BAYARD DRILLING TECHNOLOGIES INC, 424B3, 1998-04-02

BAYARD DRILLING TECHNOLOGIES INC
424B3, 1998-04-02
OIL & GAS FIELD MACHINERY & EQUIPMENT

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<PAGE> 1

PROSPECTUS Filed pursuant
March 30, 1998 2,955,000 SHARES to Rule 424(b)(3)
Registration Number
BAYARD DRILLING TECHNOLOGIES, INC. 333-43535

COMMON STOCK

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

This Prospectus relates to the contemplated distribution (the "Merger
Share Distribution") of 2,955,000 shares (the "Shares") of Common Stock, par
value $0.01 per share ("Common Stock"), of Bayard Drilling Technologies, Inc., a
Delaware corporation ("Bayard" or the "Company"), currently held by DLB Oil &
Gas, Inc., an Oklahoma corporation ("DLB"), on a pro rata basis to the holders
of record of shares of common stock, par value $.001 per share ("DLB Stock"), of
DLB in connection with the proposed merger (the "Merger") of Chesapeake Merger
Corp., an Oklahoma corporation ("Merger Sub") and indirect wholly owned
subsidiary of Chesapeake Energy Corporation, an Oklahoma corporation
("Chesapeake"), with and into DLB to be effected pursuant to the Agreement and
Plan of Merger, dated as of October 22, 1997, as amended (the "Merger
Agreement"), among Chesapeake, Merger Sub and DLB. As a result of the Merger
Share Distribution, the holders of DLB Stock will receive in respect of each
share of DLB Stock that number of shares of Common Stock obtained by dividing
2,955,000 by the number of shares of DLB Stock issued and outstanding
immediately prior to the Effective Time. Based on the assumption that there
will be 12,970,000 shares of DLB Stock outstanding immediately prior to the
effective time ("Effective Time") of the Merger, a holder of DLB Stock would
receive 0.2277 Shares for each share of DLB Stock held. See "Prospectus Summary
- -- The Merger Share Distribution." In addition to shares of Common Stock, as a
result of the Merger and a related distribution (the "WRT Spin-Off") of all of
DLB's equity interest in WRT Energy Corporation, a Delaware corporation
("WRT"),holders of DLB Stock will receive (i) shares of common stock, par value
$0.01 per share ("Chesapeake Stock"), of Chesapeake, (ii) shares of common
stock, par value $.01 per share ("WRT Stock"), of WRT, (iii) cash and (iv)
certain contingent payment rights. The Company will not receive any proceeds
from the Merger Share Distribution. The Merger Share Distribution will be
treated as a taxable transaction for federal income tax purposes to the holders
of DLB Stock. See "Federal Income Tax Considerations."

The Merger Agreement and the Merger have each been approved by the
Board of Directors of DLB. Under Oklahoma law, the affirmative vote of the
holders of a majority of the outstanding shares of DLB Stock is required to
approve the Merger. Holders of a majority of DLB Stock entitled to vote on the
Merger entered into irrevocable proxy agreements with Chesapeake whereby such
stockholders agreed to vote (or to execute a written consent in lieu of a vote
with respect to) all shares of DLB Stock owned by them in favor of the proposal
to approve the Merger Agreement and the Merger and granted Chesapeake a proxy to
vote (or to execute a written consent in lieu of a vote with respect to) such
shares in favor of the Merger. On March 25, 1998, Chesapeake, as
attorney-in-fact, executed a written consent in lieu of a vote with respect to a
majority of the shares of DLB Stock approving the Merger. As a result, the
approval of the Merger is assured. It is expected that the Merger will be
consummated as soon as practicable following the twentieth business day after
the mailing of the Information Statement/Prospectus of the DLB and Chesapeake
(the "Information Statement/Prospectus"), of which this Prospectus is included
as Annex D.

The Common Stock is traded on the American Stock Exchange ("AMEX")
under the symbol "BDI." On March 27, 1998, the last sale price of the Common
Stock, as reported by the AMEX, was $16 1/4 per share. See "Price Range of
Common Stock and Dividends."

DLB STOCKHOLDERS WHO WILL RECEIVE SHARES OF COMMON STOCK IN THE MERGER
SHARE DISTRIBUTION SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS.

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

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.

ALL INFORMATION CONTAINED IN THIS PROSPECTUS REGARDING DLB,
CHESAPEAKE, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER
AGREEMENT (INCLUDING THE MERGER SHARE DISTRIBUTION) HAS BEEN PROVIDED TO THE
COMPANY BY DLB. THE COMPANY HAS NOT VERIFIED THE ACCURACY OR COMPLETENESS OF
SUCH INFORMATION.

This Prospectus is being furnished to the Stockholders of DLB an Annex
D to the Information Statement/Prospectus, which more fully describes the
Merger and the other transactions contemplated by the Merger Agreement.

Stockholders of DLB with inquiries related to DLB, Chesapeake, the
Merger or the other transactions contemplated by the Merger Agreement should
contact DLB's Stockholders Relations Department, 1601 NW Expressway, Suite 700,
Oklahoma City, Oklahoma 73118. After the Effective Time, stockholders of the
Company with inquiries related to the Company or its Common Stock should
contact the Company or its transfer agent.

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

The date of this Prospectus is March 30, 1998.
<PAGE> 2
AVAILABLE INFORMATION

In connection with an initial public offering of 11,040,000 shares of
Common Stock consummated in November 1997 (the "Initial Public Offering"), the
Company became subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission can
be inspected, and copies may be obtained at prescribed rates from the public
reference facilities maintained by the Commission at its principal offices
located at Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549, as
well as at the Commission's regional offices located at Seven World Trade
Center, New York, New York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Such reports, proxy
statements and other information may also be obtained from the web site that
the Commission maintains at http://www.sec.gov. Reports, proxy statements and
other information concerning the Company can also be inspected at the offices
of the American Stock Exchange, 86 Trinity Place, New York 10016, where the
Common Stock is listed.

The Company has filed with the Commission a Registration Statement on
Form S-1 (as amended and including exhibits, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Shares that are the subject of the Merger Share Distribution described in
this Prospectus. This Prospectus constitutes a part of the Registration
Statement and does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted from this Prospectus
as permitted by the rules and regulations of the Commission. Statements
contained herein concerning any document filed as an exhibit to the Registration
Statement are not necessarily complete and, in each instance, reference is made
to the copy of such document filed as an exhibit to the Registration Statement.
Each such statement is qualified in its entirety by such reference. For further
information pertaining to the Company and the Common Stock, reference is hereby
made to the Registration Statement. Such information can be inspected at and
obtained from the Commission and the AMEX in the manner set forth above.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements and information
that are based on the beliefs of the Company's management as well as
assumptions made by and information currently available to management. All
statements other than statements of historical fact included in this Prospectus
are forward-looking statements, including but not limited to statements
identified by the words "anticipate," "believe," "estimate," "intend" and
"expect" and similar expressions. Such statements reflect the Company's
current views with respect to future events, based on what it believes are
reasonable assumptions; however, such statements are subject to certain risks,
uncertainties and assumptions, including but not limited to the risk factors
described in this Prospectus. See "Risk Factors." Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those in the forward-looking
statements. The Company does not intend to update these forward-looking
statements and information. All forward-looking statements included in this
Prospectus are expressly qualified in their entirety by the cautionary
statements in this paragraph.

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<PAGE> 3
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more
detailed information and financial statements and related notes appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information
contained in this Prospectus (i) reflects a two-for-one stock split effected by
means of a stock dividend to stockholders of record on August 22, 1997 and (ii)
for the purposes of operating data, fleet statistics, shares outstanding and,
where specified, operating results, gives pro forma effect to the October 16,
1997 acquisition (the "Bonray Acquisition") of Bonray Drilling Corporation
("Bonray"), as described below. Unless the context otherwise requires, the
terms "Bayard" and the "Company" include Bayard Drilling Technologies, Inc. and
its predecessors and subsidiaries.

This Prospectus relates to the distribution of 2,955,000 shares of
Common Stock currently held by DLB to the holders of record of shares of DLB
Stock, on a pro rata basis, in connection with the Merger described in the
materials accompanying this Prospectus. All of the information contained in
this Prospectus should be read in conjunction with the Information
Statement/Prospectus to which this Prospectus is attached as Annex D.

THE COMPANY

The Company is a leading provider of contract land drilling services to
major and independent oil and gas companies. As of September 30, 1997, the
Company's rig fleet consisted of 54 rigs (including 13 rigs acquired in the
Bonray Acquisition), of which 48 were being marketed and six were to be
refurbished and expected to be placed in operation within the next 12 months.

The Company's fleet consists primarily of rigs capable of deep drilling
applications (well depths of 15,000 feet or greater). The Company believes that
deep drilling targets are more attractive to oil and gas companies due to new
technologies, including (i) three-dimensional seismic techniques, (ii)
increasingly accurate down hole measurement devices and (iii) improved guidance
systems and directional drilling motors for horizontal and directional wells.
Examples of currently active deep drilling areas include the Tuscaloosa trend in
Louisiana, the Pinnacle Reef trend in East Texas, the Anadarko and Arkoma basins
in Oklahoma and the Austin Chalk in Texas and Louisiana.

As of September 30, 1997, the Company's fleet included 38 rigs capable
of drilling to depths of 15,000 feet or greater, 25 of which are capable of
drilling to depths of 20,000 feet or greater. Of these 38 rigs, 21 are diesel
electric silicon controlled rectifier ("SCR") rigs which offer operators
superior control and efficiency, particularly in deep, directional or horizontal
applications.

The Company's principal executive offices are located at 4005
Northwest Expressway, Suite 550E, Oklahoma City, Oklahoma 73116, and its
telephone number at such offices is (405) 840-9550.

