DRILEX INTERNATIONAL INC, S-1/A, 1996-06-27

DRILEX INTERNATIONAL INC
S-1/A, 1996-06-27
OIL & GAS FIELD SERVICES, NEC

Previous: DRILEX INTERNATIONAL INC, 8-A12G/A, 1996-06-27

Next: HOUSEHOLD CAPITAL TRUST II, 8-A12B, 1996-06-27

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1996
REGISTRATION NO. 333-03405
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

---------------

AMENDMENT NO. 3
TO
FORM S-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

---------------

DRILEX INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<CAPTION>
DELAWARE 1389 76-0438889
-------- ---- ----------
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

15151 SOMMERMEYER
HOUSTON, TEXAS 77041
(713) 937-8888
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

JOHN FORREST
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DRILEX INTERNATIONAL INC.
15151 SOMMERMEYER
HOUSTON, TEXAS 77041
(713) 937-8888
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

---------------

COPIES TO:

J. DAVID KIRKLAND, JR. MARCUS A. WATTS
BAKER & BOTTS, L.L.P. LIDDELL, SAPP, ZIVLEY, HILL & LABOON,
3000 ONE SHELL PLAZA L.L.P.
HOUSTON, TX 77002-4995 TEXAS COMMERCE TOWER
(713) 229-1234 600 TRAVIS, SUITE 3400
HOUSTON, TEXAS 77002
(713) 226-1200

---------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

---------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

DRILEX INTERNATIONAL INC.

CROSS-REFERENCE SHEET

PURSUANT TO ITEM 501(B) OF REGULATION S-K

<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION IN FORM S-1 LOCATION OR CAPTION IN PROSPECTUS
----------------------------------- ---------------------------------
<C> <C> <S>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus........................... Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.................. Inside Front and Outside Back
Cover Pages of Prospectus;
Additional Information
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges... Prospectus Summary; Risk Factors;
The Company
4. Use of Proceeds....................... Use of Proceeds
5. Determination of Offering Price....... Underwriting
6. Dilution.............................. Dilution
7. Selling Security Holders.............. Selling Stockholder
8. Plan of Distribution.................. Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be
Registered........................... Description of Capital Stock
10. Interests of Named Experts and
Counsel.............................. *
11. Information with Respect to the
Registrant........................... Outside Front Cover Page of
Prospectus; Prospectus Summary;
Risk Factors; The Company;
Dividend Policy; Dilution;
Capitalization; Selected
Historical Financial and Other
Data; Unaudited Pro Forma
Condensed Consolidated Statement
of Income; Management's
Discussion and Analysis of
Financial Condition and Results
of Operations; Business;
Management; Certain Transactions
and Relationships; Security
Ownership of Certain Beneficial
Owners and Management; Shares
Eligible for Future Sale;
Description of Capital Stock;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... *
</TABLE>
- --------
* Omitted from the Prospectus because item is inapplicable.
<PAGE>

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED JUNE 27, 1996

PROSPECTUS

2,361,962 SHARES

[LOGO OF DRILEX APPEARS HERE]

COMMON STOCK

-----------

Of the 2,361,962 shares of Common Stock, par value $.01 per share ("Common
Stock"), offered hereby (the "Offering"), 2,000,000 shares are being sold by
Drilex International Inc. ("Drilex" or the "Company") and 361,962 shares are
being sold by a selling stockholder (the "Selling Stockholder"). The Company
will not receive any proceeds from the sale of shares of Common Stock by the
Selling Stockholder. See "Selling Stockholder."

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price is expected to be between $17.00 and $19.00
per share. See "Underwriting" for a discussion of the factors to be considered
in determining the initial public offering price.

The Company has applied to list the Common Stock on the Nasdaq National
Market under the symbol "DRLX."

SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.

-----------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2) SELLING STOCKHOLDER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
- --------------------------------------------------------------------------------
Total(3).................. $ $ $ $
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------

(1) The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters against certain liabilities under the Securities Act
of 1933, as amended. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated at $1,250,000.

(3) The Company has granted the several Underwriters an option for 30 days to
purchase up to an additional 354,294 shares of Common Stock at the Price to
Public, less Underwriting Discount, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."

-----------

The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to the
approval of certain legal matters by counsel for the Underwriters and to
certain other conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made in New York,
New York on or about , 1996.

-----------

MERRILL LYNCH & CO.
CS FIRST BOSTON
SIMMONS & COMPANY
INTERNATIONAL

-----------

The date of this Prospectus is , 1996.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>

[GRAPHICS TO COME]

----------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE>

INSIDE FOLD OUT

ENERGY SERVICES

[Photos of: three drilling rigs and one coiled tubing unit]
Multiple wells drilled from a fixed platform.

[Image of: multiple wells]

[Photo of: Drilex Motor]
Drilex motor assembled in the drilling rig.

Drilex Services meets the needs of specialized drilling markets, such as:

Directional drilling--multiple deviated wells from a single platform.

Horizontal drilling--wells drilled laterally from a conventional well.

Slim hole and re-entry drilling--tapping wells for greater production.

Coiled tubing operations--drilling and well servicing that employs hydraulic
tubing rather than a conventional derrick and pipe.

[Image of: map of world marked per caption]
Spider plot of multiple wells at an offshore location.

[Photo of: steering tools and surface equipment per caption]
Steering tool probes with surface readout and survey equipment.

[graph showing: well depth as a function of planned vs actual number of days]

DRILEX SERVICES

[Photo of: computer and personnel]
Computerized well planning.

[Photos of: MWD equipment]
MWD surface system and downhole probes.

<PAGE>

PROSPECTUS SUMMARY

This summary should be read in conjunction with the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, (i) information in
this Prospectus assumes that the Underwriters' over-allotment option is not
exercised, (ii) all share and per share data in this Prospectus have been
adjusted to reflect an approximately 1.81-for-one stock split of the Common
Stock effected in May 1996, and (iii) industry data relating to the worldwide
drilling industry or precision drilling segment excludes the Commonwealth of
Independent States and China. The pro forma amounts set forth in this
Prospectus, unless otherwise indicated, reflect the pro forma effects of the
Sharewell Acquisition and the ENSCO Technology Acquisition (each as defined
herein) on the operations of the Company on the basis set forth in the
Unaudited Pro Forma Condensed Consolidated Statement of Income of the Company
included in this Prospectus.

THE COMPANY

BUSINESS OVERVIEW

Drilex is a leading provider of products and services used in directional,
horizontal and other precision drilling of oil and gas wells, oilfield
workover operations, environmental remediation applications, and trenchless
pipeline and cable laying applications. Precision drilling involves the
combined use of a steerable downhole positive displacement drilling motor and
a guidance system to enable the controlled placement of a borehole through
predetermined locations. Drilex employs this technology to drill to depths
ranging from near surface to more than four miles. The Company's products and
services include comprehensive computerized well planning and engineering
services, supervision of drilling operations and project management, a full
range of high performance downhole positive displacement motor systems,
guidance systems (such as measurement-while-drilling ("MWD") instrument
systems and steering tools), and other related downhole tools. Oilfield
applications accounted for approximately 86% of the Company's revenues (on a
pro forma basis) in 1995. The Company currently operates from 23 locations
around the world and has approximately 390 employees.

Drilex was one of the pioneers in the development of downhole drilling
motors in the early 1980s and is now a worldwide leader in the design and
manufacture of high-performance, multi-lobed positive displacement drilling
motors. A positive displacement drilling motor, one of the key components in a
precision drilling project, is hydraulically powered by the drilling fluids
pumped into the wellbore during normal drilling operations. In addition to
providing directional control, a downhole drilling motor provides the primary
rotational power to the drill bit, in contrast to conventional vertical
drilling, in which spinning the drillstring at the surface is the primary
method for rotating the drill bit. The Company employs its drilling motors in
its own service operations and also provides motors for sale or rent under the
internationally recognized "Drilex" brand name to oil and gas exploration and
development companies and oilfield service contractors. Drilex has designed
its drilling motors to optimize flexibility, power and reliability, resulting
in some of the highest power and quality ratings in the industry. Drilex
believes it is the only independent company focused on providing precision
drilling services that designs and manufactures the primary components of its
own drilling motors. The Company believes that its ability to design and
manufacture its own drilling motors provides it with distinct competitive
advantages, both in terms of the performance characteristics of its motors and
the quality of service that Drilex is able to provide to its customers.

Industry Overview. Oilfield applications currently comprise the largest part
of the precision drilling market, which is a relatively new segment of the
overall drilling industry. Based on industry sources, the Company estimates
that the number of oil and gas wells drilled in the United States using
precision drilling technology increased 56% from 2,110 in 1990 to 3,288 in
1995. As a result of an overall decrease in oil and gas drilling activity,
this growth has resulted in the proportion of oil and gas wells drilled in the
United States employing

DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR
THE ACCOUNTS OF OTHERS IN THE COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES
10B-6, 10B-7 AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.

3
<PAGE>

precision drilling technology increasing from 7% in 1990 to 17% in 1995. This
growth has been driven primarily by the substantial cost savings, improvements
to drilling efficiency and enhancements to reservoir production that precision
drilling can provide to oilfield operators. The Company believes that these
factors will continue to produce growth in the market for precision drilling
services.

Precision drilling can be used to develop a field with multiple wells drilled
from the same offshore platform or, in environmentally sensitive areas (such as
the Alaskan North Slope), from fewer surface facilities than conventional
drilling would require. In addition, by drilling horizontally through a
formation characterized by multiple vertical fractures, well productivity can
be significantly increased and drilling costs can be reduced substantially
(because fewer wells are required compared to a vertical development program).
Recent developments in multilateral technology, which allow two or more
horizontal wells to be drilled from the same vertical wellbore, have further
enhanced well productivity and development efficiency.

The Company believes that North and South America currently represent a
majority of the worldwide market for oilfield precision drilling services
(excluding the Commonwealth of Independent States and China). The Company's
oilfield activities are primarily focused on the major precision drilling
markets in the United States (including the Austin Chalk formation and the U.S.
Gulf of Mexico), Venezuela, the North Sea, Argentina and Canada. The Company
has a significant presence in each of these markets.

Oilfield Precision Drilling Applications. The Company provides comprehensive
precision drilling services for oil and gas drilling and workover applications,
including computerized well planning, on-site drilling supervision, maintenance
and support, and post-well analysis. In many oilfield applications, precision
drilling techniques offer significant economic advantages over conventional
vertical drilling techniques, such as reduced drilling time and expense,
increased well production and enhanced reservoir recovery. The high torque,
speed and performance offered by current-generation downhole drilling motors
permit the use of precision drilling techniques as a practical alternative to
conventional drilling even for vertically drilled wells. Customers for oilfield
precision drilling services are concentrated primarily among major and large
independent oil and gas companies. Because of the complexity involved in
precision drilling, these customers typically rely on specialized precision
drilling service contractors to manage the entire process of drilling the
horizontal or directional portion of a well. Precision drilling services
require high performance drilling motors, sophisticated guidance systems and
analytical tools, and an experienced staff of wellsite and technical support
personnel. The Company's drilling motors operate in conjunction with various
guidance systems (including MWD instrument systems and steering tools) provided
by the Company or other oilfield service companies. While the Company has its
own line of steering instruments, which it assembles from sub-assemblies
obtained from various third parties, Drilex currently obtains its MWD
instrument systems from third-party manufacturers.

Environmental Remediation and Trenchless Applications. The Company has
applied its technical drilling capabilities to the development of new services
for the emerging environmental remediation and trenchless

4
<PAGE>

services markets. Drilex has become a leader in the use of shallow well
horizontal drilling for remediation applications, with a particular focus on
groundwater remediation activities. Horizontal drilling provides total cost and
performance advantages to conventional vertical drilling of sampling and
treatment wells, primarily because horizontal drilling requires fewer wells and
surface installation facilities and allows contaminants beneath fixed
structures to be reached. The Company's customers for environmental remediation
services include environmental service contractors, engineering consulting
firms, petrochemical companies, hydrocarbon transportation companies and
military and other governmental organizations.

The Company also provides precision drilling services and equipment and
related surveying services for trenchless pipeline and cable laying
applications, which primarily involve horizontal boring underneath city streets
and structures to enable the "trenchless" delivery of conduits in densely built
areas, as well as subsurface crossings of rivers, streams and other bodies of
water. Applications for trenchless services include subsurface installations of
fiber optics lines, cable systems and utility pipelines and wiring. Customers
for the Company's trenchless services include telephone and other utilities, as
well as general contractors.

The Company's environmental remediation and trenchless services operations
accounted for approximately 14% of the Company's revenues (on a pro forma
basis) in 1995. The Company believes the markets for these services offer
significant opportunities for growth, and they are not subject to the same
degree of cyclicality that affects the oil and gas exploration and development
market.

Product Rentals and Sales. In addition to manufacturing drilling motors for
use in its own service operations, the Company provides its full line of
manufactured drilling motors and related products for rent and for sale
directly to end users. Customers for product rentals and sales include oil and
gas exploration and development companies, environmental service contractors
and contractors engaged in providing trenchless services. The Company's third-
party rental revenues currently represent approximately 20% of the Company's
total revenues. Sales of drilling motors and other products to third parties
also currently account for approximately 20% of total revenues.

BUSINESS STRATEGY

The Company's business strategy is built upon Drilex's premier line of
downhole positive displacement drilling motors and emphasizes (i) providing the
highest quality oilfield precision drilling and related customer support
services in key geographic markets where demand for precision drilling services
is concentrated, (ii) maximizing delivery of its core products, either through
sales, rentals or alliance arrangements, into other geographic markets where
the Company does not focus its service efforts, and (iii) capitalizing on its
technical strengths by developing opportunities to deliver its core products
and services into emerging oilfield and non-oilfield markets where the
Company's technical expertise can provide significant advantages. The Company
also intends to explore additional opportunities for external growth through
acquisitions of businesses to complement the Company's existing operations.

Drilex intends to maintain its position as the leading independent provider
of oilfield precision drilling services by continuing its emphasis on
delivering responsive, reliable and high quality services in key geographic
markets. The Company currently concentrates its activities in the Austin Chalk
formation (a large formation extending from South Texas to parts of Louisiana),
the Gulf of Mexico, Venezuela, the North Sea, Argentina and Canada. Each of
these markets is characterized by substantial field development activity (as
opposed to new exploration activity) and a relatively high number of
technically challenging situations that require high quality precision drilling
operations. A recent independent market study conducted for the Company
confirmed the Company's belief that service quality, reliability of equipment,
localized knowledge of drilling conditions and experience and expertise of
field personnel are the most important factors in competing for business in
these markets. The Company believes that maintaining control over the entire
design, engineering and manufacturing

5
<PAGE>

processes for its drilling motors provides the Company with distinct advantages
in providing high quality service. The Company designs and builds its motors to
optimize precision, power and reliability. Drilex also maintains a flexible
manufacturing process that includes a continuous improvement program, which
produces quality and performance improvements that enable Drilex to meet the
leading-edge needs of its customers. In addition, the Company concentrates its
service activities in its key geographic markets in order to develop and
capitalize on the Company's local knowledge and to take advantage of the
regional experience and expertise of its drilling supervisors and other
technical field personnel, as well as to achieve scale operating efficiencies.
Furthermore, the high level of activity conducted by the Company in
concentrated geographic areas permits a focused application engineering effort,
which allows the Company to refine its products and services to meet the needs
of its customers on a more effective basis.

The Company also utilizes other distribution channels to maximize delivery of
its products to areas outside of its key geographic markets. Since its
inception, the Company has successfully marketed its drilling motors on a sale
and rental basis to oil and gas exploration and development companies and other
oilfield service contractors under the internationally recognized "Drilex"
brand name. These efforts have been particularly successful in the North Sea
market, where the Company has become an established provider of drilling motors
to operators and other service companies for various directional drilling and
coiled tubing applications. The Company intends to strengthen its existing
distribution channels and expand its product distribution in those markets
where the Company is not a significant service competitor. In particular, the
Company is in the process of establishing alliance arrangements with several
large oilfield service companies, which would permit these companies to include
Drilex motors in their comprehensive offerings of oilfield products and
services in certain markets where the Company does not focus its service
efforts.

The Company plans to continue to build upon its technical drilling
capabilities by further developing opportunities in emerging markets where the
Company's expertise can provide competitive advantages. In particular, the
Company believes that the development and rapid growth in the use of coiled
tubing for oilfield workover, redrilling and recompletion operations has
provided a significant opportunity for growth in the use of precision drilling
technology for slim-hole applications. The Company has become the leading
supplier of smaller diameter drilling motors and related equipment for coiled
tubing operations and intends to maintain this leadership position as coiled
tubing operations increasingly become a substitute for conventional drilling
operations. Drilex has also been successful in developing opportunities for
precision drilling in the environmental remediation and trenchless services
markets, which the Company believes offer significant opportunities for growth.
The Company is focusing its efforts on the high-end segments of these markets
and is pursuing long-term relationships with large customers that generate
substantial demand for services that can be provided by Drilex.

The Company continually reviews opportunities for growth through the
acquisition of other businesses to complement its existing operations. The
recent Cobb and ENSCO Technology Acquisitions expanded the Company's presence
in certain of its key geographic markets for oilfield precision drilling
services and provided the Company with significant opportunities to expand its
distribution of Drilex-manufactured motors by employing them in the newly
acquired operations. In addition, the ENSCO Technology Acquisition
significantly expanded the Company's MWD capabilities, providing the Company
additional opportunities to deploy its products and services. The Sharewell
Acquisition also provided the opportunity to expand the Company's product
distribution and significantly increased the Company's service capabilities in
the emerging environmental remediation and trenchless services markets. The
Company will continue to explore opportunities involving acquisitions of other
businesses to expand distribution of the Company's products and services, to
add key technologies, to gain access to attractive industry niches, and to
otherwise enhance its market presence.

6
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Shares of Common Stock
offered:
By the Company......... 2,000,000
By the Selling
Stockholder........... 361,962*
Shares of Common Stock
outstanding:
Before the Offering.... 4,391,778
After the Offering..... 6,753,740
Use of Proceeds to the
Company................. To repay long-term indebtedness, a substantial
portion of which was incurred in connection with
acquisitions, and for general corporate purposes.
See "Use of Proceeds."
Proposed Nasdaq National
Market Symbol........... DRLX
</TABLE>
- --------
* Such shares are issuable upon conversion of a $2.5 million convertible note
held by the Selling Stockholder, which is being converted in connection with
the Offering.

RISK FACTORS

Prospective purchasers should consider all of the information contained in
this Prospectus before making an investment in shares of Common Stock. In
particular, prospective purchasers should consider the factors set forth herein
under "Risk Factors."

7
<PAGE>

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION AND OTHER DATA

The summary historical financial information presented below as of and for
the year ended December 31, 1995 and for the periods ended December 31, 1994,
March 30, 1994 and December 31, 1993, is derived from the audited consolidated
financial statements of the Company and its predecessor company, Drilex
Systems, Inc. ("DSI"). The summary historical financial information presented
below as of and for the three months ended March 31, 1996 and for the three
months ended March 31, 1995 is derived from unaudited consolidated financial
statements of the Company, which include all adjustments that the Company
considers necessary for a fair presentation of the financial position and
results of operations for those periods. Operating results for the three months
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1996. The summary unaudited
pro forma financial information presented below is derived from the Unaudited
Pro Forma Condensed Consolidated Statement of Income of the Company included
elsewhere in this Prospectus and gives effect to the Sharewell and ENSCO
Technology Acquisitions and the Offering. The pro forma information is
presented for illustrative purposes only and is not necessarily indicative of
actual results of operations that would have been achieved had the transactions
been consummated on the dates reflected in such assumptions, and is not
necessarily indicative of future results of operations. The summary historical
and pro forma financial information below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Unaudited Pro Forma Condensed Consolidated Statement of
Income and the Consolidated Financial Statements of the Company and of DSI,
including the Notes thereto, included elsewhere in this Prospectus.

THE COMPANY PREDECESSOR COMPANY(c)
------------------------------------------------------------ -----------------------
PRO FORMA
THREE MONTHS ------------ MARCH 30, 1994 JANUARY 1,
ENDED MARCH 31, YEAR ENDED YEAR ENDED (INCEPTION) TO 1994 TO YEAR ENDED
---------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 30, DECEMBER 31,
1996(a) 1995 1995 1995(a) 1994(b) 1994 1993
------- ------- ------------ ------------ -------------- ---------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net revenues............ $19,457 $10,527 $73,557 $57,526 $25,209 $6,357 $25,871
Costs of sales and
operations............. 12,018 6,462 44,865 34,606 12,924 3,364 14,093
Selling, general and
administrative
expenses............... 4,243 2,644 16,150 13,448 6,711 2,029 8,286
Depreciation and
amortization........... 1,580 761 6,354(d) 4,492(d) 1,855 775 3,107
------- ------- ------- ------- ------- ------ -------
Operating income........ 1,616 660 6,188 4,980 3,719 189 385
Interest expense........ (811) (203) (715) (1,935) (478) (481) (1,893)
------- ------- ------- ------- ------- ------ -------
Income (loss) before
income taxes and
minority interests..... 805 457 5,473 3,045 3,241 (292) (1,508)
Provision for income
taxes.................. (290) (164) (1,970) (1,097) (1,166) (3) (152)
Minority interests...... 11 (88) (100) (164) (66) -- --
------- ------- ------- ------- ------- ------ -------
Net income (loss)....... $ 526 $ 205 $ 3,403 $ 1,784 $ 2,009 $ (295) $(1,660)
======= ======= ======= ======= ======= ====== =======
Net income per common
and common equivalent
share:
Primary................ $ .12 $ .05 $ .49 $ .40 $ .57
======= ======= ======= ======= =======
Fully diluted.......... $ .11 $ .05 $ .49 $ .40 $ .57
======= ======= ======= ======= =======
Weighted average common
and common equivalent
shares outstanding:
Primary................ 4,552 4,390 6,938 4,411 3,507
======= ======= ======= ======= =======
Fully diluted.......... 4,914 4,390 6,938 4,501 3,507
======= ======= ======= ======= =======
OTHER DATA:
Capital expenditures.... $ 1,816 $ 773 $ 9,553 $ 5,408 $ 707 $ 195 $ 252
EBITDA(e)............... 3,196 1,421 12,542 9,472 5,574 964 3,492
Summary cash flow
information:
Net cash provided by
(used for) operating
activities............ 1,249 (55) (185) 877 663 277
Net cash used for
investing activities.. (1,124) (616) (19,360) (22,893) (195) (252)
Net cash provided by
financing activities.. 444 638 19,415 22,965 28 503
</TABLE>

(table continued)

8
<PAGE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-------------------------
HISTORICAL AS ADJUSTED(F)
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......... $13,653 $20,569
Total assets............ 78,455 80,669
Long-term debt, less
current maturities..... 32,945 5,131
Total stockholders'
equity................. 24,266 58,996
</TABLE>
- --------
(a) Results for the period are not comparable to prior periods due to the ENSCO
Technology and Sharewell Acquisitions.
(b) Results for the period are not comparable to prior years due to the Cobb
Acquisition.
(c) The predecessor company, DSI, was a wholly owned subsidiary of MascoTech,
Inc. prior to its acquisition by the Company on March 30, 1994. As a wholly
owned subsidiary of MascoTech, Inc., DSI was allocated interest and other
expenses by its parent. Earnings per share are not presented for periods
during which DSI was wholly owned by MascoTech, Inc.
(d) Effective April 1, 1995, the Company changed its estimated useful life for
certain drilling motor components from five to seven years. This change was
made to better reflect the estimated period during which these assets will
remain in service. The effect of this change was an increase in net income
of $248,000, or $.06 per share, for the year ended December 31, 1995.
(e) EBITDA means operating income (loss) plus depreciation and amortization and
is a supplemental financial measurement used by the Company in the
evaluation of its business. EBITDA is not intended to represent cash flow,
an alternative to net income or any other measure of performance in
accordance with generally accepted accounting principles. Reference is made
to the Consolidated Statement of Cash Flows contained in the Consolidated
Financial Statements of the Company included elsewhere in this Prospectus
for a complete presentation of cash flows from operating, investing and
financing activities prepared in accordance with generally accepted
accounting principles.

(f) Gives effect to the Offering (which includes the conversion of a $2.5
million principal amount convertible note held by the Selling Stockholder
into 361,962 shares of Common Stock) and the application of the net
proceeds to the Company therefrom (assumed to be $32.2 million) as
described under "Use of Proceeds." See "Capitalization."

9
<PAGE>

RISK FACTORS

Prospective purchasers of Common Stock should consider the following
factors, as well as the information contained elsewhere in the Prospectus.

RELIANCE ON THE OIL AND GAS INDUSTRY

The Company's business is substantially dependent upon the condition of the
oil and gas industry and the industry's willingness to spend capital on
drilling operations. The level of expenditures on such activities is generally
dependent on the prevailing view of future hydrocarbon product prices, which
are affected by the numerous factors affecting the supply and demand for oil
and gas, including worldwide economic activity, interest rates and the cost of
capital, environmental regulation, tax policies, political requirements of
national governments, coordination by the Organization of Petroleum Exporting
Countries ("OPEC"), the cost of producing oil and gas and technological
advances. Oil and gas prices and drilling activity have been characterized by
significant volatility in recent years. No assurance can be given that there
will not be continued volatility or that the future price of oil and gas will
be sufficient to support the level of drilling-related activities necessary
for the Company to grow or maintain its business.

RELIANCE ON NEW PRODUCT DEVELOPMENT AND POSSIBLE TECHNOLOGICAL OBSOLESCENCE

The market for the Company's products and services is characterized by
changing technology. As a result, the Company's success is dependent upon its
ability to develop new products and services on a cost-effective basis and to
introduce them into the marketplace in a timely manner. Drilex intends to
continue committing financial resources and effort to the development of new
products and services. There can be no assurance that the Company will
successfully differentiate itself from its competitors, that the market will
consider the Company's products and services to be superior to its
competitors' products and services or that the Company will be able to adapt
to evolving markets and technologies, develop new products, or achieve and
maintain technological advantages. See "Business."

EXTENT OF PROTECTION OF PROPRIETARY TECHNOLOGIES

The Company relies upon, among other things, a combination of patent,
copyright and trade secret laws to protect its intellectual property rights
covering certain aspects of its products and services. There can be no
assurance that the steps taken by the Company to protect its proprietary
rights will be adequate to prevent misappropriation of its intellectual
property rights or independent development by others of competitive products
or services. In addition, the laws of certain foreign countries may not
protect such rights to the same extent as to the laws of the United States.
Although the Company is not involved in any pending litigation with respect to
its intellectual property rights, and is not aware of any threatened
litigation with respect thereto, litigation may be necessary to enforce
patents or other intellectual property rights of the Company. Any such
litigation would demand financial and management resources. See "Business--
Patents and Other Intellectual Property."

DEPENDENCE ON CERTAIN THIRD-PARTY SUPPLIERS

The Company's two independent suppliers for MWD instrument systems are
essentially the only two sources for such equipment available to the Company.
The Company's reliance on these limited sources subjects it to the risks of,
among other things, delays in the receipt of desired quantities of MWD
equipment (as a result of manufacturing delays or other reasons) and increases
in prices for such equipment. The Company also relies on single suppliers for
the stator molding and the thrust bearings used in the manufacture of its
downhole positive displacement motors. While the Company does not anticipate
any difficulties in continuing to obtain product from these single suppliers,
the Company believes that adequate alternative sources are available should
the need arise. Such alternative sources may, however, involve increased costs
to the Company and shipment delays. See "Business--Products and Services" and
"--Engineering and Manufacturing."

10
<PAGE>

RELIANCE ON SIGNIFICANT CUSTOMERS

The Company's business is dependent on securing and maintaining customers by
delivering prompt, reliable and high quality service and reliable, high-
performance products. For the year ended December 31, 1995, one of the
Company's customers accounted for approximately 10% of the Company's revenues.
While the Company is not dependent on any one customer, the loss of one or
more of its significant customers could, at least on a short-term basis, have
an adverse effect on the Company's results of operations. See "Business--
Customers."

OPERATIONAL HAZARDS AND INSURANCE

The Company's operations are subject to many hazards inherent in the
drilling and workover of oil and gas wells (including explosions, blow-outs,
reservoir damage, loss of well control, cratering and fires), the occurrence
of which could result in the suspension of drilling operations, damage to or
destruction of equipment and injury or death to field personnel. Damage to the
environment could also result from operations that may involve the Company or
its products. The Company maintains insurance coverage in such amounts and
against such risks as it believes to be in accordance with normal industry
practice. Such insurance does not, however, provide coverage for all
liabilities (including liabilities for certain events involving pollution),
and there can be no assurance that such insurance will be adequate to cover
all losses or liabilities that may be incurred by the Company in its
operations. Moreover, no assurance can be given that the Company will, in the
future, be able to maintain insurance at levels it deems adequate and at rates
it considers reasonable or that any particular types of coverage will be
available.

RISKS OF INTERNATIONAL OPERATIONS

Drilex maintains facilities in five countries and, from time to time,
conducts operations in numerous other countries. On a pro forma basis, the
Company's non-U.S. operations accounted for approximately 23% of the Company's
revenues during the year ended December 31, 1995 (and the Company's operations
in Venezuela accounted for approximately 39% of these foreign-sourced
revenues). The Company's business outside the United States is subject to
various risks of international operations that are beyond its control, such as
instability of foreign economies and governments, currency fluctuations,
overlap of different tax structures, risks of expropriation, and changes in
laws and policies affecting trade and investment. The Company attempts to
limit its exposure to foreign currency fluctuations by limiting the amount by
which its foreign contracts are denominated in a currency other than U.S.
dollars to an amount generally equal to expenses expected to be incurred in
such foreign currency. The Company has not historically engaged in and does
not currently intend to engage in any significant hedging or currency trading
transactions designed to compensate for adverse currency fluctuations.

SEASONALITY

The Company's business is somewhat seasonal, since domestic oil and gas
drilling activities are generally lower in the first and second quarters. In
addition, adverse weather conditions can curtail operations in certain regions
during different parts of the year.

COMPETITION

The industry in which the Company operates is highly competitive. Several of
the Company's competitors are divisions or subsidiaries of companies that are
substantially larger and have greater financial and other resources than the
Company. See "Business--Competition."

POTENTIAL FUTURE SALES OF SHARES

Upon completion of the Offering, DRLX Partners, L.P. will own 4,119,207
shares of Common Stock, constituting approximately 61% of the then outstanding
shares of Common Stock. DRLX Partners, L.P., together with each of the
Company's directors and executive officers, have agreed not to sell or
otherwise voluntarily dispose of any Common Stock for a period of 90 days
after the date of this Prospectus without the prior consent

11
<PAGE>

of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), as
representative of the Underwriters, with certain exceptions. After such period
all or any of such shares may be sold pursuant to a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), or
pursuant to an exemption from the registration requirements under the
Securities Act. The Company has entered into agreements with DRLX Partners,
L.P. and certain other stockholders that provide such stockholders with
certain rights to have their shares of Common Stock registered under the
Securities Act, in order to permit the public sale of such shares. See
"Certain Transactions and Relationships--Registration Rights Agreements." In
addition, shares of Common Stock held by the Company's existing stockholders
will be eligible for resale in the future pursuant to Rule 144 promulgated
under the Securities Act. Sales or the possibility of sales of substantial
amounts of Common Stock in the public market could adversely affect the
prevailing market price of the Common Stock. See "Shares Eligible for Future
Sale" and "Underwriting."

INFLUENCE OF PRINCIPAL STOCKHOLDER AND MANAGEMENT

Upon completion of the Offering, DRLX Partners, L.P. will beneficially own
approximately 61% of the outstanding Common Stock. Accordingly, such
stockholder would have the ability to control matters requiring stockholder
approval, including the election of directors and certain extraordinary
transactions. See "Security Ownership of Certain Beneficial Owners and
Management."

DEPENDENCE ON KEY MANAGEMENT AND TECHNICAL EMPLOYEES

The Company's success will continue to depend to a significant extent on its
executive officers and other key management personnel. The loss of one or more
of these individuals could have a material adverse effect on the Company. The
Company does not have any employment agreements or covenants not to compete
with any of its executive officers other than (i) an employment agreement with
Archie A. Cobb, III entered into in connection with the Cobb Acquisition and
(ii) a non-compete agreement with Samuel R. Anderson entered into in
connection with the Sharewell Acquisition. In addition, the Company's success
is also substantially dependent upon its ability to attract and retain
qualified drilling supervisors and other technical field personnel. Although
the Company has never experienced a prolonged shortage of qualified personnel
in any of its operations (and does not currently anticipate any such
shortage), if demand for precision drilling services were to increase rapidly,
retention of qualified field personnel might become more difficult without
significant increases in compensation. See "Business--Employees" and
"Management."

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

Many aspects of the Company's operations are affected by political
developments and are subject to both domestic and foreign governmental
regulation, including those relating to oilfield operations, worker safety and
the protection of the environment. In addition, the Company depends on the
demand for its services from the oil and gas industry and, therefore, is
affected by changing taxes, price controls and other laws and regulations
relating to the oil and gas industry generally. The adoption of laws and
regulations curtailing exploration and development drilling for oil and gas
for economic or other policy reasons could adversely affect the Company's
operations by limiting demand for precision drilling services. The Company
cannot determine to what extent its future operations and earnings may be
affected by new legislation, new regulations or changes in existing
regulations.

The Company's operations are affected by numerous foreign, federal, state
and local environmental laws and regulations. The technical requirements of
these laws and regulations are becoming increasingly expensive, complex and
stringent. These laws may provide for "strict liability" for damages to
natural resources or threats to public health and safety, rendering a party
liable for the environmental damage without regard to negligence or fault on
the part of such party. Sanctions for noncompliance may include revocation of
permits, corrective action orders, administrative or civil penalties, and
criminal prosecution. Certain environmental laws provide for joint and several
strict liability for remediation of spills and releases of hazardous
substances. In addition, companies may be subject to claims alleging personal
injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources. Such laws and regulations
may also expose the Company to liability for the conduct of or conditions
caused by others, or for acts of the Company that were in compliance with all
applicable laws at the time such acts were performed. See "Business--
Governmental Regulation and Environmental Matters."

12
<PAGE>

POTENTIAL ADVERSE EFFECTS OF PREFERRED STOCK AUTHORIZED FOR ISSUANCE

The authorized capital stock of the Company includes unissued shares of
preferred stock, par value $.01 per share ("Preferred Stock"). The Board of
Directors is authorized to provide for the issuance of Preferred Stock in one
or more series and to fix the designations, preferences, powers and relative,
participating, optional and other rights and restrictions thereof.
Accordingly, the Company may issue a series of Preferred Stock in the future
that will have preference over the Common Stock with respect to the payment of
dividends and upon liquidation, dissolution, winding up or otherwise, or which
may have significant voting rights. In addition, the ability of the Board of
Directors to set the terms of Preferred Stock could have the effect of
discouraging unsolicited acquisition proposals. See "Description of Capital
Stock--Preferred Stock."

POSSIBLE ANTITAKEOVER EFFECTS

The Company's Restated Certificate of Incorporation and Bylaws and the
Delaware General Corporation Law contain provisions that may have the effect
of delaying, deferring or preventing a change of control of the Company. These
provisions, among other things, provide for a classified Board of Directors
with staggered terms, restrict the ability of stockholders to take action by
written consent, impose certain supermajority voting requirements, authorize
the Board of Directors to set the terms of Preferred Stock and impose
restrictions on business combinations with certain interested parties. See
"Description of Capital Stock."

NO ANTICIPATED DIVIDENDS ON COMMON STOCK

The Company's Board of Directors does not currently anticipate authorizing
the payment of dividends in the foreseeable future. In addition, the payment
of dividends is prohibited by the terms of certain of the Company's existing
financing arrangements. See "Dividend Policy."

ABSENCE OF PRIOR PUBLIC MARKET

Prior to the Offering, there has been no public market for the Common Stock.
There can be no assurance that an active public market for the Common Stock
will develop or be sustained after the Offering. The initial public offering
price was determined by negotiation among the Company, the Selling Stockholder
and representatives of the Underwriters and may not be indicative of the
market price for the Common Stock after the Offering. For a discussion of the
factors considered in determining the initial public offering price, see
"Underwriting." The trading price of the Common Stock may be subject to
significant fluctuations in respect to variations in the Company's results of
operations, actual or anticipated announcements of technical innovations or
new products and services by the Company or its competitors, general
conditions in the oilfield services industry and regional economies, and other
events or factors. In addition, the global stock markets have from time to
time experienced extreme price and volume fluctuations, which in the future
could adversely affect the market price of the Common Stock.

DILUTION

The initial public offering price is substantially higher than the book
value per outstanding share of Common Stock and the effective price per share
paid by DRLX Partners, L.P., the Selling Stockholder and other current
stockholders to purchase their interests in the Company. Purchasers of the
shares of Common Stock offered hereby will, therefore, incur immediate
dilution. See "Dilution."

BENEFITS OF OFFERING TO EXISTING STOCKHOLDERS

Approximately $3.6 million of the net proceeds to the Company from the
Offering will be used to repay a note to the Selling Stockholder incurred in
connection with the ENSCO Technology Acquisition. In addition, a convertible
note received by the Selling Stockholder as part of the consideration for the
ENSCO Technology Acquisition will be converted into Common Stock and such
Common Stock will be sold in the Offering. The net proceeds to the Selling
Stockholder from such sale of approximately $6.1 million are approximately
$3.6 million in excess of the principal amount of the note. The Offering will
benefit the existing stockholders of the Company other than the Selling
Stockholder by creating a public market for the Common Stock.

13
<PAGE>

THE COMPANY

Drilex is a leading provider of products and services used in directional,
horizontal and other precision drilling of oil and gas wells, oilfield
workover operations, environmental remediation applications, and trenchless
pipeline and cable laying applications. Precision drilling involves the
combined use of a steerable downhole positive displacement drilling motor and
a guidance system to enable the controlled placement of a borehole through
predetermined locations. Drilex employs this technology to drill to depths
ranging from near surface to more than four miles. The Company's products and
services include comprehensive computerized well planning and engineering
services, supervision of drilling operations and project management, a full
range of high performance downhole positive displacement motor systems,
guidance systems (such as MWD instrument systems and steering tools), and
other related downhole tools. Oilfield applications accounted for
approximately 86% of the Company's revenues (on a pro forma basis) in 1995.
The Company currently operates from 23 locations around the world and has
approximately 390 employees.

Drilex was originally formed in Scotland in 1981 to design, manufacture and
rent a series of downhole drilling motors based on early technology licensed
from the Ministry of Oil of the Union of Soviet Socialist Republics. In
connection with the introduction of Drilex motors into the U.S. markets in
1982, DSI established an association with Grant Oil Tool Company ("Grant"), a
subsidiary of MascoTech, Inc. ("MascoTech"). In January 1984, MascoTech
acquired DSI and integrated its product lines with the other oilfield product
lines of Grant. In 1989, MascoTech split out DSI as an autonomous unit within
the MascoTech group of energy companies. On March 31, 1994, DRLX Partners,
L.P. and John Forrest (a founder of DSI and the current President and Chief
Executive Officer of the Company) purchased DSI (the "DSI Acquisition") from
MascoTech following MascoTech's decision to exit the oilfield services
business. The Company has since grown substantially through the expansion of
its product and service offerings and the acquisitions of complementary
businesses.

On September 30, 1994, the Company acquired substantially all of the fixed
assets of Cobb Directional Drilling Company, Inc. ("Cobb") and its affiliate,
Posi-Trak Mud Motors, Inc. ("Posi-Trak"), in an asset purchase transaction
(the "Cobb Acquisition") with a purchase price of approximately $8.2 million,
consisting of approximately $3.6 million in cash, a $1.3 million promissory
note due September 1997, the issuance of 241,307 shares of Common Stock (then
valued at $1.3 million) and a one-third equity interest (then valued at $2.0
million) in Cobb Directional Drilling Company, L.L.C., a subsidiary of the
Company formed to hold the assets acquired in the transaction. The Company
also entered into a five-year employment agreement with Mr. Archie A. Cobb,
III, the owner of Cobb and Posi-Trak. On March 23, 1995, the Company
repurchased 144,784 of such 241,307 shares of Common Stock and the one-third
equity interest in Cobb Directional Drilling Company, L.L.C. for a combined
purchase price consisting of approximately $1.0 million in cash, a $1.0
million

14
<PAGE>

amortizing note with a final maturity in 1998, and a $1.2 million short-term
note due July 1995 (which was paid at maturity). Cobb was founded in 1979 by
Mr. Cobb and became a leading independent directional drilling contractor and
provider of drilling motors for the U.S. Gulf of Mexico region. See
"Management--Employment Agreement" and "Certain Transactions and
Relationships."

On May 5, 1995, the Company acquired the stock (the "Sharewell Acquisition")
of Sharewell, Inc. ("Sharewell") for a purchase price consisting of $1.0
million cash, amortizing notes aggregating $2.8 million in principal amount,
after reflecting certain adjustments, and having final maturities in 2000 (the
"Sharewell Promissory Notes"), and warrants for the purchase of 180,981 shares
of Common Stock at an exercise price of $5.53 per share, subject to certain
antidilution adjustments. In addition, at closing the Company caused Sharewell
to (i) repay certain bank debt in the approximate amount of $1.2 million and
(ii) pay $2.0 million in cash to a Sharewell stockholder in full satisfaction
of an obligation under a non-compete agreement and in partial repayment of a
promissory note issued by Sharewell to that stockholder. The balance of such
promissory note was replaced with a $1.9 million amortizing promissory note
from the Company maturing April 2000 (the "Sharewell Replacement Note").
Sharewell was founded in 1984 initially to provide steering services to
pipeline construction contractors that were beginning to use slant rigs to
directionally drill underground river crossings for the installation of
pipelines. Sharewell has grown to become a leading provider of guidance
services and equipment to the trenchless drilling market worldwide and a
significant supplier of guidance and survey instruments to the oilfield
precision drilling industry. Sharewell currently offers steering tools and
survey instrumentation for sale or rental, as well as complete trenchless
drilling services. Additionally, Sharewell offers a guidance system for use in
areas affected by magnetic interference, where the use of conventional
guidance systems may be precluded.

