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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

For the fiscal year ended September 30, 2004

OR

For the Transition Period From             to              .

Commission file number 1-10570

BJ SERVICES COMPANY

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (713) 462-4239

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

Securities Registered Pursuant to Section 12(g) of the Act: None

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 (§229.405 of this chapter) 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  x.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    YES  x    NO  ¨.

At January 14, 2005, the registrant had outstanding 162,455,493 shares of Common Stock, $.10 par value per share. The aggregate market value of the Common Stock on March 31, 2004 (based on the closing prices in the daily composite list for transactions on the New York Stock Exchange) held by nonaffiliates of the registrant was approximately $7.0 billion.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held March 24, 2005 are incorporated by reference into Part III of this Form 10-K.

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TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

General

BJ Services Company (the “Company”), whose operations trace back to the Byron Jackson Company (which was founded in 1872), was organized in 1990 under the corporate laws of the state of Delaware. The Company is a leading provider of pressure pumping and other oilfield services for the petroleum industry worldwide. The Company’s pressure pumping services consist of cementing and stimulation services used in the completion of new oil and natural gas wells and in remedial work on existing wells, both onshore and offshore. Other oilfield services include completion tools, completion fluids, casing and tubular services, production chemical services, and precommissioning, maintenance and turnaround services in the pipeline and process business, including pipeline inspection.

Since its organization, the Company has completed several acquisitions, including the acquisition of OSCA, Inc. (“OSCA”) on May 31, 2002, a completion services (pressure pumping), completion tools and completion fluids company based in Lafayette, Louisiana, with operations primarily in the U.S., Gulf of Mexico, Brazil and Venezuela.

During the year ended September 30, 2004, the Company generated approximately 83% of its revenue from pressure pumping services and 17% from other oilfield services. Over the same period, the Company generated approximately 52% of its revenue from U.S. operations and 48% from international operations. For geographic revenue and long-lived assets and segment revenue, operating income and identifiable asset details for each of the three years ended September 30, 2004, see Note 8 of the Notes to Consolidated Financial Statements.

The Company conducts its operations through three principal segments:

Pressure Pumping Services

Pressure pumping services are provided by the Company to major and independent oil and natural gas producing companies, as well as national oil companies, for the purpose of completing new oil and natural gas wells, maintaining existing oil and natural gas wells, and enhancing the production of oil and natural gas from formations in reservoirs. Pressure pumping services are provided through the Company’s U.S./Mexico Pressure Pumping Segment and the International Pressure Pumping Segment. These services are provided both on land and offshore on a 24-hour, on-call basis through regional and district facilities in approximately 200 locations worldwide.

Cementing Services

The Company’s cementing services, which accounted for approximately 35% of total pressure pumping revenue during fiscal 2004, consists of blending high-grade cement and water with various solid and liquid additives to create a “cement slurry” that is pumped into a well between the casing and the wellbore. The cement slurry is designed to achieve the proper cement set-up time, compressive strength and fluid loss control, and can be modified to address different well depths, downhole temperatures and pressures, and formation characteristics.

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The Company provides central, regional and district laboratory testing services to evaluate slurry properties, which can vary by cement supplier and based on the qualities of local water sources. Job design recommendations are developed by the Company’s field engineers to achieve desired compressive strength and bonding characteristics.

The principal application for cementing services used in oilfield operations is primary cementing, or cementing between the casing pipe and the wellbore during the drilling and completion phase of a well. Primary cementing is performed to (i) isolate fluids behind the casing between productive formations and other formations that would damage the productivity of hydrocarbon producing zones or damage the quality of freshwater aquifers, (ii) seal the casing from corrosive formation fluids and (iii) provide structural support for the casing string. Cementing services are also utilized when recompleting wells from one producing zone to another and when plugging and abandoning wells.

For revenue by product line for each of the three years ended September 30, 2004, see Note 8 of the Notes to Consolidated Financial Statements.

Stimulation Services

The Company’s stimulation services, which accounted for approximately 63% of total pressure pumping revenue during fiscal 2004, consist of fracturing, acidizing, sand control, nitrogen, coiled tubing and service tools. The Company participates in the offshore stimulation market through the use of skid-mounted pumping units and the operation of several stimulation vessels, including one in the North Sea, three in the Gulf of Mexico and four in South America.

The Company believes that as oil and natural gas production continues to decline in key producing fields of the U.S. and certain international regions, the demand for fracturing and other stimulation services is likely to increase. Consequently, the Company has been increasing its pressure pumping capabilities in the U.S. and internationally over the past several years. These services are designed to improve the flow of oil and natural gas from producing formations and are summarized below.