3
<PAGE> 4
FORMATION AND OTHER TRANSACTIONS

The Company was formed in December 1996 through a series of affiliated
entity transactions in which the Company became the successor to Anadarko
Drilling Company ("Anadarko"), the contract drilling subsidiary of privately
held AnSon Partners Limited Partnership (together with its affiliates, "APLP").
In connection with the formation of the Company (i) APLP contributed ten
drilling rigs, including two rigs requiring refurbishment, for shares of Common
Stock, (ii) Roy T. Oliver and related entities exchanged six additional drilling
rigs for shares of Common Stock, (iii) Energy Spectrum Partners LP ("Energy
Spectrum") contributed cash for shares of Common Stock and (iv) Chesapeake
entered into drilling contracts with two-year terms for six of the Company's
rigs in consideration for an option to purchase shares of Common Stock
(together, the "Formation Transactions"). See "Business -- Formation and Other
Transactions." Since the Formation Transactions, the Company has enhanced its
original fleet through

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<PAGE> 5
acquisitions and refurbishment of rigs as described below.

o Trend Acquisition. In May 1997, the Company completed the
acquisition of Trend Drilling Co. and its 14 rigs ("Trend") for $18 million in
cash and 250,000 shares of Common Stock (the "Trend Acquisition").

o Ward Acquisition. Also in May 1997, the Company acquired the
assets of Ward Drilling Company, Inc. including six drilling rigs ("Ward") for
$8 million in cash, 400,000 shares of Common Stock and warrants to purchase an
additional 200,000 shares of Common Stock (the "Ward Acquisition").

o Bonray Acquisition. In October 1997, the Company acquired
Bonray from DLB for 3,015,000 shares of Common Stock. Bonray has operated a
land drilling business in the Mid-Continent region since 1980 and prior to its
acquisition by the Company was a wholly owned subsidiary of DLB. In the Bonray
Acquisition, the Company acquired 13 rigs, including seven rigs with depth
capacities of 15,000 feet or greater and two diesel electric SCR rigs. As of
September 30, 1997, 12 of Bonray's rigs were operating and under contract and
one was awaiting refurbishment.

o Individual Rig Acquisitions. In addition to the Trend, Ward
and Bonray Acquisitions, prior to the Initial Public Offering, the Company
invested $5.5 million to acquire six rigs in five transactions involving
purchases of individual rigs or rig components (the "Individual Rig
Acquisitions" and, together with the Formation Transactions, the Trend
Acquisition, the Ward Acquisition and the Bonray Acquisition, the "Consolidation
Transactions"). In August 1997, the Company sold one rig.

o Initial Public Offering. In November 1997, the Company
completed the Initial Public Offering of 11,040,000 shares of Common Stock. Of
the total shares sold in the Initial Public Offering, the Company sold 4,229,050
shares of Common Stock and certain shareholders sold 6,810,950 shares of Common
Stock.

o Refurbishment. The Consolidation Transactions included a
number of rigs in need of refurbishment. From January 1, 1997 through September
30, 1997, the Company completed refurbishment of 12 rigs at an average cost of
approximately $2.6 million per rig (including drill pipe). These rigs were
placed in service at various dates between January and September 30, 1997. At
September 30, 1997, the Company had six additional rigs in various stages of
refurbishment. The Company completed refurbishment and placed one of such rigs
in service during the fourth quarter of 1997, two more rigs in the first quarter
of 1998 and anticipates placing the remaining three rigs in the remainder of
1998. The Company expects the cost to refurbish these six rigs to average
approximately $3.5 million per rig (including drill pipe).

o Recent Acquisitions. On January 9, 1998, the Company
purchased six additional rigs from R. T. Oliver Drilling, Inc. for approximately
$14 million in cash (the "Oliver Acquisition"). The Company expects to refurbish
and purchase complementary equipment, including drill pipe, for these rigs at a
cost of approximately $28.6 million. Additionally, since the Initial Public
Offering, the Company has decided to refurbish three additional rigs, one of
which was purchased for approximately $54,000 and two of which were assembled
from inventoried components, bringing the Company's rig fleet total to 63 rigs,
of which 51 are being marketed.

THE MERGER

Chesapeake, Merger Sub and DLB have entered into the Merger Agreement,
which provides that, upon the terms and subject to the conditions set forth
therein, Merger Sub will merge with and into DLB, with DLB continuing as the
surviving corporation.

5
<PAGE> 6

Pursuant to the Merger Agreement, at the Effective Time, each share of
DLB Stock issued and outstanding immediately prior thereto (other than shares of
DLB Stock held by dissenting stockholders and other shares to be canceled
pursuant to the Merger Agreement) will be converted into the right to receive
(i) a fractional interest in a share of Chesapeake Stock equal to the quotient
obtained by dividing 5,000,000 by the number of shares of DLB Stock issued and
outstanding immediately prior to the Effective Time (the "DLB Stock Number"),
(ii) an amount in cash determined by dividing $17,500,000 by the DLB Stock
Number, (iii) a number of Shares determined by dividing 2,955,000 (representing
the total number of Shares owned by DLB immediately prior to the Effective Time)
by the DLB Stock Number, (iv) a contingent right to receive a pro rata share of
the net cash proceeds from the sale of assets of an affiliate of DLB and (v) a
contingent right to receive a pro rata share of certain net distributions
related to the liquidation of WRT (the consideration referred to in clauses (i),
(ii), (iii), (iv) and (v) being collectively referred to as the "Merger
Consideration"). Based on the assumption that there will be 12,970,000 shares of
DLB Stock outstanding immediately prior to the Effective Time, a holder of DLB
Stock would receive 0.2277 Shares for each share of DLB Stock held. See "-- The
Merger Share Distribution." Additionally, immediately prior to the Merger, DLB
will distribute to holders of DLB Stock, on a pro rata basis, an aggregate of
10,792,220 shares of WRT Stock, resulting in the distribution of approximately
0.8318 shares of WRT Stock per share of DLB Stock held.

The Merger has been approved by the Board of Directors of DLB. Under
Oklahoma law, the affirmative vote of the holders of a majority of the
outstanding shares of DLB Stock is required to approve the Merger. Holders of a
majority of DLB Stock entitled to vote on the Merger have entered into
irrevocable proxy agreements with Chesapeake whereby such stockholders have
agreed to vote (or to execute a written consent in lieu of a vote with respect
to) all shares of DLB Stock owned by them in favor of the proposal to approve
the Merger Agreement and the Merger and have each granted Chesapeake a proxy to
vote (or to execute a written consent in lieu of a vote with respect to) such
shares in favor of the Merger. On March 25, 1998, Chesapeake, as attorney-in
- -fact, executed a written consent in lieu of a vote with respect to a majority
of the shares of DLB Stock approving the Merger. As a result, the approval of
the Merger is assured. It is expected that the Merger will be consummated as
soon as practicable following the twentieth business day after the mailing of
the Information Statement/Prospectus to which this Prospectus is attached as
Annex D. Holders of DLB Stock who do not execute written consents approving the
Merger will be entitled to pursue dissenters' rights of appraisal under Section
1091 of the Oklahoma General Corporation Act.

DLB is furnishing the holders of DLB Stock a package of information
regarding the Merger that includes the Information Statement/Prospectus, the
Merger Agreement, this Prospectus, information regarding the value of the Merger
Consideration and the information on dissenters' rights of appraisal. For a more
complete description of the terms of the Merger Agreement and the values
attributed by DLB to the Merger Consideration, see the Information
Statement/Prospectus to which this Prospectus is attached as Annex D. With
respect to the terms of the Merger and the related appraisal rights, reference
is made to the sections of the Information Statement/Prospectus entitled
"Description of Merger," "Merger Agreement" and "Shareholders' Rights of
Appraisal." With respect to the terms of the WRT Spin-Off, reference is made to
the section of the Information Statement/Prospectus entitled "Description of WRT
Spin-Off."

THE MERGER SHARE DISTRIBUTION
<TABLE>
<S> <C>
Shares to be Distributed . . . . . . . . . 2,955,000 shares of Common Stock owned by DLB immediately prior
to the Effective Time.

Outstanding Common Stock . . . . . . . . . 18,183,945 shares(1)

</TABLE>

(1) Does not include (i) 806,600 shares of Common Stock subject to
issuance pursuant to outstanding options awarded under the Company's
1997 Stock Option and Stock Award Plan (the "Employee Stock Plan"),
(ii) 75,000 shares of Common Stock subject to issuance pursuant to
options awarded under the Company's 1997 Non-Employee Directors' Stock
Option Plan (the "Director Stock Plan") or (iii) 397,000 shares of
Common Stock subject to issuance pursuant to other outstanding
warrants issued by the Company. See "Management -- 1997 Stock Option
and Stock Award Plan" and "Certain Relationships and Related
Transactions." Further, this number does not include shares of Common
Stock that may be issued, solely at the option of the Company, to
redeem outstanding Subordinated Notes (as defined in "Management's
Discussion and Analysis of Financial Condition and Results of
Operations"). See "Certain Relationships and Related Transactions --
Certain Financing Arrangements -- Common Stock and Subordinated
Notes."

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<PAGE> 7

Merger Share Distribution Ratio . . . . . . For each share of DLB Stock held immediately prior to the
Effective Time, each holder of DLB Stock will receive a number of
Shares determined by dividing 2,955,000 (the total number of Shares
owned by DLB immediately prior to the Effective Time) by the DLB
Stock Number (such quotient being defined as the "Merger Share
Distribution Ratio"). No fractional shares of Common Stock will be
distributed in the Merger Share Distribution. The number of shares
of Common Stock that any holder of DLB Stock would otherwise be
entitled to receive will be rounded to the nearest whole number of
such shares. Based on the assumption that there will be 12,970,000
shares of DLB Stock outstanding immediately prior to the Effective
Time, a DLB stockholder would receive 0.2277 Shares for each share of
DLB Stock held. To the extent outstanding options to acquire up to
1,713,750 shares of DLB Stock are exercised prior to the Effective
Time, the number of Shares distributed per share of DLB Stock will be
proportionately reduced. Assuming that all such options for DLB
Stock are exercised prior to the Effective Time, the Merger Share
Distribution Ratio would be equal to 0.2012 Shares for each share of
DLB Stock held. All calculations and percentages set forth in this
Prospectus regarding ownership of shares of Common Stock upon
consummation of the Merger Share Distribution assume a Merger Share
Distribution Ratio of 0.2277. Assuming a value of $16 1/4 per share
(the last reported trading price on the AMEX of a Share on March
27, 1998), the market value of 0.2277 Shares would be $3.50.