On September 30, 1995, the Company acquired substantially all of the net
assets of ENSCO Technology Company ("ENSCO Technology"), a wholly owned
subsidiary of ENSCO International Incorporated ("ENSCO" or the "Selling
Stockholder"), in an asset purchase transaction (the "ENSCO Technology
Acquisition") with a purchase price of approximately $17.9 million, consisting
of approximately $11.8 million in cash, a $3.6 million amortizing promissory
note with a final maturity in 2000 (the "ENSCO Promissory Note") and a $2.5
million convertible amortizing note with a final maturity in 2000 (the
"Convertible Note"). The Convertible Note is convertible into 361,962 shares
of Common Stock at a conversion price of $6.91 per share, subject to certain
antidilution adjustments. The ENSCO Promissory Note will be repaid with part
of the net proceeds to the Company from the Offering. In connection with the
Offering, the Convertible Note will be converted into 361,962 shares of Common
Stock so that such shares may be sold pursuant to the Offering. See "Use of
Proceeds," "Certain Transactions and Relationships" and "Selling Stockholder."
ENSCO Technology was a leading provider of precision drilling services, with
special emphasis on horizontal drilling. It was among the largest precision
drilling service companies in the Austin Chalk formation.

Unless the context otherwise requires, references in this Prospectus to the
"Company" or "Drilex" refer to Drilex International Inc. and its consolidated
subsidiaries viewed as a single entity and include its predecessors.

The Company's principal executive offices are located at 15151 Sommermeyer,
Houston, Texas 77041, and its telephone number at such address is (713) 937-
8888.

15
<PAGE>

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of Common Stock
offered hereby are estimated to be approximately $32.2 million, assuming a
public offering price of $18.00 per share (the midpoint of the estimated
initial public offering price range). Of such net proceeds, (i) $3.6 million
will be used to repay the entire principal amount outstanding on the ENSCO
Promissory Note, (ii) $26.8 million will be used to repay all borrowings
outstanding under a term note and bank credit agreement with Texas Commerce
Bank National Association ("TCB"), as lender (collectively, with their related
interest rate agreements, the "Credit Facility"), and (iii) the remaining
approximately $1.8 million will be used for general corporate purposes. A
substantial portion of the indebtedness outstanding under the Credit Facility
was originally incurred in connection with the DSI Acquisition, the Cobb
Acquisition, the Sharewell Acquisition and the ENSCO Technology Acquisition.
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholder offered hereby.

The ENSCO Promissory Note bears interest at a floating rate equal to the
interest rate established from time to time by Chemical Bank as its "base
rate," and is payable in annual installments of approximately $0.7 million
commencing September 30, 1996, with final maturity on September 30, 2000. The
ENSCO Promissory Note is subject to mandatory prepayment upon completion of
the Offering.

As of June 1, 1996, the outstanding borrowings under the Credit Facility
were $27.7 million, consisting of $12.0 million under a $13.0 million
revolving credit and letter of credit facility (the "Revolving Credit
Facility") and a $15.7 million term loan (the "Term Loan"). A quarterly
principal payment on the Term Loan of $0.9 million will be paid on June 28,
1996. Borrowings under the Term Loan and Revolving Credit Facility generally
bear interest at a Eurodollar or Eurosterling interbank offered rate plus a
margin (currently 2.0% for both facilities) or TCB's prime rate plus a margin
(currently 0.5%). The margins vary based on the Company's ratio of total debt
to net worth plus total debt. At June 1, 1996, the effective interest rates
applicable to borrowings under the Revolving Credit Facility and the Term Loan
(giving effect to an interest rate swap agreement applicable to the Term Loan,
see Note 6 to the Consolidated Financial Statements of the Company) were 7.61%
and 8.22%, respectively. The Term Loan requires quarterly principal payments
of approximately $0.9 million, with final maturity on September 30, 2000.
Certain prepayments of the Term Loan from excess cash flow are also required
if the Company does not meet a financial test. The Revolving Credit Facility
has a term that expires on September 30, 1998. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

16
<PAGE>

DIVIDEND POLICY

Drilex International Inc. has not paid dividends on its Common Stock since
its inception and does not anticipate paying dividends on the Common Stock in
the foreseeable future. The Company expects that it will retain funds
generated by the Company's operations for the development and growth of its
business. The Company's future dividend policy will be determined by its Board
of Directors on the basis of various factors, including, among other things,
the Company's financial condition, cash flows from operations, the level of
its capital expenditures, its future business prospects, the requirements of
Delaware law, and any restrictions imposed by the Company's current or future
credit facilities. Provisions contained in the Credit Facility currently
prohibit the payment of dividends on the Common Stock. In addition, the
Sharewell Replacement Note contains a covenant that requires the maintenance
of $9.5 million of consolidated net worth. This covenant could, under certain
circumstances, limit the Company's ability to pay dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

DILUTION

After giving effect to the conversion of the Convertible Note (assuming
conversion on March 31, 1996), the pro forma net tangible book value (total
assets less goodwill and other intangibles less liabilities) of the Company at
March 31, 1996 was $1.81 per share of Common Stock. After giving effect to the
receipt of an assumed $32.2 million of net proceeds to the Company from the
Offering (based on the sale of Common Stock pursuant to the Offering at an
assumed initial public offering price of $18.00 per share (the midpoint of the
estimated initial public offering price range) and net of estimated
underwriting discounts and commissions and offering expenses), pro forma net
tangible book value per share would have been $6.05 per share of Common Stock
outstanding after the Offering, representing an immediate increase in net
tangible book value of $4.24 per share of Common Stock to the existing
stockholders and an immediate dilution of $11.95 per share to the new
investors purchasing Common Stock in the Offering. The following table
illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $18.00
Pro forma net tangible book value per share before the
Offering.................................................... $1.81
Increase in pro forma net tangible book value per share
attributable to sale of
Common Stock by the Company in the Offering................. 4.24
Pro forma net tangible book value per share after the Offering....... 6.05
------
Dilution in pro forma net tangible book value per share to new
investors purchasing Common Stock offered hereby.................... $11.95
======
</TABLE>

The following table sets forth, as of March 31, 1996, the number of shares
of Common Stock purchased or to be purchased from the Company, the total
consideration paid or to be paid to the Company and the average price per
share paid or to be paid by existing stockholders (including the Selling
Stockholder, assuming conversion of the Convertible Note, as if such
conversion had occurred as of March 31, 1996) and by new investors, based on
the assumed initial public offering price:

<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
----------------- ------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 4,753,740 70.4% $22,398,225 38.4% $ 4.71
New investors..................... 2,000,000 29.6 36,000,000 61.6 18.00
--------- ----- ----------- -----
Total........................... 6,753,740 100.0% $58,398,225 100.0% $ 8.65
========= ===== =========== ===== ======
</TABLE>

17
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated short-term debt and
capitalization of the Company at March 31, 1996 and as adjusted to give effect
to the Offering (which includes the conversion of the $2.5 million principal
amount Convertible Note into 361,962 shares of Common Stock) and the
application of the net proceeds to the Company therefrom (assumed to be $32.2
million) as described under "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Unaudited Pro Forma Condensed Consolidated
Statement of Income and the Consolidated Financial Statements of the Company,
including the Notes thereto, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED
------------ -------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Short-term debt:
Current maturities of long-term debt............... $ 5,852 $ 1,150
============ ============
Long-term debt (less current maturities):
Credit Facility.................................... $ 22,965 $ --
ENSCO Promissory Note.............................. 2,849 --
Convertible Note................................... 2,000 --
Cobb Promissory Notes.............................. 1,666 1,666
Sharewell Promissory Notes......................... 1,802 1,802
Sharewell Replacement Note......................... 1,663 1,663
------------ ------------
Total long-term debt............................. 32,945 5,131
------------ ------------
Minority interests................................... 794 794
Stockholders' equity:
Preferred Stock, $.01 par value, 10,000,000 shares
authorized, none issued........................... -- --
Common Stock, $.01 par value, 25,000,000 shares
authorized, 4,391,778 shares outstanding
(historical), 6,753,740 shares outstanding (as
adjusted)......................................... 44 68
Additional paid-in capital......................... 19,903 54,609
Retained earnings.................................. 4,319 4,319
------------ ------------
Total stockholders' equity....................... 24,266 58,996
------------ ------------
Total capitalization........................... $ 63,857 $ 66,071
============ ============
</TABLE>

18
<PAGE>

SELECTED HISTORICAL FINANCIAL AND OTHER DATA

The following table sets forth selected historical financial and other data
for the Company. The information presented as of and for the periods ended
December 31, 1995 and 1994, March 30, 1994 and December 31, 1993 is derived
from the audited consolidated financial statements of the Company and its
predecessor company, DSI. The information presented as of and for the years
ended December 31, 1992 and 1991 is derived from the unaudited consolidated
financial statements of DSI. The information as of and for the three months
ended March 31, 1996 and 1995 is derived from unaudited consolidated financial
statements of the Company, which include all adjustments that the Company
considers necessary for a fair presentation of the financial position and
results of operations for those periods. Operating results for the three
months ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the entire year ending December 31, 1996. The following
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements of the Company, including the Notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR COMPANY(c)
---------------------------------------------- ---------------------------------------
THREE MONTHS MARCH 30, 1994 JANUARY 1,
ENDED MARCH 31, YEAR ENDED (INCEPTION) TO 1994 TO YEARS ENDED DECEMBER 31,
---------------- DECEMBER 31, DECEMBER 31, MARCH 30, ----------------------------
1996 1995 1995(a) 1994(b) 1994 1993 1992 1991
------- ------- ------------ -------------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net revenues............ $19,457 $10,527 $57,526 $25,209 $6,357 $25,871 $24,349 $28,302
Costs of sales and
operations............. 12,018 6,462 34,606 12,924 3,364 14,093 14,326 14,625
Selling, general and
administrative
expenses............... 4,243 2,644 13,448 6,711 2,029 8,286 10,573 9,226
Depreciation and
amortization........... 1,580 761 4,492(d) 1,855 775 3,107 2,942 3,489
------- ------- ------- ------- ------- -------- -------- --------
Operating income (loss). 1,616 660 4,980 3,719 189 385 (3,492) 962
Interest expense........ (811) (203) (1,935) (478) (481) (1,893) (1,667) (1,686)
------- ------- ------- ------- ------- -------- -------- --------
Income (loss) before
income taxes and
minority interests..... 805 457 3,045 3,241 (292) (1,508) (5,159) (724)
Provision for income
taxes.................. (290) (164) (1,097) (1,166) (3) (152) (84) (71)
Minority interests...... 11 (88) (164) (66) -- -- -- --
------- ------- ------- ------- ------- -------- -------- --------
Net income (loss)....... $ 526 $ 205 $ 1,784 $ 2,009 $ (295) $ (1,660) $ (5,243) $ (795)
======= ======= ======= ======= ======= ======== ======== ========
Net income per common
and common equivalent
share:
Primary................ $ .12 $ .05 $ .40 $ .57
======= ======= ======= =======
Fully diluted.......... $ .11 $ .05 $ .40 $ .57
======= ======= ======= =======
Weighted average common
and common equivalent
shares outstanding:
Primary................ 4,552 4,390 4,411 3,507
======= ======= ======= =======
Fully diluted.......... 4,914 4,390 4,501 3,507
======= ======= ======= =======
OTHER DATA:
Capital expenditures.... $ 1,816 $ 773 $ 5,408 $ 707 $ 195 $ 252 $ 1,364 $ 3,196
EBITDA(e)............... 3,196 1,421 9,472 5,574 964 3,492 (550) 4,451
Summary cash flow
information:
Net cash provided by
(used for) operating
activities............ 1,249 (55) (185) 877 663 277 (3,752) (3,334)
Net cash used for
investing
activities............ (1,124) (616) (19,360) (22,893) (195) (252) (1,364) (3,196)
Net cash provided by
financing
activities(c)......... 444 638 19,415 22,965 28 503 5,379 6,378
BALANCE SHEET DATA:
Working capital......... $13,653 $10,620 $13,365 $ 9,511 $10,533 $ 10,717 $ 10,581 $ 11,839
Total assets............ 78,455 36,965 77,754 36,292 24,965 26,196 26,793 28,033
Long-term debt, less
current maturities..... 32,945 9,825 32,467 7,633 -- -- -- --
Total stockholders'
equity(c)(f)........... 24,266 18,762 23,682 19,557 22,794 22,990 24,459 26,177
</TABLE>
- -------
(a) Results for the year are not comparable to prior periods due to the ENSCO
Technology and Sharewell Acquisitions.
(b) Results for the period are not comparable to prior years due to the Cobb
Acquisition.
(c) The predecessor company, DSI, was a wholly owned subsidiary of MascoTech
prior to its acquisition by the Company on March 30, 1994. As a wholly
owned subsidiary of MascoTech, DSI was allocated interest and other
expenses by its parent, and had no long-term indebtedness since its
financing requirements were met through advances from MascoTech. For
purposes of this presentation, such advances from MascoTech are reflected
in stockholders' equity. Earnings per share are not presented for periods
during which DSI was wholly owned by MascoTech.
(d) Effective April 1, 1995, the Company changed its estimated useful life for
certain drilling motor components from five to seven years. This change
was made to better reflect the estimated period during which these assets
will remain in service. The effect of this change was an increase in net
income of $248,000, or $.06 per share, for the year ended December 31,
1995.
(e) EBITDA means operating income (loss) plus depreciation and amortization
and is a supplemental financial measurement used by the Company in the
evaluation of its business. EBITDA is not intended to represent cash flow,
an alternative to net income or any other measure of performance in
accordance with generally accepted accounting principles. Reference is
made to the Consolidated Statement of Cash Flows contained in the
Consolidated Financial Statements of the Company included elsewhere in
this Prospectus for a complete presentation of cash flows from operating,
investing and financing activities prepared in accordance with generally
accepted accounting principles.
(f) No cash dividends were declared or paid on Common Stock during any of the
periods presented.

19
<PAGE>

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME

The following unaudited pro forma condensed consolidated statement of income
for the year ended December 31, 1995 has been prepared to reflect adjustments
to the Company's historical results of operations as if (i) the Sharewell and
ENSCO Technology Acquisitions had occurred on January 1, 1995 and (ii) the
Offering had occurred on January 1, 1995 and the net proceeds from the
Offering had been used for the repayment of indebtedness as described under
"Use of Proceeds." The pro forma financial information should be read in
conjunction with "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements and the Notes thereto
contained elsewhere herein. The pro forma information does not necessarily
reflect the actual results that would have been achieved, nor is it
necessarily indicative of future consolidated results for the Company.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------------------------------------
ENSCO PRO FORMA
SHAREWELL TECHNOLOGY PRO FORMA ADJUSTMENTS
PRO FORMA ENSCO PRO FORMA FOR FOR PRO
HISTORICAL SHAREWELL(a) ADJUSTMENTS TECHNOLOGY(b) ADJUSTMENTS ACQUISITIONS OFFERING FORMA
---------- ------------ ----------- ------------- ----------- ------------ ----------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $57,526 $2,664 $ -- $13,367 $ -- $73,557 $ -- $73,557
Operating expenses:
Costs of sales and
operations............ 34,606 1,790 -- 8,469(f) -- 44,865 -- 44,865
Selling, general and
administrative
expenses.............. 13,448 815 -- 1,887 -- 16,150 -- 16,150
Depreciation and
amortization.......... 4,492 179 143(c) 1,797 (257)(c) 6,354 -- 6,354
------- ------ ----- ------- ----- ------- ------ -------
52,546 2,784 143 12,153 (257) 67,369 -- 67,369
------- ------ ----- ------- ----- ------- ------ -------
Operating income (loss). 4,980 (120) (143) 1,214 257 6,188 -- 6,188
Interest expense........ (1,935) (30) (198)(d) -- (854)(d) (3,017) 2,302(g) (715)
------- ------ ----- ------- ----- ------- ------ -------
Income (loss) before
income taxes and
minority interests..... 3,045 (150) (341) 1,214 (597) 3,171 2,302 5,473
Credit (provision) for
income taxes........... (1,097) 44 133(e) (538) 316 (e) (1,142) (828)(e) (1,970)
Minority interests...... (164) 2 -- 62 -- (100) -- (100)
------- ------ ----- ------- ----- ------- ------ -------
Net income (loss)....... $ 1,784 $ (104) $(208) $ 738 $(281) $ 1,929 $1,474 $ 3,403
======= ====== ===== ======= ===== ======= ====== =======
Net income per common
and common equivalent
share.................. $ .40 $ .42 $ .49
======= ======= =======
Weighted average common
and common equivalent
shares outstanding..... 4,411 4,576 6,938(h)
======= ======= =======
</TABLE>

See accompanying notes to unaudited pro forma condensed consolidated statement
of income.

20
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME

(a) Represents Sharewell's results of operations for the period from
January 1, 1995 to May 5, 1995 (the date of acquisition).

(b) Represents ENSCO Technology's results of operations for the period from
January 1, 1995 to September 30, 1995 (the date of acquisition).

(c) Adjusts depreciation expense (for property and equipment) and
amortization expense (for goodwill and other intangible assets) as a
result of purchase price accounting adjustments for the related assets.

(d) Adjusts interest expense as if the indebtedness related to the
acquisitions had been outstanding for the period from January 1, 1995
to the date of acquisition.

(e) Adjusts the provision for income taxes based on the Company's statutory
income tax rate of 36%.

(f) Includes a net gain of approximately $0.6 million resulting primarily
from reimbursements from customers for MWD equipment that was lost in
hole.

(g) Represents interest expense related to indebtedness which is assumed to
be retired with proceeds to the Company from the Offering and interest
expense on the Convertible Note. See "Use of Proceeds."

(h) Includes the weighted average number of common and common equivalent
shares outstanding during the year, as adjusted to reflect the
Sharewell and ENSCO Technology Acquisitions and the Offering (including
the conversion of the Convertible Note) as of January 1, 1995.
- --------
Note: The Company expects to realize future cost savings through reduced
rentals of drilling motors from third parties and increased utilization
of MWD equipment. While there are various uncertainties involved in
projecting future results, the amount of these cost savings is expected
to be approximately $3.0 million per year. The pro forma results of
operations do not reflect these expected cost savings. In addition, the
Company expects that its status as a corporation with publicly traded
securities will result in certain additional administrative, accounting,
legal and other costs, which the Company estimates will initially amount
to approximately $0.3 million annually. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

21
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist in understanding the
Company's financial condition and results of operations as of March 31, 1996
and for the three-month periods ended March 31, 1996 and 1995 and each year in
the three-year period ended December 31, 1995. The statements in this
discussion regarding the industry outlook, the Company's expectations
regarding growth in the precision drilling segment, the Company's expectations
regarding the future performance of its businesses, and the other non-
historical statements in this discussion are forward-looking statements. These
forward-looking statements are subject to numerous risks and uncertainties,
including but not limited to the uncertainties relating to exploration and
development decisions to be made in the future by oil and gas exploration and
development companies and the risks and uncertainties described in "Risk
Factors," particularly those under the captions "Reliance on the Oil and Gas
Industry," "Reliance on New Product Development and Possible Technological
Obsolescence," "Risks of International Operations" and "Governmental
Regulation and Environmental Matters." This discussion should be read in
conjunction with the Unaudited Pro Forma Condensed Consolidated Statement of
Income and the Consolidated Financial Statements of the Company and of DSI,
including the Notes thereto, included elsewhere in this Prospectus.

OVERVIEW

The Company's business is substantially dependent upon the condition of the
oil and gas industry and the willingness of oil and gas companies to spend
capital on drilling and workover operations, which is generally dependent on
the prevailing view of future hydrocarbon product prices. This is particularly
the case in the United States, where the Company generates approximately 74%
of its revenues. Expectations relative to such future prices are affected by
numerous factors affecting the supply and demand for oil and natural gas,
including worldwide economic activity, interest rates and the cost of capital,
environmental regulation, tax policies, political requirements of national
governments, coordination by OPEC, the cost of producing oil and gas, and
technological advances. Oil and gas prices and exploration and development
activity have been characterized by significant volatility in recent years.

Although overall oil and gas drilling activity as measured by the rotary rig
count has declined significantly over the past 15 years, rapid increases in
precision drilling technology, enhanced geological prospecting technologies
(such as 3-D seismic technologies and CAEX techniques), and the demands of
exploration and development companies for more precise and less costly
drilling systems have driven growth in the precision drilling segment of the
oilfield drilling market. Based on industry sources, the Company estimates
that the number of oil and gas wells drilled in the United States using
precision drilling technology increased 56% from 2,110 in 1990 to 3,288 in
1995. As a result of an overall decrease in oil and gas drilling activity,
this growth has resulted in the proportion of oil and gas wells drilled in the
United States employing precision drilling technology increasing from 7% in
1990 to 17% in 1995.

Drilex anticipates continued growth in the market for precision drilling
services and expects the number of oilfield jobs employing precision drilling
techniques to grow at a higher rate than the number of jobs in the overall
drilling market. Moreover, with respect to jobs employing precision drilling
techniques, the Company expects continued increases in the average number of
feet per well drilled using a downhole drilling motor, particularly in slim-
hole applications. The Company believes the growth in the number of precision
drilling jobs and the increase in the utilization of precision drilling
technology per job will be driven by the requirements of exploration and
production companies for more precision and cost efficiency in their drilling
operations, as well as the greater acceptance of precision drilling technology
in the drilling industry, which has resulted from technological advancements,
product improvements (which have extended equipment lives and increased
penetration rates), and the expansion of downhole drilling motor technology to
a wide variety of slim-hole applications. The Company also believes that, over
time, the demand for hydrocarbon products will grow and that exploration and
development activity will increase. The Company expects this increase in
activity to be primarily driven by lower oil and gas company cost structures,
technological advances and the interest of foreign countries in maintaining or
expanding their production.

22
<PAGE>

Drilex International Inc. was organized by DRLX Partners L.P. and John
Forrest (a founder of DSI and the current President and Chief Executive
Officer of the Company) to acquire DSI (also referred to herein as the
"Predecessor") from MascoTech on March 31, 1994. The Company's predecessor was
originally formed in 1981.

Since the DSI Acquisition, the Company has grown substantially through the
expansion of its product and service offerings and acquisitions of
complementary businesses. The recent Cobb and ENSCO Technology Acquisitions
(completed on September 30, 1994 and 1995, respectively) expanded the
Company's presence in certain of its key geographic markets for oilfield
precision drilling services and provided the Company with significant
opportunities to expand its distribution of Drilex-manufactured motors by
employing them in the newly acquired operations. In addition, the ENSCO
Technology Acquisition significantly expanded the Company's MWD capabilities,
providing the Company additional opportunities to deploy its products and
services. The Sharewell Acquisition (completed on May 5, 1995) also provided
the opportunity to expand the Company's product distribution and significantly
increased the Company's service capabilities in the emerging environmental
remediation and trenchless services markets.

The Company's recent acquisitions have also created opportunities for
reduced costs and improved efficiencies. While the Company has taken a number
of actions to consolidate the operations of the acquired entities, the Company
is still in the process of implementing its consolidation plan, which includes
several actions that are expected to result in margin improvements. In
particular, the Company expects to realize significant cost savings by
employing Drilex motors in the operations acquired in the ENSCO Technology and
Sharewell Acquisitions in place of leased drilling motors that have been
provided by third parties. The Company expects to substantially complete this
motor replacement program in the second half of 1996 and, as a result, expects
to generate annualized net cost savings of approximately $2.1 million by
eliminating the associated rental expense. The Company also expects to realize
additional margin improvement of approximately $0.9 million as a result of the
increased utilization of the MWD systems acquired in the ENSCO Technology
Acquisition, resulting from the employment of this equipment in the Company's
other oilfield precision drilling services operations. Aside from the
improvements expected to result from its acquisitions, the Company also
expects to realize cost improvements and/or growth as a result of several
other initiatives, including the introduction of a new concept power section
for its primary line of downhole drilling motors (see "Business--Engineering
and Manufacturing"), the completion of the startup of the Company's Western
Venezuela operations, a reorganization of the Company's Louisiana Gulf Coast
operations and anticipated increases in sales of new hole openers and a new
line of low cost motors for trenchless services applications.

As an important part of its business strategy, the Company will continue to
seek acquisitions of other businesses to expand distribution of the Company's
products and services, to add key technologies, to gain access to industry
niches, and to otherwise enhance its market presence. Upon completion of the
Offering, the Company should have available to it (i) internally generated
cash in excess of working capital, capital expenditure and debt service
requirements, (ii) borrowing capacity under the Credit Facility, and (iii) the
ability to issue additional publicly traded Common Stock, which may be used to
acquire other businesses. See "--Liquidity and Capital Resources."

RESULTS OF OPERATIONS

Drilex International Inc. began operations on March 30, 1994, the effective
date of the DSI Acquisition. As a result, for purposes of the following
discussion, the amounts from the consolidated statement of income of Drilex
International Inc. from March 30, 1994 through December 31, 1994 have been
combined with the statement of income for the Predecessor for the three months
ended March 31, 1994 (adjusted to a pro forma basis as if the DSI Acquisition
had occurred as of January 1, 1994). The following discussion presents an
analysis of such combined results for 1994 compared to the results of
operations of Drilex International Inc. for 1995 and the results of operations
of the Predecessor for 1993.

The Company's business is somewhat seasonal, since domestic oil and gas
drilling activities are generally lower in the first and second quarters.
Adverse weather conditions can curtail operations in certain regions during
different parts of the year. Accordingly, the Company's results of operations
for any one quarter are not necessarily indicative of results to be expected
for the full year.

23
<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR ENDED YEAR ENDED YEAR ENDED
ENDED MARCH 31, ENDED MARCH 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
PERCENT PERCENT PERCENT PERCENT PERCENT
OF NET OF NET OF NET OF NET OF NET
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
------- -------- ------- -------- ------- -------- ------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $19,457 100.0% $10,527 100.0% $57,526 100.0% $31,566 100.0% $25,871 100.0%
Operating expenses:
Costs of sales and
operations........... 12,018 61.8 6,462 61.4 34,606 60.1 16,288 51.6 14,093 54.5
Selling, general and
administrative
expenses............. 4,243 21.8 2,644 25.1 13,448 23.4 8,605 27.2 8,286 32.0
Depreciation and
amortization......... 1,580 8.1 761 7.2 4,492 7.8 2,324 7.4 3,107 12.0
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Operating income........ 1,616 8.3 660 6.3 4,980 8.7 4,349 13.8 385 1.5
Interest expense........ (811) (4.2) (203) (1.9) (1,935) (3.4) (567) (1.8) (1,893) (7.3)
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Income (loss) before
income taxes and
minority interests..... 805 4.1 457 4.4 3,045 5.3 3,782 12.0 (1,508) (5.8)
Provision for income
taxes.................. (290) (1.5) (164) (1.6) (1,097) (1.9) (1,362) (4.3) (152) (0.6)
Minority interests...... 11 0.1 (88) (0.8) (164) (0.3) (66) (0.2) -- --
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Net income (loss)....... $ 526 2.7% $ 205 2.0% $ 1,784 3.1% $ 2,354 7.5% $(1,660) (6.4)%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>

Comparison of Three Months Ended March 31, 1996 and 1995

Consolidated revenues for the three months ended March 31, 1996 were $19.5
million, an increase of 85% from revenues of $10.5 million for the
corresponding period in the prior year. Of the $9.0 million increase, $2.2
million was attributable to the Sharewell Acquisition (which was effective as
of May 5, 1995), and approximately $4.8 million was attributable to the ENSCO
Technology Acquisition (which was effective as of September 30, 1995). The
remainder of the increase is primarily attributable to increased drilling
services revenue in Texas and Eastern Venezuela.

Costs of sales and operations increased from $6.5 million in the first
quarter of 1995 to $12.0 million in the first quarter of the current year. As
a percent of revenues, costs of sales and operations were essentially
unchanged from the first quarter of 1995 to the first quarter of the current
year. Of the $5.5 million increase, $4.6 million was due to the ENSCO
Technology and Sharewell Acquisitions.

Excluding the Sharewell and ENSCO Technology Acquisitions, cost of sales and
operations were $7.4 million in the first quarter of 1996, or 59.5% of
revenues, compared to $6.5 million in the first quarter of 1995, or 61.4% of
revenues. In the first quarter of 1995, the Company's trenchless business unit
absorbed a $0.6 million charge related to an operational dispute, which was
settled in full during May 1996. Such settlement did not result in any further
income statement impact after March 31, 1995.

Costs of sales and operations for the operations acquired in both the
Sharewell and ENSCO Technology Acquisitions were approximately 66% of
revenues. Sharewell's margin was lower than that of the Company's pre-existing
oilfield drilling services (excluding the Sharewell and ENSCO Technology
Acquisitions) due to sales of third-party equipment. Similarily, ENSCO
Technology's margin has historically been less than that of the Company's pre-
existing oilfield drilling services due to higher costs associated with
measurement-while-drilling (or MWD) equipment and third-party rentals.

Selling, general and administrative expenses increased from $2.6 million in
the first quarter of 1995 to $4.2 million in the first quarter of 1996. As a
percentage of revenues, such expenses decreased from 25.1% in the first
quarter of 1995 to 21.8% in the first quarter of 1996. Of the increase, $1.2
million resulted from the ENSCO Technology and Sharewell Acquisitions.
Corporate overhead increased $0.3 million for additional advertising,
marketing and personnel costs associated with the support of these newly
acquired operations.

As a result of events occurring after the end of the 1996 quarter, the
Company expects to increase its allowance for doubtful accounts relating to
two Australian customers of Sharewell. The impact on the Company's net income
is expected to be approximately $150,000.

24
<PAGE>

Depreciation and amortization increased from $0.8 million in the first
quarter of 1995 to $1.6 million in the first quarter of 1996. This increase
was primarily associated with the ENSCO Technology and Sharewell Acquisitions.

Interest expense increased from $0.2 million in the first quarter of 1995 to
$0.8 million in the first quarter of 1996 due to an increase in debt to $38.8
million at March 31, 1996. Substantially all of this increase in debt was
incurred in connection with the ENSCO Technology and Sharewell Acquisitions.

While results for the second quarter of 1996 have not yet been determined,
the Company estimates that its net revenues for that quarter will be slightly
less than its net revenues for the first quarter of 1996. Net income will be
significantly less for the second quarter of 1996 compared to the first
quarter of 1996. The decrease in net income is primarily attributable to the
expected seasonal reduction in revenues in the second quarter that is
consistent with U.S. drilling activity declines during the second quarter of
prior years. Also contributing to the decrease in net income are (i) increased
engineering project costs for the scheduled replacement of third-party
drilling motors used previously in the operations acquired in the ENSCO
Technology Acquisition with Drilex motors in the second half of 1996 and (ii)
the previously discussed increase in the Company's allowance for doubtful
accounts relating to two Australian customers of Sharewell.

Comparison of Years Ended December 31, 1995 and 1994

Consolidated revenues for 1995 were $57.5 million, an increase of 82% from
revenues of $31.6 million for the prior year. Of the $25.9 million increase,
$7.9 million was attributable to the Sharewell Acquisition (which was
effective as of May 5, 1995), $5.3 million was attributable to the ENSCO
Technology Acquisition (which was effective as of September 30, 1995), and
$5.2 million resulted from the effect of a full year's activity for the
operations acquired in the Cobb Acquisition, as compared to the inclusion of
only three months of such operations in 1994 (following the September 30, 1994
effective date of the Cobb Acquisition). The remaining increase in revenues
resulted from an increase in the Company's drilling services revenues, due
primarily to increased operations in Texas, Europe (including the North Sea)
and Eastern Venezuela. The increase in activity in Texas was a result of
increased drilling activity by several major customers. Increased revenues
attributable to the European markets were due to greater small motor activity,
including motor sales to the Commonwealth of Independent States, and expanded
market penetration. Revenues in Eastern Venezuela more than doubled to $6.2
million from 1994 levels, as drilling activity significantly expanded in this
area.

Costs of sales and operations increased from $16.3 million in 1994 to $34.6
million in 1995. As a percent of revenues, costs of sales and operations
increased from 51.6% in 1994 to 60.1% in 1995. Of the $18.3 million increase,
$12.0 million was due to the ENSCO Technology and Sharewell Acquisitions and
the effect of a full year's activity for the operations acquired in the Cobb
Acquisition. Margins for the operations acquired in the Cobb Acquisition
decreased in 1995 due to increased field expenses, a greater proportion of
lower-margin onshore activity than higher-margin offshore activity compared to
the prior year, and increased costs associated with third party motor rentals.
Sharewell's margins were adversely affected in 1995 due to a greater
proportion of lower-margin sales of third-party equipment compared to higher-
margin service billings, as compared to the prior year. The margins for the
operations acquired in the ENSCO Technology Acquisition were lower than the
Company's other drilling operations due to low utilization of MWD equipment
and the expenses associated with rentals of third-party motors.

Costs of sales and operations related to the Company's pre-existing oilfield
drilling services (excluding the recent acquisitions) were adversely impacted
in 1995 by increased engineering and manufacturing costs of approximately $0.6
million. These increases resulted from costs incurred in 1995 for development
of newly designed small-diameter motors, a new concept power section for the
Company's primary line of drilling motors, and equipment for slim-hole reentry
drilling and workover applications. The Company began operations in Western
Venezuela in 1995 and incurred $0.3 million in startup expenses for staffing
personnel, freight and duties on imported equipment and facilities. Operations
in this location generated only minimal revenues in 1995, but are expected to
generate increased revenues in 1996. In 1995, the Company's trenchless
business unit absorbed a $0.6 million charge related to an operational
dispute, which was settled in full during May 1996.

Selling, general and administrative expenses increased from $8.6 million in
1994 to $13.4 million in 1995. As a percentage of revenues, selling, general
and administrative expenses decreased from 27.2% in 1994 to

25
<PAGE>

23.4% in 1995. Of the $4.8 million increase, $3.1 million was due to the ENSCO
Technology, Sharewell and Cobb Acquisitions. Corporate overhead increased $0.8
million due to additional advertising, marketing and personnel costs associated
with the support of these three acquisitions, in particular the ENSCO
Technology Acquisition because of its size and complexity.

Depreciation and amortization increased from $2.3 million in 1994 to $4.5
million in 1995. This increase was primarily due to the ENSCO Technology,
Sharewell and Cobb Acquisitions, partially offset by a $0.4 million decrease
resulting from an increase in the estimated useful lives for certain drilling
equipment effective April 1, 1995.

Interest expense increased from $0.6 million in 1994 to $1.9 million in 1995
due to an increase in debt to $38.4 million at December 31, 1995. Substantially
all of this increase in debt was due to the ENSCO Technology, Sharewell and
Cobb Acquisitions.

Comparison of Years Ended December 31, 1994 and 1993

Consolidated revenues increased from $25.9 million in 1993 to $31.6 million
in 1994, an increase of 22%. Of the $5.7 million increase, $1.7 million was due
to the Cobb Acquisition, which occurred in September 1994. The remaining
increase was primarily attributable to increased oilfield drilling revenues
attributable to markets in Texas and in Eastern Venezuela, which was a startup
operation in 1993, and increased sales coverage. These increases were partially
offset by a $0.4 million decrease in trenchless revenues compared to 1993,
reflecting the completion of a large fiber optic cable installation job in
1993.

Costs of sales and operations increased from $14.1 million in 1993 to $16.3
million in 1994, or 16%. As a percentage of revenues, these costs decreased
from 54.5% in 1993 to 51.6% in 1994. Approximately $0.8 million of the increase
was attributable to the Cobb Acquisition. The 1993 results included
approximately $1.1 million of nonrecurring charges related to the consolidation
of certain operating, manufacturing, engineering and administrative functions.
The 1993 margins were positively affected by the above-referenced fiber optic
installation job in the Company's trenchless operations.

Selling, general and administrative expenses increased slightly from $8.3
million in 1993 to $8.6 million in 1994. Approximately $0.4 million was
attributable to the Cobb Acquisition. These expenses decreased as a percentage
of revenues from 32.0% in 1993 to 27.3% in 1994.

Depreciation and amortization decreased from $3.1 million in 1993 to $2.3
million in 1994. The decrease was primarily due to an approximately $1.0
million reduction resulting from a lower depreciable basis in 1994 as a result
of the purchase price allocation associated with the DSI Acquisition.

Interest expense for 1994 of $0.6 million is principally due to the DSI and
Cobb Acquisitions. Interest expense in 1993 of $1.9 million for the Predecessor
consisted entirely of intercompany interest allocated from its parent entity.

LIQUIDITY AND CAPITAL RESOURCES

Since the DSI Acquisition, the Company has generally funded its activities
(other than its acquisitions) through cash generated from operations and short-
term borrowings. The cash portion of the purchase price for each of the Cobb,
Sharewell and ENSCO Technology Acquisitions was funded through borrowings under
the Credit Agreement and, in the case of the Cobb and ENSCO Technology
Acquisitions, from the issuance of capital stock. For a description of the
other financing arrangements for these acquisitions, see "The Company."

At March 31, 1996, the Company had working capital of $13.7 million, compared
to working capital of $13.4 million at December 31, 1995 and $9.5 million at
December 31, 1994. The increase from 1994 primarily reflects increases in
accounts receivable and inventory, partially offset by increases in accounts
payable and current maturities of long-term debt. Each of these increases was
primarily due to the effects of the ENSCO Technology and Sharewell
Acquisitions.

Capital expenditures (excluding acquisitions) for 1995 were $5.4 million, as
compared to $0.9 million for the prior year. The 1995 expenditures included
$3.0 million for acquisitions of new MWD systems and $0.7 million for a new
slant drilling rig for the Company's trenchless services operations. The
Company has budgeted

26
<PAGE>

approximately $7.3 million for capital expenditures (excluding acquisitions) in
1996. Such expenditures are expected to relate primarily to acquisitions of new
MWD systems. The Company believes that it will be able to increase its current
production to support higher revenues without material additional capital
investment.

During the remainder of 1996, the Company expects to fund its working
capital, anticipated capital expenditures and debt maturity requirements
(excluding debt to be repaid with proceeds from the Offering) primarily through
cash provided by operating activities. The Company carries substantial
inventory and accounts receivable, and will require increased working capital
as its revenues grow.

Borrowings outstanding under the Revolving Credit Facility may not exceed
$13.0 million at any time, of which up to $3.0 million may be used for letters
of credit. The Revolving Credit Facility has a term that expires on September
30, 1998. The Revolving Credit Facility requires the Company to maintain
certain financial covenants (including a minimum tangible net worth, a minimum
fixed charge coverage ratio and maximum debt to capitalization ratios) and
limits borrowings of the Company (other than under the Revolving Credit
Facility) to no more than $2.0 million. The Revolving Credit Facility also
places restrictions on the Company's ability to, among other things, pay
dividends, enter into unrelated lines of business, undertake transactions with
affiliates and make investments. For additional description of the Credit
Facility's terms, see Note 6 to the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus.

As of June 1, 1996, the Company had available revolving credit borrowing
capacity of $0.7 million under the Credit Facility. The Company intends to use
a portion of the net proceeds it will receive from the Offering to repay all
borrowings under the Term Loan and Revolving Credit Facility, amounting to
$15.7 million and $12.0 million, respectively, at June 1, 1996. The Company
will be able to reborrow amounts paid under the Revolving Credit Facility,
while the Term Loan commitment will terminate upon prepayment. In connection
with the termination of the Term Loan, the Company intends to terminate a
related interest rate swap agreement (described in Note 6 to the Consolidated
Financial Statements of the Company). The Company anticipates that the
termination of such swap agreement will not involve any material expense to the
Company.

The Company intends to continue pursuing attractive acquisition
opportunities. The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. The Company expects
to fund future acquisitions primarily through a combination of working capital,
cash flow from operations and bank borrowings, including the unborrowed portion
of the Revolving Credit Facility, as well as issuances of additional equity.

Due to the relatively low levels of inflation experienced in 1993, 1994 and
1995, inflation did not have a significant effect on the Company's results in
such years.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In March 1995, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS 121"). SFAS 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is effective for fiscal years beginning after December
15, 1995. The Company believes that the adoption of SFAS 121 will not have a
material impact on its consolidated financial statements.

In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
establishes alternative methods of accounting and disclosure for employee
stock-based compensation arrangements. The Company has elected to continue the
use of the "intrinsic value based method" of accounting for its employee stock
option plan. This method does not result in the recognition of compensation
expense when employee stock options are granted if the exercise price of the
options equals or exceeds the fair market value of the stock at the date of
grant. The Company will adopt the disclosure requirements of SFAS 123 when it
becomes effective in 1996.

27
<PAGE>

BUSINESS

GENERAL

Drilex is a leading provider of products and services used in directional,
horizontal and other precision drilling of oil and gas wells, oilfield
workover operations, environmental remediation applications, and trenchless
pipeline and cable laying applications. Precision drilling involves the
combined use of a steerable downhole positive displacement drilling motor and
a guidance system to enable the controlled placement of a borehole through
predetermined locations. Drilex employs this technology to drill to depths
ranging from near surface to more than four miles. The Company's products and
services include comprehensive computerized well planning and engineering
services, supervision of drilling operations and project management, a full
range of high performance downhole positive displacement motor systems,
guidance systems (such as MWD instrument systems and steering tools), and
other related downhole tools. Oilfield applications accounted for
approximately 86% of the Company's revenues (on a pro forma basis) in 1995.
The Company currently operates from 23 locations around the world and has
approximately 390 employees.