Fracturing. Fracturing services are performed to enhance the production of oil and natural gas from formations having such permeability that the natural flow is restricted. The fracturing process consists of pumping a fluid into a cased well at sufficient pressure to fracture the producing formation (“fracturing fluid”). Sand, bauxite or synthetic proppants are suspended in the fracturing fluid and are pumped into the fracture to prop it open. The size of a fracturing job is generally expressed in terms of pounds of proppant, which can exceed 200,000 lbs. In some cases, fracturing is performed by an acid solution pumped under pressure without a proppant or with small amounts of proppant. The main pieces of equipment used in the fracturing process are a blender, which blends the proppant and chemicals into the fracturing fluid, multiple pumping units capable of pumping significant volumes at high pressures, and a monitoring van equipped with real-time monitoring equipment and computers used to control the fracturing process. The Company’s fracturing units are capable of pumping slurries at pressures of up to 20,000 pounds per square inch. In 1998, the Company embarked on a program to replace its aging U.S. fracturing pump fleet with new, more efficient and higher horsepower pressure pumping equipment. The Company has made significant progress with this program, which is now approximately 83% complete. During fiscal 2004, the Company expanded this U.S. fleet recapitalization initiative to include additional equipment, such as cementing, nitrogen and acidizing and will begin recapitalizing the pressure pumping equipment in Canada in fiscal 2005.

An important element of fracturing services is the design of the fracturing treatment, which includes determining the proper fracturing fluid, proppants and injection program to maximize results. The Company’s field engineering staff provide technical evaluation and job design recommendations as an integral element of its fracturing service for the customer. Technological developments in the industry over the past several years have focused on proppant concentration control (i.e., proppant density), liquid gel concentrate capabilities, computer design and monitoring of jobs and cleanup properties for fracturing fluids. The Company has introduced equipment and products to respond to these technological advances.

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Acidizing. Acidizing enhances the flow rate of oil and natural gas from wells with reduced flow caused by formation damage from drilling or completion fluids or the gradual build-up of materials that block the formation. Acidizing entails pumping large volumes of specially formulated acids into reservoirs to dissolve barriers and enlarge crevices in the formation, thereby eliminating obstacles to the flow of oil and natural gas. The Company maintains a fleet of mobile acid transport and pumping units to provide acidizing services for the onshore market and maintains acid storage and pumping equipment on most of its offshore stimulation vessels.

Sand Control. Sand control services involve pumping gravel to fill the cavity created around a wellbore during drilling. The gravel provides a filter for the exclusion of formation sand from the producing wellbore. Oil and natural gas are then free to move through the gravel into the wellbore. These services are utilized primarily in unconsolidated sandstone reservoirs, mostly in the Gulf of Mexico, the North Sea, Venezuela, Brazil, Trinidad, West Africa, China, Indonesia and India. Completion tools, as described elsewhere herein, are often utilized in conjunction with sand control services.

Nitrogen. There are a number of uses for nitrogen, an inert gas, in pressure pumping operations. Used alone, it is effective in displacing fluids in various oilfield applications, including underbalanced drilling. However, nitrogen is used principally in applications supporting the Company’s coiled tubing and stimulation services.

Coiled Tubing. Coiled tubing services involve injecting coiled tubing into wells to perform various well-servicing operations. The application of coiled tubing has increased in recent years due to improvements in coiled tubing technology. Coiled tubing is a flexible steel pipe with a diameter of less than five inches manufactured in continuous lengths of thousands of feet and wound or coiled along a large reel on a truck or skid-mounted unit. Due to the small diameter of coiled tubing, it can be inserted through existing production tubing and used to perform workovers without using a larger, costlier workover rig. The other principal advantages of employing coiled tubing in a workover include (i) not having to “shut-in” the well during such operations, thereby allowing production to continue and reducing the risk of formation damage to the well, (ii) the ability to reel continuous coiled tubing in and out of a well significantly faster than conventional pipe, which must be jointed and unjointed, (iii) the ability to direct fluids into a wellbore with more precision, allowing for localized stimulation treatments and providing a source of energy to power a downhole motor or manipulate downhole tools and (iv) enhanced access to remote or offshore fields due to the smaller size and mobility of a coiled tubing unit. The Company has developed a line of specialty downhole tools that may be attached to coiled tubing, including rotary jetting equipment and through-tubing inflatable packer systems.

Service Tools. The Company provides service tools and technical personnel for well servicing applications in select markets throughout the world. Service tools, which are used to perform a wide range of downhole operations to maintain or improve a well, generally are rented by customers from the Company. While marketed separately, service tools are usually provided during the course of providing other pressure pumping services.

Other Oilfield Services

The Company’s other oilfield services accounted for approximately 17% of the Company’s total revenue in fiscal 2004. The other oilfield services segment consists of casing and tubular services, process and pipeline services, production chemicals, and, with the acquisition of OSCA on May 31, 2002, completion tools and completion fluids services in the U.S. and select markets internationally. Revenue for this segment for each of the three years ended September 30, 2004, is presented in Note 8 of the Notes to Consolidated Financial Statements.

Casing and Tubular Services. Casing and tubular services comprise installing or “running” casing and production tubing into a wellbore. Casing is run to protect the structural integrity of the wellbore and to seal various zones in the well. These services are provided primarily during the drilling and completion phases of a well. Production tubing is run inside the casing. Oil and natural gas are produced through the tubing. These services are provided during the completion and workover phases. The Company’s casing and tubular services business has historically been focused in the North Sea and selected international markets outside of North America. However, with the fiscal year 2004 acquisitions of Cajun Tubular Services, Inc. and Petro-Drive,

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a division of Grant Prideco, Inc. (see Note 3 of the Notes to Consolidated Financial Statements), the Company’s business expanded into the Gulf of Mexico and other international markets.

