
unit mounted on I-beam supports, which allows the drilling unit to be moved
easily between pullboats, pontoon boats, jack-up rigs and other equipment we
operate based on customer needs. We manufacture our skid-mounted drilling units
at our facilities in Carencro, Louisiana and we own 17 of these units, one of
which is located outside of the Transition Zone.

Miscellaneous. We own and operate 88 single engine airboats and 21
outboard powered boats, which we use to ferry personnel and supplies to
locations throughout the Transition Zone. We also maintain a fleet of 5
tractor-trailer trucks and numerous other trucks, trailers and vehicles to move
our equipment and personnel to projects throughout the Transition Zone.

-5-

Heli-portable and Seismic Rock Drilling Equipment. We have 37
heli-portable and man-portable drilling units and 36 highland drilling units
dedicated to seismic rock drilling. We also have the ability to manufacture our
own heli-portable and man-portable seismic rock drilling units, and often export
and provide servicing of heli-portable and man-portable drilling units.

Aviation Equipment. The following table sets forth the type and number
of helicopters that are operated by our Aviation division:

(1) We lease this aircraft.

(2) We sold this aircraft subsequent to December 31, 2001.

MATERIALS AND EQUIPMENT

The principal materials and equipment we use in our operations, which
include drills, heli-portable and man-portable drills, drill casings, drill
bits, engines, gasoline and diesel fuel, dynamite, aluminum and steel plate,
welding gasses, trucks and other vehicles, are currently in adequate supply from
many sources. We do not depend upon any single supplier or source for such
materials.

SAFETY AND QUALITY ASSURANCE

We maintain a stringent safety assurance program to reduce the
possibility of costly accidents. Our HSE department establishes guidelines to
ensure compliance with all applicable state and federal safety regulations and
provides training and safety education through orientations for new employees,
which include first aid and CPR training. Our HSE manager reports directly to
our Chief Executive Officer and supervises two HSE field advisors and one
instructor who provides OSHA-mandated training. We believe that our safety
program and commitment to quality are vital to attracting and retaining
customers and employees.

Each drilling crew is supervised at the project site by a field
supervisor and, depending on the project's requirements, an assistant supervisor
and powderman who is in charge of all explosives. For large projects or when
required by a customer, a separate advisor from our HSE department is also
located at the project site. Management is provided with daily updates for each
project and believes that our daily review of field performance together with
the on-site presence of supervisory personnel helps ensure high quality
performance for all of our projects.

Our pilots are trained to FAA FAR 135 (non-scheduled commercial
passenger) or 133 (external load) standards and must satisfy annual FAA
check-rides. Licensed maintenance personnel are deployed to each project site at
which aircraft are used.

-6-

CUSTOMERS; MARKETING; CONTRACTING

Customers. Our customers are primarily geophysical companies, although
in many cases the oil and gas company participates in determining which
drilling, permitting, survey or aviation company will be used on our seismic
projects. A large portion of our revenue has historically been generated by a
few customers. For example, our largest customers (those which individually
accounted for more than 10% of revenue in a given year, listed alphabetically)
collectively accounted for 60% (Eagle Geophysical, Veritas and Western
Geophysical), 34% (Western Geophysical), and 71% (Grant Geophysical, Quantum
Geophysical and Western Geophysical) of revenue for fiscal 1999, 2000 and 2001,
respectively.

Marketing. Our services traditionally have been marketed by our
principal executive officers. We believe that this marketing approach helps us
preserve long-term relationships established by our executive officers. As our
geographical and service capabilities expand, we intend to continue implementing
our marketing efforts in the Transition Zone from our principal offices in
Carencro, Louisiana and in the Rocky Mountain region from Loveland, Colorado.

Contracting - Seismic Drilling. We generally contract with our
customers for seismic drilling services on a unit-price basis, either on a per
hole or per foot basis. These contracts are often awarded after a competitive
bidding process. We price our contracts based on detailed project specifications
provided by the customer, including the number, location and depth of source
holes and the project's completion schedule. As a result, we are generally able
to make a relatively accurate determination prior to pricing a contract of the
type and amount of equipment required to complete the contract on schedule.

Because of unit-price contracting, we frequently bear the risk of
production delays that are beyond our control, such as those caused by adverse
weather. We often bill the customer standby charges if our operations are
delayed due to delays in permitting or surveying or for other reasons within the
geophysical company's control.

Contracting - Permitting Services. We contract with our customers for
permitting services on a day rate or per project basis. Under the per project
basis, revenue is recognized when certain percentages of the permitting process
are completed. Contracts are often awarded to us only after competitive bidding.
In the case of the per project basis, we determine the price after we have taken
into account such factors as the number of permit agents, the number of permits
and the detailed project specification provided by the customer.

Contracting - Survey Services. We contract with our customers for
seismic survey services on a day rate or per mile basis. Under the per mile
basis, revenue is recognized when the source or receiving point is marked by one
of our survey crews. Contracts are often awarded to us only after competitive
bidding. In each case, the price is determined after we have taken into account
such factors as the number of surveyors and other personnel, the type of terrain
and transportation equipment, and the precision required for the project based
on detailed project specifications provided by the customer.

COMPETITION

Seismic Drilling Services. The principal competitive factors for
seismic drilling services are price and the ability to meet customer schedules,
although other factors including safety, capability, reputation and
environmental sensitivity are also considered by customers when deciding upon a
provider of seismic drilling services. We have numerous competitors in the
Transition Zone and, in particular, in the highland areas in which we operate.
We believe that no other company operating in the Transition Zone owns a fleet
of Transition Zone seismic drilling equipment as varied or as large as we ours.
Our extensive and diverse equipment base allows us to provide drilling services
to our customers throughout the Transition Zone with the most efficient and
environmentally appropriate equipment. We believe there are numerous competitors
offering rock and heli-portable drilling in the Rocky Mountain region and
internationally.

