UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 8-K

 

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

WILLBROS GROUP, INC.

Republic of Panama
(State or Other Jurisdiction of Incorporation)

1-11953		98-0160660
(Commission File Number)		(IRS Employer Identification No.)

Plaza 2000 Building, 50th Street, 8th Floor, P.O. Box 0816-01098, Panama, Republic of Panama
(Address of Principal Executive Offices) (Zip Code)

+50-7-213-0947
(Registrant’s Telephone Number, Including Area Code)

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o		Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o		Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o		Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o		Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 8.01. Other Events

     Willbros Group, Inc.’s (the “Company”, “we”, “us”, and “our”) operating segments are strategic lines of business that are managed separately as each has different operational requirements and strategies. Beginning the first quarter of 2007, our chief operating decision maker as defined by the Financial Accounting Standards Board’s (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 131, made a change in how the Company operations are viewed when making operating decisions, assessing performance, and allocating resources. As a result of this change we redefined our reportable segments on a basis that is representative of how our chief operating decision maker now manages the Company. The Company redefined its operating segments based on the Company’s core lines of business rather than geographic markets as presented in prior periods. The Company’s operating segments are defined as the following reportable segments: Construction, Engineering, and Engineering, Procurement and Construction (“EPC”). The three reportable segments operate primarily in the United States, Canada, and the Middle East. Previously, the Company’s reportable business segments were US & Canada and International. Prior period balances have been reclassified to reflect this change. Management evaluates the performance of each reportable segment based on operating margins The Company’s corporate operations include the general, administrative, and financing functions of the organization. The costs of these functions are allocated between the three reportable segments.

Business Segments

     We are an independent international contractor serving the oil, gas, and power industries and government entities worldwide. Effective January 1, 2007, the Company aligned its business into three operating and reporting segments: Construction, Engineering, and EPC.

Construction

     Our Construction segment constructs and replaces major cross country pipelines; fabricates engineered structures, processing modules and facilities; constructs oil and gas production facilities, pump stations, flow stations, gas compressor stations, gas processing facilities and other related facilities.

Engineering

     Our Engineering segment provides project management, engineering, and material procurement services to the oil, gas, and power industries and government agencies. We specialize in providing engineering services to assist clients in constructing or expanding pipeline systems, compressor stations, pump stations, fuel storage facilities, and field gathering and production facilities. Over the years, we have developed expertise in addressing the unique engineering challenges involved with pipeline systems and associated facilities.

EPC

     Our EPC segment provides combined engineering and construction services as well as other services offered separately in our Engineering and Construction segments. EPC provides total project solutions, which optimize project scope, schedule and deliverables to meet project objectives. We provide the project deliverables through our own resources or through selected subcontractors. By participating in numerous aspects of a project we are able to determine the most efficient design, permitting, procurement, and construction sequence for a project in connection with making engineering and constructability decisions.

     If our lines of business had been aligned in the manner explained above as of December 31, 2006, Part II, Item 7, “Management’s Discussion and Analysis of Financial condition and Results of Operations” and Item 8, “Financial Statements and Supplementary Data” submitted in our Form 10-K for the year ended December 31, 2006 would have appeared as set forth below.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (In thousands, except share and per share amounts or unless otherwise noted)

     The following discussion should be read in conjunction with the consolidated financial statements for the years ended December 31, 2006, 2005, and 2004, included in Item 8 of this Form 10-K.

OVERVIEW

2006 General

     We derive our revenue from engineering; construction; and engineering, procurement and construction (“EPC”) services provided to the oil, gas and power industries and government entities. Through the Company and our predecessors, we have provided services to customers in over 55 countries for almost 100 years. During 2006, we generated revenue from continuing operations primarily in the United States, Canada, and Oman. We obtain our work through competitive bidding and through negotiations with prospective clients. Contract values may range from a few thousand dollars to several hundred million dollars and contract durations range from a few weeks to more than two years.

     Our strategy is to deploy our resources in markets for our engineering, construction and EPC services that can provide the highest risk adjusted return, while maintaining a balanced backlog with respect to commercial and political risks and market presence. Our overall strategy has not changed; however, as the fundamental drivers in different markets around the world change, our tactical approach is continuously adjusted and refined. Because of our ongoing evaluation of the Company’s operations and markets, we are employing a new set of tactics to optimize the risk adjusted returns we seek. In late June 2006, this evaluation process resulted in our decision to sell our operations in Nigeria, joining Venezuela and the TXP-4 Plant as the Company’s discontinued operations (“Discontinued Operations”). We concluded that the operating and commercial risks associated with doing business in Nigeria have exceeded our acceptable risk levels.

     On February 7, 2007, we sold our Nigeria operations through a share purchase agreement for a total consideration of $155,250. Under the terms of the share purchase agreement with Ascot Offshore Nigeria Limited (“Ascot”), a Nigerian energy services company, we received $150,000 in cash with a $5,250 note for the balance of the purchase price for the shares of WG Nigeria Holdings Limited, the holding company which owns the operating and equipment companies supporting our activities in Nigeria. On February 12, 2007, we received $2,625 as partial payment on the note which is due and payable no later than August 1, 2007. The final net proceeds to the Company are subject to post-closing working capital and other adjustments. Due to the many variables affecting the Company’s contracts and commercial negotiations in Nigeria, the final adjustments may not be determined for several months, and those adjustments may be substantial, but are not expected to result in the recognition of a loss on this sale. In conjunction with this transaction, we purchased certain minority interests at a total cost of $10,500.

     The sale of our Venezuela operations was completed during the fourth quarter of 2006. The sale of the TXP-4 Plant in Opal, Wyoming, was completed in the first quarter of 2006. Therefore, included in discontinued operations are the financial results of the operations of the TXP-4 Plant and the Nigeria and Venezuela operations (collectively the “Discontinued Operations”). See Note 2—Discontinuance of Operations and Asset Disposal in the Notes to Consolidated Financial Statements included in Item 8 in the Form 10-K for additional information on Discontinued Operations.

     With our exit from Nigeria and Latin America, we can now refocus our attention and resources to North America and a few other selected international markets. We also expect to benefit from additional cost savings which we can realize through a more opportunistic approach to our international business currently operating from our base in Oman where we are well positioned for project work in the Middle East and North Africa.

     We believe the fundamentals supporting the demand for engineering, construction and EPC services for the energy industry, particularly for pipeline services in North America, will continue to be strong for the next two to five years. Many positive developments reinforce our view. Capital spending for the exploration and production sector of the energy industry is expected to exceed $300 billion in 2007; this is a 9 percent increase over 2006. Even with lower forecasted crude oil prices, the oil sands region of western Canada forecasted capital expenditures on new bitumen production and processing facilities are expected to exceed C$100 billion through 2015, as production levels are increased from approximately one million barrels per day presently to more than three million barrels per day in 2015. In the United States, new gas production in the Rocky Mountain region has generated plans for gas pipelines to the West, Midwest and East Coast. Liquefied natural gas is also expected to

bring more opportunities to Willbros, both in North America and in other producing/exporting countries.

     The engineering market in North America continues to be capacity constrained. We are selecting and accepting assignments that offer higher margins and better contract terms and position us for EPC assignments. Our engineering operations are currently at capacity, constrained by the availability of qualified personnel. We believe our locations in Tulsa, Oklahoma and Salt Lake City, Utah protect us to some degree from the high turnover of technical employees’ characteristic in energy centers such as Houston, Texas. We believe this high level of engineering activity has been the precursor to higher levels of construction activity in North America. Our backlog at December 31, 2006 of $602.3 million for continuing operations reflects the growth of work under contract from $240.4 million at December 31, 2005. Our discussions with potential customers and our recent awards regarding pipeline and station construction projects in North America, coupled with the increase in engineering assignments, reinforce our belief that our ability to obtain improved terms and conditions and better pricing will continue in 2007 and 2008. We believe customers recognize the imbalance in the supply and demand for pipeline engineering and construction, and will offer better terms and conditions, resulting in lower risk to us, to control pricing increases for our services.

     Demand in the North American market led the improvement in backlog from continuing operations in 2006, and we believe the demand there will continue to be strong. We also expect the international market to continue to expand and exhibit strengthening demand as new energy infrastructure developments are contemplated in North Africa and the Middle East, markets of focus for us.

Financing Transactions

     On October 27, 2006, we concluded two financing transactions that were required to support our expected growth. Willbros USA, Inc., a wholly-owned subsidiary of the Company, entered into a new $100,000 three-year senior secured synthetic credit facility (the “2006 Credit Facility”) with a group of lenders led by Calyon New York Branch (“Calyon”). Concurrent with the creation of the 2006 Credit Facility, the predecessor 2004 Credit Facility was terminated and a total of $38,708 of outstanding letters of credit was reissued under the 2006 Credit Facility. At December 31, 2006, the 2006 Credit Facility had availability of $35,455 and is scheduled to expire in October 2009. The Company may elect to increase the total capacity under the 2006 Credit Facility to $150,000, with consent from Calyon. Borrowings have not taken place, nor is it the Company’s intent to use the 2006 Credit Facility for future borrowings. The 2006 Credit Facility was established to provide a source of letters of credit.

     Also on October 27, 2006, the Company sold 3,722,360 shares of its common stock in a private placement (the “Private Placement”). The selling price was $14.00 per/share which was a discount of approximately 10 percent based on the Company’s closing stock price of $15.50 on October 24, 2006. Net proceeds after estimated transaction costs were $48,748. Net proceeds will be used for general corporate purposes primarily to support the start-up of several new projects in the United States and Canada.

     See Liquidity and Capital Resources below for additional information the 2006 Credit Facility and the Private Placement.