Common Stock Listing . . . . . . . . . . . The Common Stock is traded on the AMEX under the symbol "BDI."

Effective Time . . . . . . . . . . . . . . It is expected that the Effective Time will occur promptly
following the twentieth business day after the mailing of
the Information Statement/Prospectus to which this Prospectus
is attached as Annex D.

Exchange Agent . . . . . . . . . . . . . . UMB Bank, N.A.

Merger Share Distribution Date. . . . . . . As soon as reasonably practicable after the Effective Time,
Chesapeake will mail to the stockholders of DLB a letter of
transmittal to be used to effect the exchange of certificates
evidencing shares of DLB Stock for the Shares and other Merger
Consideration. In order to receive Shares and other Merger
Consideration, holders of the DLB Stock will be required to
surrender to the Exchange Agent stock certificates evidencing
shares of DLB Stock together with a duly completed and executed
letter of transmittal and any other required documents.
Certificates for the Shares to which holders of DLB Stock are
entitled will not be distributed until May 4, 1998, the date of
the expiration of the lock-up period (180 days) of the Initial
Public Offering (the "Lock-up Period"). Until such date, the Exchange
Agent will hold the Shares in escrow.

Federal Income Tax Considerations . . . . . The Merger Share Distribution, together with the Merger, will be
treated as a taxable transaction to each holder of DLB Stock
resulting in a capital gain or loss in an amount equal to the
difference between (i) the amount of cash and the fair market
value of all of the shares of the Company, WRT and Chesapeake and
any contingent consideration received in respect of such holder's
shares of DLB Stock and (ii) such holder's adjusted tax basis in the
shares of DLB Stock redeemed.

</TABLE>

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<PAGE> 8

SUMMARY HISTORICAL AND PRO FORMA
CONSOLIDATED FINANCIAL AND OPERATING DATA

The following table sets forth summary historical financial and
operating data for the Company for each of the years in the three year period
ended December 31, 1996, for the nine months ended September 30, 1996 and 1997,
and as of December 31, 1996 and September 30, 1997. The financial results for
the period ended and as of September 30, 1997 include the results of the
Company's consolidated subsidiary, Trend, beginning May 1, 1997. The Company's
historical results reflect the operations of its predecessor, Anadarko. The
consolidated financial data for the nine months ended September 30, 1996 and
1997 is derived from the unaudited financial statements of the Company. In the
opinion of management, the financial data for the nine months ended September
30, 1996 and 1997 reflects all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data.

The pro forma consolidated financial and operating data for the year
ended December 31, 1996 and the nine months ended September 30, 1997 shown
below give effect to (i) the Consolidation Transactions (to the extent not
already reflected in the historical financial statements), (ii) the Chesapeake
Transactions (as described in "Certain Relationships and Related Transactions
- -- Chesapeake Transactions"), (iii) the exercise by The CIT Group/Equipment
Financing, Inc. ("CIT") of a warrant for 150,000 shares of Common Stock (the
"CIT Exercise"), and (iv) the Initial Public Offering and the application of
the net proceeds to the Company therefrom (as set forth in footnote 1 to the
Capitalization Table) as if they occurred on January 1, 1996 for purposes of
operations data and September 30, 1997 for purposes of balance sheet data. The
following information should be read together with Management's Discussion and
Analysis of Financial Condition and Results of Operations, the historical
financial statements of Bayard, Trend, Ward and Bonray, including the notes
thereto, and the Pro Forma Consolidated Financial Data, including the notes
thereto, included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
---- -------------------------------------- --------------------------------
1994 1995 1996 1996 1996 1997 1997
Historical Pro Forma Historical Pro Forma
(unaudited)
(In thousands, except per share, rig and day rate data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues . . . . . . . . $ 9,910 $ 7,708 $ 9,853 $ 47,952 $ 6,787 $ 33,214 $ 58,840
--------- --------- --------- -------- --------- -------- --------
Operating expenses:
Drilling and other . . . . . 8,572 6,122 7,699 38,073 5,244 24,246 43,245
Depreciation and amortization 1,557 791 1,126 7,730 727 4,918 8,551
General and administrative . 786 880 658 3,636 473 1,181 2,753
--------- --------- --------- -------- --------- -------- --------
Total operating 10,915 7,793 9,483 49,439 6,444 30,345 54,549
--------- --------- --------- -------- --------- -------- --------
expenses . . . . . . . . . . .
Operating income (loss) . . . . (1,005) (85) 370 (1,487) 343 2,869 4,291
Interest expense and financing
cost . . . . . . . . . . . . (18) (3) (11) (821) -- (2,172) (1,274)
Other income (expense) . . . . 366 (134) 71 601 17 376 745
--------- --------- --------- -------- --------- -------- --------
Income (loss) before income (657) (222) 430 (1,707) 360 1,073 3,762
taxes . . . . . . . . . . . . .
Income tax expense(1) . . . . . -- -- 163 -- 137 410 1,430
--------- --------- --------- -------- --------- -------- --------
Net income (loss) . . . . . . . $ (657) $ (222) $ 267 $ (1,707) $ 223 $ 663 $ 2,332
========== ======== ======= ========= ========== ========= ==========
Earnings per share (primary and
fully diluted) . . . . . . . $ .02 $ (.11) $ .02 $ .06 $ .15
======= ========= ========== ========= ==========
Weighted average shares
outstanding 11,317 15,901 11,317 11,317 15,901
======= ======== ======== ======== ==========
(fully diluted)(2) . . . . .
Cash Flows:
Operating activities . . . . $ 445 $ 310 $ (462) $ 589 $ 7,212
Investing activities . . . . (454) (1,710) (10,441) (6,363) (75,059)
Financing activities . . . . 9 1,400 15,866 5,774 62,966
</TABLE>

(continued on following page)

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<PAGE> 9

December 31, 1996 September 30, 1997
--------------- -----------------------
Historical Historical Pro Forma
(unaudited)
(In thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and investments . . . . . . . . . . . . . . . . . . . . . . $ 4,963 $ 812 $ 55,799
Working capital (deficit), excluding current portion of
long-term debt . . . . . . . . . . . . . . . . . . . . . . . . 4,974 (2,659) 54,019
Property, plant and equipment, net . . . . . . . . . . . . . . . 26,973 104,674 138,631
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . 34,673 128,064 227,177
Long-term debt, including current portion . . . . . . . . . . . . 7,000 54,948 19,567
Total stockholders' equity(3) . . . . . . . . . . . . . . . . . . 26,251 48,496 174,512
</TABLE>

<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
---------------------------------------------- ---------------------------------
1994 1995 1996 1996 1996 1997 1997
Historical Pro Forma Historical Pro Forma
(unaudited)
(In thousands, except per share, rig and day rate data)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Financial Data:
EBITDA(4) . . . . . . . . . $ 552 $ 706 $ 1,496 $ 6,243 $ 1,070 $ 7,787 $ 12,842
Capital expenditures . . . 1,183 2,088 10,578 6,499 83,101
Drilling Rig Activity Data:
Total rigs at end of period 7 8 17 54 8 41 54
Marketed rigs at end of 7 8 8 34 8 34 46
period . . . . . . . . . . .
Average utilization rate of
drilling 84% 86% 88% 87% 94%
rigs available for
service(5) . . . . . . . . .
Average dayrate(6) . . . . $ 4,148 $ 4,298 $ 4,731 $ 4,678 $ 5,740
</TABLE>

__________

(1) Income tax expense is presented on a pro forma basis (assuming a 38%
statutory rate) for the year ended December 31, 1996 and for the nine
months ended September 30, 1996.

(2) Historical weighted average shares outstanding is calculated using the
fully diluted shares outstanding through September 30, 1997 for the
year ended December 31, 1996 and the nine months ended September 30,
1996 and 1997. The pro forma shares outstanding reflect the sale of a
sufficient number of shares in the Initial Public Offering to retire
certain indebtedness of the Company. See footnote (g) to "Notes to
Unaudited Pro Forma Consolidated Financial Data."

(3) No dividends were declared through September 30, 1997. See "Price
Range of Common Stock and Dividends -- Dividend Policy."

(4) EBITDA represents operating income (loss) before depreciation and
amortization. EBITDA is frequently used by securities analysts and is
presented herein to provide additional information about the Company's
operations. EBITDA is not a measurement presented in accordance with
generally accepted accounting principles. EBITDA should not be
considered in isolation or as a substitute for net income or cash flow
data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.

(5) Rig utilization rates are calculated on a weighted average basis
assuming 365 days availability for all rigs available for service.
Rigs acquired have been treated as added to the rig fleet as of the
date of acquisition. Rigs under contract that generate revenues
during moves between locations or during mobilization/ demobilization
are also considered to be utilized. Rigs that are owned but not

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<PAGE> 10

being marketed, including rigs being refurbished, are not considered
in determining the utilization rate.

(6) Represents total contract drilling revenues (excluding mobilization,
cost reimbursements and fuel), divided by the total number of days the
Company's drilling rig fleet operated during the period, divided by
the average number of rigs in operation.