INDUSTRY OVERVIEW

Oilfield applications currently comprise the largest part of the precision
drilling market, which is a relatively new segment of the overall drilling
industry. Based on industry sources, the Company estimates that the number of
oil and gas wells drilled in the United States using precision drilling
technology increased 56% from 2,110 in 1990 to 3,288 in 1995. As a result of
an overall decrease in oil and gas drilling activity, this growth has resulted
in the proportion of oil and gas wells drilled in the United States employing
precision drilling technology increasing from 7% in 1990 to 17% in 1995.
Because of the complexity involved in precision drilling, oil and gas
operators typically rely on specialized precision drilling service contractors
to manage the entire process of drilling the horizontal or directional portion
of a well.

To a large extent, the development of precision drilling is attributable to
exploration and development activities in offshore areas as well as the Austin
Chalk formation. In regard to offshore areas, precision drilling provides the
ability to drill numerous offshore wells from a single fixed platform and the
ability to control the placement of a large number of wellpaths in a
relatively small area while avoiding the operational problems that would
result if the wellpaths intersected. In addition, new "extended-reach"
precision drilling technology allows many smaller offshore reservoirs, which
may not be economic to develop on a stand-alone basis, to now be developed
from existing offshore platforms.

The Austin Chalk formation, a large formation extending from South Texas to
parts of Louisiana, is characterized by vertical fractures containing
recoverable quantities of oil and gas in closely grouped pay zones.

28
<PAGE>

This formation has served as an excellent "proving ground" for new precision
drilling technologies, which have significantly improved the ability of the
directional drilling contractor to control the location and direction of the
drill bit reaching over 6,000 feet horizontally from the vertical section of
the well. Horizontal drilling is valuable and prevalent in this area because
it allows the operator to intersect multiple vertical fractures with a single
horizontal wellbore, thereby increasing well productivity and the total amount
of reserves that can be economically recovered (particularly in the early life
of the well), while reducing overall drilling costs (because fewer wells are
required compared to a vertical development program).

Building upon its success in offshore areas and the Austin Chalk formation,
precision drilling has gained increased acceptance throughout the oil and gas
industry and has spread rapidly to other producing areas. This growth has been
driven primarily by the substantial cost savings, improvements to drilling
efficiency and enhancement to reservoir production that precision drilling can
provide to operators. Precision drilling can be used to develop a field with
multiple wells drilled from the same offshore platform or, in environmentally
sensitive areas (such as the Alaskan North Slope), from fewer surface
facilities than conventional drilling would require. In addition, horizontal
drilling is also important to development of hydrocarbon deposits in sandstone
formations (prevalent in such areas as the Gulf of Mexico, South America,
Alaska and the Far East), because it allows the placement of the wellbore in
the reservoir over an extended length, thus exposing a greater area of the
productive formation and thereby increasing well productivity while reducing
overall drilling costs.

The technological and operational advantages of precision drilling combined
with advances in the identification and location of hydrocarbons have made
many marginal or otherwise uneconomical or depleted reservoirs economically
feasible to produce. A good example of this transformation is the Austin Chalk
formation, which the Company believes accounts for approximately one-third of
the U.S. market for oilfield precision drilling services. The Austin Chalk
formation is an extremely challenging and difficult environment in which to
operate. It requires durable equipment and accurate drilling capabilities.
Recent developments in multilateral technology, which allows two or more
horizontal wells to be drilled from the same vertical wellbore, have further
enhanced well productivity and development efficiency in this area. As one of
the leading precision drilling contractors in the Austin Chalk formation, the
Company has completed numerous multilateral drilling projects in this
formation, including several wells involving vertical depths greater than
14,000 feet and bottom-hole temperatures in excess of 300(degrees) F. Recent
advances in subsurface geological analysis, such as 3-D seismic technologies
and CAEX techniques, which have enhanced the identification and location of
hydrocarbon deposits, combined with recent improvements in precision drilling
technologies, are creating new opportunities for precision drilling services.
Small deposits, which would not be economical to develop on a stand-alone
basis, can be successfully developed utilizing precision drilling techniques
and, in the case of offshore deposits, utilizing existing offshore platforms.
In addition, new "slim-hole" (drilling tool sizes 3 1/2 inches or less in
outside diameter) precision drilling technology used in conjunction with
small-diameter drill pipe or coiled tubing (a substitute for drill pipe) is
permitting operators to re-enter old wells and drill from the existing
wellbore to develop previously untapped deposits.

BUSINESS STRATEGY

The Company's business strategy is built upon Drilex's premier line of
downhole positive displacement drilling motors and emphasizes (i) providing
the highest quality oilfield precision drilling and related customer support
services in key geographic markets where demand for precision drilling
services is concentrated, (ii) maximizing delivery of its core products,
either through sales, rentals or alliance arrangements, into other geographic
markets where the Company does not focus its service efforts, and (iii)
capitalizing on its technical strengths by developing opportunities to deliver
its core products and services into emerging oilfield and non-oilfield markets
where the Company's technical expertise can provide significant advantages.
The Company also intends to explore additional opportunities for external
growth through acquisitions of businesses to complement the Company's existing
operations.

29
<PAGE>

markets. The Company currently concentrates its activities in the Austin Chalk
formation (a large formation extending from South Texas to parts of
Louisiana), the Gulf of Mexico, Venezuela, the North Sea, Argentina and
Canada. Each of these markets is characterized by substantial field
development activity (as opposed to new exploration activity) and a relatively
high number of technically challenging situations that require high quality
precision drilling operations. A recent independent market study conducted for
the Company confirmed the Company's belief that service quality, reliability
of equipment, localized knowledge of drilling conditions and experience and
expertise of field personnel are the most important factors in competing for
business in these markets. The Company believes that maintaining control over
the entire design, engineering and manufacturing processes for its drilling
motors provides the Company with distinct advantages in providing high quality
service. The Company designs and builds its motors to optimize precision,
power and reliability. Drilex also maintains a flexible manufacturing process
that includes a continuous improvement program, which produces quality and
performance improvements that enable Drilex to meet the leading-edge needs of
its customers. In addition, the Company concentrates its service activities in
its key geographic markets in order to develop and capitalize on the Company's
local knowledge and to take advantage of the regional experience and expertise
of its drilling supervisors and other technical field personnel, as well as to
achieve scale operating efficiencies. Furthermore, the high level of activity
conducted by the Company in concentrated geographic areas permits a focused
application engineering effort, which allows the Company to refine its
products and services to meet the needs of its customers on a more effective
basis.

The Company also utilizes other distribution channels to maximize delivery
of its products to areas outside of its key geographic markets. Since its
inception, the Company has successfully marketed its drilling motors on a sale
and rental basis to oil and gas exploration and development companies and
other oilfield service contractors under the internationally recognized
"Drilex" brand name. These efforts have been particularly successful in the
North Sea market, where the Company has become an established provider of
drilling motors to operators and other service companies for various
directional drilling and coiled tubing applications. The Company intends to
strengthen its existing distribution channels and expand its product
distribution in those markets where the Company is not a significant service
competitor. In particular, the Company is in the process of establishing
alliance arrangements with several large oilfield service companies, which
would permit these companies to include Drilex motors in their comprehensive
offerings of oilfield products and services in certain markets where the
Company does not focus its service efforts. The alliance agreements the
Company is seeking to establish could take various forms, including agreements
under which the other party would include the Company's services in a packaged
or integrated service offering or agreements whereby the Company would be an
approved provider to the other company. These alliances do not, in general,
constitute long-term purchase commitments by the other party.

The Company plans to continue to build upon its technical drilling
capabilities by further developing opportunities in emerging markets where the
Company's expertise can provide competitive advantages. In particular, the
Company believes that the development and rapid growth in the use of coiled
tubing for oilfield workover, redrilling and recompletion operations has
provided a significant opportunity for growth in the use of precision drilling
technology for slim-hole applications. The Company has become the leading
supplier of smaller diameter drilling motors and related equipment for coiled
tubing operations and intends to maintain this leadership position as coiled
tubing operations increasingly become a substitute for conventional drilling
operations. Drilex has also been successful in developing opportunities for
precision drilling in the environmental remediation and trenchless services
markets, which the Company believes offer significant opportunities for
growth. The Company is focusing its efforts on the high-end segments of these
markets and is pursuing long-term relationships with large customers that
generate substantial demand for services that can be provided by Drilex.

30
<PAGE>

product distribution and significantly increased the Company's service
capabilities in the emerging environmental remediation and trenchless services
markets. The Company will continue to explore opportunities involving
acquisitions of other businesses to expand distribution of the Company's
products and services, to add key technologies, to gain access to attractive
industry niches, and to otherwise enhance its market presence.

PRODUCTS AND SERVICES

OILFIELD PRECISION DRILLING APPLICATIONS

Precision Drilling Services. The Company provides comprehensive precision
drilling services for oil and gas drilling and workover applications,
including computerized well planning, on-site drilling supervision,
maintenance and support, and post-well analysis. In many oilfield
applications, precision drilling techniques offer significant economic
advantages over conventional vertical drilling techniques, such as reduced
drilling time and expense, increased well production and enhanced reservoir
recovery. The high torque, speed and performance offered by current-generation
downhole drilling motors permit the use of precision drilling techniques as a
practical alternative to conventional drilling even for vertically drilled
wells. Customers for oilfield precision drilling services are concentrated
primarily among major and large independent oil and gas companies. Because of
the complexity involved in precision drilling, these customers typically rely
on specialized precision drilling service contractors to manage the entire
process of drilling the horizontal or directional portion of a well. Precision
drilling services require high performance drilling motors, sophisticated
guidance systems and analytical tools, and an experienced staff of wellsite
and technical support personnel. The Company's drilling motors operate in
conjunction with various guidance systems (including MWD instrument systems
and steering tools) provided by the Company or other oilfield service
companies. While the Company has its own line of steering instruments, which
it assembles from sub-assemblies obtained from various third parties, Drilex
currently obtains all its MWD instrument systems from two third-party
manufacturers. These two suppliers are essentially the only two sources of
such equipment available to the Company. See "Risk Factors--Dependence on
Certain Third-Party Suppliers." In addition, certain vertical drilling
operations employ precision drilling services, particularly in situations
where tight vertical tolerances and sloping formations dictate a need for
downhole directional control to keep the wellpath proceeding vertically.

The Company's precision drilling services emphasize pre-job planning as well
as on-site performance. Utilizing a specialized software system and drawing
upon the Company's expertise in motor technology, guidance systems and field
experience, the Company's well planning services involve precisely plotting a
wellpath and developing a comprehensive technical proposal that specifies the
particular motor technology, guidance systems and other equipment
configurations to be employed to achieve the drilling objective most
efficiently. The technical proposal is typically based on the most detailed
data available, including drilling records from the area, bit records from
offset wells, data provided by the customer, correlation logs and the
Company's own database. A typical technical proposal will specify various
items, including optimal wellpath, motor system configuration and drillstring
component recommendations, operating procedures and drilling parameters
(including trouble-shooting methods), hydraulic calculations (including data
on pressure loss, annular velocities and bit performance), bottomhole assembly
graphical representations with component dimensions, motor system
configuration analyses, and complete technical specifications for each
recommended motor system to ensure compatibility with other equipment and job
objectives.

The Company's on-site operations are conducted by the Company's precision
drilling specialists and drilling supervisors, who are based out of the
Company's regional offices. The local knowledge and regional experience
provided by the Company's drilling supervisors at the well site is key to
successful field operations. The Company's drilling supervisors are backed by
on-site computing and the Company's engineering and support services team.
During drilling operations, a continuous stream of data is transmitted from
the bottom of the wellbore to the drilling team for evaluation of the well's
progress. The supervisor on site, with the assistance of engineers at the
Company's regional offices, works to interpret this information to make
critical decisions that may involve altering the wellpath or reconfiguring the
bottomhole assembly to enhance performance. Additional technical support is
available from the Company's headquarters engineering staff.

Through its network of sales and service locations, the Company provides
maintenance and support services for precision drilling operations. The
Company's maintenance and service personnel inspect, test and (if necessary)
repair the Company's drilling motors and guidance systems prior to dispatch to
the drilling sites to

31
<PAGE>

ensure normal operations and to prolong the life of the Company's equipment.
The Company maintains extensive records on all maintenance and service
support. These records allow the Company to make comparative assessments of
performance and repair costs and are used to provide direct input for
fundamental design changes.

After the Company completes a precision drilling job, it typically prepares
a post-well analysis that is used by the customer to, among other things,
evaluate drilling motor and bit performance and provide insight into its
ongoing drilling operations. The Company utilizes these analyses to evaluate
possible improvements in efficiency and performance in future drilling
projects in the same geographic area or in formations with similar geological
and geophysical characteristics. The Company maintains a substantial database
of these performance records relating to its operations worldwide.

Drilex has applied its technical drilling expertise to the development of
services for slim-hole production service and workover applications.
Production services typically involve running small-diameter (3-1/2 inches or
less) drilling motors on either coiled tubing or workover strings to clean out
a contaminated wellbore, deepen a well or drill a sidetrack well. Workover
applications involving the Company's services frequently entail re-entering a
well and replacing its existing completion with horizontal drain holes to
increase the well's production performance and extend the life of the well.
Other workover services provided by the Company include drilling out cement
and removing fill, scale or heavy wax; cleaning production tubing and casing;
milling casings, packers, junk and plugs; fishing; and well deepening.

The Company believes that recent developments in advanced drilling
technology, such as coiled tubing systems and "extended-reach" drilling,
provide significant opportunities for growth in the precision drilling market.
The development of large diameter coiled tubing for downhole use has generated
significant opportunities for oil and gas companies to reduce costs in deep
exploration, enhanced recovery and recompletion/workover projects. Coiled
tubing systems require specialized services, which utilize small diameter
drilling motors to develop mechanical power downhole. With the power generated
by the downhole drilling motor, coiled tubing systems can be used for a
variety of drilling operations, including conventional open-hole drilling,
coring, under-reaming, well deepening, medium-radius drilling, horizontal
drilling, setting whipstocks and milling. Extended-reach development projects
typically involve the drilling of numerous wells from a single, stationary
drilling location. Current extended-reach drilling technology provides the
capability of drilling to a wellbore target that has a horizontal displacement
extending for over 10,000 feet. This technology can provide substantial
reductions in capital requirements for development drilling, particularly in
offshore locations. The Company provides a full range of precision drilling
services for coiled tubing operations and extended-reach drilling utilizing
the Company's drilling motors and guidance systems.

Precision Drilling Products. Drilex was one of the early pioneers in the
development of downhole drilling motors in the early 1980s and is now a
worldwide leader in the design and manufacture of high-performance, multi-
lobed positive displacement drilling motors. Drilex was the first manufacturer
to produce a high-torque downhole motor designed to drive a rock bit at its
optimal (relatively low) speed, thereby increasing the life of the bit and
reducing the risk of the bit breaking apart in the wellbore. Through its
manufacturing operations, Drilex is able to maintain close control over the
performance and quality characteristics and pricing of the drilling motors
used in its service operations. The Company's drilling motors have the ability
to generate power from a wide range of drilling fluids (both oil-based and
water-based fluids and compressed air) and to operate at both high and low
speeds.

Downhole positive displacement drilling motors consist of four basic
elements: the power section, the transmission section, the output shaft
assembly and the motor casing. Each of the components of the drilling motor
must be engineered and precision manufactured so as to be compatible with the
motor's other components, in order to achieve optimal performance with
predictable wear patterns.

The Company's positive displacement motors utilize a multi-lobed power
section consisting of a rotor/stator combination that is attached directly to
the drillstring and is driven by drilling fluid pumped down the drillstring to
turn the drill bit. The power section operates without lubrication (other than
from the drilling fluid itself) and

32
<PAGE>

is designed to withstand the highly abrasive drilling fluids being passed
through it. The stator and rotor comprising the power section act together as
a system of gears--one inside the other. The outer gear (the stator) consists
of a molded elastomer with at least three gears (or lobes), and is enclosed on
the outside by a metal tube. Positioned inside the stator is an internal gear
called the rotor, which is made of steel and has one fewer lobe than the
stator. The difference between the rotor/stator lobe configuration creates a
spiral series of gaps, which, during drilling operations, are filled with
drilling fluid. Under pressure, the fluid within this spiral acts as a wedge.
Hydraulic force applied to the top of the wedge applies a force on the rotor.
Due to the helical shape of the rotor, this application of fluid force onto
the rotor causes rotation.

The rotation from the power section is applied to the transmission section,
which is a drive shaft that converts the rotary motion from inside the power
section to transmit high downward thrusts and torque to the output shaft
assembly at varying rotational speeds. The transmission section can be
configured in a variety of forms to meet differing drilling objectives. The
output shaft assembly provides the drive to the drill bit. The complex, multi-
stack ball track bearing design mounted on this element must be able to
tolerate the maximum bit thrust as well as high levels of vibration and the
reactive force of the weight on the bit, which operates in an upward
direction. The motor casing is a precision-manufactured shell that encases the
other elements of the motor. While the motor casings are thin-walled, they are
designed to maximize the structural integrity of the motor.

Drilex has designed its drilling motors to optimize flexibility, power and
reliability. The Company's drilling motors have achieved some of the highest
power and quality ratings in the industry. Drilex motors have demonstrated
high performance capabilities and reliability even in arctic locations and in
severe downhole environments, both onshore and offshore, where the motors
encounter extremely high temperatures, hard rock, sour gas, high sand content
formations, highly abrasive muds and environmentally sensitive fluids. The
Company's motors are used for a wide variety of wellbore drilling
applications, including initial spudding of wells, vertical drilling,
directional drilling, horizontal drilling, tangent drilling, under-reaming,
casing cutting, coring, conductor drill down, and fishing.

In addition, the Company's motors are used in a variety of production
services and workover applications. The Company has recently developed an
extensive line of powerful, long-endurance, small-diameter (1-11/16 to 3-1/2
inches in outside diameter) motors for use in conjunction with coiled tubing
operations, a rapidly growing segment of the oilfield services market. Before
the introduction of small-diameter motors, coiled tubing operations were
limited to certain pumping services and fishing applications. The downhole
mechanical power generated by the small-diameter motors has permitted a
significantly greater variety of operations utilizing coiled tubing. As coiled
tubing operations continue to become more widespread, the Company expects to
further expand its line of small-diameter motors to meet the demand for more
specialized applications.

Drilex maintains a large inventory of drilling motors in sizes ranging from
1-11/16 to 9-1/2 inches in outside diameter, which are capable of drilling
holes in sizes ranging from six inches to 36 inches in diameter, depending on
the application. Approximately 30.3% of the Company's drilling motor inventory
is designed for slim-hole applications, such as workover, redrilling and
recompletion tasks. The Company's slim-hole product line has increased
substantially over the past three years, primarily reflecting the Company's
product development efforts to meet the substantial growth in coiled tubing
operations since 1993. The Company's wide range of drilling motors permits the
selection of the precise combination of size, torque, speed and bearing
configuration to meet the anticipated drilling conditions for a specified
project.

Drilex uses its motors as a service tool, a rental tool and a direct sale
product, although rentals and sales have become a less significant part of the
Company's business in recent years. Motor rental involves renting the
equipment directly to oil and gas companies or oilfield service contractors
for use in the drilling of vertical, horizontal and directional wells. Drilex
delivers the motors and spares to the customer's location and is generally
paid a standby rate when the equipment is idle but at the rig site, and a
circulating rate when the drilling motor is downhole. Drilex's wide range of
motor types and reputation for high reliability makes the Company a market
leader in drilling motor rental.

33
<PAGE>

The Company's drilling motors operate in conjunction with various guidance
systems (including MWD instrument systems and steering tool systems) provided
by the Company or other oilfield service companies. The Company's drilling
motors are also sometimes operated together with logging-while-drilling
equipment, which the Company does not provide. While the Company has its own
line of steering instruments, which it assembles from sub-assemblies obtained
from various third parties, it obtains its MWD instrument systems from third-
party manufacturers. The Company's MWD instrument systems and steering tools
are modular and readily transportable.

The MWD systems provided by the Company employ state-of-the-art technology
to provide positional and some geological information, downhole temperature
readings, magnetic or gravity toolface readings, and three-dimensional
directional measurement information from the bottom of the wellbore to the
precision drilling team, thereby facilitating guidance of the trajectory of
the drill bit from the surface and enabling continuous drilling operations
over long intervals. The information is transmitted from a downhole probe to a
surface computer (which provides a display of data on a driller's console
located on the deck of the drilling rig) through the use of mud-pulse
telemetry, which involves the transmission of pressure-pulse signals from the
downhole MWD unit up through the column of drilling mud in the drillstring.
MWD systems are sometimes configured with gamma ray sensors to recognize
changes in subsurface lithology, thereby enhancing the ability to steer the
drill bit through various types of formations. The Company obtains
substantially all of its MWD systems from two different manufacturers.

The Company's steering tool systems consist of various components designed
to provide a continuous, real-time display of measurement-while-drilling data
through the use of downhole probes, which contain orientation modules for
gravity and magnetic survey measurements, temperature sensors and signal
digitizing circuitry. Steering tool systems are functionally similar to MWD
systems, but differ in that, instead of using mud-pulse telemetry to
communicate with the surface, they use wireline cables that run from the
downhole probe to the surface. The downhole probe conveys the bottomhole data
via the wireline to a surface computer that provides a continuous display (on
a driller's console located on the deck of the drilling rig) of data regarding
the toolface's inclination, orientation and direction relative to magnetic
north, as well as information regarding magnetic field strength and dip angle,
temperature and wireline voltage. While steering tools are generally less
costly to operate than MWD systems and are not subject to the signal
attenuation that may affect MWD systems (generally related to the depth of the
well and the physical characteristics of the drilling mud being used),
steering tools sometimes involve more operational difficulty than MWD systems,
generally related to the need to run a wireline from the surface through the
drillstring to connect with the downhole probe. In certain applications where
more frequent transmission of data is important (such as slim-hole workover
and reentry applications), a steering tool is more effective than an MWD
system.

ENVIRONMENTAL REMEDIATION APPLICATIONS

The Company has applied its technical drilling capabilities to pioneer the
use of shallow well horizontal drilling for environmental remediation
applications and trenchless pipe, line and cable installations.

In its environmental remediation operations, Drilex focuses on groundwater
remediation activities, the largest of the high-end segments of the
environmental remediation market. The Company uses its well-proven drilling
systems to drill horizontal wellbores beneath contaminated sites, so that
extraction and remediation of the contamination can take place at a much
improved rate.

Horizontal drilling provides numerous advantages for environmental
remediation compared to conventional vertical drilling. A single horizontal
well can perform most aspects of remediation more efficiently and economically
than the multiple wells required in a vertical drilling system. Horizontal
drilling can accurately access contaminants that are unreachable with vertical
wellbores, such as contaminants beneath immovable structures. In addition,
horizontal wells can traverse the entire length of the contaminant plume,
maximizing wellbore exposure and contaminant recovery for remediation
applications. Moreover, the risk of cross

34
<PAGE>

contamination due to hydraulic channeling is reduced by fewer wellbores
penetrating impermeable layers between aquifers. The need for fewer wells and
fewer wellheads in a horizontal system generally reduces total drilling time
and drilling cost per foot of exposed plume and reduces surface system
installation costs. In addition, higher yields due to increased hydraulic
characteristics can significantly reduce the time required for remediation,
reducing operating and maintenance costs over the life of the project.

Each remediation project undertaken by the Company is analyzed based on such
customer-supplied details as the purpose of the well, the type of
contaminants, the formation characteristics, the target depth, the groundwater
flows, the surface obstacles and well placement. Based upon this analysis,
Drilex prepares a technical proposal. Drilex personnel provide all services
from well planning through well completion. Typical projects include:

. Sampling conduits for soil gas monitoring and leachate sampling.

. In-situ remediation of contaminated soil or groundwater by soil vapor
extraction and bio-remediation.

. Installation of transport/pressure barriers to prevent contaminant
migration using slurry walls and pressure curtains.

. Pump and treat systems for contaminated groundwater recovery, free
product recovery and vapor recovery.

The Company attempts to provide its environmental remediation services in a
manner so as to minimize its handling of materials that may be classified as
hazardous substances or wastes. In addition, the Company generally obtains
indemnity agreements from its environmental remediation services customers
requiring such customers to indemnify the Company against any liability that
may arise from the Company's handling of such materials in the course of
performing a contract for these services. There is no assurance, however, that
such contractual indemnity will, in all instances, be effective or sufficient
to protect the Company from liability for claims arising from its handling of
hazardous materials in connection with its environmental services operations.

TRENCHLESS APPLICATIONS

Through its Sharewell subsidiary, the Company also provides precision
drilling services and equipment for trenchless pipe, line and cable laying
applications, which primarily involve horizontal boring underneath city
streets and structures to enable the "trenchless" delivery of conduits in
densely built areas, as well as subsurface crossings of rivers, streams and
other bodies of water. Applications for trenchless services include subsurface
installations of fiber optics lines, cable systems and utility pipelines and
wiring. Sharewell focuses its trenchless services operations on the high-end
segment of the market, which typically involves applications that require a
high level of directional precision and/or boring through hard rock.

Sharewell is the largest supplier of guidance systems to the trenchless
drilling industry worldwide. Founded in 1984, Sharewell initially offered
steering tools and electronic multi-shot survey tools for sale or lease to
oilfield customers. These tools are now widely supplied to companies that
install pipelines by trenchless methods. Sharewell's complete service offering
includes a surveyor (the equivalent of an oilfield directional driller) on
location to guide the drilling of the bore. In addition, Sharewell provides a
guidance system for use in areas of high magnetic interference where the use
of conventional guidance tools is normally precluded. The Company also sells a
number of specialist drilling tools to the trenchless services industry,
including hole openers, reamers, non-magnetic collars and bits.

The Company provides complete horizontal drilling services for environmental
remediation and trenchless services using two highly specialized mobile slant
drilling rigs that it designed and built in 1992 and 1995. The rigs utilize a
closed-loop circulation system that captures, cleans and recirculates the
drilling fluid, eliminating the need for earthen mud pits at the well site.
The rigs are compact, requiring an area as small as 50 feet x 100 feet for
four trailer-mounted rig components. Surface rotary power and downhole motors
may be used to advance

35
<PAGE>

the drillstring. This equipment provides the Company with the capability to
drill a six-inch diameter hole approximately 30 feet below surface and hit a
two-feet in diameter target point 1,500 feet away. During 1995, Drilex
completed two significant environmental remediation projects, which involved
drilling 20 wells having total footage of more than 15,000 feet.

CUSTOMERS

The Company's customers for oilfield precision drilling services and
products are concentrated primarily among major and large independent oil and
gas companies, conventional drilling contractors and certain other oilfield
service contractors. Customers for the Company's environmental remediation
services include environmental service contractors, engineering consulting
firms, petrochemical companies, hydrocarbon transportation companies and
military and other governmental organizations. Customers for trenchless
services include telephone and other utilities, as well as general
contractors. The following is a list (in alphabetical order) of the Company's
20 largest customers during 1995:

Amerada Hess Corporation Horizontal Drilling International, Inc.
Amoco Corporation Pennzoil Company
Atlantic Richfield Company Perez Companc SA
Bexco Operating Inc. Radian International L.L.C.
BP Exploration Company Limited Rowan Companies, Inc.
Chesapeake Energy Corporation Seneca Resources Corporation
Chevron Corporation Sonat Exploration Company
Corpoven Anaco, S.A. Texaco Inc.
Exxon Corporation Torch Operating Company
Halliburton Company Union Pacific Resources Company

For the year ended December 31, 1995, one of the Company's customers
accounted for approximately 10% of the Company's revenues. While the Company
is not dependent on any one customer, the loss of one of its significant
customers could, at least on a short-term basis, have an adverse effect on the
Company's results of operations.

MARKETING AND SALES

The Company markets and sells its services and products directly through its
sales force and operating managers, utilizing the Company's 14 domestic and 9
international locations. In addition, in certain foreign markets where the
Company does not maintain offices, the Company utilizes sales representatives
and local agents to enhance its marketing and sales efforts. The Company also
places print advertising from time to time in trade and technical publications
targeted to the Company's customer base and publishes technical papers, which
it presents at technical conferences and seminars. Most of the Company's jobs
are on a per well basis; the Company does not have a significant number of
long-term service contracts.

The Company's marketing and sales resources are generally focused in the
United States, Canada, Venezuela, the North Sea, Argentina and Canada, which
comprise the largest segments of the worldwide market for precision drilling
services.

A significant element of the Company's sales effort involves the preparation
of a comprehensive technical proposal in the well planning stage of
prospective projects. The technical proposal is typically provided to the
customer before the customer makes its decision regarding the selection of a
precision drilling contractor. The Company utilizes the regional knowledge and
expertise of its drilling and engineering staffs in the preparation of the
technical proposal. See "--Products and Services--Oilfield Precision Drilling
Services."

Significant factors considered by customers in selecting from among
qualified contractors are service quality, reliability of equipment, local
knowledge of drilling conditions and the regional experience and expertise of
the drilling team proposed to be utilized for the particular drilling
operations out for bid. See

36
<PAGE>

"--Competition." Drilex regards its staff of highly qualified, experienced
technical personnel as one of its greatest strengths, and draws upon the
experience of these employees and their existing relationships with customers
as an important part of the Company's sales effort.

ENGINEERING AND MANUFACTURING

The Company's drilling motors are designed and manufactured to satisfy the
highest standards of performance and reliability. Producing a reliable
downhole drilling motor requires sophisticated geometric power section
designs, precision machining of the rotor, and forming of a matching stator.
Drilex has designed its own motors since the Company's founding and holds a
number of patents on various aspects of their design and manufacture. At the
current time, Drilex can perform all manufacturing functions with the
exception of stator molding and thrust bearing manufacturing, each of which is
done under close relationship with a long-time supplier. The Company's
manufacturing operations are conducted at its principal Houston facility.

The Company uses special machinery required for the precision machining of
the various special components of its motors. The Company tracks the progress
of each manufactured component from original material through the entire
machining and assembly process. By maintaining in-house control of the
manufacturing process and through continued design improvements from the
Company's 23-member engineering staff, Drilex is able to maintain the highest
levels of product quality and reliability.

Drilex maintains its leadership role in motor product development by
employing a continuous improvement process involving the close integration of
design, manufacturing and field operations. Based on continuous feedback from
the field, the Company focuses on developments expected to yield both cost
improvements and product enhancements. The Company's integrated approach has
led to many design innovations that have improved the structural integrity,
performance and lives of the Company's drilling motors and reduced through-
life costs (the total of the manufacturing costs and repair and maintenance
expenses for a motor throughout its entire useful life). To date, the
Company's product development efforts have been primarily related to the
mechanics of its downhole drilling motors, although the Company has also
developed improvements to downhole orienting devices and other guidance system
components.

Among the Company's most recent product innovations is the development of a
new concept power section for positive displacement drilling motors.
Manufacturing development of the new power section was taken to a prototype
stage in late 1995 for a cold forming process that manufactures rotor and
stator components. The new-design rotors are now in an advanced stage of field
testing. The new power section will be introduced in phases: initially an
alternative rotor, followed by a new form of composite stator. The
manufacturing process for the new power section is expected to generate
significant cost savings and reduce manufacturing lead times. The new rotor
components should reduce vibration during operations, resulting in extended
lives of both rotors and stators. The reduced vibration is also expected to
contribute significantly to the operating environment for downhole
instrumentation used in the drillstring, resulting in increased life, reduced
costs and higher mean times between failures. The Company has obtained a
patent covering the design of this new power section.

Various aspects of the Company's operations have been awarded ISO 9001
certification, and the Company expects to complete the ISO 9001 certification
process for all of its operations by late 1997. ISO 9001 is an internationally
recognized verification system for quality management that has been
established by the International Standards Organization. The Company believes
that ISO 9001 certification is becoming increasingly important to maintaining
and expanding its participation in a number of markets, particularly
international markets.

The raw materials used by the Company in its operations, such as carbon and
alloy steel in various forms, lubricants, fuels and welding gases, are
available from many sources and the Company is not dependent upon any single
supplier or source for those materials. The Company does, however, rely on
single suppliers for the stator molding and the thrust bearings for its
drilling motors. Both of these suppliers developed the technology for the
manufactured product with the Company and provide the product to the Company
on an exclusive basis.

37
<PAGE>

While the Company does not have any long-term supply contracts, the Company's
arrangements with these single suppliers have been in place for over 12 years,
and have been very effective in terms of reliability and cost and in terms of
providing the Company with substantial control over the product design and
improvement and quality control functions relative to these components. While
the Company does not anticipate any difficulties in continuing to obtain
product from these single suppliers, the Company believes that adequate
alternative sources are available should the need arise. Such alternative
sources may, however, involve increased costs to the Company and shipment
delays.

Due to the relatively short manufacturing lead time for the Company's
drilling motors, backlog is not generally significant to the Company.

PATENTS AND OTHER INTELLECTUAL PROPERTY

The Company currently holds 16 U.S. patents and has two U.S. patent
applications pending (and 31 foreign patents covering many of the same
inventions), most of which relate to the Company's positive displacement
drilling motors. Although in the aggregate these patents are important to the
Company, the Company generally depends on technological capabilities,
manufacturing quality control and the application of know-how rather than
patents in the conduct of its business. The Company does benefit from service
and product name brand recognition, principally through its Drilex trademark,
and considers such trademark to be important. In general, the Company will
seek to protect its intellectual property rights in all jurisdictions where
the Company believes the cost of such protection is warranted.

COMPETITION

The industry in which the Company operates is highly competitive. The
Company's ability to compete successfully depends on elements both within and
outside of its control, including successful and timely development of new
products and services, performance and quality, customer service, pricing,
industry trends, and general economic trends. Several of the Company's
competitors are divisions or subsidiaries of companies that are substantially
larger and have greater financial and other resources than the Company,
including Baker Hughes Incorporated, Dresser Industries, Inc., Halliburton
Company and Schlumberger Limited.

Competition in the oilfield services market is primarily on the basis of
service quality, experience of personnel and equipment reliability, although
price competition is also a significant factor. The Company believes that, in
selecting from among qualified contractors for a particular precision drilling
service contract, customers also consider, among other things, bidding
responsiveness, the availability and technical capabilities of equipment and
personnel, and the flexibility of equipment to work within the technical
constraints imposed by other aspects of the drilling project (such as drill
bit sizes and types, hydraulics limitations, and differing drilling fluids and
borehole sizes). Based on a recent independent survey conducted on behalf of
the Company, the Company believes that the range of services provided by an
oilfield service contractor is generally not as important an element in the
selection process as the foregoing factors (although the ability to offer
comprehensive oilfield services is important to some customers, particularly
in certain foreign regions).

EMPLOYEES

As of May 1, 1996, the Company had approximately 390 employees. The
Company's future success will depend, in part, on its ability to continue to
attract, retain and motivate highly qualified technical, marketing,
engineering and management personnel.

The precision drilling business is characterized by, among other things,
high turnover rates among field employees engaged in drilling operations.
Although Drilex believes that its turnover rate for field drilling employees
is below the industry average, the Company's turnover rate for these employees
is high relative to the Company's other employees. The Company seeks to
attract and retain qualified drilling supervisors and other technical field
personnel by paying competitive salaries and dayrates, and by maximizing the
opportunities for

38
<PAGE>

these employees to earn their dayrates. Although the Company has never
experienced a prolonged shortage of qualified personnel in any of its
operations (and does not currently anticipate any such shortage), if demand
for precision drilling services were to increase rapidly, retention of
qualified field personnel might become more difficult without significant
increases in compensation.

The Company is not a party to any collective bargaining agreements and has
not experienced any strikes or work stoppages, and management believes that
the Company's employee relations are good.

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

Many aspects of the Company's operations are affected by political
developments and are subject to both domestic and foreign governmental
regulations, including those relating to oilfield operations, worker safety
and the protection of the environment. In addition, the Company depends on the
demand for its services from the oil and gas industry and, therefore, is
affected by changing taxes, price controls and other laws and regulations
relating to the oil and gas industry generally. The adoption of laws and
regulations curtailing exploration and development drilling for oil and gas
for economic or other policy reasons could adversely affect the Company's
operations by limiting demand for precision drilling services. The Company
cannot determine to what extent its future operations and earnings may be
affected by new legislation, new regulations or changes in existing
regulations.

The Company's operations are affected by numerous foreign, federal, state
and local environmental laws and regulations. The technical requirements of
these laws and regulations are becoming increasingly expensive, complex and
stringent. These laws may provide for "strict liability" for damages to
natural resources or threats to public health and safety, rendering a party
liable for the environmental damage without regard to negligence or fault on
the part of such party. Sanctions for noncompliance may include revocation of
permits, corrective action orders, administrative or civil penalties, and
criminal prosecution. Certain environmental laws provide for joint and several
strict liability for remediation of spills and releases of hazardous
substances. In addition, companies may be subject to claims alleging personal
injury or property damage as a result of alleged exposure to hazardous
substances, as well as damage to natural resources. Such laws and regulations
may also expose the Company to liability for the conduct of or conditions
caused by others, or for acts of the Company that were in compliance with all
applicable laws at the time such acts were performed. Compliance with
environmental laws and regulations may require the Company to obtain permits
or other authorizations for certain activities and to comply with various
standards or procedural requirements. The Company believes that its facilities
are in substantial compliance with current regulatory standards.

The Company has completed a Phase I Site Assessment for each of its
principal operating facilities within the past three years. The results of
these assessments have been used to improve operations and ensure compliance
with environmental laws. In addition, in connection with each of its
significant property acquisitions, the Company has obtained indemnification
from the sellers with respect to environmental liabilities. The Company has
never been named as a "potentially responsible party" in any environmental
proceeding under the federal "Superfund" law or any similar state laws. The
Company has an ongoing pollution prevention program designed to ensure
compliance with environmental regulations and to institute policies to address
waste disposal and minimization and pollution prevention. The Company has also
implemented various programs to ensure compliance with applicable health and
worker safety regulations and to increase employee safety awareness.

Capital expenditures for property, plant and equipment for environmental
control facilities during fiscal year 1995 were not material. Based on the
Company's experience to date, the Company does not currently anticipate any
material adverse effect on its business or consolidated financial position as
a result of future compliance with existing environmental laws and regulations
controlling the discharge of materials into the environment. However, future
events, such as changes in existing laws and regulations or their
interpretation, more vigorous enforcement policies of regulatory agencies, or
stricter or different interpretations of existing laws and regulations, may
require additional expenditures by the Company, which may be material.

39
<PAGE>

LEGAL PROCEEDINGS

The Company is involved from time to time in routine litigation incidental
to its business. Drilex is not currently involved in any legal proceedings
that the Company believes will have a material adverse effect on its financial
condition or results of operations.

PROPERTIES

The Company's manufacturing and principal sales and service operations are
conducted using the following facilities:

<TABLE>
<CAPTION>
FLOOR SPACE
(SQUARE
LOCATION OWNED/LEASED FEET) DESCRIPTION
- -------- ------------ ----------- -----------
<S> <C> <C> <C>
UNITED STATES:
Anchorage, Alaska Leased 685 Sales and Service
Bakersfield, California Leased 7,500 Sales and Service
Casper, Wyoming Leased 9,500 Sales and Service
Denver, Colorado Leased 200 Sales
Fort Worth, Texas Leased 200 Sales
Houston, Texas Leased 53,750 Executive Offices, Manufacturing,
Engineering, Sales and Service
Houston, Texas Leased 23,000 Sales and Office
Houston, Texas Leased 6,045 Sales and Service
Lafayette, Louisiana Owned 20,000 Sales and Service
New Orleans, Louisiana Leased 500 Sales
Oklahoma City, Oklahoma Leased 10,500 Sales and Service
Prudhoe Bay, Alaska Leased 500 Repair and Maintenance
Stafford, Texas Leased 15,000 Sales and Service
Youngsville, Louisiana Owned 10,516 Sales and Service
INTERNATIONAL:
Aberdeen, Scotland Leased 17,523 Sales and Service
Anaco, Venezuela Leased 10,500 Sales and Service
Calgary, Alberta Leased 100 Sales
Crawley, England Leased 2,500 Sales and Service
Ciudad Ojeda, Venezuela Leased 16,666 Sales and Service
Edmonton, Alberta Leased 6,896 Sales and Service
Maturin, Venezuela Leased 2,000 Sales and Service
North Freemantle, West
Australia Leased 500 Sales and Service
Singapore Leased 4,700 Sales and Service
</TABLE>

40
<PAGE>

MANAGEMENT

The following table sets forth certain information with respect to directors
and executive officers of the Company, together with their ages (as of May 1,
1996) and positions:

<TABLE>
<CAPTION>
DIRECTOR'S
TERM
NAME AGE POSITION ENDING
---- --- -------- ----------
<C> <C> <S> <C>
L.E. Simmons..................... 49 Chairman of the Board and 1999
Director
John Forrest..................... 57 President, Chief Executive 1998
Officer and Director
G. Bruce Broussard............... 52 Vice President--Finance --
and Administration and
Secretary
Samuel R. Anderson............... 48 President--Sharewell, Inc. --
Archie A. Cobb, III.............. 53 President--Cobb --
Directional Drilling
Company, L.L.C.
Lee F. Hardin.................... 48 Vice President--
Engineering and
Manufacturing --
David M. Henry................... 44 Vice President--Business --
Development
Charles Denton Kerr II........... 40 President--Drilex Energy
Services Division of
Drilex Systems, Inc. --
Harry O. Nicodemus IV............ 48 Controller --
David C. Baldwin................. 33 Director 1997
A. Clark Johnson................. 65 Director 1998
Robert P. Peebler................ 48 Director 1999
Sam S. Sorrell................... 67 Director 1997
Andrew L. Waite.................. 35 Director 1998
</TABLE>

The Company's Board of Directors is divided into three classes with
staggered terms of office, initially ending as set forth above. Thereafter,
the term for each class will expire on the date of the third annual
stockholders' meeting for the election of directors following the most recent
election of directors for such class. Each director holds the office until the
next annual meeting of stockholders for the election of directors of his class
and until his successor has been duly elected and qualified. Officers serve at
the discretion of the Board of Directors.

