Hanover Compressor Company Reports Strong Fourth Quarter and Full Year 2006 Financial Results.

HOUSTON -- Hanover Compressor Company (NYSE:HC), a global market leader in full service natural gas compression and a leading provider of service, fabrication and equipment for oil and natural gas production, processing and treating applications, today reported financial results for the quarter and year ended December 31, 2006.

Summary

Fourth quarter 2006 revenue increased to $468.4 million, a 30% increase over fourth quarter 2005 revenue of $359.3 million. EBITDA(1) for the fourth quarter 2006 was $109.0 million, a 39% increase over fourth quarter 2005 EBITDA of $78.5 million. Net income for the fourth quarter 2006 was $30.1 million, or $0.28 earnings per share compared to a net loss of $4.2 million, or $0.04 loss per share in the fourth quarter 2005. Net income for the fourth quarter of 2006 includes a tax benefit for the release of $10.2 million valuation allowance on net deferred tax assets in the U.S., which is recorded as a reduction to our provision for income taxes. This release is the result of our conclusion in the current quarter that it is more likely than not that we will realize the associated net deferred tax assets.

For the year ended December 31, 2006, revenue increased to $1,670.7 million, a 21% increase over 2005 revenue of $1,375.6 million. EBITDA for 2006 increased to $413.9 million, a 33% increase over 2005 EBITDA of $310.2 million. For 2006, Hanover recorded net income of $86.5 million, or $0.81 earnings per share, compared to a net loss of $38.0 million, or $0.42 loss per share, in 2005. Included in 2006 EBITDA is a $5.9 million charge for the early extinguishment of debt, and $36.4 million in pre-tax gains on two asset sales.

During the year 2006, Hanover's U.S. rental, compression and accessory fabrication, and production and processing equipment operations recognized record revenues. Hanover's fabrication backlog of $807.6 million at December 31, 2006, is an all-time high.

"As a result of favorable market conditions and our focus on return of capital employed, we returned to profitability in 2006 with record revenue and fabrication backlog," said John Jackson, President and Chief Executive Officer. "This positioned our company to take advantage of the strong business climate and move toward the recently announced merger of equals with Universal Compression Holdings, Inc. This merger allows both companies to take advantage of Hanover's international platform, expanded product offerings, and anticipated benefits of Universal's Master Limited Partnership. The combination of these two companies, we believe, will significantly enhance shareholder value through a well-positioned top tier oilfield services company."

Summary of Business Segment Results

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U.S. rental revenue, gross profit and gross margin increased in the fourth quarter 2006 and in the year ended December 31, 2006, compared to the same periods in the prior year, due primarily to improvement in market conditions that led to an improvement in pricing and an increase in contracted horsepower.

For the year ended December 31, 2006, gross margin benefited from price increases, but was offset by $2.1 million of incremental expenses related to our program to refurbish approximately 200,000 horsepower of idle U.S. compression equipment and the impact of recording increased incentive compensation expenses of approximately $4.3 million for the year 2006, including the impact of the adoption of SFAS 123(R).

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Fourth quarter 2006 international rental revenue and gross profit increased, compared to the same period a year earlier, due primarily to increased compression and plant rental activity in Brazil, Mexico and Indonesia. These increases were somewhat offset by a decrease in revenue and gross margin from Nigeria.

During the year ended December 31, 2006, international rental revenue and gross profit increased, compared to the year ended December 31, 2005, primarily due to increased rental activity in Venezuela, Mexico, Brazil and Argentina. Gross margin decreased primarily due to increased labor costs in Argentina of approximately $2.2 million and higher repair and maintenance costs in Venezuela, Brazil and Mexico.

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Parts, service and used equipment revenue for the fourth quarter 2006 was higher than the fourth quarter 2005 due primarily to higher base parts and service sales. Segment revenue includes two business components: parts and service; and used rental equipment and installation sales.

For the fourth quarter 2006, parts and service revenue was $50.5 million with a gross margin of 25%, compared to $41.9 million and 26%, respectively, for the same period a year ago. Used rental equipment and installation sales revenue in the fourth quarter 2006 was $21.4 million with a gross margin of (2)%, compared to $25.7 million at an 18% gross margin for the same period a year earlier.

Segment revenue for the year ended December 31, 2006 were slightly lower than the year ended December 31, 2005 primarily due to a decrease in used rental equipment sales, partially offset by an increase in base parts and service revenue. For the year ended December 31, 2006, parts and service revenue was $179.0 million with a gross margin of 24%, compared to $152.4 million and 26%, respectively, for the year ended December 31, 2005. Used rental equipment and installation sales revenue for the year ended December 31, 2006 was $45.8 million with a gross margin of (4)%, compared to $73.2 million with a 22% gross margin for the year ended December 31, 2005. Used rental equipment and installation gross margin was negatively impacted by approximately $6.0 million of cost overruns on installation jobs in 2006. In 2005, used rental equipment revenue included a $20.3 million gas plant in Madisonville, Texas at a margin of 25%. Our used rental equipment and installation sales revenue and gross margins vary significantly from period to period and are dependent on the sale of used rental equipment, the exercise of purchase options on rental equipment by customers and installation sales associated with the start-up of new projects by customers.