Helicopter Support Services. We have numerous competitors that provide
helicopter support services to geophysical companies operating in the Transition
Zone and service companies operating offshore in the Gulf of Mexico. We believe
that we are the only company offering both seismic drilling and long-line
support services in the Transition Zone. We believe that there are numerous
companies offering helicopter services in rock drilling and other mountain
areas, as well as internationally. All of these companies have greater
experience in these areas and several operate more aircraft than we do in these
areas.

-7-

Permitting Services. Our competitors include a number of established
companies with a number of permit agents comparable to us and numerous larger
companies.

Survey Services. Our competitors include a number of established
companies with a number of crews comparable to us and numerous larger companies.

SEASONALITY AND WEATHER RISKS

Our operations are subject to seasonal variations in weather conditions
and daylight hours. Since our activities take place outdoors, the average number
of hours worked per day, and therefore the number of holes drilled or surveyed
per day, generally is less in winter months than in summer months, due to an
increase in rainy, foggy and cold conditions and a decrease in daylight hours.
Furthermore, demand for seismic data acquisition activity by oil and gas
companies in the first quarter is generally lower than at other times of the
year. As a result, our revenue and gross profit during the first quarter of each
year are typically low as compared to the other quarters. Operations may also be
affected by the rainy weather, lightning, hurricanes and other storms prevalent
along the Gulf Coast throughout the year and by seasonal climatic conditions in
the Rocky Mountain area. In addition, prolonged periods of dry weather result in
slower drill rates in marsh and swamp areas as water in the quantities needed to
drill is more difficult to obtain and equipment movement is impeded. Adverse
weather conditions and dry weather can also increase maintenance costs for our
equipment and decrease the number of vehicles available for operations.

BACKLOG

Our backlog represents those seismic drilling projects for which a
customer has hired us and has scheduled a start date for the project. Projects
currently included in our backlog are subject to termination or delay without
penalty at the option of the customer, which could substantially reduce the
amount of backlog currently reported.

As of December 31, 2001, our backlog was approximately $29.3 million
compared to $18.5 million at December 31, 2000. Backlog at December 31, 2001
includes seismic drilling projects in the Transition Zone in addition to seismic
rock drilling projects. We recently announced that our backlog for the year
ending 2002 now exceeds $37.0 million. Our aviation division historically has
not measured backlog due to the nature of our business and our contracts are
generally cancelable by either party with thirty days written notice.

GOVERNMENTAL REGULATION

Our operations and properties are subject to and affected by various
types of governmental regulation, including laws and regulations governing the
entry into and restoration of wetlands, the handling of explosives and numerous
other federal, state and local laws and regulations. To date our cost of
complying with such laws and regulations has not been material, but because such
laws and regulations are changed frequently, it is not possible for us to
accurately predict the cost or impact of such laws and regulations on our future
operations.

Furthermore, we depend on the demand for our services by the oil and
gas industry and are affected by tax legislation, price controls and other laws
and regulations relating to the oil and gas industry generally. The adoption of
laws and regulations curtailing exploration and development drilling for oil and
gas in our areas of operations for economic, environmental or other policy
reasons would adversely affect our operations by limiting demand for our
services. We cannot determine to what extent our future operations and earnings
may be affected by new legislation, new regulations or changes in existing
regulations.

Aviation. As a commercial operator of small aircraft, we are subject to
regulations pursuant to the Federal Aviation Administration Authorization Act of
1994, as amended (the "Federal Aviation Act"), and other statutes. The FAA
regulates our flight operations, and in this respect, exercises jurisdiction
over personnel, aircraft, ground facilities and other aspects of our operations.

We carry persons and property in our aircraft pursuant to authority
granted by the FAA. Under the Federal Aviation Act it is unlawful to operate
certain aircraft for hire within the United States unless such aircraft are
registered with the FAA and the operator of such aircraft has been issued an
operating certificate by the FAA. We have all FAA certificates required to
conduct our helicopter and aviation operations, and all of our aircraft are
registered with the FAA.

-8-

Generally, aircraft may be registered under the Federal Aviation Act
only if the aircraft is owned or controlled by one or more citizens of the
United States and operated pursuant to an operating certificate, which may be
granted only to a citizen of the Untied States. For purposes of these
requirements, a corporation is deemed to be a citizen of the United States only
if, among other things, at least 75% of the voting interest therein is owned or
controlled by United States citizens. In the event that persons other than
United States citizens should come to own or control more than 25% of the voting
interest in us, we have been advised that our aircraft may be subject to
deregistration under the Federal Aviation Act and loss of the privilege of
operating within the United States. None of our aircraft are currently owned, in
whole or in part, by a foreign entity. Our Articles of Incorporation and bylaws
include provisions that are designed to ensure compliance with this requirement.

Explosives. Because we load the holes that are drilled with dynamite,
we are subject to various local, state and federal laws and regulations
concerning the handling and storage of explosives and are specifically regulated
by the Bureau of Alcohol, Tobacco and Firearms of the U.S. Department of
Justice. We must take daily inventories of the dynamite and blasting caps that
we keep for our seismic drilling and are subject to random checks by state and
federal officials. We are licensed by the Louisiana State Police as an
explosives handler. Any loss or suspension of these licenses would result in a
material adverse effect on our results of operations and financial condition. We
believe that we are in compliance with all material laws and regulations with
respect to our handling and storage of explosives.