L.E. Simmons has served as Chairman of the Board and a director of the
Company since March 1994. Mr. Simmons has, for more than five years, served as
President of L.E. Simmons & Associates, Incorporated ("SCF G.P."), which,
through its affiliate, SCF Partners, L.P., manages private institutional
partnerships that generally invest in the oilfield service and equipment
industry. Mr. Simmons was a co-founder of Simmons & Company International, an
investment banking firm, and served as an officer and director of such firm
from 1974 through September 1993. Mr. Simmons is Chairman of the Board of
Tuboscope Vetco International Corporation. He is also a director of Zions
Bancorporation and CE Franklin, Ltd.

John Forrest has served as President, Chief Executive Officer and a director
of Drilex International Inc. since its acquisition of DSI in March 1994. Mr.
Forrest was a founder of the Company and served as its chief executive officer
from 1981 to March 1994.

G. Bruce Broussard was appointed to his current position in connection with
the DSI Acquisition. Prior thereto, Mr. Broussard served as Controller of DSI
for more than the past five years.

Samuel R. Anderson joined the Company and was appointed to his current
position at the time of the Sharewell Acquisition in May 1995. Prior thereto,
he served as President of Sharewell, Inc. since July 1991. From 1988 to July
1991, Mr. Anderson served as Senior Vice President of Noble Drilling
Corporation, an oil and gas drilling contractor.

Archie A. Cobb, III joined the Company and was appointed to his current
position in connection with the Cobb Acquisition in September 1994. Mr. Cobb
was the founder of Cobb Directional Drilling, Inc., and served as its
President from its inception in 1979 until the Cobb Acquisition.

41
<PAGE>

Lee F. Hardin was appointed to his current position in October 1995, after
serving as the Company's Director of Engineering and Manufacturing since he
joined the Company in August 1995. Mr. Hardin was a focus factory manager for
the Drilling Systems Business Unit of Halliburton Company from April 1993 to
August 1995. Prior thereto, he served as a manufacturing manager for the
Directional Drilling Business Unit of Smith International, Inc. where he
oversaw the production of MWD equipment and positive displacement motors.

David M. Henry was appointed to his current position in May 1996. Prior to
joining the Company, he served as Global Operations Manager of the Drilling
Systems Business Unit of Halliburton Energy Services from March 1995 to May
1996. Prior thereto, he served in various positions, including Director of
Engineering and Marketing, and Vice President of Operations, for the Drilling
Division of Baker Hughes Incorporated from December 1980 to March 1995.

Charles Denton Kerr II was appointed to his current position in December
1995. Prior thereto, he served as DSI's Vice President--Sales and Operations
from July 1994 to December 1995, Manager, Worldwide Sales and Operations from
August 1991 to July 1994, and Western Hemisphere Manager from August 1989 to
August 1991.

Harry O. Nicodemus IV was appointed to his current position in December
1995. Prior thereto, he served as Vice President and Controller of American
Ecology Corporation since March 1993. From January 1991 to February 1993, he
served as Divisional Vice President and Assistant Controller for Browning-
Ferris Industries, Inc.

David C. Baldwin has served as a director of the Company since April 1994.
Mr. Baldwin has been Vice President of SCF G.P. since March 1993. From August
1991 to March 1993, he was an Associate with SCF G.P. Prior to attending
graduate school from 1989 to 1991, Mr. Baldwin was employed by Union Pacific
Resources Company in a variety of drilling and operations management
positions. He also serves as a director of C.E. Franklin, Ltd.

A. Clark Johnson was appointed as a director in June 1996. Prior to his
retirement in December 1995, Mr. Johnson served as Chairman of the Board of
Union Texas Petroleum Holdings, Inc. since July 1985 and as its Chief
Executive Officer since July 1984. Union Texas Petroleum Holdings, Inc. is an
independent (non-integrated) oil and gas company. Prior thereto, Mr. Johnson
served in various positions with that company's predecessor, Allied
Corporation.

Robert P. Peebler has served as a director of the Company since July 1994.
Mr. Peebler has served as Chief Executive Officer since December 1992 and
President and Chief Operating Officer since July 1992 of Landmark Graphics
Corporation, a company engaged in geoscience services and the development of
related computer software. From 1989 to July 1992, he served as a Vice
President of Landmark Graphics Corporation.

Sam S. Sorrell has served as a director of the Company since February 1995.
Mr. Sorrell is currently a consultant to SCF Partners, L.P., and has served in
such capacity since February 1994. From January 1991 to January 1994, Mr.
Sorrell held the position of Executive Vice President of Gulf Publishing Co.,
a company that publishes various types of media for the oil and gas industry.
He is currently a director of Gulf Publishing Co.

Andrew L. Waite was elected as a director of the Company in May 1996. Mr.
Waite has served as a Vice President of SCF G.P. since October 1995. Prior
thereto, Mr. Waite was employed by Simmons & Company International as an
Associate from August 1993 to August 1995 and as a Vice President in September
1995. Prior to attending graduate school from September 1991 to June 1993, Mr.
Waite was employed by the Royal Dutch/Shell Group in a number of project and
operating management roles, both in the U.S. and several international
locations.

DIRECTOR COMPENSATION

Each director who is not also an officer of the Company (a "Nonemployee
Director") receives a quarterly retainer of $2,500 and also receives (i) $500
per meeting of the Board of Directors at which such director

42
<PAGE>

participated, (ii) $500 per meeting of any committee of the Board of Directors
at which such director participated, if not in connection with a Board
meeting, and (iii) reimbursement for all reasonable out-of-pocket expenses
incurred in connection with attendance at meetings of the Board of Directors
or committees thereof. Each Nonemployee Director also receives a one-time
grant of a stock option covering 3,620 shares of Common Stock, with a term of
ten years and an exercise price equal to fair market value. See "--Stock
Option Plan."

In May 1996, the Company established a Deferred Compensation Plan for
Directors whereby each director can defer cash compensation for services as a
director, payable by the Company in the form of any retainer, annual,
committee or meeting fee, to a date subsequent to such director's death,
retirement, disability or termination of services as a director. Earnings with
respect to deferred compensation may be calculated, at the election of the
director, as if the amount deferred had been invested in Common Stock or as if
deferred compensation had been invested in an interest-bearing account.

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning the
compensation provided by the Company to its Chief Executive Officer and each
of the other executive officers of the Company who earned more than $100,000
in combined salary and bonus from the Company during the year ended December
31, 1995 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL SECURITIES
COMPENSATION(1) UNDERLYING
----------------- OPTIONS
NAME AND PRINCIPAL (NUMBER OF ALL OTHER
POSITION SALARY BONUS(2) SHARES) COMPENSATION(3)
- ------------------ -------- -------- ------------ ---------------
<S> <C> <C> <C> <C>
John Forrest............ $190,117 $64,500 22,623 $1,232
President and Chief
Executive Officer
G. Bruce Broussard...... 98,055 26,600 -- 1,961
Vice President--Finance
and Administration
and Secretary
Archie A. Cobb, III..... 151,375 -- -- --
President--Cobb
Directional Drilling
Company, L.L.C.
Charles Denton Kerr II.. 111,671 28,800 -- 1,562
President--Energy
Services Division of
Drilex Systems, Inc.
</TABLE>
- --------
(1) Other annual compensation for the named individuals during 1995 did not
exceed the lesser of $50,000 or 10% of the annual compensation earned by
such individual.
(2) The bonus amounts shown were paid in 1996 for the twelve-month period
ended March 31, 1996.
(3) The amounts shown represent contributions by the Company under its 401(k)
Profit Sharing Plan for each of the Named Executive Officers.

43
<PAGE>

The following table contains certain information concerning options granted
to the Named Executive Officers in 1995.

STOCK OPTION GRANTS IN 1995

INDIVIDUAL GRANTS
----------------------------------------
PERCENT POTENTIAL REALIZABLE
OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS EXERCISE ANNUAL RATES OF STOCK
SECURITIES GRANTED OR BASE PRICE APPRECIATION
UNDERLYING TO PRICE FOR OPTION TERM(2)
OPTIONS EMPLOYEES PER EXPIRATION ---------------------
NAME GRANTED IN 1995 SHARE(1) DATE 5% 10%
---- ---------- --------- -------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
John Forrest............ 22,623 100% $11.05 4/15/2002 -- $54,649
G. Bruce Broussard...... --
Archie A. Cobb, III..... --
Charles Denton Kerr II.. --
</TABLE>
- --------
(1) Prior to the Offering, there was no public market for the Common Stock
and, therefore, the exercise price of the options was based upon the
estimated fair market value of the Company as of the date of grant, as
determined by the Company's Board of Directors.
(2) Calculated based upon the indicated rates of appreciation, compounded
annually, from the date of grant to the end of each option term. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the performance of the Common Stock and overall stock market
conditions. There can be no assurance that the amounts reflected in this
table will be achieved. The calculation does not take into account the
effects, if any, of provisions of the option plan governing termination of
options upon employment termination, transferability or vesting.

The following table summarizes the value of the outstanding options with
respect to the Named Executive Officers. None of the Named Executive Officers
exercised any stock options during 1995. There are no outstanding stock
appreciation rights, shares of restricted stock or long-term incentive plans
with respect to the Company.

1995 YEAR END OPTION/SAR VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT IN-THE-MONEY OPTIONS AT DECEMBER 31, 1995 AT INITIAL
DECEMBER 31, 1995 DECEMBER 31, 1995 PUBLIC OFFERING PRICE
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
- ---- ------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
John Forrest............ 6,049 / 40,769 $8,348 / $25,041 $75,431 / $383,636
G. Bruce Broussard...... 3,025 / 9,074 $4,175 / $12,522 $37,722 / $113,153
Archie A. Cobb, III..... --
Charles Denton Kerr II.. 3,025 / 9,074 $4,175 / $12,522 $37,722 / $113,153
</TABLE>
- --------
(1) Based on the last price at which shares of Common Stock were sold by the
Company of $6.91 per share.
(2) Based on an assumed initial public offering price of $18.00 per share.

STOCK OPTION PLAN

In May 1996, the Company's Board of Directors and stockholders approved the
adoption of the Company's Stock Option Plan (the "Stock Option Plan"), which
amends and restates a stock option plan originally adopted in March 1994. The
Stock Option Plan provides for the granting of options covering a maximum of
440,000

44
<PAGE>

shares of Common Stock, subject to certain antidilution adjustments. No
options may be granted under the Stock Option Plan after March 2004. Under the
Stock Option Plan, stock options may be issued to certain employees of the
Company and to Nonemployee Directors. To the extent that an award lapses or
the rights of a participant terminate, any shares of Common Stock subject to
such award are again made available for grant. Stock options granted pursuant
to the Stock Option Plan may either be incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), or nonqualified stock options.

The Stock Option Plan is intended to encourage certain employees of the
Company and its subsidiaries and the Nonemployee Directors to develop a sense
of proprietorship and personal involvement in the development and financial
success of the Company, and to encourage them to remain with and devote their
best efforts to the business of the Company, by granting such employees and
Nonemployee Directors options to purchase the Company's Common Stock and to
make available shares for such purpose. Options may be granted only to full-
time and part-time employees of the Company and its subsidiaries (including
officers and directors who are also employees), and options are automatically
granted to Nonemployee Directors. Awards may be made to the same person on
more than one occasion. No incentive stock option shall be granted to an
individual if, at the time the option is granted, such individual owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or of its parent or subsidiary corporation, within the
meaning of section 422(b)(6) of the Code, unless the option price is at least
110% of the fair market value of the Common Stock at the time of grant and the
option is not exercisable after the expiration of five years from the date of
grant. The Company estimates that, as of the date hereof, approximately 390
employees are eligible to participate in the Stock Option Plan.

Excluding automatic grants described below to Nonemployee Directors, prior
to May 1996 the Company granted options under the Stock Option Plan covering
71,016 shares of Common Stock at an average per share exercise price of $7.29.
Messrs. Forrest, Broussard and Kerr have been granted options to purchase
46,818, 12,099 and 12,099 shares, respectively, at a per share exercise price
of $5.53 (except for 22,623 of Mr. Forrest's options, which have a per share
exercise price of $11.05). Such options, which are intended to qualify as
incentive stock options under the Code, have a term of seven years and become
exercisable in cumulative annual installments of one-quarter each, beginning
on the first anniversary of the date of grant. Subject to completion of the
Offering, the Compensation Committee of the Company's Board of Directors has
granted options under the Stock Option Plan, effective upon the completion of
the Offering, to approximately 390 employees of the Company to purchase a
total of 143,700 shares of Common Stock at an exercise price per share equal
to the initial public offering price per share set forth on the cover page of
this Prospectus. These awards include options granted to Messrs. Forrest,
Broussard and Kerr to purchase 8,000, 5,000 and 5,000 shares of Common Stock,
respectively. All such options will have a term of five years and become
exercisable in cumulative annual installments of one-quarter each, beginning
on the first anniversary of the date of grant.

The Stock Option Plan, as amended in May 1996, provides for an automatic
grant to each Nonemployee Director, on the date of his or her first election
to the Board of Directors (or, for Mr. Johnson and the employees of SCF
Partners, L.P. who are currently directors, the date of completion of the
Offering), of an option to purchase 3,620 shares of Common Stock at an option
price equal to the fair market value of Common Stock on the date of such
grant. Prior to the May 1996 amendment, Mr. Peebler and Mr. Sorrell, upon
their first election to the Board of Directors of the Company, each received
an option to purchase 2,420 shares of Common Stock at a per share exercise
price of $5.53 pursuant to automatic grant provisions then in effect. Under
the terms of the May 1996 amendment and restatement of the Stock Option Plan,
Mr. Peebler and Mr. Sorrell will each be granted an option, effective upon
completion of the Offering, to purchase an additional 1,200 shares of Common
Stock, at an exercise price equal to the initial public offering price per
share set forth on the cover page of this Prospectus. The options granted to
all Nonemployee Directors have a term of ten years, and become exercisable in
cumulative annual installments of one-third each, beginning on the first
anniversary of the date of grant.

The Stock Option Plan is administered by the Compensation Committee of the
Company's Board of Directors (the "Compensation Committee"). Prior to May
1996, the Stock Option Plan was administered by

45
<PAGE>

nonemployee members of the Board of Directors. Members of the Compensation
Committee shall not be eligible, and shall not have been eligible at any time
within one year prior to their appointment to the Compensation Committee, to
participate in the Stock Option Plan (except with respect to automatic grants
of options) or in any other stock, stock option or stock appreciation rights
plan of the Company or any of its affiliates. The Compensation Committee
selects employees to be granted options and determines the number of shares
subject to options to be granted and the terms and conditions of each option
granted, including the option purchase price which (i) in the case of an
incentive stock option or an option granted automatically to a Nonemployee
Director, shall not be less than the fair market value of the Common Stock on
the date the option is granted and (ii) otherwise, shall be not less than 50%
of the fair market value of Common Stock on the date the option is granted.

The Stock Option Plan permits option agreements (except those relating to
option grants to Nonemployee Directors) to contain a provision (an
"appreciation right") for the surrender, in whole or in part, of the right to
purchase shares under an option in return for a payment in cash or shares of
Common Stock or both, equal in value to the excess of the fair market value of
the shares with respect to which the right to purchase is surrendered over the
option price therefor. The Compensation Committee may grant such appreciation
rights at the time an option is granted or at any time thereafter, and retains
the final authority to both determine the form in which payment of
appreciation rights will be made and approve an election by the optionee to
receive cash in whole or in part in settlement of an appreciation right.
Option agreements under the Stock Option Plan (except those relating to option
grants to Nonemployee Directors) may also provide for the payment of the
option price, in whole or in part, by the delivery of a number of shares of
Common Stock having a fair market value equal to such option price.

Except with respect to option grants to Nonemployee Directors, the Stock
Option Plan permits optionees to elect to deliver to the Company shares of
Common Stock in satisfaction of the Company's withholding tax obligations
arising from the exercise of options or dispositions of shares of Common Stock
acquired by exercise of an option, subject to the Compensation Committee's
sole discretion to consent to or disapprove such election and to certain
administrative rules. The Stock Option Plan also permits the Compensation
Committee, in its discretion, to award cash bonuses to optionees (other than
Nonemployee Directors) to reimburse such optionees, whose option is not an
incentive stock option or is disqualified as such, for (i) certain tax
consequences in connection with the exercise of options (or appreciation
rights) for Common Stock, disqualifying dispositions of Common Stock received
upon exercise of incentive stock options or the Compensation Committee's
taking any action permitted under the Stock Option Plan (including the grant
of a cash bonus) and (ii) all or a portion of an assumed interest cost for
borrowing the amount of such taxes not reimbursed by the Company during the
period prior to the sale of the Common Stock received upon exercise of the
option (or appreciation right).

The Compensation Committee has the exclusive power to interpret the Stock
Option Plan and to adopt such rules and regulations, consistent with the
provisions of the Stock Option Plan, as it may deem advisable to carry out the
Stock Option Plan. The Board of Directors has the right to amend, modify,
suspend or terminate the Stock Option Plan, except that (a) without the
consent of the affected participant, no amendment or alteration shall be made
that would impair the rights of a participant under any award theretofore
granted, (b) no amendment or alteration shall be effective prior to approval
by the Company's stockholders to the extent such approval is then required
pursuant to Rule 16b-3 (or any successor provision) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in order to preserve
the applicability of any exemption provided by such rule to any award then
outstanding (unless the holder of such award consents) or to the extent
stockholder approval is otherwise required by applicable legal requirements,
and (c) the provisions of the Stock Option Plan relating to Nonemployee
Director options shall not be amended more than once every six months to the
extent such limitation is required by Rule 16b-3(c)(2)(ii) (or any successor
provision) under the Exchange Act as then in effect. The Securities and
Exchange Commission (the "Commission") has recently adopted rules (that are
not yet effective) that would generally eliminate Rule 16b-3's requirement of
stockholder approval of amendments to compensation plans.

Upon a "corporate change," as defined in the Stock Option Plan, the
Compensation Committee shall effect one or more of certain specified
alternatives, which may vary among individual optionees. The Compensation
Committee may choose to (i) accelerate the time at which options then
outstanding may be exercised, (ii) require

46
<PAGE>

the mandatory surrender to the Company of some or all of the outstanding
options and pay to each optionee an amount of cash per share based on the
excess, over the exercise price, of the per share price offered to
stockholders pursuant to the corporate change or the fair market value of the
Common Stock, as appropriate, (iii) make such adjustments to options then
outstanding as such committee deems appropriate to reflect such corporate
change or (iv) provide that thereafter, upon any exercise of an option
theretofore granted, the optionee shall be entitled to purchase under such
option the number and class of shares of stock or other securities or property
to which the optionee would have been entitled had the optionee been the
holder of record of the number of shares of stock covered by the option as of
the date of the corporate change.

A recipient of an incentive stock option or a nonqualified stock option will
not recognize U.S. taxable income at the time of the grant of the option. On
the exercise of a nonqualified stock option, the amount by which the fair
market value of the Common Stock on the date of exercise exceeds the option
price will generally be taxable to the holder as ordinary income, and would be
deductible for U.S. tax purposes by the employer. The disposition of shares
acquired upon exercise of a nonqualified option will ordinarily result in
capital gain or loss.

On the exercise of an option that qualifies as an "incentive stock option"
within the meaning of the Code, the holder will not recognize any income and
the employer will not be entitled to a deduction for U.S. tax
purposes. However, the difference between the exercise price and the fair
market value of the Common Stock received on the date of the exercise must be
included in the holder's alternative minimum taxable income. The disposition
of shares acquired upon exercise of an incentive stock option will ordinarily
result in capital gain or loss. However, if the holder disposes of shares
acquired upon the exercise of an incentive stock option within two years after
the date of grant or one year after the date of exercise (a "disqualifying
disposition"), the holder will recognize ordinary income, and the employer
will be entitled to a deduction for U.S. tax purposes, in the amount of the
excess of the fair market value of the shares of Common Stock on the date the
option was exercised over the option price (or, in certain circumstances, the
gain on sale, if less). Otherwise, the employer will not be entitled to any
deduction for U.S. tax purposes upon disposition of such shares. Any excess of
the amount realized by the holder on the disqualifying disposition over the
fair market value of the shares on the date of exercise of the option will be
treated as a capital gain.

This tax information is only a summary, does not purport to be complete and
does not cover, among other things, foreign, state and local tax treatment of
participation in the Stock Option Plan.

EMPLOYMENT AGREEMENT

In connection with the Cobb Acquisition, Mr. Cobb and Cobb Directional
Drilling Company, L.L.C. ("Cobb LLC") entered into an employment agreement on
September 30, 1994. The agreement provides that Mr. Cobb will be employed by
Cobb LLC as its chairman and/or president until September 30, 1999 at an
annual salary of $150,000, subject to increase as determined appropriate by
Cobb LLC, as well as the right to participate in executive compensation
programs. If Cobb LLC terminates Mr. Cobb's employment without cause, it is
required to pay him such salary for the remainder of the term of the
agreement. The employment agreement provides that all inventions, discoveries
and similar intellectual property created or conceived by Mr. Cobb in
connection with his work for Cobb LLC are the sole and exclusive property of
the Company. The agreement also requires Mr. Cobb to abide by certain
confidentiality provisions with respect to such intellectual property and
other confidential information obtained through his position. The employment
agreement provides that Mr. Cobb will not compete with Cobb LLC for a period
of five years after the termination of his employment.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee consists of David C. Baldwin, Robert P. Peebler
and Sam S. Sorrell.

Mr. Baldwin is an executive officer of SCF G.P., the general partner of SCF
Partners, L.P., which is the general partner of DRLX Partners, L.P., a holder
of more than 5% of the Common Stock outstanding. Mr. Sorrell

47
<PAGE>

is also a consultant to SCF Partners, L.P. L.E. Simmons is the President and
sole stockholder of SCF G.P. In connection with the Company's formation in
March 1994, the Company issued to DRLX Partners, L.P., 1,990,790 shares of
Common Stock for cash consideration equal to $5.53 per share. In connection
with such formation, DRLX Partners, L.P. became one of the parties to a
registration rights agreement with the Company, which is being amended and
restated in connection with the Offering. See "Certain Transactions and
Relationships--Registration Rights Agreements." Thereafter, in two
transactions, effective on June 30, 1994 and September 30, 1994, the Company
issued to DRLX Partners, L.P. an aggregate of 882,282 shares of Common Stock
for cash consideration equal to $5.53 per share, and on September 29, 1995,
the Company issued an additional 361,962 shares of Common Stock for cash
consideration of $6.91 per share. In addition, in a July 1994 exchange
effecting the redemption of all of the then-outstanding preferred stock of
DSI, the Company issued to DRLX Partners, L.P. 884,173 shares of Common Stock
in exchange for 488.5 shares of preferred stock of DSI. As a result of these
transactions and his relationship to DRLX Partners, L.P., Mr. Simmons may be
deemed to have an indirect personal pecuniary interest in 4,119,207 shares of
Common Stock.

In connection with the ENSCO Technology Acquisition, the Company paid a
$150,000 fee to SCF Partners, L.P. for financial advisory and other
consultation services. Such fee was paid in the first quarter of 1996. The
Company believes that such fee was comparable to fees that would have been
paid to unaffiliated third parties for similar services.

SCF Partners, L.P. is the general partner of institutional investor
partnerships that invest in the oilfield service and equipment industry. As a
result, it is possible that such institutional investor partnerships may
compete with the Company for acquisition candidates, or may invest in
businesses that compete with the Company.

During 1996, the Company expects to make aggregate payments of approximately
$375,000 to Landmark Graphics Corporation in connection with anticipated
purchases of computer software. Mr. Peebler is the President and Chief
Executive Officer of Landmark Graphics Corporation. Such charges will be
incurred in the ordinary course of business, and the Company believes that the
prices to be paid in connection with such purchases will be comparable to the
prices that would be paid in similar transactions with parties not affiliated
with Mr. Peebler.

48
<PAGE>

CERTAIN TRANSACTIONS AND RELATIONSHIPS

CERTAIN TRANSACTIONS

In connection with the Company's formation in March 1994, the Company issued
36,196 shares of Common Stock to John Forrest for cash consideration equal to
$5.53 per share. Thereafter, on June 30, 1994, the Company issued shares of
Common Stock to certain of its executive officers for cash consideration of
$5.53 per share in the following amounts: 9,049 shares to John Forrest; 3,620
shares to G. Bruce Broussard; 8,144 shares to Charles Denton Kerr II; and
4,525 shares to Robert Stayton. In addition, on September 29, 1995, the
Company issued shares of Common Stock to certain of its executive officers for
cash consideration of $6.91 per share in the following amounts: 5,828 shares
to Mr. Forrest; 467 shares to Mr. Broussard; 1,050 shares to Mr. Kerr; and
4,760 to Samuel R. Anderson.

In June 1994, the stockholders of the Company acquired on a pro rata basis
all of the outstanding shares of preferred stock that had been issued by DSI
to MascoTech in connection with the DSI Acquisition. Subsequently, in July
1994, the Company issued 904,905 shares of Common Stock in the aggregate to
its stockholders in exchange for all the outstanding preferred stock of DSI.

On June 1, 1995, the Company repurchased 6,048 shares of Common Stock from
Robert Stayton for cash consideration of $4.26 per share, in connection with
Mr. Stayton's resignation from his position as a Vice President of the
Company.

On March 23, 1995, the Company repurchased, for $1.0 million in cash,
144,784 shares of Common Stock from a company owned by Archie A. Cobb, III,
the current President of Cobb LLC, a subsidiary of the Company. Also on such
date, the Company purchased from affiliates of Mr. Cobb the one-third equity
interest in Cobb LLC it did not already own for a purchase price consisting of
a $1.0 million amortizing note with a final maturity in 1998 and a $1.1
million short-term note due July 1995 (which was paid at maturity). See "The
Company."

Since the completion of the Cobb Acquisition, the Company has made payments
to Non Magnetic Rental Tools, Inc. ("NMRT"), a company owned by two brothers
of Mr. Cobb, for rental of certain tools used in the business of Cobb
Directional Drilling Company, L.L.C. Such payments totaled approximately
$161,000 in the three months ended December 31, 1994 and $555,000 in the year
ended December 31, 1995. The Company made payments in the same periods
totaling approximately $10,000 and $41,000, respectively, to Downhole
Directional Tools, Inc., a company owned by Mr. Cobb's son-in-law, in
connection with the rental of drill string stabilizers. The Company also made
payments in the same periods totaling approximately $7,000 and $33,000,
respectively, to Oilfield Manufacturing & Supply, Inc., a company owned by a
brother-in-law of Mr. Cobb, in connection with the purchase of float valves.
The Company expects to make rental payments to NMRT during 1996 in amounts not
to exceed the amounts paid in 1995. The Company does not anticipate entering
into any transactions with Downhole Directional Tools, Inc. or Oilfield
Manufacturing & Supply, Inc. in 1996. All of such transactions were entered
into in the ordinary course of business, and the Company believes that the
rental rates and purchase prices incurred in connection with such transactions
were comparable to those that would have been incurred in similar transactions
with parties not affiliated with Mr. Cobb.

During 1995, the Company lent $250,000 to John Forrest to facilitate certain
tax payments made by Mr. Forrest. The entire principal amount of such loan
remains outstanding as of the date of this Prospectus. The loan bears interest
at a rate equal to the interest rate incurred by the Company on its borrowings
(a Eurodollar interbank offered rate plus 2%, which was 7.63% at May 1, 1996)
and is secured by 45,245 shares of Common Stock owned by Mr. Forrest. During
1995, the largest outstanding amount of this loan, including accrued interest,
was approximately $264,000. On May 1, 1996, the outstanding amount of this
loan, including accrued interest, was approximately $270,000. The loan is
payable upon the earlier of (i) sale of shares of Common Stock owned by Mr.
Forrest and (ii) the termination of Mr. Forrest's employment with the Company.

49
<PAGE>

For certain other transactions between the Company and its executive
officers, directors or beneficial owners of in excess of 5% of the Company's
outstanding Common Stock, see "Management--Compensation Committee Interlocks
and Insider Participation."

REGISTRATION RIGHTS AGREEMENTS

In connection with the Offering, the Company will enter into an amendment
and restatement of an existing registration rights agreement among the
Company, DRLX Partners, L.P., and Messrs. Forrest, Broussard and Kerr (the
"Restated Registration Rights Agreement"). The Restated Registration Rights
Agreement will provide for registration rights pursuant to which, upon the
request of holders (the "Requesting Holders") of at least 51% of the shares of
Common Stock (or other securities of the Company) subject to such agreement
(the "Registrable Securities"), the Company will file a registration statement
under the Securities Act to register Registrable Securities held by the
Requesting Holders and any other stockholders who are parties to the Restated
Registration Rights Agreement and who desire to sell Registrable Securities
pursuant to such registration statement, subject to a maximum of three
requests in total. The first such request may not be made until after December
31, 1996. In addition, subject to certain conditions and limitations, the
Restated Registration Rights Agreement will provide that holders of
Registrable Securities may participate in any registration by the Company of
any of its equity securities in an underwritten offering other than the
offering made by this Prospectus. The registration rights conferred by the
Restated Registration Rights Agreement will generally be transferable to
transferees of the Registrable Securities covered thereby. The Restated
Registration Rights Agreement will terminate on December 31, 2001, or earlier
if the securities subject to the Restated Registration Rights Agreement have
been (i) distributed to the public pursuant to a registration statement
covering such securities that has been declared effective under the Securities
Act, (ii) distributed to the public in accordance with the provisions of Rule
144 (or any similar provision then in force) under the Securities Act or (iii)
repurchased by the Company. An aggregate of 4,213,342 outstanding shares of
Common Stock and 60,443 shares of Common Stock issuable upon exercise of
options will be subject to the Restated Registration Rights Agreement.

In September 1995, in connection with the ENSCO Technology Acquisition, the
Company entered into a registration rights agreement (the "ENSCO Registration
Rights Agreement") pursuant to which ENSCO Technology was granted "piggyback"
registration rights to include shares of the Company's Common Stock issuable
upon the conversion of the Convertible Note as part of certain registration
statements filed by the Company. As of May 1, 1996, the Convertible Note had
an outstanding principal balance of $2.5 million, and was convertible into
361,962 shares of Common Stock. The Selling Stockholder, as successor to ENSCO
Technology, has exercised its registration rights pursuant to the ENSCO
Registration Rights Agreement in order to include such shares of Common Stock
in the Offering. See "Selling Stockholder."

In the case of both registration rights agreements described above, the
Company is required to pay all the costs associated with such an offering
other than underwriting commissions and transfer taxes attributable to the
shares sold on behalf of the selling stockholders. In addition, in the case of
the Restated Registration Rights Agreement, the Company is obligated to pay
the fees and expenses of one firm of legal counsel retained by the holders of
a majority of the shares registered thereunder. Both registration rights
agreements provide that the number of shares of Common Stock that must be
registered on behalf of the selling stockholders is subject to limitation if
the managing underwriter determines that market conditions require such a
limitation. Under both such agreements, the Company will indemnify the selling
stockholders thereunder, and such stockholders will indemnify the Company,
against certain liabilities in respect of any registration statement or
offering covered by the registration rights agreements.

50
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table set forth certain information as of May 1, 1996, except
as otherwise noted, concerning the persons known by the Company to be
beneficial owners of more than five percent of the Company's outstanding
Common Stock, the members of the Board of Directors of the Company, the Named
Executive Officers listed in the Summary Compensation Table above and all
directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME OF BENEFICIAL OWNER(1) OWNED PERCENT
--------------------------- ------------ -------
<S> <C> <C>
DRLX Partners, L.P.(2).................................... 4,119,207 93.8%
c/o SCF Partners, L.P.
6600 Travis
Suite 6600
Houston, Texas 77002
L.E. Simmons(2)........................................... 4,119,207 93.8
c/o SCF Partners, L.P.
6600 Travis
Suite 6600
Houston, Texas 77002
ENSCO International Incorporated(3)....................... 361,962 7.6
1445 Ross Avenue
Suite 2700
Dallas, Texas 75202
John Forrest(4)........................................... 82,547 1.9
G. Bruce Broussard(5)..................................... 10,595 *
Archie A. Cobb, III(6).................................... 96,523 2.2
Charles Denton Kerr II(5)................................. 17,226 *
David C. Baldwin.......................................... -- --
A. Clark Johnson.......................................... -- --
Robert P. Peebler(5)...................................... 807 *
Sam S. Sorrell(5)......................................... 807 *
Andrew L. Waite........................................... -- --
All directors and executive officers as a group (14
persons)(1)(7)............................................ 4,381,877 98.3
</TABLE>
- --------
*Less than one percent
(1) Except as otherwise noted, each stockholder has sole voting and investment
power with respect to the shares beneficially owned.
(2) The general partner of DRLX Partners, L.P. is SCF Partners, L.P. The
general partner of SCF Partners, L.P. is SCF G.P., of which L.E. Simmons
is the President and a director and sole stockholder. Each of SCF
Partners, L.P., SCF G.P. and L.E. Simmons may be deemed the beneficial
owner, within the meaning of Rule 13d-3 under the Exchange Act, of the
shares of Common Stock held by DRLX Partners, L.P.
(3) Shares shown are issuable upon conversion of the Convertible Note. The
Convertible Note was originally issued to ENSCO Technology Company, a
wholly owned subsidiary of ENSCO International Incorporated that has been
liquidated.
(4) Shares shown include 5,657 shares that could be acquired within 60 days
after May 1, 1996 upon exercise of stock options and 10,573 shares of
Common Stock acquired as of March 31, 1996 through the exercise of stock
options.
(5) Shares shown include shares that could be acquired within 60 days after
May 1, 1996 upon exercise of stock options, as follows: 5,287 for Mr.
Broussard, 5,287 for Mr. Kerr, 807 for Mr. Peebler and 807 for Mr.
Sorrell.
(6) Shares shown are owned by Posi-Trak Mud Motors, Inc., a company owned by
Mr. Cobb.
(7) Shares shown include 67,255 shares that could be acquired within 60 days
after May 1, 1996 upon exercise of warrants and stock options.

51
<PAGE>

SELLING STOCKHOLDER

In connection with the Offering, the Selling Stockholder is exercising its
rights to (i) convert the Convertible Note into 361,962 shares of Common Stock
and (ii) include such shares of Common Stock in the Offering pursuant to the
ENSCO Registration Rights Agreement. The Company issued the Convertible Note
in connection with the ENSCO Technology Acquisition. See "The Company." Upon
completion of the Offering, the Selling Stockholder will not own any shares of
capital stock (or any securities convertible into shares of capital stock) of
the Company. For additional information concerning the Selling Stockholder,
see "Security Ownership of Certain Beneficial Owners and Management."

Pursuant to the ENSCO Registration Rights Agreement, the Company is paying
all the expenses of the Offering, including the expenses attributable to the
shares being sold by the Selling Stockholder, other than underwriting
discounts and commissions, any transfer taxes attributable to such shares, and
any fees or expenses of counsel for the Selling Stockholder. See "Certain
Transactions and Relationships--Registration Rights Agreements."

52
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering, 6,753,740 shares of Common Stock will be
outstanding. The shares of Common Stock sold in the Offering will be freely
tradeable without restriction or further registration under the Securities
Act, except for any shares purchased by an "affiliate" of the Company (as that
term is defined under the Securities Act), which will be subject to the resale
limitations of Rule 144 under the Securities Act. Substantially all of the
remaining 4,391,778 shares of Common Stock, which are held by the Company's
current stockholders, will be "restricted securities" (within the meaning of
Rule 144) and, therefore, will not be eligible for sale to the public unless
they are sold in transactions registered under the Securities Act or pursuant
to an exemption from registration, including pursuant to Rule 144 or an
offshore transaction pursuant to Regulation S under the Securities Act. The
Company has entered into registration rights agreements with certain of its
existing stockholders, which provide such stockholders with certain rights to
have their shares of Common Stock registered under the Securities Act, in
order to permit the public sale of such shares. See "Certain Transactions and
Relationships--Registration Rights Agreements."

The Company intends to file a registration statement on Form S-8 under the
Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the Stock Option Plan. Shares of Common
Stock issued pursuant to such plan generally will be available for sale in the
open market by holders who are not affiliates of the Company and, subject to
the volume and other limitations of Rule 144, by holders who are affiliates of
the Company.

In general, under Rule 144 as currently in effect, if a minimum of two years
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of Common Stock are aggregated), including persons who
may be deemed "affiliates" of the Company, would be entitled to sell within
any three-month period a number of shares of Common Stock that does not exceed
the greater of (i) 1% of the then outstanding shares of Common Stock (i.e.,
63,918 shares immediately after consummation of the Offering) and (ii) the
average weekly trading volume during the four calendar weeks preceding the
date on which notice of the sale is filed with the Commission. Sales under
Rule 144 are also subject to certain provisions as to the manner of sale,
notice requirements, and the availability of current public information about
the Company. In addition, under Rule 144(k), if a period of at least three
years has elapsed since the later of the date restricted securities were
acquired from the Company or the date they were acquired from an affiliate of
the Company, a stockholder who is not an affiliate of the Company at the time
of sale and has not been an affiliate for at least three months prior to the
sale would be entitled to sell shares of Common Stock in the public market
immediately without compliance with the foregoing requirements under Rule 144.
Rule 144 does not require the same person to have held the securities for the
applicable periods. The foregoing summary of Rule 144 is not intended to be a
complete description thereof. The Commission has proposed an amendment to Rule
144 that would shorten the three- and two-year holding periods described above
to two years and one year, respectively.

The Company, DRLX Partners, L.P. and each of the Company's directors and
executive officers have agreed with the Underwriters that they will not offer
for sale or otherwise voluntarily dispose of any shares of Common Stock or any
securities convertible into or exercisable for shares of Common Stock for a
period of 90 days after the date of this Prospectus without the prior written
consent of Merrill Lynch, as representative of the Underwriters, with certain
exceptions. See "Underwriting."

Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made of the effect, if any, that sales of Common
Stock or the availability of shares for sale will have on the market price
prevailing from time to time. Following the Offering, sales of substantial
amounts of Common Stock in the public market or otherwise, or the perception
that such sales could occur, could adversely affect the prevailing market
price for the Common Stock.

53
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock. As of May 1, 1996,
there were 4,391,778 shares of Common Stock outstanding and held of record by
eight stockholders, and no shares of Preferred Stock were outstanding. The
following summary does not purport to be complete, and reference is made to
the more detailed provisions of the Company's Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Bylaws, which are filed
as exhibits to the registration statement of which this Prospectus is a part.

COMMON STOCK

The Common Stock possesses ordinary voting rights for the election of
directors and in respect of other corporate matters, each share being entitled
to one vote. There are no cumulative voting rights, meaning that the holders
of a majority of the shares voting for the election of directors can elect all
the directors if they choose to do so. The Common Stock carries no preemptive
rights and is not convertible, redeemable or assessable, or entitled to the
benefits of any sinking fund. The holders of Common Stock are entitled to
dividends in such amounts and at such times as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy" for
information regarding dividend policy.

PREFERRED STOCK

The Board of Directors of the Company is empowered, without approval of the
stockholders, to cause shares of Preferred Stock to be issued in one or more
series, with the numbers of shares of each series to be determined by it. The
Board of Directors is authorized to fix and determine the powers,
designations, preferences, and relative, participating, optional or other
rights (including, without limitation, voting powers, full or limited,
preferential rights to receive dividends or assets upon liquidation, rights of
conversion or exchange into Common Stock, Preferred Stock of any Series or
other securities, redemption provisions and sinking fund provisions) between
series and between the Preferred Stock or any series thereof and the Common
Stock, and the qualifications, limitations or restrictions of such rights.

Although the Company has no present intention to issue shares of Preferred
Stock, the issuance of shares of Preferred Stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of Preferred Stock might
impede a business combination by including class voting rights that would
enable the holders to block such a transaction; or such issuance might
facilitate a business combination by including voting rights that would
provide a required percentage vote of the stockholders. In addition, under
certain circumstances, the issuance of Preferred Stock could adversely affect
the voting power of the holders of the Common Stock. Although the Board of
Directors is required to make any determination to issue such stock based on
its judgment as to the best interests of the stockholders of the Company, the
Board of Directors could act in a manner that would discourage an acquisition
attempt or other transaction that some or a majority of the stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then market price of such stock. The Board of
Directors does not at present intend to seek stockholder approval prior to any
issuance of currently authorized stock, unless otherwise required by law or
the rules of any market on which the Company's securities are traded.

OTHER MATTERS

Delaware law authorizes corporations to limit or eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach of directors' fiduciary duty of care. The duty of care
requires that, when acting on behalf of the corporation, directors must
exercise an informed business judgment based on all material information
reasonably available to them. Absent the limitations authorized by Delaware
law, directors are accountable to corporations and their stockholders for
monetary damages for conduct constituting gross negligence in the exercise of
their duty of care. Delaware law enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Certificate
of Incorporation limits the

54
<PAGE>

liability of directors of the Company to the Company or its stockholders to
the fullest extent permitted by Delaware law. Specifically, directors of the
Company will not be personally liable for monetary damages for breach of a
director's fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the Delaware General Corporation Law, or (iv) for any transaction from
which the director derived an improper personal benefit.