Process and Pipeline Services. The Company provides a wide range of services to the process industry, which includes oil and natural gas production, refineries, gas and petrochemical plants and the power industry. These services cover two main areas: (i) the precommissioning of new plants and (ii) maintenance services to existing plants. The services offered consist primarily of testing, cleaning, drying and inerting, using several different technologies. Nitrogen/helium leak testing is used to locate and quantify small leaks on hydrocarbon systems. Leak testing is used on both new and old facilities to minimize the risk of hydrocarbon leaks, improving safety and minimizing greenhouse gas emissions. Systems can be cleaned by flushing, jetting, pigging or chemical means to ensure debris is removed from the system prior to start-up, thus minimizing damage to expensive process equipment.

Our pipeline services also consist of precommissioning and maintenance services. Due to regulatory requirements or safety concerns, new pipelines are often tested prior to their initial use. Pipeline testing typically involves filling the pipeline with water under operating pressures and drying the pipelines. Pipeline drying is carried out using dry air, nitrogen or vacuum. Many pipelines require cleaning while “on line” both to help ensure the integrity of the pipeline and to maximize product throughput. The Company offers several techniques for this, including gel cleaning, which is used to carry large amounts of debris out of the pipeline, and various solvent treatments to remove debris.

The Company’s pipeline inspection business uses “intelligent pigs” to assist pipeline operators in assessing the integrity of their pipelines. Pigs are mechanical devices that are propelled through a pipeline. The Company has developed two principal pipeline inspection tools: one tool monitors metal loss from the interior pipe wall caused by either corrosion or mechanical damage, and a second tool monitors pipeline geometry (dents, buckles and wrinkles) and position (latitude, longitude and height) using an inertial guidance system which allows the production of as-built maps of the pipeline as well as the calculation of critical strains due to pipeline movement. Using the information collected by these tools, pipeline operators are able to carry out structural analysis to ascertain if the pipeline is fit for purpose.

Production Chemical Services. Production chemical services are provided to customers in the upstream and downstream oil and natural gas businesses. These services involve the design of treatments and the sale of products to reduce the negative effects of corrosion, scale, paraffin, bacteria, and other contaminants in the production and processing of oil and natural gas. Customers engaged in crude oil production, natural gas processing, raw and finished oil and natural gas product transportation, operating refineries and petrochemical manufacturing use these products. Production chemical services operations address two principal priorities: (1) the protection of the customer’s capital investment in metal goods, such as downhole casing and tubing, pipelines and process vessels, and (2) the treatment of fluids to allow them to meet the specifications of the particular operation, such as production transferred to a pipeline or fuel sold at a marketing terminal.

Completion Tools. The Company designs, builds and installs downhole completion tools that deploy gravel to control the migration of reservoir sand into the well and direct the flow of oil and natural gas into the production tubing. The Company has a specialty tool manufacturing plant in Mansfield, Texas that manufactures some of the components required in the completion tools. In addition, spare parts for completion tools and production packers are sold to customers that have purchased tools in the past.

The Company’s completion tools are sold as complete systems, which are customized based on each well’s particular mechanical and reservoir characteristics, such as downhole pressure, wellbore size and formation type. Many wells produce from more than one productive zone simultaneously. Depending on the customer’s preference, the Company has the ability to install tools that can either isolate one producing zone from another or integrate the production from multiple zones. Once the tool systems are designed and customized, each is inspected for quality assurance before it is delivered to the well location. The Company’s field specialists, working with the rig crews, deploy completion tools in the well during the completion process.

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To further enhance reservoir optimization, the Company has also developed the tools necessary to provide the operator with “intelligent completion” capabilities. The Company’s tools selectively control flow from multiple productive zones in the same wellbore from a remote activation site on surface. The Company from time to time may also outsource the equipment necessary to monitor downhole parameters such as temperature, pressure and reservoir flow to allow optimization of well productivity.

In addition to tools that are designed to control sand migration, the Company also provides completion tools that are generally used in conventional completions for reservoirs that do not require sand control. These tools include non-proprietary production packers and other tools that are delivered through distribution networks located in key domestic markets and select international markets.

In July 2004, the Company began the construction of a well screen manufacturing facility in Houston, Texas, which will be completed in the first calendar quarter of 2005. Well screens are sections of perforated pipe wrapped with wire that are integrated into the production tubing and are designed to prevent the flow of gravel into the producing wellbore that is pumped in during the sand control operation (see “Pressure Pumping Services” above). Well screens are critical to the success of wells in unconsolidated sandstone reservoirs and are integrated with the completion program (sand control, completion tools and well screens) for sand control. Well screens are utilized primarily in unconsolidated sandstone reservoirs, mostly in the Gulf of Mexico, the North Sea, Venezuela, Brazil, Trinidad, West Africa, China, Indonesia and India.

