HANOVER COMPRESSOR CO /
OFFSET RIGHTS AGREEMENT
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>13
<FILENAME>h12863exv10w3.txt
<DESCRIPTION>OFFSET RIGHTS AGREEMENT
<TEXT>
<PAGE>

                                                                    EXHIBIT 10.3

                             OFFSET RIGHTS AGREEMENT

         This OFFSET RIGHTS Agreement (this "Agreement") is made as of May 14,
2003 by and between Schlumberger Technology Corporation, a Texas corporation
("STC"), and Hanover Compressor Company, a Delaware corporation (the "Company").

         WHEREAS, STC and the Company, among others, are parties to that certain
PIGAP Settlement Agreement dated the date hereof (the "Settlement Agreement").

         WHEREAS, in order to induce STC and the Company to enter into the
Settlement Agreement, the Company and STC have executed and delivered this
Agreement.

         Now, therefore, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

         Capitalized terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Indenture.

         1.1      "Alliance Agreement" shall mean that certain Most Favored
Supplier and Alliance Agreement dated as of August 31, 2001 by and between
Schlumberger Oilfield Holdings Limited, STC and Hanover Compression Limited
Partnership, as amended, restated, supplemented, waived, replaced, restructured
or otherwise modified from time to time; provided that, in case of any
replacement agreement, the parties to the Alliance Agreement shall have agreed
in writing that such replacement agreement replaces all or a portion of the
Alliance Agreement.

         1.2      "Holder" shall mean STC and its Permitted Transferees.

         1.3      "Indenture" shall mean the Indenture between the Company and
Wachovia Bank, National Association, as Trustee, dated May 14, 2003, as amended
or supplemented from time to time in accordance with the terms thereof.

         1.4      "Material Adverse Effect" shall mean a material adverse effect
on (a) the business, operations, affairs, financial condition, assets or
properties of the Company and its Subsidiaries taken as a whole, or (b) the
ability of the Company to perform its obligations under the Indenture or the
Securities or (c) the validity or enforceability of the Indenture or the
Securities.

         1.5      "Permitted Transferee" shall mean any direct or indirect
Subsidiary of Schlumberger or any entity that merges or consolidates with or
owns or acquires all of the equity securities or all or substantially all of the
assets of STC, or any Subsidiary of such entity.

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         1.6      "Responsible Officer" shall mean any Senior Financial Officer
and any other officer of the Company with responsibility for the administration
of the relevant portion of the Indenture.

         1.7      "Senior Financial Officer" shall mean the chief financial
officer, principal accounting officer, treasurer or comptroller of the Company.

                                   ARTICLE II
                         REPRESENTATIONS AND WARRANTIES

         The Company represents and warrants to the Holder that:

         2.1      Organization; Power and Authority. The Company is a
corporation duly organized validly existing and in good standing under the laws
of its jurisdiction of incorporation, and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Company
has the corporate power and authority to own or hold under lease the properties
it owns or holds under lease, to transact the business it transacts, to execute
and deliver the Securities and to perform the provisions of the Indenture.

         2.2      Authorization. The Indenture has been duly authorized by all
necessary corporate action on the part of the Company, and, assuming it has been
duly authorized, executed and delivered by the Trustee, will be a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (b) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law). The Securities have been duly authorized by
all necessary corporate action on the part of the Company, and, when executed by
the Company and authenticated by the Trustee, will have been validly issued and
delivered and will constitute a legal, valid and binding obligation of the
Company entitled to the benefits of the Indenture and enforceable in accordance
with their terms, except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (b) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).

         2.3      Compliance with Laws, Other Instruments. The execution,
delivery and performance by the Company of the Indenture and the Securities will
not (a) contravene, result in any breach of, or constitute a default under, or
result in the creation of any Lien in respect of any property of the Company
under (1) its corporate charter or by-laws or (2) any material indenture,
mortgage, deed of trust, loan, purchase or credit agreement, lease or any other
material agreement or instrument to which the Company is bound or by which the
Company or any of its properties may be bound or affected, (b) conflict with or
result in a breach of any of the terms, conditions or provisions of any order,
judgment, decree, or ruling of any court, arbitrator or

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Governmental Authority applicable to the Company or (c) violate any provision of
any statute or other rule or regulation of any Governmental Authority applicable
to the Company.