The inclusion of this provision in the Certificate of Incorporation may have
the effect of reducing the likelihood of derivative litigation against
directors, and may discourage or deter stockholders or management from
bringing a lawsuit against directors for breach of their duty of care, even
though such an action, if successful, might otherwise have benefited the
Company and its stockholders. The Company's Bylaws provide indemnification to
the Company's officers and directors and certain other persons with respect to
certain matters, and the Company has entered into agreements with each of its
directors providing for indemnification with respect to certain matters.

The Certificate of Incorporation provides that stockholders may act only at
an annual or special meeting of stockholders and may not act by written
consent. The Bylaws provide that special meetings of the stockholders can be
called only by the Chairman of the Board, the President or the Board of
Directors of the Company.

Pursuant to the Certificate of Incorporation, certain transactions
involving, among other persons, any person who is a beneficial owner of 10% or
more of the aggregate voting power of all outstanding stock of the Company (a
"related person") require the affirmative vote of the holders of both (i) at
least 80% of the outstanding voting stock and (ii) at least 66% of the
outstanding voting stock not beneficially owned by the related person.
Transactions subject to such approval include certain mergers or
consolidations of the Company or sales or transfers of assets and properties
having an aggregate fair market value of $10 million or more. Notwithstanding
the foregoing, the Certificate of Incorporation provides that no person who is
the beneficial owner of 10% or more of the aggregate voting power of all
outstanding stock of the Company on May 1, 1996 shall be a related person.
Consequently, DRLX Partners, L.P. is not a related person for these purposes.

The Certificate of Incorporation provides that the Board of Directors shall
consist of three classes of directors serving for staggered three-year terms.
As a result, approximately one-third of the Company's Board of Directors will
be elected each year. The classified board provision could prevent a party who
acquires control of a majority of the outstanding voting stock of the Company
from obtaining control of the Board of Directors until the second annual
stockholders meeting following the date the acquirer obtains the controlling
interest. See "Management."

The Certificate of Incorporation provides that the number of directors will
be no greater than 12 and no less than three. The Certificate of Incorporation
further provides that directors may be removed only for cause (as defined in
the Certificate of Incorporation), and then only by the affirmative vote of
the holders of at least a majority of all outstanding voting stock entitled to
vote. This provision, in conjunction with the provisions of the Certificate of
Incorporation authorizing the Board of Directors to fill vacant directorships,
will prevent stockholders from removing incumbent directors without cause and
filling the resulting vacancies with their own nominees.

The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
a corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination; (ii)
upon consummation of the transaction that resulted in the interested
stockholder's becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of

55
<PAGE>

the corporation and by employee stock plans that do not provide employees with
the rights to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer); or (iii) following the
transaction in which such person became an interested stockholder, the
business combination was approved by the board of directors of the corporation
and authorized at a meeting of stockholders by the affirmative vote of the
holders of two-thirds of the outstanding voting stock of the corporation not
owned by the interested stockholder. Under Section 203, the restrictions
described above also do not apply to certain business combinations proposed by
an interested stockholder following the announcement or notification of one of
certain extraordinary transactions involving the corporation and a person who
had not been an interested stockholder during the previous three years or who
became an interested stockholder with the approval of a majority of the
corporation's directors, if such extraordinary transaction is approved or not
opposed by a majority of the directors who were directors prior to any person
becoming an interested stockholder during the previous three years or were
recommended for election or elected to succeed such directors by a majority of
such directors. DRLX Partners, L.P. is not subject to the restrictions of
Section 203 with respect to the Common Stock.

STOCKHOLDER PROPOSALS

The Company's Bylaws contain provisions requiring that advance notice be
delivered to the Company of any business to be brought by a stockholder before
an annual meeting of stockholders, and providing for certain procedures to be
followed by stockholders in nominating persons for election to the Board of
Directors of the Company. Generally, such advance notice provisions provide
that written notice must be given to the Secretary of the Company by a
stockholder (i) in the event of business to be brought by a stockholder before
an annual meeting, not less than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders of the Company (with
certain exceptions if the date of the annual meeting is different by more than
specified amounts from the anniversary date), and (ii) in the event of
nominations of persons for election to the Board of Directors by any
stockholder, (a) with respect to an election to be held at the annual meeting
of stockholders, not less than 90 days prior to the anniversary date of the
immediately preceding annual meeting of stockholder of the Company (with
certain exceptions if the date of the annual meeting is different by more than
specified amounts from the anniversary date), and (b) with respect to an
election be held at a special meeting of stockholders for the election of
directors, not later than the close of business on the tenth day following the
day on which notice of the date of the special meeting was mailed to
stockholders or public disclosure of the date of the special meeting was made,
whichever first occurs. Such notice must set forth specific information
regarding such stockholder and such business or director nominee, as described
in the Company's Bylaws.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.

56
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company, the Selling Stockholder and each of
the underwriters named below (the "Underwriters"), the Company and the Selling
Stockholder have agreed to sell to each of the Underwriters, and each of the
Underwriters, for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, CS
First Boston Corporation and Simmons & Company International are acting as the
representatives (the "Representatives"), has severally agreed to purchase from
the Company and the Selling Stockholder the number of shares of Common Stock
set forth below opposite their respective names. The Underwriters are
committed to purchase all of such shares if any are purchased. Under certain
circumstances, the commitments of non-defaulting Underwriters may be increased
as set forth in the Purchase Agreement.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.............................................
CS First Boston Corporation.......................................
Simmons & Company International...................................
---------
Total........................................................ 2,361,962
=========
</TABLE>

The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose to offer the shares of Common Stock to the
public initially at the public offering price set forth on the cover page of
this Prospectus, and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.

The Company has granted the Underwriters an option to purchase up to 354,294
additional shares of Common Stock at the public offering price set forth on
the cover page of this Prospectus, less the underwriting discount. Such
option, which expires 30 days after the date of this Prospectus, may be
exercised solely to cover over-allotments. To the extent that the Underwriters
exercise this option, each of the Underwriters will be obligated, subject to
certain conditions, to purchase approximately the same percentage of the
option shares that the number of shares to be purchased initially by that
Underwriter bears to the total number of shares to be purchased initially by
the Underwriters.

Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock offered hereby will be
determined by negotiations among the Company, the Selling Stockholder and the
Representatives. Among the factors to be considered in such negotiations are
the history and the prospects for the industry in which the Company competes,
an assessment of the Company's management, the past and present operations of
the Company, the historical results of operations of the Company and the trend
of its revenues and earnings, the prospects for future earnings of the
Company, the general condition of the securities markets at the time of the
Offering and the price-earnings ratios and market prices of publicly traded
securities of companies that the Company and the Representatives believe to be
comparable to the Company. There can be no assurance that an active trading
market will develop for the Common Stock or that the Common Stock will trade
in the public market subsequent to the Offering at or above the initial public
offering price.

57
<PAGE>

At the request of the Company, the Underwriters have reserved up to 100,000
of the shares of Common Stock offered hereby for sale at the initial public
offering price to certain employees of the Company and certain other persons
designated by the Company who have expressed an interest in purchasing Common
Stock. The number of shares of Common Stock available to the general public
will be reduced to the extent these persons purchase the reserved shares. Any
reserved shares which are not so purchased will be offered by the Underwriters
to the general public on the same basis as the other shares of Common Stock
offered hereby.

The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments the Underwriters may be required
to make in respect thereof.

The Company, DRLX Partners, L.P. and each of the Company's directors and
executive officers have agreed that, for a period of 90 days after the date of
this Prospectus, they will not, without the prior written consent of Merrill
Lynch, offer, sell or otherwise voluntarily dispose of any shares of Common
Stock or securities convertible into or exercisable for Common Stock, except
for (i) sales of the shares of Common Stock offered hereby, (ii) issuances
pursuant to the exercise of outstanding warrants, stock options and
convertible securities, (iii) grants of options pursuant to the Stock Option
Plan, (iv) private placements of Common Stock by the Company to purchasers who
agree to be bound by a similar agreement, and (v) bona fide gifts by
stockholders to donees who agree to be bound by a similar agreement.

The Representatives have informed the Company and the Selling Stockholder
that they do not expect the Underwriters to confirm sales of shares of Common
Stock offered hereby to any accounts over which they exercise discretionary
authority.

LEGAL MATTERS

Certain legal matters in connection with the shares of Common Stock offered
hereby are being passed upon for the Company by Baker & Botts, L.L.P.,
Houston, Texas, and for the Underwriters by Liddell, Sapp, Zivley, Hill &
LaBoon, L.L.P., Houston, Texas.

EXPERTS

The (i) consolidated financial statements of the Company as of December 31,
1995 and 1994 and for the year ended December 31, 1995 and the period from
March 30, 1994 (inception) to December 31, 1994, (ii) consolidated statements
of operations and cash flows of DSI for the three-month period ended March 30,
1994 and the year ended December 31, 1993, (iii) consolidated statements of
income and cash flows of Ensco Technology for the nine-month period ended
September 30, 1995 and the year ended December 31, 1994, and (iv) consolidated
statements of operations and cash flows of Sharewell for the one-month period
ended April 30, 1995 and each of the two years in the period ended March 31,
1995, included in this Prospectus, and the financial statement schedule
related to the financial statements referred to in (i) above, included
elsewhere in the registration statement of which this Prospectus forms a part,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement,
and have been so included in reliance upon the reports of such firm given upon
their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has not previously been subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended. The Company has filed a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act with the Commission with respect to the Offering. This
Prospectus, filed as a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement, or the
exhibits and schedules thereto, in accordance with the rules and regulations
of the Commission,

58
<PAGE>

and reference is hereby made to such omitted information. Statements made in
this Prospectus concerning any document filed as an exhibit to the
Registration Statement are not necessarily complete, and in each instance
reference is made to such exhibit for a complete statement of its provisions.
The Registration Statement and the exhibits and schedules thereto may be
inspected, without charge, at the public reference facilities of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and its regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and at 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of all or any
portion of the Registration Statement can be obtained at prescribed rates from
the Public Reference Section of the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
The Commission maintains an Internet web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission (http://www.sec.gov).

59
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DRILEX INTERNATIONAL INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheet as of March 31, 1996 (unaudited) and as of
December 31, 1995 and 1994............................................. F-3
Consolidated Statement of Income for the Three Months Ended March 31,
1996 and 1995 (unaudited) and for the Year Ended December 31, 1995 and
the Period from March 30, 1994 (inception) to December 31, 1994........ F-4
Consolidated Statement of Cash Flows for the Three Months Ended March
31, 1996 and 1995 (unaudited) and for the Year Ended December 31, 1995
and the Period from March 30, 1994 (inception) to December 31, 1994.... F-5
Consolidated Statement of Stockholders' Equity for the Three Months
Ended March 31, 1996 (unaudited) and for the Year Ended December 31,
1995 and the Period from March 30, 1994 (inception) to December 31,
1994................................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
DRILEX SYSTEMS, INC. AND SUBSIDIARIES
Independent Auditors' Report............................................ F-18
Consolidated Statement of Operations for the Period from January 1, 1994
to March 30, 1994 and the Year Ended December 31, 1993................. F-19
Consolidated Statement of Cash Flows for the Period from January 1, 1994
to March 30, 1994 and the Year Ended December 31, 1993................. F-20
Notes to Consolidated Financial Statements.............................. F-21
ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY
Independent Auditors' Report............................................ F-25
Consolidated Statement of Income for the Nine Months Ended September 30,
1995 and the Year Ended December 31, 1994.............................. F-26
Consolidated Statement of Cash Flows for the Nine Months Ended September
30, 1995 and the Year Ended December 31, 1994.......................... F-27
Notes to Consolidated Financial Statements.............................. F-28
SHAREWELL, INC. (FORMERLY SHARECO, INC.) AND SUBSIDIARIES
Independent Auditors' Report............................................ F-32
Consolidated Statement of Operations for the One Month Ended April 30,
1995 and the Years Ended March 31, 1995 and 1994....................... F-33
Consolidated Statement of Cash Flows for the One Month Ended April 30,
1995 and the Years Ended March 31, 1995 and 1994....................... F-34
Notes to Consolidated Financial Statements.............................. F-35
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Drilex International Inc.:

We have audited the accompanying consolidated balance sheets of Drilex
International Inc. and subsidiaries (the "Company") as of December 31, 1995
and 1994, and the related consolidated statements of income, cash flows, and
stockholders' equity for the year ended December 31, 1995 and the period from
March 30, 1994 (inception) to December 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Drilex International Inc. and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the year ended December 31, 1995 and the
period from March 30, 1994 (inception) to December 31, 1994 in conformity with
generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Houston, Texas
April 26, 1996 (May 16, 1996 as to Note 15)

F-2
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------
1996 1995 1994
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 1,388 $ 819 $ 949
Receivables:
Trade, net of allowance for doubtful accounts
of $729, $933 and $308 at March 31, 1996 and
December 31, 1995 and 1994, respectively...... 20,455 20,994 8,946
Other.......................................... 736 694 101
Inventories...................................... 8,117 8,259 4,303
Prepaid expenses and other current assets........ 1,238 1,217 467
------- ------- -------
Total current assets......................... 31,934 31,983 14,766
Property and equipment, net........................ 28,371 27,557 17,545
Goodwill, net of accumulated amortization of $260,
$170 and $9 at March 31, 1996 and December 31,
1995 and 1994, respectively....................... 14,061 14,151 1,394
Other assets, net.................................. 4,089 4,063 2,587
------- ------- -------
$78,455 $77,754 $36,292
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 9,227 $ 8,706 $ 2,699
Accrued compensation and related benefits........ 1,423 1,550 800
Accrued taxes, other than on income.............. 632 1,064 741
Accrued income taxes............................. 414 476 185
Other accrued liabilities........................ 733 936 380
Long-term debt, current maturities............... 5,852 5,886 450
------- ------- -------
Total current liabilities.................... 18,281 18,618 5,255
Long-term debt, less current maturities............ 32,945 32,467 7,633
Other noncurrent liabilities....................... 2,169 2,182 1,781
------- ------- -------
Total liabilities............................ 53,395 53,267 14,669
------- ------- -------
Commitments and contingencies (Note 12)
Minority interests................................. 794 805 2,066
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000
shares authorized; none issued.................. -- -- --
Common stock, $.01 par value; 25,000,000 shares
authorized;
shares issued: March 31, 1996--4,391,778,
December 31, 1995--4,381,205 and December 31,
1994--4,080,818................................. 44 44 41
Additional paid-in capital....................... 19,903 19,845 17,507
Retained earnings................................ 4,319 3,793 2,009
------- ------- -------
Total stockholders' equity................... 24,266 23,682 19,557
------- ------- -------
$78,455 $77,754 $36,292
======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS PERIOD FROM
ENDED MARCH 30, 1994
MARCH 31, YEAR ENDED (INCEPTION) TO
--------------- DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------- ------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues:
Rental and service............. $17,039 $8,437 $43,766 $21,850
Equipment sales................ 2,418 2,090 13,760 3,359
------- ------ ------- -------
19,457 10,527 57,526 25,209
------- ------ ------- -------
Operating expenses:
Costs of sales and operations
(exclusive of depreciation and
amortization):
Rental and service........... 10,836 5,573 27,956 11,714
Equipment sales.............. 1,182 889 6,650 1,210
Selling, general and
administrative expenses....... 4,243 2,644 13,448 6,711
Depreciation and amortization.. 1,580 761 4,492 1,855
------- ------ ------- -------
17,841 9,867 52,546 21,490
------- ------ ------- -------
Operating income................. 1,616 660 4,980 3,719
Interest expense................. (811) (203) (1,935) (478)
------- ------ ------- -------
Income before income taxes and
minority interests.............. 805 457 3,045 3,241
Provision for income taxes....... (290) (164) (1,097) (1,166)
Minority interests............... 11 (88) (164) (66)
------- ------ ------- -------
Net income....................... $ 526 $ 205 $ 1,784 $ 2,009
======= ====== ======= =======
Net income per common and common
equivalent share:
Primary........................ $ .12 $ .05 $ .40 $ .57
======= ====== ======= =======
Fully diluted.................. $ .11 $ .05 $ .40 $ .57
======= ====== ======= =======
Weighted average common and
common equivalent shares
outstanding (in thousands):
Primary........................ 4,552 4,390 4,411 3,507
======= ====== ======= =======
Fully diluted.................. 4,914 4,390 4,501 3,507
======= ====== ======= =======
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
THREE MONTHS PERIOD FROM
ENDED MARCH 30, 1994
MARCH 31, YEAR ENDED (INCEPTION) TO
-------------- DECEMBER 31, DECEMBER 31,
1996 1995 1995 1994
------ ------ ------------ --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income........................ $ 526 $ 205 $ 1,784 $ 2,009
Adjustments to reconcile net
income to net cash provided by
(used for) operating activities:
Depreciation and amortization.... 1,580 761 4,492 1,855
Net losses on disposition of
property and equipment.......... 193 526 1,033 883
Minority interests............... (11) 88 164 66
Changes in assets and
liabilities, excluding the
effects of acquisitions:
Increase in accounts payable.... 521 673 4,568 1,628
Increase in inventories......... (1,080) (1,605) (5,918) (2,393)
Decrease (increase) in
receivables.................... 508 124 (5,209) (3,667)
Decrease (increase) in prepaid
expenses and other assets...... (151) 104 (560) (576)
Increase (decrease) in accrued
and other liabilities.......... (837) (931) (539) 1,072
------ ------ -------- --------
Net cash provided by (used
for) operating activities... 1,249 (55) (185) 877
------ ------ -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Net proceeds from disposition of
property and equipment........... 692 157 1,263 29
Capital expenditures.............. (1,816) (773) (5,408) (707)
Acquisition of ENSCO Technology
Company net assets, net of cash
acquired......................... -- -- (11,488) --
Acquisition of Sharewell, Inc.,
net of cash acquired............. -- -- (3,727) --
Acquisition of Drilex Systems,
Inc., net of cash acquired....... -- -- -- (18,625)
Acquisition of Cobb net assets.... -- -- -- (3,590)
------ ------ -------- --------
Net cash used for investing
activities.................. (1,124) (616) (19,360) (22,893)
------ ------ -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of long-
term debt........................ -- -- 17,450 2,250
Net borrowings under revolving
credit agreements................ 1,550 1,750 4,700 4,500
Proceeds from issuance of common
stock............................ -- -- 3,117 16,215
Principal payments on long-term
debt............................. (1,106) (112) (4,826) --
Purchases of common stock......... -- (1,000) (1,026) --
------ ------ -------- --------
Net cash provided by
financing activities........ 444 638 19,415 22,965
------ ------ -------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................. 569 (33) (130) 949
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD............... 819 949 949 --
------ ------ -------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................ $1,388 $ 916 $ 819 $ 949
====== ====== ======== ========
SUPPLEMENTARY SCHEDULE OF NON-CASH
INVESTING AND FINANCING
ACTIVITIES:
Transfers of drilling equipment
parts from inventories to
property and equipment........... $1,222 $ 656 $ 2,926 $ 1,965
Amounts recorded in connection
with acquisitions (see Note 2):
Fair value of net assets
acquired, including goodwill.... -- -- 26,257 26,881
Issuances of long-term debt...... -- -- 10,792 1,333
Issuance of long-term debt to
reacquire equity interest in
subsidiary...................... -- 2,154 2,154 --
Issuances of common stock and
warrants........................ -- -- 250 1,333
Issuance of equity interest in
subsidiary...................... -- -- -- 2,000
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid..................... $ 800 $ 180 $ 1,689 $ 274
Income taxes paid................. 312 408 842 613
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

COMMON STOCK ADDITIONAL
--------------------- PAID-IN RETAINED
SHARES ($.01 PAR) CAPITAL EARNINGS TOTAL
--------- ---------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, March 30, 1994
(inception)................ -- $ -- $ -- $ -- $ --
Issuances of common stock. 4,080,818 41 17,507 -- 17,548
Net income................ -- -- -- 2,009 2,009
--------- ---- ------- ------ -------
Balance, December 31, 1994.. 4,080,818 41 17,507 2,009 19,557
Issuances of common stock
and warrants............. 451,220 5 3,362 -- 3,367
Purchases of common stock. (150,833) (2) (1,024) -- (1,026)
Net income................ -- -- -- 1,784 1,784
--------- ---- ------- ------ -------
Balance, December 31, 1995.. 4,381,205 44 19,845 3,793 23,682
Issuance of common stock
(unaudited).............. 10,573 -- 58 -- 58
Net income (unaudited).... -- -- -- 526 526
--------- ---- ------- ------ -------
Balance, March 31, 1996
(unaudited)................ 4,391,778 $ 44 $19,903 $4,319 $24,266
========= ==== ======= ====== =======
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Drilex International Inc. (formerly Drilex Holdings Corp.) was organized on
March 10, 1994 by DRLX Partners, L.P. ("DRLX Partners") and Mr. John Forrest
to acquire the common stock of Drilex Systems, Inc. ("DSI") from MascoTech,
Inc. See Note 2. Mr. Forrest is a founder of DSI and the President and Chief
Executive Officer of Drilex International Inc. The initial capital
contributions of $11,200,000 were made on March 30, 1994.

The consolidated financial statements include the accounts of Drilex
International Inc. and its majority and wholly owned subsidiaries,
collectively referred to herein as the "Company." All significant intercompany
balances and transactions have been eliminated in consolidation.

The Company provides directional, horizontal and other precision drilling
services and products. Such services and products are used primarily for oil
and gas drilling, environmental remediation and trenchless service
applications.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities as of the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

The consolidated financial statements as of and for the three months ended
March 31, 1996 and for the three months ended March 31, 1995 are unaudited;
however, they include all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at March 31, 1996
and the consolidated results of operations and cash flows for the three months
ended March 31, 1996 and 1995. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for the entire year.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Equivalents--Cash equivalents consist of highly liquid investments with
original maturities of three months or less.

Inventories--Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Inventory costs
represent invoice or production cost. Production costs include materials,
labor and manufacturing overhead. The largest portion of the Company's
inventories is consumed in connection with rental and service activities, and
the remainder is utilized for equipment sales. Drilling equipment parts are
transferred from inventories to property and equipment when placed in service.

Property and Equipment--Property and equipment is stated at cost, net of
accumulated depreciation. Depreciation is computed utilizing the straight-line
method at rates based upon the estimated useful lives of the various classes
of assets. Additions, renewals and improvements are capitalized, while
maintenance and repairs are expensed. Upon the sale or retirement of an asset,
the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is recognized.

Goodwill and Other Intangible Assets--Goodwill represents the excess of the
purchase price for acquired businesses over the allocated value of the related
net assets (see Note 2). Goodwill is amortized on a straight-line basis over a
forty year life. The carrying value of goodwill and other intangible assets
will be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the acquired assets may not be
recoverable. If the sum of the estimated future cash flows (undiscounted)
expected to result from the use and eventual disposition of an asset is less
than the carrying amount of the asset, an impairment loss is recognized.
Measurement of an impairment loss is based on the fair value of the asset.

F-7
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Included in other assets are noncompete agreements, a technology licensing
agreement, organization costs and patents. These intangible assets are
amortized on a straight-line basis over their estimated useful lives.

Revenue Recognition--Rental and service revenues are recognized as the
services are performed, generally on an hourly or daily rate basis, under
short-term contracts. Revenues from equipment sales are recognized when
products are delivered to customers.

Income Taxes--The Company accounts for income taxes using an asset and
liability approach, which requires the recognition of deferred income tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Deferred income tax assets and liabilities are determined based on the
temporary differences between the financial statement and tax bases of assets
and liabilities using enacted tax rates.

Foreign Currency Transactions--The Company uses the United States dollar as
the functional currency for its foreign operations. Foreign currency
transaction gains and losses are recognized in consolidated income as
incurred.

Per Share Information--Per share information is based on the weighted
average number of common shares outstanding during each period and, if
dilutive, the weighted average number of common equivalent shares resulting
from the assumed conversion of outstanding stock options and warrants. Shares
issued by the Company during the one-year period prior to the filing of its
Registration Statement (see Note 15) have been included in the computation of
weighted average shares from the date of inception (using the treasury stock
method and an anticipated initial public offering price of $18.00 per share).
The fully diluted computation assumes the conversion of the Convertible
Promissory Note as of the date of its issuance (see Note 6) and the resulting
decrease in interest expense for the applicable period.

Financial Instruments--The carrying amount of cash and cash equivalents
approximates fair value for these instruments. The estimated fair value of
long-term debt is determined based on the current rates offered for similar
borrowings. The estimated fair value of the interest rate swap agreement is
based on the amount that the Company would receive or pay to terminate the
agreement at the balance sheet date. The estimated fair values of the
Company's financial instruments, along with the carrying amounts of the
related assets (liabilities), are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, 1995 1994
------------------ -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Cash and cash equivalents............. $ 819 $ 819 $ 949 $ 949
Long-term debt........................ (38,353) (38,594) (8,083) (8,104)
Interest rate swap agreement.......... -- (332) -- --
</TABLE>

The Company's interest rate swap agreement is used to manage interest rate
risk. The net settlement amount resulting from this agreement is recognized as
an adjustment to interest expense. The Company does not hold or issue
derivative financial instruments for trading purposes.

Recent Accounting Pronouncements--In March 1995, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("SFAS 121"). SFAS 121 requires that long-
lived assets and certain identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. SFAS 121 is effective for fiscal years
beginning after December 15, 1995. The Company believes that the adoption of
SFAS 121 will not have a material impact on its consolidated financial
statements.

F-8
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In October 1995, the FASB issued Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123
establishes alternative methods of accounting and disclosure for employee
stock-based compensation arrangements. The Company has elected to continue the
use of the "intrinsic value based method" of accounting for its employee stock
option plan (see Notes 9 and 15). This method does not result in the
recognition of compensation expense when employee stock options are granted if
the exercise price of the options equals or exceeds the fair market value of
the stock at the date of grant. The Company will adopt the disclosure
requirements of SFAS 123 when it becomes effective in 1996.

2. ACQUISITIONS

On March 31, 1994, the Company acquired all of the common stock of DSI for
cash of $20,000,000 in a transaction accounted for as a purchase. During the
remainder of 1994 and during 1995, the Company consummated three additional
business acquisitions which were also accounted for using the purchase method.
Results of operations and cash flows of the acquired businesses are included
in the consolidated financial statements for the periods subsequent to the
respective dates of acquisition.

ENSCO Technology Company and subsidiary ("ENSCO Technology")--On September
30, 1995, the Company acquired substantially all of the assets, net of
outstanding liabilities and minority interests, of ENSCO Technology. ENSCO
Technology provides precision drilling and measurement-while-drilling services
to customers primarily in Texas and Canada. The total purchase price of
$17,851,000 consisted of $11,790,000 in cash and notes payable to ENSCO
Technology totaling $6,061,000. The Company recognized goodwill of $8,586,000
in connection with this acquisition.

Sharewell, Inc. and subsidiaries ("Sharewell")--On May 5, 1995, the Company
acquired all of the common stock of Sharewell (formerly Shareco, Inc.), which
provides directional drilling guidance systems and services in both domestic
and international locations. The total purchase price of $9,167,000 consisted
of $4,186,000 in cash, notes payable to Sharewell's former stockholders
totaling $4,731,000 and warrants to purchase 180,981 shares of the Company's
common stock valued at $250,000. The Company recognized goodwill of $4,332,000
in connection with this acquisition.

Cobb Directional Drilling Company, Inc. and Posi-Trak Mud Motors, Inc.
(collectively, "Cobb")--On September 30, 1994, the Company acquired
substantially all of the fixed assets of Cobb (the "Cobb acquisition"), which
provides precision drilling services to customers primarily in Louisiana and
the Gulf of Mexico. The Company used a newly-formed subsidiary, Cobb
Directional Drilling Company LLC ("Cobb LLC"), to acquire the Cobb assets. The
total purchase price of $8,256,000 consisted of $3,590,000 in cash, a note
payable to Posi-Trak Mud Motors, Inc. for $1,333,000, a one-third equity
interest in Cobb LLC valued at $2,000,000 and 241,307 shares of the Company's
common stock valued at $1,333,000. The Company recognized goodwill of
$1,403,000 in connection with this acquisition.

On March 23, 1995, the Company repurchased 144,784 of the shares of its
common stock for $1,000,000 in cash (the estimated fair value of such common
stock on that date). This repurchase, after retirement of the resulting
treasury shares, was recorded as a reduction of common stock and additional
paid-in capital on the Company's consolidated balance sheet. On the same date,
the Company reacquired the one-third equity interest in Cobb LLC in exchange
for two notes payable to Cobb Directional Drilling Company, Inc. totaling
$2,154,000 (the estimated fair value of such equity interest on that date).
This reacquisition was recorded as a reduction of minority interests on the
Company's consolidated balance sheet. The minority stockholder's share of Cobb
LLC's earnings for the period from October 1, 1994 through March 23, 1995 is
presented as minority interests in the Company's consolidated income
statement.

Pro forma results of operations (unaudited)--The following unaudited pro
forma summary presents consolidated results of operations for the Company as
if (a) the Cobb acquisition had been consummated on March 30, 1994 and (b) the
Sharewell and ENSCO Technology acquisitions had been consummated as of the
beginning of the respective periods. Appropriate adjustments have been
reflected for depreciation and

F-9
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

amortization, interest expense, income taxes and minority interests. Net
income for the period ended December 31, 1994 includes an after-tax gain of
$429,000, or $.10 per share, resulting from ENSCO Technology's sale of stock
of a foreign subsidiary. The pro forma information does not necessarily
reflect the actual results that would have been achieved, nor is it
necessarily indicative of future consolidated results for the Company.

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
(IN THOUSANDS OF DOLLARS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net revenues..................................... $73,557 $48,719
Net income....................................... 1,929 2,905
Net income per common and common equivalent
share............................................ .42 .67
</TABLE>

3. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -------------
1996 1995 1994
----------- ------ ------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Drilling equipment parts.......................... $7,363 $7,573 $4,187
Work in process................................... 754 686 116
------ ------ ------
$8,117 $8,259 $4,303
====== ====== ======
</TABLE>

4. PROPERTY AND EQUIPMENT

The major classes of property and equipment are as follows:

ESTIMATED DECEMBER 31,
USEFUL ----------------
LIVES 1995 1994
---------- ------- -------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C> <C>
Land............................................. $ 52 $ 52
Buildings and improvements....................... 5-40 years 985 867
Machinery and equipment.......................... 3-15 years 7,122 4,327
Rental tools..................................... 3-7 years 19,901 12,286
Furniture and fixtures........................... 3-10 years 2,385 1,407
Construction in progress......................... 1,844 175
------- -------
32,289 19,114
Less: accumulated depreciation................... (4,732) (1,569)
------- -------
$27,557 $17,545
======= =======
</TABLE>

Depreciation expense for the year ended December 31, 1995 and the period
ended December 31, 1994 was $3,668,000 and $1,703,000, respectively.
Accumulated depreciation on rental tools was $3,140,000 at December 31, 1995.
Effective April 1, 1995, the Company changed its estimated useful life for
certain drilling motor components from five to seven years. This change was
made to better reflect the estimated period during which these assets will
remain in service. The effect of this change was an increase in net income of
$248,000, or $.06 per share, for the year ended December 31, 1995.

F-10
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. OTHER ASSETS

Other assets consist of the following:

DECEMBER 31,
ESTIMATED ---------------
USEFUL LIVES 1995 1994
------------ ------- ------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C> <C>
Noncompete agreements........................... 5-10 years $ 2,100 $ 500
Technology licensing agreement.................. 13-1/3 years 1,465 1,465
Organization costs.............................. 5 years 1,052 633
Patents......................................... 17 years 122 122
Other........................................... 10 10
------- ------
4,749 2,730
Less: accumulated amortization.................. (686) (143)
------- ------
$ 4,063 $2,587
======= ======
</TABLE>

In conjunction with the acquisition of DSI, the Company obtained a licensing
agreement that provides it with a non-exclusive right to use a patented
technology for the remaining life of the patent. As consideration for the
license, the Company is obligated to sell or lease certain drilling systems
equipment to the licensor at a discount. The period of this obligation extends
through December 31, 1997. A liability for this obligation is included on the
Company's consolidated balance sheet in the amount of $1,238,000 and
$1,433,000 at December 31, 1995 and 1994, respectively.

6. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, ---------------
1996 1995 1994
----------- ------- ------
(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Bank Credit Agreement:
Revolving Credit Facility..................... $10,750 $ 9,200 $ --
Term Note..................................... 15,705 16,578 --
Previous bank credit agreements:
Revolving credit facilities................... -- -- 4,500
Cobb term note................................ -- -- 2,250
Promissory Note payable to Posi-Trak Mud Motors,
Inc............................................ 1,333 1,333 1,333
Promissory Note payable to Cobb Directional
Drilling Company, Inc.......................... 667 750 --
Promissory Notes payable to former stockholders
of Sharewell................................... 4,281 4,431 --
Promissory Note payable to ENSCO Technology..... 3,561 3,561 --
Convertible Promissory Note payable to ENSCO
Technology..................................... 2,500 2,500 --
------- ------- ------
38,797 38,353 8,083
Less: current maturities........................ (5,852) (5,886) (450)
------- ------- ------
$32,945 $32,467 $7,633
======= ======= ======
</TABLE>

Bank Credit Agreement--On September 29, 1995, the Company entered into a
credit agreement with a bank (as amended, the "Bank Credit Agreement") which
replaced previous credit agreements entered into by the Company and its
subsidiaries. The Bank Credit Agreement consists of a secured revolving line
of credit (the

F-11
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

"Revolving Credit Facility") which matures on September 30, 1998 and a
$17,450,000 term note (the "Term Note") which matures on September 30, 2000.
The Revolving Credit Facility provides for borrowings of up to $13,000,000, of
which up to $3,000,000 may be used for letters of credit. As of December 31,
1995, $3,455,000 of borrowings was available under the Revolving Credit
Facility, of which $2,655,000 was available for letters of credit. Letters of
credit outstanding amounted to $345,000 at December 31, 1995.

The Term Note calls for quarterly principal payments of $872,000. Under
certain circumstances, the Company may be required to make annual principal
prepayments on the Term Note in an amount equal to 50% of excess cash flow (as
defined).

The Bank Credit Agreement is secured by eligible receivables, inventories
and property and equipment, as well as the Company's pledge of the stock of
certain subsidiaries. Borrowings under the Bank Credit Agreement bear interest
at a rate per annum, at the Company's election, equal to the bank's prime rate
plus 1/2% or a Eurodollar or Eurosterling interbank offered rate plus 2% (9%
and 7.8%, respectively, at December 31, 1995). The interest rate margins may
be reduced by up to 1/2% (non-cumulatively) based on a financial test,
determined quarterly. As of December 31, 1995, the financial test did not
permit a reduction in the interest rate margins. The Bank Credit Agreement
requires the Company to maintain certain financial covenants and places
restrictions on the Company's ability to, among other things, incur debt and
liens, pay dividends, enter into unrelated lines of business, undertake
transactions with affiliates and make investments.

Promissory Note payable to Posi-Trak Mud Motors, Inc.--This note matures on
September 30, 1997, bears interest at a rate of 7% per annum and is secured by
a pledge of the Company's equity interest in Cobb LLC.

Promissory Note payable to Cobb Directional Drilling Company, Inc.--This
note matures on March 23, 1998, bears interest at a rate of 7-1/2% per annum,
calls for quarterly principal payments of $83,000 and is secured by a pledge
of a one-third equity interest in Cobb LLC. A related promissory note for
$1,154,000 was repaid on July 1, 1995.

Promissory Notes payable to former stockholders of Sharewell--These
unsecured notes mature on April 30, 2000 and bear interest at a rate of 8% per
annum. Six of the notes call for quarterly principal payments aggregating
$150,000. The remaining note calls for annual principal payments of $250,000
and a final payment of $913,000 at maturity, and requires that the Company
maintain a minimum consolidated net worth.

Promissory Note and Convertible Promissory Note payable to ENSCO
Technology--These unsecured notes mature on September 30, 2000 and bear
interest at the prime rate (8.5% at December 31, 1995). The Promissory Note
calls for annual principal payments of $712,000, and the Convertible
Promissory Note calls for annual principal payments of $500,000. The terms of
the notes require the Company to maintain a minimum consolidated tangible net
worth and place restrictions on the Company's ability to pay dividends. The
notes also provide that the outstanding principal balances may be called for
prepayment, at ENSCO Technology's option, in the event of a public offering of
the Company's stock or a change in control of the Company (as defined).

The Convertible Promissory Note provides that ENSCO Technology has the
option, at any time, to convert such note, in whole or in part, into shares of
the Company's common stock at a conversion price of $6.91 per share. The
conversion price is subject to adjustment in the event of certain transactions
involving the Company's common stock.

Maturities--Scheduled maturities of long-term debt outstanding at December
31, 1995 are as follows: years ending December 31, 1996--$5,886,000; 1997--
$7,167,000; 1998--$14,784,000; 1999--$5,500,000; 2000--$5,016,000.

Restricted Net Assets of Subsidiaries--Certain debt instruments restrict the
ability of the Company's subsidiaries to transfer assets, make loans and
advances and pay dividends to the Company. The restricted net assets of the
Company's subsidiaries totaled approximately $40,000,000 at December 31, 1995.

F-12
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Interest Rate Swap Agreement--The interest rate swap agreement has an
outstanding notional amount of $16,578,000 at December 31, 1995 and terminates
on September 29, 2000. The Company pays a fixed rate of 6.22% on the notional
amount and receives a floating rate based on LIBOR. This agreement effectively
changes the interest rate on the Term Note from a floating rate to a fixed
rate of 6.22% plus the applicable margin. The Company does not believe there
is any significant exposure to credit risk due to the creditworthiness of the
counterparty. In the event of nonperformance by the counterparty, the
Company's loss would be limited to any unfavorable interest rate differential.

7. INCOME TAXES

The domestic and foreign components of income before income taxes and
minority interests are as follows:

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Domestic.......................................... $ 951 $2,217
Foreign........................................... 2,094 1,024
------ ------
$3,045 $3,241
====== ======
</TABLE>

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Current:
Federal......................................... $ 301 $ 682
State........................................... 41 23
Foreign......................................... 670 170
------ ------
1,012 875
------ ------
Deferred:
Federal......................................... 85 291
------ ------
$1,097 $1,166
====== ======
</TABLE>

A reconciliation between the provision for income taxes and the amount
computed by applying the federal statutory income tax rate to income before
income taxes and minority interests is as follows:

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Provision for income taxes at statutory rate..... $1,035 $1,102
Nondeductible goodwill amortization.............. 24 --
Expenses for which no federal tax benefit was
recognized...................................... 29 22
Other............................................ 9 42
------ ------
$1,097 $1,166
====== ======
</TABLE>

F-13
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The components of the net deferred income tax assets and liabilities are as
follows:

<TABLE>
<CAPTION>
DECEMBER
31,
---------
1995 1994
---- ----
(IN
THOUSANDS
OF
DOLLARS)
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment........................................... $626 $194
Basis difference in foreign subsidiaries, net of foreign tax
credits......................................................... 72 151
Other............................................................ 236 3
---- ----
Total deferred income tax liabilities.......................... 934 348
---- ----
Deferred income tax assets:
Receivables allowance............................................ 65 52
Other............................................................ 52 5
---- ----
Total deferred income tax assets............................... 117 57
---- ----
Net deferred income tax liabilities................................ $817 $291
==== ====
</TABLE>

No valuation allowances are required for the deferred income tax assets. The
deferred income tax assets are included in prepaid expenses and other current
assets, and the deferred income tax liabilities are included in other
noncurrent liabilities, on the consolidated balance sheet.

8. MINORITY INTERESTS

Minority interests at December 31, 1995 represent minority stockholders'
interests in certain foreign subsidiaries of acquired companies. Minority
interests at December 31, 1994 represent the interest in Cobb LLC held by
Cobb's former stockholder.

9. STOCKHOLDERS' EQUITY

Stock options--In 1994, the Company adopted the Drilex Holdings Corp. 1994
Stock Option Plan (the "1994 Stock Option Plan"). Up to 226,226 shares of the
Company's common stock are reserved for awards or for payment of rights
granted to certain employees and to non-employee directors of the Company and
its subsidiaries. These options are exercisable ratably over periods of three
to four years beginning one year from the date of grant. During 1994, options
to purchase 62,911 shares of common stock were granted at an exercise price of
$5.53 per share (the estimated fair value at the date of grant). None of these
options were exercisable at December 31, 1994. During 1995, 2,420 options and
22,624 options were granted at exercise prices of $5.53 and $11.05 per share,
respectively (which were equal to or in excess of the estimated fair value at
the date of grant), no options were exercised, and options to purchase 12,099
shares were canceled. At December 31, 1995, options to purchase 75,856 shares
of the Company's common stock were outstanding at exercise prices of $5.53 to
$11.05 per share, and 12,905 of such options were exercisable.

Warrants--On May 5, 1995, in connection with the Sharewell acquisition (see
Note 2), the Company issued warrants to purchase an aggregate 180,981 shares
of its common stock at an exercise price of $5.53 per share. The warrants are
exercisable, in whole or in part, at any time until May 5, 2000. None of the
warrants were exercised during 1995.