SIGNIFICANT BUSINESS DEVELOPMENTS

     During 2006 and through February 2007, we were awarded multiple projects valued at approximately $900,000. Significant project awards announced were as follows:

	•		Willbros Engineers, Inc. (“WEI”) executed an EPC contract with Guardian Pipeline, L.L.C. to provide services for the Guardian Expansion and Extension Project. The Guardian Expansion and Extension Project will involve constructing 106 miles of 30-inch and 20-inch natural gas pipeline from the terminus of the existing Guardian Pipeline near Ixonia, Wisconsin, to the Green Bay area. Eight associated meter stations and two 39,000 horsepower compressor stations, one located in Dekalb County, Illinois, and the other in Walworth County, Wisconsin, will also be constructed. WEI’s scope of work currently includes the pipeline and the meter stations.
	•		WEI was also awarded an EPC contract by Cheniere Sabine Pass Pipeline Company (“Cheniere”), a wholly-owned subsidiary of Cheniere Energy, Inc. Under the EPC Agreement, which is effective as of February 1, 2006, Willbros will provide Cheniere with services for the management, engineering, material procurement, construction and construction management of the 16-mile, 42-inch pipeline and related facilities to be constructed from Cheniere’s liquefied natural gas terminal being constructed at Sabine Pass to a pipeline interconnect at Johnson’s Bayou, all located in Cameron Parish, Louisiana.

			WEI and Cheniere are entering into the EPC agreement sufficiently in advance of commencement of physical construction of the pipeline in order to perform detailed engineering and procure materials. Construction is scheduled to commence in April 2007 and to be completed in September 2007.
	•		Willbros RPI, Inc., was awarded a construction contract for the installation of 71 miles of 42-inch natural gas pipeline in North Louisiana from CenterPoint Energy. This work consists of the eastern two loops of CenterPoint’s planned 172-mile, 42-inch pipeline from Carthage, Texas to its Perryville Hub in Northeast Louisiana. The project commenced in the fourth quarter of 2006 and completion is scheduled for the second quarter of 2007.
	•		The Oman Construction Company (“TOCO”), received a construction contract to perform additional maintenance activities and small capital projects for Occidental of Oman Inc. The duration of the assignment is expected to span the next 3 to 5 years, with an option to renew for an additional 1 to 2 years.
	•		Willbros RPI, Inc., in February 2007 was awarded a construction contract with Southeast Supply Header, LLC (“SESH”), a joint venture between subsidiaries of Spectra Energy Corp and CenterPoint Energy Inc. (NYSE: CNP), to construct approximately 190 miles of the SESH project, consisting of 42-inch and 36-inch diameter pipeline. SESH will begin near the Perryville Hub in northeast Louisiana and will interconnect with the Gulfstream Natural Gas System, L.L.C. pipeline in Mobile County, Alabama. Construction of the project is anticipated to begin in the fourth quarter of 2007 and to be completed in the summer of 2008.

Financial Summary

     For the year ended December 31, 2006, we incurred a net loss from continuing operations of $22,035 or $0.98 per share on revenue of $543,259. This compares to a net loss from continuing operations of $30,461 or $1.43 per share on revenue of $294,479 in 2005.

     Our 2006 revenue was up 84.5 percent from 2005, primarily driven by improving market conditions in North America. (See Note 12—Segment Information in the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for additional information regarding segment reporting). Following are the key components of the increase in revenue:

	•		Commencement of work on new engineering and pipeline construction projects in the United States; and
	•		Expansion of work relating to maintenance and fabrication contracts in the Canadian oil sands.

     Contract income for 2006 increased $25,358 to $53,765 from $28,407 in 2005, and contract margin increased to 9.9 percent in 2006 from 9.6 percent in 2005. Contract income increase was driven primarily by the increase in revenue as margins remained relatively consistent.

     General and Administrative (“G&A”) expense increased $11,016 to $53,366 in 2006 from $42,350 in 2005. The increase in G&A not only reflected higher levels of business activity in North America but also included severance costs of $6.3 million related to executive management changes and $3.4 million associated with increased costs in outside legal, accounting, auditing and consulting fees.

     The Company recognized $2,308 of income tax expense on a loss for continuing operations of $19,727. This was an increase of $640 compared to 2005. Due to expenses of $28,311 occurring in Panama where no tax benefit is obtained, the Company incurred a tax expense on a loss from continuing operations. Permanent timing differences in the U.S. also contributed to a higher effective tax rate.

     Cash and cash equivalents decreased $18,290 to $37,643 at December 31, 2006, from $55,933 at December 31, 2005. The decrease resulted primarily from the cash consumed in our discontinued operations of $105,354 and capital expenditures of $12,264. The decrease was partially offset by cash generated from continuing operations investing activities of $40,804 and financing activities of $51,550.

     Long-term debt increased to $166,152 in 2006 from $138,020 in 2005 primarily due to proceeds from the issuance of $19,500 of 6.5% Notes and an increase in capital lease obligations of $11,217.

Discontinued Operations

     As discussed above in “2006 General”, we sold our Nigeria operations on February 7, 2007. The decision to sell our Nigeria Operations was the result of the following:

     In Nigeria we continued to see the spread and escalation of hostilities against oil and gas installations and the work forces charged with construction, maintenance and operation of those installations. The attacks by militants directly and indirectly affected the Company on a continuous basis since the hostage taking incident of February 18, 2006. However, since mid-June, the situation in Nigeria worsened, with attacks increasing throughout the country. Additional production operations in the Delta area have been and remain, shut in. These disruptions have had the combined effect of supporting higher oil prices and either frustrating projects or creating a force majeure event for our ongoing projects in Nigeria. In the current work environment, with the Nigeria government and local operating companies unable to provide the security necessary for us to conduct project operations, our project activities were frustrated and we could not expose our personnel on an ongoing basis to the very real and escalating threat posed by these militant and hostile community disturbances. Further, there existed the ongoing possibility that labor unrest could escalate into violence at the Choba facility due to a continuing labor dispute over a new May 2006 labor agreement.

     In late September 2006, violence in the Port Harcourt area escalated to the point where we elected to transfer employees out of this area to ensure their continued safety. We subsequently reduced our Choba facility staff to a minimum number required to support a caretaker status. Critical ongoing support functions were shifted to Lagos and other locations outside the Port Harcourt area.

     Discontinued Operations reported an $83,402 net loss or $3.72 loss per share for the year ended December 31, 2006. Net loss from Discontinued Operations was almost entirely attributable to our Nigeria operations which reported an $83,773 net loss for 2006. The operating results in Nigeria for 2006 were negatively impacted by schedule delays; increasing costs related to labor, equipment, materials, and security; disputes with clients related to change orders, and the lack of revenue on certain projects due to force majeure. Additionally during the process of selling our Nigeria operations, we incurred costs to protect the value of our franchise in Nigeria by continuing to qualify for future projects and by maintaining a certain level of workforce. During 2006, Discontinued Operations consumed $105,354 of cash in its operating and investing activities primarily due to the net loss generated by the Company’s Nigeria operations.

     Additional financial disclosures on Discontinued Operations are provided in Note 2—Discontinuance of Operations and Asset Disposal in the Notes to Consolidated Financial Statements in this Form 10-K.

     The remainder of Management’s Discussion and Analysis of Financial Conditions and Results of Operations pertains only to continuing operations unless noted otherwise.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Revenue

     A number of factors relating to the Company’s business affect the recognition of contract revenue. The Company typically structures contracts as fixed-price, unit-price, time and material or cost plus fixed fee. Revenue from unit-price and time and material contracts is recognized as earned. The Company believes that its operating results should be evaluated over a time horizon during which major contracts in progress are completed and change orders, extra work, variations in the scope of work and cost recoveries and other claims are negotiated and realized.

     Revenue for fixed-price and cost plus fixed fee contracts is recognized on the percentage-of-completion method. Under this method, estimated contract income and resulting revenue is generally accrued based on costs incurred to date as a percentage of total estimated costs, taking into consideration physical completion. Total estimated costs, and thus contract income, are impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and approvals, labor availability, governmental regulation and politics may affect the progress of a project’s completion and thus the timing of revenue recognition. The Company does not recognize income on a fixed-price contract until the contract is approximately 5 percent to 10 percent complete, depending upon the nature of the contract. If a current estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full when determined.

     The Company considers unapproved change orders to be contract variations on which the Company has customer approval for scope change, but not for price associated with that scope change. Costs associated with unapproved change orders are included in the estimated cost to complete the contracts and are expensed as incurred. The Company recognizes revenue equal to cost incurred on unapproved changed orders when realization of price approval is probable and the estimated amount is equal to or greater than the Company’s cost related to the unapproved change order. Revenue recognized on unapproved change orders is included in “Contract costs and recognized income not yet billed” on the balance sheet.

     Unapproved change orders involve the use of estimates, and it is reasonably possible that revisions to the estimated costs and recoverable amounts may be required in the future reporting periods to reflect the changes in estimates or final agreement with customers.

     The Company considers claims to be amounts the Company seeks or will seek to collect from customers or others for customer-caused changes in contract specifications or design, or other customer-related causes of unanticipated additional contract costs on which there is no agreement with customers on both scope and price changes. Revenue from claims is recognized when agreement is reached with customers as to the value of the claims, which in some instances may not occur until after completion of work under the contract. Costs associated with claims are included in the estimated costs to complete the contracts and are expensed when incurred.

Income Taxes

     The Company accounts for income taxes by the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences of operating loss and tax credit carry forwards and temporary differences between the financial statement carrying values of assets and liabilities and their respective tax basis. The provision or benefit for income taxes and the annual effective tax rate are impacted by income taxes in certain countries being computed based on a deemed income rather than on taxable income and tax holidays on certain international projects.

OTHER FINANCIAL MEASURES

Backlog

     In our industry, backlog is considered an indicator of potential future performance because it represents a portion of the future revenue stream. Our strategy is not focused solely on backlog additions but, capturing quality backlog with margins commensurate with the risks associated with a given project.

     Backlog consists of anticipated revenue from the uncompleted portions of existing contracts and contracts whose award is reasonably assured. At December 31, 2006, total backlog from continuing and discontinued operations was $1,009,052 compared to $816,355 at December 31, 2005. Backlog for continuing operations at December 31, 2006 and 2005 was $602,272 and $240,373, respectively, a 151 percent increase. We believe the backlog figures are firm, subject only to the cancellation and modification provisions contained in various contracts. We expect that approximately $461.8 million or about 77 percent, of our existing total backlog at December 31, 2006, will be recognized in revenue during 2007. Historically, a substantial amount of our revenue in a given year has not been in our backlog at the beginning of that year. Additionally, due to the short duration of many jobs, revenue associated with jobs performed within a reporting period will not be reflected in backlog. We generate revenue from numerous sources, including contracts of long or short duration entered into during a year as well as from various contractual processes, including change orders, extra work, variations in the scope of work and the effect of escalation or currency fluctuation formulas. These revenue sources are not added to backlog until realization is assured.