Environmental. Our operations and properties are subject to a wide
variety of increasingly complex and stringent federal, state and local
environmental laws and regulations, including those governing discharges into
the air and water, the handling and disposal of solid and hazardous wastes, the
remediation of soil and groundwater contaminated by hazardous substances and the
health and safety of employees. In addition, certain areas where we operate are
federally protected or state-protected wetlands or refuges where environmental
regulation is particularly strict. These laws may provide for "strict liability"
for damages to natural resources and threats to public health and safety,
rendering a party liable for environmental damage without regard to negligence
or fault on the part of such party. Sanctions for noncompliance may include
revocation of permits, corrective action orders, administrative or civil
penalties and criminal prosecution. Certain environmental laws provide for
strict, joint and several liability for remediation of spills and other releases
of hazardous substances, as well as damage to natural resources. In addition, we
may be subject to claims alleging personal injury or property damage as a result
of alleged exposure to hazardous substances. Such laws and regulations may also
expose us to liability for the conduct of, or conditions caused by, others, or
for our acts that were in compliance with all applicable laws at the time such
acts were performed.

The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended, and similar laws provide for responses to and liability
for releases of hazardous substances into the environment. Additionally, the
Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act,
the Safe Drinking Water Act, the Emergency Planning and Community Right to Know
Act, each as amended, and similar state or local counterparts to these federal
laws, regulate air emissions, water discharges, hazardous substances and wastes,
and require public disclosure related to the use of various hazardous
substances. Compliance with such environmental laws and regulations may require
the acquisition of permits or other authorizations for certain activities and
compliance with various standards or procedural requirements. We believe that
our facilities are in substantial compliance with current regulatory standards.

Worker Safety. Our operations are governed by laws and regulations
relating to workplace safety and worker health, primarily the Occupational
Safety and Health Act and regulations promulgated thereunder. In addition,
various other governmental and quasi-governmental agencies require us to obtain
certain permits, licenses and certificates with respect to our operations. The
kind of permits, licenses and certificates required in our operations depend
upon a number of factors. We believe that we have all permits, licenses and
certificates necessary to the conduct of our existing business.

-9-

INSURANCE

Our operations are subject to the inherent risks of inland marine
activity, heavy equipment operations and the transporting and handling of
explosives, including accidents resulting in personal injury, the loss of life
or property, environmental mishaps, mechanical failures and collisions. We
maintain insurance coverage against certain of these risks, which we believe are
reasonable and customary in the industry. We also maintain insurance coverage
against property damage caused by fire, flood, explosion and similar
catastrophic events that may result in physical damage or destruction to our
equipment or facilities. All policies are subject to deductibles and other
coverage limitations. We believe our insurance coverage is adequate.
Historically, we have not experienced an insured loss in excess of our policy
limits; however, there can be no assurance that we will be able to maintain
adequate insurance at rates which we consider commercially reasonable, nor can
there be any assurance such coverage will be adequate to cover all claims that
may arise.

EMPLOYEES

As of December 31, 2001, we had approximately 236 employees, including
approximately 204 operating personnel and 32 corporate, administrative and
management personnel. These employees are not unionized or employed pursuant to
any collective bargaining agreement or any similar agreement. We believe our
relations with our employees are generally good.

EXECUTIVE OFFICERS OF THE REGISTRANT

The name, age and offices held by each of the executive officers as of
March 29, 2002 are as follows:

James C. Eckert was appointed our President and Chief Executive Officer in
March 2001. He served as Vice-President for Business Development of Veritas DGC
Land Inc. from 1998 to 2000. Prior to 1998, Mr. Eckert supervised the highland
and transition seismic acquisitions of Veritas DGC Land Inc. Prior to 1992, he
served as President of GFS Company, a company which he co-founded in 1985, until
its acquisition in 1992 by Digicon, Inc., a predecessor by merger to Veritas,
Inc. Mr. Eckert graduated from University of Southern Mississippi in 1971.

Burton T. Zaunbrecher is currently serving as our Company's Executive
Vice-President and Chief Operating Officer. Mr. Zaunbrecher joined us in
November 2000. He served as president of Burton T. Zaunbrecher, Inc., an oil,
gas and mineral lease, and geophysical permit acquisition company, which he
founded in 1990. Prior to 1990, Mr. Zaunbrecher conducted independent
abstracting and land services. Mr. Zaunbrecher graduated from the University of
Southwestern Louisiana in 1984.

G. Darcy Klug is our Chief Financial Officer. He joined us in May 2001
after being involved in private investments since 1987. Between 1983 and 1987,
Mr. Klug held various positions with a private oil and gas fabrication company
including the position of Chief Operating Officer and Chief Financial Officer.
Prior to 1983 he held various financial positions with Galveston-Houston
Company, a manufacturer of oil and gas equipment listed for trading on the New
York Stock Exchange. Between 1973 and 1979, he was a member of the audit staff
of Pricewaterhouse Coopers. Mr. Klug is a graduate of Louisiana State University
and is a member of the Louisiana State Board of Certified Public Accountants.

ITEM 3. LEGAL PROCEEDINGS

We are involved in various legal and other proceedings which are
incidental to the conduct of our business. We believe that none of these
proceedings, if adversely determined, would have a material effect on our
financial condition, results of operations or cash flows.

