10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007

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

FOR THE TRANSITION PERIOD FROM _____ TO _____.

Commission File No. 1-13071

Hanover Compressor Company

(Exact name of registrant as specified in its charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	76-0625124 (I.R.S. Employer Identification No.)
12001 North Houston Rosslyn, Houston, Texas (Address of principal executive offices)	77086 (Zip Code)

(281) 447-8787
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act. (Check one):

Large accelerated þ                      Accelerated filer o                      Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Number of shares of the Common Stock of the registrant outstanding as of July 25, 2007: 109,171,713 shares.

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Operations		4
Condensed Consolidated Statements of Comprehensive Income		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Financial Statements		8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3. Quantitative and Qualitative Disclosures About Market Risk		39
Item 4. Controls and Procedures		39
PART II. OTHER INFORMATION		39
Item 1. Legal Proceedings		39
Item 1A. Risk Factors		39
Item 6. Exhibits		39
SIGNATURES		41
Merger Severance Benefits Plan
Certification of the CEO Pursuant to Section 302
Certification of the CFO Pursuant to Section 302
Certification of the CEO Pursuant to Section 906
Certification of the CFO Pursuant to Section 906

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HANOVER COMPRESSOR COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands of dollars, except for par value and share amounts)

	June 30,			December 31,
	2007			2006
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	53,784		$	73,286
Accounts receivable, net of allowance of $5,567 and $4,938, respectively		353,100			283,073
Inventory, net		317,028			308,093
Costs and estimated earnings in excess of billings on uncompleted contracts		129,246			109,732
Current deferred income taxes		23,323			20,129
Other current assets		93,473			86,350
Total current assets		969,954			880,663
Property, plant and equipment, net		1,887,905			1,863,452
Goodwill, net		181,043			181,098
Intangible and other assets		54,093			55,702
Investments in non-consolidated affiliates		99,449			89,974
Total assets	$	3,192,444		$	3,070,889
LIABILITIES AND COMMON STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term debt	$	5,522		$	4,433
Current maturities of long-term debt		192,000			455
Accounts payable, trade		122,982			136,908
Accrued liabilities		164,588			147,320
Advance billings		130,555			170,859
Billings on uncompleted contracts in excess of costs and estimated earnings		115,601			94,123
Total current liabilities		731,248			554,098
Long-term debt		1,140,957			1,365,043
Other liabilities		61,995			48,953
Deferred income taxes		86,390			76,522
Total liabilities		2,020,590			2,044,616
Commitments and contingencies (Note 6)
Minority interest		11,991			11,991
Common stockholders’ equity:
Common stock, $.001 par value; 200,000,000 shares authorized; 109,587,563 and 103,825,732 shares issued, respectively		110			104
Additional paid-in capital		1,200,724			1,104,730
Accumulated other comprehensive income		14,820			12,983
Accumulated deficit		(51,821	)		(99,565	)
Treasury stock—469,652 and 449,763 common shares, at cost, respectively		(3,970	)		(3,970	)
Total common stockholders’ equity		1,159,863			1,014,282
Total liabilities and common stockholders’ equity	$	3,192,444		$	3,070,889

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

3

HANOVER COMPRESSOR COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2007		2006			2007		2006
Revenues and other income:
U.S. rentals	$	99,562	$	93,073		$	199,198	$	184,716
International rentals		69,645		67,520			136,936		130,026
Parts, service and used equipment		72,664		55,737			154,004		105,008
Compressor and accessory fabrication		139,508		70,128			218,216		124,819
Production and processing equipment fabrication		122,595		103,653			255,833		182,272
Equity in income of non-consolidated affiliates		6,279		5,230			11,962		11,078
Gain on sale of business and other income		5,465		10,330			12,797		40,549
		515,718		405,671			988,946		778,468
Expenses:
U.S. rentals		40,258		36,729			79,135		74,820
International rentals		27,675		23,691			50,980		45,023
Parts, service and used equipment		56,036		45,061			122,881		86,123
Compressor and accessory fabrication		106,016		58,482			169,261		105,175
Production and processing equipment fabrication		104,336		89,203			215,874		158,166
Selling, general and administrative		56,240		49,783			108,034		97,838
Merger expenses		3,065		—			3,389		—
Depreciation and amortization		52,772		43,077			103,668		85,045
Interest expense		26,775		29,287			53,640		60,927
Foreign currency translation		319		(2,236	)		11		(3,733	)
Debt extinguishment costs		—		—			—		5,902
Other		—		1,204			—		1,204
		473,492		374,281			906,873		716,490
Income from continuing operations before income taxes and minority interest		42,226		31,390			82,073		61,978
Provision for income taxes		16,162		9,546			30,607		17,993
Income from continuing operations before minority interest		26,064		21,844			51,466		43,985
Minority interest, net of taxes		—		(93	)		—		(93	)
Income from continuing operations		26,064		21,751			51,466		43,892
Loss from discontinued operations, net of tax		—		(63	)		—		(202	)
Gain from sales of discontinued operations, net of tax		—		16			—		63
Income before cumulative effect of accounting changes		26,064		21,704			51,466		43,753
Cumulative effect of accounting changes, net of tax		—		—			—		370
Net income	$	26,064	$	21,704		$	51,466	$	44,123
Basic income per common share:
Income from continuing operations	$	0.25	$	0.21		$	0.49	$	0.44
Loss from discontinued operations, net of tax		—		—			—		—
Cumulative effect of accounting changes, net of tax		—		—			—		—
Net income	$	0.25	$	0.21		$	0.49	$	0.44
Diluted income per common share:
Income from continuing operations	$	0.23	$	0.21		$	0.46	$	0.43
Loss from discontinued operations, net of tax		—		—			—		—
Cumulative effect of accounting changes, net of tax		—		—			—		—
Net income	$	0.23	$	0.21		$	0.46	$	0.43
Weighted average common and equivalent shares outstanding:
Basic		105,889		101,017			104,631		100,888
Diluted		118,054		112,052			117,828		111,740

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

4

HANOVER COMPRESSOR COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands of dollars)

(unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2007		2006			2007		2006
Net income	$	26,064	$	21,704		$	51,466	$	44,123
Other comprehensive income:
Foreign currency translation adjustment		1,209		(4,283	)		1,837		(3,936	)
Comprehensive income	$	27,273	$	17,421		$	53,303	$	40,187

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

5

HANOVER COMPRESSOR COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of dollars)

(unaudited)

	Six Months Ended
	June 30,
	2007			2006
Cash flows from operating activities:
Net income	$	51,466		$	44,123
Adjustments:
Depreciation and amortization		103,668			85,045
Loss from discontinued operations, net of tax		—			139
Cumulative effect of accounting changes, net of tax		—			(370	)
Minority interests		—			93
Bad debt expense		1,000			2,249
Gain on sale of property, plant and equipment		(3,263	)		(10,594	)
Equity in (income) loss of non-consolidated affiliates, net of dividends received		(6,379	)		255
Gain on remeasurement of intercompany balances		(192	)		(1,539	)
Net realized gain on trading securities		(10,313	)		(1,491	)
Zero coupon subordinated notes accreted interest paid by refinancing		—			(86,084	)
Gain on sale of business		—			(28,476	)
Stock compensation expense		6,190			4,117
Pay-in-kind interest on zero coupon subordinated notes		—			6,282
Sales of trading securities		23,593			9,641
Purchase of trading securities		(13,280	)		(8,150	)
Deferred income taxes		5,788			7,175
Changes in assets and liabilities:
Accounts receivable and notes		(67,375	)		(8,588	)
Inventory		(9,493	)		(37,156	)
Costs and estimated earnings versus billings on uncompleted contracts		1,402			14,681
Prepaid and other current assets		(6,175	)		(15,175	)
Accounts payable and other liabilities		7,176			9,678
Advance billings		(37,180	)		42,519
Other		(3,806	)		(3,639	)
Net cash provided by continuing operations		42,827			24,735
Net cash used in discontinued operations		—			(139	)
Net cash provided by operating activities		42,827			24,596
Cash flows from investing activities:
Capital expenditures		(142,197	)		(119,289	)
Proceeds from sale of property, plant and equipment		21,223			19,621
Cash invested in non-consolidated affiliates		(3,095	)		—
Proceeds from sale of business		—			52,125
Net cash used in continuing operations		(124,069	)		(47,543	)
Net cash provided by discontinued operations		—			—
Net cash used in investing activities		(124,069	)		(47,543	)
Cash flows from financing activities:
Borrowings on revolving credit facilities		198,400			110,500
Repayments on revolving credit facilities		(144,400	)		(88,500	)
Proceeds from issuance of senior notes		—			150,000
Payments for debt issue costs		—			(3,832	)
Repayment of zero coupon subordinated notes principal		—			(150,000	)
Proceeds from stock options exercised		5,813			3,834
Stock-based compensation excess tax benefit		1,576			—
Proceeds (repayments) of other debt, net		(615	)		7,526

6

	Six Months Ended
	June 30,
	2007			2006
Net cash provided by continuing operations		60,774			29,528
Net cash used in discontinued operations		—			—
Net cash provided by financing activities		60,774			29,528
Effect of exchange rate changes on cash and equivalents		966			623
Net increase (decrease) in cash and cash equivalents		(19,502	)		7,204
Cash and cash equivalents at beginning of period		73,286			48,233
Cash and cash equivalents at end of period	$	53,784		$	55,437
Supplemental disclosure of non-cash transactions:
Conversion of debt to common stock	$	84,392		$	—

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

7

HANOVER COMPRESSOR COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Hanover Compressor Company (“Hanover”, “we”, “us”, “our” or the “Company”) included herein have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America are not required in these interim financial statements and have been condensed or omitted. It is the opinion of our management that the information furnished includes all adjustments, consisting only of normal recurring adjustments, which are necessary to present fairly the financial position, results of operations, and cash flows of Hanover for the periods indicated. The financial statement information included herein should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2006. These interim results are not necessarily indicative of results for a full year.

Proposed Merger

On February 5, 2007, we entered into an Agreement and Plan Merger with Universal Compression Holdings, Inc., a Delaware corporation (“Universal”), Exterran Holdings, Inc. (formerly known as Iliad Holdings, Inc.), a Delaware corporation and a wholly owned subsidiary of Universal (“Exterran”), and two wholly-owned subsidiaries of Exterran. If the transactions contemplated by the merger agreement are consummated, Hanover and Universal will become wholly owned subsidiaries of Exterran, and the stockholders of Hanover and Universal will become stockholders of Exterran. Although the proposed business combination is a merger of equals, we determined that Hanover will be the acquirer for accounting purposes.

Hanover and Universal have each made customary representations, warranties and covenants in the merger agreement, including, among others, covenants to conduct their businesses in the ordinary course between the execution of the merger agreement and the consummation of the mergers and covenants not to engage in certain kinds of transactions during that period. We have agreed with Universal to certain exceptions to the limitations contained in these covenants, including (1) permitting us to redeem our 7.25% Convertible Junior Subordinated Debentures due 2029 and (2) commencing on September 1, 2007, permitting us to repurchase in the open market up to $100 million aggregate principal amount of our outstanding 4.75% Convertible Senior Notes due 2008, subject to certain limitations. In addition, Hanover and Universal have made certain additional customary covenants to one another, including, among others, covenants, subject to certain exceptions, (A) not to solicit proposals relating to alternative business combination transactions, (B) not to enter into discussions concerning, or provide confidential information in connection with, alternative business combination transactions, (C) to cause stockholder meetings to be held to consider approval of the mergers and the other transactions contemplated by the merger agreement and (D) for our respective Boards of Directors to recommend adoption of the merger agreement by our respective stockholders.

Investors are cautioned that the representations, warranties and covenants included in the merger agreement were made by Hanover and Universal to each other. These representations, warranties and covenants were made as of specific dates and only for purposes of the merger agreement and are subject to important exceptions and limitations, including a contractual standard of materiality different from that generally relevant to investors, and are qualified by information in confidential disclosure schedules that the parties exchanged in connection with the execution of the agreement. In addition, the representations and warranties may have been included in the merger agreement for the purpose of allocating risk between us and Universal, rather than to establish matters as facts. The merger agreement is described in our Form 10-K for the year ended December 31, 2006, and an amendment to the merger agreement dated June 25, 2007 is described in our Form 8-K filed June 25, 2007. The merger agreement has been filed with the SEC only to provide investors with information regarding its terms and conditions, and, except for its status as a contractual document that establishes and governs the legal relationship among the parties thereto with respect to the mergers, not to provide any other factual information regarding us, Universal or our respective businesses or the actual conduct of our respective businesses during the pendency of the merger agreement. Investors are not third-party beneficiaries under the merger agreement and should not rely on the representations and warranties in the merger agreement as characterizations of the actual state of facts about us or Universal. Furthermore, investors should not rely on the covenants in the merger agreement as actual limitations on our business, because we may take certain actions that are either expressly permitted in the confidential disclosure letters to the merger agreement or as otherwise consented to by Universal, which consent may be given without prior notice to the public.

8

The proposed merger will constitute a change of control under our 2001A and 2001B equipment lease notes. Taken together, there were an aggregate of $383.0 million of these equipment lease notes and $11.9 million in related minority interest obligations outstanding as of June 30, 2007. Within thirty days of a change of control, the equipment trusts (with funds supplied by us) must make an offer to the noteholders to purchase the notes at 101% of the outstanding principal amount of the notes and related minority interest obligations plus accrued interest to the purchase date unless the obligations of the equipment trusts have been earlier satisfied and discharged. We do not expect that the proposed merger will constitute a change of control under the provisions of any of our other debt obligations.

The completion of the proposed merger will result in the acceleration of vesting of certain long-term incentive awards held by employees, including executive officers. At June 30, 2007, there was approximately $17.5 million of unrecognized compensation expense related to long-term incentive awards of which the remaining unamortized amount will be subject to acceleration and expensed upon completion of the proposed merger. Additionally, if executives with change of control agreements are terminated or if the executive resigns for good reason, they will be entitled to change of control payments based on their contract agreement.

The merger agreement provides that, prior to the consummation of the merger, we may provide for cash retention bonuses to employees, including executive officers, not in excess of $10 million in the aggregate. Our Board of Directors adopted a retention bonus plan of up to $10 million which provides for awards to certain key employees if such individuals remain employed by Hanover or its successor through March 31, 2008, or are terminated without cause prior to such date. As of June 30, 2007, $8.9 million of retention awards have been granted under this plan. During the three and six months ended June 30, 2007, we expensed $2.1 million and $2.5 million, respectively, related to the retention bonus plan.

The merger agreement has been unanimously approved by both companies’ boards of directors and Exterran filed a joint proxy statement/prospectus on Form S-4 relating to the proposed merger and other annual meeting matters of each of Hanover and Universal with the Securities and Exchange Commission that was declared effective on July 10, 2007. During the second quarter, both companies received notice that the waiting period required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 with respect to their proposed merger has been terminated. Termination of the waiting period satisfies a condition to the closing of the merger. Both companies’ shareholders of record as of June 28, 2007 will be asked to vote on the proposed merger at their respective annual shareholders’ meetings on August 16, 2007. We remain optimistic that the merger will proceed and expect a closing within the third quarter of 2007.

Earnings Per Common Share

Basic income per common share is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted income per common share is computed using the weighted average number of shares outstanding adjusted for the incremental common stock equivalents attributed to outstanding options to purchase common stock, restricted stock, convertible senior notes and convertible subordinated notes, unless their effect would be anti-dilutive.

The table below indicates the potential shares of common stock that were included in computing the dilutive potential shares of common stock used in diluted income per common share (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Weighted average common shares outstanding—used in basic income per common share		105,889		101,017		104,631		100,888
Net dilutive potential common stock issuable:
On exercise of options and vesting of restricted stock		1,721		1,452		1,615		1,269
On conversion of convertible senior notes due 2008		**		**		**		**
On conversion of convertible subordinated notes due 2029		861		**		1,999		**
On conversion of convertible senior notes due 2014		9,583		9,583		9,583		9,583
Weighted average common shares and dilutive potential common shares— used in diluted income per common share		118,054		112,052		117,828		111,740

** Excluded from diluted income per common share as the effect would have been anti-dilutive.

9

Net income for the diluted earnings per share calculation for the three and six month periods ended June 30, 2007 is adjusted to add back interest expense and amortization financing costs totaling $1.2 million and $2.7 million, respectively, net of tax, relating to the Company’s convertible senior notes due 2014 and convertible subordinated notes due 2029. Net income for the diluted earnings per share calculation for the three and six month periods ended June 30, 2006 is adjusted to add back interest expense and amortization financing costs totaling $1.8 million and $3.6 million, respectively, net of tax, relating to the Company’s convertible senior notes due 2014.