Completion Fluids. The Company sells and reclaims clear completion fluids and performs related fluid maintenance activities, such as filtration and reclamation. Completion fluids are used to control well pressure and facilitate other completion activities, while minimizing reservoir damage. The Company provides commodity completion fluids as well as a broad line of specially formulated and customized fluids for critical completion applications.

Completion fluids are available either as pure salt solutions or in combination with other materials for increased flexibility and greater cost-effectiveness. These fluids are solids-free and therefore will not plug oil and natural gas formations. In contrast, drilling mud, the fluid typically used during drilling and for some well completions, contains solids to achieve densities greater than water. These solids plug the reservoir, causing reservoir damage and restricting the flow of oil and natural gas into the well. When completion fluids are placed into a well, they typically become contaminated with solids that are left in the well after drilling mud is displaced. To remove these contaminants, the Company deploys filtering equipment and technicians that work in conjunction with the Company’s on-site fluid engineers to maintain the solids-free condition of the completion fluids throughout the project. The Company provides an entire range of completion fluids, as well as all support services needed to properly apply completion fluids in the field, including filtration, on-site engineering, additives and rental equipment.

Raw Materials & Equipment

Principal materials utilized in pressure pumping include cement, fracturing proppants, acid, guar polymers, nitrogen, carbon dioxide and other bulk chemical additives. The Company purchases its principal materials from several suppliers and produces certain materials through company-owned blending facilities in Germany, Singapore, Canada, the U.S. and Brazil. Sufficient material inventories are generally maintained to allow the Company to provide on-call services to its customers to whom the materials are sold in the course of providing pressure pumping services.

Repair parts and maintenance items for pressure pumping equipment are carried in inventory at levels that the Company believes will allow continued operations without significant downtime caused by parts shortages. The Company has experienced only intermittent tightness in supply or extended lead times in obtaining necessary supplies of these materials or repair parts. The Company is not dependent on any single source of supply for any materials; however, loss of one or more of our suppliers could disrupt production.

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Pressure pumping services are provided utilizing complex truck or skid-mounted equipment designed and constructed for the particular pressure pumping service furnished. After equipment is transported to a well location it is configured with appropriate connections to perform the services required. The mobility of this equipment permits the Company to provide pressure pumping services to wellsites in virtually all geographic areas around the world. Most units are equipped with computerized systems that allow for real-time monitoring and control of the cementing and stimulation processes. Management believes that the Company’s pressure pumping equipment is adequate to service both current and projected levels of market activity in the near term.

The Company believes that coiled tubing and other materials utilized in performing coiled tubing services are and will continue to be widely available from a number of manufacturers. Although there are only three principal manufacturers of the reels which the coiled tubing is wrapped, the Company has not experienced any difficulty in obtaining coiled tubing reels in the past and anticipates no such difficulty in the foreseeable future.

Nitrogen is one of the principal materials utilized in the other oilfield services lines. The Company purchases nitrogen from several suppliers. The Company has experienced only intermittent tightness in supply or extended lead times in obtaining necessary supplies of these materials or repair parts and does not anticipate any chronic shortage of any of these items in the foreseeable future.

Engineering and Support Services

The Company’s research and development organization is divided into seven areas: Product Development, Applied Technology, Software Applications, Instrumentation Engineering, Mechanical Engineering, Coiled Tubing Engineering and Completion Tools Engineering.

Product Development. The product development laboratory specializes in developing products with enhanced performance characteristics in the fracturing, acidizing, sand control and cementing operations (i.e., fracturing fluid and cement slurry). As fluids must perform under a wide range of downhole pressures, temperatures and other conditions, this process is a critical element in developing products to meet customer needs.

Applied Technology. The Applied Technology group (ATG) is primarily responsible for supporting technical and engineering applications on a global basis for the five primary service product lines that the Company offers (acidizing, cementing, completion services, coiled tubing and fracturing). In addition to providing engineering support, the ATG is responsible for: improving the internal technology transfer within the Company, developing and maintaining all of the support documentation for the Company’s chemical products and systems, as well as managing and maintaining all of the intellectual property. Another key responsibility of the ATG is to guide and prioritize the technology development based on feedback from operations and direct client interaction.

Software Applications. The Company’s software applications group develops and supports a wide range of proprietary software utilized in the monitoring of both cement and stimulation job parameters. This software, combined with the Company’s internally developed monitoring hardware, allows for real-time job control as well as post-job analysis.

Instrumentation Engineering. The pressure pumping industry utilizes an array of monitoring and control instrumentation as an integral element of providing cementing and stimulation services. The Company’s monitoring and control instrumentation, developed by its instrumentation engineering group, complements its products and equipment and provides customers with real-time monitoring of critical applications.

Mechanical Engineering. Though similarities exist between the major pressure pumping competitors in the general design of their pumping equipment, the actual engine/transmission configurations as well as the mixing and blending systems differ significantly. Additionally, different approaches to the integrated control systems

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result in equipment designs which are usually distinct in performance characteristics for each competitor. The Company’s mechanical engineering group is responsible for the design of virtually all of the Company’s primary pumping and blending equipment. The Company’s mechanical engineering group provides new product design as well as support to the rebuilding and field maintenance functions.