-10-

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

At the Company's Annual Meeting of Shareholders held on October 11,
2001, a proposal to elect the nominees listed in the following table as
directors of the Company was submitted to a vote of the Company's shareholders.
The following table shows the results of voting as to each nominee:

At the same meeting, the following proposal was also approved by the
Company's shareholders:

-11-

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

(a) Our Common Stock is listed for quotation on the Nasdaq National
Market under the symbol "OMNI". At March 25, 2002 we had 115 shareholders of
record of Common Stock. The following table sets forth the range of high and low
sales prices of our Common Stock as reported by the Nasdaq National Market for
the periods indicated.

We have never paid cash dividends on our Common Stock. We intend to
retain future earnings, if any, to meet our working capital requirements and to
finance the future operations of our business. Therefore, we do not plan to
declare or pay cash dividends to holders of our Common Stock in the foreseeable
future. In addition, certain of our credit arrangements contain provisions that
limit our ability to pay cash dividends on our Common Stock.

-12-

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data as of and for the five years ended December
31, 2001 are derived from our audited consolidated financial statements. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and notes thereto included elsewhere in
this Annual Report.

(1) Reflects an increase in interest expense as a result of the incurrence of
indebtedness to finance the repurchase of outstanding preferred units of
OMNI Geophysical and the distribution to the members of OMNI Geophysical,
as if such event had occurred on January 1, 1997.

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(2) Each of OGC, OMNI Geophysical and American Aviation was an S corporation
or a limited liability company exempt from income tax at the entity
level, and thus the historical consolidated financial statements prior to
December 4, 1997 show no provision for income taxes. Effective December
4, 1997, we became subject to income taxes at the corporate level. This
pro forma adjustment reflects a provision for income taxes on our net
income at a combined federal and state tax rate of 40%.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934 (the "Exchange Act"), which reflect
management's best judgment based on factors currently known. Actual results
could differ materially from those anticipated in these "forward looking
statements" as a result of a number of factors, including but not limited to
those discussed under the heading "Cautionary Statements." "Forward looking
statements" provided by us pursuant to the safe harbor established by the
federal securities laws should be evaluated in the context of these factors.

This discussion and analysis should be read in conjunction with our
consolidated financial statements and notes thereto.

RECENT DEVELOPMENTS

In the fourth quarter of 2000, we began experiencing a significant increase
in the number of bid requests from our customers. This resulted in an increase
in our backlog from December 31, 2000 of $18.5 million to $29.3 million at
December 31, 2001.

In November 2001 we completed negotiations with our lenders to extend the
maturity of all of our senior credit facilities to August 2004, restructure the
amortization of the term debt, and reduce the rate of interest paid on certain
outstanding indebtedness.

We recently announced the acquisition of the assets of AirJac Drilling, a
division of Veritas DGC Land, Inc., a seismic drilling support company
headquartered in New Iberia, Louisiana. The aggregate purchase price was $2.0
million cash. In this acquisition we acquired the following types of equipment:

GENERAL

Demand. We receive our revenues from customers in the energy industry.
Demand for our services is principally impacted by conditions affecting
geophysical companies engaged in the acquisition of 3-D seismic data. The level
of activity among geophysical companies is primarily influenced by the level of
capital expenditures by oil and gas companies for seismic data acquisition
activities. A number of factors affect the decision of oil and gas companies to
pursue the acquisition of seismic data, including (i) prevailing and expected
oil and gas demand and

-14-

prices; (ii) the cost of exploring for, producing and developing oil and gas
reserves; (iii) the discovery rate of new oil and gas reserves; (iv) the
availability and cost of permits and consents from landowners to conduct seismic
activity; (v) local and international political and economic conditions; (vi)
governmental regulations; and (vii) the availability and cost of capital. The
ability to finance the acquisition of seismic data in the absence of oil and gas
companies' interest in obtaining the information is also a factor as some
geophysical companies will acquire seismic data on a speculative basis.

During 1999, with the reduction in the price of oil and gas, we began
to experience a decrease in demand for our services. In 2001, the market
experienced a rebound. For the years ended December 31, 1999, 2000 and 2001, our
operating revenues were $32.7 million, $16.6 million, and $23.7 million,
respectively.

Seasonality and Weather Risks. Our operations are subject to seasonal
variations in weather conditions and daylight hours. Since our activities take
place outdoors, on average, fewer hours are worked per day and fewer holes are
generally drilled or surveyed per day in winter months than in summer months due
to an increase in rainy, foggy, and cold conditions and a decrease in daylight
hours.

RESULTS OF OPERATIONS

The following discussion provides information related to the results of
our operations.

Year Ended December 31, 2000 Compared to the Year Ended December 31,
2001

Operating revenues increased 43%, or $7.1 million, from $16.6 million
to $23.7 million for the years ended December 31, 2000 and 2001, respectively.
This increase was due primarily to an upswing in the seismic market in 2001. As
a result, drilling revenues doubled from $8.9 million for the year ended
December 31, 2000 to $18.0 million for the year ended December 31, 2001. Our
newly formed permitting division reported revenues of $1.5

-15-

million for the year ended December 31, 2001 with no revenues reported for the
corresponding period of 2000. Survey revenues decreased from $1.4 million for
the year ended December 31, 2000 to $0.6 million for the year ended December 31,
2001, primarily due to our decision to concentrate our personnel, equipment and
available working capital on the more profitable segments of the seismic
industry. Aviation revenues decreased from $6.3 million for the year ended
December 31, 2000 to $3.7 million for the year ended December 31, 2001 as we
continue to reduce our seismic aviation fleet to concentrate on the more
profitable offshore market. Operating revenues in 2002 are expected to continue
to increase due to an increased demand for our services.