The table below indicates the potential shares of common stock issuable that were excluded from net dilutive potential shares of common stock issuable as their effect would have been anti-dilutive (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2007		2006		2007		2006
Net dilutive potential common shares issuable:
On exercise of options-exercise price greater than average market value at end of period		28		48		28		58
On conversion of convertible subordinated notes due 2029		—		4,825		—		4,825
On conversion of convertible senior notes due 2008		4,370		4,370		4,370		4,370
		4,398		9,243		4,398		9,253

Stock Options and Stock-based Compensation

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS 123(R) using the modified prospective transition method. Under that transition method, compensation cost recognized beginning in the first quarter of 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value, and (b) compensation cost for any share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value.

On January 1, 2006, we recorded the cumulative effect of a change in accounting related to our adoption of SFAS 123(R) of $0.4 million (net of tax of $0) which relates to the requirement to estimate forfeitures on restricted stock awards.

Incentive Plans

Hanover has employee stock incentive plans that provide for the granting of restricted stock, stock-settled restricted units and options to purchase common shares. In May 2007, the Board of Directors approved grants of awards under the 2006 Stock Incentive Plan to certain employees, including our executive officers, as part of an incentive compensation program. The grants included, in the aggregate, approximately 0.6 million shares of restricted stock or stock-settled restricted stock units. The completion of the proposed merger will not result in the acceleration of vesting of grants made in May 2007. A description of long-term stock-based incentive awards and related activity within each is provided below. At June 30, 2007, approximately 4.3 million shares were available for grant in future periods under the 2006 Stock Incentive Plan.

Stock Options

Upon the adoption of SFAS 123(R), the remaining fair value of unvested options granted prior to the date of adoption are being amortized to expense ratably over the remaining vesting period. For options granted after the date of adoption, the fair value will be amortized to expense ratably over the vesting period. Options granted typically vest over a three to four-year period and are exercisable over a ten-year period. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards.

Restricted Stock Awards

For grants of restricted stock and stock-settled restricted units, we recognize compensation expense over the vesting period equal to the fair value of the restricted stock at the date of grant. The weighted-average fair value of restricted stock awards granted during the three and six months ended June 30, 2007 was $22.32 and $22.28, respectively.

10

For restricted stock and stock-settled restricted stock units that vest based on performance, we record an estimate of the compensation expense to be expensed over the vesting period related to these grants. The compensation expense recognized in our statements of operations is adjusted for changes in our estimate of the number of performance stock that will vest. After the adoption of SFAS 123(R), performance stock awards are expensed based on the original grant date value of the awards. No performance stock awards were granted during the three and six month periods ended June 30, 2007.

Reclassifications

Certain amounts in the prior period’s financial statements have been reclassified to conform to the 2007 financial statement classification. These reclassifications have no impact on our consolidated results of operations, cash flows or financial position.

2. INVENTORY

Inventory, net of reserves, consisted of the following amounts (in thousands):

	June 30,		December 31,
	2007		2006
Parts and supplies	$	135,602	$	135,632
Work in progress		163,020		162,096
Finished goods		18,406		10,365
	$	317,028	$	308,093

As of June 30, 2007 and December 31, 2006, we had inventory reserves of approximately $11.5 million and $11.9 million, respectively.

3. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following (in thousands):

	June 30,			December 31,
	2007			2006
Compression equipment, facilities and other rental assets	$	2,671,420		$	2,587,377
Land and buildings		113,274			107,444
Transportation and shop equipment		94,575			89,673
Other		61,083			58,788
		2,940,352			2,843,282
Accumulated depreciation		(1,052,447	)		(979,830	)
	$	1,887,905		$	1,863,452

As of June 30, 2007, the compression assets owned by entities that lease equipment to us but, pursuant to our adoption of FIN 46, are included in property, plant and equipment in our consolidated financial statements had a net book value of approximately $335.2 million, including improvements made to these assets after the sale leaseback transactions.

11

4. DEBT

Long-term debt consisted of the following (in thousands):

	June 30,				December 31,
	2007			2006
Bank credit facility due November 2010	$	74,000		$	20,000
4.75% convertible senior notes due 2008*		192,000			192,000
4.75% convertible senior notes due 2014*		143,750			143,750
8.625% senior notes due 2010**		200,000			200,000
7.5% senior notes due 2013**		150,000			150,000
9.0% senior notes due 2014**		200,000			200,000
2001A equipment lease notes, interest at 8.5%, due September 2008		133,000			133,000
2001B equipment lease notes, interest at 8.75%, due September 2011		250,000			250,000
7.25% convertible junior subordinated notes due 2029*		—			84,803
Fair value adjustment — fixed to floating interest rate swaps		(10,015	)		(8,732	)
Other, interest at various rates, collateralized by equipment and other assets		222			677
		1,332,957			1,365,498
Less-current maturities		(192,000	)		(455	)
Long-term debt	$	1,140,957		$	1,365,043

*	Securities issued by Hanover (parent company).
**	Securities issued by Hanover (parent company) and guaranteed by Hanover Compression Limited Partnership (“HCLP”).

As of June 30, 2007, we had $74.0 million in outstanding borrowings under our bank credit facility. Outstanding amounts under our bank credit facility bore interest at a weighted average rate of 6.7% and 6.9% at June 30, 2007 and December 31, 2006, respectively. As of June 30, 2007, we also had approximately $233.8 million in letters of credit outstanding under our bank credit facility. Our bank credit facility permits us to incur indebtedness, subject to covenant limitations, up to a $450 million credit limit, plus, in addition to certain other indebtedness, an additional (1) $50 million in unsecured indebtedness, (2) $100 million of indebtedness of international subsidiaries and (3) $35 million of secured purchase money indebtedness. Additional borrowings of up to $142.2 million were available under that facility as of June 30, 2007.

On March 29, 2007, we entered into an amendment to our $450 million bank credit facility due 2010 in which the lenders waived the restrictions in the credit agreement to the consummation of the merger with Universal. The amendment also provides for an increase in the limit of the incremental term loan facility from $300 million to $425 million, and it allows us to request an increase of up to $100 million in the revolving bank credit facility. The incremental term loan facility and increase to the revolving bank credit facility has not been syndicated. The amendment further permits us to use up to $425 million of the proceeds from the incremental term loan and revolving credit facility for payment of the 2001A and 2001B compression equipment lease obligations.

Our 4.75% Convertible Senior Notes with an aggregate principle amount of $192 million are due March 15, 2008 and therefore are classified as current maturities of long-term debt on our condensed consolidated balance sheet as of June 30, 2007. We are currently evaluating our options regarding payment of these notes.

As of June 30, 2007, we were in compliance with all covenants and other requirements set forth in our bank credit facility, the indentures and agreements related to our compression equipment lease obligations and the indentures and agreements relating to our other long-term debt. A default under our bank credit facility or a default under certain of the various indentures and agreements would in some situations trigger cross-default provisions under our bank credit facility or the indentures and agreements relating to certain of our other debt obligations. Such defaults would have a material adverse effect on our liquidity, financial position and operations.

While all of the agreements related to our long-term debt do not contain the same financial covenants, the indentures and the agreements related to our compression equipment lease obligations for our 2001A and 2001B sale leaseback transactions, our 8.625% Senior Notes due 2010, our 7.5% Senior Notes due 2013 and our 9.0% Senior Notes due 2014 permit us at a minimum, (1) to incur indebtedness, at any time, of up to $400 million under our bank credit facility (which is $50 million less than the full capacity under

12

that facility), plus an additional $75 million in unsecured indebtedness, (2) to incur additional indebtedness so long as, after incurring such indebtedness, our ratio of the sum of consolidated net income before interest expense, income taxes, depreciation expense, amortization of intangibles, certain other non-cash charges and rental expense to total fixed charges (all as defined and adjusted by the agreements governing such obligations), or our “coverage ratio,” is greater than 2.25 to 1.0, and no default or event of default has occurred or would occur as a consequence of incurring such additional indebtedness and the application of the proceeds thereof and (3) to incur certain purchase money and similar obligations. The indentures and agreements for our 2001A and 2001B compression equipment lease obligations, our 8.625% Senior Notes due 2010, our 7.5% Senior Notes due 2013 and our 9.0% Senior Notes due 2014 define indebtedness to include the present value of our rental obligations under sale leaseback transactions and under facilities similar to our compression equipment operating leases. As of June 30, 2007, Hanover’s coverage ratio exceeded 2.25 to 1.0, and therefore as of such date it would allow us to incur a certain amount of additional indebtedness in addition to our bank credit facility and the additional $75 million in unsecured indebtedness and certain other permitted indebtedness, including certain refinancing of indebtedness allowed by such bank credit facility.

7.5% Senior Notes due 2013

In March 2006, we completed a public offering of $150 million aggregate principal amount of 7.5% Senior Notes due 2013 (the “2013 Senior Notes”). We used the net proceeds from the offering of $146.6 million, together with borrowings under our bank credit facility, to redeem our 11% Zero Coupon Subordinated Notes due March 31, 2007. The offering and sale of the 2013 Senior Notes were made pursuant to an automatic shelf registration statement on Form S-3 filed with the Securities and Exchange Commission. We may redeem up to 35% of the 2013 Senior Notes using the proceeds of certain equity offerings completed before April 15, 2009 at a redemption price of 107.5% of the principal amount, plus accrued and unpaid interest to the redemption date. In addition, we may redeem some or all of the 2013 Senior Notes at any time on or after April 15, 2010 at certain redemption prices together with accrued interest, if any, to the date of redemption.

The 2013 Senior Notes are our general unsecured senior obligations and rank equally in right of payment with all of our other senior debt. The 2013 Senior Notes are effectively subordinated to all existing and future liabilities of our subsidiaries that do not guarantee the 2013 Senior Notes. The 2013 Senior Notes are guaranteed on a senior subordinated basis by HCLP. The 2013 Senior Notes rank equally in right of payment with our 8.625% Senior Notes due 2010 and 9.0% Senior Notes due 2014 and the guarantee of the 2013 Senior Notes by HCLP ranks equally in right of payment with the guarantee of the 8.625% Senior Notes due 2010 and 9.0% Senior Notes due 2014 by HCLP. The indenture under which the 2013 Senior Notes were issued contains various financial covenants which limit, among other things, our ability to incur additional indebtedness or sell assets.

7.25% Convertible Junior Subordinated Notes due 2029

Beginning December 2006 through May 2007, we announced a series of irrevocable calls for redemption of portions of our 7.25% Convertible Junior Subordinated Notes due 2029 (“Jr. TIDES Notes”). The Jr. TIDES Notes were owned by the Hanover Compressor Capital Trust (the “Trust”), a subsidiary of ours. The Trust was required to use 4.8 million Hanover common shares to redeem its 7.25% Convertible Preferred Securities (“TIDES Preferred Securities”). All of the $86.3 million of Jr. TIDES Notes have now been called.

5. ACCOUNTING FOR DERIVATIVES

We use derivative financial instruments from time to time to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt and leasing obligations. Our primary objective is to reduce our overall cost of borrowing by managing the fixed and floating interest rate mix of our debt portfolio. We do not use derivative financial instruments for trading or other speculative purposes. Cash flow from hedges are classified in our consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions.

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In March 2004, we entered into two interest rate swaps, which we designated as fair value hedges, to hedge the risk of changes in fair value of our 8.625% Senior Notes due 2010 resulting from changes in interest rates. These interest rate swaps, under which we receive fixed payments and make floating payments, result in the conversion of the hedged obligation into floating rate debt. The following table summarizes, by individual hedge instrument, these interest rate swaps as of June 30, 2007 (dollars in thousands):

							Fair Value of
		Fixed Rate to be			Notional		Swap at
Floating Rate to be Paid	Maturity Date	Received			Amount		June 30, 2007
Six Month LIBOR +4.72%	December 15, 2010		8.625	%	$	100,000	$	(5,125	)
Six Month LIBOR +4.64%	December 15, 2010		8.625	%	$	100,000	$	(4,890	)

As of June 30, 2007, a total of approximately $2.7 million in accrued liabilities, $7.3 million in long-term liabilities and a $10.0 million reduction of long-term debt was recorded with respect to the fair value adjustment related to these two swaps. We estimate the effective floating rate, which is determined in arrears pursuant to the terms of the swap, to be paid at the time of settlement. As of June 30, 2007, we estimated that the effective rate for the six-month period ending in December 2007 would be approximately 10.0%.

The counterparties to our interest rate swap agreements are major international financial institutions. We monitor the credit quality of these financial institutions and do not expect non-performance by any counterparty, although such non-performance could have a material adverse effect on us.

6. COMMITMENTS AND CONTINGENCIES

Hanover has issued the following guarantees that are not recorded on our accompanying balance sheet (dollars in thousands):

			Maximum Potential
			Undiscounted
			Payments as of
	Term		June 30, 2007
Indebtedness of non-consolidated affiliates:
Simco/Harwat Consortium (1)		2009	$	1,328
El Furrial (1)		2013		26,017
Other:
Performance guarantees through letters of credit (2)		2007-2010		246,715
Standby letters of credit		2007-2008		14,498
Commercial letters of credit		2007		3,725
Bid bonds and performance bonds (2)		2007-2012		112,496
			$	404,779

(1)	We have guaranteed the amount included above, which is a percentage of the total debt of this non-consolidated affiliate equal to our ownership percentage in such affiliate.
(2)	We have issued guarantees to third parties to ensure performance of our obligations, some of which may be fulfilled by third parties.

As part of our acquisition of Production Operators Corporation (“POC”) in 2001, Hanover may be required to make a contingent payment to Schlumberger based on the realization of certain tax benefits by Hanover through 2016. To date we have not realized any of such tax benefits or made any payments to Schlumberger in connection with them.

We are substantially self-insured for worker’s compensation, employer’s liability, auto liability, general liability, property damage/loss, and employee group health claims in view of the relatively high per-incident deductibles we absorb under our insurance arrangements for these risks. Losses up to deductible amounts are estimated and accrued based upon known facts, historical trends and industry averages.

We are involved in a project called the Cawthorne Channel Project in Nigeria, a project in which Global Gas and Refining Ltd., a Nigerian entity (“Global”) has contracted with an affiliate of Royal Dutch Shell plc (“Shell”) to process gas from some of Shell’s Nigerian oil and gas fields. Pursuant to a contract between us and Global, we rent and operate barge-mounted gas compression and gas

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processing facilities stationed in a Nigerian coastal waterway. We completed the building of the required barge-mounted facilities and our portion of the project was declared commercial by Global in November 2005. The contract runs for a ten-year period which commenced when the project was declared commercial, subject to a purchase option, by Global, that is exercisable for the remainder of the term of the contract. Under the terms of a series of contracts between Global and Hanover, Shell, and several other counterparties, respectively, Global is primarily responsible for the overall project.

During 2006, the area in Nigeria where the Cawthorne Channel Project is located experienced unrest and violence and gas delivery from Shell to the Cawthorne Channel Project was stopped from June 2006 to June 2007. As a result, the Cawthorne Channel Project did not operate from early June 2006 to June 2007. In July 2007, we received some gas from Shell and we have begun processing the gas received.

During the six months ended June 30, 2007, we did not recognize any revenues related to the Cawthorne Channel Project and we received approximately $1.3 million in payments. Even though we believe we are entitled to rents from Global and have accordingly invoiced Global for rents, collectibility is not reasonably assured due to uncertainty regarding when the Cawthorne Channel Project’s operations will be fully operational and Global’s dependence on gas production by the Cawthorne Channel Project to pay its rents to us. Therefore, we billed but did not recognize revenue of approximately $8.4 million related to the Cawthorne Channel Project during the six months ended June 30, 2007. When the Cawthorne Channel Project is on-line, we will determine whether or not and how much revenue to recognize for the period it is on-line. Based on current long-term expectations of future run-time, we believe we will recover all of our receivables and our full investment in the Cawthorne Channel Project over the term of the contract.

However, if Shell does not provide gas to the project or if Shell were to terminate its contract with Global for any reason or if we were to terminate our involvement in the Cawthorne Channel Project, we would be required to find an alternative use for the barge facility which could potentially result in an impairment and write-down of our investment and receivables related to this project and could have a material impact on our consolidated financial position or results of operation. Additionally, due to the environment in Nigeria, Global’s capitalization level, inexperience with projects of a similar nature and lack of a successful track record with respect to this project and other factors, there is no assurance that Global can satisfy its obligations under its various contracts, including its contract with us.

This project and our other projects in Nigeria are subject to numerous risks and uncertainties associated with operating in Nigeria. Such risks include, among other things, political, social and economic instability, civil uprisings, riots, terrorism, kidnapping, the taking of property without fair compensation and governmental actions that may restrict payments or the movement of funds or result in the deprivation of contract rights. Any of these risks, including risks arising from the recent increase in violence and local unrest, could adversely impact any of our operations in Nigeria, and could affect the timing and decrease the amount of revenue we may realize from our investments in Nigeria. At June 30, 2007, we had net assets of approximately $68 million related to projects in Nigeria, a majority of which is related to our capital investment and advances/accounts receivable for the Cawthorne Channel Project.