     The following table shows our backlog by operating segment as of December 31, 2006 and 2005:

		2006								2005
		Amount				Percent				Amount				Percent
Backlog
Construction		$	320,461				53.2	%		$	233,085				97.0	%
Engineering			92,956				15.4				90				0.0
EPC			188,855				31.4				7,198				3.0
Total, continuing operations			602,272				100.0	%			240,373				100.0	%
Discontinued operations			406,780								575,982
Total backlog		$	1,009,052							$	816,355

EBITDA from Continuing Operations

     We use EBITDA (earnings before net interest, income taxes, depreciation and amortization) as part of our overall assessment of financial performance by comparing EBITDA between accounting periods. We believe that EBITDA is used by the financial community as a method of measuring our performance and of evaluating the market value of companies considered to be in businesses similar to ours. EBITDA from continuing operations for 2006 was $968 as compared to ($13,201) in 2005. The $14,169 increase in EBITDA is primarily the result of increased contract income of $25,358 partially offset by increased G&A expense of $11,016, including severance costs of $6,254.

     A reconciliation of EBITDA to GAAP financial information can be found in Item 6 “Selected Financial Data” of this Form 10-K.

RESULTS OF OPERATIONS

     Our contract revenue and contract costs are significantly impacted by the capital budgets of our clients and the timing and location of development projects in the oil, gas and power industries worldwide. Contract revenue and cost vary by country from year to year as the result of: (a) entering and exiting work countries; (b) the execution of new contract awards; (c) the completion of contracts; and (d) the overall level of demand for our services.

     Our ability to be successful in obtaining and executing contracts can be affected by the relative strength or weakness of the U.S. dollar compared to the currencies of our competitors, our clients and our work locations.

Fiscal Year Ended December 31, 2006 Compared to Fiscal Year Ended December 31, 2005

Contract Revenue

     Contract revenue increased $248,780 (84.5 percent) to $543,259 primarily as a result of increases in Construction. A year-to-year comparison of revenue is as follows:

		Year Ended December 31,
										Increase /				Percent
		2006				2005				(Decrease)				Change
Construction		$	421,270			$	214,020			$	207,250				96.8	%
Engineering			75,833				43,194				32,639				75.6	%
EPC			46,156				37,265				8,891				23.9	%
Total contract revenue		$	543,259			$	294,479			$	248,780				84.5	%

     Construction revenue increased $207,250 primarily as a result of increased work in Canada and in the United States. The increase in Canada revenue is attributable to $57,011 in new major projects, increased fabrication and maintenance revenue of $29,555, and our new Edmonton modular fabrication facility that opened in the fourth quarter of 2005 which generated revenue of approximately $13,828 in 2006, compared to $87 in 2005.

Construction revenue in the United States increased approximately $61,380 due to a higher level of activity, and in Oman, Construction revenue increased $43,922 due to new pipeline construction contracts and oilfield services contracts.

     Engineering revenue increased $32,639, including an increase of $23,260 from a single large engineering project in the United States and approximately $12,100 in new projects.

     EPC revenue increased $8,891 due to several new EPC projects in the United States and $1,527 from increased government services revenue.

Contract Income

     Contract income increased $25,358 (89.3 percent) to $53,765 in 2006 as compared to 2005. A year-to-year comparison of contract income is as follows:

		Year Ended December 31,
						% of								% of				Increase /				Percent
		2006				Revenue				2005				Revenue				(Decrease)				Change
Construction		$	35,081				8.3	%		$	14,869				6.9	%		$	20,212				135.9	%
Engineering			13,848				18.3	%			3,602				8.3	%			10,246				284.5	%
EPC			4,836				10.5	%			9,936				26.7	%			(5,100	)			(51.3	)%
Total contract income		$	53,765				9.9	%		$	28,407				9.6	%		$	25,358				89.3	%

     Construction contract income increased $20,212 as a result of a $13,239 increase in Canada, a $3,821 increase in Oman, and an improvement of $1,824 due to project completions in the prior year which resulted in a decrease in expenses. Contract income in the United States had a slight increase of only $1,328 on lower margins resulting from a tight labor market, project start-up delays and inclement weather on several large construction projects.

     Engineering income increased $10,246 as a result of increased engineering work in the United States at generally higher margins.

     EPC income decreased $5,100 as a result of decreased margins in the United States due to completion of a high margin project in 2005, increased costs related to a tight labor market, new project startup delays and inclement weather on certain projects.

Other Operating Expenses

     Depreciation and amortization increased $742 (6.3 percent) to $12,430 in 2006 from $11,688 in 2005 due to 2006 equipment purchases of $11,373 and property acquired through capital leases valued at $12,108. Construction depreciation and amortization increased to $8,935 from $8,359, or 6.5 percent. Engineering depreciation and amortization decreased to $827 from $1,065, or 22.3 percent. EPC depreciation and amortization increased to $2,668 from $2,234, or 19.4 percent.

     General and Administrative (“G&A”) expense increased $11,016 to $53,366 in 2006 from $42,350 in 2005. The increase in G&A not only reflected higher levels of business activity in the United States and Canada but also included severance costs of $6.3 million related to executive management changes and $3.4 million associated with increased costs in outside legal, accounting, auditing and consulting fees.

Non-Operating Items

     Interest net, expense increased to $8,265 in 2006 from $3,904 in 2005 due primarily to additional interest expense related to the 6.5% Notes of $4,871.

     Foreign Exchange and Other net decreased to income of $569 in 2006 from $742 in 2005, an unfavorable variance of $173. This variance is caused primarily by a $429 reduction in gains on sale of property, plant and equipment and an increase in foreign exchange loss of $164. These reductions in income were offset by an increase in miscellaneous income of $420 mainly related to our participation as a plaintiff in the settlement of a class action suit.

     Income tax—The Company recognized $2,308 of income tax expense on a loss for continuing operations of $19,727. This was an increase of $640 compared to 2005. Due to expenses of $28,311 occurring in Panama where no tax benefit is obtained, the Company incurred a tax expense on a loss from continuing operations. Permanent timing differences in the U.S. also contributed to a higher effective tax rate.

Loss from Discontinued Operations, Net of Taxes

     The Company recognized a net loss from Discontinued Operations of $83,402 in 2006 compared to a net loss of $8,319 in 2005, an increase loss of $75,083. The Nigeria operations accounted for $83,773 of the 2006 loss. A loss of $971 in Venezuela and a recognized net gain of $1,342 on the sale of the Opal TXP-4 account for the remainder of the 2006 loss from discontinued operations.

Fiscal Year Ended December 31, 2005 Compared to Fiscal Year Ended December 31, 2004

Contract Revenue

     Contract revenue increased $21,685 (7.9 percent) to $294,479 in 2005 from $272,794 in 2004.

		Year Ended December 31,
										Increase /				Percent
		2005				2004				(Decrease)				Change
Construction		$	214,020			$	226,662			$	(12,642	)			(5.6	)%
Engineering			43,194				30,993				12,201				39.4	%
EPC			37,265				15,139				22,126				146.2	%
Total contract revenue		$	294,479			$	272,794			$	21,685				7.9	%

     Construction revenue decreased $12,642 (5.6 percent) in 2005 compared to 2004. The net decrease consisted of decreases of $54,029 due to the completion of the Iraq project in 2004, $11,554 in Oman, and $10,161 due to the 2004 completion of other projects, primarily those in Bolivia and Ecuador, offset by increases of $41,871 in our United States construction division due to new pipeline construction projects and $21,230 in Canada from continuation of work relating to maintenance and fabrication contracts in the Canadian oil sands.

     Engineering revenue increased $12,201 primarily as a result of increased engineering work in the United States.

     EPC revenue increased $22,126 due to new EPC projects in the United States.

Contract Income

     Contract income decreased $22,030 (43.7 percent) to $28,407 in 2005 from $50,437 in 2004. Variations in contract costs by country were closely related to the variations in contract revenue.

		Year Ended December 31,
						% of								% of				Increase /				Percent
		2005				Revenue				2004				Revenue				(Decrease)				Change
Construction		$	14,869				6.9	%		$	47,038				20.8	%		$	(32,169	)			(68.4	)%
Engineering			3,602				8.3	%			914				2.9	%			2,688				294.1	%
EPC			9,936				26.7	%			2,485				16.4	%			7,451				299.8	%
Total contract income		$	28,407				9.6	%		$	50,437				18.5	%		$	(22,030	)			(43.7	)%

     Construction income decreased $32,169 primarily as a result of projects which were completed in 2004, including Iraq, $17,769, Bolivia, $5,510, and Ecuador, $1,309 and decreases in Oman of $4,573, the United States of $2,585, and in Canada of $578. The decline in the contract margin percent resulted primarily from the high margin recognized from the completed 2004 Iraq project and the 2004 benefit from the Bolivia Transierra

Project claim settlement. Lower contract margins in Canada due to start-up costs association the new fabrication facility and cost overruns on certain construction projects all contributed to the decline. These declines in contract margin were partially offset by higher contract margins on pipeline construction projects in the United States.

     Engineering income increased $2,688 primarily as a result of increased engineering work in the United States with improved margins.

     EPC income increased $7,451 primarily as a result of increased EPC work in the United States with improved margins much of which related to a single large project.

Other Operating Expense

     Depreciation and amortization increased $1,912 (19.6 percent) to $11,688 in 2005 due to 2005 capital expenditures of $25,111 and a full year’s depreciation on the new world-wide information technology system. Construction depreciation and amortization increased to $8,389 from $7,541, or 11.2 percent. Engineering depreciation and amortization increased to $1,065 from $878, or 21.3 percent. EPC depreciation and amortization increased to $2,234 from $1,357, or 64.6 percent.

     G&A expense increased $9,825 (30.2 percent) to $42,350 in 2005 compared to $32,525 in 2004. The increase in G&A was a result of increased activity in North America as well as increased spending on office facilities and information technology of approximately $5 million.