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<PAGE> 11

RISK FACTORS

An investment in the Common Stock offered hereby involves a high degree of
risk. DLB Stockholders who will receive shares of Common Stock in the Merger
Share Distribution should carefully consider and evaluate the following factors
- -- together with the information and financial data set forth elsewhere in this
Prospectus -- prior to making an investment decision regarding the Common Stock.

DEPENDENCE ON OIL AND GAS INDUSTRY

The Company's revenues, cash flows and earnings are substantially
dependent upon, and affected by, the level of domestic oil and gas exploration
and development activity. Such activity and the resulting level of demand for
contract land drilling and related services are directly influenced by many
factors over which the Company has no control. Such factors include, among
others, the market prices of oil and gas, market expectations about future
prices, the volatility of such prices, the cost of producing and delivering oil
and gas, government regulations and trade restrictions, local and international
political and economic conditions, levels of production by, and other
activities of, the Organization of Petroleum Exporting Countries and other oil
and gas producers, the development of alternate energy sources and the
long-term effects of worldwide energy conservation measures. Substantial
uncertainty exists as to the future level of oil and gas exploration and
development activity. There can be no assurance that the current level of oil
and gas exploration and development activity will be maintained or that demand
for the Company's contract drilling services will reflect the level of such
activity.

CYCLICAL CONDITIONS

Historically, the contract drilling industry has been cyclical, with
significant volatility in profitability and rig values. This industry
cyclicality has been due to changes in the level of domestic oil and gas
exploration and development activity and the available supply of drilling rigs.
The market for contract land drilling services has generally been depressed
since 1982, when oil and gas prices began to weaken following a period of
significant increase in new drilling rig capacity. Since that time and except
during occasional upturns, there have been substantially more drilling rigs
available than necessary to meet demand in most operating and geographic
segments of the domestic drilling industry, including the geographic areas in
which the Company operates.

Although the Company believes that improved technologies and stable
oil and gas prices have contributed to increased activity in the exploration
and production sector during 1997, there has been a general decline in oil and
gas prices in recent months and there can be no assurance that such decline
will not continue. The recent decline in oil prices has caused the Company's
rig utilization rates to decrease in recent periods. In addition, ongoing
movement or reactivation of land drilling rigs (including the movement of rigs
from outside the United States into domestic markets) or new construction of
drilling rigs could increase rig supply and adversely affect contract drilling
rates and utilization levels. The Company cannot predict the future level of
demand for its contract drilling services and resulting rig utilization rates,
future conditions in the contract drilling industry or future contract drilling
rates.

LIMITED HISTORY OF A PUBLIC MARKET FOR AND VOLATILITY OF THE PRICE OF COMMON
STOCK

Although the Common Stock is listed for trading on the AMEX, no public
market for the Common Stock existed prior to the Initial Public Offering on
November 4, 1997. The Common Stock was initially offered to the public at a
price of $23 per share and since that time has traded at per share prices
varying from a low of $11 1/8 to a high of $28 1/4. On March 27, 1998, the last
sale price of the Common Stock as reported on the AMEX was $16 1/4 per share.
Due to the limited amount of time that the Common Stock has been traded on a
public market and the volatility of the price per share of the Common Stock,
there can be no assurance that an active public market for the Common Stock will
be sustained, that the price volatility will not continue or that the price at
which the Common Stock will trade after the Merger Share Distribution will not
be lower than recent trading prices. Market prices for the Common Stock
following the Merger Share Distribution will be influenced by a number of
factors, including the depth and liquidity of the market for the Common Stock,
investor perceptions of the Company and general economic and other conditions.

LIMITED OPERATING HISTORY

The Company was founded in December 1996 as the successor to Anadarko,
which had operated as a contract land drilling rig service company since 1982
in Oklahoma. Although Anadarko was owned by and provided drilling services to
APLP prior to December 1996, Anadarko had also provided drilling services to 23
different third party customers between 1982 and December 1996. Prior to
December 1996, however, the Company had not operated as an independent entity.
Although the President and Chief Executive Officer of the Company had been
employed by Anadarko for 14 years and several other key employees of the
Company had been with Anadarko for extended periods, much of the Company's
management group has been assembled recently. Despite the extensive experience
and qualifications of many of the recently added

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<PAGE> 12

individual managers, there can be no assurance that the management group will
be able to manage the stand-alone entity as a cohesive team or to implement
effectively the Company's business strategy. The pro forma financial results
presented herein include the operating results of drilling rigs which were not
under the Company's control and may not be indicative of the Company's future
operating results.

MANAGEMENT OF GROWTH; RISKS OF ACQUISITION STRATEGY

The Company has experienced rapid and substantial growth since its
formation as a result of acquisitions. The Company anticipates the further
expansion of the Company's drilling fleet through additional acquisitions.
Certain risks are inherent in an acquisition strategy, such as increasing
leverage and debt service requirements and combining disparate company
cultures, which could adversely affect the Company's operating results.
Continued growth and the process of integrating such acquired businesses may
involve unforeseen difficulties and may require a disproportionate amount of
management's attention and the Company's financial and other resources. No
assurance can be given that the Company will be able to continue to identify
suitable acquisition opportunities, negotiate acceptable terms, obtain
financing for acquisitions on satisfactory terms or successfully acquire
identified targets. There can be no assurance that the Company will be able to
successfully manage and integrate the acquired businesses and assets into its
existing operations or that it will be able to successfully maintain the market
share attributable to operable drilling rigs acquired by the Company. If the
Company is unable to manage its growth and successfully integrate the acquired
businesses into the Company's existing operations, or if the Company encounters
unexpected costs or liabilities in the acquired businesses, the Company's
results of operations or financial condition could be materially adversely
affected. See "Business -- Business Strategy."

Competition in the market for drilling rigs has caused substantial
increases in the acquisition prices paid for rigs in recent months. Such
competition could adversely affect the Company's growth strategy if it is
unable to purchase additional drilling rigs or related equipment on favorable
terms. There can be no assurance that the Company will be able to compete
successfully in the future for acquisitions of available drilling rigs or
related equipment, or that such competition will not have a material adverse
effect on the Company's business, financial condition and results of
operations.

SHORTAGE OF QUALIFIED AND EXPERIENCED LABOR

Increases in both onshore and offshore domestic oil and gas
exploration and production since 1995 and resultant increases in contract
drilling activity have created a shortage of qualified drilling rig personnel
in the industry. If the Company is unable to attract and retain sufficient
qualified operating personnel, its ability to market and operate its drilling
rigs will be restricted. In addition, labor shortages could result in wage
increases, which could reduce the Company's operating margins and have a
material adverse effect on the Company's financial condition and results of
operations.

COMPETITION

The contract drilling industry is a highly competitive and fragmented
business characterized by high capital and maintenance costs. As a result,
even though the Company has the fifth largest active land drilling rig fleet in
the United States, the Company believes such fleet represents a market share of
approximately 6% of the domestic land drilling industry. Drilling contracts
are usually awarded through a competitive bid process and, while the Company
believes that operators consider factors such as quality of service, type and
location of equipment, or the ability to provide ancillary services, price and
rig availability are the primary factors in determining which contractor is
awarded a job. Certain of the Company's competitors have greater financial and
human resources than the Company, which may enable them to better withstand
periods of low rig utilization, to compete more effectively on the basis of
price and technology, to build new rigs or acquire existing rigs and to provide
rigs more quickly than the Company in periods of high rig utilization.

CONCENTRATION OF CUSTOMER BASE

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<PAGE> 13

During the nine months ended September 30, 1997 (pro forma for the
Consolidation Transactions), the three largest customers for the Company's
contract drilling services were Chesapeake, Union Pacific Resources Corporation
and Marathon Oil Company, which accounted for approximately 22%, 7% and 7% of
total revenues, respectively. Chesapeake recently announced that it was
reducing its drilling program in the Gulf Coast region, an area in which it
utilizes a number of the Company's rigs. In late 1997, Chesapeake released two
rigs under contract with the Company and has subsequently released three
additional rigs it was using in the Gulf Coast region. As of the date of this
Prospectus, Chesapeake continued to utilize five of the Company's rigs; however,
there can be no assurance that Chesapeake or any of the Company's other
principal customers will continue to employ the Company's services or that the
loss of any of such customers or adverse developments affecting any of such
customers would not have a material adverse effect on the Company's financial
condition and results of operations.

OPERATING HAZARDS AND UNINSURED RISKS

The Company's operations are subject to many hazards inherent in the land
drilling business, including, for example, blowouts, cratering, fires,
explosions, loss of well control, loss of hole, damaged or lost drill strings
and damage or loss from inclement weather. These hazards could cause personal
injury or death, serious damage to or destruction of property and equipment,
suspension of drilling operations, or substantial damage to the environment,
including damage to producing formations and surrounding areas. Generally,
drilling contracts provide for the division of responsibilities between a
drilling company and its customer, and the Company seeks to obtain
indemnification from its customers by contract for certain of these risks. To
the extent not transferred to customers by contract, the Company seeks
protection against certain of these risks through insurance. Although the
Company believes that it is adequately insured for public liability and property
damage to others and injury or death to persons in accordance with industry
standards with respect to its operations, no assurance can be given that such
insurance will be sufficient to protect the Company against liability for all
consequences of well disasters, personal injury, extensive fire damage or damage
to the environment. No assurance can be given that the Company will be able to
maintain adequate insurance in the future at rates it considers reasonable or
that any particular types of coverage will be available. The occurrence of
events, including any of the above-mentioned risks and hazards, that are not
fully insured or the failure of a customer to meet its indemnification
obligations could subject the Company to significant liability and could have a
material adverse effect on the Company's financial condition and results of
operations. See "Business -- Operating Hazards and Insurance."