In the ordinary course of business we are involved in various other pending or threatened legal actions, including environmental matters. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

7. RELATED-PARTY TRANSACTIONS

Ted Collins, Jr., a Director of the Company, owns 100% of Azalea Partners, which owns approximately 15% of Energy Transfer Group, LLC (“ETG”). In the first quarter of 2006, we entered into an agreement to be ETG’s exclusive manufacturer of Dual Drive compressors and to provide marketing services for ETG. During the six months ended June 30, 2007 and 2006, we recorded revenue of approximately $4.1 million and $21.7 million, respectively, related to equipment lease and sales to ETG. As of June 30, 2007 and December 31, 2006, we had receivable balances due from ETG of $2.3 million and $4.5 million, respectively. In addition, Hanover and ETG are co-owners of a power generation facility in Venezuela. Under the agreement of co-ownership, each party is responsible for its obligations as a co-owner. In addition, Hanover is the designated manager of the facility. As manager, Hanover received revenues related to the facility and distributed to ETG its net share of the operating cash flow of $0.6 million and $0.5 million for the six months ended June 30, 2007 and 2006, respectively.

Jon Brumley, a Director of the Company, is the Chairman of the Board of Encore Acquisition Company (“Encore”). During the six months ended June 30, 2007 and 2006, Hanover recorded revenue from sales to Encore of approximately $1.0 million and

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$0.2 million, respectively. As of June 30, 2007 and December 31, 2006 we had receivables from Encore of approximately $0.3 million and $0.2 million, respectively.

8. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. SFAS 150 requires that those instruments be classified as liabilities in statements of financial position. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for interim periods beginning after June 15, 2004. On November 7, 2003, the FASB issued Staff Position 150-3 that delayed the effective date for certain types of financial instruments. We do not believe the adoption of the guidance currently provided in SFAS 150 will have a material effect on our consolidated results of operations or cash flow. However, we may be required to classify as debt approximately $11.9 million in sale leaseback obligations that, as of June 30, 2007, were reported as “Minority interest” on our consolidated balance sheet pursuant to FIN 46.

These minority interest obligations represent the equity of the entities that lease compression equipment to us. In accordance with the provisions of our compression equipment lease obligations, the equity certificate holders are entitled to quarterly or semi-annual yield payments on the aggregate outstanding equity certificates. As of June 30, 2007, the yield rates on the outstanding equity certificates ranged from 13.3% to 13.7%. Equity certificate holders may receive a return of capital payment upon termination of the lease or our purchase of the leased compression equipment after full payment of all debt obligations of the entities that lease compression equipment to us. At June 30, 2007, the carrying value of the minority interest obligations approximated the fair market value of assets that would be required to be transferred to redeem the minority interest obligations.

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Instruments — an amendment of FASB Statements No. 133 and 140” (“SFAS 155”). SFAS 155 (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of FASB No. 133, (c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (d) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and (e) amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of SFAS 155 did not have a material impact on our consolidated results of operations, cash flows or financial position.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). This interpretation is effective for fiscal years beginning after December 15, 2006. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Differences between the amounts recognized in balance sheet prior to adoption of FIN 48 and the amounts reported after adoption are to be accounted for as an adjustment to the beginning balance of retained earnings (accumulated deficit). The adoption of FIN 48 on January 1, 2007 resulted in a reduction to stockholders’ equity of $3.7 million.

On the date of our adoption of FIN 48, we had $12.7 million of unrecognized tax benefits, all of which would affect our effective tax rate if recognized. Our policy is to classify interest and penalties in our provision for income taxes in our Consolidated Statements of Operations. We did not change our policy on the classification of interest and penalties in conjunction with our adoption of FIN 48. We had $1.1 million of accrued interest and $2.7 million of accrued penalties as of the date of our adoption of this Interpretation. Tax years beginning in 1999 are still subject to examination by major tax jurisdictions.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides a single definition of fair value, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value to measure assets and liabilities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating the provisions of SFAS 157.

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In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Liabilities” (“SFAS 159”). SFAS 159 provided entities the one-time election to measure financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis under a fair value option. SFAS 159 is effective for financial statements as of the beginning of the first fiscal year that begins after November 15, 2007. Its provision may be applied to an earlier period only if the following conditions are met: (1) the decision to adopt is made after the issuance of FAS 159 but within 120 days after the first day of the fiscal year of adoption, and no financial statements, including footnotes, for any interim period of the adoption year have yet been issued and (2) the requirement of FAS 157 are adopted concurrently with or prior to the adoption of SFAS 159. We are currently evaluating the provisions of SFAS 159.

9. REPORTABLE SEGMENTS

We manage our business segments primarily based upon the type of product or service provided. We have six principal industry segments: U.S. Rentals; International Rentals; Parts, Service and Used Equipment; Compressor and Accessory Fabrication; Production and Processing Fabrication — Belleli; and Production and Processing Fabrication — Surface Equipment. The U.S. and International Rentals segments primarily provide natural gas compression and production and processing equipment rental and maintenance services to meet specific customer requirements on Hanover-owned assets. The Parts, Service and Used Equipment segment provides a full range of services to support the surface production needs of customers from installation and normal maintenance and services to full operation of a customer’s owned assets and surface equipment as well as sales of used equipment. The Compressor and Accessory Fabrication Segment involves the design, fabrication and sale of natural gas compression units and accessories to meet standard or unique customer specifications. The Production and Processing Fabrication — Surface Equipment segment designs, fabricates and sells equipment used in the production, treating and processing of crude oil and natural gas. Production and Processing Fabrication — Belleli provides engineering, procurement and construction services primarily related to the manufacturing of critical process equipment for refinery and petrochemical facilities and construction of evaporators and brine heaters for desalination plants and tank farms.

We evaluate the performance of our segments based on segment gross profit. Segment gross profit for each segment includes direct revenues and operating expenses. Costs excluded from segment gross profit include selling, general and administrative, merger expenses, depreciation and amortization, interest, foreign currency translation, other expenses and income taxes. Revenues include sales to external customers. We do not include intersegment sales when we evaluate the performance of our segments. Our chief executive officer does not review asset information by segment.

The following tables present sales and other financial information by industry segment for the three months ended June 30, 2007 and 2006.

									Production and
					Parts,		Compressor		Processing
					service and		and		Surface				Reportable
	U.S.		International		used		accessory		equipment				Segments
	rentals		rentals		equipment		fabrication		fabrication		Belleli		Total
	(in thousands)
June 30, 2007:
Revenue from external customers	$	99,562	$	69,645	$	72,664	$	139,508	$	41,617	$	80,978	$	503,974
Gross profit		59,304		41,970		16,628		33,492		11,978		6,281		169,653
June 30, 2006:
Revenue from external customers	$	93,073	$	67,520	$	55,737	$	70,128	$	47,079	$	56,574	$	390,111
Gross profit		56,344		43,829		10,676		11,646		8,532		5,918		136,945

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	Three Months Ended
	June 30,
	2007		2006
	(in thousands)
Total revenue for reportable segments	$	503,974	$	390,111
Gain on sale of business and other income *		11,744		15,560
Total consolidated revenues and other income	$	515,718	$	405,671

* Includes equity in income of non-consolidated affiliates and gain on sale of business and other income.

The following tables present sales and other financial information by industry segment for the six months ended June 30, 2007 and 2006.

									Production and
					Parts,		Compressor		Processing
					service and		and		Surface				Reportable
	U.S.		International		used		accessory		equipment				Segments
	rentals		rentals		equipment		fabrication		fabrication		Belleli		Total
	(in thousands)
June 30, 2007:
Revenue from external customers	$	199,198	$	136,936	$	154,004	$	218,216		$77,221		$178,612	$	964,187
Gross profit		120,063		85,956		31,123		48,955		21,282		18,677		326,056
June 30, 2006:
Revenue from external customers	$	184,716	$	130,026	$	105,008	$	124,819		$84,589		$97,683	$	726,841
Gross profit		109,896		85,003		18,885		19,644		14,416		9,690		257,534

	Six Months Ended
	June 30,
	2007		2006
	(in thousands)
Total revenue for reportable segments	$	964,187	$	726,841
Gain on sale of business and other income *		24,759		51,627
Total consolidated revenues and other income	$	988,946	$	778,468

* Includes equity in income of non-consolidated affiliates and gain on sale of business and other income.

10. DISPOSITIONS

In February 2006, we sold our U.S. amine treating rental assets to Crosstex Energy Services L.P. (“Crosstex”) for approximately $51.5 million and recorded a pre-tax gain of $28.4 million that is included in gain on sale of business and other income in our consolidated statement of operations. The disposal of these assets did not meet the criteria established for recognition as discontinued operations under SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). Our U.S. amine treating rental assets had revenues of approximately $7.6 million in 2005. Because Hanover leased back from Crosstex one of the facilities sold in this transaction, approximately $3.3 million of additional gain was deferred into future periods. We also entered into a three-year strategic alliance with Crosstex.

During the first quarter of 2006, Hanover’s Board of Directors approved management’s plan to dispose of the assets used in our fabrication facility in Canada, which was part of our Production and Processing Fabrication-Surface Equipment segment. These assets
were sold in May 2006 as part of management’s plan to improve overall operating efficiency in this line of business. The Canadian assets were sold for approximately $10.1 million and we recorded a pre-tax gain of approximately $8.0 million as a result of the transaction in gain on sale of business and other income in our consolidated statement of operations. The disposal of these assets did not meet the criteria established for recognition as discontinued operations under SFAS 144.

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11. SUBSEQUENT EVENT

Hanover announced in July 2007 that it commenced cash tender offers and consent solicitations for $550 million of its 8.625% Senior Notes due 2010, 7.5% Senior Notes due 2013, and 9.0% Senior Notes due 2014 (collectively, the “Notes”) on the terms and subject to the conditions set forth in the Company’s Offer to Purchase and Consent Solicitation Statement dated July 19, 2007. The tender offers will expire on August 17, 2007, unless extended or earlier terminated by Hanover. Hanover reserves the right to terminate, withdraw or amend the tender offers and consent solicitations at any time subject to applicable law. The tender offers are part of the refinancing plan of Hanover and Universal being implemented in anticipation of the closing of the proposed merger, which is currently expected to occur in the third quarter of 2007, if the conditions to the closing set forth in the Agreement and Plan of Merger have been satisfied. Hanover will incur early extinguishment charges that will be dependent upon the underlying treasury yield for each security in effect on the date of payment. Based on the treasury yields in effect at June 30, 2007, the charge assuming all Notes are tendered and consent solicitations received would have been approximately $43.3 million.

As part of the refinancing plan, Exterran Holdings, Inc., which will be the publicly traded holding company following the completion of the merger, has engaged Wachovia Capital Markets, LLC and J. P. Morgan Securities Inc. to arrange and syndicate a senior secured credit facility, consisting of a revolving credit facility and a term loan, and has engaged Wachovia to provide a new asset-backed securitization facility to Exterran. The primary purpose of these new facilities will be to fund the redemption or repurchase of substantially all of Hanover’s and Universal’s outstanding debt other than the Hanover’s convertible debt securities and the credit facility of Universal’s publicly traded subsidiary, Universal Compression Partners, L.P. The new facilities will replace Hanover’s and Universal’s existing bank lines and Universal’s existing asset-backed securitization facility. The closing of the new facilities is subject to, among other things, the receipt of sufficient commitments from participating lenders and the execution of mutually satisfactory documentation. At June 30, 2007, Hanover has deferred financing costs related to indebtedness that is expected to be refinanced of approximately $14.8 million which, upon consummation of the refinancing, the unamortized portion would be written off.

12. GUARANTOR SUBSIDIARY

Hanover’s obligations under its 8.625% Senior Notes due 2010, 7.5% Senior Notes due 2013 and 9% Senior Notes due 2014 are jointly and severally, fully and unconditionally guaranteed by HCLP. As a result of these guarantee arrangements, Hanover is required to present the following condensed consolidating financial information pursuant to Rule 3-10 of Regulation S-X. These schedules are presented using the equity method of accounting for all periods presented. Under this method, investments in subsidiaries are recorded at cost and adjusted for Hanover’s share in the subsidiaries’ cumulative results of operations, capital contributions and distributions and other changes in equity. Elimination entries relate primarily to the elimination of investments in subsidiaries and associated intercompany balances and transactions.

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Condensed Consolidating Balance Sheet
June 30, 2007
(unaudited)

			Guarantor		Other
	Parent		Subsidiary		Subsidiaries		Eliminations			Consolidation
	(In thousands)
ASSETS
Total current assets	$	—	$	498,010	$	479,558	$	(7,614	)	$	969,954
Property, plant and equipment, net		—		1,041,348		846,557		—			1,887,905
Investments in non-consolidated affiliates		—		—		99,449		—			99,449
Investments in affiliates		1,285,444		231,930		1,285,444		(2,802,818	)		—
Intercompany receivables		780,373		438,734		701,872		(1,920,979	)		—
Other assets		54,259		222,475		12,038		(53,636	)		235,136
Total Long-term Assets		2,120,076		1,934,487		2,945,360		(4,777,433	)		2,222,490
Total Assets	$	2,120,076	$	2,432,497	$	3,424,918	$	(4,785,047	)	$	3,192,444
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total current liabilities	$	202,478	$	286,479	$	250,109	$	(7,818	)	$	731,248
Long-term debt		757,735		74,222		383,000		(74,000	)		1,140,957
Intercompany payables		—		667,055		1,179,924		(1,846,979	)		—
Other long-term liabilities		—		119,297		82,520		(53,432	)		148,385
Total liabilities		960,213		1,147,053		1,895,553		(1,982,229	)		2,020,590
Minority interest		—		—		11,991		—			11,991
Stockholders’ equity		1,159,863		1,285,444		1,517,374		(2,802,818	)		1,159,863
Total Liabilities and Stockholders’ Equity	$	2,120,076	$	2,432,497	$	3,424,918	$	(4,785,047	)	$	3,192,444
Condensed Consolidating Balance Sheet December 31, 2006
			Guarantor		Other
	Parent		Subsidiary		Subsidiaries		Eliminations			Consolidation
	(In thousands)
ASSETS
Total current assets	$	—	$	443,759	$	444,561	$	(7,657	)	$	880,663
Property, plant and equipment, net		—		1,027,123		836,329		—			1,863,452
Investments in non-consolidated affiliates		—		—		89,974		—			89,974
Investments in affiliates		1,227,369		216,536		1,227,369		(2,671,274	)		—
Intercompany receivables		725,804		378,344		698,891		(1,803,039	)		—
Other assets		53,649		220,921		12,038		(49,808	)		236,800
Total Long-term Assets		2,006,822		1,842,924		2,864,601		(4,524,121	)		2,190,226
Total Assets	$	2,006,822	$	2,286,683	$	3,309,162	$	(4,531,778	)	$	3,070,889
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total current liabilities	$	10,719	$	270,413	$	280,769	$	(7,803	)	$	554,098
Long-term debt		981,821		20,222		383,000		(20,000	)		1,365,043
Intercompany payables		—		666,250		1,116,789		(1,783,039	)		—
Other long-term liabilities		—		102,429		72,708		(49,662	)		125,475
Total liabilities		992,540		1,059,314		1,853,266		(1,860,504	)		2,044,616
Minority interest		—		—		11,991		—			11,991
Stockholders’ equity		1,014,282		1,227,369		1,443,905		(2,671,274	)		1,014,282
Total Liabilities and Stockholders’ Equity	$	2,006,822	$	2,286,683	$	3,309,162	$	(4,531,778	)	$	3,070,889

20

Condensed Consolidating Statement of Operations
Three Months Ended June 30, 2007
(unaudited)

				Guarantor			Other
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidation
	(In thousands)
Revenues	$	—		$	327,408		$	176,566		$	—		$	503,974
Equity in income of non-consolidating affiliates		—			—			6,279			—			6,279
Gain on sale of business and other income		—			(425	)		5,890			—			5,465
Revenues and other income		—			326,983			188,735			—			515,718
Costs and expenses		233			265,836			177,264			—			443,333
Other (income) expense:
Interest expense, net		16,413			1,580			8,782			—			26,775
Intercompany charges, net		(14,224	)		25,828			(11,604	)		—			—
Equity in (income) loss of affiliates		(25,717	)		(6,570	)		(25,717	)		58,004			—
Other, net		—			4,400			(1,016	)		—			3,384
Income from continuing operations before income taxes		23,295			35,909			41,026			(58,004	)		42,226
Provision for (benefit from) income taxes		(2,769	)		10,192			8,739			—			16,162
Net income	$	26,064		$	25,717		$	32,287		$	(58,004	)	$	26,064
Condensed Consolidating Statement of Operations Three Months Ended June 30, 2006 (unaudited)
				Guarantor			Other
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidation
	(In thousands)
Revenues	$	—		$	256,718		$	133,393		$	—		$	390,111
Equity in income of non-consolidating affiliates		—			—			5,230			—			5,230
Gain on sale of business and other income		—			895			9,435			—			10,330
Revenues and other income		—			257,613			148,058			—			405,671
Costs and expenses		233			217,570			128,223			—			346,026
Other (income) expense:
Interest expense, net		18,111			2,383			8,793			—			29,287
Intercompany charges, net		(14,227	)		22,698			(8,471	)		—			—
Equity in (income) loss of affiliates		(29,237	)		(15,974	)		(29,237	)		74,448			—
Other, net		—			317			(1,349	)		—			(1,032	)
Income from continuing operations before income taxes and minority interest		25,120			30,619			50,099			(74,448	)		31,390
Provision for (benefit from) income taxes		3,416			1,398			4,732			—			9,546
Income from continuing operations before minority interest		21,704			29,221			45,367			(74,448	)		21,844
Minority interest		—			—			(93	)		—			(93	)
Income from continuing operations		21,704			29,221			45,274			(74,448	)		21,751
Income (loss) from discontinued operations		—			16			(63	)		—			(47	)
Net income	$	21,704		$	29,237		$	45,211		$	(74,448	)	$	21,704