Non-Operating Items

     Interest net, including amortization of debt issue cost, increased $2,133 to an expense of $5,481 in 2005 from an expense of $3,348 in 2004 due primarily to the write-off of debt restructuring cost of $1,203 and higher debt levels during 2005 versus 2004. Interest income increased $709 to $1,577 in 2005 compared to $868 in 2004, as a result of an overall increase in invested funds in 2005 as compared to 2004.

     Income tax provision for income taxes in 2005 was $1,668, an increase of $2,695 over the 2004 benefit of $1,027. The company’s net income in 2004 included non-taxable revenue from Iraq of $55 million allowing the net benefit, while in 2005 the company had expenses of $20 million in Panama where no tax benefit is obtained.

Loss from Discontinued Operations, Net of Taxes

     The loss from Discontinued Operations decreased $18,792 from a loss of $27,111 in 2004 to a loss of $8,319 in 2005. The reduction in the loss from discontinued operations is due to a $212,791 increase in revenue attributable entirely to our Nigeria operations and a 6.8 percent increase in contract margin.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

     During 2006, operating activities for continuing operations used $5,429 of cash compared to a use of $34,631 during 2005. This represents an improvement in operating cash flows of $29,202 from 2006 to 2005. We believe that the proceeds from the sale of our Nigeria operations, proceeds from the private sale of equity and the improved cash flows from our continuing operations will be sufficient to finance working capital and capital expenditures for continuing operations and should give us the liquidity and flexibility to perform the increasing volume of projects we are currently pursuing or have in backlog. Capital expenditures for 2007 are estimated to exceed 2006 levels.

Capital Requirements

     Our primary requirements for capital are to acquire, upgrade and maintain equipment, provide working capital for current projects, finance the mobilization of employees and equipment to new projects, establish a presence in countries where we perceive growth opportunities and finance the possible acquisition of new businesses and equity investments. Historically, we have met these capital requirements primarily from operating cash flows, borrowings under our credit facility, and debt and equity financings.

Working Capital

     Cash and cash equivalents decreased $18,290 to $37,643 at December 31, 2006, from $55,933 at December 31, 2005. The decrease resulted primarily from the cash consumed in our discontinued operations of $105,354 and capital expenditures of $12,264. The decrease was partially offset by cash generated from continuing operations in investing activities of $40,804 and in financing activities of $51,550.

     Working capital, excluding the net assets and liabilities of discontinued operations, decreased $29,221 (33.2 percent) to $58,725 at December 31, 2006 from $87,946 at December 31, 2005. The decrease was primarily attributable to an increase in accounts payable and contract billings in excess of cost and recognized income not yet billed of $68,358, a decrease in cash of $18,290, and partially offset by an increase in accounts receivable and prepaid expenses of $58,529.

2006 Financing Activities

     2006 Credit Facility—On October 27, 2006, we concluded two financing transactions that were required to support our expected growth. Willbros USA, Inc., a wholly-owned subsidiary of the Company, entered into a new $100,000 three-year senior secured synthetic credit facility (the “2006 Credit Facility”) with a group of lenders led by Calyon New York Branch (“Calyon”). Concurrent with the creation of the 2006 Credit Facility, the predecessor 2004 Credit Facility was terminated and a total of $38,708 of outstanding letters of credit was reissued under the 2006 Credit Facility. At December 31, 2006, the 2006 Credit Facility had availability of $35,455 and is scheduled to expire in October 2009. The Company may elect to increase the total capacity under the 2006 Credit Facility to $150,000, with consent from Calyon. The Company currently has a commitment from Calyon to underwrite an increase to the 2006 Credit Facility by $25,000 subject to certain terms and conditions. The Company will increase the 2006 Credit Facility only if it has requirements to issue letters of credit in excess of $100,000. The 2006 Credit Agreement includes customary affirmative and negative covenants, such as limitations on the creation of certain new indebtedness and liens, restrictions on certain transactions and payments and maintenance of a maximum senior leverage ratio, a minimum fixed charge coverage ratio and a minimum tangible net worth requirement. Borrowings have not taken place, nor is it the Company’s present intent to use the 2006 Credit Facility for future borrowings. The 2006 Credit Facility was established primarily to provide a source for letters of credit. Unamortized debt issue costs associated with the 2006 Credit Facility of $1,986 are included in other assets at December 31, 2006, and are being amortized over the three-year term of the credit facility ending October 2009.

     As of December 31, 2006, there were no borrowings outstanding under the 2006 Credit Facility and there were $64,545 in outstanding letters of credit, $41,920 issued for projects in continuing operations and $22,625 issued for projects related to discontinued operations. Borrowings have not taken place, nor is it the Company’s intent to use the 2006 Credit Facility for future borrowings. The 2006 Credit Facility was established to provide a source of letters of credit.

     Private Placement—On October 27, 2006, the Company also sold 3,722,360 shares of its common stock in a private placement (the “Private Placement”). The selling price was $14.00 per share which was a discount of approximately 10 percent based on the Company’s closing stock price of $15.50 on October 24, 2006. Net proceeds after estimated transaction costs were $48,748. Net proceeds will be used for general corporate purposes primarily to support the start-up of several new projects in the United States and Canada.

     The buyers of the Private Placement common stock also acquired warrants to purchase an additional 558,354 shares at an exercise price of $19.03 per share. Each warrant will be exercisable, in whole or in part for a period of 60 months from the date of issuance. Additional information on the Private Placement and the 2006 Credit Facility is available in Note 10—Stockholders’ Equity and Note 7—Long-term Debt, respectively in the Notes to the Consolidated Financial Statements in this Form 10-K.

6.5% Senior Convertible Notes

     On December 22, 2005, the Company entered into a purchase agreement for a private placement of $65,000 aggregate principal amount of its 6.5% Senior Convertible Notes due 2012 (the “6.5% Notes”). The private placement closed on December 23, 2005. The net proceeds of the offering were used to retire existing indebtedness and provide additional liquidity to support working capital needs for our current level of operations. During the first quarter of 2006, the initial purchasers of the 6.5% Notes exercised their options to purchase an additional $19,500 of the 6.5% Notes, bringing the aggregate principal amount of the private placement to $84,500. The 6.5% Notes are general senior unsecured obligations. Interest is payable semi-annually on June 15 and December 15, and payments began on June 15, 2006.

     The 6.5% Notes are convertible into shares of the Company’s common stock at a conversion rate of 56.9606 shares of common stock per $1,000.00 principal amount of notes (representing a conversion price of approximately $17.56 per share resulting in 4,813,171 shares issuable at December 31, 2006), subject to adjustment in certain circumstances.

2.75% Convertible Senior Notes

     During 2004, the Company completed an offering of $70,000 of 2.75% Convertible Senior Notes (the “2.75% Notes”). The 2.75% Notes are general senior unsecured obligations. Interest is paid semi-annually on March 15 and September 15 and payments began on September 15, 2004. The 2.75% Notes mature on March 15, 2024 unless the notes are repurchased, redeemed or converted earlier. The holders of the 2.75% Notes may, under certain circumstances, convert the notes into shares of the Company’s common stock at an initial conversion ratio of 51.3611 shares of common stock per $1,000.00 principal amount of notes (representing a conversion price of approximately $19.47 per share resulting in 3,595,277 shares issuable at December 31, 2006 subject to adjustment in certain circumstances). The notes will be convertible only upon the occurrence of certain specified events including, but not limited to, if, at certain times, the closing sale price of the Company’s common stock exceeds 120 percent of the then current conversion price, or $23.36 per share, based on the initial conversion price.

     On September 22, 2005, the Company entered into an amendment of the indenture with holders of the 2.75% Notes (the “Indenture Amendment”). The Indenture Amendment extended the initial date on or after which the 2.75% Notes may be redeemed by the Company to March 15, 2013 from March 15, 2011.

2004 Credit Facility

     On March 12, 2004, the existing $125,000 June 2002 credit agreement with Calyon was amended, restated and increased to $150,000 (the “2004 Credit Facility”). The 2004 Credit Facility would have matured on March 12, 2007 but was replaced on October 27, 2006 by the 2006 Credit Facility (See Financing Transactions above). The 2004 Credit Facility was available for standby and commercial letters of credit, borrowings or a combination thereof. Borrowings were limited to the lesser of 40 percent of the borrowing base or $30,000. Interest was payable quarterly at a base rate plus a margin ranging from 0.75 percent to 2.00 percent or on a Eurodollar rate plus a margin ranging from 1.75 percent to 3.00 percent. The 2004 Credit Facility was collateralized by substantially all of the Company’s assets, including stock of the Company’s principal subsidiaries, prohibited the payment of cash dividends and required the Company to maintain certain financial ratios. The borrowing base was calculated using varying percentages of cash, accounts receivable, accrued revenue, contract cost and recognized income not yet billed; property, plant and equipment, and spare parts.

     During the period from August 6, 2004 to August 18, 2006, the Company entered into various amendments and waivers to the 2004 Credit Facility with its syndicated bank group to waive non-compliance with certain financial and non-financial covenants. Among other things, the amendments provided that (1) certain financial covenants and reporting obligations were waived and/or modified to reflect the Company’s current and anticipated future operating performance, (2) the ultimate reduction of the facility to $50,000 and provided for a letter of credit limit of $50,000 less the face amount of letters of credit issued prior to August 18, 2006, and provided that each new letter of credit must be fully cash collateralized and that a letter of credit fee of .25 percent be paid for each cash collateralized letter of credit and (3) a requirement for the Company to maintain a minimum cash balance of $15,000. The Sixth Amendment expired on September 30, 2006, and availability under the 2004 Credit Facility was reduced to zero. On October 27, 2006, the 2004 Credit Facility was replaced with the 2006 Credit Facility.

     Additional information on the 2004 Credit Facility, the 6.5% Notes and the 2.75% Notes is available in Note 7—Long-term Debt in the Notes to the Consolidated Financial Statements in this Form 10-K.

Contractual Obligations

		Payments Due By Period
						Less than												More than
		Total				1 year				1-3 years				4-5 years				5 years
Convertible notes		$	154,500			$	—			$	—			$	70,000			$	84,500
Capital lease obligations			13,144				5,480				7,664				—				—
Operating lease obligations			17,650				7,755				7,971				1,924				—
Total		$	185,294			$	13,235			$	15,635			$	71,924			$	84,500

     As of December 31, 2006, there were no borrowings under the 2006 Credit Facility and there were $64,545 in outstanding letters of credit, $41,920 issued for projects in continuing operations and $22,625 issued for projects related to discontinued operations.