SHORTAGE OF DRILLING EQUIPMENT AND SUPPLIES

There is a general shortage of certain drilling equipment and supplies used
in the Company's business and the Company believes these shortages may
intensify. Because, until recent years, the land drilling industry was
characterized by an oversupply of land rigs, rig manufacturers have generally
focused on the production of more expensive offshore rigs and rig equipment. As
a result, most rig manufacturers are not currently building new land rigs and
those manufacturers that are building new land rigs and components charge
premium prices (approximately $13 million for a new 2,000 horsepower rig) and
require that orders be placed at least 120 days in advance of requested
delivery. The limited availability of new rigs and equipment has caused land
rig owners and operators, including the Company, to maintain and enhance their
fleets primarily through acquisitions and refurbishments using previously
manufactured rig components and equipment. As the land drilling industry
continues to refurbish rigs using existing components and equipment, the
available supply of such components and equipment continues to deplete. There
can be no assurance that a continued shortage of such equipment and supplies
will not result in a material increase in the costs incurred by the Company to
refurbish and maintain its rigs.

The Company requires a substantial amount of drill pipe in order to achieve
the drilling depths required by its customers. A shortage of drill pipe exists
in the contract drilling industry in the United States. This shortage has
caused the price of drill pipe to increase by more than 54% over the past 24
months and has required orders for new drill pipe to be placed at least one year
in advance of expected use. The price increase and the delay in delivery has
caused the Company to increase capital expenditures for drill pipe in recent
months by 110% of its original budget. While the Company believes it currently
has sufficient drill

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<PAGE> 14

pipe for its existing rigs (including those rigs in refurbishment), in the
event the shortage continues, the Company may be unable to obtain the drill
pipe required to expand its contract drilling operations.

CAPITAL REQUIREMENTS AND LIQUIDITY

The oil and gas contract drilling industry is capital intensive. The
Company's cash flow from operations and the continued availability of credit
are subject to a number of variables, including the Company's utilization rate,
operating margins and ability to maintain costs and obtain contracts in a
competitive industry. There can be no assurance that the Company's cash flow
from operations, proceeds from the Initial Public Offering and present
borrowing capacity will be sufficient to fund its anticipated capital
expenditures and working capital requirements. The Company may from time to
time seek additional financing, either in the form of bank borrowings, sales of
the Company's debt or equity securities or otherwise. Except for the Company's
loan agreements with its lenders, the Company has no agreements for any such
financing and there can be no assurance as to the availability or terms of any
such financing. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition and Liquidity." To
the extent the Company's capital resources and cash flow from operations are at
any time insufficient to fund its activities or repay its indebtedness as due,
the Company will need to raise additional funds through public or private
financings or additional borrowings. No assurance can be given as to the
Company's ability to obtain any such capital resources. If the Company is at
any time not able to obtain the necessary capital resources, its financial
condition and results of operations could be materially adversely affected. In
the event that additional funds are raised through the issuance of equity
securities, the percentage ownership of the Company's stockholders at that time
would be diluted and, in addition, such equity securities may have rights,
preferences or privileges senior to those of the Common Stock.

RELIANCE ON KEY PERSONNEL

The success of the Company's business is highly dependent upon the
services, efforts and abilities of James E. Brown, the Company's President and
Chief Executive Officer and certain other officers and key employees,
particularly Edward S. Jacob, III, the Company's Executive Vice President --
Operations & Marketing, David E. Grose, the Company's Vice President and Chief
Financial Officer, and Ron Tyson, the Company's Construction Manager. The
business of the Company could be materially and adversely affected by the loss
of any of these individuals. The Company does not maintain key man life
insurance on the lives of any of its executive officers or key employees. The
Company has employment agreements with Messrs. Brown, Jacob and Grose. See
"Management -- Executive Salaries and Employment Agreements."

CLASS ACTION LITIGATION

On January 14, 1998, February 2, 1998 and February 3, 1998, three
purported class action lawsuits were filed against the Company, certain
directors and officers of the Company, the managing underwriters of the Initial
Public Offering, and certain current and former stockholders of the Company,
alleging violations of federal and state securities laws in connection with the
Initial Public Offering. The lawsuits allege, among other things, that the
registration statement and prospectus for the Initial Public Offering contained
materially false and misleading information and omitted to disclose material
facts. The Company believes the allegations in the lawsuits are without merit
and is defending vigorously the claims brought against it. The Company is
required under certain circumstances to indemnify the named directors, officers,
underwriters and selling stockholders against losses incurred as a result of
such lawsuits and to advance to such parties ongoing legal expenses incurred in
connection with the defense. The Company expects to continue to incur legal
expenses on its behalf and on behalf of such officers, directors, underwriters
and selling stockholders in connection with this litigation. In addition,
defending this litigation has and will likely continue to result in the
diversion of management's attention from the day-to-day operations of the
Company's business. The Company is unable to predict the outcome of these
lawsuits or the costs to be incurred in connection with their defense and there
can be no assurance that this litigation will be resolved in the Company's
favor. An adverse result or prolonged litigation could have a material adverse
effect on the Company's financial position or results of operation. See
"Business-Legal Proceedings."

CONTROL BY EXISTING MANAGEMENT AND STOCKHOLDERS; VOTING AGREEMENT AMONG CERTAIN
STOCKHOLDERS

The Company's directors, executive officers and holders of more than 5%
of the Common Stock beneficially own approximately 31.9% (26.8% after giving
effect to the Merger Share Distribution) of the outstanding shares of Common
Stock. In addition, holders of approximately 28.9% of the outstanding shares of
Common Stock (25.4% after giving effect to the Merger Share Distribution) are
parties to a stockholders and voting agreement (the "Stockholders and Voting
Agreement") with the Company that provides for, among other things, the
nomination of certain individuals for election to the Board of Directors of the
Company (the "Board"). Pursuant to the Stockholders and Voting Agreement, each
of APLP, Energy Spectrum and DLB (or certain significant stockholders of DLB)
are entitled to nominate one person for election to the Board, subject to
maintaining certain ownership thresholds. Each of APLP, Energy Spectrum, DLB
(or, alternatively, certain significant stockholders of DLB), and Carl B.
Anderson, III are (or in the case of certain significant stockholders of DLB,
will be) obligated to vote all of their shares of Common Stock for the election
of such nominees. After the Merger Share Distribution, (i) DLB will no longer
be a party to the Stockholders and Voting Agreement, (ii) the three significant
stockholders of DLB, Mike Liddell, Mark Liddell and Charles E. Davidson (the
"DLB Group"), will be obligated to execute supplemental agreements to the
Stockholders and Voting Agreement and (iii) the DLB Group, rather than DLB, will
have the right to nominate one person to the Board and will be obligated to vote
all of its shares of Common Stock for the

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<PAGE> 15

election of such nominee and the other nominees named pursuant to the
Stockholders and Voting Agreement. Accordingly, if all stockholders who are
currently party to the Stockholders and Voting Agreement (other than DLB) and
the DLB Group were to act in concert after the consummation of the Merger Share
Distribution, they would be able to nominate up to three members of the Board
and exercise significant influence over the Company's affairs. The Stockholders
and Voting Agreement also requires that any transferee of stock from a party
thereto (other than pursuant to the Merger Share Distribution and sales into the
public market) be bound by the terms thereof as a condition precedent to such
transfer. See "Principal and Selling Stockholders" and "Certain Relationships
and Related Transactions -- Stockholders and Voting Agreement."

GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS

The domestic oil and gas industry is affected from time to time in varying
degrees by political developments and federal, state and local laws and
regulations. In particular, oil and gas production, operations and economics
are or have been affected by price controls, taxes and other laws relating to
the oil and gas industry, by changes in such laws and by changes in
administrative regulations. Except for the handling of solid wastes directly
generated from the operation and maintenance of the Company's drilling rigs,
such as waste oils and wash water, it is the Company's practice to require its
customers to contractually assume responsibility for compliance with
environmental regulations. However, the Company's operations are vulnerable to
certain risks arising from the numerous environmental health and safety laws and
regulations. These laws and regulations may restrict the types, quantities and
concentration of various substances that can be released into the environment in
connection with drilling activities, require reporting of the storage, use or
release of certain chemicals and hazardous substances, require removal or
cleanup of contamination under certain circumstances, and impose substantial
civil liabilities or criminal penalties. Environmental laws and regulations may
impose strict liability, rendering a person liable for environmental damage
without regard to negligence or fault, and could 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. Moreover, there has been a trend in recent years toward stricter
standards in environmental, health and safety legislation and regulation which
is likely to continue.

The Company has made and will continue to make expenditures to comply with
governmental regulations, including environmental, health and safety
requirements. As part of the Bonray Acquisition, the Company acquired an
equipment yard which may require certain expenditures or remedial actions for
the removal or cleanup of contamination. In exchange for a $1 million cash
payment to the Company at closing, the Company did not require DLB to indemnify
the Company with respect to such expenditures or remedial actions. While the
Company has not yet determined whether and to what extent such expenditures or
remedial actions may be necessary or advisable, based on the presently available
information, the Company does not believe that such expenditures will exceed $1
million. There can be no assurance, however, that the Company will not incur
material liability with respect to this property or any of the Company's other
properties or operations. The Company cannot predict how existing laws and
regulations may be interpreted by enforcement agencies or court rulings, whether
additional laws and regulations will be adopted, or the effect such changes may
have on the Company's business, financial condition or results of operations.
Because the requirements imposed by such laws and regulations are subject to
change, the Company is unable to forecast the ultimate cost of compliance with
such requirements. The modification of existing laws and regulations or the
adoption of new laws or regulations curtailing exploratory or development
drilling for oil and gas for economic, political, environmental or other reasons
could have a material adverse effect on the Company by limiting drilling
opportunities. See "Business -- Government Regulation and Environmental
Matters."

