DRILEX INTERNATIONAL INC, 424B3, 1996-07-03

DRILEX INTERNATIONAL INC
424B3, 1996-07-03
OIL & GAS FIELD SERVICES, NEC

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<PAGE>

Filed Pursuant to Rule No: 424(b)(3)
Registration Number: 333-03405

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.
See "Underwriting" for a discussion of the factors considered in determining
the initial public offering price.

The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "DRLX" upon notice of issuance.

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............. $16.00 $1.12 $14.88 $14.88
- -------------------------------------------------------------------------------
Total(3).............. $37,791,392 $2,645,397 $29,760,000 $5,385,995
- -------------------------------------------------------------------------------
</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 $43,460,096,
$3,042,207 and $35,031,895, 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 July 9, 1996.

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

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

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

The date of this Prospectus is July 2, 1996.
<PAGE>

[DRILLING PRODUCTS]

[Photo: multi-lobe rotor]
Multi-lobe rotor used in Drilex motor power sections

[Photo: CNC Lathe]
CNC Lathe used in the manufacture of Drilex motors.

[Photo: Multi-Lobe stator]
Multi-lobe stator used in Drilex motor power sections.

[Photo: Motorhead assembly]
Motorhead assembly which connects coiled tubing to a small motor.

DRILEX PRODUCTS

[Photo: Downhole motor]
The Drilex downhole precision steerable motor.

Drilex Products are at the core of all Drilex services and sales. Each Drilex
precision drilling motor is designed and manufactured to meet the highest
standards of performance and reliability.

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

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.

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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

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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
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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 a 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. See "Use of Proceeds."
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.

<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR COMPANY(C)
------------------------------------------------------------ -----------------------
THREE MONTHS
ENDED MARCH 31, PRO FORMA
---------------- ------------
MARCH 30, 1994 JANUARY 1,
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)

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<PAGE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-------------------------
HISTORICAL AS ADJUSTED(F)
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......... $13,653 $18,355
Total assets............ 78,455 78,455
Long-term debt, less
current maturities..... 32,945 6,637
Total stockholders'
equity................. 24,266 55,276
</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 $28.5 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 $5.4 million are approximately
$2.9 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 $28.5 million. Of such net
proceeds, (i) $3.6 million will be used to repay the entire principal amount
outstanding on the ENSCO Promissory Note and (ii) $24.9 million will be used
to repay all term loan borrowings and a portion of the revolving credit
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"). 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 July 2, 1996, the outstanding borrowings under the Credit Facility
were $27.1 million, consisting of $12.3 million under a $13.0 million
revolving credit and letter of credit facility (the "Revolving Credit
Facility") and a $14.8 million term loan (the "Term Loan"). 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 $28.5 million of net proceeds to the Company from the
Offering, pro forma net tangible book value per share would have been $5.50
per share of Common Stock outstanding after the Offering, representing an
immediate increase in net tangible book value of $3.69 per share of Common
Stock to the existing stockholders and an immediate dilution of $10.50 per
share to the new investors purchasing Common Stock in the Offering. The
following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share.............................. $16.00
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................. 3.69
Pro forma net tangible book value per share after the Offering....... 5.50
------
Dilution in pro forma net tangible book value per share to new
investors purchasing Common Stock offered hereby.................... $10.50
======
</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 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 41.2% $ 4.71
New investors..................... 2,000,000 29.6 32,000,000 58.8 16.00
--------- ----- ----------- -----
Total........................... 6,753,740 100.0% $54,398,225 100.0% $ 8.05
========= ===== =========== ===== ======
</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 $28.5
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 $ 1,506
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 6,637
------------ ------------
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 50,889
Retained earnings.................................. 4,319 4,319
------------ ------------
Total stockholders' equity....................... 24,266 55,276
------------ ------------
Total capitalization........................... $ 58,005 $ 62,707
============ ============
</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 July 2, 1996, the Company had available revolving credit borrowing
capacity of $0.4 million under the Credit Facility. The Company intends to use
$24.9 million of the net proceeds it will receive from the Offering to repay
all borrowings under the Term Loan and $10.1 million of the borrowings under
the Revolving Credit Facility, which amounted to $14.8 million and $12.3
million, respectively, at July 2, 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.