     Additionally, we have various notes and leases payable, generally related to equipment financing and local revolving credit facilities. All notes and leases are at market interest rates, and are collateralized by certain vehicles, equipment and/or real estate.

     We have unsecured credit facilities with banks in certain countries outside the United States. Borrowings under these lines, in the form of short-term notes and overdrafts, are made at competitive local interest rates. Generally, each line is available only for borrowings related to operations in a specific country. Credit available under these facilities is approximately $4,582 at December 31, 2006. There were no outstanding borrowings at December 31, 2006 or 2005.

     During 2006, our allowance for doubtful accounts including Discontinued Operations increased from $6,672 to $10,389, with an increase in the allowance for continuing operations from $516 to $598 and $6,156 to $9,791 for discontinued operations. This increase in the allowance is due to an additional provision of $4,512, primarily related to discontinued operations, and net write-offs of uncollectible accounts of $795. We do not anticipate any significant collection problems with our customers beyond what has been already recognized in our allowance, including those in countries that may be experiencing economic and/or currency difficulties. Since our customers generally are major oil companies and government entities, and the terms for billing and collecting for work performed are generally established by contracts, we historically have had a very low incidence of collectability problems.

Off-Balance Sheet Arrangements and Commercial Commitments

     From time to time, we enter into commercial commitments, usually in the form of commercial and standby letters of credit, insurance bonds and financial guarantees. Contracts with our customers may require us to provide letters of credit or insurance bonds with regard to our performance of contracted services. In such cases, the commitments can be called upon in the event of our failure to perform contracted services. Likewise, contracts may allow us to issue letters of credit or insurance bonds in lieu of contract retention provisions, in which the client withholds a percentage of the contract value until project completion or expiration of a warranty period.

     A summary of our off-balance sheet commercial commitments for both continuing and discontinued operations as of December 31, 2006 is as follows:

		Expiration Per Period
		Total				Less Than								More Than
		Commitment				1 Year				1-2 Years				2 Years
Letters of credit:
US—performance		$	33,250			$	33,250			$	—			$	—
Canada—performance			8,569				8,569				—				—
Other—performance and retention			5,282				1,602				3,680				—
Nigeria projects—performance			22,625				2,743				19,759				123
Total letters of credit			69,726				46,164				23,439				123
U.S. Insurance bonds—primarily performance			99,050				35,936				53,700				9,414
Total commercial commitments		$	168,776			$	82,100			$	77,139				9,537

     These commercial commitments totaling $168,776 represent the maximum amount of future payments we could be required to make. We had no liability recorded as of December 31, 2006, related to these commitments.

NEW ACCOUNTING PRONOUNCEMENTS

     FIN No. 48—In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”) an interpretation of Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109. The interpretation prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 31, 2006. The Company is currently evaluating what impact, if any, this statement will have on its financial statements.

     SFAS No. 157—In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 is effective for the Company’s fiscal year beginning January 1, 2007. The Company is currently evaluating what impact, if any, this statement will have on its financial statements.

     FASB Staff Position (“FSP”) No. AUG AIR-1—On September 7, 2006 the FASB issued this amendment to certain provisions in the American Institute of Certified Public Accountants (“AICPA”) Industry Guide, Audits of Airlines, and Accounting Principles Board (“APB”) Opinion No. 28, “Interim Financial Reporting”. This FSP prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods. The guidance in this FSP shall be applied to the first fiscal year beginning after December 15, 2006. The Company intends to adopt this standard for the fiscal year beginning January 1, 2007. The Company is currently evaluating what impact, if any, this amendment will have on its financial statements, including the potential impact to retrospective periods.

EFFECTS OF INFLATION AND CHANGING PRICES

     Our operations are affected by increases in prices, whether caused by inflation, government mandates or other economic factors, in the countries in which we operate. We attempt to recover anticipated increases in the cost of labor, equipment, fuel and materials through price escalation provisions in certain major contracts or by considering the estimated effect of such increases when bidding or pricing new work.

Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

		Page
Consolidated Financial Statements of Willbros Group, Inc. and Subsidiaries
Reports of Independent Registered Public Accounting Firms			17
Consolidated Balance Sheets as of December 31, 2006 and 2005			21
Consolidated Statements of Operations for the years ended December 31, 2006, 2005 and 2004			22
Consolidated Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the years ended December 31, 2006, 2005 and 2004			23
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004			24
Notes to Consolidated Financial Statements for the years ended December 31, 2006, 2005 and 2004			26

Report of Independent Registered Public Accounting Firm

To the Board of Directors and
Stockholders of Willbros Group, Inc.

     We have audited the accompanying consolidated balance sheets of Willbros Group, Inc. as of December 31, 2006 and 2005, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the two-year period ended December 31, 2006. 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 the standards of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Willbros Group, Inc. as of December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

     We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Willbros Group, Inc.’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 12, 2007 expressed an unqualified opinion on management’s assessment of internal control over financial reporting and an adverse opinion on the effectiveness of internal control over financial reporting.

     We have also audited the adjustments to the 2004 consolidated financial statements to retrospectively apply the change in accounting, as described in Note 2. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the 2004 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2004 financial statements taken as a whole.

     We also have audited the adjustments to retrospectively apply the change in reportable segments reported in Note 12 to the consolidated financial statements for the years 2006, 2005, and 2004. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review or apply any procedures to the 2004 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2004 financial statements taken as a whole.

/s/ GLO CPAs, LLP

Houston, Texas
March 12, 2007, except for Note 12 which is as of September 26, 2007

Report of Independent Registered Public Accounting Firm

The Stockholders and Board of Directors
Willbros Group, Inc.:

     We have audited, before the effects of the adjustments to retrospectively apply the change in accounting related to the discontinued operations as described in Note 2 and the change in reportable operating segments as described in Note 12, the consolidated statement of operations, stockholders’ equity and comprehensive income (loss), and cash flows of Willbros Group, Inc. for the year ended December 31, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (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 audit provides a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements, before the effects of the adjustments to retrospectively apply the change in accounting related to the discontinued operations as described in Note 2 and the change in reportable operating segments as described in Note 12, present fairly, in all material respects, and the results of its operations and its cash flows for the year ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

     We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting related to the discontinued operations as described in Note 2 and the change in reportable operating segments as described in Note 12, and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by GLO CPAs, LLP.

/s/ KPMG LLP

Houston, Texas
November 21, 2005

Report of Independent Registered Public Accounting Firm

To the Board of Directors and
Stockholders of Willbros Group, Inc.

     We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting (Item 9A(b)), that Willbros Group, Inc. (“the Company”) did not maintain effective internal control over financial reporting as of December 31, 2006, because of the effect of material weaknesses identified in management’s assessment, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment as of December 31, 2006.

     Nigeria Accounting—During the fourth quarter of 2006, the Company determined that a material weakness in their internal control over financial reporting exists related to the Company’s management control environment over the accounting for their Nigeria operations. This weakness in management control led to the inability to adequately perform various control functions including supervision over and consistency of: inventory management; petty cash disbursement; accounts payable disbursement approvals; account reconciliation; and review of time keeping records. This weakness resulted primarily due to the Company being unable to maintain a consistent and stable internal control environment over its Nigeria operations in the fourth quarter of 2006.

     Nigeria Project Controls – Estimate to Complete—A material weakness exists related to controls over Nigeria project reporting. This weakness existed throughout 2006 and is a continuation of a material weakness reported in their 2005 Form 10-K. The weakness primarily impacted one large Nigeria project with a total contract value of approximately $165 million, for which cost estimates were not updated timely in the fourth quarter of 2006 due to insufficient measures being taken to independently verify and update reliable cost estimates. This material weakness specifically resulted in material changes to revenue and cost of sales during the preparation of their year end financial statements by their accounting staff prior to the issuance of the Form 10-K.

     The above material weaknesses were considered in determining the nature, timing, and extent of audit tests

applied in our audit of the 2006 consolidated financial statements, and this report does not affect our report dated March 12, 2007 which expressed an unqualified opinion on those financial statements.

     In our opinion, management’s assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ GLO CPAs, LLP

Houston, Texas
March 12, 2007

WILLBROS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)

		December 31,
		2006				2005
ASSETS
Current assets:
Cash and cash equivalents		$	37,643			$	55,933
Accounts receivable, net			137,104				84,003
Contract cost and recognized income not yet billed			11,027				7,619
Prepaid expenses			17,299				11,871
Parts and supplies inventories			2,069				2,509
Assets of discontinued operations			294,192				261,099
Total current assets			499,334				423,034
Deferred tax assets			5,064				4,134
Property, plant and equipment, net			65,347				59,706
Goodwill			6,683				6,687
Other assets			11,826				5,324
Total assets		$	588,254			$	498,885
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable and current portion of long-term debt		$	5,562			$	2,680
Accounts payable and accrued liabilities			122,352				67,599
Contract billings in excess of cost and recognized income			14,947				1,342
Accrued income taxes			3,556				2,368
Liabilities of discontinued operations			182,092				144,085
Total current liabilities			328,509				218,074
2.75% convertible senior notes			70,000				70,000
6.5% senior convertible notes			84,500				65,000
Long-term debt			7,077				340
Other liabilities			237				237
Total liabilities			490,323				353,651
Commitments and contingencies (see Note 13)
Stockholders’ equity:
Class A preferred stock, par value $.01 per share, 1,000,000 shares authorized, none issued			—				—
Common stock, par value $.05 per share, 70,000,000 shares authorized (35,000,000 at December 31, 2005) and 25,848,596 shares issued at December 31, 2006 (21,649,475 at December 31, 2005)			1,292				1,082
Capital in excess of par value			217,036				161,596
Accumulated deficit			(120,603	)			(15,166	)
Treasury stock at cost, 167,844 shares at December 31, 2006 (98,863 at December 31, 2005)			(2,154	)			(1,163	)
Deferred compensation			—				(3,720	)
Note receivable for stock purchases			—				(231	)
Accumulated other comprehensive income			2,360				2,836
Total stockholders’ equity			97,931				145,234
Total liabilities and stockholders’ equity		$	588,254			$	498,885

See accompanying notes to consolidated financial statements.