Coiled Tubing Engineering. The coiled tubing engineering group provides most of the support and research and development activities for the Company’s coiled tubing services, including coiled tubing drilling technology. The Company is also actively involved in the ongoing development of downhole tools that may be attached to the end of coiled tubing.

Completion Tools Engineering. The completions tools research group specializes in the designing, manufacturing and testing of completion tools. Since the Company’s tools are often installed miles below the earth’s surface, it is critical that potential design flaws be diagnosed and prevented prior to installation. Optimal tool configuration is determined by considering a variety of factors, including different raw materials, operating conditions and design specifications.

Manufacturing

The Company has three main manufacturing facilities. In addition to the engineering facility, the Company’s research and technology center in Tomball, Texas also houses its main equipment and instrumentation manufacturing facility. The Company’s facility in Mansfield, Texas produces certain components and spare parts required for the assembly of downhole completion tools and service tools. In addition, the Company will complete the construction of a well screen manufacturing facility in Houston, Texas in the first calendar quarter of 2005.

The Company also has smaller manufacturing capabilities in several international locations. The Company employs outside vendors for manufacturing various units, engine and transmission rebuilding, and certain fabrication work, but is not dependent on any one source.

Competition

Pressure Pumping Services. There are two primary companies with which the Company competes in pressure pumping services worldwide, Halliburton Energy Services, a division of Halliburton Company, and Schlumberger Ltd. These companies have operations in most areas in which the Company operates. Halliburton Energy Services and Schlumberger are larger in terms of overall pressure pumping revenue. It is estimated that these two competitors, along with the Company, provide approximately 90% of the worldwide pressure pumping services to the industry. Several smaller companies compete with the Company in certain areas of the U.S. and in certain international locations. The principal methods of competition which apply to the Company’s business are its prices, technology, service record and reputation in the industry.

Other Oilfield Services. The Company believes that it is one of the largest suppliers of casing and tubular services in the North Sea and has expanded such services into other international markets in the past several years and into the U.S. in fiscal 2004 with the acquisition of Cajun Tubular Services, Inc. and Petro-Drive. The largest worldwide provider of casing and tubular services is Weatherford International, Inc. In addition, the Company competes with Frank’s International Inc. in the Gulf of Mexico and certain international markets. The Company believes it is the largest provider of commissioning and leak detection services and one of the largest providers of pipeline inspection services. Pipeline Integrity International Ltd. (a division of General Electric) and H. Rosen Engineering GmbH are our principal competitors in pipeline inspection. There are several competitors significantly larger than the Company in production chemical services. The Company’s principal competitors in completion fluids are Baroid Corporation, a subsidiary of Halliburton Company; M-I LLC, a joint venture of Smith International, Inc. and Schlumberger Limited; and Tetra Technologies, Inc. The Company’s principal competitors in completion tools are Halliburton Energy Services, a division of Halliburton Company,

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Schlumberger Limited, Baker Hughes Incorporated and Weatherford International, Inc. The principal methods of competition which apply to the Company’s business are its prices, technology, service record and reputation in the industry.

Markets and Customers

Demand for the Company’s services and products depends primarily upon the number of oil and natural gas wells being drilled (“rig count”), the depth and drilling conditions of such wells, the number of well completions and the level of workover activity worldwide. With the exception of Canada during spring break-up, the Company is not significantly impacted by seasonality. Spring break-up is the period during which snow and ice begin to melt and heavy equipment is not permitted on the roads, resulting in lower drilling activity.

The Company’s principal customers consist of major and independent oil and natural gas producing companies, as well as national oil companies. During fiscal 2004, the Company provided services to several thousand customers, none of which accounted for more than 5% of consolidated revenue. While the loss of certain of the Company’s largest customers could have a material adverse effect on Company revenue and operating results in the near term, management believes the Company would be able to obtain other customers for its services in the event of a loss of any of its largest customers.

United States. The United States represents the largest single pressure pumping market in the world. The Company provides its pressure pumping services to its U.S. customers through a network of more than 50 locations throughout the U.S., a majority of which offer both cementing and stimulation services. Demand for the Company’s pressure pumping services in the U.S. is primarily driven by oil and natural gas drilling activity, which tends to be extremely volatile depending on the current and anticipated prices of oil and natural gas. During the last 10 years, the lowest U.S. rig count averaged 601 in fiscal 1999 and the highest U.S. rig count averaged 1,172 in fiscal 2001. In fiscal 2004, the U.S. rig count averaged 1,155, a 20% increase over fiscal 2003. For the 12 months ended September 30, 2003, the active U.S. rig count averaged 966 rigs, an 11% increase from fiscal 2002. The Company’s management believes that average rig count for fiscal 2005 will be approximately 6% higher than the average rig count in fiscal 2004, essentially flat with average rig count during the quarter ended September 30, 2004 of approximately 1,229 rigs. During fiscal 2002, the Company expanded its deepwater offshore stimulation capabilities in the Gulf of Mexico through the acquisition of OSCA, which added two stimulation vessels, and the commissioning of the “Blue Ray” stimulation vessel in November 2001.