RISKS ASSOCIATED WITH FOOTAGE AND TURNKEY DRILLING

The Company in the past has performed drilling services under footage and
turnkey contracts and may enter into such arrangements in the future. Revenues
from footage contracts accounted for

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<PAGE> 16

approximately 2% of total revenues during the nine months ended September 30,
1997 and the Company had no turnkey contracts during such period. Under
footage contracts, the Company is paid a fixed amount for each foot drilled,
regardless of the time required or the problems encountered in drilling the
well. Under turnkey drilling contracts, the Company contracts to drill a well
to an agreed depth under specified conditions for a fixed price, regardless of
the time required or the problems encountered in drilling the well. In
addition, the Company provides technical expertise and engineering services, as
well as most of the equipment required for the well, and is compensated only
when the contract terms have been satisfied. On a turnkey well, the Company
often subcontracts for related services and manages the drilling process. The
risks to the Company under footage and turnkey contracts are substantially
greater than under daywork contracts because the Company assumes most of the
risks associated with drilling operations that in a daywork contract are
generally assumed by the operator, including risk of blowout, loss of hole,
stuck drill pipe, machinery breakdowns, abnormal drilling conditions and risks
associated with subcontractors' services, supplies, cost escalation and
personnel. While the Company's current strategy is to operate primarily under
daywork contracts, management continually analyzes market conditions, customer
requirements, rig demand and the experience of its personnel to determine how
to most profitably contract its fleet. If the Company were to encounter less
favorable conditions within its industry, competitive pressures and customer
demands might require it to consider entering into a larger number of footage
and turnkey drilling contracts. Accordingly, there can be no assurance that
the Company will not suffer a loss that is not insured as a result of entering
into such contracts, and any such uninsured loss could have a material adverse
effect on the Company's financial position and results of operations. See
"Business -- Contract Drilling Operations."

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of shares of Common Stock by the Company or its existing
stockholders could adversely affect the market price of the Common Stock. As of
January 31, 1998, the Company had 18,183,945 shares of Common Stock outstanding.
Additionally, as of such date, (i) options for the purchase of 806,600 shares of
Common Stock had been granted to certain employees of the Company pursuant to
the Employee Stock Plan, (ii) options for the purchase of 75,000 shares of
Common Stock had been granted to certain non-employee directors of the Company
pursuant to the Director Stock Plan and (iii) 397,000 shares of Common Stock
were subject to outstanding warrants issued by the Company. The exercise prices
of some of these options and warrants are lower than the recent trading prices
of the Common Stock. In addition, certain outstanding Subordinated Notes are
convertible, solely at the Company's option, into shares of Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Certain Relationships and
Related Transactions -- Certain Financing Arrangements -- Common Stock and
Subordinated Notes."

The Company may in the future issue significant amounts of Common Stock
or options or warrants to acquire Common Stock under stock option plans or to
finance capital projects, including acquisitions of rigs and related equipment.
Of the outstanding shares, the 11,040,000 shares sold in the Initial Public
Offering and the 2,955,000 shares that are the subject of the Merger Share
Distribution will be freely tradeable without restrictions or further
registration under the Securities Act, except for shares purchased by or
distributed to an "affiliate" (as defined in the Securities Act) of the Company.
Following the consummation of the Merger Share Distribution and the expiration
of the lock-up

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<PAGE> 17

agreements with the underwriters executed in connection with the Initial Public
Offering, each of the Company's directors and executive officers and each of its
existing stockholders who hold restricted shares, who hold (as a group) an
aggregate of approximately 23% of the outstanding shares of Common Stock, may
sell such shares subject to the requirements of Rule 144 under the Securities
Act or pursuant to the terms of a registration rights agreement. See "Certain
Relationships and Related Transactions" and "Shares Eligible for Future Sale."
The Company is also a party to certain registration rights agreements pursuant
to which it has granted demand and piggyback registration rights which, as of
December 31, 1997 covered an aggregate of up to 8,139,125 shares of Common
Stock and Common Stock Equivalents. The beneficiaries of these agreements
include DLB, Energy Spectrum, APLP, the Oliver Companies (as defined in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations") and certain of their affiliates, Ward and certain of its
transferees, Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Carl
B. Anderson, III, James E. Brown, Edward S. Jacob, III, David E. Grose and
certain other parties. The terms of these agreements prohibit the exercise of
such registration rights for a period of 180 days following the date of the
Initial Public Offering, subject to certain exceptions. Additionally, the
Company intends to file registration statements on Form S-8 covering the
issuance of shares of Common Stock pursuant to the Employee Stock Plan and the
Director Stock Plan (collectively, the "Company Stock Plans") within 180 days
after completion of the Initial Public Offering. Accordingly, shares of Common
Stock registered pursuant to the Company's registration rights agreements or
issued pursuant to the Company Stock Plans will be available for sale in the
public market without restriction or limitation under the Securities Act, except
for any shares held by an "affiliate" of the Company. No prediction can be made
as to the effect, if any, that future sales of shares, the issuance or exercise
of options, warrants or other securities convertible into Common Stock, or the
availability of shares for sale will have on the market price for Common Stock
prevailing from time to time. Sales of a substantial amount of Common Stock, or
a perception that such sales could occur, could adversely affect the prevailing
market price of the Common Stock and could impair the Company's ability to raise
additional capital through the sale of equity securities.

SUPERIOR RIGHTS OF PREFERRED STOCK

The Company is authorized to issue preferred stock. The Board,
without stockholder approval, may issue shares of the preferred stock with
rights and preferences adverse to the voting power or other rights of the
holders of the Common Stock. No preferred stock has been issued. See
"Description of Capital Stock -- Preferred Stock."

EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS

The Restated Certificate of Incorporation of the Company (the
"Certificate") (i) contains a "fair price" provision, (ii) does not permit
stockholders to act by written consent, (iii) does not permit stockholders to
call special meetings of stockholders, (iv) requires certain procedures to be
followed and time periods to be met for any stockholder to propose matters to
be considered at annual meetings of stockholders, including nominating
directors for election at those meetings, (v) limits the ability of
stockholders to interfere with the power of the Board in other specified ways,
(vi) requires supermajority votes to amend any of the preceding provisions and
(vii) authorizes the Board to issue up to 20,000,000 shares of preferred stock
without stockholder approval and to set the rights, preferences, and other
designations, including voting rights, of those shares as the Board may
determine. See "Description of Capital Stock -- Certain Provisions of the
Certificate and Bylaws." These provisions, alone or in combination with each
other, may discourage, hinder, delay or prevent transactions involving actual
or potential changes of control of the Company, including transactions that
otherwise could involve payment of a premium over prevailing market prices to
holders of Common Stock. The Company is also subject to provisions of the
Delaware General Corporation Law (the "DGCL") that may make some business
combinations more difficult. See "Description of Capital Stock -- Delaware
Anti-Takeover Statute."

17
<PAGE> 18

PLAN OF DISTRIBUTION

BACKGROUND

Chesapeake, Merger Sub and DLB have entered into the Merger Agreement which
provides that, upon the terms and subject to the conditions set forth therein,
Merger Sub will merge with and into DLB, with DLB continuing as the surviving
corporation. The registration of the Shares is being effected to comply with
DLB's obligations under the Merger Agreement.

Pursuant to the Merger Agreement, at the Effective Time, each outstanding
share of DLB Stock (other than outstanding shares held by dissenting
shareholders and other shares to be canceled pursuant to the Merger Agreement)
will be converted into the right to receive approximately (i) $1.35 in cash,
(ii) 0.3854 share of Chesapeake Stock,(iii) 0.2277 share of Common Stock owned
by DLB immediately prior to the Effective Time, (iv) a contingent right to
receive a pro rata share of the net cash proceeds from the sale of assets of an
affiliate of DLB and (v) a contingent right to receive a pro rata share of
certain net distributions related to the liquidation of WRT. The foregoing per
share amounts are based on the assumption that there will be 12,975,000 shares
of DLB Common Stock outstanding immediately prior to the Effective Time. To the
extent outstanding options to acquire up to 1,713,750 shares of DLB Stock are
exercised prior to the Effective Time, the Merger Consideration will be
proportionately reduced. If all such options were exercised by the payment of
the exercise price in cash, the non-contingent portion of the consideration
received per share of DLB Stock would be (i) $1.19 in cash, (ii) 0.3404 share of
Chesapeake Stock and (iii) 0.2012 share of Common Stock. In addition, the number
of shares of Common Stock that any holder of DLB Stock would otherwise be
entitled to receive will be rounded to the nearest whole number of shares of
Common Stock, and in no event will the number of shares of Common Stock subject
to issuance as Merger Consideration exceed the number of shares of Common Stock
owned by DLB immediately prior to the Effective Time. For a more complete
description of the terms of the Merger Agreement and the values attributed by
DLB to the Merger Consideration, as well as the terms of the WRT Spin-Off, see
the Information Statement/Prospectus which is delivered to each DLB Stockholder
and to which this Prospectus is attached as Annex D.

MANNER OF EFFECTING MERGER SHARE DISTRIBUTION

Pursuant to the Merger Agreement, the Shares will be transferred to the DLB
stockholders of record as of immediately prior to the Effective Time. The
Shares represent a portion of the Merger Consideration that will be paid in the
Merger. As a result of the Merger, each DLB stockholder will receive for each
share of DLB Stock held, that number of Shares represented by the Merger Share
Distribution Ratio. No fractional shares of Common Stock will be distributed in
the Merger Share Distribution. The number of shares of Common Stock that any
holder of DLB Stock would otherwise be entitled to receive will be rounded to
the nearest whole number of such shares. All calculations and percentages set
forth in this Prospectus regarding ownership of shares of Common Stock upon
consummation of the Merger Share Distribution assume a Merger Share Distribution
Ratio of 0.2277. See "--Background." Prior to the Effective Time, DLB shall
deposit with the Exchange Agent certificates representing the Shares, which
Shares will be held in escrow by the Exchange Agent until the expiration of the
Lock-up Period. All of the Shares to be transferred in the Merger Share
Distribution will be fully paid, nonassessable and free of preemptive rights.