21

Condensed Consolidating Statement of Operations
Six Months Ended June 30, 2007
(unaudited)

				Guarantor			Other
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidation
	(In thousands)
Revenues	$	—		$	602,838		$	361,349		$	—		$	964,187
Equity in income of non-consolidating affiliates		—			—			11,962			—			11,962
Gain on sale of business and other income		—			(657	)		13,454			—			12,797
Revenues and other income		—			602,181			386,765			—			988,946
Costs and expenses		466			493,135			356,232			—			849,833
Other (income) expense:
Interest expense, net		33,231			2,835			17,574			—			53,640
Intercompany charges, net		(28,204	)		52,464			(24,260	)		—			—
Equity in (income) loss of affiliates		(53,130	)		(25,634	)		(53,130	)		131,894			—
Other, net		—			4,546			(1,146	)		—			3,400
Income from continuing operations before income taxes		47,637			74,835			91,495			(131,894	)		82,073
Provision for (benefit from) income taxes		(3,829	)		21,705			12,731			—			30,607
Net income	$	51,466		$	53,130		$	78,764		$	(131,894	)	$	51,466
Condensed Consolidating Statement of Operations Six Months Ended June 30, 2006 (unaudited)
				Guarantor			Other
	Parent			Subsidiary			Subsidiaries			Eliminations			Consolidation
	(In thousands)
Revenues	$	—		$	483,908		$	242,933		$	—		$	726,841
Equity in income of non-consolidating affiliates		—			—			11,078			—			11,078
Gain on sale of business and other income		—			30,146			10,403			—			40,549
Revenues and other income		—			514,054			264,414			—			778,468
Costs and expenses		466			417,560			234,164			—			652,190
Other (income) expense:
Interest expense, net		39,573			3,793			17,561			—			60,927
Debt extinguishment costs		—			5,902			—			—			5,902
Intercompany charges, net		(31,806	)		47,178			(15,372	)		—			—
Equity in (income) loss of affiliates		(51,564	)		(16,774	)		(51,564	)		119,902			—
Other, net		—			(349	)		(2,180	)		—			(2,529	)
Income from continuing operations before income taxes and minority interest		43,331			56,744			81,805			(119,902	)		61,978
Provision for (benefit from) income taxes		(792	)		5,553			13,232			—			17,993
Income from continuing operations before minority interest		44,123			51,191			68,573			(119,902	)		43,985
Minority interest		—			—			(93	)		—			(93	)
Income from continuing operations		44,123			51,191			68,480			(119,902	)		43,892
Income (loss) from discontinued operations		—			3			(142	)		—			(139	)
Cumulative effect of accounting change		—			370			—			—			370
Net income	$	44,123		$	51,564		$	68,338		$	(119,902	)	$	44,123

22

Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2007
(Unaudited)

				Guarantor			Other
	Parent			Subsidiary			Subsidiaries			Eliminations		Consolidation
	(In thousands)
Cash flows from operating activities:
Net cash provided by (used in) continuing operations	$	(4,996	)	$	78,629		$	(30,806	)	$	—	$	42,827
Cash flows from investing activities:
Capital expenditures		—			(90,861	)		(51,336	)		—		(142,197	)
Proceeds from sale of property, plant and equipment		—			20,179			1,044			—		21,223
Cash invested in non-consolidated affiliates		—						(3,095	)		—		(3,095	)
Net cash used in investing activities		—			(70,682	)		(53,387	)		—		(124,069	)
Cash flows from financing activities:
Borrowings (repayments) on revolving credit facilities, net		—			54,000			—			—		54,000
Proceeds from stock options exercised		5,813			—			—			—		5,813
Stock-based compensation excess tax benefit		—			1,576			—			—		1,576
Capital contribution (distribution), net		(817	)		817			—			—		—
Borrowings (repayments) between subsidiaries, net		—			(76,070	)		76,070			—		—
Borrowings (repayments) on other debt, net		—			1,244			(1,859	)		—		(615	)
Net cash provided by financing activities		4,996			(18,433	)		74,211			—		60,774
Effect of exchange rate changes on in cash and cash equivalents		—			—			966			—		966
Net decrease in cash and cash equivalents		—			(10,486	)		(9,016	)		—		(19,502	)
Cash and cash equivalents at beginning of year		—			13,353			59,933			—		73,286
Cash and cash equivalents at end of year	$	—		$	2,867		$	50,917		$	—	$	53,784

23

Condensed Consolidating Statement of Cash Flows
Six Months Ended June 30, 2006
(Unaudited)

				Guarantor			Other
	Parent			Subsidiary			Subsidiaries			Eliminations		Consolidation
							(In thousands)
Cash flows from operating activities:
Net cash provided by (used in) continuing operations	$	(7,707	)	$	(20,696	)	$	53,138		$	—	$	24,735
Net cash used in discontinued operations		—			(139	)		—			—		(139	)
Net cash provided by (used in) operating activities		(7,707	)		(20,835	)		53,138			—		24,596
Cash flows from investing activities:
Capital expenditures		—			(66,114	)		(53,175	)		—		(119,289	)
Proceeds from sale of property, plant and equipment		—			11,127			8,494			—		19,621
Proceeds from sale of business		—			51,500			625			—		52,125
Net cash used in investing activities		—			(3,487	)		(44,056	)		—		(47,543	)
Cash flows from financing activities:
Borrowings (repayments) on revolving credit facilities, net		—			22,000			—			—		22,000
Proceeds from issuance of senior notes		150,000			—			—			—		150,000
Repayment of zero coupon subordinated notes principal		(150,000	)		—			—			—		(150,000	)
Capital contribution (distribution), net		3,873			(3,873	)		—			—		—
Proceeds from stock options exercised		3,834			—			—			—		3,834
Borrowings (repayments) between subsidiaries, net		—			4,896			(4,896	)		—		—
Payments for debt issue costs		—			(3,832	)		—			—		(3,832	)
Borrowings (repayments) on other debt, net		—			7,210			316			—		7,526
Net cash provided by (used in) financing activities		7,707			26,401			(4,580	)		—		29,528
Effect of exchange rate changes on in cash and cash equivalents		—			—			623			—		623
Net increase in cash and cash equivalents		—			2,079			5,125			—		7,204
Cash and cash equivalents at beginning of year		—			10,724			37,509			—		48,233
Cash and cash equivalents at end of year	$	—		$	12,803		$	42,634		$	—	$	55,437

24

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Special Note Regarding Forward-Looking Statements

Certain matters discussed in this Quarterly Report on Form 10-Q are “forward-looking statements” intended to qualify for the safe harbors from liability 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 the context of the statement will include words such as we “believe”, “anticipate”, “expect”, “estimate” or words of similar import. Similarly, statements that describe our future plans, objectives or goals or future revenues or other financial metrics are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from those anticipated as of the date of this report. These risks and uncertainties include:

• 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, kidnappings, 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;

• ability to obtain components used to fabricate our products;

• our inability to implement certain business objectives, such as:

• international expansion,

• ability to timely and cost-effectively execute integrated projects,

• integrating acquired businesses,

• generating sufficient cash,

• accessing the capital markets, and

• refinancing existing or incurring additional indebtedness to fund our business;

• our inability to consummate the proposed merger with Universal Compression Holdings, Inc;

• changes in governmental safety, health, environmental and other regulations, which could require us to make significant expenditures; and

• our inability to comply with covenants in our debt agreements and the decreased financial flexibility associated with our substantial debt.

Other factors in addition to those described in this Form 10-Q could also affect our actual results. You should carefully consider the risks and uncertainties described above and those described in this Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in evaluating our forward-looking statements.

25

You should not unduly rely on these forward-looking statements, which speak only as of the date of this Form 10-Q. Except as required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Form 10-Q or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in our Annual Report on Form 10-K for the year ended December 31, 2006 and the reports we file from time to time with the SEC after the date of this Form 10-Q. All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

GENERAL

Hanover Compressor Company, together with its subsidiaries (“we”, “us”, “our”, “Hanover”, or the “Company”), is a global market leader in the full service natural gas compression business and is also a leading provider of service, fabrication and equipment for oil and natural gas production, processing and transportation applications. We sell and rent this equipment and provide complete operation and maintenance services, including run-time guarantees, for both customer-owned equipment and our fleet of rental equipment. Hanover was founded as a Delaware corporation in 1990, and has been a public company since 1997. Our customers include both major and independent oil and gas producers and distributors as well as national oil and gas companies in the countries in which we operate. Our maintenance business, together with our parts and service business, provides solutions to customers that own their own compression and surface production and processing equipment, but want to outsource their operations. We also fabricate compressor and oil and gas production and processing equipment and provide gas processing and treating, and oilfield power generation services, primarily to our U.S. and international customers as a complement to our compression services. In addition, through our subsidiary, Belleli Energy S.r.l. (“Belleli”), we provide engineering, procurement and construction services primarily related to the manufacturing of critical process equipment for refinery and petrochemical facilities and construction of evaporators and brine heaters for desalination plants and tank farms, primarily for use in Europe and the Middle East.

Substantially all of our assets are owned and our operations are conducted by our wholly-owned subsidiary, Hanover Compression Limited Partnership (“HCLP”).

Proposed Merger

As discussed in Note 1 to the Consolidated Financial Statements, “Basis of Presentation – Proposed Merger,” on February 5, 2007, Hanover and Universal Compression Holdings, Inc. (“Universal”) announced they entered into a definitive merger agreement. The merger agreement has been unanimously approved by both companies’ Boards of Directors and we remain optimistic that the merger will proceed and expect a closing during the third quarter of 2007. Completion of the merger is subject to certain conditions that are set forth in the merger agreement, including the approval of shareholders of both companies. Each of Hanover and Universal is holding its annual meeting of stockholders on August 16, 2007 to, among other things, adopt the merger agreement. For more information regarding the proposed merger and the terms of the merger agreement, please see Note 1 to the Consolidated Financial Statements.

OVERVIEW

Our revenue and other income for the second quarter 2007 was $515.7 million compared to second quarter 2006 revenue and other income of $405.7 million. Net income for the second quarter 2007 was $26.1 million, or $0.23 per diluted share, compared with a net income of $21.7 million, or $0.21 per diluted share, in the second quarter 2006. Revenues and other income and net income has increased in the three months ended June 30, 2007 due to improved market conditions and our focus on improving sales and margins. In addition, results for the three months ended June 30, 2006 benefited from a $8.0 million pre-tax gain on the sale of our fabrication facilities in Canada.

Our revenue and other income for the six months ended June 30, 2007 was $988.9 million compared to revenue and other income of $778.5 million for the six months ended June 30, 2006. Net income for the six months ended June 30, 2007 was $51.5 million, or $0.46 per diluted share, compared with a net income of $44.1 million, or $0.43 per share, for the six months ended June 30, 2006. Revenues and other income and net income has increased in the six months ended June 30, 2007 due to improved market conditions and our focus on improving sales and margins. In addition, results for the six months ended June 30, 2006 benefited from a pre-tax gain of $28.4 million on the sale of our U.S. amine treating business, an $8.0 million pre-tax gain on the sale of our fabrication facilities in Canada and were decreased by $5.9 million in debt extinguishment costs.

Total compression horsepower at June 30, 2007 was approximately 3,343,000, consisting of approximately 2,419,000 horsepower in the United States and approximately 924,000 horsepower internationally.

26

At June 30, 2007, Hanover’s total third-party fabrication backlog was approximately $1,030.6 million compared to approximately $807.6 million at December 31, 2006 and $714.5 million at June 30, 2006. The compressor and accessory fabrication backlog was approximately $299.0 million at June 30, 2007, compared to approximately $325.1 million at December 31, 2006 and $193.0 million at June 30, 2006. The backlog for production and processing equipment fabrication was approximately $731.6 million at June 30, 2007, compared to approximately $482.5 million at December 31, 2006 and $521.5 million at June 30, 2006.

Industry Conditions

The North American rig count decreased by 4% to 1,981 at June 30, 2007 from 2,073 at June 30, 2006, and the twelve-month rolling average North American rig count increased by 6% to 2,133 at June 30, 2007 from 2,019 at June 30, 2006. The twelve-month rolling average U.S. wellhead natural gas price decreased to $6.31 per Mcf at June 30, 2007 from $7.95 per Mcf at June 30, 2006. Recently, we have not experienced significant growth in U.S. rentals of contracted equipment, which we believe is primarily the result of (1) the lack of immediate availability of compression equipment in the configuration currently in demand by our customers, and (2) increases in purchases of compression equipment by oil and gas companies that have available capital. However, improved market conditions have led to improved pricing and demand for higher horsepower compression equipment in the U.S. market.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2007 COMPARED TO THREE MONTHS ENDED JUNE 30, 2006

Summary of Business Line Results

U.S. Rentals
(in thousands)

	Three months ended
	June 30,						Increase
	2007			2006			(Decrease)
Revenue	$	99,562		$	93,073			7	%
Operating expense		40,258			36,729			10	%
Gross profit	$	59,304		$	56,344			5	%
Gross margin		60	%		61	%		(1	)%

U.S. rental revenue and gross profit increased during the three months ended June 30, 2007, compared to the three months ended June 30, 2006, due primarily to an improvement in market conditions for higher horsepower units that has led to an improvement in pricing. Gross margin decreased slightly in the current quarter as compared to the same period last year due to higher repair and maintenance expenses.

International Rentals
(in thousands)

	Three months ended
	June 30,						Increase
	2007			2006			(Decrease)
Revenue	$	69,645		$	67,520			3	%
Operating expense		27,675			23,691			17	%
Gross profit	$	41,970		$	43,829			(4	)%
Gross margin		60	%		65	%		(5	)%

During the three months ended June 30, 2007, international rental revenue increased, compared to the three months ended June 30, 2006, primarily due to increased rental activity in Brazil and Mexico. Gross margin and gross profit decreased primarily due to higher repair and maintenance costs in Argentina and Venezuela, as well as lower revenues in Nigeria in the second quarter of 2007. Revenue related to our Nigerian Cawthorne Channel Project was not recognized during the three months ended June 30, 2007 since the project was not on-line, however, we recorded expenses of $0.8 million related to maintaining the project. The three months ended June 30, 2006 included $3.9 million in revenue and $1.6 million in costs related to the project (see further discussion in Note 6 of the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q).

27

Parts, Service and Used Equipment
(in thousands)

	Three months ended
	June 30,						Increase
	2007			2006			(Decrease)
Revenue	$	72,664		$	55,737			30	%
Operating expense		56,036			45,061			24	%
Gross profit	$	16,628		$	10,676			56	%
Gross margin		23	%		19	%		4	%

Parts, service and used equipment revenue, gross profit and gross margin for the three months ended June 30, 2007 were higher than the three months ended June 30, 2006, primarily due to an increase in parts and service revenues in both the U.S. and internationally as well as higher used rental equipment sales during the quarter ended June 30, 2007.

Parts, service and used equipment revenue includes two business components: (1) parts and service and (2) used rental equipment sales and installation revenues. For the three months ended June 30, 2007, parts and service revenue was $49.8 million with a gross margin of 27%, compared to $41.9 million and 21%, respectively, for the three months ended June 30, 2006. Installations revenue and used rental equipment sales for the three months ended June 30, 2007 was $22.8 million with a gross margin of 14%, compared to $13.8 million with a 14% gross margin for the three months ended June 30, 2006. Our installation revenue and used rental equipment sales and gross margins vary significantly from period to period and are dependent on the exercise of purchase options on rental equipment by customers and timing of the start-up of new projects by customers.

Compressor and Accessory Fabrication
(in thousands)

	Three months ended
	June 30,						Increase
	2007			2006			(Decrease)
Revenue	$	139,508		$	70,128			99	%
Operating expense		106,016			58,482			81	%
Gross profit	$	33,492		$	11,646			188	%
Gross margin		24	%		17	%		7	%

For the three months ended June 30, 2007, compressor 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 June 30, 2007, we had compression fabrication backlog of $299.0 million compared to $193.0 million at June 30, 2006.