International. The Company operates in approximately 49 countries in the major international oil and natural gas producing areas of Latin America, Europe, Africa, Russia, Asia, Canada and the Middle East. The Company generally provides services to its international customers through wholly-owned foreign subsidiaries. Additionally, the Company holds certain controlling or minority interests in several joint venture companies, through which it conducts a portion of its international operations.

Many countries in which we operate are subject to political, social and economic risks which may cause volatility within any given country. However, the Company’s revenue is less volatile because we operate in approximately 49 countries, which provides somewhat of a balance. Due to the significant investment in and complexity of international projects, management believes drilling decisions relating to such projects tend to be evaluated and monitored with a longer-term perspective with regard to oil and natural gas pricing. Additionally, the international market is dominated by major oil companies and national oil companies which tend to have different objectives and more operating stability than the typical independent producer in North America. During the last 10 years, the lowest international rig count averaged 828 in fiscal 1999 and the highest international rig count averaged 1,184 in fiscal 2004. International activities have been increasingly important to the Company’s results of operations since 1992, when the Company implemented a strategy to expand its international presence. During fiscal 2001, the Company completed expansion projects in Saudi Arabia, Kazakhstan and West Africa. In fiscal 2002, the Company expanded in Russia through the purchase of additional workover rigs and enhanced its market position in the Brazilian offshore market with the addition of the “Blue Shark” stimulation vessel. In

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addition, the Company expanded its service offering in Brazil through the acquisition of OSCA, and by acquiring the assets and business of a leading provider of coiled tubing services in Brazil. During fiscal 2003, the Company established a new operating base in El Salvador to provide pumping services to clients operating in the area. In addition, during fiscal 2003 the Company’s pumping service activities were expanded to New Zealand, Mozambique and Turkey to provide services for drilling, workover and stimulation projects. In January 2004, the Company completed the commissioning of another stimulation vessel, the “Blue Angel,” which is currently under contract and is operating offshore Brazil.

The Company now operates in most of the major oil and natural gas producing regions of the world. International operations are subject to risks that can materially affect the sales and profits of the Company, including currency exchange rate fluctuations, the impact of inflation, governmental expropriation, currency exchange controls, political instability and other risks. The risk of currency exchange rate fluctuations and its impact on net income is mitigated through the use of natural hedges whereby the Company invoices for work performed in certain countries in both U.S. dollars and local currency. The Company attempts to match the amounts invoiced in local currency with the amount of expenses denominated in local currency.

Employees

At September 30, 2004, the Company had a total of 12,825 employees. Approximately 62% of the Company’s employees were employed outside the United States. At September 30, 2004, the Company had a sufficient number of trained employees to meet customer requirements. In periods of rapidly expanding activity, the Company may increase the number of contract personnel to compensate for any temporary shortages in labor.

Governmental and Environmental Regulation

The Company’s business is affected both directly and indirectly by governmental regulations relating to the oil and natural gas industry in general, as well as environmental and safety regulations which have specific application to the Company’s business.

The Company, through the routine course of providing its services, handles and stores bulk quantities of hazardous materials. In addition, leak detection services involve the inspection and testing of facilities for leaks of hazardous or volatile substances. If leaks or spills of hazardous materials handled, transported or stored by the Company occur, the Company may be responsible under applicable environmental laws for costs of remediating any damage to the surface or sub-surface (including aquifers). Accordingly, the Company has implemented and continues to implement various procedures for the handling and disposal of hazardous materials. Such procedures are designed to minimize the occurrence of spills or leaks of these materials.

The Company has implemented and continues to implement various procedures to further assure its compliance with environmental regulations. Such procedures generally pertain to the operation of underground storage tanks, disposal of empty chemical drums, improvement to acid and wastewater handling facilities and cleaning certain areas at the Company’s facilities. In addition, the Company maintains insurance for certain environmental liabilities, which the Company believes is reasonable based on its experience and knowledge of the industry.

The Comprehensive Environmental Response, Compensation and Liability Act, also known as “Superfund,” imposes liability without regard to fault or the legality of the original conduct, on certain classes of persons that contributed to the release of a “hazardous substance” into the environment. Certain disposal facilities that are owned by third parties but are used by the Company or its predecessors have been investigated under state and federal Superfund statutes, and the Company is currently named as a potentially responsible party for cleanup at four such sites. Although the Company’s level of involvement varies at each site, the Company is one of numerous parties named and will be obligated to pay an allocated share of the cleanup costs. While it is not feasible to predict the outcome of these matters with certainty, management believes that their ultimate resolution should not have a material adverse effect on the Company’s results of operations or financial position.

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Research and Development

The Company’s research and development activities are focused on improving existing products and services and developing new technologies designed to meet industry and customer needs. The Company currently holds numerous patents of varying remaining duration. Although such patents, in the aggregate, are important to maintaining the Company’s competitive position, no single patent is considered to be of a critical or essential nature to the Company’s ongoing operations. The Company also utilizes technologies owned by third parties under various license arrangements, generally ranging from 10 to 20 years in duration, relating to certain products or techniques. None of these license arrangements is material to the Company’s overall operations.