After the Effective Time, the Exchange Agent will mail to each holder of
record of DLB Stock, as of immediately prior to the Effective Time, a letter of
transmittal to be used to effect the Merger Share Distribution, together with
instructions for completing such letter of transmittal. The letter of
transmittal, together with the instructions thereto, will specify the manner of
delivery to the Exchange Agent of stock certificates representing shares of DLB
Stock.

Upon surrender to the Exchange Agent for cancellation of a stock
certificate which prior thereto represented DLB Stock, properly endorsed, with
signature guaranteed or otherwise in proper form for transfer, accompanied by a
duly completed and executed letter of transmittal and any other required
documents as specified in the letter of transmittal, together with the
instructions thereto, a holder of DLB Stock will be entitled to a certificate
representing that number of shares of Common Stock determined in

18
<PAGE> 19

accordance with the Merger Share Distribution Ratio, rounded to the nearest
whole number. Certificates for the Common Stock will not be distributed by the
Exchange Agent until May 3, 1998, the date of the expiration of the Lock-up
Period. No holder will be required to pay any cash or other consideration for
the shares of Common Stock received in the Merger Share Distribution nor will
any action be required to be taken by any holder in order to receive shares of
Common Stock, except as described above.

LISTING AND TRADING OF COMMON STOCK

The Common Stock is listed for trading on the AMEX under the symbol
"BDI." The transfer agent and registrar for the Common Stock is Norwest Bank
Minnesota, N.A.

The Common Stock has been publicly traded since November 4, 1997. The
extent of the trading market for the Common Stock and the prices at which the
Common Stock may trade prior to or after the Merger Share Distribution cannot be
predicted. See "Risk Factors -- Limited History of a Public Market for and
Volatility of the Price of the Common Stock."

The Shares transferred in the Merger Share Distribution will be freely
transferable, except for Shares received by persons who may be deemed to be
"affiliates" of the Company under the Securities Act. Persons who may be deemed
to be affiliates of the Company after the Merger Share Distribution generally
include individuals or entities that control, are controlled by or are under
common control with the Company and may include certain officers and directors
of the Company as well as principal stockholders of the Company.

REASON FOR FURNISHING THIS PROSPECTUS

This Prospectus is being furnished in order to provide information for
holders of DLB Stock, each of whom will receive shares of Common Stock in the
Merger Share Distribution. The registration of the Merger Share Distribution
pursuant to the Securities Act is being effected at the request of DLB, in
accordance with a registration rights agreement which, among other things,
obligates the Company to register a transaction resulting in the transfer of the
Shares to the shareholders of DLB. The Company estimates that the total costs
and expenses of the Merger Share Distribution will be approximately $65,000 all
of which will be borne by the Company. Neither the Registration Statement nor
this Prospectus is to be construed as an inducement or encouragement to buy or
sell any securities of the Company, DLB, Chesapeake or any other corporation.
The information contained herein is provided as of the date of this Prospectus
unless otherwise indicated. For more information regarding the Merger, the
Merger Agreement and the Merger Share Distribution, see the Information
Statement/Prospectus.

19
<PAGE> 20

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

PRICE RANGE OF COMMON STOCK

The initial price to the public for the Common Stock was $23 per share.
The range of the reported per share sale prices on the AMEX for the Common Stock
for the period between November 4, 1997 (the first trading day following the
Initial Public Offering) and March 27, 1998 was a high of $28 1/4 and a low
of $11 1/8. During such period there have been no dividends paid on the Common
Stock. As of March 27, 1998, there were approximately 50 holders of record of
the Common Stock and 18,183,945 shares of Common Stock outstanding. The last
reported sale price of the Common Stock on March 27, 1998, as reported on the
AMEX, was $16 1/4.

DIVIDEND POLICY

The Company currently intends to retain all available earnings
generated by its operations for the development and growth of its business and
does not anticipate paying any cash dividends on its Common Stock in the
foreseeable future. Future dividend policy will be made by the Board and will
depend on a number of factors, including the Company's earnings, capital
requirements, financial condition and business prospects and such other factors
as the Board may deem relevant. The payment of cash dividends on Common Stock
is restricted under the terms of the Term Loan and the Revolving Loan. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

20
<PAGE> 21

CAPITALIZATION

The following table sets forth the capitalization of the Company at
September 30, 1997 (i) on an historical basis and (ii) on an as adjusted basis
after giving effect to the issuance of shares pursuant to the Bonray
Acquisition, the Chesapeake Transactions and the CIT Exercise and the Initial
Public Offering and the application of the net proceeds therefrom. The table
should be read in conjunction with "Pro Forma Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company and
related notes included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------------
HISTORICAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Cash and investments . . . . . . . . . . . . . . . . . . . . . . . . $ 812 $ 55,799
========== ========

Current portion of long-term debt . . . . . . . . . . . . . . . . . . $ 14,589 $ 1,373
---------- --------
Long-term debt:
Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,583 15,499(1)
Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . 16,776 2,060(1)
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 635
---------- --------
Total long-term debt . . . . . . . . . . . . . . . . . . . 40,359 18,194
---------- --------
Stockholders' equity:
Preferred Stock, par value $0.01 per
share; no shares outstanding . . . . . . . . . . . . . . . . . . -- --
Common Stock, par value $0.01 per
share; 7,588,000 shares outstanding, historical; and
18,176,050 shares outstanding as adjusted(2) . . . . . . . . . . 76 180
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 47,791 179,059
Retained earnings (accumulated deficit) . . . . . . . . . . . . . . 629 (4,727)
---------- --------
Total stockholders' equity . . . . . . . . . . . . . . . . 48,496 174,512
---------- --------
Total capitalization . . . . . . . . . . . . . . . . . . . $ 103,444 $194,079
========== ========
</TABLE>

__________

(1) The Company used a portion of the net proceeds from the Initial Public
Offering (completed in November 1997) to repay $6 million outstanding
under the Revolving Loan and the portion of the Subordinated Notes
held by Chesapeake. Although the Company intended to repay 50% of the
amount outstanding under the Term Loan, the Company and its lenders
have recently agreed to certain changes to their existing credit
arrangements. In particular, CIT has agreed to terminate a pending
sale and lease back arrangement pursuant to which the Company would
have been required to finance, over a period of up to 7 years, the cost
of two rigs aggregating approximately $7.5 million. In exchange, the
Company has agreed that it will prepay only 25% of the borrowings
outstanding under the Term Loan (resulting in a decrease of
approximately $6 million in the amount to be prepaid). The Company
believes that the foregoing changes to its credit arrangements with CIT
are beneficial because, among other things, they reduce the term for
which its financial commitments to CIT will continue in place, without
materially increasing the total amount of financing provided to the
Company by CIT. As of February 28, 1998, no borrowings were outstanding
under the Revolving Loan, and approximately $26 million was outstanding
under the Term Loan. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Certain Relationships and Related Transactions --
Chesapeake Transactions."

(2) Does not include (i) 806,600 shares of Common Stock subject to issuance
pursuant to outstanding options awarded under the Employee Stock Plan,
(ii) 75,000 shares of Common Stock subject to issuance pursuant to
options awarded under the Director Stock Plan or (iii) 412,000 shares
of Common Stock subject to issuance pursuant to outstanding warrants
issued by the Company (of which 7,895 shares of Common Stock have been
issued after September 30, 1997 as a result of the exercise (on a
net exercise basis) of warrants for the purchase of 15,000 shares of
Common Stock). See "Management -- 1997 Stock Option and Stock Award
Plan," "-- 1997 Non-Employee Directors' Stock Option Plan" and "Certain
Relationships and Related Transactions."

21
<PAGE> 22

PRO FORMA CONSOLIDATED FINANCIAL DATA

The following unaudited pro forma financial statements are derived
from the historical financial statements of Bayard, Trend, Ward and Bonray
included elsewhere in this Prospectus. The Pro Forma Combined Statements of
Operations for the nine months ended September 30, 1997 and for the year ended
December 31, 1996 reflect (a) in the column entitled "combined," (i) the Trend
Acquisition (acquired on May 1, 1997 and accounted for as a purchase), (ii) the
Ward Acquisition (acquired on May 30, 1997 and accounted for as a purchase),
(iii) the Bonray Acquisition (acquired on October 16, 1997 and accounted for as
a purchase) and (iv) the May Financing (as defined in "Management's Discussion
and Analysis of Financial Condition and Results of Operations") related to the
Trend and Ward acquisitions and (b) in the column entitled "as adjusted," the
consummation of, and application of proceeds from, the Initial Public Offering
as if all such transactions occurred on January 1, 1996. The Pro Forma Balance
Sheet at September 30, 1997 reflects the consummation of, and application of
proceeds from, the Chesapeake Transactions, the CIT Exercise, the Bonray
Acquisition and the Initial Public Offering as if they had occurred on
September 30, 1997. The unaudited pro forma combined financial information
should be read in conjunction with the notes thereto and the historical
financial statements of Bayard, Trend, Ward and Bonray, including the notes
thereto, which are included elsewhere in this Prospectus.

The unaudited pro forma combined financial statements do not purport
to be indicative of the results of operations that would actually have occurred
if the transactions described had occurred as presented in such statements or
that may occur in the future. In addition, future results may vary
significantly from the results reflected in such statements due to general
economic conditions, oil and gas commodity prices, the demand and prices for
contract drilling services, changes in the number of rigs available for
service, the Company's ability to successfully integrate the operations of
Trend, Ward and Bonray with its current business and several other factors,
many of which are beyond the Company's control. See "Risk Factors."