         2.4      Governmental Authorizations. No material consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company of the Indenture or the Securities other than (i) those that have
been previously obtained and, on the date of hereof, remain in full force and
effect and (ii) those that may be necessary as contemplated in the Registration
Rights Agreement dated the date hereof between the Company and STC.

         2.5      No Default under Section 8.1(d) of the Credit Agreement. On
the date hereof, the Company is not in default and no waiver of default is
currently in effect under Section 8.1(d) of the Credit Agreement.

                                   ARTICLE III
                          INFORMATION AS TO THE COMPANY

         3.1      Quarterly Financial Statements. Within 60 days after the end
of each quarterly fiscal period in each fiscal year of the Company (other than
the last quarterly fiscal period of each such fiscal year), the Company shall
deliver to the Holder duplicate copies of:

                  (a)      an unaudited consolidated balance sheet of the
         Company and its Subsidiaries as at the end of such quarter, and

                  (b)      unaudited consolidated statements of income and cash
         flows of the Company and its Subsidiaries for such quarter and (in the
         case of the second and third quarters) for the portion of the fiscal
         year ending with such quarter,

setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being reported on and their
results of operations and cash flows, subject to changes resulting from year-end
adjustments. Notwithstanding the foregoing, the electronic filing with the
Securities and Exchange Commission on EDGAR of the Company's Quarterly Report on
Form 10-Q for such quarterly period prepared in compliance with the requirements
therefor shall be deemed to satisfy the requirements of this Section 3.1.

         3.2      Annual Financial Statements. Within 90 days after the end of
each fiscal year of the Company, the Company shall deliver to the Holder
duplicate copies of:

                  (a)      an audited consolidated balance sheet of the Company
         and its Subsidiaries, as at the end of such year, and

                  (b)      audited consolidated statements of income, changes in
         shareholders' equity and cash flows of the Company and its
         Subsidiaries, for such year,

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setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances.
Notwithstanding the foregoing, the electronic filing with the Securities and
Exchange Commission on EDGAR of the Company's Annual Report on Form 10-K for
such fiscal year prepared in accordance with the requirements therefor shall be
deemed to satisfy the requirements of this Section 3.2.

         3.3      SEC and Other Reports. Promptly upon their becoming available,
the Company shall deliver to the Holder one copy of (1) each financial
statement, report, notice or proxy statement sent by the Company or any
Subsidiary to public securities holders generally and (2) each regular or
periodic report, each registration statement (without exhibits except as
expressly requested by such holder), and each prospectus and all amendments
thereto filed by the Company or any Subsidiary with the Securities and Exchange
Commission. Notwithstanding the foregoing, the electronic filing with the
Securities and Exchange Commission on EDGAR of any such financial statement,
report, notice, proxy statement, annual or periodic report, registration
statement or prospectus shall be deemed to satisfy the requirements of this
Section 3.3.

         3.4      Requested Information. With reasonable promptness, the Company
shall deliver to the Holder such other data and information relating to the
business, operations, affairs, financial condition, assets or properties of the
Company or any of its Subsidiaries or relating to the ability of the Company to
perform its obligations under the Securities as from time to time may be
reasonably requested by the Holder.

                                   ARTICLE IV
                                OFFSET AGREEMENT

         4.1      Offset Prepayment.

                  (a)      The Holder may provide a written notice (an "Offset
         Notice") to the Trustee (at such address and in such manner as provided
         in the Indenture) and the Company of its election to have an amount of
         sums identified by the Holder in the Offset Notice as being due and
         payable by the Holder or any of its Affiliates to the Company or any of
         its Affiliates in respect of the products or services provided to the
         Holder or any of its Affiliates in accordance with the Company's "Most
         Favored Supplier Status" established pursuant to Section 3.4 of the
         Alliance Agreement offset against the Available Offset Amount (as
         defined below). So long as, within five (5) Business Days after the
         identification of such sums in the Offset Notice, the Company has not
         in good faith claimed in a writing delivered to the Holder and the
         Trustee, that such sums were not incurred in accordance with the
         Company's "Most Favored Supplier Status," such sums may be offset (an
         "Offset Prepayment") against an equal portion of any Additional
         Interest, interest, if any, and the Original Issue Discount accrued
         through the date of the Offset Notice plus $23,378,423 (collectively,
         the "Available Offset Amount").