F-14
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Shares reserved for issuance--At December 31, 1995, the Company had the
following shares of common stock reserved for future issuance:

<TABLE>
<S> <C>
Convertible Promissory Note payable to ENSCO Technology............... 361,962
1994 Stock Option Plan................................................ 226,226
Warrants.............................................................. 180,981
-------
769,169
=======
</TABLE>

Restrictions on payment of dividends--As of December 31, 1995, the Company
is precluded from paying dividends on its common stock by the provisions of
various debt agreements (see Note 6).

10. RELATED PARTY TRANSACTIONS

The Company purchases equipment and services from parties related to Cobb's
former stockholder. Charges for such purchases amounted to $629,000 and
$178,000 for the periods ended December 31, 1995 and 1994, respectively.

In connection with the ENSCO Technology acquisition (see Note 2), the
Company was charged a $150,000 fee for investment banking and consulting
services by an affiliate of DRLX Partners. This fee is included in other
accrued liabilities on the Company's consolidated balance sheet as of December
31, 1995.

Included in other receivables at December 31, 1995 are advances to employees
of the Company amounting to $334,000.

11. EMPLOYEE BENEFIT PLAN

On April 1, 1994, the Company adopted a defined contribution savings plan
covering substantially all of its employees. Employees may elect to contribute
up to 15% of their eligible compensation to the plan. For those participants
who have elected to make voluntary contributions to the plan, the Company's
contributions consist of a matching amount of up to 2% of the eligible
compensation of participants. The cost to the Company of this plan amounted to
$207,000 and $87,000 for the periods ended December 31, 1995 and 1994,
respectively.

12. COMMITMENTS AND CONTINGENCIES

Commitments--Minimum rental commitments under operating leases at December
31, 1995 are as follows: years ending December 31, 1996--$1,123,000; 1997--
$776,000; 1998--$559,000; 1999--$504,000; 2000--$326,000; thereafter--
$1,311,000. Rental expense for operating leases was $993,000 and $565,000 for
the periods ended December 31, 1995 and 1994, respectively.

The Company has a licensing agreement that provides it with a non-exclusive
right to purchase and use certain measurement-while-drilling systems
equipment. Most of this equipment was obtained in connection with the ENSCO
Technology acquisition (see Note 2). As consideration for this license, the
Company is obligated to make annual royalty payments of $360,000 to the
supplier of the equipment. The Company is entitled to receive discounts on the
royalty payments for the ENSCO Technology equipment amounting to $46,000 per
year for the first three years of the agreement and $260,000 per year for the
fourth and fifth years of the agreement. The terms of this licensing agreement
are to be reviewed and renegotiated in September 2000.

Contingencies--The Company is involved in various claims, lawsuits and
proceedings arising in the ordinary course of business. While there are
uncertainties inherent in the ultimate outcome of such matters and it is
impossible to presently determine the ultimate costs that may be incurred,
management believes the resolution of such uncertainties and the incurrence of
such costs should not have a material adverse effect on the Company's
consolidated financial position or results of operations.

F-15
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations
of credit risk are primarily cash and cash equivalents and trade receivables.
The Company mitigates its risk with respect to cash and cash equivalents by
maintaining such deposits at high credit quality financial institutions and
monitoring the credit ratings of those institutions.

The Company derives a significant portion of its revenues from sales and
services to customers in the energy industry. In addition, the Company has
concentrations of operations in certain geographic areas (primarily Texas, the
Louisiana Gulf Coast, Venezuela and the North Sea). At December 31, 1995,
outstanding receivables from two significant customers accounted for
approximately 13% and 11% of total trade receivables, respectively. The
Company mitigates its concentrations of credit risk with respect to trade
receivables by actively monitoring the creditworthiness of its customers.
Historically, the Company has not incurred any significant credit related
losses.

14. GEOGRAPHIC INFORMATION

Summarized information by geographic area is as follows:

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Net revenues from unaffiliated customers:
Domestic........................................ $42,557 $18,460
Latin America................................... 6,635 2,544
Europe.......................................... 5,378 2,023
Other foreign................................... 2,956 2,182
------- -------
Total......................................... $57,526 $25,209
======= =======
Operating income (loss):
Domestic........................................ $ 3,180 $ 3,287
Latin America................................... 355 522
Europe.......................................... 1,292 42
Other foreign................................... 153 (132)
------- -------
Total......................................... $ 4,980 $ 3,719
======= =======
Identifiable assets:
Domestic........................................ $59,492 $28,836
Latin America................................... 7,170 2,560
Europe.......................................... 4,633 2,518
Other foreign................................... 6,459 2,378
------- -------
Total......................................... $77,754 $36,292
======= =======
</TABLE>

Sales and transfers among geographic areas are not significant. Included in
results of operations are aggregate foreign currency transaction gains
(losses) of $(43,000) and $30,000 for the periods ended December 31, 1995 and
1994, respectively. Export sales were less than 10% of total net revenues for
the periods ended December 31, 1995 and 1994.

F-16
<PAGE>

DRILEX INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For the periods ended December 31, 1995 and 1994, the Company had revenues
from one customer of $5,844,000 and $2,604,000, respectively.

15.SUBSEQUENT EVENTS

On May 7, 1996, in anticipation of a proposed initial public offering of the
Company's common stock (the "Proposed Offering"), the Company's Board of
Directors approved resolutions to authorize the filing of a Registration
Statement on Form S-1 with the United States Securities and Exchange
Commission. In connection with the Proposed Offering, the Board also approved
the following resolutions: (i) an increase in the number of authorized common
shares to 25,000,000 and a stock split to effect the issuance of approximately
1.81 shares of common stock in exchange for each share of common stock then
outstanding; (ii) the retirement of all treasury shares of common stock
purchased since the Company's inception; (iii) the authorization of 10,000,000
shares of $.01 par value preferred stock; and (iv) the amendment and
restatement of the 1994 Stock Option Plan to, among other things, authorize
the issuance of up to 440,000 shares of common stock pursuant to awards made
thereunder. On May 16, 1996, the Company filed an amendment to its certificate
of incorporation to effect the stock split, the increases in the number of
authorized shares of common and preferred stock, and the retirement of the
treasury shares. The effect of the stock split and the retirement of treasury
shares has been presented retroactively to the date of inception in the
Company's consolidated financial statements.

16.QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Summary quarterly financial information for the year ended December 31, 1995
and the period from March 30, 1994 (inception) to December 31, 1994 is as
follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS OF DOLLARS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995:
Net revenues..................... $10,527 $12,343 $14,493 $20,163
Operating income................. 660 1,023 1,411 1,886
Net income....................... 205 361 574 644
Net income per common and common
equivalent share................ .05 .08 .13 .14
1994:
Net revenues..................... $ 6,689 $ 7,770 $10,750
Operating income................. 846 1,101 1,772
Net income....................... 426 631 952
Net income per common and common
equivalent share................ .18 .17 .22
</TABLE>

F-17
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Drilex International Inc.:

We have audited the accompanying consolidated statements of operations and
cash flows of Drilex Systems, Inc. and subsidiaries (the "Company") for the
period from January 1, 1994 to March 30, 1994 and the year ended December 31,
1993. These statements of operations and cash flows are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations and
cash flows are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
statements of operations and cash flows. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements of operations
and cash flows. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated statements of operations and cash flows of
the Company and its subsidiaries present fairly, in all material respects, the
results of their operations and their cash flows for the period from January
1, 1994 to March 30, 1994 and the year ended December 31, 1993 in conformity
with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Houston, Texas
April 26, 1996

F-18
<PAGE>

DRILEX SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994 YEAR ENDED
TO MARCH 30, DECEMBER 31,
1994 1993
--------------- ------------
<S> <C> <C>
Net revenues:
Rental and service.............................. $5,479 $23,371
Equipment sales................................. 878 2,500
------ -------
6,357 25,871
------ -------
Operating expenses:
Costs of sales and operations (exclusive of
depreciation and amortization):
Rental and service............................ 3,042 13,094
Equipment sales............................... 322 999
Selling, general and administrative expenses.... 2,029 8,286
Depreciation and amortization................... 775 3,107
------ -------
6,168 25,486
------ -------
Operating income.................................. 189 385
Interest and other expense, net................... (481) (1,893)
------ -------
Loss before income taxes.......................... (292) (1,508)
Income tax provision.............................. (3) (152)
------ -------
Net loss.......................................... $ (295) $(1,660)
====== =======
</TABLE>

See notes to consolidated financial statements.

F-19
<PAGE>

DRILEX SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1994 YEAR ENDED
TO MARCH 30, DECEMBER 31,
1994 1993
--------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................ $ (295) $(1,660)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization................. 775 3,107
Deferred income tax provision (benefit)....... 131 (252)
(Increase) decrease in:
Accounts receivable......................... 1,386 (2,180)
Inventory................................... (249) 328
Prepaids and other assets................... (50) 62
Increase (decrease) in:
Accounts payable............................ (490) 344
Accrued liabilities......................... (545) 528
------ -------
Net cash provided by operating activities. 663 277
------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................ (195) (252)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from parent...................... 28 503
------ -------
NET INCREASE IN CASH AND CASH EQUIVALENTS......... 496 528
------ -------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.. 879 351
------ -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $1,375 $ 879
====== =======
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Transfer of drilling equipment inventory to
property and equipment......................... $ 804 $ 2,119
</TABLE>

See notes to consolidated financial statements.

F-20
<PAGE>

DRILEX SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Drilex Systems, Inc. (the "Company") was a wholly owned subsidiary of
MascoTech, Inc. ("MascoTech") during the period from January 1, 1994 to March
30, 1994 and the year ended December 31, 1993. Effective March 30, 1994,
Drilex International Inc. ("Drilex," formerly Drilex Holdings Corp.), an
unrelated third party, entered into an Asset Purchase Agreement with
MascoTech, under which Drilex purchased all of the Company's common stock and
assets and assumed all of the Company's liabilities. The Company manufactures,
sells, leases, and services directional drilling equipment, primarily for the
oil field services industry. As used herein, the term "Company" refers to
Drilex Systems, Inc. and its subsidiary companies.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation--The accompanying consolidated statements of
operations and cash flows include the accounts of the Company and its
subsidiaries for the period from January 1, 1994 to March 30, 1994 ("three-
month period") and for the year ended December 31, 1993. All significant
intercompany balances and transactions have been eliminated in consolidation.

Cash and Cash Equivalents--Cash and cash equivalents consist of all cash
balances and highly liquid investments with original maturities at purchase of
three months or less.

Inventories--Inventories consist of parts to support directional drilling
equipment and work-in-process which are stated at the lower of cost, based on
a first-in first-out ("FIFO") basis, or market. Inventory costs represent
invoice or production cost. Production costs include materials, labor and
manufacturing overhead.

Revenue Recognition--The Company generally recognizes revenue when services
are rendered or products are shipped.

Property and Equipment--Property and equipment is stated at cost, net of
accumulated depreciation. Additions, renewals and improvements are
capitalized, while maintenance and repairs are expensed. Upon the sale or
retirement of an asset, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is recognized.

Depreciation of property and equipment is provided on a straight-line basis
over the estimated useful lives of assets as follows:

<TABLE>
<CAPTION>
ASSET YEARS
----- -----
<S> <C>
Buildings........................................................... 40
Rental tools........................................................ 5-7
Machinery and equipment............................................. 3-10
Furniture and fixtures.............................................. 5-7
</TABLE>

The Company recorded depreciation expense of approximately $624,000 and
$2,511,000 for the three-month period ended March 30, 1994 and the year ended
December 31, 1993, respectively.

Intangible Assets--The Company has certain intangible assets, including
patents and goodwill. Amortization of these assets is provided on a straight-
line basis over their estimated useful lives, which range from five to fifteen
years. The carrying value of intangible assets will be reviewed and adjusted
whenever events or changes in circumstances indicate that the value of the
assets has been impaired.

Income Taxes--The Company was included in the consolidated U.S. federal
income tax returns of MascoTech for the periods presented in these financial
statements. Through March 30, 1994, current federal income taxes (benefits)
were recognized based on the income or losses utilized in MascoTech's
consolidated

F-21
<PAGE>

DRILEX SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

income tax return. The Company's federal, state, and foreign taxes are
presented on a stand-alone basis in the consolidated financial statements in
conformity with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach
for recording deferred taxes. The asset and liability approach accounts for
deferred income taxes by applying statutory rates in effect at the balance
sheet date to the temporary differences between the financial statement basis
and tax basis of such assets and liabilities. The resulting deferred tax
assets and liabilities are adjusted to reflect changes in tax laws or rates.

Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

3. INCOME TAXES

The provision (benefit) for income taxes consisted of the following (in
thousands):

<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED YEAR ENDED
MARCH 30, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Current:
U.S. Federal.................................. $(137) $379
Foreign....................................... 9 25
Deferred--U.S. Federal.......................... 131 (252)
----- ----
Total provision for income taxes............ $ 3 $152
===== ====
</TABLE>

Temporary differences giving rise to the deferred tax provision related
primarily to property and equipment.

The differences between the income tax expense (benefit) recorded for the
three-month period ended March 30, 1994 and the year ended December 31, 1993,
and the income tax computed using the U.S. federal statutory rate of 34% were
as follows (in thousands):

<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED YEAR ENDED
MARCH 30, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
At statutory income tax rate................... $(99) $(513)
Foreign losses for which no benefit was
recognized.................................... 92 634
Meals and entertaiment......................... 1 6
Foreign taxes.................................. 9 25
---- -----
Total...................................... $ 3 $ 152
==== =====
</TABLE>

As discussed in Note 2, the Company was included in the consolidated U.S.
federal tax returns of MascoTech for the periods presented in these financial
statements. Accordingly, payments or benefits related to

F-22
<PAGE>

DRILEX SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

the U.S. federal current tax provision (benefit) were recorded as an
increase/decrease to the payable to MascoTech. Foreign income tax payments of
$9,000 and $18,000 were made during the three-month period ended March 30,
1994 and year ended December 31, 1993, respectively.

4. RELATED PARTY

The Company conducted numerous transactions with MascoTech, the net effect
of which resulted in either increases or decreases in its noncurrent payable
to MascoTech which was subject to interest charges at a rate determined by
MascoTech. In addition, MascoTech provided the Company with certain general
and administrative services which were allocated by MascoTech based on a
predetermined formula. The Company recorded interest expense and general and
administrative expenses allocated from MascoTech as follows (in thousands):

<TABLE>
<CAPTION>
THREE-MONTH
PERIOD ENDED YEAR ENDED
MARCH 30, DECEMBER 31,
1994 1993
------------ ------------
<S> <C> <C>
Interest........................................ $482 $1,892
General and administrative...................... 135 492
</TABLE>

5. EMPLOYEE BENEFITS

During the periods presented, certain of the Company's employees were
eligible to participate in a profit sharing plan sponsored by MascoTech (the
Masco Industries, Inc. Master Defined Contribution Plan). Profit sharing
contributions required approval by MascoTech's Board of Directors and could
range from 0% to 15% of all eligible employees' compensation for the plan
year. The Company recorded profit sharing contribution expense for the three-
month period ended March 30, 1994 of approximately $32,000. No contributions
were recorded for the year ended December 31, 1993.

6. CONCENTRATIONS OF CREDIT RISK

The Company derives a significant portion of its revenues from sales and
services to customers in the energy industry. In addition, the Company has
concentrations of operations in certain geographic areas (primarily Texas, the
Louisiana Gulf Coast, Venezuela and the United Kingdom). During the three-
month period ended March 30, 1994 and the year ended December 31, 1993, the
Company derived approximately 16% and 17% of its revenues, respectively, from
a single customer. The Company mitigates its concentrations of credit risk
with respect to trade receivables by actively monitoring the creditworthiness
of its customers.

F-23
<PAGE>

DRILEX SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. COMMITMENTS AND CONTINGENCIES

Lease Commitments--The Company leases office and warehouse space under
noncancellable operating leases. The annual future minimum lease payments
under these leases are as follows (in thousands):

<TABLE>
<S> <C>
1995............................................................. $ 702
1996............................................................. 677
1997............................................................. 643
1998............................................................. 549
1999............................................................. 504
Thereafter........................................................ 2,375
------
Total......................................................... $5,450
======
</TABLE>

Rental expense incurred for all operating leases during the three-month
period ended March 30, 1994 and the year ended December 31, 1993 totaled
$167,000 and $679,000, respectively.

F-24
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Drilex International Inc.:

We have audited the accompanying consolidated statements of income and cash
flows of ENSCO Technology Company and subsidiary (the "Company") for the nine-
month period ended September 30, 1995 and the year ended December 31, 1994.
These statements of income and cash flows are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of income and cash
flows are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statements
of income and cash flows. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statements of income and cash
flows. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated statements of income and cash flows of the
Company and its subsidiary present fairly, in all material respects, the
results of their operations and their cash flows for the nine-month period
ended September 30, 1995 and the year ended December 31, 1994 in conformity
with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Houston, Texas
April 26, 1996

F-25
<PAGE>

ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME

(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Revenue.............................................. $13,367 $16,522
Costs and expenses:
Operating expenses................................. 11,012 13,060
Depreciation and amortization...................... 1,797 2,403
------- -------
12,809 15,463
------- -------
Income from operations............................... 558 1,059
Other income (expenses):
Gain on disposal of assets......................... 608 474
Gain on sale of stock of subsidiary................ -- 670
Currency transaction losses........................ (2) (237)
Minority interest in loss of subsidiary............ 62 22
Other income....................................... 50 30
------- -------
718 959
------- -------
Income before income taxes........................... 1,276 2,018
Provision for income taxes........................... (538) (105)
------- -------
Net income........................................... $ 738 $ 1,913
======= =======
</TABLE>

See notes to consolidated financial statements.

F-26
<PAGE>

ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 738 $1,913
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 1,797 2,403
Deferred income tax provision (benefit)......... 144 (77)
Minority interest in loss of subsidiary......... (62) (22)
Other........................................... -- 150
Gain on disposal of assets...................... (608) (474)
Gain on sale of stock of subsidiary............. -- (670)
(Increase) decrease in:
Accounts receivable--trade.................... (1,453) 1,176
Inventory..................................... (3) (112)
Prepaid and other current assets.............. 92 (105)
Increase (decrease) in:
Accounts payable.............................. 449 138
Accrued expenses.............................. (195) (196)
Income tax payable............................ 289 182
------ ------
Net cash provided by operating activities... 1,188 4,306
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (3,943) (2,788)
Proceeds from the sale of assets.................. 1,254 1,068
------ ------
Net cash used in investing activities....... (2,689) (1,720)
------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock by a subsidiary....... -- 1,200
Net borrowings from (repayments to) related party. 1,522 (3,574)
------ ------
Net cash provided by (used in) financing
activities................................. 1,522 (2,374)
------ ------
NET INCREASE IN CASH AND CASH EQUIVALENTS........... 21 212
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.... 358 146
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......... $ 379 $ 358
====== ======
SUPPLEMENTARY SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES--Reduction of payable to
related party due to capital contribution from
related party..................................... $9,095 $ --
</TABLE>

See notes to consolidated financial statements.

F-27
<PAGE>

ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

ENSCO Technology Company (the "Company") was a subsidiary of ENSCO
International Incorporated ("ENSCO") during the nine months ended September
30, 1995 and the year ended December 31, 1994. Effective September 30, 1995,
ENSCO entered into an Asset Purchase Agreement with Drilex International Inc.
("Drilex") under which substantially all of the assets of the Company were
sold to Drilex. The Company provides horizontal drilling and measurement while
drilling ("MWD") services to the petroleum industry. MWD tools provide
directional and locational readings to drillers. The Company's operations are
presently conducted in the United States, Canada, and the United Kingdom.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation--The accompanying consolidated financial
statements include the accounts of the Company and its subsidiary, ENSCO
Technology Canada, Inc. ("ETC"). All significant intercompany balances and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents--Cash and cash equivalents consist of all cash
balances and highly liquid investments which have an original maturity at
purchase of three months or less.

Revenue Recognition--The Company generally recognizes revenue when services
are rendered.

Inventory--Inventory consists primarily of replacement parts and supplies
held for use in the operations of the Company. Inventory is stated at the
lower of cost or estimated market value.

Property and Equipment--Property and equipment are recorded at cost.
Additions, improvements, and renewals that significantly add to production
capacity or extend the life of an asset are capitalized. Maintenance, repairs,
and minor renewals are charged to expense as incurred.

The cost of property sold or retired is credited to the asset account, and
the related depreciation is charged to the accumulated depreciation account.
Gain or loss resulting from the sale or retirement is included in income. For
the nine months ended September 30, 1995 and the year ended December 31, 1994,
the Company recorded gains of $608,000 and $474,000, respectively, on asset
retirements. These gains relate primarily to "lost-in-hole" equipment
reimbursements whereby a customer reimburses the Company for the replacement
cost of MWD tools that become irretrievable during the drilling operations.

Depreciation of property and equipment is provided on a straight-line basis
over the estimated useful lives of the various classes of assets as follows:

<TABLE>
<CAPTION>
ASSETS YEARS
------ -----
<S> <C>
Technology equipment................................................ 3-5
Furniture and fixtures and other equipment.......................... 5-7
</TABLE>

Income Taxes--The Company was included in the consolidated U.S. federal
income tax return of ENSCO for the periods presented in these financial
statements. The Company's federal, state, and foreign taxes are presented on a
stand-alone basis in the consolidated financial statements in conformity with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires an asset and liability approach for recording deferred
taxes. The asset and liability approach accounts for deferred income taxes by
applying statutory rates in effect at the balance sheet date to the
differences between the financial statement basis and tax basis of such assets
and liabilities. The resulting deferred tax assets and liabilities are
adjusted to reflect changes in tax laws or rates.

F-28
<PAGE>

ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Minority Interest--The minority interest in loss of subsidiary represents
the minority stockholder's share of the losses of ETC. (See Note 5.)

Currency Translation--The Company's primary functional currency is the U.S.
dollar. ETC uses the Canadian dollar as its functional currency. ETC
translates its assets and liabilities at year end exchange rates while income
and expense accounts are translated at average exchange rates. Translation
adjustments are reflected in the Company's stockholders' equity section as
"cumulative translation adjustment." Currency transaction gains and losses are
included in current operating results.

Sale of Subsidiary Stock--The Company has adopted the income statement
recognition method as its accounting policy with respect to gains and losses
associated with the sale of subsidiary stock. A gain of $670,000 is included
in the Company's consolidated statement of operations for the year ended
December 31, 1994 related to the sale of stock of ETC. (See Note 5.)

3. INCOME TAXES

The provision (benefit) for income taxes consists of the following (in
thousands):

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
Current:
Federal...................................... $342 $ 77
Foreign...................................... 52 105
---- ----
394 182
---- ----
Deferred:
Federal...................................... 144 (77)
---- ----
$538 $105
==== ====
</TABLE>
The Company had established a 100% valuation allowance against federal net
operating loss carryforwards ("NOL carryforwards") available at December 31,
1993, as there was not sufficient evidence to support future utilization of
such deferred tax assets at that time. All NOL carryforwards were fully
utilized during 1994.

The differences between the income tax expense recorded for the periods
ended September 30, 1995 and December 31, 1994, and the income tax computed
using the U.S. federal statutory rate of 34% were as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
<S> <C> <C>
At statutory income tax rate.................. $434 $ 686
Foreign losses for which no benefit was
recognized................................... 52 345
Change in valuation allowance................. -- (1,031)
Foreign taxes................................. 52 105
---- ------
Total..................................... $538 $ 105
==== ======
</TABLE>

Deferred income taxes reflected the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Temporary differences
resulted primarily from the use of accelerated depreciation methods for
federal income tax purposes, which gave rise to a book basis in fixed assets
greater than the tax basis.

F-29
<PAGE>

ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Foreign tax expense of $52,000 and $105,000 was recognized for income earned
on jobs performed in the United Kingdom during the nine-month period ending
September 30, 1995 and the year ended December 31, 1994, respectively.

During the nine-month period ending September 30, 1995 and the year ending
December 31, 1994, the Company made income tax payments of $105,000 and $0,
respectively.

4. RELATED PARTIES

During the nine-month period ending September 30, 1995 and the year ending
December 31, 1994, substantially all of the Company's payables were paid by
ENSCO and substantially all of the Company's cash receipts were received into
ENSCO's corporate bank account. Such amounts were recorded as increases and
decreases, respectively, in the Company's payable to ENSCO. As of September
30, 1995 and December 31, 1994, the Company had payables to ENSCO of
$5,422,000 and $12,995,000, respectively. During the nine-month period ending
September 30, 1995, ENSCO made a capital contribution to the Company of
$9,095,000 by reducing the Company's payable to ENSCO.

ENSCO also provided certain general and administrative services for the
Company including accounting, data processing, legal, and other administrative
and managerial functions. The accompanying consolidated statements of income
do not include any allocations from ENSCO for such services or for the cost of
capital related to the Company's payable to ENSCO.

5. GAIN ON SALE OF SUBSIDIARY STOCK

In October 1994, a 30% equity interest in ETC was sold to Lateral Vector
Resources, Inc. ("LVR"), a Canadian company, for $1.2 million in cash. A gain
of $670,000 was recognized on the sale. The purpose of the sale was to combine
forces with LVR to conduct horizontal and directional drilling services in
Canada and certain areas of the United States.

6. BENEFIT PLANS

During the periods presented, certain of the Company's employees were
eligible to participate in a profit sharing plan sponsored by ENSCO (the
"ENSCO Savings Plan"). Profit sharing contributions require approval by
ENSCO's Board of Directors and may be in cash or grants of ENSCO's common
stock. The Company recorded profit sharing contribution provisions for the
nine-month period ended September 30, 1995 and the year ended December 31,
1994 of $81,000 and $75,000, respectively.

The ENSCO Savings Plan included a 401(k) savings plan feature, which allowed
eligible employees with more than three months of service to make tax deferred
contributions to the plan. ENSCO made matching contributions equivalent to 25%
of all employee contributions, subject to a maximum employee contribution of
6% of their compensation, which amounted to $57,000 and $32,000 for the nine-
month period ended September 30, 1995 and the year ended December 31, 1994,
respectively.

7. COMMITMENTS AND CONTINGENCIES

License and Lease Commitments--The Company was a party to license agreements
with certain entities from which the Company purchased its MWD equipment.
These license agreements gave the Company a non-exclusive right to use the MWD
systems. Under these agreements, the Company was required to make 20 quarterly
license fee payments on each of its 17 MWD systems, for a total payment of
$76,500 per system. Total license fee commitments remaining under these
arrangements prior to the sale of the Company's assets

F-30
<PAGE>

ENSCO TECHNOLOGY COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(see Note 1) were $1,071,000. The license agreements were changed after the
asset sale to reflect an annual fee of $18,000 per MWD system (or $306,000
annually for the MWD systems covered by the agreements). Expense amounts
recorded related to the license fees totaled $92,000 and $197,000 for the
nine-month period ended September 30, 1995 and the year ended December 31,
1994, respectively.

The Company has a drilling motor rental and license agreement with the
Company's supplier of drilling motors. The agreement, which expires December
31, 1996, grants to the Company the right and license to use and rent to
customers certain drilling motors manufactured by this supplier. The Company
is required to pay for each calendar quarter, as a minimum, a motor rental and
license fee that considers the number of motors available, a defined revenue
rate per hour and defined utilization percentage of motors available and
number of hours of use per motor. During the nine-month period ended September
30, 1995 and the year ended December 31, 1994, the Company recorded motor
rental expense of $3,007,000 and $3,764,910, respectively, and exceeded the
minimum utilization rate in each quarter.

The Company leases a facility under an operating lease agreement expiring
September 30, 1998, which requires annual rent of $60,000.

Contingencies--The Company is involved in various lawsuits and subject to
various claims and proceedings encountered in the normal conduct of business.
In the opinion of management, any uninsured losses that might arise from those
lawsuits and proceedings would not have a material adverse effect on the
business or consolidated financial position of the Company.

F-31
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Drilex International Inc.:

We have audited the accompanying consolidated statements of operations and
cash flows of Sharewell, Inc. and subsidiaries (the "Company") for the one
month ended April 30, 1995 and the years ended March 31, 1995 and 1994. These
statements of operations and cash flows are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statements of operations and
cash flows are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
statements of operations and cash flows. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the statements of operations
and cash flows. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated statements of operations and cash flows
present fairly, in all material respects, the results of the Company's
operations and its cash flows for the one month ended April 30, 1995 and the
years ended March 31, 1995 and 1994 in conformity with generally accepted
accounting principles.

As discussed in Note 2 to the consolidated statements of operations and cash
flows, the Company changed its method of accounting for income taxes,
effective April 1, 1993, to conform with Statement of Financial Accounting
Standards No. 109.

DELOITTE & TOUCHE LLP
Houston, Texas

June 24, 1996

F-32
<PAGE>

SHAREWELL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

(IN THOUSANDS OF DOLLARS)

ONE MONTH YEARS ENDED
ENDED MARCH 31,
APRIL 30, --------------
1995 1995 1994
--------- ------ ------
<S> <C> <C> <C>
Revenue:
Sales and service.................................. $251 $7,021 $6,137
Rental............................................. 241 2,729 3,210
---- ------ ------
492 9,750 9,347
Cost of revenue...................................... 324 5,951 5,491
---- ------ ------
Gross profit......................................... 168 3,799 3,856
Depreciation and amortization........................ 75 985 831
Selling, general and administrative expenses......... 159 2,063 2,594
---- ------ ------
Income (loss) from operations........................ (66) 751 431
Interest and other expense, net...................... (29) (431) (338)
Minority interest.................................... 5 (66) (64)
---- ------ ------
Income (loss) before income taxes and cumulative
effect of a change in accounting principle.......... (90) 254 29
Income tax benefit (provision)....................... 29 (129) (49)
---- ------ ------
Income (loss) before cumulative effect of a change in
accounting principle................................ (61) 125 (20)
Cumulative effect of a change in accounting
principle........................................... -- -- (43)
---- ------ ------
Net income (loss).................................... $(61) $ 125 $ (63)
==== ====== ======
</TABLE>

See notes to consolidated financial statements.

F-33
<PAGE>

SHAREWELL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS OF DOLLARS)

ONE MONTH YEARS ENDED
ENDED MARCH 31,
APRIL 30, ----------------
1995 1995 1994
--------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $(61) $ 125 $ (63)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................. 75 985 831
Deferred income tax provision (benefit)........ 6 57 (94)
Minority interest.............................. (5) 66 64
Loss on sale of assets......................... 24 61 --
Cumulative effect of a change in accounting
principles.................................... -- -- 43
Other.......................................... -- -- (1)
Changes in the following operating assets and
liabilities:
Decrease (increase) in:
Accounts and notes receivable--trade....... 417 (251) 264
Inventory.................................. (58) (277) (47)
Other current assets....................... 77 291 --
Income taxes receivable.................... (35) (128) (74)
Increase (decrease) in:
Accounts payable--trade and accrued
expenses.................................. (690) (432) (3)
Other long-term liabilities................ 269 127 341
---- ------- -------
Net cash provided by operating activities. 19 624 1,261
---- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. (3) (664) (1,039)
Proceeds from sale of assets..................... -- 385 --
---- ------- -------
Net cash used in investing activities..... (3) (279) (1,039)
---- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment on notes payable and long-term debt...... (85) (1,170) (1,563)
Proceeds from long-term debt..................... -- 849 1,170
---- ------- -------
Net cash used in financing activities..... (85) (321) (393)
---- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (69) 24 (171)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... 530 506 677
---- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......... $461 $ 530 $ 506
==== ======= =======
</TABLE>

See notes to consolidated financial statements.

F-34
<PAGE>

SHAREWELL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

Sharewell, Inc. (the "Company," formerly Shareco, Inc.) was a holding
company formed on January 19, 1993 by the management of Sharewell Horizontal
Systems Limited ("SHSL") and Sharewell, Inc. (collectively, the
"Subsidiaries") to facilitate the buyout (the "Buyout") of the former
stockholders of the Subsidiaries. During May 1995, Drilex International Inc.
(formerly Drilex Holdings Corp.), an unrelated third party, purchased all the
Company's outstanding common stock.

The Company engages in domestic and international sales, rental, and
operation of directional drilling guidance tools. The tools are used primarily
in oil and gas exploration and pipeline river crossings.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation--The accompanying consolidated statements of
operations and cash flows include the accounts of the Company and its
majority-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

Cash and Cash Equivalents--Cash and cash equivalents consist of all cash
balances and highly liquid investments that have a maturity at purchase of
three months or less.

Inventory--Inventory consists of directional drilling guidance tools stated
at the lower of cost, based on the specific identification method, or market.
Market is defined as the current replacement cost, except that market does not
exceed the net realizable value and is not less than the net realizable value
reduced by an allowance for an approximate normal profit margin.

Property and Equipment--Property and equipment are stated at cost.
Additions, improvements and major renewals are capitalized. Maintenance,
repairs and minor renewals are expensed as incurred. The cost of property sold
or retired is credited to the asset account, and the related depreciation is
charged to the accumulated depreciation account. Gain or loss resulting from
either the sale or retirement is included in earnings.

Depreciation of property and equipment is provided on a straight-line basis
over their estimated useful lives that range from 3 to 10 years. Depreciation
expense for the one month ended April 30, 1995 and the years ended March 31,
1995 and 1994 was approximately $37,000, $475,000 and $398,000, respectively.

Income Taxes--The deferred U.S. federal income taxes are calculated based on
the differences between the financial statements basis and the tax basis of
the Company's assets and liabilities. The Company is also taxed by the U.K. on
its income from sources in the U.K.

In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109--Accounting for Income Taxes ("SFAS
No. 109"). SFAS No. 109 requires a balance sheet approach (the "asset and
liability approach") for recording deferred taxes instead of the income
statement approach previously required by Accounting Principles Board Opinion
No. 11. The asset and liability approach accounts for deferred income taxes by
applying statutory tax rates in effect at the balance sheet date to the
difference between the financial statement basis and the tax basis of assets
and liabilities. The resulting deferred tax assets and liabilities are
adjusted to reflect changes in tax laws or rates. The Company adopted SFAS No.
109 effective April 1, 1993, the cumulative effect of which was charged
against income during the year ended March 31, 1994.

F-35
<PAGE>

SHAREWELL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Foreign Currency Translation--The Company translates assets and liabilities
of SHSL, whose local currency is considered the functional currency, into U.S.
dollars at exchange rates in effect at the balance sheet date; revenues and
expenses are translated at the average exchange rate for the year. Gains and
losses resulting from the foreign currency translation are included as an
adjustment to stockholders' equity.

Research and Development Costs--Research and development costs were expensed
as incurred. The total research and development costs incurred by the Company
during 1994 totaled approximately $181,000. There were no research and
development costs incurred during 1995.

Statement of Cash Flows--The consolidated statements of cash flows are
prepared using the indirect method. Interest payments of approximately
$32,000, $380,000 and $373,000 were made during the one month ended April 30,
1995 and the years ended March 31, 1995 and 1994, respectively.

3. INCOME TAXES

The provision (benefit) for income taxes consisted of the following (in
thousands of dollars):

YEARS
ONE MONTH ENDED
ENDED MARCH 31,
APRIL 30, ----------
1995 1995 1994
--------- ---- ----
<S> <C> <C> <C>
Current:
U.S. federal...................................... $(28) $(56) $ 80
Foreign........................................... (7) 128 63
Deferred:
U.S. federal...................................... 6 57 (89)
Foreign........................................... -- -- (5)
---- ---- ----
$(29) $129 $ 49
==== ==== ====
</TABLE>

The difference between the income tax provision (benefit) recorded for the
1995 and 1994 periods and the income tax computed using the U.S. federal
statutory rate of 34% resulted from permanent differences in deductibility of
meals and entertainment expenses, the amortization of goodwill for financial
and tax reporting purposes and the difference between U.S. federal and foreign
statutory tax rates.

The Company made income tax payments of approximately $0, $108,000 and
$143,000 during the one month ended April 30, 1995 and the years ended March
31, 1995 and 1994, respectively.

4. MAJOR SUPPLIER

During the periods presented, the Company purchased a substantial amount of
the equipment used in its rental business, as well as equipment held for
resale from one supplier under an exclusive marketing agreement for certain
tools. During the one month ended April 30, 1995 and the years ended March 31,
1995 and 1994, purchases from this supplier totaled approximately $41,000,
$891,000 and $921,000, respectively. In addition, during such periods the
Company paid a royalty based on revenue generated from the use of a product
licensed from this supplier. Royalty expense, included in cost of revenue, was
approximately $5,000, $184,000 and $83,000 during the one month ended April
30, 1995 and the years ended March 31, 1995 and 1994, respectively.

F-36
<PAGE>

SHAREWELL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. COMMITMENTS

The Company leases office space under a noncancellable long-term operating
lease which expires June 30, 1996. The Company incurred rent expense of
approximately $3,000, $39,000 and $54,000 during the one month ended April 30,
1995 and the years ended March 31, 1995 and 1994, respectively.

Future minimum rental payments are as follows (in thousands of dollars):

<TABLE>
<CAPTION>
YEARS ENDING MARCH 31,
----------------------
<S> <C>
1996................................................................ $41
1997................................................................ 10
---
$51
===
</TABLE>

At April 30, 1995, the Company had a compensation commitment of
approximately $88,000 to one employee to be paid in quarterly installments of
approximately $13,000 through March 31, 1997.

6. RELATED PARTIES

The Company conducted transactions with the former stockholder of the
Subsidiaries (the "Former Stockholders"). The following table reflected the
approximate amounts of such transactions as of and for the periods ended April
30, 1995 and March 31, 1995 and 1994, respectively (in thousands of dollars):

<TABLE>
<CAPTION>
MARCH 31,
APRIL 30, -------------
1995 1995 1994
--------- ------ ------
<S> <C> <C> <C>
Notes payable to Former Stockholder..................... $3,857 $3,902 $4,417
Accounts receivable from Former Stockholder............. 167 177 354
Compensation expense paid to a Former Stockholder....... 20 237 237
Interest expense paid to Former Stockholder............. 20 255 286
Compensation expense paid to a Former Stockholder....... 11 238 69
</TABLE>

7. STOCK OPTION AGREEMENTS

During February 1993, the Company entered into stock option agreements with
two employees of Sharewell, which granted the employees options to purchase
5,000 shares of the Company's common stock at an option price equal to the
estimated fair market value at the date of grant. Such options were exercised
concurrently with the May 1995 acquisition by Drilex International Inc. (see
Note 1).

F-37
<PAGE>

TRENCHLESS SERVICES

[Photo of: cab of drilling rig]
Control cab of a Drilex slant drilling rig.

[Image of: subsurface river crossing]
Wells drilled beneath rivers for installation of pipelines and utilities.

Drilex has applied its precision drilling capabilities to the development of
services for environmental remediation and the trenchless laying of pipeline and
cable.

DRILEX ENVIRONMENTAL

[Image of: horizontal wells]
Horizontal wells used to access contaminants beneath fixed structures.

Sharewell, Inc. Directional Drilling Systems

[Photo of: surveyor]
Surveyor using a surface readout from a steering tool.

<PAGE>

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED BY THE COMPANY, THE SELLING STOCKHOLDER, OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET
FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HERE-
OF.

----------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 10
The Company............................................................... 14
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 17
Dilution.................................................................. 17
Capitalization............................................................ 18
Selected Historical Financial and Other Data.............................. 19
Unaudited Pro Forma Condensed Consolidated Statement of Income............ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 28
Management................................................................ 41
Certain Transactions and Relationships.................................... 49
Security Ownership of Certain Beneficial Owners and Management............ 51
Selling Stockholder....................................................... 52
Shares Eligible for Future Sale........................................... 53
Description of Capital Stock.............................................. 54
Underwriting.............................................................. 57
Legal Matters............................................................. 58
Experts................................................................... 58
Additional Information.................................................... 58
Index to Financial Statements............................................. F-1
</TABLE>

UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EF-
FECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIRE-
MENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

2,361,962 SHARES

[LOGO OF DRILEX APPEARS HERE]

COMMON STOCK

----------------

PROSPECTUS

----------------

MERRILL LYNCH & CO.
CS FIRST BOSTON
SIMMONS & COMPANY
INTERNATIONAL

, 1996

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are the estimated expenses (other than underwriting discounts
and commissions) of the issuance and distribution of the securities being
registered, all of which shall be paid by the Company:

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 17,797
NASD Filing Fee.................................................. 5,661
NASDAQ National Market Fees...................................... 34,384
Printing Expenses................................................ 135,000
Legal Fees and Expenses.......................................... 250,000
Accountants' Fees and Expenses................................... 325,000
Blue Sky Fees and Expenses....................................... 10,000
Transfer Agent and Registrar Fees................................ 3,000
Liability Insurance Premium...................................... 440,000
Miscellaneous Expenses........................................... 29,158
----------
Total.......................................................... $1,250,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Delaware General Corporation Law

Section 145(a) of the General Corporation Law of the State of Delaware (the
"DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgements, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.

Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon

II-1
<PAGE>

application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.

Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.

Section 145(d) of the DGCL states that any indemnification under subsections
(a) and (b) of Section 145 (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in subsections (a) and (b). Such determination shall be made (1) by the board
of directors by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (2) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (3) by the
stockholders.

Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in Section
145. Such expenses (including attorneys' fees) incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.

Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.

Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would have the power to indemnify him against such liability under the
provisions of Section 145.

Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.

Certificate of Incorporation

The Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL, or (iv) for any transaction from which the
director derived an improper personal benefit. If the DGCL is amended to
authorize the further elimination or limitation of the liability of

II-2
<PAGE>

directors, then the liability of a director of the Company, in addition to the
limitation on personal liability described above, shall be limited to the
fullest extent permitted by the amended DGCL. Further, any repeal or
modification of such provision of the Restated Certificate of Incorporation by
the stockholders of the Company shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Company existing at the time of such repeal or modification.