Production and Processing Equipment Fabrication
(in thousands)

	Three months ended
	June 30,						Increase
	2007			2006			(Decrease)
Revenue	$	122,595		$	103,653			18	%
Operating expense		104,336			89,203			17	%
Gross profit	$	18,259		$	14,450			26	%
Gross margin		15	%		14	%		1	%

Production and processing equipment fabrication revenue, gross profit and gross margin for the three months ended June 30, 2007 increased over the three months ended June 30, 2006, primarily due to an improvement in market conditions that led to an increase in awarded sales, improved pricing and an improvement in operating efficiencies. During the quarter ended June 30, 2007, Belleli’s revenue increased $24.4 million to $81.0 million and gross profit increased $0.4 million to $6.3 million compared to the quarter ended

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June 30, 2006. Belleli’s gross profit was negatively impacted during the three months ended June 30, 2007 by approximately $6.7 million of re-work costs on one of its projects.

As of June 30, 2007, we had a production and processing equipment fabrication backlog of $731.6 million compared to $521.5 million at June 30, 2006, including Belleli’s backlog of $569.4 million and $454.2 million at June 30, 2007 and 2006, respectively.

Gain on sale of business and other income

Gain on sale of business and other income for the three months ended June 30, 2007 decreased to $5.5 million, compared to $10.3 million for the three months ended June 30, 2006. The decrease was primarily due to an $8.0 million pre-tax gain on the sale of assets previously used in our fabrication facility in Canada that occurred during the second quarter of 2006.

Expenses

Selling, general, and administrative expense (“SG&A”) for the three months ended June 30, 2007 was $56.2 million, compared to $49.8 million during the three months ended June 30, 2006. The increase in SG&A expense is primarily due to increased incentive compensation expenses and costs associated with the increase in business activity. As a percentage of revenue and other income, SG&A for the three months ended June 30, 2007 was 11%, compared to 12% for the three months ended June 30, 2006.

Merger expenses related to our proposed merger with Universal were $3.1 million during the three months ended June 30, 2007. Our Board of Directors adopted a retention bonus plan of up to $10 million which provides for awards to certain key employees if such individuals remain employed by Hanover or its successor through March 31, 2008, or are terminated without cause prior to such date. $8.9 million of retention awards were granted under this plan in the first six months of 2007 and will be expensed evenly over the vesting period through March 31, 2008.

Depreciation and amortization expense for the three months ended June 30, 2007 increased to $52.8 million, compared to $43.1 million for the three months ended June 30, 2006. Depreciation and amortization increased during the three months ended June 30, 2007 as compared to the three months ended June 30, 2006, primarily due to property, plant and equipment additions since June 30, 2006 and increased amortization of installation costs for projects that have come on-line since June 30, 2006.

The decrease in our interest expense during the three months ended June 30, 2007 compared to the three months ended June 30, 2006, was primarily due to debt repayments since June 30, 2006.

Foreign currency translation for the three months ended June 30, 2007 and 2006 was a loss of $0.3 million and a gain of $2.2 million, respectively. The decrease in foreign exchange gain is primarily due to the exchange rate between the Euro and U.S. Dollar remaining relatively flat during the three months ended June 30, 2007, while the Euro strengthened against the U.S. Dollar in the three months ended June 30, 2006.

The following table summarizes the exchange gains and losses we recorded for assets exposed to currency translation (in thousands):

	Three Months Ended
	June 30,
	2007			2006
Canada	$	280		$	(927	)
Argentina		(52	)		(845	)
Venezuela		14			295
Italy		(245	)		3,136
All other countries		(316	)		577
Exchange gain (loss)	$	(319	)	$	2,236

The impact of foreign exchange on our statements of operations will depend on the amount of our net asset and liability positions exposed to currency fluctuations in future periods.

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Income Taxes

The provision for income taxes increased $6.6 million, to $16.2 million for the three months ended June 30, 2007 from $9.5 million for the three months ended June 30, 2006. Our effective income tax rates during the three months ended June 30, 2007 and 2006 were 38% and 30%, respectively. During the three months ended June 30, 2006, we recorded pre-tax income in the U.S. and realized the benefit from net operating loss carryforwards and capital loss carryforwards that previously we had provided a valuation allowance against which lowered our effective tax rate. During the three months ended June 30, 2007, the lack of need for a valuation allowance against current year U.S. deferred tax assets, partially offset by pre-tax income growth in low-tax rate jurisdictions, has caused a net increase in our effective tax rate compared to the same period in 2006. Our tax provision for the three months ended June 30, 2006 also included approximately $2.7 million in deferred tax expense related to the enactment of the Texas Margins tax.

Due to our income from the results of U.S. operations in 2006 and our expectations for income in 2007 and future years, we reached the conclusion in the fourth quarter of 2006 that it is more likely than not that our net deferred tax assets in the U.S. would be realized. Previously, because of cumulative tax losses in the U.S., we were not able to reach the “more likely than not” criteria of SFAS 109 and had recorded a valuation allowance on our net U.S. deferred tax assets. We have recorded valuation allowances for certain deferred tax assets that are not likely to be realized. If we are required to record and/or release additional valuation allowances in the United States or any other jurisdictions, our effective tax rate will be impacted, perhaps substantially, compared to the statutory rate.

SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO SIX MONTHS ENDED JUNE 30, 2006

Summary of Business Line Results

U.S. Rentals
(in thousands)

	Six months ended
	June 30,						Increase
	2007			2006			(Decrease)
Revenue	$	199,198		$	184,716			8	%
Operating expense		79,135			74,820			6	%
Gross profit	$	120,063		$	109,896			9	%
Gross margin		60	%		59	%		1	%

U.S. rental revenue, gross profit and gross margin increased during the six months ended June 30, 2007, compared to the six months ended June 30, 2006, due primarily to an improvement in market conditions for higher horsepower units that has led to an improvement in pricing.

International Rentals
(in thousands)

	Six months ended
	June 30,						Increase
	2007			2006			(Decrease)
Revenue	$	136,936		$	130,026			5	%
Operating expense		50,980			45,023			13	%
Gross profit	$	85,956		$	85,003			1	%
Gross margin		63	%		65	%		(2	)%

During the six months ended June 30, 2007, international rental revenue increased compared to the six months ended June 30, 2006, primarily due to increased rental activity in Brazil. Gross margin decreased primarily due to higher repair and maintenance costs in Argentina and Venezuela as well as lower revenues and margins in Nigeria during the six months ended June 30, 2007. Revenue related to our Nigerian Cawthorne Channel Project was not recognized during the six months ended June 30, 2007 since the project was not on-line, however, we recorded expenses of $1.8 million related to maintaining the project. The six months ended June 30, 2006 included $7.3 million in revenue and $2.8 million in costs related to the project (see further discussion in Note 6 of the Notes to Consolidated Financial Statements included in Item 1 of this Form 10-Q).

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Parts, Service and Used Equipment
(in thousands)

	Six months ended
	June 30,						Increase
	2007			2006			(Decrease)
Revenue	$	154,004		$	105,008			47	%
Operating expense		122,881			86,123			43	%
Gross profit	$	31,123		$	18,885			65	%
Gross margin		20	%		18	%		2	%

Parts, service and used equipment revenue and gross profit for the six months ended June 30, 2007 were higher than the six months ended June 30, 2006 due to higher parts and service revenue, higher installation revenues and higher used rental equipment sales during the six months ended June 30, 2007. Gross margin was higher during the six months ended June 30, 2007 due to an increase in installation revenues at higher margins and increased margins on international parts and service revenues.

Parts, service and used equipment revenue includes two business components: (1) parts and service and (2) used rental equipment sales and installation revenues. For the six months ended June 30, 2007, parts and service revenue was $97.1 million with a gross margin of 26%, compared to $84.8 million and 23%, respectively, for the six months ended June 30, 2006. Installations revenue and used rental equipment sales for the six months ended June 30, 2007 was $56.9 million with a gross margin of 11%, compared to $20.2 million with a (4)% gross margin for the six months ended June 30, 2006. Used rental equipment and installation sales for the six months ended June 30, 2006 was negatively impacted by approximately $3.0 million of cost overruns on installation jobs. Our installation revenue and used rental equipment sales and gross margins vary significantly from period to period and are dependent on the exercise of purchase options on rental equipment by customers and timing of the start-up of new projects by customers.

Compressor and Accessory Fabrication
(in thousands)

	Six months ended
	June 30,						Increase
	2007			2006			(Decrease)
Revenue	$	218,216		$	124,819			75	%
Operating expense		169,261			105,175			61	%
Gross profit	$	48,955		$	19,644			149	%
Gross margin		22	%		16	%		6	%

For the six months ended June 30, 2007, compressor 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 June 30, 2007, we had compression fabrication backlog of $299.0 million compared to $193.0 million at June 30, 2006.

Production and Processing Equipment Fabrication
(in thousands)

	Six months ended
	June 30,						Increase
	2007			2006			(Decrease)
Revenue	$	255,833		$	182,272			40	%
Operating expense		215,874			158,166			36	%
Gross profit	$	39,959		$	24,106			66	%
Gross margin		16	%		13	%		3	%

Production and processing equipment fabrication revenue, gross profit and gross margin for the six months ended June 30, 2007 increased over the six months ended June 30, 2006, primarily due to an increase in revenue and improved operating results at Belleli. Belleli’s revenue and gross profit increased for the six months ended June 30, 2007 compared to the same period in 2006 due to improved market conditions. During the six months ended June 30, 2007, Belleli’s revenue increased $80.9 million to $178.6 million

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and gross profit increased $9.0 million to $18.7 million compared to the six months ended June 30, 2006. Belleli’s gross profit was negatively impacted during the six months ended June 30, 2007 by approximately $6.7 million of re-work costs on one of its projects.

As of June 30, 2007, we had a production and processing equipment fabrication backlog of $731.6 million compared to $521.5 million at June 30, 2006, including Belleli’s backlog of $569.4 million and $454.2 million at June 30, 2007 and 2006, respectively.

Gain on sale of business and other income

Gain on sale of business and other income for the six months ended June 30, 2007 decreased to $12.8 million, compared to $40.5 million for the six months ended June 30, 2006. The decrease was primarily due to a pre-tax gain of $28.4 million on the sale of our U.S. amine treating business in the first quarter of 2006 and an $8.0 million pre-tax gain on the sale of assets previously used in our fabrication facility in Canada that occurred during the second quarter of 2006.

Expenses

SG&A for the six months ended June 30, 2007 was $108.0 million, compared to $97.8 million in the six months ended June 30, 2006. The increase in SG&A expense is primarily due to increased incentive compensation expenses and costs associated with the increase in business activity. As a percentage of revenue and other income, SG&A for the six months ended June 30, 2007 was 11%, compared to 13% for the six months ended June 30, 2006.

Merger expenses related to our proposed merger with Universal were $3.4 million during the six months ended June 30, 2007. Our Board of Directors adopted a retention bonus plan of up to $10 million which provides for awards to certain key employees if such individuals remain employed by Hanover or its successor through March 31, 2008, or are terminated without cause prior to such date. $8.9 million of retention awards were granted under this plan in the first six months of 2007 and will be expensed evenly over the vesting period through March 31, 2008.

Depreciation and amortization expense for the six months ended June 30, 2007 increased to $103.7 million, compared to $85.0 million for the six months ended June 30, 2006. Depreciation and amortization increased during the six months ended June 30, 2007 as compared to the six months ended June 30, 2006 primarily due to property, plant and equipment additions since June 30, 2006 and increased amortization of installation costs for projects that have come on-line since June 30, 2006.

The decrease in our interest expense during the six months ended June 30, 2007 compared to the three months ended June 30, 2006, was primarily due to debt repayments since June 30, 2006 and a decrease in our overall effective interest rate on outstanding debt to 7.8% from 8.1% during the six months ended June 30, 2007 compared to the six months ended June 30, 2006.

Foreign currency translation for the six months ended June 30, 2007 and 2006 was a loss of $0.0 million and a gain of $3.7 million, respectively. The decrease in foreign exchange gain is primarily due to the strengthening of the Euro against the U.S. Dollar by a greater percentage in the six months ended June 30, 2006 as compared to the six months ended June 30, 2007.

The following table summarizes the exchange gains and losses we recorded for assets exposed to currency translation (in thousands):

	Six Months Ended
	June 30,
	2007			2006
Canada	$	14		$	(1,017	)
Argentina		(29	)		(948	)
Venezuela		(14	)		576
Italy		389			4,254
All other countries		(371	)		868
Exchange gain/(loss)	$	(11	)	$	3,733

The impact of foreign exchange on our statements of operations will depend on the amount of our net asset and liability positions exposed to currency fluctuations in future periods.

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Debt extinguishment costs during the six months ended June 30, 2006 of $5.9 million relate to the call premium to repay our 11% Zero Coupon Subordinated Notes due March 31, 2007.

Income Taxes

The provision for income taxes increased $12.6 million, to $30.6 million for the six months ended June 30, 2007 from $18.0 million for the six months ended June 30, 2006. Our effective income tax rates during the six months ended June 30, 2007 and 2006 were 37% and 29%, respectively. During the six months ended June 30, 2006, we recorded pre-tax income in the U.S. and therefore were able to realize the benefit from net operating loss carryforwards and capital loss carryforwards that previously we had provided a valuation allowance against. During the six months ended June 30, 2007, the lack of need for a valuation allowance against current year U.S. deferred tax assets, partially offset by pre-tax income growth in low-tax rate jurisdictions, has caused a net increase in our effective tax rate compared to the same period in 2006. Our tax provision for the six months ended June 30, 2006 also included approximately $2.7 million in deferred tax expense related to the enactment of the Texas Margins tax.

Due to our income from the results of U.S. operations in 2006 and our expectations for income in 2007 and future years, we reached the conclusion in the fourth quarter of 2006 that it is more likely than not that our net deferred tax assets in the U.S. would be realized. Previously, because of cumulative tax losses in the U.S., we were not able to reach the “more likely than not” criteria of SFAS 109 and had recorded a valuation allowance on our net U.S. deferred tax assets. We have recorded valuation allowances for certain deferred tax assets that are not likely to be realized. If we are required to record and/or release additional valuation allowances in the United States or any other jurisdictions, our effective tax rate will be impacted, perhaps substantially, compared to the statutory rate.

Cumulative Effect of Accounting Change, Net of Tax

On January 1, 2006, we recorded the cumulative effect of change in accounting related to our adoption of SFAS 123(R) of $0.4 million (net of tax of $0) which relates to the requirement to estimate forfeitures on restricted stock awards.

LIQUIDITY AND CAPITAL RESOURCES

Our unrestricted cash balance was $53.8 million at June 30, 2007 compared to $73.3 million at December 31, 2006. Working capital decreased to $238.7 million at June 30, 2007 from $326.6 million at December 31, 2006. The decrease in working capital was primarily attributable to an increase in current maturities of long-term debt (discussed below) partially offset by an increase in accounts receivable and a decrease in advanced billings.

Our cash flow from operating, investing and financing activities, as reflected in the Consolidated Statement of Cash Flows, are summarized in the table below (dollars in thousands):

	Six Months Ended
	June 30,
	2007			2006
Net cash provided by (used in) continuing operations:
Operating activities	$	42,827		$	24,735
Investing activities		(124,069	)		(47,543	)
Financing activities		60,774			29,528
Effect of exchange rate changes on cash and cash equivalents		966			623
Net cash used in discontinued operations		—			(139	)
Net change in cash and cash equivalents	$	(19,502	)	$	7,204

The increase in cash provided by operating activities for the six months ended June 30, 2007 as compared to the six months ended June 30, 2006, was primarily due to the payment during the six months ended June 30, 2006 of $86.1 million of interest that had accreted from August 31, 2001 to March 31, 2006 on our 11% Zero Coupon Subordinated Notes, which were redeemed in the first quarter of 2006. 2007 cash flows were impacted by the use of cash flow from operations to fund working capital used primarily for the growth in our fabrication business.

The increase in cash used in investing activities during the six months ended June 30, 2007 as compared to the six months ended June 30, 2006 was primarily attributable to higher capital expenditures during the six months ended June 30, 2007 and proceeds received

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from the sales of our amine treating business in the first quarter of 2006 and our Canadian fabrication assets in the second quarter of 2006.

The increase in cash provided by financing activities was primarily due to increased borrowings on our bank credit facility related to funding operating activities.