Operating expenses increased 3%, or $0.7 million, from $20.2 million in
2000 to $20.9 million in 2001. Operating payroll expense increased $0.4 million
from $8.0 million to $8.4 million for the years ended December 31, 2000 and
2001, respectively. The significant increase in seismic activity has resulted in
a corresponding increase in the amount of personnel employed, as the average
number of field employees has increased to 172 in 2001 compared to 155 in 2000.
Also, as a result of the increased activity levels in 2001 as compared to 2000,
explosives expenses increased $1.1 million from $0.9 million for the year ended
December 31, 2000 to $2.0 million for the year ended December 31, 2001.
Contracting services increased $2.2 million from $0.2 million for the year ended
December 31, 2000 to $2.4 million for the year ended December 31, 2001
principally as a result of the commencement of our newly formed permitting
division. These increases were partially offset by a $2.5 million decrease in
the repairs and maintenance expense, rental expense and related insurance
expense on leased aviation equipment. The decreases resulted from fewer
helicopters being leased from third parties during 2001 compared to 2000.
Depreciation expense and property and casualty insurance expense decreased $0.5
million from the year ended December 31, 2000 to the year ended December 31,
2001 because of an overall reduction in our operating equipment. Operating
expenses are expected to continue to increase in 2002 as operating revenues
increase.

Gross profit increased $6.4 million, or 178%, from a gross loss of
$(3.6 million) to a gross profit of $2.8 million for the years ended December
31, 2000 and 2001, respectively. This increase is a result of increased business
activity in our more profitable business segments, increased prices received for
the services provided and more stringent controls over operating expenses.

General and administrative expenses decreased $2.9 million, or 48%,
from $6.0 million for 2000 compared to $3.1 million for 2001. Payroll expenses
accounted for 45% of this decrease as they decreased $1.3 million from $2.5
million for the year ended December 31, 2000 to $1.2 million for the year ended
December 31, 2001. This decrease is due to a 30% reduction in the average number
of administrative employees between the periods, as well as significantly
reduced base compensation levels of our management. We realized approximately
$1.2 million in savings during 2001 by renegotiating certain lease and vendor
agreements with terms more favorable to us than those agreements in 2000. We
experienced a $0.1 million reduction in each of entertainment and communications
expenses from the year ended December 31, 2000 to the year ended December 31,
2001. Amortization expense decreased $0.2 million from $0.4 million to $0.2
million for the years ended December 31, 2000 and 2001, respectively, due to the
asset impairment charges realized in the latter part of 2000 (See Note 5).
General and administrative expenses are expected to increase slightly in 2002
due to increased business activity.

During 2001, we realized asset impairment charges of $0.6 million (See
Note 5) compared to $11.3 million in 2000..

Interest expense was $1.3 million for the year ended December 31, 2001
compared to $3.0 million for the year ended December 31, 2000.

Other income increased $9.8 million from $(1.8) million for the year
ended December 31, 2000 to $7.9 million for the year ended December 31, 2001.
The increase is primarily from the receipt of $7.5 million in proceeds from a
key-man life insurance policy procured on the life our CEO, who was killed in a
private aircraft accident in February 2001. The increase was also due to $1.8
million of net losses on the sale of assets in 2000 offset by $0.1 million in
interest income in 2001.

For the year ended December 31, 2000 and 2001, losses incurred by us
generated additional net operating loss carryforwards for which a reserve has
been provided (see Note 10), resulting in income tax benefit/expense of $0 in
each year.

-16-

Accretion of preferred stock increased $0.7 million from $0 for the
year ended December 31, 2000 to $0.7 million for the year ended December 31,
2001. The increase is due to the accretion of dividends at 8% during the free
dividend period from April 2001 through June 2002 for our preferred stock.

Year Ended December 31, 1999 Compared to the Year Ended December 31,
2000

Operating revenues decreased 49%, or $16.1 million, from $32.7 million
to $16.6 million for the years ended December 31, 1999 and 2000, respectively.
The decrease was due primarily to a depressed seismic market throughout 2000. As
a result of the decline in the seismic activity and adverse pricing during the
last year, drilling and survey revenues decreased $7.3 million and $3.1 million,
to $8.9 million and $1.4 million, respectively, for the year ended December 31,
2000. No revenues were generated from our South American joint venture for the
year ended December 31, 2000 compared to $2.3 million in the prior year.

Operating expenses decreased 43%, or $15.2 million, from $35.4 million
in 1999 to $20.2 million in 2000. Declines in payroll costs accounted for 59% of
this decrease as operating payroll expense decreased from $16.8 million to $8.0
million for the years ended December 31, 1999 and 2000, respectively. The
significant decrease in seismic activity has resulted in a corresponding
decrease in the amount of personnel employed, as the average number of field
employees has declined to 155 in 2000 compared to 291 in 1999. Also, as a result
of the lower activity levels in 2000 as compared to 1999, explosives, repairs
and maintenance and rentals and leases expenses decreased $3.7 million from $8.7
million for the year ended December 31, 1999 to $5.0 million for the year ended
December 31, 2000.

Gross operating loss increased $0.8 million, or 29%, from $(2.8
million) to $(3.6 million) for the years ended December 31, 1999 and 2000,
respectively, primarily as a result of substantially lower domestic revenues
from our Drilling, Aviation and Survey segments.