Bylaws

The Bylaws of the Company provide that each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative,
by reason of the fact that he or she or a person of whom he or she is the
legal representative, is or was or has agreed to become a director or officer
of the Company or is or was serving or has agreed to serve at the request of
the Company as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a director or officer
or in any other capacity while serving or having agreed to serve as a director
or officer, shall be indemnified and held harmless by the Company to the
fullest extent authorized by the DGCL, as the same exists or may thereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Company to provide broader indemnification rights than
said law permitted the Company to provide prior to such amendment) against all
expense, liability and loss (including without limitation, attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person
who has ceased to serve in the capacity which initially entitled such person
to indemnity thereunder and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that the Company shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the board of directors of the Company. The
Bylaws further provide that the right to indemnification conferred thereby
shall be a contract right and shall include the right to be paid by the
Company the expenses incurred in defending any such proceeding in advance of
its final disposition; provided, however, that, if the DGCL requires, the
payment of such expenses incurred by a current, former or proposed director or
officer in his or her capacity as a director or officer or proposed director
or officer (and not in any other capacity in which service was or is or has
been agreed to be rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Company of an undertaking, by or on behalf of such indemnified person, to
repay all amounts so advanced if it shall ultimately determine that such
indemnified person is not entitled to be indemnified under the Bylaws or
otherwise. In addition, the Bylaws provide that the Company may, by action of
its board of directors, provide indemnification to employees and agents of the
Company, individually or as a group, with the same scope and effect as the
indemnification of directors and officers provided for in the Bylaws.

Indemnification Agreements

The Company has entered into Indemnification Agreements with each of its
directors. The Indemnification Agreements provide that the Company shall
indemnify the director and hold him harmless from any losses and expenses
which, in type or amount, are not insured under the directors and officers'
liability insurance maintained by the Company, and generally indemnifies the
director against losses and expenses as a result of a claim or claims made
against him for any breach of duty, neglect, error, misstatement, misleading
statement, omission or other act done or wrongfully attempted by the director
or any of the foregoing alleged by any claimant or any claim against the
director solely by reason of him being a director or officer of the Company,
subject to certain exclusions. The Indemnification Agreements also provide
certain procedures regarding the right to indemnification and for the
advancement of expenses.

II-3
<PAGE>

Underwriting Agreement

The Underwriting Agreement provides for the indemnification of the directors
and officers of the Company in certain circumstances.

Insurance

The Company has obtained a policy of liability insurance to insure its
officers and directors against losses resulting from certain acts committed by
them in their capacities as officers and directors of the Company, including
certain liabilities under the securities laws.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The securities of the Company that were sold by the Company within the past
three years and not registered with the Commission are described below.

On March 31, 1994, Drilex Systems, Inc., a subsidiary of the Company, issued
to MascoTech, Inc. 500 shares of preferred stock of Drilex Systems, Inc. and
the Company issued a Promissory Note in the principal amount of $6.5 million,
in connection with the Company's purchase of all of the issued and outstanding
common stock of Drilex Systems, Inc. Such 500 shares of preferred stock were
subsequently transferred from MascoTech, Inc. to the stockholders of the
Company. On June 30, 1994, the Company repaid the aggregate principal amount
of and accrued interest on such Promissory Note. On July 11, 1994, the Company
issued 904,905 shares of Common Stock, in the aggregate, to Drilex Partners,
L.P., John Forrest, Charles Denton Kerr II, Robert Stayton and G. Bruce
Broussard, in exchange for the 500 shares of preferred stock of Drilex
Systems, Inc. Such transactions were exempt from the registration requirements
of the Securities Act by virtue of Section 4(2) thereof as transactions not
involving any public offering.

The following table sets forth certain information with respect to certain
unregistered sales of the Company's securities for consideration consisting of
cash and short-term promissory notes (all of which have since been repaid):

<TABLE>
<CAPTION>
NUMBER OF AGGREGATE
DATE SHARES CONSIDERATION PURCHASER(S)
---- --------- ------------- ------------
<S> <C> <C> <C>
March 30, 1994 2,026,986 $11,200,000 DRLX Partners, L.P.
John Forrest
June 30, 1994 658,770 3,640,000 DRLX Partners, L.P.
John Forrest
Charles Denton Kerr II
Robert Stayton
G. Bruce Broussard
September 30, 1994 248,849 1,375,000 DRLX Partners, L.P.
September 29, 1995 451,220 3,116,475 Chase Capital Ventures
DRLX Partners, L.P.
John Forrest
Charles Denton Kerr II
G. Bruce Broussard
Sam Anderson
Todd Caspary
</TABLE>

Such transactions were exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as transactions not involving
any public offering.

In connection with Mr. Stayton's resignation, the Company purchased, on June
1, 1995, the shares of Common Stock held by Mr. Stayton. As required by the
stockholders' agreement such shares were subject to, the Company paid $25,740
for such stock.

II-4
<PAGE>

On September 30, 1994, the Company issued to Posi-Trak Mud Motors, Inc. a
promissory note in the principal amount of $1,333,340 million and 241,307
shares of the Company's Common Stock as partial consideration for the purchase
of substantially all of the assets of Posi-Trak Mud Motors, Inc. On March 23,
1995, the Company purchased 144,784 of such 241,307 shares of Common Stock,
for an aggregate purchase price of $1.0 million cash. Such issuances were
exempt from the registration requirements of the Securities Act by virtue of
Section 4(2) thereof as transactions not involving any public offering.

On September 30, 1994, Cobb Directional Drilling Company, L.L.C., a
subsidiary of the Company, issued to Cobb Directional Drilling Company, Inc.
200,000 shares of interest in Cobb Directional Drilling Company, L.L.C. as
partial consideration for the purchase of substantially all of the assets of
Cobb Directional Drilling Company, Inc. On March 23, 1995, the Company issued
to Cobb Directional Drilling Company, Inc. a promissory note in the principal
amount of $1.0 million as partial consideration for the purchase of such
200,000 shares of interests in Cobb Directional Drilling Company, L.L.C. Such
issuances were exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof as transactions not involving any public
offering.

On May 5, 1995, as partial consideration for the purchase of all of the
issued and outstanding capital stock of Sharewell, Inc., the Company issued
promissory notes in the aggregate principal amount of approximately $2.8
million, after reflecting certain adjustments, and warrants for the purchase,
in the aggregate, of 180,981 shares of Common Stock at an exercise price of
$5.53 per share to Sam Anderson, John Teer, Todd Caspary, Frank Forest, George
Kowalczuk and Andy F. Brown. In connection with the Sharewell Acquisition, the
Company also issued a $1.9 million amortizing promissory note to Frank Forest
that replaced, in part, a note originally issued by Sharewell, Inc. to Mr.
Forest. With the exception of the issuances to Messrs. Kowalczuk and Brown,
such issuances were exempt from the registration requirements of the
Securities Act by virtue of Section 4(2) thereof as transactions not involving
any public offering. The issuances to Messrs. Kowalczuk and Brown were exempt
from the registration requirements of the Securities Act by virtue of Rule 701
thereunder as issuances of stock pursuant to contracts relating to
compensation.

On September 30, 1995, the Company issued to ENSCO Technology Company a
promissory note in the principal amount of approximately $3.6 million (as
subsequently adjusted to reflect a purchase price adjustment) and a
convertible note in the principal amount of $2.5 million as partial
consideration for the purchase of substantially all of the assets of ENSCO
Technology Company. Such convertible note is convertible into Common Stock at
a conversion price of $6.91 per share. Such issuances were exempt from the
registration requirements of the Securities Act by virtue of Section 4(2)
thereof as transactions not involving any public offering.

In connection with the exercise of stock options held by John Forrest
effective as of March 31, 1996, the Company issued 10,573 shares of Common
Stock to Mr. Forrest. Such issuance was exempt from the registration
requirements of the Securities Act by virtue of Rule 701 thereunder.

On May 16, 1996, each outstanding share of Common Stock was reclassified
into 1.809809 shares of Common Stock (the "Stock Split"). All share amounts
reflected in the preceding paragraphs of this Item 15 have been adjusted to
reflect the Stock Split. The Stock Split was exempt from the registration
requirements of the Securities Act as it did not involve a "sale" as defined
in Section 2(3) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
+1.1 Form of Purchase Agreement.
*3.1 Restated Certificate of Incorporation of the Company.
*3.2 Bylaws of the Company, as amended.
+4.1 Form of certificate representing Common Stock.
*4.2 Restated Registration Rights Agreement dated as of May 15, 1996, among
the Company and the stockholders listed on the signature pages
thereto.
</TABLE>

II-5
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*4.3 Registration Rights Agreement dated as of October 4, 1995 between the
Company and ENSCO Technology Company.
*4.4 Form of Employee Stockholders Agreement among the Company and certain
stockholders of the Company.
*4.5 Stockholders' Agreement dated as of September 30, 1994 among the
Company and Posi-Trak Mud Motors, Inc.
*4.6 Stockholders' Agreement dated as of May 5, 1995 among the Company and
the stockholders and holders of warrants to purchase Common Stock
listed on the signature pages thereto.
*4.7 Stockholders Agreement dated as of October 4, 1995 among the Company,
ENSCO Technology Company and certain permitted assigns.
*4.8 Convertible Promissory Note of the Company dated September 30, 1995 in
the original principal amount of $2,500,000 payable to ENSCO
Technology Company.
*4.9 Amended and Restated Credit Agreement dated as of September 29, 1995,
among the Company, Drilex Systems, Inc., Cobb Directional Drilling
Company, L.L.C., Sharewell, Inc., Drilex Systems Limited and Texas
Commerce Bank National Association, as lender, as amended.
*4.10 Dollar Note dated September 29, 1995 of the Company, Drilex Systems,
Inc., Sharewell, Inc. and Cobb Directional Drilling Company, L.L.C.
payable to the order of Texas Commerce Bank National Association.
*4.11 Term Note dated September 29, 1995 of the Company, Sharewell, Inc.,
Cobb Directional Drilling Company, L.L.C. and Drilex Systems, Inc.
payable to the order of Texas Commerce Bank National Association.
*4.12 Interest Rate Agreement (Revolver) dated as of September 29, 1995
among Texas Commerce Bank National Association, the Company, Drilex
Systems, Inc., Cobb Directional Drilling Company, L.L.C., Sharewell,
Inc. and Drilex Systems Limited.
*4.13 Interest Rate Agreement (Term Loan) dated as of September 29, 1995
between Texas Commerce Bank National Association, the Company,
Sharewell, Inc., Cobb Directional Drilling Company, L.L.C. and Drilex
Systems, Inc.
*4.14 Security Agreements dated as of September 29, 1995 of each of the
Company, Drilex Systems, Inc., Sharewell, Inc. and Cobb Directional
Drilling Company, L.L.C. in favor of Texas Commerce Bank National
Association.
The Company is a party to several debt instruments under which the
total amount of securities authorized does not exceed 10% of the
total assets of the Company and its subsidiaries on a consolidated
basis. Pursuant to paragraph 4(iii)(A) of Item 601(b) of Regulation
S-K, the Company agrees to furnish a copy of such instruments to the
Commission upon request.
*5.1 Opinion of Baker & Botts, L.L.P.
*10.1 Stock Purchase Agreement dated March 31, 1994 between the Company and
MascoTech, Inc.
*10.2 Repurchase Agreement dated June 30, 1994 between Drilex Systems, Inc.
and MascoTech, Inc.
*10.3 Asset Purchase Agreement dated September 30, 1994 among the Company,
Cobb Directional Drilling Company, L.L.C., Cobb Directional Drilling
Company, Inc., Posi-Trak Mud Motors, Inc. and Archie A. Cobb, III.
*10.4 Stock Purchase Agreement dated as of March 23, 1995 among the Company,
Drilex Systems, Inc., Cobb Directional Drilling, Inc. and Archie A.
Cobb, III.
*10.5 Stock Repurchase Agreement dated as of March 23, 1995 among the
Company, Posi-Trak Mud Motors, Inc. and Archie A. Cobb, III.
*10.6 Stock Purchase Agreement dated as of May 5, 1995 between the Company
and the Sellers listed on the signature pages thereto.
</TABLE>

II-6
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*10.7 Asset Purchase Agreement dated September 29, 1995 among the Company,
Drilex Systems, Inc., ENSCO Technology Company and ENSCO
International Incorporated.
*10.8 Form of Indemnification Agreement between the Company and each of its
directors.
*10.9 Stock Option Plan of the Company.
*10.10 Employment Agreement dated September 30, 1994 between Cobb Directional
Drilling Company, L.L.C. and Archie A. Cobb, III.
*11.1 Computation of Net Income Per Common and Common Equivalent Share.
*21.1 Subsidiaries of the Company.
+23.1 Consent of Deloitte & Touche LLP.
*23.2 Consent of Baker & Botts, L.L.P. (contained in Exhibit 5.1).
*24.1 Power of Attorney (included on the signature page of this registration
statement as originally filed and as an exhibit to Amendment No. 2).
*27.1 Financial Data Schedule.
</TABLE>
- --------
+ Filed herewith.
* Previously filed.

(b) Financial Statement Schedules.

Schedule I--Condensed Financial Information of Registrant

All other schedules are omitted because they are not applicable or because
the required information is contained in the financial statements or notes
thereto included in this registration statement.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Purchase Agreement, certificates representing
the shares of Common Stock offered hereby in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to
each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as a
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-7
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
HOUSTON, STATE OF TEXAS, ON THE 27TH DAY OF JUNE, 1996.

DRILEX INTERNATIONAL INC.

By: /s/ John Forrest
-----------------------------------
John Forrest
President and Chief Executive
Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JUNE 27, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ John Forrest President, Chief Executive Officer and
- ------------------------------------------- Director (Principal Executive Officer)
John Forrest

/s/ G. Bruce Broussard Vice President--Finance and Administration
- ------------------------------------------- and Secretary (Principal Financial Officer
G. Bruce Broussard and Principal Accounting Officer)

* Chairman of the Board and Director
- -------------------------------------------
L.E. Simmons

* Director
- -------------------------------------------
David C. Baldwin

* Director
- -------------------------------------------
A. Clark Johnson

* Director
- -------------------------------------------
Robert P. Peebler

* Director
- -------------------------------------------
Sam S. Sorrell

* Director
- -------------------------------------------
Andrew L. Waite
</TABLE>

*By /s/ G. Bruce Broussard
---------------------------------
G. Bruce Broussard
Attorney-In-Fact

II-8
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Drilex International Inc.:

We have audited the consolidated financial statements of Drilex
International Inc. as of December 31, 1995 and 1994, and for the year ended
December 31, 1995 and the period from March 30, 1994 (inception) to December
31, 1994, and have issued our report thereon dated April 26, 1996 (May 16,
1996 as to Note 15). Our audits also included the financial statement schedule
listed in Item 16(b) of this Registration Statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.

DELOITTE & TOUCHE LLP
Houston, Texas
April 26, 1996

S-1
<PAGE>

DRILEX INTERNATIONAL INC.

SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT

BALANCE SHEET (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ -- $ 40
Advances to subsidiaries, net................................ 2,177 --
Other current assets......................................... 59 18
------- -------
Total current assets....................................... 2,236 58
Investment in subsidiaries..................................... 46,850 27,420
Organization costs, net of accumulated amortization of $203 and
$41 at December 31, 1995 and 1994, respectively............... 849 592
------- -------
$49,935 $28,070
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities..................... $ 475 $ 83
Advances from subsidiaries, net.............................. -- 1,680
Long-term debt, current maturities........................... 3,490 450
------- -------
Total current liabilities.................................. 3,965 2,213
Long-term debt, less current maturities........................ 22,288 6,300
------- -------
Total liabilities.......................................... 26,253 8,513
------- -------
Stockholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued..................................... -- --
Common stock, $.01 par value; 25,000,000 shares authorized;
shares issued:
1995--4,381,205 and 1994--4,080,818......................... 44 41
Additional paid-in capital................................... 19,845 17,507
Retained earnings............................................ 3,793 2,009
------- -------
Total stockholders' equity................................. 23,682 19,557
------- -------
$49,935 $28,070
======= =======
</TABLE>

See notes to consolidated financial statements and accompanying notes.

S-2
<PAGE>

DRILEX INTERNATIONAL INC.

SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

STATEMENT OF INCOME (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
<S> <C> <C>
Interest charged to subsidiaries................... $ 669 $ 206
General and administrative expenses................ (1,598) (739)
Interest expense................................... (1,222) (206)
------- ------
Loss before income taxes and equity in earnings of
subsidiaries...................................... (2,151) (739)
Credit for income taxes............................ 731 251
Equity in earnings of subsidiaries................. 3,204 2,497
------- ------
Net income......................................... $ 1,784 $2,009
======= ======
</TABLE>

See notes to consolidated financial statements and accompanying notes.

S-3
<PAGE>

DRILEX INTERNATIONAL INC.

SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

STATEMENT OF CASH FLOWS (UNCONSOLIDATED)
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
PERIOD FROM
MARCH 30, 1994
YEAR ENDED (INCEPTION) TO
DECEMBER 31, DECEMBER 31,
1995 1994
------------ --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 1,784 $ 2,009
Adjustments to reconcile net income to net cash
used for operating activities:
Amortization of organization costs............... 162 41
Equity in earnings of subsidiaries............... (3,204) (2,497)
Interest charged to subsidiaries................. (669) (206)
Incurrence of organization costs................. (419) (633)
Increase in accounts payable and accrued
liabilities..................................... 392 83
Increase in other current assets................. (41) (18)
-------- --------
Net cash used for operating activities......... (1,995) (1,221)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries....................... (15,976) (23,590)
Net advances from (to) subsidiaries............... (3,188) 1,886
-------- --------
Net cash used for investing activities......... (19,164) (21,704)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.......... 17,450 2,250
Net borrowings under revolving credit agreements.. 4,700 4,500
Proceeds from issuance of common stock............ 3,117 16,215
Principal payments on long-term debt.............. (3,122) --
Purchases of common stock......................... (1,026) --
-------- --------
Net cash provided by financing activities...... 21,119 22,965
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................................... (40) 40
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... 40 --
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......... $ -- $ 40
======== ========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Issuances of common stock and warrants in
connection with acquisitions of subsidiaries..... $ 250 $ 1,333
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid..................................... $ 1,130 $ 152
Income taxes paid................................. -- --
</TABLE>

See notes to consolidated financial statements and accompanying notes.

S-4
<PAGE>

DRILEX INTERNATIONAL INC.

SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

NOTES TO FINANCIAL STATEMENTS (UNCONSOLIDATED)

1. INVESTMENT IN AND ADVANCES TO SUBSIDIARIES

The Company's investment in subsidiaries is presented in the accompanying
unconsolidated financial statements using the equity method of accounting. The
Company records interest on net advances to or from subsidiaries at a rate of
8% per annum.

2. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------- ------
(IN THOUSANDS
OF DOLLARS)
<S> <C> <C>
Bank Credit Agreement:
Revolving Credit Facility.................................. $ 9,200 $ --
Term Note.................................................. 16,578 --
Previous bank credit agreements:
Revolving credit facilities................................ -- 4,500
Cobb term note............................................. -- 2,250
------- ------
25,778 6,750
Less: current maturities..................................... (3,490) (450)
------- ------
$22,288 $6,300
======= ======
</TABLE>

Scheduled maturities of long-term debt outstanding at December 31, 1995 are
as follows: years ending December 31, 1996--$3,490,000; 1997--$3,490,000;
1998--$12,690,000; 1999--$3,490,000; 2000--$2,618,000.

Certain debt instruments restrict the ability of the Company's subsidiaries
to transfer assets, make loans and advances and pay dividends to the Company.
The restricted net assets of the Company's subsidiaries totaled approximately
$40,000,000 at December 31, 1995.

3. INCOME TAXES

Income taxes reported in the accompanying unconsolidated financial
statements are determined by computing income tax assets and liabilities on a
consolidated basis, for the Company and members of its consolidated federal
income tax return group, and then reducing such consolidated amounts for the
amounts recorded by the Company's subsidiaries on a separate tax return basis.

S-5

<PAGE>

================================================================================

DRILEX INTERNATIONAL INC.

(a Delaware corporation)

2,361,962 Shares of Common Stock

PURCHASE AGREEMENT

Dated: _____, 1996

================================================================================
<PAGE>

TABLE OF CONTENTS

SECTION 1. Representations and Warranties. 3
(a) Representations and Warranties by the Company 3
(i) Compliance with Registration Requirements. 3
(ii) Independent Accountants. 4
(iii) Financial Statements. 4
(iv) No Material Adverse Change in Business. 4
(v) Good Standing of the Company. 5
(vi) Good Standing of Subsidiaries. 5
(vii) Capitalization. 5
(viii) Authorization Agreement. 5
(ix) Authorization and Description of Securities. 6
(x) Absence of Defaults and Conflicts. 6
(xi) Absence of Labor Dispute. 6
(xii) Absence of Proceedings. 7
(xiii) Exhibits 7
(xiv) Possession of Intellectual Property. 7
(xv) Absence of Further Requirements. 7
(xvi) Possession of Licenses and Permits. 8
(xvii) Compliance with Cuba Act. 8
(xviii) Investment Company Act. 8
(xix) Environmental Laws. 8
(xx) Registration Rights. 9
(xxi) Canadian Employees 9
(b) Representations and Warranties by the Selling Stockholder 9
(i) Accurate Disclosure. 9
(ii) Authorization of Agreements. 9
(iii) Good and Marketable Title. 10
(iv) Absence of Manipulation. 10
(v) Absence of Further Requirements. 10
(vi) Restriction on Sale of Securities. 10
(vii) Certificates Suitable for Transfer. 11
(viii) No Association with NASD. 11
(c) Officer's Certificates. 11

SECTION 2. Sale and Delivery to Underwriters; Closing. 11
(a) Initial Securities. 11
(b) Option Securities. 12
(c) Payment. 12
(d) Denominations; Registration. 13

i
<PAGE>

SECTION 3. Covenants of the Company. 13
(a) Compliance with Securities Regulations and Commission Requests. 13
(b) Filing of Amendments. 13
(c) Delivery of Registration Statements. 14
(d) Delivery of Prospectuses. 14
(e) Continued Compliance with Securities Laws. 14
(f) Blue Sky Qualifications. 15
(g) Rule 158. 15
(h) Use of Proceeds. 15
(i) Listing. 15
(j) Restriction on Sale of Securities. 15
(k) Compliance with NASD Rules. 16

SECTION 4. Payment of Expenses. 16
(a) Expenses. 16
(b) Expenses of the Selling Stockholder. 16
(c) Termination of Agreement. 17

SECTION 5. Conditions of Underwriters' Obligations. 17
(a) Effectiveness of Registration Statement. 17
(b) Opinion of Counsel for Company. 17
(c) Opinion of Counsel for the Selling Stockholder. 17
(d) Opinion of Counsel for Underwriters. 17
(e) Officer's Certificate. 18
(f) Certificate of Selling Stockholder. 18
(g) Accountant's Comfort Letter. 18
(h) Bring-down Comfort Letter. 18
(i) Approval of Listing. 19
(j) Conditions to Purchase of Option Securities 19
(i) Officer's Certificate. 19
(ii) Opinion of Counsel for Company. 19
(iii) Opinion of Counsel for Underwriters 19
(iv) Bring-down Comfort Letter 19
(k) Additional Documents. 19
(l) Termination of Agreement. 20

SECTION 6. Indemnification. 20
(a) Indemnification of Underwriters by the Company. 20
(b) Indemnification of Underwriters by the Selling Stockholder. 21
(c) Indemnification of Company, Directors and Officers. 22
(d) Actions against Parties; Notification. 22
(e) Settlement without Consent if Failure to Reimburse. 23
(f) Indemnification for Reserved Securities. 23

ii
<PAGE>

SECTION 7. Contribution. 23

SECTION 8. Representations, Warranties and Agreements to Survive Delivery 25

SECTION 9. Termination of Agreement. 25
(a) Termination; General. 25
(b) Liabilities. 25

SECTION 10. Default by One or More of the Underwriters. 26

SECTION 11. Default by the Selling Stockholder or the Company. 26

SECTION 12. Notices. 27

SECTION 13. Parties. 27

SECTION 14. GOVERNING LAW AND TIME. 27

SECTION 15. Effect of Headings. 27

iii
<PAGE>

DRAFT OF
JUNE 25, 1996

DRILEX INTERNATIONAL INC.

(a Delaware corporation)

2,361,962 Shares of Common Stock

(Par Value $.01 Per Share)

PURCHASE AGREEMENT
------------------
Date ___, 1996

MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
CS FIRST BOSTON CORPORATION
SIMMONS & COMPANY INTERNATIONAL
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209

Ladies and Gentlemen:

Drilex International Inc., a Delaware corporation (the "Company"), and
ENSCO International Incorporated, a Delaware corporation (the "Selling
Stockholder"), confirm their respective agreements with Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of
the other Underwriters named in Schedule A hereto (collectively, the
"Underwriters"), which term shall also include any underwriter substituted as
hereinafter provided in Section 10 hereof, for whom Merrill Lynch, CS First
Boston Corporation and Simmons & Company International are acting as
representatives (in such capacity, the "Representatives"), with respect to the
sale by the Company and the Selling Stockholders, acting severally and not
jointly, and the purchase by the Underwriters, acting severally and not jointly,
of the respective numbers of shares of Common Stock, par value $.01 per share,
of the Company ("Common Stock") set forth in Schedules A and B, and with respect
to the grant by the Company to the Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase all or any
part of 354,294 additional shares of Common Stock to cover over-allotments, if
any. The aforesaid 2,361,962 shares of Common Stock (the "Initial

-1-
<PAGE>

Securities") to be purchased by the Underwriters and all or any part of the
354,294 shares of Common Stock subject to the option described in Section 2(b)
hereof (the "Option Securities") are hereinafter called, collectively, the
"Securities."

The Company and the Selling Stockholder understand that the Underwriters
propose to make a public offering of the Securities as soon as the
Representatives deem advisable after this Agreement has been executed and
delivered.

The Company, the Selling Stockholder and the Underwriters agree that up to
100,000 shares of the Securities to be purchased by the Underwriters (the
"Reserved Securities") shall be reserved for sale by the Underwriters to certain
eligible employees and persons having business relationships with the Company as
part of the distribution of the Securities by the Underwriters, subject to the
terms of this Agreement, the applicable rules, regulations and interpretations
of the National Association of Securities Dealers, Inc. and all other applicable
laws, rules and regulations. To the extent that such Reserved Securities are
not orally confirmed for purchase by such eligible employees and persons having
business relationships with the Company by the end of the first business day
after the date of this Agreement, such Reserved Securities may be offered to the
public as part of the public offering contemplated hereby. Offers and sales of
Reserved Securities to eligible employees in the Province of Alberta (the
"Offering Province") will be effected by the Underwriters or their affiliates at
the request of and as agent of the Company pursuant to prospectus exemptions
available in the Offering Province. Reserved Securities sold to eligible
employees in the Offering Province are deemed to have been acquired by the
Underwriters from the Company rather than the Selling Stockholder.

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-03405) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will
prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations. The information included in such prospectus that was
omitted from such registration statement at the time it became effective but
that is deemed to be part of such registration statement at the time it became
effective pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
Information." Each prospectus used before such registration statement became
effective, and any related prospectus that omitted the Rule 430A Information
that was used after such effectiveness and prior to the execution and delivery
of this Agreement, is herein called a "preliminary prospectus." Such
registration statement, including the exhibits thereto and any schedules
thereto, at the time it became effective and including the Rule 430A Information
is herein called the "Registration Statement." Any registration statement filed
pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the
"Rule 462(b) Registration Statement," and after such filing the term
"Registration Statement" shall include the Rule 462(b) Registration Statement.
The final prospectus in the form first furnished to the Underwriters for use in
connection with the offering of the Securities is herein called the

-2-
<PAGE>

"Prospectus." For purposes of this Agreement, all references to the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendment or supplement to any of the foregoing shall be deemed to include the
copy filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval system ("EDGAR").

SECTION 1. Representations and Warranties.

(a) Representations and Warranties by the Company. The Company represents
and warrants to each Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(c) hereof, and as of each Date of Delivery (if any)
referred to in Section 2(b) hereof, and agrees with each Underwriter, as
follows:

(i) Compliance with Registration Requirements. Each of the Registration
Statement and any Rule 462(b) Registration Statement has become effective under
the 1933 Act and no stop order suspending the effectiveness of the Registration
Statement or any Rule 462(b) Registration Statement has been issued under the
1933 Act and no proceedings for that purpose have been instituted or are pending
or, to the knowledge of the Company, are contemplated by the Commission, and any
request on the part of the Commission for additional information has been
complied with.

At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Option Securities are purchased,
at the Date of Delivery), the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and supplements thereto complied and
will comply in all material respects with the applicable requirements of the
1933 Act and the 1933 Act Regulations and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
the Prospectus and any preliminary prospectus comply or will comply in all
material respects with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus and such preliminary prospectus, as
amended or supplemented, if applicable, are distributed at the Company's request
in connection with the offer and sale of Reserved Securities. Neither the
Prospectus nor any amendments or supplements thereto, at the time the Prospectus
or any such amendment or supplement was issued and at the Closing Time (and, if
any Option Securities are purchased, at the Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit to state
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. The
representations and warranties in this subsection shall not apply to statements
in or omissions from the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished to the Company in writing by
any Underwriter through Merrill Lynch expressly for use in the Registration
Statement or Prospectus.

-3-
<PAGE>

Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment thereto,
or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all
material respects with the applicable 1933 Act Regulations and, if applicable,
each preliminary prospectus and the Prospectus delivered to the Underwriters for
use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.

(ii) Independent Accountants. The accountants who certified the financial
statements and supporting schedules included in the Registration Statement are
independent public accountants as required by the 1933 Act and the 1933 Act
Regulations.

(iii) Financial Statements. The financial statements (except for the pro
forma financial information) included in the Registration Statement and the
Prospectus, together with the related schedules and notes, present fairly the
financial position of the Company and its consolidated subsidiaries at the dates
indicated and the statement of income, stockholders' equity and cash flows of
the Company and its consolidated subsidiaries for the periods specified; and
except as otherwise expressly stated in the Registration Statement, said
financial statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved. The supporting schedules, if any, included in the
Registration Statement present fairly in accordance with GAAP the information
required to be stated therein. The selected financial data and the summary
financial information included in the Prospectus have been compiled on a basis
consistent with that of the audited financial statements included in the
Registration Statement. The pro forma financial statements and the related
notes thereto included in the Registration Statement and the Prospectus present
fairly the information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial statements
and have been properly compiled on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the adjustments
used therein are appropriate to give effect to the transactions and
circumstances referred to therein.

(iv) No Material Adverse Change in Business. Since the respective dates as
of which information is given in the Registration Statement and the Prospectus,
except as otherwise stated therein, (A) there has been no material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries considered as
one enterprise (a "Material Adverse Effect"), (B) there have been no
transactions entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with respect to the
Company and its subsidiaries considered as one enterprise, and (C) since
December 31, 1995, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.

-4-
<PAGE>

(v) Good Standing of the Company. The Company has been duly organized and
is validly existing as a corporation in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under this Agreement;
and the Company is duly qualified as a foreign corporation to transact business
and is in good standing in each other jurisdiction in which such qualification
is required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing would not result in a Material Adverse Effect.

(vi) Good Standing of Subsidiaries. Each "significant subsidiary" of the
Company (as such term is defined in Rule 1-02 of Regulation S-X) (each a
"Subsidiary" and, collectively, the "Subsidiaries") has been duly organized and
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the requisite corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus and is fully qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Registration Statement, all of the issued and
outstanding capital stock of each such Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and is owned by the Company,
directly or through subsidiaries, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding
shares of capital stock of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary. The name
of each of the Subsidiaries is set forth on Exhibit 21.1 to the Registration
Statement.

(vii) Capitalization. The authorized, issued and outstanding capital
stock of the Company is as set forth in the Prospectus in the column entitled
"Actual" under the caption "Capitalization" (except for issuances subsequent to
March 31, 1996, if any, pursuant to this Agreement, pursuant to reservations,
agreements or employee benefit plans referred to in the Prospectus or pursuant
to the exercise of convertible securities or options referred to in the
Prospectus). The shares of issued and outstanding capital stock, including the
Securities to be purchased by the Underwriters from the Selling Stockholder,
have been duly authorized and validly issued and are fully paid and non-
assessable; and none of the outstanding shares of capital stock, including the
Securities to be purchased by the Underwriters from the Selling Stockholder, was
issued in violation of the preemptive or other similar rights of any
securityholder of the Company arising by operation of law, under the charter or
by-laws of the Company, or under any agreement to which the Company or any of
its subsidiaries is a party or otherwise.

(viii) Authorization Agreement. This Agreement has been duly authorized,
executed and delivered by the Company.

-5-
<PAGE>

(ix) Authorization and Description of Securities. The Securities have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration set forth herein, will be validly
issued and fully paid and non-assessable; the Common Stock conforms to all
statements relating thereto contained in the Prospectus and such description
conforms in all material respects to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to personal
liability solely by reason of being such a holder; and the issuance of the
Securities is not subject to preemptive or other similar rights of any
securityholder of the Company.

(x) Absence of Defaults and Conflicts. Neither the Company nor any of the
Subsidiaries is in violation of its charter or by-laws or in default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the Company or
any of the Subsidiaries is a party or by which it or any of them may be bound,
or to which any of the property or assets of the Company or subsidiary is
subject (collectively, "Agreements and Instruments") except for any such
defaults that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use of Proceeds") and compliance
by the Company with its obligations hereunder have been duly authorized by all
necessary corporate action on the part of the Company and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that would not
result in a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary or, except for violations that would not have a Material Adverse
Effect, any applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any subsidiary or any of their
assets, properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf) the
right to require the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company or any Subsidiary, other than any such event or
condition that is referred to in the Registration Statement.

(xi) Absence of Labor Dispute. No labor dispute with the employees of the
Company or any Subsidiary exists or, to the knowledge of the Company, is
imminent,

-6-
<PAGE>

and the Company is not aware of any existing or imminent labor disturbance by
the employees of any of its or any Subsidiary's principal suppliers,
manufacturers, customers or contractors, which, in either case, may reasonably
be expected to result in a Material Adverse Effect.

(xii) Absence of Proceedings. There is no action, suit, proceeding,
inquiry or investigation before or brought by any court or governmental agency
or body, domestic or foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any subsidiary, which is
required to be disclosed in the Registration Statement (other than as disclosed
therein), or which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of this Agreement or the
performance by the Company of its obligations hereunder; the aggregate of all
pending legal or governmental proceedings to which the Company or any subsidiary
is a party or of which any of their respective property or assets is the subject
which are not described in the Registration Statement, including ordinary
routine litigation incidental to the business, could not reasonably be expected
to result in a Material Adverse Effect.

(xiii) Exhibits. There are no contracts or documents which are required
to be described in the Registration Statement or the Prospectus or to be filed
as exhibits thereto which have not been so described or filed, as applicable.

(xiv) Possession of Intellectual Property. The Company and the
Subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks,
trade names or other intellectual property (collectively, "Intellectual
Property") currently employed by them in connection with the business now
operated by them, and neither the Company nor any of the Subsidiaries has
received any notice or is otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any Intellectual Property or of
any facts or circumstances which would render any Intellectual Property invalid
or inadequate to protect the interest of the Company or any of the Subsidiaries
therein, and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, singly or in the
aggregate, would result in a Material Adverse Effect.

(xv) Absence of Further Requirements. No filing with, or authorization,
approval, consent, license, order, registration, qualification or decree of, any
court or governmental authority or agency is necessary or required for the
performance by the Company of its obligations hereunder, in connection with the
offering, issuance or sale of the Securities hereunder or the consummation of
the transactions contemplated by this Agreement, except, (i) such as have been
already obtained or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities laws and (ii) such as have

-7-
<PAGE>

been obtained or as may be required under the securities laws and regulations of
foreign jurisdictions in which the Reserved Securities are offered at the
Company's request outside the United States.

(xvi) Possession of Licenses and Permits. The Company and the
Subsidiaries possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the appropriate
federal, state, local or foreign regulatory agencies or bodies necessary to
conduct the business now operated by them; each of the Company and the
Subsidiaries is in compliance with the terms and conditions of all such
Governmental Licenses applicable to it, except where the failure so to comply
would not, singly or in the aggregate, have a Material Adverse Effect; all of
the Governmental Licenses are valid and in full force and effect, except where
the invalidity of such Governmental Licenses or the failure of such Governmental
Licensees to be in full force and effect would not have a Material Adverse
Effect; and neither the Company nor any of its subsidiaries has received any
notice of proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material Adverse
Effect.

(xvii) Compliance with Cuba Act. The Company has complied with, and is
and will be in compliance with, the provisions of that certain Florida act
relating to disclosure of doing business with Cuba, codified as Section 517.075
of the Florida statutes, and the rules and regulations thereunder (collectively,
the "Cuba Act") or is exempt therefrom.

(xviii) Investment Company Act. The Company is not, and upon the issuance
and sale of the Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Prospectus will not be, an "investment
company" or an entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940 Act").

(xix) Environmental Laws. Except as described in the Registration
Statement and except such claims, liabilities, violations or instances of
noncompliance as would not, singly or in the aggregate, result in a Material
Adverse Effect, (A) neither the Company nor any of its subsidiaries is in
violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law (or any judicial or
administrative interpretation thereof) including, without limitation, any
judicial or administrative order, consent, decree or judgment, relating to
pollution or protection of human health, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata) or wildlife, including, without limitation, laws and regulations
relating to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products (collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the
Company and its subsidiaries

-8-
<PAGE>

have all permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements, (C) there
are no pending or threatened administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance or
violation, investigations or proceedings relating to any Environmental Law
against the Company or any of its subsidiaries and (D) no events or
circumstances that might reasonably be expected to form the basis of an order
for clean-up or remediation, or an action, suit or proceeding by any private
party or governmental body or agency, against or affecting the Company or any of
its subsidiaries relating to any Hazardous Materials or the violation of any
Environmental Laws.

(xx) Registration Rights. Except as disclosed in the Registration
Statement, there are no persons with registration or other similar rights to
have any securities registered pursuant to the Registration Statement or
otherwise registered by the Company under the 1933 Act. With respect to the
Registration Statement and offering of securities contemplated thereby, all such
registration and similar rights have been waived except such rights of the
Selling Stockholder.

(xxi) Canadian Employees. The persons to whom the Company directs the
Underwriters or their affiliates, as agents of the Company, to offer and sell
Reserved Securities in the Offering Province are bona fide employees of the
Company residing in such Offering Province and such persons are not directly or
indirectly required by the Company to purchase such Reserved Securities.

(b) Representations and Warranties by the Selling Stockholder. The Selling
Stockholder represents and warrants to each Underwriter as of the date hereof
and as of the Closing Time, and agrees with each Underwriter, as follows:

(i) Accurate Disclosure. The Selling Stockholder has reviewed and is
familiar with the Registration Statement, any preliminary prospectus and the
Prospectus and, in respect to information furnished by the Selling Stockholder
in writing specifically for use therein, neither the Registration Statement, any
preliminary prospectus nor the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.

(ii) Authorization of Agreements. The Selling Stockholder has the full
right, power and authority to enter into this Agreement and to sell, transfer
and deliver the Securities to be sold by the Selling Stockholder hereunder. The
execution and delivery of this Agreement and the sale and delivery of the
Securities to be sold by the Selling Stockholder and the consummation of the
transactions contemplated herein and compliance by the Selling Stockholder with
its obligations hereunder have been duly authorized by the Selling Stockholder
and do not and will not, whether with or without the giving of notice or passage
of time or both, conflict with or constitute a breach of,

-9-
<PAGE>

or default under, or result in the creation or imposition of any tax, lien,
charge or encumbrance upon the Securities to be sold by the Selling Stockholder
or any property or assets of the Selling Stockholder pursuant to any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note, license,
lease or other agreement or instrument to which the Selling Stockholder is a
party or by which the Selling Stockholder may be bound, or to which any of the
property or assets of the Selling Stockholder is subject, nor will such action
result in any violation of the provisions of the charter or by-laws or other
organizational instrument of the Selling Stockholder, if applicable, or any
applicable treaty, law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Selling Stockholder or any of its
properties.

(iii) Good and Marketable Title. The Selling Stockholder will at the
Closing Time have good and marketable title to the Securities to be sold by the
Selling Stockholder hereunder, free and clear of any security interest,
mortgage, pledge, lien, charge, claim, equity or encumbrance of any kind, other
than pursuant to this Agreement; and upon delivery of such Securities and
payment of the purchase price therefor as herein contemplated, assuming each
such Underwriter has no notice of any adverse claim, each of the Underwriters
will receive good and marketable title to the Securities purchased by it from
the Selling Stockholder, free and clear of any security interest, mortgage,
pledge, lien, charge, claim, equity or encumbrance of any kind.

(iv) Absence of Manipulation. The Selling Stockholder has not taken, and
will not take, directly or indirectly, any action which is designed to or which
has constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.

(v) Absence of Further Requirements. No filing with, or consent, approval,
authorization, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign, is necessary or required
for the performance by the Selling Stockholder of its obligations hereunder, or
in connection with the sale and delivery of the Securities by the Selling
Stockholder hereunder or the consummation of the transactions contemplated by
this Agreement, except such as may have previously been made or obtained or as
may be required under the 1933 Act or the 1933 Act Regulations or state
securities laws.