WILLBROS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)

		Year Ended December 31,
		2006				2005				2004
Contract revenue		$	543,259			$	294,479			$	272,794
Operating expense:
Contract			489,494				266,072				222,357
Depreciation and amortization			12,430				11,688				9,776
General and administrative			53,366				42,350				32,525
			555,290				320,110				264,658
Operating income (loss)			(12,031	)			(25,631	)			8,136
Other income (expense):
Interest income			1,803				1,577				868
Interest expense			(10,068	)			(5,481	)			(3,348	)
Foreign exchange gain (loss)			(150	)			14				(85	)
Other, net			719				728				(302	)
			(7,696	)			(3,162	)			(2,867	)
Income (loss) from continuing operations before income taxes			(19,727	)			(28,793	)			5,269
Provision (benefit) for income taxes			2,308				1,668				(1,027	)
Net income (loss) from continuing operations			(22,035	)			(30,461	)			6,296
Loss from discontinued operations net of provision for income taxes			(83,402	)			(8,319	)			(27,111	)
Net loss		$	(105,437	)		$	(38,780	)		$	(20,815	)
Basic income (loss) per common share:
Income (loss) from continuing operations		$	(0.98	)		$	(1.43	)		$	0.30
Loss from discontinued operations			(3.72	)			(0.39	)			(1.29	)
Net loss		$	(4.70	)		$	(1.82	)		$	(0.99	)
Diluted income (loss) per common share:
Income (loss) from continuing operations		$	(0.98	)		$	(1.43	)		$	0.30
Loss from discontinued operations			(3.72	)			(0.39	)			(1.29	)
Net loss		$	(4.70	)		$	(1.82	)		$	(0.99	)
Weighted average number of common shares outstanding:
Basic			22,440,742				21,258,211				20,922,002
Diluted			22,440,742				21,258,211				20,922,002

See accompanying notes to consolidated financial statements.

WILLBROS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE INCOME (LOSS)
(In thousands, except share amounts)

										Capital in				Retained												Notes				Accumulated				Total
		Common Stock								Excess				Earnings												Receivable				Other				Stock-
						Par				of Par				(Accumulated				Treasury				Deferred				Stock				Comprehensive				holders’
		Shares				Value				Value				Deficit)				Stock				Compensation				Purchases				Income(Loss)				Equity
Balance, December 31, 2003			20,748,498			$	1,037			$	149,373			$	44,429			$	(345	)		$	—			$	(982	)		$	1,015			$	194,527
Comprehensive income (loss):
Net loss			—				—				—				(20,815	)			—				—				—				—				(20,815	)
Foreign currency translation adjustments			—				—				—				—				—				—				—				579				579
Total compre-hensive loss																																			(20,236	)
Payment of notes receivable			—				—				—				—				—				—				990				—				990
Amortization of note discount			—				—				—				—				—				—				(224	)			—				(224	)
Restricted stock grants			183,000				9				2,312				—				—				(2,321	)			—				—				—
Forfeitures of restricted stock grants			—				—				—				—				(210	)			210				—				—				—
Deferred compensation			—				—				134				—				—				472				—				—				606
Issuance of common stock under employee benefit plan			15,603				1				220				—				—				—				—				—				221
Exercise of stock options			478,879				24				4,136				—				—				—				—				—				4,160
Balance, December 31, 2004			21,425,980				1,071				156,175				23,614				(555	)			(1,639	)			(216	)			1,594				180,044
Comprehensive income (loss):
Net loss			—				—				—				(38,780	)			—				—				—				—				(38,780	)
Foreign currency translation adjustments			—				—				—				—				—				—				—				1,242				1,242
Total comprehensive loss																																			(37,538	)
Amortization of note discount			—				—				—				—				—				—				(15	)			—				(15	)
Restricted stock grants			175,000				9				3,822				—				—				(3,831	)			—				—				—
Vesting restricted stock rights			10,875				1				(1	)			—				—				—				—				—				—
Forfeiture of restricted stock grants			—				—				—				—				(357	)			357				—				—				—
Additions to treasury stock, vesting restricted stock			—				—				—				—				(251	)			—				—				—				(251	)
Deferred compensation			—				—				1,165				—				—				1,393				—				—				2,558
Issuance of common stock under employee benefit plan			3,870				—				80				—				—				—				—				—				80
Exercise of stock options			33,750				1				355				—				—				—				—				—				356
Balance, December 31, 2005			21,649,475				1,082				161,596				(15,166	)			(1,163	)			(3,720	)			(231	)			2,836				145,234
Comprehensive income (loss):
Net loss			—				—				—				(105,437	)			—				—				—				—				(105,437	)
Foreign currency translation adjustments			—				—				—				—				—				—				—				(476	)			(476	)
Total comprehensive loss																																			(105,913	)
Deferred compensation			—				—				3,520				—				—				3,720				—				—				7,240
Amortization of note discount			—				—				—				—				—				—				(12	)			—				(12	)
Stock received for note			—				—				—				—				(243	)			—				243				—				—
Restricted stock grants			168,116				8				(8	)			—				—				—				—				—				—
Vesting of restricted stock rights			12,125				1				(1	)			—				—				—				—				—				—
Additions to treasury stock, vesting restricted stock			—				—				—				—				(748	)			—				—				—				(748	)
Exercise of stock options			296,520				15				3,367				—				—				—				—				—				3,382
Private placement of common stock			3,722,360				186				45,139				—				—				—				—				—				45,325
Issuance of common stock warrants			—				—				3,423				—				—				—				—				—				3,423
Balance, December 31, 2006			25,848,596			$	1,292			$	217,036			$	(120,603	)		$	(2,154	)		$	—			$	—			$	2,360			$	97,931

WILLBROS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share amounts)

		Year Ended December 31,
		2006				2005				2004
Cash flows from operating activities:
Net loss		$	(105,437	)		$	(38,780	)		$	(20,815	)
Reconciliation of net loss to cash provided by (used in) operating activities:
Loss from discontinued operations			83,402				8,319				27,111
Depreciation and amortization			12,430				11,688				9,776
Amortization of debt issue costs			2,319				2,920				1,846
Non-cash compensation expense			7,240				2,558				606
Deferred income tax expense (benefit)			(895	)			1,730				1,281
Loss (gain) on sales and retirements of property, plant and equipment			(3,914	)			(910	)			378
Equity in joint ventures			—				16				10,314
Amortization of notes receivable discount			(12	)			(15	)			(224	)
Provision (credit) for bad debts			517				586				(262	)
Provision for inventory obsolescence			—				600				1,400
Changes in operating assets and liabilities:
Accounts receivable, net			(54,101	)			(27,443	)			(8,587	)
Contract cost and recognized income not yet billed			(3,439	)			(6,668	)			5,972
Prepaid expenses			5,052				4,411				(186	)
Parts and supplies inventories			603				(8,882	)			(1,693	)
Other assets			(3,123	)			(373	)			(194	)
Accounts payable and accrued liabilities			39,117				18,961				7,215
Contract billings in excess of cost and recognized income			13,602				(2,290	)			(2,705	)
Accrued income taxes			1,210				(1,059	)			7,443
Cash provided by (used in) operating activities of continuing operations			(5,429	)			(34,631	)			38,676
Net cash flows used in operating activities of discontinued operations			(97,923	)			(2,486	)			(1,266	)
Cash provided by (used in) operating activities			(103,352	)			(37,117	)			37,410
Cash flows from investing activities:
Proceeds from sales of property and equipment			3,663				1,740				1,274
Proceeds from sales of discontinued operations			48,514				—				—
Purchases of property, plant and equipment			(11,373	)			(18,706	)			(15,733	)
Cash provided by (used in) investing activities of continuing operations			40,804				(16,966	)			(14,459	)
Net cash flows used in investing activities of discontinued operations			(7,431	)			(19,998	)			(22,292	)
Cash provided by (used in) investing activities			33,373				(36,964	)			(36,751	)
Cash flows from financing activities:
Proceeds from private placement of equity			48,748				—				—
Proceeds from exercise of stock options			3,382				436				4,381
Proceeds from issuance of 6.5% senior convertible notes			19,500				65,000				—
Proceeds from issuance of 2.75% convertible senior notes			—				—				70,000
Proceeds from long-term debt			—				15,000				—
Proceeds from notes payable to banks			—				3,924				2,490
Repayment of notes payable to banks			(12,135	)			(4,400	)			(3,323	)
Costs of debt issuance			(6,306	)			(1,474	)			(6,176	)
Payment of capital leases			(891	)			(6,405	)			—
Acquisition of treasury stock			(748	)			(251	)			—
Repayment of long-term debt			—				(15,000	)			(14,000	)
Collection of notes receivable for stock purchases			—				—				990
Cash provided by financing activities of continuing operations			51,550				56,830				54,362
Net cash flows provided by financing activities of discontinued operations			—				—				—
Cash provided by financing activities			51,550				56,830				54,362
Effect of exchange rate changes on cash and cash equivalents			139				17				(829	)

WILLBROS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share amounts)

		Year Ended December 31,
		2006				2005				2004
Increase (decrease) in cash and cash equivalents			(18,290	)			(17,234	)			54,192
Cash and cash equivalents, beginning of year			55,933				73,167				18,975
Cash and cash equivalents, end of year		$	37,643			$	55,933			$	73,167
Supplemental cash flow information:
Cash paid for interest (including discontinued operations)		$	7,590			$	2,421			$	1,514
Cash paid for income taxes (including discontinued operations)		$	11,782			$	15,887			$	2,393
Non-cash investing and financing transactions:
Property and equipment obtained by capital lease		$	12,108			$	—			$	—
Prepaid insurance obtained by note payable		$	10,620			$	—			$	—
Treasury stock acquired for forfeited restricted stock grants		$	—			$	357			$	210
Settlement of officer note receivable for stock		$	243			$	—			$	—
Distribution of property by joint ventures		$	—			$	—			$	737
Receivable obtained by sale of discontinued operations		$	3,300			$	—			$	—

See accompanying notes to consolidated financial statements.

WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)

1. Summary of Significant Accounting Policies

     Company—Willbros Group, Inc. (“WGI”), a Republic of Panama corporation, and all of its majority-owned subsidiaries (the “Company”) provide construction, engineering, specialty services and development activities to the oil, gas and power industries and government entities. The Company’s principal markets for continuing operations are the United States, Canada, and the Middle East. The disclosures in the notes to consolidated financial statements relate to continuing operations, except as otherwise indicated.

     Basis of Presentation of Discontinuance of Operations and Asset Disposal—During 2006, the Company chose to exit the following businesses: Nigeria, Venezuela, and the TXP-4 Plant, (collectively the “Discontinued Operations”), and accordingly, these businesses are presented as discontinued operations in the preceding consolidated financial statements. The net assets and net liabilities related to the Discontinued Operations are shown on the Consolidated Balance Sheets as components of “Assets of discontinued operations” and “Liabilities of discontinued operations”, respectively. The results of the Discontinued Operations are shown on the Consolidated Statements of Operations as a component of “Loss from discontinued operations net of provision for income taxes”, for all periods shown.

     Principles of Consolidation—The consolidated financial statements of the Company include the accounts of WGI and all of its majority-owned subsidiaries. Inter-company accounts and transactions are eliminated in consolidation. The ownership interest of minority participants in subsidiaries that are not wholly-owned (principally in Oman) is included in accounts payable and accrued liabilities and is not material. The minority participants’ share of the net income of those subsidiaries is included in contract costs. Interest in the Company’s unconsolidated joint ventures is accounted for using the equity method in the consolidated balance sheet.

     Restatement of Consolidated Financial Statements—In late December 2004, the Company became aware of improprieties in the Company’s Bolivian subsidiary related to assessment of certain Bolivian taxes and allegations that the subsidiary had filed improper tax returns. Upon learning of the tax assessment and alleged improprieties, the Company commenced an initial investigation into the matter and notified the Audit Committee of the Board of Directors, which retained independent counsel, who in turn retained forensic accountants, and began an independent investigation. Concurrent with the Audit Committee’s investigation, the Company initiated its own review of the Company’s accounting. This review focused primarily on the Company’s international activities supervised by J. Kenneth Tillery, the former President of Willbros International, Inc. (“WII”), the primary international subsidiary of the Company, but also included other areas of the Company’s accounting activities.

     As a result of the investigations and the Company’s accounting review, the Company determined that several members of the senior management of WII and its subsidiaries collaborated to misappropriate assets from the Company and cover up such activity. It was determined that the Bolivian subsidiary had in fact filed improper tax returns, or failed to file returns, at the direction of Mr. Tillery. The investigation also determined that Mr. Tillery, in collusion with several members of management of the international subsidiaries, was involved in a pattern of improper activities, primarily in the Company’s Nigeria subsidiaries, which was specifically contrary to established Company policies, internal controls and possibly the laws of several countries, including the United States.

     Use of Estimates—The consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States and include certain estimates and assumptions by management of the Company in the preparation of the consolidated financial statements. These estimates and assumptions relate to the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the period. Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment, goodwill and parts and supplies inventories; quantification of amounts recorded for contingencies, tax accruals and certain other accrued liabilities; valuation allowances for accounts receivable and deferred income tax assets; and revenue recognition under the percentage-of-completion method of accounting, including estimates of progress toward completion and estimates of gross profit or loss accrual on contracts in progress. The Company bases its estimates on historical experience and other assumptions that it believes relevant under the circumstances. Actual results could differ from these estimates.

WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)

1. Summary of Significant Accounting Policies (continued)

     Commitments and Contingencies—Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when management assesses that it is probable that a liability has been incurred and the amount can be reasonably estimated. Recoveries of costs from third parties, which management assesses are probable of realization, are separately recorded as assets in other assets. Legal costs incurred in connection with matters relating to contingencies are expensed in the period incurred.

     Accounts Receivable—Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the probable amount of credit losses in the Company’s existing accounts receivable. A considerable amount of judgment is required in assessing the realization of receivables. Relevant assessment factors include the creditworthiness of the customer and prior collection history. Balances over 90 days past due and over a specified minimum amount are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection are exhausted and the potential for recovery is considered remote. The allowance requirements are based on the most current facts available and are re-evaluated and adjusted on a regular basis and as additional information is received. The Company does not have any off-balance-sheet credit exposure related to its customers.

     Inventories—Inventories, consisting primarily of parts and supplies, are stated at the lower of cost or market. Cost is determined using the first-in, first-out (“FIFO”) method. Parts and supplies are evaluated at least annually and adjusted for excess and obsolescence. Parts and supplies related to continuing operations were valued at $2,069 and $2,509 at December 31, 2006 and December 31, 2005, respectively. No excess or obsolescence allowances existed at December 31, 2006 or 2005.

     Other Operating Expense—Other operating expense consists of the costs incurred by the Company associated with fraudulent invoices for fictitious supplies or services. See Note 2-Restatement, in the Company’s 2004 Annual Report Form 10-K.

     Property, Plant and Equipment—Property, plant and equipment is stated at cost. Depreciation, including amortization of capital leases, is provided on the straight-line method using estimated lives as follows:

Construction equipment		4-6 years
Marine equipment		10 years
Transportation equipment		3-4 years
Buildings		20 years
Furniture and equipment		3-10 years

     Assets held under capital leases and leasehold improvements are amortized on a straight-line basis. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income for the period. Normal repair and maintenance costs are charged to expense as incurred. Significant renewals and betterments are capitalized. Long-lived assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

     Goodwill—Goodwill represents the excess of purchase price over fair value of net assets acquired. Goodwill is not amortized but instead is annually tested for impairment. Annual testing for impairment occurs during the fourth quarter of the fiscal year and more frequently if an event or circumstance indicates that an impairment has occurred. The impairment test involves determining the fair market value of each of the reporting units with which the goodwill is associated and comparing the estimated fair market value of each of the reporting units with its carrying amount. The Company completed its annual evaluation for impairment of goodwill as of December 31, 2006, and determined that no impairment of goodwill existed as of that date.

WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)

1. Summary of Significant Accounting Policies (continued)

     Revenue—A number of factors relating to the Company’s business affect the recognition of contract revenue. The Company typically structures contracts as fixed-price, unit-price, material and time or cost plus fixed fee. Revenue from unit-price and time and material contracts is recognized as earned. The Company believes that its operating results should be evaluated over a time horizon during which major contracts in progress are completed and change orders, extra work, variations in the scope of work and cost recoveries and other claims are negotiated and realized.

     Revenue for fixed-price and cost plus fixed fee contracts is recognized on the percentage-of-completion method. Under this method, estimated contract income and resulting revenue is generally accrued based on costs incurred to date as a percentage of total estimated costs, taking into consideration physical completion. Total estimated costs, and thus contract income, are impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and approvals, labor availability, governmental regulation and politics may affect the progress of a project’s completion and thus the timing of revenue recognition. The Company does not recognize income on a fixed-price contract until the contract is approximately 5 percent to 10 percent complete, depending upon the nature of the contract. If a current estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full when determined.

     The Company considers unapproved change orders to be contract variations on which the Company has customer approval for scope change, but not for price associated with that scope change. Costs associated with unapproved change orders are included in the estimated cost to complete the contracts and are expensed as incurred. The Company recognizes revenue equal to cost incurred on unapproved changed orders when realization of price approval is probable and the estimated amount is equal to or greater than the Company’s cost related to the unapproved change order. Revenue recognized on unapproved change orders is included in Contract costs and recognized income not yet billed on the balance sheet.

     Unapproved change orders involve the use of estimates, and it is reasonably possible that revisions to the estimated costs and recoverable amounts may be required in the future reporting periods to reflect the changes in estimates or final agreement with customers.

     The Company considers claims to be amounts the Company seeks or will seek to collect from customers or others for customer-caused changes in contract specifications or design, or other customer-related causes of unanticipated additional contract costs on which there is no agreement with customers on both scope and price changes. Revenue from claims is recognized when agreement is reached with customers as to the value of the claims, which in some instances may not occur until after completion of work under the contract. Costs associated with claims are included in the estimated costs to complete the contracts and are expensed when incurred.

     Income Taxes—The Company accounts for income taxes by the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences of operating loss and tax credit carry forwards and temporary differences between the financial statement carrying values of assets and liabilities and their respective tax bases. The provision or benefit for income taxes and the annual effective tax rate are impacted by income taxes in certain countries (in discontinued operations) being computed based on a deemed profit rather than on taxable income and tax holidays on certain international projects.

     Retirement Plans and Benefits—The Company has a voluntary defined contribution retirement plan for U.S. based employees that is qualified, and is contributory on the part of the employees, and a voluntary savings plan for certain international employees that is non-qualified, and is contributory on the part of the employees.

     Stock-Based Compensation—Effective January 1, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R, “Share-Based Payment,” using the modified prospective application method. Under this method, compensation cost is recognized for the applicable amounts of: (a) compensation expense of all share-based payments granted prior to, but not yet vested as of, January 1, 2006 (based on the grant-date fair value estimated in accordance with the original provisions of SFAS No. 123, “Accounting for Stock-Based Compensation,” and previously presented in the pro forma footnote disclosures in the Company’s SEC reports), and (b) compensation cost for all share-based payments granted subsequent to January 1, 2006 (based on the grant-date fair value estimated in accordance

WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)

1. Summary of Significant Accounting Policies (continued)

with the provisions of SFAS No. 123R). The Company uses the Black-Scholes valuation method to determine the fair value of stock options granted as of the grant date.

     Foreign Currency Translation—All significant monetary asset and liability accounts denominated in currencies other than United States dollars are translated into United States dollars at current exchange rates for countries in which the local currency is the functional currency. Translation adjustments are accumulated in other comprehensive income (loss). Non-monetary assets and liabilities in highly inflationary economies are translated into United States dollars at historical exchange rates. Revenue and expense accounts are converted at prevailing rates throughout the year. Foreign currency translation adjustments and translation adjustments in highly inflationary economies are recorded in income.