-17-

General and administrative expenses were $12.3 million for 1999
compared to $6.0 million for 2000, resulting in a 51% decrease. Payroll expenses
decreased $2.4 million from $4.9 million for the year ended December 31, 1999 to
$2.5 million for the year ended December 31, 2000. These decreases are due to
the reduction in the workforce implemented by us due to the declines in the
market environment. Bad debt expense decreased $2.4 million from $2.4 million in
December 31, 1999, all of which in 1999 related to a customer that filed
bankruptcy. We experienced a 53% reduction in travel, office and supplies,
communications, and rentals and leases expenses due to decreased activity levels
from $1.5 million to $0.7 million in the years ended December 31, 1999 and 2000,
respectively. Amortization expense decreased $0.5 million from $0.9 million to
$0.4 million for the years ended December 31, 1999 and 2000, respectively, due
to the asset impairment charges realized in 2000 (See Note 5).

During 2000, we realized asset impairment charges of $11.3 million (See
Note 5) compared to $10.3 million in 1999.

Interest expense was $3.0 million for each of the years ended December
31, 1999 and 2000.

Due to losses in the year ended December 31, 1999, we recorded an
income tax benefit of $1.3 million. For the year ended December 31, 2000, losses
incurred by us generated additional net operating loss carryforwards for which a
reserve has been provided (see Note 10) resulting in a $0 income tax benefit for
the year ended December 31, 2000.

LIQUIDITY AND CAPITAL RESOURCES

During the second half of fiscal 2000 and the first half of fiscal
2001, we significantly improved our capital structure and future liquidity
prospects by experiencing an increase in customer bidding activity, receiving a
series of new capital contributions, receiving a significant life insurance
settlement and completing a series of financial restructurings. During the
fourth quarter of 2000 and the first quarter of 2001, we successfully raised
$5.1 million of new equity capital, and after the death of our CEO, we received
$7.5 million in proceeds from a key-man life insurance policy. With the proceeds
we repaid approximately $2.0 million of secured indebtedness. We reached an
agreement to eliminate all of the remaining subordinated debt to an affiliate by
the payment of approximately $1.0 million to satisfy $2.0 million of the
indebtedness and the issuance of shares of Series B Preferred Stock for the
remaining outstanding balance. We extended the maturity dates for all of our
secured indebtedness outstanding; and negotiated a 1.5% fixed interest rate
reduction on approximately $6.9 million of this secured indebtedness. Our
backlog at December 31, 2001 approximated $29.3 million, compared to $18.5
million at December 31, 2001.

In the years ended December 31, 1999, 2000 and 2001, we privately
placed a total of $7.5 million, $3.4 million and $1.5 million, respectively, in
subordinated debentures with an affiliate. The debentures had interest rates of
either a fixed rate of 12% or a rate that started at 12% and escalated over the
life of the note to 20%. The debentures were due five years from the date of
issuance with interest payable quarterly. In connection with these debentures,
we issued warrants to purchase 5,738,500 shares of our common stock. The
warrants had vesting periods from immediate vesting to four years and exercise
prices from $0.75 to $5.00. We recorded each warrant at its relative fair value
at date of issuance.

In July 2000, we entered into a series of transactions with an
affiliate that enabled us to factor, with recourse to us, substantially all of
the trade receivables of a major customer totaling approximately $1.0 million.
This receivable had become ineligible under the terms of our revolving credit
facility with Hibernia National Bank. In exchange for us transferring ownership
rights and title in the trade receivables of the major customer to the
affiliate, the affiliate forgave approximately $1.0 million in principal on the
oldest subordinated debt. We incurred a fixed interest rate charge of 1.5% on
the $1.0 million in principal advanced against the trade receivables
transferred. We guaranteed repayment of the trade receivables and as of December
2001 have received $0.8 of the $1.0 million due. The remaining $0.2 million has
been classified as due to affiliate.

On October 31, 2000, we completed the private placement of
approximately 6.9 million shares of common stock for approximately $4.3 million.
The purchasers of the common stock also received options or warrants to acquire
approximately 2.8 million shares of common stock at an exercise price of $0.75
per share. The terms of the private

-18-

placement gave the shareholders the right to put their stock back to us in the
event of the death of our CEO. To secure this put right, we purchased key-man
life insurance on our CEO in the amount of $7.5 million. In addition, we issued
800 shares of Series A Preferred Stock for $0.8 million in cash and also
converted approximately $4.6 million of subordinated debt to 4,550 shares of
Series A Preferred Stock. This conversion reduced the amount of outstanding
subordinated debentures to $5.5 million at December 31, 2000. In connection with
the completion of these capital transactions, we reached agreements with our
secured lenders to extend the maturity dates of approximately $13 million in
outstanding indebtedness until January 2002.

The proceeds of the private placement of stock were used to repay $1.3
million of secured indebtedness and provide working capital.

On February 10, 2001, our CEO was killed in a private aircraft
accident. As a result of this event, we received $7.5 million in proceeds from
the key-man life insurance policy purchased in connection with the
aforementioned private placement. We received from the private placement
shareholders waivers of their put rights upon his death. In connection with the
receipt of these waivers, we also obtained from our secured lenders commitments
to modify the existing agreements upon our receipt of the life insurance
proceeds. Under these revised commitments, the maturity dates were extended to
August 31, 2002 from January 2002. Additionally, we negotiated an interest rate
reduction on $6.9 million of the secured indebtedness from prime plus 3% to
prime plus 1.5%. In connection with the revised commitments, we were required to
repay $2.0 million of existing term indebtedness and convert into preferred
stock the remain outstanding subordinated debt. We used a portion of the
insurance proceeds to fund the $2.0 million payment of existing term
indebtedness. The outstanding balance on the secured indebtedness at December
31, 2001 is $4.0 million.

