Tesco Corporation (TESO)

Product Warranties

In late 2006, the Company identified technical problems associated with the Company’s new EMI 400 top drives. In addition to its standard accrual for warranty work associated with top drive sales, the Company accrued an additional $0.8 million to correct the identified technical problem with the EMI 400 units and such cost was included in Cost of Sales and Services in the accompanying Consolidated Statements of Income. As a result of substantially correcting the technical problems associated with its EMI 400 top drives, during 2007 the Company reversed $1.3 million of its warranty accrual related to this issue. In 2005, the Company provided an additional warranty reserve of $6.6 million, net of amounts which are contractually recoverable from the manufacturer of the steel forgings, related to the replacement of load path parts of certain equipment sold to customers and in TESCO’s top drive rental fleet. In 2007, the Company, as a result of substantially completing the replacement of load path parts in customers and TESCO’s rental fleet, reversed $0.9 million of its remaining warranty accrual for this issue. These warranty accrual reversals were included in Cost of Sales and Services in the accompanying Consolidated Statements of Income. The Company continues to monitor its activities for warranty work to ensure accrued amounts are reasonable.

F-32

Table of Contents

Index to Financial Statements

TESCO CORPORATION

Notes to the Consolidated Financial Statements

Product Warranties

In late 2006, the Company identified technical problems associated with the Company’s new EMI 400 top drives. The Company accrued an additional $0.8 million to correct the identified technical problem and such cost was included in Cost of Sales and Service in the accompanying Consolidated Statements of Income. As a result of substantially correcting the technical problems associated with its EMI 400 top drives, during 2007 the Company reversed $1.3 million of its warranty accrual related to this issue. This warranty accrual reversal was included in Cost of Sales and Service in the accompanying Consolidated Statements of Income.

In 2005, the Company provided an additional warranty reserve of $6.6 million, net of amounts which are contractually recoverable from the manufacturer of the steel forgings, related to the replacement of load path parts of certain equipment sold to customers and in TESCO’s top drive rental fleet. In December 2007, the Company, as a result of substantially completing the replacement of load path parts in customers and TESCO’s rental fleet, reversed $0.9 million of its remaining warranty accrual for this issue. This warranty accrual reversal was included in Cost of Sales and Service in the accompanying Consolidated Statements of Income.

F-30

Table of Contents

Index to Financial Statements

TESCO CORPORATION

Notes to the Consolidated Financial Statements

Product Warranties

In late 2006, the Company identified technical problems associated with the Company’s new EMI 400 top drives. The Company accrued an additional $0.8 million to correct the identified technical problem and such cost was included in Cost of Sales and Service in the accompanying Consolidated Statements of Income.

In 2005, the Company provided an additional warranty reserve of $6.6 million, net of amounts which are contractually recoverable from the manufacturer of the steel forgings, related to the replacement of load path parts of certain equipment sold to customers and in TESCO’s rental fleet. In December 2005, TESCO released a Product Bulletin to our installed customer base advising them of TESCO’s plan to change out the load path parts (steel components that carry the axial and torsional loads) of certain equipment. This decision was a result of investigations completed in 2005 on some failed components. The investigations identified that, although TESCO followed API recommended practices in the manufacturing of these parts, under certain conditions, the parts could fail. Specifically, the material toughness of the steel did not, in all cases, meet TESCO’s engineering standards. Engineering, manufacturing and inspection standards have been enhanced to maximize product reliability and safety going forward. The product bulletin calls for TESCO to cover the costs of the upgraded components and, in certain cases, part or all of the installation costs of such components, depending on age. Management has accrued its best estimate of costs relating to the load path replacement program, less amounts which are contractually recoverable from the manufacturer of the steel forgings used to make certain load path components.