We may carry out new customer projects through rental fleet additions and other related capital expenditures. We generally invest funds necessary to make these rental fleet additions when our idle equipment cannot economically fulfill a project’s requirements and the new equipment expenditure is matched with long-term contracts whose expected economic terms exceed our return on capital targets. We currently plan to spend approximately $325 million to $375 million on net capital expenditures during 2007 including (1) rental equipment fleet additions and (2) approximately $70 million to $80 million on equipment maintenance capital. Projected maintenance capital for 2007 includes the current year cost of our program to refurbish a minimum of 200,000 horsepower of idle U.S. compression equipment. In addition, primarily due to the increases in our fabrication business our purchase order commitments increased to approximately $479 million at June 30, 2007 compared to approximately $385 million at December 31, 2006. Other than the increase in purchase commitments, subsequent to December 31, 2006, there have been no other significant changes to our obligations to make future payments under existing contracts.

We have not paid any cash dividends on our common stock since our formation and do not anticipate paying such dividends in the foreseeable future. The Board of Directors anticipates that all cash flow generated from operations in the foreseeable future will be retained and used to pay down debt or develop and expand our business. Any future determinations to pay cash dividends on our common stock will be at the discretion of our Board of Directors and will be dependent upon our results of operations and financial condition, credit and loan agreements in effect at that time and other factors deemed relevant by our Board of Directors.

Our 4.75% Convertible Senior Notes with an aggregate principal amount of $192 million are due on March 15, 2008 and therefore are classified as current maturities of long-term debt on our condensed consolidated balance sheet as of June 30, 2007. We are currently evaluating our options regarding payment of these notes and currently expect to refinance the notes.

The proposed merger with Universal will constitute a change of control under our 2001A and 2001B equipment lease notes. Taken together, there was an aggregate of $383.0 million of these equipment lease notes and $11.9 million in related minority interest obligations outstanding as of June 30, 2007. Upon the change of control, the equipment trusts (with funds supplied by us) must make an offer to the noteholders to purchase the notes at 101% of the outstanding principal amount of the notes and related minority interest obligations plus accrued interest to the purchase date unless the obligations of the equipment trusts have been earlier satisfied and discharged. The proposed merger will not constitute a change of control under the provisions of any of our other debt obligations.

The completion of the proposed merger will result in the acceleration of vesting of certain long-term incentive awards held by employees, including executive officers. At June 30, 2007, there was approximately $17.5 million of unrecognized compensation expense related to long-term incentive awards subject to acceleration of vesting upon completion of the proposed merger. Additionally, if executives with change of control agreements are terminated or if the executive resigns for good reason, they will be entitled to change of control payments based on their contract agreement.

Historically, we have funded our capital requirements with a combination of internally generated cash flow, borrowings under a bank credit facility, sale leaseback transactions, raising additional equity and issuing long-term debt.

As part of our business, we are a party to various financial guarantees, performance guarantees and other contractual commitments to extend guarantees of credit and other assistance to various subsidiaries, investees and other third parties. To varying degrees, these guarantees involve elements of performance and credit risk, which are not included on our consolidated balance sheet. The possibility of us having to honor our contingencies is largely dependent upon future operations of various subsidiaries, investees and other third parties, or the occurrence of certain future events. We would record a reserve for these guarantees if events occurred that required that one be established.

In March 2006, we completed a public offering of $150 million aggregate principal amount of 7.5% Senior Notes due 2013. We used the net proceeds from the offering of $146.6 million, together with borrowings under our bank credit facility, to redeem our 11% Zero Coupon Subordinated Notes due March 31, 2007. In connection with the redemption, we expensed $5.9 million related to the call premium. We paid approximately $242 million to redeem our 11% Zero Coupon Subordinated Notes, including the call premium. The

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offering and sale of the 7.5% Senior Notes due 2013 were made pursuant to an automatic shelf registration statement on Form S-3 filed with the Securities and Exchange Commission. We may redeem up to 35% of the 7.5% Senior Notes due 2013 using the proceeds of certain equity offerings completed before April 15, 2009 at a redemption price of 107.5% of the principal amount, plus accrued and unpaid interest to the redemption date. In addition, we may redeem some or all of the 7.5% Senior Notes due 2013 at any time on or after April 15, 2010 at certain redemption prices together with accrued interest, if any, to the date of redemption.

Our bank credit facility provides for a $450 million revolving credit facility in which U.S. dollar-denominated advances bear interest at our option, at (1) the greater of the Administrative Agent’s prime rate or the federal funds effective rate plus an applicable margin (“ABR”), or (2) the Eurodollar rate (“LIBOR”), in each case plus an applicable margin ranging from 0.375% to 1.5%, with respect to ABR loans, and 1.375% to 2.5%, with respect to LIBOR loans, in each case depending on our consolidated leverage ratio. Euro-denominated advances bear interest at the Eurocurrency rate, plus an applicable margin ranging from 1.375% to 2.5%, depending on our consolidated leverage ratio. A commitment fee ranging from 0.375% to 0.5%, depending on our consolidated leverage ratio, times the average daily amount of the available commitment under the bank credit facility is payable quarterly to the lenders participating in the bank credit facility.

As of June 30, 2007, we were in compliance with all covenants and other requirements set forth in our bank credit facility, the indentures and agreements related to our compression equipment lease obligations and the indentures and agreements relating to our other long-term debt. While there is no assurance, we believe based on our current projections for 2007 that we will be in compliance with the financial covenants in these agreements. A default under our bank credit facility or a default under certain of the various indentures and agreements would in some situations trigger cross-default provisions under our bank credit facilities or the indentures and agreements relating to certain of our other debt obligations. Such defaults would have a material adverse effect on our liquidity, financial position and operations.

As of June 30, 2007, we had $74.0 million in outstanding borrowings under our bank credit facility. Outstanding amounts under our bank credit facility bore interest at a weighted average rate of 6.7% and 6.9% at June 30, 2007 and December 31, 2006, respectively. As of June 30, 2007, we also had approximately $233.8 million in letters of credit outstanding under our bank credit facility. Our bank credit facility permits us to incur indebtedness, subject to covenant limitations, up to a $450 million credit limit, plus, in addition to certain other indebtedness, an additional (1) $50 million in unsecured indebtedness, (2) $100 million of indebtedness of international subsidiaries and (3) $35 million of secured purchase money indebtedness. Additional borrowings of up to $142.2 million were available under that facility as of June 30, 2007.

Hanover announced in July 2007 that it commenced cash tender offers and consent solicitations for $550 million of its 8.625% Senior Notes due 2010, 7.5% Senior Notes due 2013, and 9.0% Senior Notes due 2014 (collectively, the “Notes”) on the terms and subject to the conditions set forth in the Company’s Offer to Purchase and Consent Solicitation Statement dated July 19, 2007. The tender offers will expire on August 17, 2007, unless extended or earlier terminated by Hanover. Hanover reserves the right to terminate, withdraw or amend the tender offers and consent solicitations at any time subject to applicable law. The tender offers are part of the refinancing plan of Hanover and Universal being implemented in anticipation of the closing of the proposed merger, which is currently expected to occur in the third quarter of 2007, if the conditions to the closing set forth in the Agreement and Plan of Merger have been satisfied. Hanover will incur early extinguishment charges that will be dependent upon the underlying treasury yield for each security in effect on the date of payment. Based on the treasury yields in effect at June 30, 2007, the charge assuming all Notes are tendered and consent solicitations received would have been approximately $43.3 million.

While all of the agreements related to our long-term debt do not contain the same financial covenants, the indentures and the agreements related to our compression equipment lease obligations for our 2001A and 2001B sale leaseback transactions, our 8.625% Senior Notes due 2010, our 7.5% Senior Notes due 2013 and our 9.0% Senior Notes due 2014 permit us at a minimum, (1) to incur indebtedness, at any time, of up to $400 million under our bank credit facility (which is $50 million less than the full capacity under that facility), plus an additional $75 million in unsecured indebtedness, (2) to incur additional indebtedness so long as, after incurring such indebtedness, our ratio of the sum of consolidated net income before interest expense, income taxes, depreciation expense, amortization of intangibles, certain other non-cash charges and rental expense to total fixed charges (all as defined and adjusted by the agreements governing such obligations), or our “coverage ratio,” is greater than 2.25 to 1.0, and no default or event of default has occurred or would occur as a consequence of incurring such additional indebtedness and the application of the proceeds thereof and (3) to incur certain purchase money and similar obligations. The indentures and agreements for our 2001A and 2001B compression equipment lease obligations, our 8.625% Senior Notes due 2010, our 7.5% Senior Notes due 2013 and our 9.0% Senior Notes due 2014 define indebtedness to include the present value of our rental obligations under sale leaseback transactions and under facilities similar to our compression equipment operating leases. As of June 30, 2007, Hanover’s coverage ratio exceeded 2.25 to 1.0, and

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therefore as of such date it would allow us to incur a certain amount of additional indebtedness in addition to our bank credit facility and the additional $75 million in unsecured indebtedness and certain other permitted indebtedness, including certain refinancing of indebtedness allowed by such bank credit facility.

As of June 30, 2007, our credit ratings as assigned by Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services (“Standard & Poor’s”) were:

		Standard
	Moody’s	& Poor’s
Outlook	Positive	Positive
Senior implied rating	B1	BB-
Liquidity rating	SGL-3	—
2001A equipment lease notes, interest at 8.5%, due September 2008	Ba3, LGD3	B+
2001B equipment lease notes, interest at 8.75%, due September 2011	Ba3, LGD3	B+
4.75% convertible senior notes due 2008	B3, LGD5	B
4.75% convertible senior notes due 2014	B3, LGD5	B
8.625% senior notes due 2010	B2, LFD4	B
9.0% senior notes due 2014	B2, LFD4	B
7.5% senior notes due 2013	B2, LFD4	B

We do not have any credit rating downgrade provisions in our debt agreements or the agreements related to our compression equipment lease obligations that would accelerate their maturity dates. However, a downgrade in our credit rating could materially and adversely affect our ability to renew existing, or obtain access to new, credit facilities in the future and could increase the cost of such facilities. Should this occur, we might seek alternative sources of funding. In addition, our significant leverage puts us at greater risk of default under one or more of our existing debt agreements if we experience an adverse change to our financial condition or results of operations. Our ability to reduce our leverage depends upon market and economic conditions, as well as our ability to execute liquidity-enhancing transactions such as sales of non-core assets or our equity securities.

Derivative Financial Instruments. We use derivative financial instruments from time to time to minimize the risks and/or costs associated with financial activities by managing our exposure to interest rate fluctuations on a portion of our debt and leasing obligations. Our primary objective is to reduce our overall cost of borrowing by managing the fixed and floating interest rate mix of our debt portfolio. We do not use derivative financial instruments for trading or other speculative purposes. The cash flow from hedges is classified in our consolidated statements of cash flows under the same category as the cash flows from the underlying assets, liabilities or anticipated transactions.

In March 2004, we entered into two interest rate swaps, which we designated as fair value hedges, to hedge the risk of changes in fair value of our 8.625% Senior Notes due 2010 resulting from changes in interest rates. These interest rate swaps, under which we receive fixed payments and make floating payments, result in the conversion of the hedged obligation into floating rate debt. The following table summarizes, by individual hedge instrument, these interest rate swaps as of June 30, 2007 (dollars in thousands):

							Fair Value of
		Fixed Rate to be					Swap at
Floating Rate to be Paid	Maturity Date	Received			Notional Amount		June 30, 2007
Six Month LIBOR +4.72%	December 15, 2010		8.625	%	$	100,000	$	(5,125	)
Six Month LIBOR +4.64%	December 15, 2010		8.625	%	$	100,000	$	(4,890	)

As of June 30, 2007, a total of approximately $2.7 million in accrued liabilities, $7.3 million in long-term liabilities and a $10.0 million reduction of long-term debt was recorded with respect to the fair value adjustment related to these two swaps. We estimate the effective floating rate, which is determined in arrears pursuant to the terms of the swap, to be paid at the time of settlement. As of June 30, 2007, we estimated that the effective rate for the six-month period ending in December 2007 would be approximately 10.0%.

The counterparties to our interest rate swap agreements are major international financial institutions. We monitor the credit quality of these financial institutions and do not expect non-performance by any counterparty, although such financial institutions’ non-performance, if it occurred, could have a material adverse effect on us.

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International Operations: Foreign currency translation for the six month ended June 30, 2007 was a loss of $0.0 million, compared to a gain of $3.7 million for the six months ended June 30, 2006. The decrease in foreign exchange gain is primarily due to the strengthening of the Euro against the U.S. Dollar by a greater percentage for the six months ended June 30, 2007 as compared to the six months ended June 30, 2006.

The following table summarizes the exchange gains (losses) we recorded for assets exposed to currency translation (in thousands):

	Six Months Ended
	June 30,
	2007			2006
Canada	$	14		$	(1,017	)
Argentina		(29	)		(948	)
Venezuela		(14	)		576
Italy		389			4,254
All other countries		(371	)		868
Exchange gain/(loss)	$	(11	)	$	3,733

The impact of foreign exchange on our statements of operations will depend on the amount of our net asset and liability positions exposed to currency fluctuations in future periods.

We are involved in a project called the Cawthorne Channel Project in Nigeria, a project in which Global Gas and Refining Ltd., a Nigerian entity (“Global”) has contracted with an affiliate of Royal Dutch Shell plc (“Shell”) to process gas from some of Shell’s Nigerian oil and gas fields. Pursuant to a contract between us and Global, we rent and operate barge-mounted gas compression and gas processing facilities stationed in a Nigerian coastal waterway. We completed the building of the required barge-mounted facilities and our portion of the project was declared commercial by Global in November 2005. The contract runs for a ten-year period which commenced when the project was declared commercial, subject to a purchase option, by Global, that is exercisable for the remainder of the term of the contract. Under the terms of a series of contracts between Global and Hanover, Shell, and several other counterparties, respectively, Global is primarily responsible for the overall project.

During 2006, the area in Nigeria where the Cawthorne Channel Project is located experienced unrest and violence and gas delivery from Shell to the Cawthorne Channel Project was stopped from June 2006 to June 2007. As a result, the Cawthorne Channel Project did not operate from early June 2006 to June 2007. In July 2007, we received some gas from Shell and we have begun processing the gas received.

During the six months ended June 30, 2007, we did not recognize any revenues related to the Cawthorne Channel Project and we received approximately $1.3 million in payments. Even though we believe we are entitled to rents from Global and have accordingly invoiced Global for rents, collectibility is not reasonably assured due to uncertainty regarding when the Cawthorne Channel Project’s operations will be fully operational and Global’s dependence on gas production by the Cawthorne Channel Project to pay its rents to us. Therefore, we billed but did not recognize revenue of approximately $8.4 million related to the Cawthorne Channel Project during the six months ended June 30, 2007. When the Cawthorne Channel Project is on-line, we will determine whether or not and how much revenue to recognize for the period it is on-line. Based on current long-term expectations of future run-time, we believe we will recover all of our receivables and our full investment in the Cawthorne Channel Project over the term of the contract.

However, if Shell does not provide gas to the project or if Shell were to terminate its contract with Global for any reason or if we were to terminate our involvement in the Cawthorne Channel Project, we would be required to find an alternative use for the barge facility which could potentially result in an impairment and write-down of our investment and receivables related to this project and could have a material impact on our consolidated financial position or results of operation. Additionally, due to the environment in Nigeria, Global’s capitalization level, inexperience with projects of a similar nature and lack of a successful track record with respect to this project and other factors, there is no assurance that Global can satisfy its obligations under its various contracts, including its contract with us.

This project and our other projects in Nigeria are subject to numerous risks and uncertainties associated with operating in Nigeria. Such risks include, among other things, political, social and economic instability, civil uprisings, riots, terrorism, kidnapping, the taking of property without fair compensation and governmental actions that may restrict payments or the movement of funds or result in the deprivation of contract rights. Any of these risks, including risks arising from the recent increase in violence and local unrest,

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could adversely impact any of our operations in Nigeria, and could affect the timing and decrease the amount of revenue we may realize from our investments in Nigeria. At June 30, 2007, we had net assets of approximately $68 million related to projects in Nigeria, a majority of which is related to our capital investment and advances/accounts receivable for the Cawthorne Channel Project.

NEW ACCOUNTING PRONOUNCEMENTS

In May 2003, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. SFAS 150 requires that those instruments be classified as liabilities in statements of financial position. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for interim periods beginning after June 15, 2004. On November 7, 2003, the FASB issued Staff Position 150-3 that delayed the effective date for certain types of financial instruments. We do not believe the adoption of the guidance currently provided in SFAS 150 will have a material effect on our consolidated results of operations or cash flow. However, we may be required to classify as debt approximately $11.9 million in sale leaseback obligations that, as of June 30, 2007, were reported as “Minority interest” on our consolidated balance sheet pursuant to FIN 46.