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For the year and quarter ended December 31, 2006, compression and accessory fabrication revenue, gross profit and gross margin increased primarily due to improved market conditions that led to higher sales levels, better pricing, and an improvement in operating efficiencies. As of December 31, 2006, we had compression and accessory fabrication backlog of approximately $325.1 million compared to $192.4 million at September 30, 2006, and $85.4 million at December 31, 2005.

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Production and processing equipment fabrication revenue, gross profit and gross margin for the fourth quarter and year 2006 was higher than the fourth quarter 2005 due to an improvement in market conditions that led to an increase in awarded sales, improved pricing and an improvement in operating efficiencies. The fourth quarter 2005 results included approximately $3 million in cost overruns and late delivery penalties on projects.

As of December 31, 2006, we had a production and processing equipment fabrication backlog of $482.5 million compared to $496.4 million at September 30, 2006 and 287.7 million at December 31, 2005.

Capital and Other

Hanover had capital expenditures of approximately $73 million in the fourth quarter 2006, compared to approximately $52 million in the fourth quarter of 2005. For 2006, Hanover had capital expenditures of approximately $247 million compared to $155 million in 2005. At December 31, 2006, the company had approximately $1.38 billion in debt and compression equipment lease obligations, compared to $1.49 billion at December 31, 2005. At December 31, 2006, Company debt included approximately $20 million outstanding under its five-year $450 million bank credit facility and the Company had approximately $69.3 million in cash on its balance sheet.

Total compression horsepower at December 31, 2006 was approximately 3,338,000, consisting of approximately 2,447,000 horsepower in the United States and approximately 891,000 horsepower internationally.

Compression HP Utilization Rate

Date                >        >           U.S.  >
International

Total





December 31, 2006   >        >            84%  >
97%

87%





September 30, 2006  >        >            85%  >
96%

88%





December 31, 2005   >        >            82%  >
98%

86%

Conference Call Details

Hanover Compressor Company (NYSE:HC) will host a conference call at 11:00 a.m. Eastern Standard Time, Thursday, February 15, 2007, to discuss its 2006 year-end financial results and other matters.

To access the call, United States and Canadian participants should dial 800-811-8824. International participants should dial 913-981-4903 at least 10 minutes before the scheduled start time. Please reference Hanover conference call number 5844833.

For those unable to participate, a replay will be available from 12:30 p.m. Eastern Standard Time on Thursday, February 15, until midnight on Thursday, February 22, 2007. To listen to the replay, please dial 888-203-1112 in the U.S. and Canada, or 719-457-0820 internationally and enter access code 5844833.

Additionally, the conference call will be broadcast live over the Internet. To access the webcast, log on to the company's Web site (www.hanover-co.com) and click on the webcast link located on the company's home page.

About Hanover Compressor Company

Hanover Compressor Company (NYSE:HC) is a global market leader in full service natural gas compression and a leading provider of service, fabrication and equipment for oil and natural gas production, processing and transportation applications. Hanover sells and rents this equipment and provides complete operation and maintenance services, including run-time guarantees for both customer-owned equipment and its fleet of rental equipment. Founded in 1990 and a public company since 1997, Hanover's customers include both major and independent oil and gas producers and distributors as well as national oil and gas companies. More information can be found on the Internet (www.hanover-co.com).

Forward-looking Statements

Certain matters discussed in this presentation are "forward-looking statements" intended to qualify for the safe harbors established by the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified as such because of the context of the statement or because the statement includes words such as "believes," "anticipates," "expects," "estimates," or words of similar import. Similarly, statements that describe Hanover's future plans, objectives or goals or future revenues or other financial measures are also forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those anticipated as of the date the statements were made. These risks and uncertainties include, but are not limited to: our inability to renew our short-term leases of equipment with our customers so as to fully recoup our cost of the equipment; a prolonged substantial reduction in oil and natural gas prices, which could cause a decline in the demand for our compression and oil and natural gas production and processing equipment; reduced profit margins or the loss of market share resulting from competition or the introduction of competing technologies by other companies; changes in economic or political conditions in the countries in which we do business, including civil uprisings, riots, terrorism, the taking of property without fair compensation and legislative changes; changes in currency exchange rates; the inherent risks associated with our operations, such as equipment defects, malfunctions and natural disasters; governmental safety, health, environmental and other regulations, which could require us to make significant expenditures; our inability to implement certain business objectives, such as international expansion (including our ability to timely and cost-effectively execute projects in new international operating environments), integrating acquired businesses, generating sufficient cash, accessing capital markets and refinancing existing or incurring additional indebtedness to fund our business; risks associated with any significant failure or malfunction of our enterprise resource planning system and our inability to comply with covenants in our debt agreements and the decreased financial flexibility associated with our substantial debt. A discussion of these and other factors is included in the Company's periodic reports filed with the Securities and Exchange Commission.

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