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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.

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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.

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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 a 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.

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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

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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

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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.

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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

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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

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM(2)
---------------------------------------- ---------------------
PERCENT
OF TOTAL
NUMBER OF OPTIONS EXERCISE
SECURITIES GRANTED OR BASE
UNDERLYING TO PRICE
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 $63,333 / $301,972
G. Bruce Broussard...... 3,025 / 9,074 $4,175 / $12,522 $31,672 / $ 95,005
Archie A. Cobb, III..... --
Charles Denton Kerr II.. 3,025 / 9,074 $4,175 / $12,522 $31,672 / $ 95,005
</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 the initial public offering price of $16.00 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."

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<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............................................. 562,322
CS First Boston Corporation....................................... 562,320
Simmons & Company International................................... 562,320
Donaldson, Lufkin & Jenrette Securities Corporation............... 50,000
Goldman, Sachs & Co............................................... 50,000
Howard, Weil, Labouisse, Friedrichs Incorporated.................. 50,000
Morgan Stanley & Co. Incorporated................................. 50,000
PaineWebber Incorporated.......................................... 50,000
Salomon Brothers Inc.............................................. 50,000
Schroder Wertheim & Co. Incorporated.............................. 50,000
Smith Barney Inc. ................................................ 50,000
Robert W. Baird & Co. Incorporated................................ 25,000
Hanifen, Imhoff Inc............................................... 25,000
Jefferies & Company, Inc.......................................... 25,000
Johnson Rice & Company L.L.C...................................... 25,000
Petrie Parkman & Co., Inc......................................... 25,000
Principal Financial Securities, Inc............................... 25,000
Rauscher Pierce Refsnes, Inc...................................... 25,000
The Robinson-Humphrey Company, Inc................................ 25,000
Rodman & Renshaw, Inc............................................. 25,000
Southcoast Capital Corporation.................................... 25,000
Williams MacKay Jordan & Co., Inc................................. 25,000
---------
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 $.64 per share. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $.10 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.

57
<PAGE>

L.E. Simmons, the Chairman of the Board of the Company and the President of
SCF G.P., is a brother of Matthew R. Simmons, the President and Chief
Executive Officer of Simmons & Company International. Because of this
relationship, under the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), Simmons & Company International may
participate as an underwriter for the Offering only if the price at which the
shares of Common Stock are offered will be no higher than that recommended by
a "qualified independent underwriter," as defined in Rule 2720(b)(15) of the
Conduct Rules of the NASD, who must have participated in the preparation of
the Registration Statement and this Prospectus and who must have exercised the
usual standards of "due diligence" with respect thereto. Accordingly, Merrill
Lynch has acted as a qualified independent underwriter in connection with the
Offering. The initial public offering price set forth on the cover page of
this Prospectus has been established at a level no higher than the price
recommended by Merrill Lynch.

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 was
determined by negotiations among the Company, the Selling Stockholder and the
Representatives. Among the factors considered in such negotiations were 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 believed 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.

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.

58
<PAGE>

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, 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 MARCH 30, 1994
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)

<TABLE>
<CAPTION>
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:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
ESTIMATED
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:

<TABLE>
<CAPTION>
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)

<TABLE>
<CAPTION>
YEARS ENDED
MARCH 31,
--------------
ONE MONTH
ENDED
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):

<TABLE>
<CAPTION>
YEARS
ENDED
MARCH 31,
----------
ONE MONTH
ENDED
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................................................................... 59
Additional Information.................................................... 59
Index to Financial Statements............................................. F-1
</TABLE>

UNTIL JULY 28, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY RE-
QUIREMENT 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

JULY 2, 1996

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