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                  (b)      Any Offset Prepayment shall be applied first against
         interest, if any, second against any accrued Additional Interest, third
         against the Original Issue Discount, and fourth against the Issue
         Price; provided, however, such Offset Prepayment shall not exceed the
         Available Offset Amount. For purposes of determining the Available
         Offset Amount at any time, the initial $23,378,423 portion of the
         Available Offset Amount shall be reduced by the amount of any Offset
         Prepayment previously applied against the Issue Price.

                  (c)      Notwithstanding the foregoing, in no event shall any
         amounts be deducted from the Available Offset Amount and no obligations
         of the Holder or any of its Affiliates be deemed satisfied in full
         until the Holder has delivered all Securities to the Trustee for
         cancellation and re-issuance to reflect the new Principal Amount,
         accrued Additional Interest, interest, if any, Issue Price and/or the
         amount of Original Issue Discount accrued as of such re-issuance, as
         the case may be, as necessary to reflect the result of the application
         of the Offset Prepayment. In connection with the delivery of all
         Securities for cancellation and re-issuance pursuant to the preceding
         sentence, the Holder shall deliver a written consent to amend the
         Principal Amount pursuant to Section 9.02(1) of the Indenture to
         reflect the Principal Amount set forth on the re-issued Securities.

                                    ARTICLE V
                                  MISCELLANEOUS

         5.1      Term and Termination. This Agreement shall terminate and be of
no further force and effect upon the earlier to occur of (i) the Holder no
longer owns all the issued and outstanding Securities or (ii) the discharge of
all liabilities on the Securities pursuant to Section 8.01 of the Indenture. STC
agrees to notify the Trustee and the Company in writing that the Holder no
longer owns all the issued and outstanding Securities within five (5) Business
Days following the first date that the Holder no longer owns all the issued and
outstanding Securities.

         5.2      Survival. All representations and warranties contained herein
shall survive the execution and delivery of this Agreement until the termination
of this Agreement in accordance with the provisions of Section 5.1.

         5.3      Amendments and Waivers. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended or waived at any time
only by the prior written agreement of the Company and STC. Any waiver, permit,
consent or approval of any kind or character on the part of any of the parties
hereto of any provision or condition of this Agreement must be made in writing
and shall be effective only to the extent specifically set forth in writing.

         5.4      Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument. Facsimile signatures will be deemed to
be original signatures for all applicable purposes.

         5.5      Assignment. This Agreement may not be assigned (and any
purported assignment shall be null and void) without the prior written consent
of the non-assigning party; provided, however, STC may assign this agreement to
its Permitted Transferees.

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         5.6      Successors and Assigns. Except as otherwise expressly provided
herein, all agreements contained in this Agreement by or on behalf of any of the
parties hereto will bind and inure to the benefit of the respective successors
and assigns of the parties hereto.

         5.7      Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of and shall not be utilized in interpreting this Agreement.

         5.8      Notices. Any notices required or permitted to be sent
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, or delivered by overnight courier service to the following
addresses, or such other address as STC designates by written notice to Hanover,
and shall be deemed to have been given upon delivery, if delivered personally,
two (2) business days after mailing, if mailed, or one (1) business day after
delivery to the courier, if delivered by overnight courier service:

         If to Hanover, to:

         Hanover Compressor Company
         12001 North Houston Rosslyn Road
         Houston, Texas 77086
         Attn: General Counsel
         Fax: (281) 405-6203

         If to STC, to:

         Schlumberger Technology Corporation
         300 Schlumberger Drive MD:23
         Sugar Land, Texas 77478
         Attn: General Counsel
         Fax: (281) 285-6952

         with a copy to (which shall not constitute notice):

         Schiff Hardin & Waite
         6600 Sears Tower
         Chicago, Illinois 60606
         Attention: Mark A. Sternberg, Esq.
         Fax: (312) 258-5700

         5.9      Governing Law. This Agreement and the transactions
contemplated hereby shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to the conflicts of laws
principles thereof, except that if it is necessary in any other jurisdiction to
have the law of such other jurisdiction govern this Agreement in order for this
Agreement to be effective in any respect, then the laws of such other
jurisdiction shall govern this Agreement to such extent.

         5.10     Consent to Jurisdiction. Each of the parties hereto (i)
consents to submit itself to the personal jurisdiction of any federal court
located in the Borough of Manhattan in the City of

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New York, New York or any New York state court in the event any dispute arises
out of this Agreement or any of the transactions contemplated hereby, (ii)
agrees that it will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, and (iii) agrees that it
will not bring any action relating to this Agreement in any court other than a
federal court sitting in the Borough of Manhattan in the City of New York, New
York or a New York state court.