These minority interest obligations represent the equity of the entities that lease compression equipment to us. In accordance with the provisions of our compression equipment lease obligations, the equity certificate holders are entitled to quarterly or semi-annual yield payments on the aggregate outstanding equity certificates. As of June 30, 2007, the yield rates on the outstanding equity certificates ranged from 13.3% to 13.7%. Equity certificate holders may receive a return of capital payment upon termination of the lease or our purchase of the leased compression equipment after full payment of all debt obligations of the entities that lease compression equipment to us. At June 30, 2007, the carrying value of the minority interest obligations approximated the fair market value of assets that would be required to be transferred to redeem the minority interest obligations.

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Instruments — an amendment of FASB Statements No. 133 and 140” (“SFAS 155”). SFAS 155 (a) permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, (b) clarifies which interest-only strips and principal-only strips are not subject to the requirements of FASB No. 133, (c) establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, (d) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives, and (e) amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of SFAS 155 did not have a material impact on our consolidated results of operations, cash flows or financial position.

In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). This interpretation is effective for fiscal years beginning after December 15, 2006. This interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Differences between the amounts recognized in balance sheet prior to adoption of FIN 48 and the amounts reported after adoption are to be accounted for as an adjustment to the beginning balance of retained earnings (accumulated deficit). The adoption of FIN 48 on January 1, 2007 resulted in a reduction to stockholders’ equity of $3.7 million.

On the date of our adoption of FIN 48, we had $12.7 million of unrecognized tax benefits, all of which would affect our effective tax rate if recognized. Our policy is to classify interest and penalties in our provision for income taxes in our Consolidated Statements of Operations. We did not change our policy on the classification of interest and penalties in conjunction with our adoption of FIN 48. We had $1.1 million of accrued interest and $2.7 million of accrued penalties as of the date of our adoption of this Interpretation. Tax years beginning in 1999 are still subject to examination by major tax jurisdictions.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 provides a single definition of fair value, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value to measure assets and liabilities. SFAS 157 is effective for financial statements issued for fiscal

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years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating the provisions of SFAS 157.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Liabilities” (“SFAS 159”). SFAS 159 provided entities the one-time election to measure financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis under a fair value option. SFAS 159 is effective for financial statements as of the beginning of the first fiscal year that begins after November 15, 2007. Its provision may be applied to an earlier period only if the following conditions are met: (1) the decision to adopt is made after the issuance of FAS 159 but within 120 days after the first day of the fiscal year of adoption, and no financial statements, including footnotes, for any interim period of the adoption year have yet been issued and (2) the requirement of FAS 157 are adopted concurrently with or prior to the adoption of SFAS 159. We are currently evaluating the provisions of SFAS 159.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting Hanover, see Item 7A, “Quantitative Disclosures About Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2006. Hanover’s exposure to market risk has not changed materially since December 31, 2006.

Item 4. Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934) as of June 30, 2007. Based on the evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during our second quarter of fiscal 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of business we are involved in various pending or threatened legal actions, including environmental matters. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from these actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors

There have been no material changes in our risk factors that were previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2006.

Item 6:

(a) Exhibits

2.1	Amendment No. 1 to Agreement and Plan of Merger (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed on June 25, 2007)
10.1	Hanover Compressor Company Merger Severance Benefits Plan*

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10.2	Form of Award Notice Time Vested Restricted Stock (incorporated by reference to the Current Report on Form 8-K filed on May 14, 2007)
10.3	Form of Award Notice Time Vested Restricted Stock Units (stock settled) (incorporated by reference to the Current Report on Form 8-K filed on May 14, 2007)
10.4	Schedule of Compensation for Non-Employee Directors (incorporated by reference to the Current Report on Form 8-K filed on May 14, 2007)
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

*	Filed herewith.
**	Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

HANOVER COMPRESSOR COMPANY

Date: August 1, 2007

By:	/s/ JOHN E. JACKSON John E. Jackson
	President and Chief Executive Officer
Date:	August 1, 2007
By:	/s/ LEE E. BECKELMAN
	Lee E. Beckelman
	Senior Vice President and Chief Financial Officer

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EXHIBIT INDEX

2.1	Amendment No. 1 to Agreement and Plan of Merger (incorporated by reference to Exhibit 2.1 of the Current Report on Form 8-K filed on June 25, 2007)
10.1	Hanover Compressor Company Merger Severance Benefits Plan*
10.2	Form of Award Notice Time Vested Restricted Stock (incorporated by reference to the Current Report on Form 8-K filed on May 14, 2007)
10.3	Form of Award Notice Time Vested Restricted Stock Units (stock settled) (incorporated by reference to the Current Report on Form 8-K filed on May 14, 2007)
10.4	Schedule of Compensation for Non-Employee Directors (incorporated by reference to the Current Report on Form 8-K filed on May 14, 2007)
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**

*	Filed herewith.
**	Furnished herewith.

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EX-10.1

Exhibit 10.1

HANOVER COMPRESSOR COMPANY
MERGER SEVERANCE BENEFITS PLAN

EXECUTION VERSION

SUMMARY PLAN DESCRIPTION AND PLAN DOCUMENT

1.	Purpose of the Plan
	The purpose of the Hanover Compressor Company Merger Severance Benefits Plan (the “Plan”), which shall be effective during the six (6)-month period following the Closing Date, is to make Severance Benefits available to certain eligible employees that will financially assist with their transition following certain terminations of employment from Hanover Compressor Company or its successors or Designated Affiliates while the Plan is in effect.
	If an Employee qualifies for a Severance Benefit under the Plan, payments under the Plan are voluntary on the part of the Company, and are not required by any legal obligation other than the Plan itself.
	The Plan represents an amendment and restatement of all existing severance plans, practices or policies (other than a written employment, change in control, or other individual contract providing for severance benefits) in effect with the Company or an Affiliate as of the effective time hereof with respect to Employees. All such severance plans, practices and policies are hereby superseded by the Plan, and discontinued and terminated with respect to Employees.
2.	Definitions
	As used in the Plan, the following terms shall have the following meanings (and the singular includes the plural, unless the context clearly indicates otherwise):
	Affiliate: A corporation, partnership, limited liability company or partnership, association, trust or other organization which, directly or indirectly, controls, is controlled by, or is under common control with, the Company. For purposes of the preceding sentence, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any entity or organization, shall mean the possession, directly or indirectly, of the power (i) to vote more than 50% of the securities having ordinary voting power for the election of directors of the controlled entity or organization, or (ii) to direct or cause the direction of the management and policies of the controlled entity or organization, whether through the ownership of voting securities or by contract or otherwise.
	Board of Directors: The Board of Directors of the Company.

Cause: (i) The commission by an Employee of an act of fraud, embezzlement or willful breach of a fiduciary duty to the Company or an Affiliate (including the unauthorized disclosure of proprietary material or information of the Company or an Affiliate), (ii) a conviction of an Employee (or a plea of nolo contendere in lieu thereof) for a felony or a crime involving fraud, dishonesty or moral turpitude, (iii) willful failure of an Employee to follow the written directions of the chief executive officer of the Company, Company management, or the Board of Directors, in the case of executive officers of the Company, when such directions are consistent with an Employee’s customary duties and responsibilities and where such refusal has continued for more than 10 days following written notice, (iv) willful misconduct as an employee of the Company or an Affiliate which includes an Employee’s failure to adhere to P.R.I.D.E., the Company’s Guide to Ethical Business Conduct, (v) willful failure of an Employee to render services to the Company or an Affiliate in accordance with his employment arrangement, which failure amounts to a material neglect of his duties to the Company or an Affiliate or (vi) substantial dependence on any drug, immediate precursor or other substance listed on Schedule IV of the Federal Comprehensive Drug Abuse Prevention and Control Act of 1970, as amended, as determined in the sole discretion of the Plan Administrator. With respect to any Employee residing outside of the United States, the Plan Administrator may revise the definition of “Cause” as appropriate to conform to the laws of the applicable non-U.S. jurisdiction.

Closing Date: The date of the closing of the mergers described in Section 1.1 and 1.2 of the Agreement and Plan of Merger, dated as of February 5, 2007, by and among Hanover Compressor Company, Universal Compression Holdings, Inc., Iliad Holdings, Inc., Hector Sub, Inc., and Ulysses Sub, Inc.

COBRA: The Consolidated Omnibus Budget Reconciliation Act of 1985, as amended from time to time, currently embodied in Internal Revenue Code Section 4980B, which provides for continuation of group health plan coverage in certain circumstances.

COBRA Rate: The cost of continued coverage under COBRA, that currently being 102% of the full group rate (including the employee’s share and the employer’s share of the group coverage cost and a 2% administrative fee).

Company: Hanover Compressor Company, a Delaware corporation, and any successor to Hanover Compressor Company.

Comparable Employment: Employment with the Company or any Affiliate that, regardless of the position’s title or responsibilities, (i) provides annual base salary or annualized base rate of pay not less than the Employee’s Compensation, (ii) provides the opportunity to receive a bonus from Exterran not less than the Employee’s target award under the Hanover SIP, if any, and (iii) is at a location that is not more than 35 miles from the principal place of employment for the Employee on the Employee’s Notice Date.

Compensation: In the case of a non sales-commissioned Employee, Compensation is the Employee’s annual base salary or annualized base rate of pay determined as of his or

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her Notice Date, but shall not include overtime, shift premium, bonuses and other special payments, incentive payments, pension, severance pay, foreign service premiums or other foreign assignment uplifts or any other extraordinary compensation, Company or Affiliate contributions to a retirement plan or any other deferred compensation or employee benefit plan or program of the Company or an Affiliate (other than employee pre-tax and after-tax contributions to a tax-qualified savings plan) (“adjusted annual base salary or annualized base rate of pay”). In the case of a sales-commissioned Employee, Compensation is the Employee’s adjusted annual base salary or annualized base rate of pay determined as of his or her Notice Date, plus commissions paid or earned during the 12-month period ending on the last day of the month preceding his or her Termination Date; provided, however, that if an Employee was not a sales-commissioned Employee during the entirety of such 12-month period, then his or her commissions shall be the commissions paid or earned during the period of months during such 12-month period that he or she was employed as a sales-commissioned Employee, annualized.

Designated Affiliate: Each Affiliate designated by the Board of Directors as a participating Affiliate in the Plan whose Employees are eligible to be Participants in the Plan.

Disability: Any physical or mental condition for which the Employee would be eligible to receive long-term disability benefits under the Company’s long-term disability plan. With respect to any Employee residing outside of the United States, the Plan Administrator may revise the definition of “Disability” as appropriate to conform to the laws of the applicable non-U.S. jurisdiction.

Eligible Employee: An Employee described in Section 3(a).

Employee: Any person who is an active, regular (not temporary), full-time or part-time employee of the Company or a Designated Affiliate and who is currently not a party to a change of control Agreement with the Company.

ERISA: The Employee Retirement Income Security Act of 1974, as amended.

Notice: A written notice provided to an Employee indicating: (1) that the employment of the Employee will be terminated; (2) the Employee’s Termination Date; and (3) that the Employee is eligible for participation in the Plan.

Notice Date: The date a Notice is sent to an Employee, as set forth in the Notice.

Participant: An Eligible Employee who meets the requirements set forth in Section 3(b) of the Plan.

Plan: The Hanover Compressor Company Merger Severance Benefits Plan.

Plan Administrator: The person or persons appointed by the Compensation Committee of the Board of Directors to administer the Plan.

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	Service: An Employee’s years of employment with the Company and its Affiliates, determined as of the Notice Date, based on the records maintained by the Human Resources Department in the Houston corporate headquarters of the Company and its Affiliates; provided, however, that solely for purposes of Section 5(a), less than six (6) months of employment shall not constitute a year of Service, and six (6) months or more of employment shall constitute a full year of Service (except in the event an Employee has a total of less than six (6) months of employment, in which case the Employee shall be deemed to have one (1) year of Service).
	Severance Benefits: Benefits described in Sections 5(a), 6(a)(i) and 6(a)(ii) below.
	Severance Period: The period of time, commencing as of the Participant’s Termination Date, equal to the total number of weeks used to calculate a Participant’s aggregate cash Severance Benefit under Section 5(a) hereof.
	SIP: The Company’s Short Term Incentive Plan, as in effect from time to time.
	Termination Date: The date designated in the Notice as the last day on which an Employee shall be in active employment with the Company and all of its Affiliates.
	Waiver and Release: The legal document in which an Eligible Employee, in exchange for the receipt of Severance Benefits under the Plan, among other consideration, releases the Company and all of its Affiliates, their directors, officers, employees and agents, their employee benefit plans, and the fiduciaries and agents of said plans, from liability and damages in any way related to the Employee’s employment with or separation from employment with the Company or any of its Affiliates.
	Weekly Compensation: The Employee’s Compensation divided by 52.
3.	Participation

(a)	Eligible Employees
	An Employee shall be eligible to participate in the Plan (an “Eligible Employee”) only if:

(i)	the Employee is provided a Notice by the Company during the six (6) month period following the Closing Date; and
(ii)	the Employee’s employment with the Company and all Affiliates is terminated by the Employee’s employer for reasons other than death, Disability or Cause.

Each Employee who is provided a Notice shall also be provided a Waiver and Release to execute and return to the Company.

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(b)	Participants
	In order to become a Participant, an Eligible Employee must meet the following requirements:

(i)	during the 45-day period following the Employee’s Notice Date, the Employee must execute and return to the Plan Administrator (or the person designated by the Plan Administrator) the Waiver and Release provided to the Eligible Employee;
(ii)	the Employee must not revoke the Waiver and Release within 7 days after signing it; and
(iii)	the Employee must not be disqualified from receiving Severance Benefits pursuant to the provisions of Section 4 below.

	Each Eligible Employee is hereby advised of his right to discuss any and all aspects of the Waiver and Release with an attorney of the Employee’s choice before signing the Waiver and Release.
(c)	Ineligible Employees
	An Employee who does not satisfy all the requirements of Section 3 shall not be entitled to any benefits under the Plan.

4.	Disqualifying Events
	NO Severance Benefits will be paid to an Eligible Employee who otherwise qualifies as a Participant if:

(a)	the Eligible Employee terminates employment prior to his or her Termination Date for any reason, whether voluntarily or involuntarily, or fails to continue to perform the duties of his or her employment through his or her Termination Date;
(b)	the Plan is amended in a way that makes the Eligible Employee ineligible or is terminated before the Eligible Employee has returned an executed Waiver and Release as described in Section 3(b) above or has otherwise met all of the requirements for being a Participant hereunder;
(c)	the Eligible Employee fails to return all property and materials of his or her employer to the supervisor or other appropriate employer representative as of his or her Termination Date;
(d)	during the period beginning on the Eligible Employee’s Notice Date and ending on the Eligible Employee’s Termination Date, the Eligible Employee is offered Comparable Employment; or

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(e) the Eligible Employee accepts any employment with the Company or an Affiliate before his or her Termination Date.

5. Cash Severance Benefit

(a) Provided he or she is not disqualified under Section 4, a Participant shall be entitled to a cash Severance Benefit in an amount equal to two (2) weeks of the Participant’s Weekly Compensation multiplied by the number of full years of Service credited to the Participant; provided, however, that, based on a Participant’s employment category, such cash Severance Benefit shall not be less than:

(i)	For all Grades below Grade 36 (based on grade level on Closing Date) — 10 weeks of Weekly Compensation;
(ii)	For Grades 36-38 (based on grade level on Closing Date) — 17 weeks of Weekly Compensation;
(iii)	For Grades 39 and above (based on grade level on Closing Date) — 26 weeks of Weekly Compensation;

(b)	The Company, in it sole and absolute discretion, shall determine each Participant’s category for purposes of determining his or her Severance Benefit, which category shall be set forth in the Participant’s Notice.
(c)	A cash Severance Benefit calculated pursuant to Section 5(a) for a Participant, shall be reduced by the amount of any cash compensation payable to the Participant by the Company or its Affiliates on account of the termination of the Participant’s employment, pursuant to (i) a written employment agreement, change in control agreement, or other individual contract between the Participant and the Company or its Affiliates, or (ii) any other obligation, whether by contract, applicable law, or otherwise of the Company or its Affiliate or any other individual or entity to provide a payment to such Participant in the event of an involuntary termination of such Participant’s employment with the Company or its Affiliate; provided, however, that, except as otherwise provided in the Notice, a Participant’s cash Severance Benefit shall not be reduced by any amounts payable under the Hanover Compressor Company Retention Bonus Plan. Notwithstanding the above, if an Employee who is employed outside of the U.S. is eligible for end of service labor benefits under the labor laws of the local jurisdiction where the Employee is working as of the Closing Date, the cash severance payment otherwise payable under this Plan may be offset by the amount of such labor benefits.
(d)	A Participant’s Severance Benefit shall be paid to the Participant biweekly during the Severance Period, in accordance with the Company’s customary payroll practices. Payments shall begin with the first payroll period following the later of: (i) the Participant’s Termination Date; and (ii) seven (7) days after the Participant has executed and returned the Waiver and Release. A Participant shall

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not be considered an employee of the Company or any Affiliate for any purpose after his or her Termination Date, nor shall any Severance Benefits be considered for purposes of computing benefits under or making contributions for or on behalf of a Participant to any employee benefit plan maintained by the Company or any Affiliate.