In May 2001, we reached an agreement with the holders of our
outstanding subordinated debt, to repay $1.0 million in satisfaction of $2.0
million of indebtedness and issue shares of Series B Preferred Stock to satisfy
the remaining outstanding principal and interest owed under the agreements. The
number of shares to be issued was 100 shares per $1,000 of principal and
interest owed on the date of the exchange.

At December 31, 2001, we had approximately $1.2 million in cash
compared to approximately $0.3 million at December 31, 2000. We had working
capital of approximately $2.3 million at December 31, 2001, compared to
approximately ($3.4 million) at December 31, 2000. The increase in working
capital is due to improved profitability resulting in a significant decrease in
accrued expenses, a significant increase in accounts receivable, and the
classification of the line of credit as long-term.

Cash provided by (used in) operating activities was $6.4 million and
($5.6 million) in the years ended December 31, 2001 and 2000, respectively. Our
net income (loss) was the single largest contributing factor in both years.

We have outstanding a revolving line of credit agreement (the Line)
with a bank. Availability under the Line is the lower of: (i) $5.0 million or
(ii) the sum of 80% of eligible accounts receivable, plus 25% of eligible
aviation inventory of parts and supplies. The Line accrues interest at the prime
interest rate plus 1.5% (6.25% at December 31, 2001) and matures on August 31,
2004. The weighted-average interest rate on the Line was 12.1% and 9.2% for the
years ended December 31, 2000 and 2001, respectively. The Line is collateralized
by our accounts receivable and inventory. As of December 31, 2001 we had $2.0
million outstanding under the Line. Additional borrowing capacity under the Line
was $1.0 million as of December 31, 2001.

At December 31, 2001, we also had approximately $8.0 million in other
loans outstanding, including approximately $2.4 million in outstanding debt
pursuant to agreements with a financing company. This loan is an asset-based
financing loan bearing interest at LIBOR plus 5.0%. As previously mentioned, we
have renegotiated an extended maturity to August 31, 2004 from August 31, 2002.
Also included in the $8.0 million in other loans is approximately $4.7 million
in outstanding debt to a financing company pursuant to our acquisition of our
aviation fleet previously operated under an operating lease. This loan is
secured by the aviation fleet, amortizes over ten years, accrues interest at 8%
per annum and matures January 1, 2007.

-19-

Historically, our capital requirements have primarily related to the
purchase or fabrication of new seismic drilling equipment and related support
equipment and business acquisitions. In 2001 we acquired approximately $0.4
million of new vehicles accounted for as a capital lease. Other than the
acquisitions discussed in Notes 12 and 14, we have no material commitments
outstanding for expenditures nor do we anticipate acquiring a significant amount
of capital assets in 2002.

CONTRACTUAL COMMITMENTS

We have the following contractual obligations as of December 31, 2001:

We believe that cash flow generated from operations in 2002 will be
sufficient to fund our working capital needs and debt service requirements for
at least the next twelve months.

CAUTIONARY STATEMENTS

This Annual Report contains "forward-looking statements." Such
statements include, without limitation, statements regarding our expectations
regarding revenue levels, profitability and costs, the expected results of our
business strategy, and other plans and objectives of management for future
operations and activities.

Important factors that could cause actual results to differ materially
from our expectations include, without limitation, our dependence on activity in
the oil and gas industry, risks associated with our rapid growth, dependence on
a relatively small number of significant customers, seasonality and weather
risks, the hazardous conditions and difficult terrain in which we operate, and
risks associated with our international expansion. Many of these factors are
beyond our control.

RELATED PARTY TRANSACTIONS

During the year ended December 31, 2001 we leased a facility from a
major shareholder at a total lease expense of $0.1 million, which approximated
market values. We were under a lease contract for a portion of 2001 (See Note
8). See also Notes 4 and 9 for other transactions with our affiliates.

In July 2000, we entered into a series of transactions with the same
affiliate that enabled us to factor, with recourse, approximately $1.0 million
of the trade receivable of a major customer. This receivable had become
ineligible under the terms of our Line. As of December 31, 2001 we are liable to
the affiliate for approximately $0.2 million, which is payable in twelve equal
monthly installments commencing 30 days after execution of the definitive
repayment agreement between us and the affiliate.

During the years ended December 31, 1999, 2000 and 2001, we privately
placed with an affiliate subordinated debentures totaling $7.5 million, $3.4
million and $1.5 million, respectively. The debentures matured five years from
their date of issue and accrued interest at various rates ranging from a fixed
rate of 12% per annum to a variable rate of interest starting at 12% per annum
and escalating to 20% per annum. In October 2000, we agreed to convert $4.6
million of the subordinated debentures into our Series A Preferred Stock. In May
2001, we agreed to pay the affiliate $3.0 million cash plus issue to the
affiliate $4.6 million of the Company's Series B

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Preferred Stock in full satisfaction of all of the remaining outstanding
subordinated debentures including accrued interest of $1.8 million. This
transaction resulted in the affiliate agreeing to forgive $1.0 million of
indebtedness which has been reflected as a capital contribution from the
affiliate rather than as income in the accompanying financial statements. (See
Note 9 regarding the accounting for preferred stock.)