(vi) Restriction on Sale of Securities. During a period of 120 days from
the date of the Prospectus, the Selling Stockholder will not, without the prior
written consent of Merrill Lynch, (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of, directly or indirectly, any share of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or file any
registration statement under the 1933 Act with respect to any of the

-10-
<PAGE>

foregoing or (ii) enter into any swap or any other agreement or any transaction
that transfers, in whole or in part, directly or indirectly, the economic
consequence of ownership of the Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to the Securities to be sold hereunder.

(vii) Certificates Suitable for Transfer. Prior to Closing, certificates
for all of the Securities to be sold by the Selling Stockholder pursuant to this
Agreement, in suitable form for transfer by delivery or accompanied by duly
executed instruments of transfer or assignment in blank with signatures
guaranteed, will be delivered to the Underwriter pursuant to this Agreement.

(viii) No Association with NASD. Neither the Selling Stockholder nor any
of its affiliates directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, or has any other
association with (within the meaning of Article I, Section 1(m) of the By-laws
of the National Association of Securities Dealers, Inc.), any member firm of the
National Association of Securities Dealers, Inc.

(c) Officer's Certificates. Any certificate signed by any officer of the
Company or any subsidiary delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the Company to
each Underwriter as to the matters covered thereby; and any certificate signed
by or on behalf of the Selling Stockholder as such and delivered to the
Representatives or to counsel for the Underwriters pursuant to the terms of this
Agreement shall be deemed a representation and warranty by the Selling
Stockholder to the Underwriter as to the matters covered thereby.

SECTION 2. Sale and Delivery to Underwriters; Closing.

(a) Initial Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company and the Selling Stockholder, severally and not jointly, agree to sell to
each Underwriter, severally and not jointly, and each Underwriter, severally and
not jointly, agrees to purchase from the Company and the Selling Stockholder, at
the price per share set forth in Schedule C, that proportion of the number of
Initial Securities set forth in Schedule B opposite the name of the Company or
the Selling Stockholder, as the case may be, which the number of Initial
Securities set forth in Schedule A opposite the name of such Underwriter, plus
any additional number of Initial Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof, bears to
the total number of Initial Securities, subject, in each case, to such
adjustments among the Underwriters as the Representatives in their sole
discretion shall make to eliminate any sales or purchases of fractional
securities.

-11-
<PAGE>

(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the Underwriters to purchase
up to an additional 354,294 shares of Common Stock, as set forth in Schedule B,
at the price per share set forth in Schedule C, less an amount per share equal
to any dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities. The option hereby
granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial Securities upon notice by the Representatives to the Company setting
forth the number of Option Securities as to which the several Underwriters are
then exercising the option and the time and date of payment and delivery for
such Option Securities. Any such time and date of delivery (a "Date of
Delivery") shall be determined by the Representatives, but shall not be earlier
than two nor, without the Company's consent, later than seven full business days
after the exercise of said option, nor in any event prior to the Closing Time,
as hereinafter defined. If the option is exercised as to all or any portion of
the Option Securities, each of the Underwriters, acting severally and not
jointly, will purchase that proportion of the total number of Option Securities
then being purchased which the number of Initial Securities set forth in
Schedule A opposite the name of such Underwriter (plus any additional number of
Initial Securities which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 10 hereof) bears to the total number of
Initial Securities, subject in each case to such adjustments as the
Representatives in their discretion shall make to eliminate any sales or
purchases of fractional shares. For purposes of this Agreement, the term
"business day" shall mean a day on which banks are open for business in the
State of New York.

(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the office of Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P., 3500 Texas Commerce Tower, 600 Travis,
Houston, Texas 77002, or at such other place as shall be agreed upon by the
Representatives and the Company at 10:00 A.M. (Eastern Time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern Time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Representatives and the Company
(such time and date of payment and delivery being herein called "Closing Time").

In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company on each Date of Delivery as specified in the notice from the
Representatives to the Company.

Payment shall be made to the Company and the Selling Stockholder by means
of wire transfers of same day funds to one or more accounts designated by the
Company and the Selling Stockholder, respectively, against delivery to the
Representatives for the respective account of

-12-
<PAGE>

the Underwriters of certificates for the Securities to be purchased by them. It
is understood that each Underwriter has authorized the Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial Securities and the Option Securities, if any, which it
has agreed to purchase. Merrill Lynch, individually and not as representative
of the Underwriters, may (but shall not be obligated to) make payment of the
purchase price for the Initial Securities or the Option Securities, if any, to
be purchased by any Underwriter whose check has not been received by the Closing
Time or the relevant Date of Delivery, as the case may be, but such payment
shall not relieve such Underwriter from its obligations hereunder.

(d) Denominations; Registration. Certificates for the Initial Securities
and the Option Securities, if any, shall be in such denominations and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time or the relevant Date of Delivery, as the
case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern Time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.

SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:

(a) Compliance with Securities Regulations and Commission Requests. The
Company, subject to Section 3(b), will comply with the requirements of Rule 430A
and will notify the Representatives immediately, and confirm the notice in
writing, (i) when any post-effective amendment to the Registration Statement,
shall become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments from the
Commission, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectus or for
additional information, and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of any order
preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of
such purposes. The Company will promptly effect the filings necessary pursuant
to Rule 424(b) and will take such steps as it deems necessary to ascertain
promptly whether the form of prospectus transmitted for filing under Rule 424(b)
was received for filing by the Commission and, in the event that it was not, it
will promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.

(b) Filing of Amendments. The Company will give the Representatives notice
of its intention to file or prepare any amendment to the Registration Statement
(including any filing under Rule 462(b)) or any amendment, supplement or
revision to either the

-13-
<PAGE>

prospectus included in the Registration Statement at the time it became
effective or to the Prospectus, will furnish the Representatives with copies of
any such documents a reasonable amount of time prior to such proposed filing or
use, as the case may be, and will not file or use any such document to which the
Representatives or counsel for the Underwriters shall reasonably object.

(c) Delivery of Registration Statements. The Company has furnished or will
deliver to the Representatives and counsel for the Underwriters, without charge,
signed copies of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith) and signed copies of all
consents of experts, and will also deliver to the Representatives, without
charge, a conformed copy of the Registration Statement as originally filed and
of each amendment thereto (without exhibits) for each of the Underwriters. If
applicable, the copies of the Registration Statement and each amendment thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except
to the extent permitted by Regulation S-T.

(d) Delivery of Prospectuses. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary prospectus as
such Underwriter reasonably requested, and the Company hereby consents to the
use of such copies for purposes permitted by the 1933 Act. The Company will
furnish to each Underwriter, without charge, during the period when the
Prospectus is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably request. If
applicable, the Prospectus and any amendments or supplements thereto furnished
to the Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.

(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the completion of
the distribution of the Securities as contemplated in this Agreement and in the
Prospectus. If at any time when a prospectus is required by the 1933 Act to be
delivered in connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the opinion of
counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the Prospectus
will not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at any
such time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or the 1933
Act Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or

-14-
<PAGE>

omission or to make the Registration Statement or the Prospectus comply with
such requirements, and the Company will furnish to the Underwriters such number
of copies of such amendment or supplement as the Underwriters may reasonably
request.

(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering and
sale under the applicable securities laws of such states and other jurisdictions
(domestic or foreign) as the Representatives may designate and to maintain such
qualifications in effect for a period of not less than one year from the later
of the effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify as a
foreign corporation or as a dealer in securities in any jurisdiction in which it
is not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In each
jurisdiction in which the Securities have been so qualified, the Company will
file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of not less
than one year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.

(g) Rule 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its security
holders as soon as practicable an earnings statement for the purpose of, and to
provide the benefits contemplated by, the last paragraph of Section 11(a) of the
1933 Act.

(h) Use of Proceeds. The Company will use the net proceeds received by it
from the sale of the Securities in the manner specified in the Prospectus under
"Use of Proceeds".

(i) Listing. The Company will use its best efforts to effect the quotation
of the Common Stock (including the Securities) on the Nasdaq National Market
and, so long as the Common Stock is so quoted, will file with the Nasdaq
National Market all documents and notices required by the Nasdaq National Market
of companies that have securities that are traded in the over-the-counter market
and quotations for which are reported by the Nasdaq National Market.

(j) Restriction on Sale of Securities. During a period of 90 days from the
date of the Prospectus, the Company will not, without the prior written consent
of Merrill Lynch, (i) offer, sell or otherwise voluntarily transfer or dispose
of any shares of Common Stock or any securities convertible into or exercisable
for Common Stock. The foregoing sentence shall not apply to (A) the Securities
to be sold hereunder, (B) any shares of Common Stock issued by the Company upon
the exercise of options or warrants or the conversions of any securities
outstanding on the date hereof and referred to in the Prospectus, (C) any shares
of Common Stock issued or options to purchase Common Stock granted pursuant to
existing employee benefit plans of the Company

-15-
<PAGE>

referred to in the Prospectus (D) any private placements of Common Stock to
purchasers who agree to be bound by a similar agreement.

(k) Compliance with NASD Rules. The Company hereby agrees that it will
ensure that the Reserved Securities will be restricted, if so required by the
National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules,
from sale, transfer, assignment, pledge or hypothecation for a period of three
months following the date of the effectiveness of the Registration Statement.
The Underwriters will notify the Company as to which persons will need to be
restricted. At the request of the Underwriters, the Company will direct the
transfer agent to place a stop transfer restriction upon such securities for
such period of time. Should the Company release, or seek to release, from such
restrictions any of the Reserved Securities, the Company agrees to reimburse the
Underwriters for any reasonable expenses including, without limitation, legal
fees and expenses they incur in connection with such release or attempted
release.

SECTION 4. Payment of Expenses.

(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, issuance and delivery of the certificates for the
Securities to the Underwriters, (iii) the fees and disbursements of the
Company's counsel, accountants and other advisors, (iv) the qualification of the
Securities under securities laws in accordance with the provisions of Section
3(f) hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection therewith and in connection with the
preparation of the Blue Sky Survey and any supplement thereto, (v) the printing
and delivery to the Underwriters of copies of each preliminary prospectus and of
the Prospectus and any amendments or supplements thereto, (vi) the preparation,
printing and delivery to the Underwriters of copies of the Blue Sky Survey and
any supplement thereto, (vii) the fees and expenses of any transfer agent or
registrar for the Securities and (viii) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the NASD of the terms of the sale of the Securities, (ix)
the fees and expenses incurred in connection with the inclusion of the
Securities in the Nasdaq National Market, (x) all costs and expenses of the
Underwriters, including the fees and disbursements of counsel for the
Underwriters, in connection with matters related to the Reserved Securities
which are designated by the Company for sale to employees and others having a
business relationship with the Company, (xi) the fees and expenses of counsel to
the Company and the Underwriters in connection with the Reserved Share program,
and (xii) stamp duties or similar taxes or duties, if any, incurred by the
Underwriters in connection with the offer and sale of the Reserved Securities.

(b) Expenses of the Selling Stockholder. The Selling Stockholder will pay
all expenses incident to the performance of its obligations under, and the
consummation of the transactions

-16-
<PAGE>

contemplated by this Agreement, including (i) any stamp duties, capital duties
and stock transfer taxes, if any, payable upon the sale of Securities by the
Selling Stockholder to the Underwriters, and their transfer between the
Underwriters pursuant to an agreement between such Underwriters, and (ii) the
fees and disbursements of its counsel.

(c) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the Underwriters for all their out-
of-pocket expenses, including the reasonable fees and disbursements of counsel
for the Underwriters.

SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Stockholder
contained in Section 1 hereof or in certificates of any officer of the Company
or any subsidiary of the Company or on behalf of the Selling Stockholder
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:

(a) Effectiveness of Registration Statement. The Registration Statement
has become effective, and on the date hereof and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefor initiated or threatened by the
Commission, and any request on the part of the Commission for additional
information shall have been complied with to the reasonable satisfaction of
counsel to the Underwriters. A prospectus containing the Rule 430A Information
shall have been filed with the Commission in accordance with Rule 424(b) (or a
post-effective amendment providing such information shall have been filed and
declared effective in accordance with the requirements of Rule 430A).

(b) Opinion of Counsel for Company. At Closing Time the Representatives
shall have received the favorable opinion, dated as of Closing Time, of Baker &
Botts, L.L.P., special counsel for the Company, in substantially the form of
Exhibit A hereto and to such further effect as counsel to the Underwriters may
reasonably request.

(c) Opinion of Counsel for the Selling Stockholder. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Baker & McKenzie, counsel for the Selling Stockholder, in form and
substance reasonably satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such letter for each of the other Underwriters to
the effect set forth in Exhibit B hereto and to such further effect as counsel
to the Underwriters may reasonably request.

(d) Opinion of Counsel for Underwriters. At Closing Time the
Representatives shall have received the favorable opinion, dated as of Closing
Time, of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel for the
Underwriters, together with signed or reproduced copies of such letter for each
of the other Underwriters with respect to the matters set forth in (i), (v),
(vi) (solely as to preemptive or other similar rights arising by operation of
law or under the charter

-17-
<PAGE>

or by-laws of the Company), (viii) to (x), inclusive, (xiii), (xv) (solely as to
the information in the Prospectus under "Description of Capital Stock--Common
Stock") and the penultimate paragraph of Exhibit A hereto. Such counsel may
also state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of the
Company and its subsidiaries and certificates of public officials.

(e) Officer's Certificate. At Closing Time there shall not have been,
since the date hereof or since the respective dates as of which information is
given in the Prospectus, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospectus of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, and the Representatives shall have
received a certificate of the President or a Vice President of the Company and
of the chief financial or chief accounting officer of the Company, dated as of
Closing Time, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1(a) hereof are true
and correct in all material respects with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Company has complied in all
material respects with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been issued and
no proceedings for that purpose have been instituted or are pending or, to the
knowledge of such officers, are contemplated by the Commission.

(f) Certificate of Selling Stockholder. At Closing Time, the
Representatives shall have received a certificate of an Attorney-in-Fact on
behalf of the Selling Stockholder, dated as of Closing Time, to the effect that
(i) the representations and warranties of the Selling Stockholder contained in
Section 1(b) hereof are true and correct in all material respects with the same
force and effect as though expressly made at and as of Closing Time and (ii) the
Selling Stockholder has complied in all material respects with all agreements
and all conditions on its part to be performed under this Agreement at or prior
to Closing Time.

(g) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Representatives shall have received from Deloitte & Touche LLP a
letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such letter for
each of the other Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.

(h) Bring-down Comfort Letter. At Closing Time the Representatives shall
have received from Deloitte & Touche LLP a letter, dated as of Closing Time, to
the effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (g) of this Section, except that the specified date
referred to shall be a date not more than five business days prior to Closing
Time.

-18-
<PAGE>

(i) Approval of Listing. At the Closing Time the Securities shall have
been approved for inclusion in the Nasdaq National Market, subject only to the
official notice of issuance.

(j) Conditions to Purchase of Option Securities. In the event that the
Underwriters exercise their option provided in Section 2(b) hereof to purchase
all or any portion of the Option Securities, the representations and warranties
of the Company contained herein and the statements in any certificates furnished
by the Company hereunder shall be true and correct as of each Date of Delivery
and, at the relevant Date of Delivery, the Representatives shall have received:

(i) Officer's Certificate. A certificate, dated such Date of Delivery, of
the President or a Vice President of the Company and of the chief financial or
chief accounting officer of the Company confirming that the certificate
delivered at the Closing Time pursuant to Section 5(e) hereof remains true and
correct as of such Date of Delivery.

(ii) Opinion of Counsel for Company. The favorable opinion of Baker &
Botts, L.L.P., counsel for the Company, in form and substance satisfactory to
counsel for the Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(b) hereof.

(iii) Opinion of Counsel for Underwriters. The favorable opinion of
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities to be purchased
on such Date of Delivery and otherwise to the same effect as the opinion
required by Section 5(d) hereof.

(iv) Bring-down Comfort Letter. A letter from Deloitte & Touche LLP, in
form and substance satisfactory to the Representatives and dated such Date of
Delivery, substantially in the same form and substance as the letter furnished
to the Representatives pursuant to Section 5(g) hereof, except that the
specified date in the letter furnished pursuant to this paragraph shall be a
date not more than five days prior to such Date of Delivery.

(k) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the Underwriters shall have been furnished with such documents and
opinions as they may reasonably require for the purpose of enabling them to pass
upon the issuance and sale of the Securities as herein contemplated, or in order
to evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all proceedings
taken by the Company and the Selling Stockholder in connection with the issuance
and sale of the Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and counsel for the
Underwriters.

-19-
<PAGE>

(l) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement, or, in the case of any condition to the purchase of Option
Securities, on a Date of Delivery which is after the Closing Time, the
obligations of the several Underwriters to purchase the relevant Option
Securities, may be terminated by the Representatives by notice to the Company at
any time at or prior to Closing Time or such Date of Delivery as the case may
be, and such termination shall be without liability of any party to any other
party except as provided in Section 4 and except that Sections 1, 6 and 7 shall
survive any such termination and remain in full force and effect.

SECTION 6. Indemnification.

(a) Indemnification of Underwriters by the Company. The Company agrees to
indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act to the extent and in the manner set forth in clauses
(i), (ii), (iii) and (iv) below as follows:

(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), including the Rule 430A Information, or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out of any
untrue statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading;

(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in any supplement, prospectus wrapper
material or stickers attached to the Prospectus or any preliminary prospectus
prepared by or with the consent of the Company for distribution in foreign
jurisdictions in connection with the reservation and sale of the Reserved
Securities to eligible employees and persons having business relationships with
the Company or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, when considered in conjunction with the Prospectus or preliminary
prospectus, not misleading;

(iii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to

-20-
<PAGE>

Section 6(d) below) any such settlement is effected with the written consent of
the Company; and

(iv) against any and all expense whatsoever, as incurred (including the
reasonable fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under (i), (ii) or (iii) above;

provided, however, that (A) this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto), including the 430A
Information or any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) and (B) such indemnity with respect to any untrue statement
or omission in any preliminary prospectus shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) on account of any such
loss, claim, damage, liability or expense arising from the failure by the
Underwriter to deliver or send to any person a copy of the Prospectus at or
prior to the confirmation of the sale of the Securities to such person where
such delivery is required by the 1933 Act and the untrue statement or omission
of a material fact contained in such preliminary prospectus was corrected in the
Prospectus (provided that the Company shall have delivered the Prospectus to the
Underwriters in requisite quantity on a timely basis in order to permit the
Prospectus to be sent or given).

(b) Indemnification of Underwriters by the Selling Stockholder. The
Selling Stockholder agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss,
liability, claim, damage and expense whatsoever, as incurred, arising out of any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue statement of
a material fact contained in any preliminary prospectus or the Prospectus (or
any amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they are made, not misleading, but
only to the extent that such loss, liability, claim, damage or expense arises
out of, is based upon or relates to untrue statements or omissions, or alleged
untrue statements or omissions, made in reliance upon and in conformity with
written information furnished to the Company by the Selling Stockholder for use
in the Registration Statement, any preliminary prospectus or the Prospectus,
provided, however, that the Selling Stockholder's aggregate liability under this
Section 6 shall

-21-
<PAGE>

be limited to an amount equal to the net proceeds (after deducting the
underwriting discount, but before deducting expenses) received by the Selling
Stockholder from the sale of Securities pursuant to this Agreement.

(c) Indemnification of Company, Directors and Officers. Each Underwriter
severally agrees to indemnify and hold harmless the Company, its directors, each
of its officers who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, and the Selling Stockholder against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information, or any preliminary prospectus or the Prospectus (or any amendment
or supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Merrill Lynch
expressly for use in the Registration Statement (or any amendment thereto) or
such preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).

(d) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) or 6(b)
above, counsel to the indemnified parties shall be selected by Merrill Lynch,
and, in the case of parties indemnified pursuant to Section 6(c) above, counsel
to the indemnified parties shall be selected by the Company. An indemnifying
party may participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
If it so elects within a reasonable time after receipt of such notice, an
indemnifying party, jointly with any other indemnifying parties receiving such
notice, may assume the defense of such action with counsel chosen as provided
above, unless such indemnified parties reasonably object to such assumption on
the ground that there may be legal defenses available to them which are
different from or in addition to those available to such indemnifying party. If
an indemnifying party assumes the defense of such action, the indemnifying
parties shall not be liable for any fees and expenses of counsel for the
indemnified parties incurred thereafter in connection with such action. In no
event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all the indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof

-22-
<PAGE>

(whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.

(e) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Sections 6(a), 6(b) and 6(c) effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement. Notwithstanding the immediately preceding sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, an indemnifying party shall
not be liable for any settlement of the nature contemplated by Sections 6(a),
(b) or (c) effected without its consent if such indemnifying party (i)
reimburses such indemnified party in accordance with such request to the extent
to considers such request to be reasonable and (ii) provided written notice to
the indemnified party substantiating the unpaid balance as unreasonable, in each
case prior to the date of such settlement.

(f) Indemnification for Reserved Securities. In connection with the offer
and sale of the Reserved Securities, the Company agrees to indemnify and hold
harmless the Underwriters and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the 1993 Act or Section 20 of the 1934 Act
from and against any and all loss, liability, claim, damage and expense incurred
by them as a result of (i) the failure of the designated employees or other
persons to pay for and accept delivery of shares which, at any time following
the effectiveness of the Registration Statement, were subject to a properly
confirmed agreement to purchase and (ii) the violation of any laws of foreign
jurisdictions where Reserved Securities have been offered at the Company's
request.

(g) The provisions of this Section shall not affect any agreement among the
Company and the Selling Stockholder with respect to indemnification.

SECTION 7. Contribution. If the indemnification provided for in Section 6
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholder on the one hand and the Underwriters on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not

-23-
<PAGE>

permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company and the Selling Stockholder on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions or
in connection with any failure of the nature referred to in Section 6(f) hereof,
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.

The relative benefits received by the Company and the Selling Stockholder
on the one hand and the Underwriters on the other hand in connection with the
offering of the Securities pursuant to this Agreement shall be deemed to be in
the same respective proportions as the total net proceeds from the offering of
the Securities pursuant to this Agreement (before deducting expenses) received
by the Company and the Selling Stockholder and the total underwriting discount
received by the Underwriters, in each case as set forth on the cover of the
Prospectus.

The relative fault of the Company and the Selling Stockholder on the one
hand and the Underwriters on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Selling Stockholder or by the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission or any failure
of the nature referred to in Section 6(f) hereof.

The Company, the Selling Stockholder and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.

Notwithstanding the provisions of this Section 7, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.

No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.

-24-
<PAGE>

For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same right to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.

The provisions of this Section shall not affect any agreement among the
Company and the Selling Stockholder with respect to contribution.

SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or the Selling
Stockholder submitted pursuant hereto, shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company or the
Selling Stockholder, and shall survive delivery of the Securities to the
Underwriters.

SECTION 9. Termination of Agreement.

(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company and the Selling Stockholder, at any time at
or prior to Closing Time (i) if there has been, since the time of execution of
this Agreement or since the respective dates as of which information is given in
the Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States, any
outbreak of hostilities or escalation thereof or other calamity or crisis or any
change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Representatives,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in any securities of the Company has been
suspended or limited by the Commission or the Nasdaq National Market, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the Nasdaq National Market has been suspended or limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York authorities.

(b) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party as
provided in Section 4

-25-
<PAGE>

hereof, and provided further that Sections 1, 6 and 7 shall survive such
termination and remain in full force and effect.

SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements with such 24-hour period, then:

(a) if the number of Defaulted Securities does not exceed 10% of the number
of Securities to be purchased on such date, each of the non-defaulting
Underwriters shall be obligated, severally and not jointly, to purchase the full
amount thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or

(b) if the number of Defaulted Securities exceeds 10% of the number of the
Securities to be purchased on such date, this Agreement or, with respect to any
Date of Delivery which occurs after the Closing Time, the obligation of the
Underwriters to purchase and of the Company to sell the Option Securities to be
purchased and sold on such Date of Delivery, shall terminate without liability
on the part of any non-defaulting Underwriter.

No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.

In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either the Representatives or the Company and the Selling
Stockholder shall have the right to postpone Closing Time or the relevant Date
of Delivery, as the case may be, for a period not exceeding seven days in order
to effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements. As used herein, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 10.

SECTION 11. Default by the Selling Stockholder or the Company. (a) If
the Selling Stockholder shall fail at Closing Time to sell and deliver the
number of Securities which the Selling Stockholder is obligated to sell
hereunder, then the Underwriters may, at option of the Representatives, by
notice from the Representatives to the Company, terminate this Agreement without
any liability on the fault of any non-defaulting party except that the
provisions of Sections 1, 4, 6 and 7 shall remain in full force and effect. No
action taken pursuant to this Section 11 shall relieve the Selling Stockholder
from liability, if any, in respect of such default.

-26-
<PAGE>

In the event of a default by the Selling Stockholder as referred to in this
Section 11, each of the Representatives and the Company shall have the right to
postpone Closing Time or Date of Delivery for a period not exceeding seven days
in order to effect any required change in the Registration Statement or
Prospectus or in any other documents or arrangements.

(b) If the Company shall fail at Closing Time or at the Date of Delivery to
sell the number of Securities that it is obligated to sell hereunder, then this
Agreement shall terminate without any liability on the part of any non-
defaulting party; provided, however, that the provisions of Sections 1, 4, 6 and
7 shall remain in full force and effect. No action taken pursuant to this
Section shall relieve the Company from liability, if any, in respect of such
default.

SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives (c/o Merrill Lynch) at
1221 McKinney, Suite 2700, Houston, Texas 77010, attention of Schuyler M.
Tilney; and notices to the Company shall be directed to it at 15151 Sommermeyer,
Houston, Texas 77041, attention of Bruce Broussard; and notices to the Selling
Stockholder shall be directed to ENSCO International Incorporated, 1445 Ross
Avenue, Suite 2700, Dallas, Texas 75202-2792, attention of C. Christopher Gaut.

SECTION 13. Parties. This Agreement shall inure to the benefit of and
be binding upon the Underwriters and the Company and the Selling Stockholder and
their respective successors. Nothing expressed or mentioned in this Agreement
is intended or shall be construed to give any person, firm, corporation or other
entity, other than the Underwriters and the Company and the Selling Stockholder
and their respective successors and the controlling persons and officers and
directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters and the Company and the Selling
Stockholder and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities
from any Underwriter shall be deemed to be a successor by reason merely of such
purchase.

SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT AS
OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

SECTION 15. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.

-27-
<PAGE>

If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company and the Selling Stockholder a counterpart
hereof, whereupon this instrument, along with all counterparts, will become a
binding agreement between the Underwriters and the Company and the Selling
Stockholder in accordance with its terms.

Very truly yours,

DRILEX INTERNATIONAL INC.

By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------

ENSCO INTERNATIONAL INCORPORATED

By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------

CONFIRMED AND ACCEPTED,
as of the date first above written:

MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CS FIRST BOSTON CORPORATION
SIMMONS & COMPANY INTERNATIONAL

By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED

By:
----------------------------------
Authorized Signatory

For themselves and as Representatives of the
other Underwriters named in Schedule A hereto.

-28-
<PAGE>

SCHEDULE A

Number of
Initial
Name of Underwriter Securities
------------------- ----------

Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................
CS First Boston Corporation........................................
Simmons & Company International....................................
_________
Total.............................................................. 2,361,962
=========

Sch A-1
<PAGE>

SCHEDULE B

Number of Initial Maximum Number of Option
Securities to be Sold Securities to Be Sold
--------------------- ---------------------

Drilex International Inc. 2,000,000 354,294

ENSCO International Incorporated 361,962 -0-

--------- -------
Total ......................... 2,361,962 354,294
========= =======

Sch B-1
<PAGE>

SCHEDULE C

DRILEX INTERNATIONAL INC.

2,361,962 Shares of Common Stock
(Par Value $.01 Per Share)

1. The initial public offering price per share for the Securities,
determined as provided in said Section 2, shall be $____________.

2. The purchase price per share for the Securities to be paid by the
several Underwriters shall be $______, being an amount equal to the initial
public offering price set forth above less $_____ per share; provided that the
purchase price per share for any Option Securities purchased upon the exercise
of the over-allotment option described in Section 2(b) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Securities but not payable on the Option Securities.

Sch C-1
<PAGE>

FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)

(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.

(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Purchase
Agreement.

(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of Texas.

(iv) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus in the column entitled "Actual" under
the caption "Capitalization" (except for subsequent issuances, if any, pursuant
to the Purchase Agreement or pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectus or pursuant to the exercise of
convertible securities or options referred to in the Prospectus); the shares of
issued and outstanding capital stock of the Company, including the Securities to
be purchased by the Underwriter from the Selling Stockholder, when issued upon
conversion of [the Convertible Note] will be duly authorized and validly issued
and are fully paid and non-assessable; and, to our knowledge, none of the
outstanding shares of capital stock of the Company was issued in violation of
preemptive or other similar rights of any security holder of the Company.

(v) The Securities to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale to the Underwriters
pursuant to the Purchase Agreement and, when issued and delivered by the Company
pursuant to the Purchase Agreement against payment of the consideration set
forth in the Purchase Agreement, will be validly issued and fully paid and non-
assessable.

(vi) The issuance and sale of the Securities by the Company is not
subject to preemptive or other similar rights of any security holder of the
Company arising by operation of law or under the charter or bylaws of the
Company or, to our knowledge, otherwise, except for any such rights that have
been effectively waived.

(vii) Each Subsidiary set forth on Attachment I hereto has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, and has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement; except as otherwise disclosed in the
Registration Statement, to our knowledge, all of the issued and outstanding
capital stock

A-1
<PAGE>

of each such Subsidiary is owned by the Company, directly or through
subsidiaries, free and clear of any perfected security interest.

(viii) The Purchase Agreement has been duly authorized, executed and
delivered by the Company.

(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has become effective under the 1933 Act; any required
filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and
within the time period required thereby; and, to our knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued under
the 1933 Act or proceedings therefor initiated or threatened by the Commission.

(x) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information, the Prospectus and each amendment or
supplement to the Registration Statement and Prospectus, as of their respective
effective or issue dates (other than the financial statements and supporting
schedules and other accounting or financial data included therein and the
exhibits thereto, as to which we have not been asked to comment) appear on their
face to comply as to form in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations.

(xi) The form of certificate used to evidence the Common Stock
complies in all material respects with all applicable statutory requirements,
with any applicable requirements of the charter and by-laws of the Company and
the requirements of the Nasdaq National Market.

(xii) To our knowledge, there is no pending or threatened action,
suit or proceeding to which the Company or any Subsidiary is a party, or to
which the property of the Company or any Subsidiary is subject, before or bought
by any court or governmental agency or body, domestic or foreign, which might
reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the consummation of
the Purchase Agreement or the performance by the Company of its obligations
thereunder.

(xiii) The authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained in
the Registration Statement under the caption "Description of Capital Stock."

(xiv) To our knowledge, there are no contracts, indentures,
mortgages, loan agreements, notes, leases or other instruments required to be
described in the Registration Statement or to be filed as exhibits thereto other
than those described therein or filed as exhibits thereto.

(xv) To our knowledge, neither the Company nor any subsidiary is in
violation of its charter or by-laws.

A-2
<PAGE>

(xvi) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign (other than under the 1933 Act, the
1933 Act Regulations, the 1934 Act and the 1934 Act Regulations, which have been
obtained, or as may be required under the securities or blue sky laws of the
various states, as to which we need express no opinion) is necessary or required
in connection with the due authorization, execution and delivery of the Purchase
Agreement or for the offering, issuance or sale of the Securities.

(xvii) The execution, delivery and performance of the Purchase
Agreement by the Company and the consummation by the Company of the transactions
contemplated in the Purchase Agreement (including the issuance and sale of the
Securities and the use of the proceeds from the sale of the Securities as
described in the Prospectus under the caption "Use Of Proceeds") will not,
whether with or without the giving of notice or lapse of time or both, conflict
with or constitute a breach of, or a default or Repayment Event (as defined in
Section 1(a)(x) of the Purchase Agreement) under or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, lease or any other agreement or
instrument described in the Registration Statement or filed as an exhibit
thereto to which the Company or any subsidiary is a party or by which it or any
of them may be bound, or to which any of the property or assets of the Company
or any subsidiary is subject, except for such conflicts, breaches or defaults or
liens, charges or encumbrances that would not have a Material Adverse Effect,
nor will such action result in any violation of the provisions of the charter or
by-laws of the Company or any subsidiary, or, to our knowledge, any applicable
law, statute, rule, regulation, judgment, order, writ or decree, of any United
States, Delaware, Texas or New York governmental body, instrumentality or court
having jurisdiction over the Company or any Subsidiary or any of their
respective properties, assets or operations.

(xviii) Except as disclosed in the Registration Statement, to our
knowledge, there are no persons with registration or other similar rights to
have any securities registered pursuant to the Registration Statement.

(xix) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the 1940
Act.

We have participated in conferences with certain officers and other
representatives of the Company, representatives of the independent public
accountants of the Company and your representatives, at which the contents of
the Registration Statement and the Prospectus and related matters were
discussed. Although we are not passing upon, and do not assume any
responsibility for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and the Prospectus (except to the extent
set forth in paragraph (x) and (xiii) above), we advise you that, on the basis
of the foregoing (relying as to materiality to a large extent upon statements
and other representations of officers and other representatives of the Company),
no facts have come to our attention that lead us to believe that the
Registration Statement (other than

A-3
<PAGE>

(i) the financial statements and schedules (including the notes thereto and the
auditors' reports thereon) included therein, (ii) the other accounting and
financial information contained therein and (iii) the exhibits thereto, as to
which we have not been asked to comment), as of its effective date, contained an
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein not misleading, or that the Prospectus
(other than (i) the financial statements and schedules (including the notes
thereto and the auditors' reports thereon) included therein and (ii) the other
accounting and financial information contained therein, as to which we have not
been asked to comment), as of its issue date and the date hereof, contains an
untrue statement of a material fact or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading.

In rendering such opinion, such counsel may rely, as to matters of
fact, to the extent they deem proper, on certificates of responsible officers of
the Company and public officials. Such opinion shall not state that it is to be
governed or qualified by, or that it is otherwise subject to, any treatise,
written policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991).

A-4
<PAGE>

FORM OF OPINION OF COUNSEL FOR THE SELLING STOCKHOLDER
TO BE DELIVERED PURSUANT TO SECTION 5(C)

(i) No filing with, or consent, approval, authorization, order,
registration, qualification or decree of, any court or governmental authority or
agency, domestic or foreign, (other than the issuance of the order of the
Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws, as to which we need express no opinion) is necessary or required to be
obtained by the Selling Stockholder for the performance by the Selling
Stockholder of its obligations under the Purchase Agreement or in connection
with the offer, sale or delivery of the Securities.

(ii) The Purchase Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Stockholder.

(iii) The execution, delivery and performance of the Purchase
Agreement and the sale and delivery of the Securities and the consummation of
the transactions contemplated in the Purchase Agreement and in the Registration
Statement and compliance by the Selling Stockholder with its obligations under
the Purchase Agreement have been duly authorized by all necessary action on the
part of the Selling Stockholder and do not and will not, whether with or without
the giving of notice or passage of time or both, conflict with or constitute a
breach of, or default under or result in the creation or imposition of any tax,
lien, charge or encumbrance upon the Securities or, to the best of our
knowledge, any property or assets of the Selling Stockholder pursuant to, any
material contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, license, lease or other instrument or agreement to which the Selling
Stockholder is a party or by which it may be bound, or to which any of the
property or assets of the Selling Stockholder may be subject nor will such
action result in any violation of the provisions of the charter or by-laws of
the Selling Stockholder, if applicable, or any law, administrative regulation,
judgment or order of any governmental agency or body or any administrative or
court decree having jurisdiction over the Selling Stockholder or any of its
properties.

(iv) The Selling Stockholder, immediately prior to Closing Time, will
be the sole registered owner of the Securities to be sold by the Selling
Stockholder; upon consummation of the sale of the Securities pursuant to the
Purchase Agreement, each of the Underwriters will be the registered owner of the
Securities purchased by it from the Selling Stockholder and, assuming the
Underwriters purchased the Securities for value in good faith and without notice
of any adverse claim, the Underwriters will have acquired all rights of the
Selling Stockholder in the Securities free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity, and the owner of the
Securities, if other than the Selling Stockholder, is precluded from asserting
against the Underwriters the ineffectiveness of any unauthorized endorsement;
and the Selling Stockholder has the full right, power and authority (A) to enter
into the Purchase Agreement and (B) to sell, transfer and deliver the Securities
to be sold by the Selling Stockholder under the Purchase Agreement.

B-1
<PAGE>

Nothing has come to our attention that would lead us to believe that
the Registration Statement or any amendment thereto, including the Rule 430A
Information, (except for financial statements and schedules and other financial
data included therein or omitted therefrom, as to which we need make no
statement), with respect to information furnished by the Selling Stockholder in
writing specifically for use in the Registration Statement, any preliminary
prospectus or the Prospectus and at the time such Registration Statement or any
such amendment became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Prospectus
or any amendment or supplement thereto (except for financial statements and
schedules and other financial data included therein or omitted therefrom, as to
which we need make no statement), with respect to the Selling Stockholder, at
the time the Prospectus was issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.

B-2

<PAGE>

INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE

COMMON COMMON
STOCK STOCK

NUMBER DRILEX SHARES
INTERNATIONAL INC.

DRILEX INTERNATIONAL INC.

THIS CERTIFICATE IS TRANSFERABLE IN
DALLAS, TEXAS OR NEW YORK, NEW YORK. PAR VALUE $.01 PER SHARE

THIS CERTIFIES THAT CUSIP 262044 10 0
SEE REVERSE FOR CERTAIN DEFINITIONS AND LEGENDS

is the owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF
DRILEX INTERNATIONAL INC.

transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this certificate properly endorsed. This certificate
and the shares represented hereby are issued and shall be held subject to the
provisions of the laws of the State of Delaware and to all of the provisions of
the Restated Certificate of Incorporation and the Bylaws of the Corporation, as
amended from time to time (copies of which are on file at the office of the
Corporation), to all of which the holder of this certificate by acceptance
hereof assents. This certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar.

WITNESS the seal of the Corporation and the signatures of its duly authorized
officers.

Dated:
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR

AUTHORIZED SIGNATURE

/s/ JOHN FORREST /s/ G. BRUCE BROUSSARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER SECRETARY

[SEAL OF DRILEX INTERNATIONAL INC. APPEARS HERE]

<PAGE>

DRILEX INTERNATIONAL INC.

The Corporation is authorized to issue Common Stock, par value $.01 per share.
The Board of Directors of the Corporation has authority to fix the number of
shares and the designation of any series of Preferred Stock and to determine the
powers, designations, preferences and relative, participating, optional or other
rights between classes of stock or series thereof of the Corporation, and the
qualifications, limitations or restrictions of such preferences and/or rights.
The Corporation will furnish without charge to each stockholder who so requests
a full statement of the foregoing as established from time to time by the
Restated Certificate of Incorporation of the Corporation and by any certificate
of designation. Any such request should be made to the Secretary of the
Corporation at the offices of the Corporation.

The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM-as tenants in common
TEN ENT-as tenants by the entireties
JT TEN -as joint tenants with right
of survivorship and not as
tenants in common

UNIF GIFT MIN ACT- Custodian
--------- ----------
(Cust) (Minor)
Under Uniform Gifts to Minors
Act
----------------------
(State)
UNIF TRF MIN ACT - Custodian (until age )
------- ----
(Cust)
Under Uniform Transfer
-------
(Minor)
to Minors Act -----------------
(State)

Additional abbreviations may also be used though not in the above list.

For Value Received, hereby sell, assign and transfer unto
---------------------

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------

- -------------------------------------------------------------------------------

- -------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE OF ASSIGNEE

- -------------------------------------------------------------------------------

Shares
- --------------------------------------------------------------------------
of the Stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint

- -------------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named Company
with full power of substitution in the premises.

Dated
-------------------------

X
NOTICE: -----------------------------------------------
THIS SIGNATURE(S) TO (SIGNATURE)
THIS ASSIGNMENT MUST
CORRESPOND WITH THE X
NAME(S) AS WRITTEN -----------------------------------------------
UPON THE FACE OF THE (SIGNATURE)
CERTIFICATE IN EVERY
PARTICULAR WITHOUT
ALTERATION OR EN- ------------------------------------------------
LARGEMENT OR ANY ----} THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
CHANGE WHATEVER. ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.
-------------------------------------------------
SIGNATURE(S) GUARANTEED BY:

-------------------------------------------------

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Amendment No. 3 to Registration Statement No.
333-03405 of Drilex International Inc. ("the Company") of our reports dated
April 26, 1996 with respect to the (i) consolidated financial statements of
the Company as of December 31, 1995 and 1994 and for the year ended December
31, 1995 and the period from March 30, 1994 (inception) to December 31, 1994,
and the related financial statement schedule, (ii) consolidated statements of
operations and cash flows of Drilex Systems, Inc. and subsidiaries for the
three-month period ended March 30, 1994 and the year ended December 31, 1993,
(iii) consolidated statements of income and cash flows of Ensco Technology
Company and subsidiary for the nine-month period ended September 30, 1995 and
the year ended December 31, 1994, and of our report dated June 24, 1996 with
respect to the consolidated statements of operations and cash flows of
Sharewell, Inc. and subsidiaries for the one month ended April 30, 1995 and
each of the two years in the period ended March 31, 1995.

We also consent to the reference to us under the heading "Experts" in this
registration statement.

Deloitte & Touche LLP
Houston, Texas

June 25, 1996