     Concentration of Credit Risk—The Company has a concentration of customers in the oil, gas and power industries which exposes the Company to a concentration of credit risk within a single industry. The Company seeks to obtain advance and progress payments for contract work performed on major contracts. Receivables are generally not collateralized. The allowance for doubtful accounts, including that in discontinued operations, increased in 2006 to $10,389 from $6,672 in 2005. The Company believes the allowance for doubtful accounts is adequate.

     Fair Value of Financial Instruments—The carrying value of financial instruments does not materially differ from fair value.

     Capitalized Interest—The Company capitalizes interest as part of the cost of significant assets constructed or developed for its own use. Capitalized interest was $57, $168, and $349 in 2006, 2005 and 2004, respectively.

     Income (Loss) per Common Share—Basic income (loss) per share is calculated by dividing net income (loss), less any preferred dividend requirements, by the weighted-average number of common shares outstanding during the year. Diluted income (loss) per share is calculated by including the weighted-average number of all potentially dilutive common shares with the weighted-average number of common shares outstanding.

     Derivative Financial Instruments—The Company may use derivative financial instruments such as forward contracts, options or other financial instruments as hedges to mitigate non-U.S. currency exchange risk when the Company is unable to match non-U.S. currency revenue with expense in the same currency. The Company had no derivative financial instruments as of December 31, 2006 or 2005.

     Cash Equivalents—The Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.

     Cash flows from investing activities—The proceeds from sale of discontinued operations for the year ended December 31, 2006 includes $16,532 of non-refundable payments to be applied to the sale of Nigeria assets and operations.

     Recently Issued Accounting Standards—FIN No. 48—In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”) an interpretation of SFAS No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109. The interpretation prescribes a recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 31, 2006. The Company is currently evaluating what impact, if any, this statement will have on its financial statements.

     SFAS No. 157—In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 is effective for the Company’s fiscal year beginning January 1, 2007. The Company is currently evaluating what impact, if any, this statement will have on

WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)

1. Summary of Significant Accounting Policies (continued)

its financial statements.

     FASB Staff Position (“FSP”) No. AUG AIR-1—On September 7, 2006 the FASB issued this amendment to certain provisions in the American Institute of Certified Public Accountants (“AICPA”) Industry Guide, Audits of Airlines, and Accounting Principles Board (“APB”) Opinion No. 28, “Interim Financial Reporting”. This FSP prohibits the use of the accrue-in-advance method of accounting for planned major maintenance activities in annual and interim financial reporting periods. The guidance in this FSP shall be applied to the first fiscal year beginning after December 15, 2006. The Company intends to adopt this standard for the fiscal year beginning January 1, 2007. The Company is currently evaluating what impact, if any, this amendment will have on its financial statements, including the potential impact to retrospective periods.

     Reclassification—Certain reclassifications have been made to prior year balances to conform to current year presentations.

2. Discontinuance of Operations and Asset Disposal

Strategic Decisions

     As part of the Company’s ongoing strategic evaluation of operations, the following businesses have been discontinued: Nigeria, Venezuela, and the TXP-4 Plant, collectively the “Discontinued Operations”, and accordingly, these businesses are presented as discontinued operations in the preceding consolidated financial statements. The net assets and net liabilities related to the Discontinued Operations are shown on the Consolidated Balance Sheets as “Assets of discontinued operations” and “Liabilities of discontinued operations”, respectively. The results of the Discontinued Operations are shown on the Consolidated Statements of Operations as “Loss from discontinued operations net of provision for income taxes” for all periods shown.

     The separate results of the Discontinued Operations, as well as a breakdown of the major classes of assets and liabilities included as part of Discontinued Operations, are detailed in the subsequent tables.

Nigeria

     On February 7, 2007, the Company sold its Nigeria operations through a share purchase agreement for total consideration of $155,250. In conjunction with this transaction, the Company bought out certain minority interests at a total cost of $10,500. See Note 17—Subsequent Events for more information on the sale.

     Nigeria operations and assets were previously included in the Company’s former International segment and retrospectively presented as discontinued operations on the Company’s Form 8-K filed December 8, 2006.

     As part of the sales process, the Company continues to evaluate the carrying value of the Nigeria assets and operations with respect to their estimated market value. As of December 31, 2006, the Company did not recognize an impairment of the Nigeria assets based upon this analysis. Any impairment would be included in the “Loss from discontinued operations net of provision for income taxes”.

Pipe coating joint venture

     Kanssen International Pipe Coating Services Limited (“Kanssen”) and Willbros West Africa, Inc. (“WWAI”) a subsidiary of the Company entered into an agreement to upgrade facilities at the WWAI Choba pipe coating facility. The agreement was signed in June 2006 and included an installation of new concrete weight coating equipment furnished by Kanssen. WWAI and Kanssen participate in the venture with a 50 percent interest for each party with WWAI being paid a management fee on each contract not to exceed 9 percent of the contract revenue. Currently, the pipe coating transactions are included in the revenues and expenses of the related WWAI projects. In 2006, the pipe coating facility had approximately $16.5 million in contract revenue.

WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)

2. Discontinuance of Operations and Asset Disposal (continued)

Venezuela

     Asset disposal—On August 17, 2006, the Company entered into a share purchase agreement with a Venezuelan company (the “Venezuelan Buyer”), pursuant to which the Company sold all of its membership interests in Willbros (Barbados) Limited, Inc. (“WBL”), a wholly-owned subsidiary of the Company. WBL owns all of the assets and operations of the Company in Venezuela, with the exception of joint-venture interest in Harwat International Finance Corporation NV (“Harwat”). The Company received cash payments of $7,000 for conveyance of WBL with no gain recognized subject to the pending sale discussed below. The Venezuela operations and assets were previously a component of the Company’s former International segment and are retrospectively presented as discontinued operations in the Company’s Form 8-K filed December 8, 2006.

     Joint-venture interest disposal—As part of the share purchase agreement, the Venezuelan Buyer agreed to purchase the Company’s 10 percent interest in Harwat, as well as assume all guarantees of the Company related to the 10 percent interest in Harwat. The sale of the Harwat interest was completed November 28, 2006. The Company received a commitment from the Venezuelan Buyer to pay $3,300 before December 4, 2013. The present value of this commitment is $1,775.

     The Company estimates no gain or loss on the sale of WBL and its 10 percent interest in Harwat.

TXP-4 Plant

     Asset disposal—On January 12, 2006, the Company entered into a purchase agreement and release with Williams Field Services Company (“Williams”), a wholly-owned subsidiary of The Williams Companies, Inc., pursuant to which the Company sold to Williams all of its membership interest in Opal TXP-4 Company, LLC, a wholly-owned subsidiary of the Company (the “LLC”). The LLC owns a gas processing plant known as the TXP-4 Plant (the “TXP-4 Plant”) at Opal in Lincoln County, Wyoming, in addition to certain facilities, equipment and supplies related to the TXP-4 Plant. Prior to the sale, the TXP-4 Plant was a component of the former US & Canada segment and is retrospectively presented as discontinued operations on the Company’s Form 8-K filed December 8, 2006. The Company received cash payments of $27,944 for conveyance of the LLC and realized a gain of $1,342, net of taxes of $691, reflected as a component of the “Loss from discontinued operations net of provision for income taxes”.

     In addition to the cash payments described above, Williams agreed to pay the Company a portion of any recovery that Williams may obtain based on damages, loss or injury related to the TXP-4 Plant up to $3,400. This settlement is contingent upon Williams’ recovery from various third parties and is the only ongoing potential source of cash flows subsequent to the Purchase Agreement date. The timing and amount of any resolution to these claims cannot be estimated.

WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)

2. Discontinuance of Operations and Asset Disposal (continued)

     Results of Discontinued Operations

     Condensed Statements of Operations of the Discontinued Operations are as follows:

		Year Ended December 31, 2006
														Discontinued
		Nigeria				Venezuela				Opal TXP-4				Operations
Contract revenue		$	447,757			$	270			$	—			$	448,027
Operating expense:
Contract			473,479				562				—				474,041
Depreciation and amortization			3,569				378				—				3,947
General and administrative			31,620				322				—				31,942
			508,668				1,262				—				509,930
Operating loss			(60,911	)			(992	)			—				(61,903	)
Other income (expense)			(11,579	)			164				2,033				(9,382	)
Income (loss) before income taxes			(72,490	)			(828	)			2,033				(71,285	)
Provision for income taxes			11,283				143				691				12,117
Net income (loss)		$	(83,773	)		$	(971	)		$	1,342			$	(83,402	)

		Year Ended December 31, 2005
														Discontinued
		Nigeria				Venezuela				Opal TXP-4				Operations
Contract revenue		$	386,723			$	565			$	24,755			$	412,043
Operating expense:
Contract			337,234				1,492				19,758				358,484
Depreciation and amortization			8,270				590				1,038				9,898
General and administrative			32,552				528				—				33,080
Other operating expense			1,084				—				—				1,084
			379,140				2,610				20,796				402,546
Operating income (loss)			7,583				(2,045	)			3,959				9,497
Other income (expense)			(1,408	)			232				—				(1,176	)
Income (loss) before income taxes			6,175				(1,813	)			3,959				8,321
Provision (benefit) for income taxes			15,296				(2	)			1,346				16,640
Net income (loss)		$	(9,121	)		$	(1,811	)		$	2,613			$	(8,319	)

WILLBROS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)

2. Discontinuance of Operations and Asset Disposal (continued)

		Year Ended December 31, 2004
														Discontinued
		Nigeria				Venezuela				Opal TXP-4				Operations
Contract revenue		$	171,558			$	17,750			$	21,216			$	210,524
Operating expense:
Contract			166,933				12,629				15,752				195,314
Depreciation and amortization			5,473				797				701				6,971
General and administrative			13,468				621				—				14,089
Other operating expense			3,571				—				—				3,571
			189,445				14,047				16,453				219,945
Operating income (loss)			(17,887	)			3,703				4,763				(9,421	)
Other income (expense)			(6,929	)			330				—				(6,599	)
Income (loss) before income taxes			(24,816	)			4,033				4,763				(16,020	)
Provision for income taxes			8,483				989				1,619				11,091
Net income (loss)		$	(33,299	)		$	3,044			$	3,144			$	(27,111	)