In connection with the original issuance of the subordinated
debentures, we issued to the affiliate detachable warrants to purchase 5,738,500
shares of our common stock, of which 2,901,000 have been cancelled as of
December 31, 2001. The remaining 2,837,500 warrants outstanding are all
exercisable with exercise prices ranging from $0.75 to $2.00 per share.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of financial condition and results of
operation are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. We evaluate our estimates on an on-going basis, based on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation on our consolidated
financial statements.

We extend credit to customers and other parties in the normal course of
business. We regularly review outstanding receivables, and provide for estimated
losses through an allowance for doubtful accounts. In evaluation the level of
established reserves, we make judgments regarding the parties' ability to make
required payments, economic events and other factors. As the financial condition
of these parties change, circumstances develop or additional information becomes
available, adjustments to the allowance for doubtful account may be required.
Due to the nature of our industry, we have a concentration of credit risks. As a
result, adjustments to the allowance for doubtful accounts may be significant.

We have made significant investments in inventory to service our
equipment. On a routine basis, we use judgments in determining the level of
reserves required to state inventory at the lower of cost or market. Our
estimates are primarily influenced by technological innovations, market activity
levels and the physical condition of products. Changes in these or other factors
may result in adjustments to the carrying value of inventory.

Deferred tax assets and liabilities are recognized for differences
between the book basis and tax basis of our net assets. In providing for
deferred taxes, we consider current tax regulations, estimates of future taxable
income and available tax planning strategies. We have established reserves to
reduce our net deferred tax assets to estimated realizable value. If tax
regulations change, operating results or the ability to implement tax planning
strategies vary, adjustments to the carrying value of our net deferred tax
assets and liabilities may be required.

We record liabilities for environmental obligations when remedial
efforts are probable and the costs can be reasonably estimated. Our estimates
are based on currently enacted laws and regulations. As more information becomes
available or environmental laws and regulations change, such liabilities may be
required to be adjusted. Additionally, in connection with acquisitions, we
obtain indemnifications from the seller related to environmental matters. If the
indemnifying parties do not fulfill their obligations, adjustments of recorded
amounts may be required.

We maintain insurance coverage for various aspects of our business and
operations. We retain a portion of losses that occur through the use of
deductibles and self-funded insurance programs. We regularly review estimates of
reported and unreported claims and provide for losses through insurance
reserves. As claims develop and additional information becomes available,
adjustments to loss reserves may be required.

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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," establishes
accounting and reporting standards that every derivative instrument be recorded
in the balance sheet as either an asset or a liability measured at our fair
value. We adopted SFAS 133 on January 1, 2001; however, adoption did not have a
material impact on our financial position.

In July 2001, SFAS No. 141, " Business Combinations" and SFAS No. 142,
" Goodwill and Other Intangible Assets" were issued. SFAS 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method. Under SFAS 142, goodwill and intangible assets with
indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment. Separable intangible
assets that are not deemed to have indefinite lives will continue to be
amortized over their useful lives (but with no maximum life). The amortization
provisions of SFAS 142 apply to goodwill and intangible assets acquired after
June 30, 2001. With respect to goodwill and intangible assets acquired prior to
July 1, 2001, we are required to adopt SFAS 142 effective January 1, 2002. As of
December 31, 2001, we have goodwill, net of accumulated amortization, of $2.0
million. We believe that adoption of the provisions of SFAS 142 that are
effective January 1, 2002 will not have an adverse effect on our results of
operations and financial condition. We recognized approximately $103,000 and
$21,000 in goodwill amortization expense for the year ended December 31, 2001
and 2000, respectively.

In August 2001, SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" was issued. These new rules on asset impairment
supersede SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," and will be effective for our fiscal
year beginning January 1, 2002. We are currently evaluating the impact that
adoption of this standard will have on our financial statements.

On June 29, 2001 the American Institute of Certified Public
Accountants (AICPA) released an exposure draft of a proposed Statement of
Position (SOP), " Accounting for Certain Costs and Activities Related to
Property, Plant, and Equipment." This proposed SOP would change, among other
things, the method by which companies would account for normal, recurring or
periodic repairs and maintenance costs related to "in-service" fixed assets. It
would require that these types of expenses would be recognized when incurred
rather than accruing these expenses while the asset is in service. We are
assessing the impact of the change should this SOP be adopted.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

We are exposed to interest rate risk due to changes in interest rates,
primarily in the United States. Our policy is to manage interest rates through
the use of a combination of fixed and floating rate debt. We currently do not
use any derivative financial instruments to manage our exposure to interest rate
risk. The table below provides information about the future maturities of
principal for outstanding debt instruments at December 31, 2001. All instruments
described are non-traded instruments and approximated fair value.

Foreign Currency Risks

Our transactions are in U.S. dollars. Previously, we had one
subsidiary, which conducted our operations in Canadian dollars. However, those
operations were closed in July 1999. Currently, the South American joint venture
transacts all of its activity in U.S. dollars. Operations in South America have
been curtailed pending future developments in that market.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of OMNI Energy Services Corp.:

We have audited the accompanying consolidated balance sheets of OMNI Energy
Services Corp. and subsidiaries, a Louisiana corporation, as of December 31,
2000 and 2001, and the related consolidated statements of operations, changes in
equity and comprehensive loss 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 these 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 financial position of OMNI Energy Services Corp. and
subsidiaries as of December 31, 2000 and 2001 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.

ARTHUR ANDERSEN LLP

New Orleans, Louisiana
March 14, 2002

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OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 2001

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

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OMNI ENERGY SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 2001

LIABILITIES AND STOCKHOLDERS' EQUITY

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

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OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

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

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OMNI ENERGY SERVICES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
(DOLLARS IN THOUSANDS)