Pressure Pumping Services Research & Development

The Company has a history of developing patented, industry-leading well stimulation technologies such as Spectra Frac G^® high-performance fracturing fluid, introduced in 1991, polymer-specific enzyme fluid breakers, first commercialized in the early 1990s, and EZ Clean^®, launched in 1993, a polymer-specific enzyme treatment designed to remediate reservoirs that have been damaged by previous fracturing efforts. In 1998, the Company released Vistar^® low-polymer fracturing fluids capable of providing optimum placement of proppant in the reservoir while minimizing fracture damage. During 2003, the Company introduced LiteProp^™, lightweight proppants (patented and patents pending). These low-density proppants produce greater propped fracture length and conductivity than is produced by conventional proppants placed with the use of heavier gelled fluid systems.

Other stimulation technologies include the patented BJ Sandstone Acid^™ system, introduced in 1994, which is designed to enhance production in sandstone reservoirs and remove damage accumulated during previous fracturing and work over efforts.

The Company also developed AquaCon^™, a relative permeability modifier treatment, which was patented in 1991 and has been demonstrated to be an effective water control system for reducing undesirable water production, while increasing oil or natural gas production. The Company’s patented Liquid Stone^® cement slurry is a premixed cement blend which, unlike conventional cement slurries, is storable in its liquid form for weeks or months prior to use. The slurry is premixed, and no on-site mixing equipment is required. It can be pumped through rig pumps.

Other Oilfield Services Research & Development

The Company has development leading technologies for its coil tubing services. The patented Tornado^™ cleanout system provides an effective method for removing sand and other fill material from wells at much greater efficiencies than previously obtainable. The Roto-Pulse^™ gravel pack cleaning system is used in removing material plugging a gravel pack. During 2001 and 2002, the Company developed the LEGS^™ (lateral entry guidance system) tool for use with coiled tubing operations in horizontal wells. The LEGS^™ tool provides the technology to locate and successfully guide the coil tubing into horizontal wells in order to perform coiled tubing workover operations.

The Company has developed a broad line of completion tool systems, including conventional completions and horizontal well completions in both gravel-packed and conventional configurations. The PAC valve (pressure actuated circulating valve) is a key component enabling interventionless intelligent completion systems. During 2000 and 2001, the Company successfully field tested the TST-3^™ service tool packer. This packer provides the latest in service tool technology and operational efficiency. During 2001 and 2002, the Company successfully field tested a composite drillable bridge plug, the Python^™, for which patents have been granted and are pending. The Python plug performs at temperatures in excess of 375°F and differential pressures greater than 10,000 pounds per square inch.

The Company intends to continue to devote significant resources to its research and development efforts. For information regarding the amounts of research and development expenses for each of the three fiscal years ended September 30, 2004, see Note 12 of the Notes to Consolidated Financial Statements.

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Risk Factors

This document and the Company’s other filings with the Securities and Exchange Commission and other materials released to the public contain “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements discuss the Company’s prospects, expected revenue, expenses and profits, strategies for its operations and other subjects, including conditions in the oilfield service and oil and natural gas industries and in the United States and international economy in general.

Our forward-looking statements are based on assumptions that we believe to be reasonable but that may not prove to be accurate. All of the Company’s forward-looking information is, therefore, subject to risks and uncertainties that could cause actual results to differ materially from the results expected. Although it is not possible to identify all factors, these risks and uncertainties include the risk factors discussed below.

Business Risks. The Company’s results of operations could be adversely affected if its business assumptions do not prove to be accurate or if adverse changes occur in the Company’s business environment, including the following areas:

Risks of Economic Downturn. In the event of an economic downturn in the United States or globally, there may be decreased demand and lower prices for oil and natural gas and therefore for our products and services. The Company’s customers are generally involved in the energy industry, and if these customers experience a business decline, we may be subject to increased exposure to credit risk. If an economic downturn occurs, our results of operations may be adversely affected.

Risks from Operating Hazards. The Company’s operations are subject to hazards present in the oil and natural gas industry, such as fire, explosion, blowouts and oil spills. These incidents as well as accidents or problems in normal operations can cause personal injury or death and damage to property or the environment. The customer’s operations can also be interrupted. From time to time, customers seek to recover from the Company for damage to their equipment or property that occurred while the Company was performing work. Damage to the customer’s property could be extensive if a major problem occurred. For example, operating hazards could arise:

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Risks from Unexpected Litigation. The Company has insurance coverage against operating hazards, which it believes is customary in the industry. This insurance has deductibles or self-insured retentions and contains certain coverage exclusions. The Company’s insurance premiums can be increased or decreased based on the claims made by the Company under its insurance policies. The insurance does not cover damages from breach of contract by the Company or based on alleged fraud or deceptive trade practices. Whenever possible, the Company obtains agreements from customers that limit the Company’s liability. Insurance and customer agreements do not provide complete protection against losses and risks, and the Company’s results of operations could be adversely affected by unexpected claims not covered by insurance.