         5.11     WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES
ITS RESPECTIVE RIGHT TO A JURY TRIAL OF ANY PERMITTED CLAIM OR CAUSE OF ACTION
ARISING OUT OF THIS AGREEMENT, ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, OR
ANY DEALINGS BETWEEN ANY OF THE PARTIES HERETO RELATING TO THE SUBJECT MATTER OF
THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY. THE SCOPE OF THIS
WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE
FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING, WITHOUT LIMITATION,
CONTRACT CLAIMS, TORT CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR
IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
SUPPLEMENTS OR OTHER MODIFICATIONS TO THIS AGREEMENT, ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR TO ANY OTHER DOCUMENT OR AGREEMENT RELATING TO THE
TRANSACTIONS CONTEMPLATED HEREBY.

         5.12     Service of Process. Each of the parties hereto irrevocably
consents to the service of any process, pleading, notices or other papers by the
mailing of copies thereof by registered, certified or first class mail, postage
prepaid, to such party at such party's address set forth herein, or by any other
method provided or permitted under New York law; provided that if either party
hereto effects such service of process by any method other than transmittal
thereof via overnight courier, charges prepaid, such party shall simultaneously
transmit a copy thereof via overnight courier, charges prepaid.

         5.13     Reproduction of Documents. This Agreement and all documents
relating hereto, including, but not limited to, (a) consents, waivers,
amendments and modifications which may hereafter be executed and (b)
certificates and other information previously or hereafter furnished, may be
reproduced by any photographic, photostatic, microfilm, optical disk,
micro-card, miniature photographic or other similar process. The parties agree
that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the original
is in existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.

         5.14     Remedies. Each of the parties to this Agreement will be
entitled to enforce its rights under this Agreement specifically, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights existing in its favor. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any party shall be entitled to
immediate

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injunctive relief or specific performance without bond or the necessity of
showing actual monetary damages in order to enforce or prevent any violations of
the provisions of this Agreement.

         5.15     Complete Agreement. This Agreement, together with the
Settlement Agreement and the agreements named therein, constitute the entire
agreement of the parties hereto with respect to the subject matter hereof and
supercedes all prior and contemporaneous negotiations and agreements, oral or
written. All prior or contemporaneous negotiations or agreements are deemed
incorporated and merged into this Agreement and are deemed to have been
abandoned if not so incorporated. Each of the parties hereto represents that no
promises or inducements not herein expressed have been made to any party or have
caused any party to sign this Agreement. No representations, oral or written,
are being relied upon by any party in executing this Agreement other than the
express representations of this Agreement. All parties to this Agreement have
negotiated and participated in its drafting and the Agreement and terms hereof
shall not be construed in favor of or against any party as the drafter of the
Agreement.

         5.16     Severability. If any provision or term of this Agreement is
held to be illegal, invalid, or unenforceable, such provision or term shall be
fully severable; this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised part of this
Agreement; and the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance from this Agreement. Furthermore, in
lieu of each such illegal, invalid, or unenforceable provision or term there
shall be added automatically as a part of this Agreement another provision or
term as similar to the illegal, invalid, or unenforceable provision as may be
possible and that is legal, valid, and enforceable.

         5.17     Investigation. Each of the parties hereto, through and by
signature of an authorized officer below, represents that it has read this
Agreement and fully understands all of its and their terms; that it has
conferred with its attorney prior to signing the same, or that it knowingly and
voluntarily has chosen not to confer with its attorney; and that it understands
any rights that it may have and signs this Agreement with full knowledge of any
such rights.

                                    * * * * *

                            [Signature Page Follows]

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         The parties hereto have executed this Agreement as of the date first
set forth above.

                                    HANOVER COMPRESSOR COMPANY

                                    By: /s/ John E. Jackson
                                       -----------------------------------------

                                    Name: John E. Jackson
                                         ---------------------------------------

                                    Title: Senior Vice President and
                                           Chief Financial Officer
                                          --------------------------------------



                                    SCHLUMBERGER TECHNOLOGY
                                    CORPORATION


                                    By: /s/ Dean Ferris
                                       -----------------------------------------

                                    Name: Dean Ferris
                                         ---------------------------------------

                                    Title: Assistant Secretary
                                          --------------------------------------


                                 SIGNATURE PAGE
                             OFFSET RIGHTS AGREEMENT

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