(e) Notwithstanding the foregoing, the amount of any cash Severance Benefit otherwise payable to a Participant shall be reduced by any monies owed by the Participant to the Company or an Affiliate, including, but not limited to, any overpayments made to the Participant by the Company or an Affiliate and the balance of any loan by the Company or an Affiliate to the Participant that is outstanding at the time that the cash Severance Benefit is paid.

6. Continuation of Other Benefits

(a)	Participants
	In addition to the cash Severance Benefit, a Participant who is not disqualified under Section 4 shall be entitled to the following benefits:

(i)	Medical/Dental/Vision Plan Benefits
(ii)	Unless the Participant timely elects otherwise as provided in Section 6(a)(ii) below, during the Severance Period, a Participant shall be entitled to continue the medical, dental and vision plan coverage in effect for active employees during such period for which the Participant was eligible for and had elected as of his or her Termination Date. The Participant shall pay the active employee rate with respect to coverage during the Severance Period and, if applicable, thereafter the full COBRA Rate with respect to such coverage. Such benefits shall be governed by and subject to (i) the terms and conditions of the plan documents providing such benefits, including the reservation of the right to amend or terminate such benefits under those plan documents at any time, and (ii) to the extent applicable, the provisions of COBRA and such other laws applicable to such benefits. The period of coverage provided under this section shall constitute continuation coverage required by COBRA. Notwithstanding the above, the Participant will no longer be eligible for continued medical, dental or vision plan coverage as set forth herein if the Participant is successful in obtaining employment with another employer during the Severance Period and is eligible for medical, dental and vision plan coverage under their new employer’s plan. To the extent the Participant is enrolled in both the Hanover medical, dental and vision plan under this Plan and a new employer’s plan, the Hanover plan will be secondary coverage and the new employer’s plan will be primary.
(iii)	Outplacement

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In lieu of the Participant’s right to continue medical, dental and vision plan coverage at the active employee rate during the Severance Period, Participant may elect to receive outplacement services appropriate to the Participant’s employment position on his or her Termination Date as determined in the sole discretion of the Plan Administrator. If Participant elects outplacement services, the Participant shall be eligible for continuation of the health benefits described above in Section 6(a)(i) as required by COBRA at the COBRA Rate.

(b)	Rehire of Participants
	Notwithstanding anything in this Plan to the contrary, if the Company or an Affiliate rehires a Participant during the Severance Period as a full-time Employee, any outstanding, unpaid Severance Benefits, whether payable in cash or otherwise, shall cease and be forfeited by the Participant effective as of his or her rehire date as reflected on the Company’s or Affiliate’s records, as applicable.

7.	Confidential and Proprietary Business Information & Nonsolicitation Obligations
	Notwithstanding any provision of the Plan to the contrary, an Employee’s entitlement to the benefits provided for under the Plan shall be fully subject to the provisions of the Waiver and Release regarding confidential and proprietary business information and non-solicitation, and the Company and the Affiliates shall be entitled to take all actions specified in the Waiver and Release with respect to an Employee who fails to comply with those provisions.
8.	Unemployment; Tax Withholding
	Payments under the Plan will not be reduced because of any unemployment benefits an Employee may be eligible to receive under applicable federal or state unemployment laws. Any required income tax withholding and FICA (Social Security) taxes shall be deducted from any benefit paid under the Plan.
9.	Severance Benefits Paid Upon Death
	If a Participant dies after his or her Termination Date and after executing the Waiver and Release (without having timely revoked it) but before receiving 100% of his or her cash Severance Benefit, any remaining, unpaid cash Severance Benefit will be paid in a lump sum (a) to the Participant’s beneficiary (or beneficiaries) designated under the group life insurance plan of the Company or an Affiliate covering the Employee on his or her Termination Date, if such beneficiary is living, or if none is so designated or living, (b) to the executor of the Participant’s estate, as soon as practicable after the date of death.
10.	Administration
	The Plan shall be administered by the Plan Administrator. Subject to the provisions herein, the Plan Administrator shall have full power and authority exercised in its sole discretion to interpret the Plan and any agreement or instrument entered into under the

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	Plan; to establish, amend, rescind, or waive rules and regulations for the Plan’s administration; and in general to have the full power to make all other determinations which may be necessary or advisable for the administration of the Plan, to the extent consistent with the provisions of the Plan. The Plan Administrator may delegate its administrative functions under the Plan to officers and employees of the Company, subject to such limitations and restrictions as the Plan Administrator may provide. Subject to applicable law, any interpretation of the provisions of the Plan and any decision on any matter within the discretion of the Plan Administrator made by the Plan Administrator in good faith shall be final and conclusive and binding on all persons.
11.	Successor
	The Plan shall be binding upon and shall inure to the benefit of, any successor to the Company and any such successor shall be deemed substituted for all purposes for the “Company” under the terms of the Plan.
12.	Non-Assignment of Severance Benefits
	No benefit under the Plan shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, voluntary or involuntary, by operation of law or otherwise, and any attempt at such a transaction shall be void. Also, no benefit payable or provided under the Plan shall be subject to the debts, contracts, liabilities, engagements or torts of the person entitled to it. Notwithstanding the above, Company may be required to withhold or garnish cash Severance Benefits payable hereunder to a Participant if the Company receives a valid and enforceable court order or any other legally binding document that requires such withholding or garnishment.
13.	Plan Amendment and Termination
	The Board of Directors may at any time amend or terminate the Plan, provided that any benefits under the Plan payable to a Participant before the Plan is amended or terminated shall not be adversely affected. Any amendment or termination shall be set out in an instrument in writing and executed by an appropriate officer of the Company.
	Notwithstanding any provision of the Plan to the contrary, for purposes of Section 409A of the Internal Revenue Code (“Section 409A”), it is intended that the Plan meet the requirements of a “separation pay plan due to involuntary separation” as described in the Section 409A Treasury regulations, and thus not provide “deferred compensation” for purposes of Section 409A. The Company may amend any provision of the Plan at any time: (i) to ensure that the Plan not provide deferred compensation under Section 409A, or (ii) in the event it is determined by the Company in its sole discretion that the Plan is subject to Section 409A, to comply with the requirements of Section 409A. Any such amendment shall not require the consent of any Participant (or beneficiary), and any such amendment may be retroactively effective. The Company shall have the sole discretion and power to effect such amendments, and a determination by the Company of the necessity for and scope of any such amendment shall be final, binding and conclusive upon all persons for all purposes.

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14.	No Employment or Benefit Guaranty
	None of the establishment of the Plan, the receipt of a Notice and a Waiver and Release, any modification or amendment thereof, or the payment of any Severance Benefits shall be construed as giving to any Employee or other person any legal or equitable right against the Company or the Plan Administrator except as provided herein. Under no circumstances shall the maintenance of this Plan constitute a contract of employment or shall the terms of employment of any Employee be modified or in any way affected hereby. Accordingly, neither participation in the Plan nor the payment of Severance Benefits shall be held or construed to give any Employee a right to be retained in the employ of the Company or any Affiliate.
15.	No Funding
	All payments to be made hereunder shall be paid from the general assets of the Company, and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts. No Employee shall have any right, title, or interest whatsoever in or to any amounts under the Plan prior to receipt. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust or fund of any kind, or a fiduciary relationship between the Company and any other person. The rights of any Employee or beneficiary to any Employee or beneficiary to any amounts hereunder shall be no greater than those of an unsecured general creditor of the Company.
16.	Making A Claim

(a)	Submitting a Claim
	If benefits due under the Plan have not been timely provided, a Participant or his or her authorized and designated representative (collectively, the “Applicant”) must request those benefits in writing from the Plan Administrator. Such application shall set forth the nature of the claim and any other information that the Plan Administrator may reasonably request. The Plan Administrator shall notify the Applicant of the benefits determination within a reasonable time after receipt of the claim, such time not to exceed 90 days, unless special circumstances require an extension of time for processing the claim. If such an extension is required, written notice of the extension shall be furnished to the Applicant prior to the end of the initial 90-day period. In no event shall such an extension exceed a period of 90 days from the end of the initial period. The extension notice shall indicate the special circumstances requiring an extension of time and the date by which a final decision is expected to be rendered.
	Notice of a claim denial, in whole or in part, shall be set forth in a written or electronic notice in a manner reasonably calculated to be understood by the Applicant and shall contain the following:

(i) the specific reason or reasons for the denial;

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(ii)	specific reference to the pertinent Plan provisions on which the denial is based;
(iii)	a description of any additional material or information necessary for the Applicant to perfect the claim and an explanation of why such material or information is necessary; and
(iv)	an explanation of the Plan’s claims review procedure, the time limits applicable to such procedures, and a statement of the Participant’s rights following an adverse benefit determination on review, including a statement of an Applicant’s right to file a lawsuit under ERISA if the claim is denied on appeal.

	An Applicant shall be given timely written notice of the time limits set forth herein for determinations on claims, appeal of claim denial and decisions on appeal.
(b)	Claims Review Procedure
	If a claim is denied in whole or in part by the Plan Administrator, the Applicant may appeal the adverse determination by filing a written request for a review of the claim with the Plan Administrator. The administrative process for appealing a claim is as follows:

(i)

The request for review must be made by the Applicant within 60 days of the date the Applicant receives the claim denial (or, if no written denial is received, within 60 days of the date when the denial was due). The Applicant must send the written request for review to the Plan Administrator. Upon review, the Plan Administrator will consider all comments, documents, records, and other information submitted by the Participant related to the claim, without regard to whether such information was submitted or considered in the initial benefit determination. An Applicant will be provided, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to his or her claim for benefits.

(ii)

The Plan Administrator shall render a decision not later than 60 days after its receipt of a request for review. The Applicant may request a formal hearing before the Plan Administrator which the Plan Administrator may grant in its discretion. Notwithstanding the foregoing, under special circumstances, the Plan Administrator may determine an extension of time is required for rendering a decision (including, but not limited to, the need to hold a hearing). If the Plan Administrator determines that an extension of time is required, written notice of the extension will be furnished to the Applicant prior to the end of the initial 60-day period. The extension notice will indicate the special circumstances requiring an extension of the time and the date by which the Plan Administrator expects to render its

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determination on review. The extension will not exceed a period of 60 days from the end of the initial 60-day period.

(iii) The Plan Administrator will provide written or electronic notice of its final determination. If the claim is denied in whole or part, such notice, which shall be written or electronic in a manner reasonably calculated to be understood by the Applicant, will include:

(a)	the specific reason(s) for the denial;
(b)	the specific provision(s) of the Plan on which the denial is based;
(c)	a statement that the Applicant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim for benefits (as described above);
(d)	a statement describing any voluntary appeal procedures offered by the Plan and the Applicant’s right to obtain further information about any such procedures; and
(e)	a statement of the Applicant’s right to file a lawsuit under ERISA.

An appeal will not be considered if it is not filed within the applicable period of time.

At any stage in the appeals process, the Applicant may review and obtain copies of documents, including the Plan document, records, and other information relating to the Applicant’s entitlement to such benefit, and submit issues, comments, and records relating to the claim in writing.

	No action at law or in equity shall be brought to recover benefits under the Plan prior to the date the Applicant has exhausted all of the administrative remedies available under the Plan. Benefits under the Plan will only be paid if the Plan Administrator decides, in its sole discretion, that an Applicant is entitled to them.
17.	Employee Rights
	As a potential Participant in the Plan, an Employee is entitled to certain rights and protections under ERISA. ERISA provides that all plan participants under ERISA plans (like the Plan) shall be entitled to:

(a)	Receive Information About The Plan and Benefits
	Examine, without charge, at the Plan Administrator’s office and at other specified locations, such as worksites and union halls, all documents governing the Plan, including (when applicable) insurance contracts and collective bargaining agreements, and a copy of the latest annual report (Form 5500 Series) filed by the

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Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration.

	Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including (when applicable) insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series) and updated summary plan description. The Plan Administrator may make a reasonable charge for the copies.
	Receive a summary of the Plan’s annual financial report. The Plan Administrator is required by law to furnish each Participant with a copy of this summary annual report.
(b)	Prudent Actions by Plan Fiduciaries
	In addition to creating rights for Participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate the Plan, called “fiduciaries” of the Plan, have a duty to do so prudently and in the interest of the Participant and other Plan Participants and beneficiaries. No one, including the Participant’s employer, union, or any other person, may fire the Participant or otherwise discriminate against the Participant in any way to prevent the Participant from obtaining a Plan benefit or exercising the Participant’s rights under ERISA.
(c)	Enforcing the Participant’s Rights
	If the Participant’s claim for a Plan benefit is denied or ignored, in whole or in part, the Participant has a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.
	Under ERISA, there are steps the Participant can take to enforce the above rights. For instance, if the Participant requests a copy of Plan documents or the latest annual report from the Plan Administrator and does not receive them within 30 days, the Participant may file suit in a Federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay the Participant up to $110 a day until the Participant receives the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If the Participant has a claim for benefits which is denied or ignored, in whole or in part, the Participant may file suit in a state or Federal court. In addition, if the Participant disagrees with the Plan’s decision or lack thereof concerning the qualified status of a domestic relations order or a medical child support order, the Participant may file suit in Federal court. If it should happen that Plan fiduciaries misuse the Plan’s money, or if the Participant is discriminated against for asserting his or her rights, the Participant may seek assistance from the U.S. Department of Labor, or the Participant may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If the Participant is

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successful the court may order the person the Participant has sued to pay these costs and fees. If the Participant loses, the court may order the Participant to pay these costs and fees, for example, if it finds the Participant’s claim is frivolous.

(d)

Assistance with the Participant’s Questions

If the Participant has any questions about the Plan, he or she should contact the Plan Administrator. If the Participant has any questions about this statement or about the Participant’s rights under ERISA, or if the Participant needs assistance in obtaining documents from the Plan Administrator, the Participant should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in the Participant’s telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. The Participant may also obtain certain publications about the Participant’s rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.

18.	Plan Document Controls
	In the event of any inconsistency between the Plan document and any other communication regarding the Plan, the Plan document controls.
19.	Controlling Law
	The Plan is an employee welfare benefit plan under ERISA. The Plan shall be interpreted under ERISA and the laws of the State of Delaware, without reference to any conflicts of law principles thereof that would require the application of the laws of another jurisdiction, to the extent that state law is applicable.
20.	General Information
	Plan Sponsor: Hanover Compressor Company, 12001 N. Houston Rosslyn Road, Houston, Texas 77086, 832-554-4859.
	Employer Identification Number of Plan Sponsor: 76-0625124
	Plan Number: 502
	Plan Year: The plan year for reporting to governmental agencies and employees shall be the calendar year.
	Plan Administrator: The Compensation Committee, Hanover Compressor Company, 12001 N. Houston Rosslyn Road, Houston, Texas 77086, 832-554-4859.
	The Plan Administrator is responsible for the operation and administration of the Plan. The Plan Administrator is authorized to construe and interpret the Plan, and its decisions

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shall be final and binding. The Plan Administrator shall make all reports and disclosures required by law.

Agent for Service of Legal Process: The Compensation Committee, Hanover Compressor Company, 12001 N. Houston Rosslyn Road, Houston, Texas 77086, 832-554-4859.

Plan Duration: Effective on the Closing Date through the last day of the sixth (6th) full month following the Closing Date.

Source of Benefits: Payments due under the Plan shall be made by the Company or an Affiliate designated by the Company from general assets.

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          IN WITNESS WHEREOF, Hanover Compressor Company has executed this instrument as evidenced by the signature of its officer affixed hereto this 9th day of July, 2007.

HANOVER COMPRESSOR COMPANY
By:	/s/ Steve Muck
	Name:	Steve Muck
	Title:	Vice President — Global Human Resources & HSE

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EX-31.1

Exhibit 31.1

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     I, John E. Jackson, certify that:

     1. I have reviewed this Quarterly Report on Form 10-Q of Hanover Compressor Company;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

     Date: August 1, 2007

By:	/s/ JOHN E. JACKSON Name: John E. Jackson
	Title: President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     I, Lee E. Beckelman, certify that:

     1. I have reviewed this Quarterly Report on Form 10-Q of Hanover Compressor Company;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15f and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

     Date: August 1, 2007

By:	/s/ LEE E. BECKELMAN Name: Lee E. Beckelman
	Title: Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

Certification of CEO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Hanover Compressor Company (the “Company”) for the quarter ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), John E. Jackson, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to hi s knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ JOHN E. JACKSON Name: John E. Jackson

Title: Chief Executive Officer

Date: August 1, 2007

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

Certification of CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Hanover Compressor Company (the “Company”) for the quarter ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Lee E. Beckelman, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ LEE E. BECKELMAN Name: Lee E. Beckelman

Title: Chief Financial Officer

Date: August 1, 2007

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.