Risks from International Operations. The Company’s international operations are subject to special risks that can materially affect the Company’s sales and profits. These risks include:

Weather. The Company’s performance is significantly impacted by the demand for natural gas in North America. Warmer than normal winters in North America, among other factors, may adversely impact demand for natural gas and, therefore, demand for the Company’s services. Conversely, colder than normal winters may positively impact demand for natural gas and the Company’s services.

In addition, our U.S. operations could be materially affected by severe weather in the Gulf of Mexico. Severe weather, such as hurricanes, may cause:

Credit. If the Company’s credit rating is downgraded below investment grade, holders of the convertible senior notes can require the Company to repurchase these notes (see Note 5 to the Notes to the Consolidated Financial Statements). In addition, such downgrades could increase our costs of obtaining, or make it more difficult to obtain or issue, new debt financing. If our credit rating is downgraded, we could be required to, among other things, pay additional interest under our credit agreements, or provide additional guarantees, collateral, letters of credit or cash for credit support obligations.

Other Risks. Other risk factors that could cause actual results to be different from the results we expect include:

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Many of these risks are beyond the control of the Company. In addition, future trends for pricing, margins, revenue and profitability remain difficult to predict in the industries we serve and under current economic and political conditions. Except as required by applicable law, we do not assume any responsibility to update any of our forward-looking statements.

Available Information

Information regarding the Company, including corporate governance policies, ethics policies and charters for the committees of the board of directors can be found on the Company’s internet website at http://www.bjservices.com. In addition, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13 (a) or 15 (d) of the Exchange Act are made available free of charge on the Company’s internet website on the same day that we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Executive Officers of the Registrant

The current executive officers of the Company and their positions and ages are as follows:

Mr. Stewart joined Hughes Tool Company in 1969 as Project Engineer. He served as Vice President—Legal and Secretary of Hughes Tool Company and as Vice President—Operations for a predecessor of the Company prior to being named President of the Company in 1986. In 1990, he was also named Chairman and Chief Executive Officer of the Company.

Mr. Airola joined the Company as Assistant General Counsel in 1995 from Cooper Industries, Inc., a diversified manufacturing company, where he served as Senior Litigation Counsel. He was named Chief Compliance Officer in 2003.

Ms. Douget joined the Company in 1979 and was promoted to Director, Human Resources in 2003. Prior to being promoted Director, she held various positions within the Human Resources function.

Mr. Dunlap joined the Company in 1984 as a District Engineer and was named Vice President—International Division in 1995. He has previously served as Vice President—Sales for the Coastal Division of North America and U.S. Sales and Marketing Manager.

Mr. Hoel joined the Company in 1992 as an Account Manager and was named Region Sales Manager in 1993. He served as Vice President of Sales for the U.S. Western Division from 1996 until 2002, when he was named Vice President—Technology and Logistics.

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Mr. McCole originally joined the Company as Director of Internal Audit in 1991. He also served as Controller of the Asia Pacific Region and Controller of BJ Chemical Services (formerly BJ Unichem). He left the Company in 1998 and returned in 2001 to serve as Director of Internal Audit until becoming Controller in 2002. From 1998 to 2001, he served in various financial positions in Cooper Energy Services, a division of Cooper Cameron Corporation.

Ms. Shannon joined the Company in 1994 as Vice President—General Counsel from the law firm of Andrews Kurth LLP, where she had been a partner since 1984.

Mr. Smith joined the Company in 1990 as Financial Reporting Manager. He also served as Director, Financial Planning. In 1997 he was promoted to Director, Business Development, a position he held until being named Treasurer in 2002. Prior to joining BJ Services, he held various positions with Baker Hughes Incorporated.

Mr. Whichard joined the Company as Tax and Treasury Manager in 1989 from Weatherford International and was named Treasurer in 1992 and Vice President in 1998. Prior to being named Vice President, Finance and Chief Financial Officer in 2002, he served in various positions including Treasurer, Tax Director and Assistant Treasurer.

Mr. Williams joined the Company in 1973 and has since held various positions in the U.S. operations. Prior to being named Vice President—U.S. Division in 1991, he served as Region Manager—Western U.S. and Canada.

ITEM 2. PROPERTIES

The Company leases its corporate office located in Houston, Texas. During fiscal 2004, the Company acquired land in Houston, Texas to begin building a new corporate office, which is expected to be completed in December 2005. Properties are either owned or leased and typically serve all of our business lines. These properties are located near major oil and natural gas fields to optimally address our customers’ needs. Administrative offices and facilities have been built on these properties to support our business through regional and district facilities in approximately 200 locations worldwide, none of which are individually significant due to the mobility of the equipment, as discussed in the “Raw Materials and Equipment” section.

In addition, the Company owns three manufacturing facilities. The Company’s research and technology center in Tomball, Texas also houses its main equipment and instrumentation manufacturing facility. The Company’s facility in Mansfield, Texas produces certain components and spare parts required for the assembly of downhole completion tools and servi