22
<PAGE> 23

BAYARD DRILLING TECHNOLOGIES, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------- ---------------------------------------------------
INITIAL
PUBLIC
ACQUISITION OFFERING
BAYARD TREND(A) WARD(A) BONRAY(A) ADJUSTMENTS COMBINED ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES . . . . . . . . . $ 9,853 $15,692 $11,385 $11,022 $ -- $47,952 $ -- $47,952
------- ------- ------- ------- ------- ------- ------ -------
COSTS AND EXPENSES:
Drilling costs . . . . . 7,653 11,752 9,891 8,731 -- 38,027 -- 38,027
Depreciation and
amortization . . . . . 1,126 1,603 966 1,229 1,806(b) 7,730 -- 7,730
1,000(c)
General and
administrative . . . . 658 1,647 485 846 -- 3,636 -- 3,636
Other operating . . . . . 46 -- -- -- -- 46 -- 46
------- ------- ------- ------- ------- ------- ------ -------
Total costs and
expenses . . . 9,483 15,002 11,342 10,806 2,806 49,439 -- 49,439
------- ------- ------- ------- ------- ------- ------ -------
Operating
income . . . . 370 690 43 216 (2,806) (1,487) -- (1,487)
------- ------- ------- ------- ------- ------- ------ -------
OTHER INCOME
(EXPENSE):
Interest income . . . . . -- 8 34 72 -- 114 -- 114
Interest expense and
financing costs . . . (11) (261) (72) (128) (2,928)(d) (3,400) 2,579(h) (821)
Gain (loss) on sale of
assets . . . . . . . . 54 2,055 8 (29) (1,738)(e) 350 -- 350
Other . . . . . . . . . . 17 53 67 -- -- 137 -- 137
------- ------- ------- ------- ------- ------- ------ -------
Total other
income
(expense) . . . 60 1,855 37 (85) (4,666) (2,799) 2,579 (220)
------- ------- ------- ------- ------- ------- ------ -------
Income (loss) before
taxes . . . . . . . . . . 430 2,545 80 131 (7,472) (4,286) 2,579 (1,707)
Income tax expense
(benefit) . . . . . . . . 17 981 -- 10 (1,008)(f) -- -- --
------- ------- ------- ------- ------- ------- ------ -------
Net income (loss) . . . . . $ 413 $ 1,564 $ 80 $ 121 $(6,464) $(4,286) $2,579 $(1,707)
======= ======= ======= ======= ======= ======= ====== =======
Earnings per share,
primary and fully
diluted . . . . . . . . . $ .04 $ (.30) $ (.11)
======= ======= =======
Weighted average shares
outstanding, primary and
fully diluted(g) . . . . 11,317 14,332 15,901
======= ====== ======
</TABLE>

The accompanying notes are an integral part of these pro forma financial
statements.

23
<PAGE> 24

BAYARD DRILLING TECHNOLOGIES, INC.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------- -----------------------------------------------
BAYARD TREND(A) WARD(A) BONRAY(A)
NINE MONTHS FOUR MONTHS FIVE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED INITIAL
PUBLIC
SEPTEMBER 30, APRIL 30, MAY 31, SEPTEMBER 30, ACQUISITION OFFERING AS
1997 1997 1997 1997 ADJUSTMENTS COMBINED ADJUSTMENTS ADJUSTED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES . . . . . . . $33,214 $6,390 $4,957 14,279 $ -- $ 58,840 $ -- $58,840

COSTS AND EXPENSES:
Drilling costs . . . 24,246 4,845 3,914 10,240 -- 43,245 -- 43,245
Depreciation and
amortization . . . 4,918 627 413 1,707 386(b) 8,551 -- 8,551
500(c)
General and
administrative . . 1,181 515 197 860 -- 2,753 -- 2,753
------- ------ ------ ------ ------- -------- ------ -------
Total costs and
expenses . . . 30,345 5,987 4,524 12,807 886 54,549 -- 54,549
------- ------ ------ ------ ------- -------- ------ -------
Operating income 2,869 403 433 1,472 (886) 4,291 -- 4,291
------- ------ ------ ------ ------- -------- ------ -------
OTHER INCOME
(EXPENSE):
Interest income . . . 68 -- 16 420 -- 504 -- 504
Interest expense and
financing costs . . (2,172) (47) (27) (471) (1,464)(d) (4,181) 2,907(h) (1,274)
Gain (loss) on sale of
assets . . . . . . 303 -- -- (57) -- 246 -- 246
Other . . . . . . . . 5 -- 31 (41)) -- (5) -- (5)
------- ------ ------ ------ ------- -------- ------ -------
Total other income
(expense) . . (1,796) (47) 20 (149) (1,464) (3,436) 2,907 (529)
------- ------ ------ ------ ------- -------- ------ -------
Income (loss) before
taxes . . . . . . . . 1,073 356 453 1,323 (2,350) 855 2,907 3,762
------- ------ ------ ------ ------- -------- ------ -------
Income tax expense
(benefit) . . . . . . 410 135 -- 563 (1,108)(f) -- 1,430(i) 1,430
------- ------ ------ ------ ------- -------- ------ -------
Net income (loss) . . . $ 663 $ 221 $ 453 $ 760 $(1,242) $ 855 $1,477 $ 2,332
======= ====== ====== ====== ======= ======== ====== =======
Earning per share,
primary and fully
diluted . . . . . . . $ .06 $ .06 $ .15
======= ======== =======
Weighted average shares
outstanding, primary
and fully diluted(g) 11,317 14,332 15,901
======= ======== =======
</TABLE>

The accompanying notes are an integral part of these pro forma financial
statements.

24
<PAGE> 25

BAYARD DRILLING TECHNOLOGIES, INC.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
ASSETS

HISTORICAL PRO FORMA
-----------------------------------------------------
BAYARD(L) BONRAY ADJUSTMENTS AS ADJUSTED
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and investments . . . . . . . . . . . $ 812 817 $ 54,170 (j) $ 55,799
Accounts receivable . . . . . . . . . . . . 13,610 4,186 -- 17,796
Other . . . . . . . . . . . . . . . . . . . 452 299 -- 751
--------- --------- ---------- --------
Total current assets . . . . . . . . . . 14,874 5,302 54,170 74,346
Property & Equipment, net . . . . . . . . . . 104,674 18,610 15,347 (k) 138,631
Notes receivable - parent . . . . . . . . . . -- 21,820 (21,820)(m) --
Goodwill, net . . . . . . . . . . . . . . . . 6,285 -- 5,684 (k) 11,969
Other . . . . . . . . . . . . . . . . . . . . 2,231 545 (545)(m) 2,231
--------- --------- ---------- --------
Total assets . . . . . . . . . . . . . . $ 128,064 $ 46,277 $ 52,836 $227,177
========= ========= ========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . $ 13,716 $ 1,529 $ -- $ 15,245

Accrued liabilities . . . . . . . . . . . . 3,817 1,265 -- 5,082
Current portion of long-term debt . . . . . 14,589 -- (13,216)(j) 1,373
--------- --------- ---------- --------
Total current liabilities . . . . . . . 32,122 2,794 (13,216) 21,700
--------- --------- ---------- --------
Long-term debt . . . . . . . . . . . . . . . 23,583 70 (8,154)(j) 15,499
--------- --------- ---------- --------
Subordinated Notes . . . . . . . . . . . . . 16,776 -- (14,716)(j) 2,060
--------- --------- ---------- --------
Notes payable . . . . . . . . . . . . . . . . -- 23,000 (22,365)(m) 635
--------- --------- ---------- --------
Deferred income tax liabilities . . . . . . . 7,087 2,030 3,654 (k) 12,771
--------- --------- ---------- --------
STOCKHOLDERS' EQUITY:
Common stock . . . . . . . . . . . . . . . 76 424 74 (j) 180
(394)(k)
Additional paid-in capital . . . . . . . . 47,791 17,146 95,538 (j) 179,059
18,584 (k)
Retained earnings (accumulated deficit) . . 629 813 (5,356)(j) (4,727)
(813)(k)
--------- --------- ---------- --------

Total stockholders' equity . . . . . . 48,496 18,383 107,633 174,512
--------- --------- ---------- --------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . . $ 128,064 $ 46,277 $ 52,836 $227,177
========= ========= ========= ========
</TABLE>

The accompanying notes are an integral part of these pro forma financial
statements.

25
<PAGE> 26

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(TABLES IN THOUSANDS)

(a) Represents the results of operations for Trend, Ward and Bonray prior
to their acquisition by Bayard. Operations subsequent to the date of
purchase of each of Trend and Ward, May 1 and May 30, 1997,
respectively, are included in the Bayard historical results.

(b) To adjust depreciation expense on assets acquired in the Trend, Ward
and Bonray Acquisitions using allocated purchase prices and based on
estimated useful lives of 15 years calculated on a straight-line
basis.

(c) To record amortization of goodwill attributable to the Trend and
Bonray Acquisitions over 15 years on a straight-line basis.

(d) To reflect the addition of interest expense on an aggregate principal
amount of $20.5 million of Subordinated Notes issued in the May
Financing with an original issue discount of $4 million.

(e) To eliminate the gain recognized by Trend on a rig sold to Bayard in
December 1996, prior to the Trend Acquisition in May 1997.

(f) To eliminate income tax expense recognized by Bayard, Trend and Bonray
to conform to the Company's pro forma income tax position.

(g) Calculations of weighted average shares outstanding are based upon the
following:

<TABLE>
<S> <C>
Shares outstanding at September 30, 1997 . . . . . . . . . . . . . . . . . . 7,588
Chesapeake Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,194
CIT Exercise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
Bonray Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,015
-------
Shares outstanding immediately prior to Initial Public Offering . . . . . . . 13,947
Common Stock Equivalents (treasury stock method) . . . . . . . . . . . . . . 385
-------
Historical and combined fully diluted shares outstanding . . . . . . . . . . 14,332
Shares issued in the Initial Public Offering to the extent necessary to
repay the Subordinated Notes, the Term Loan and the
Revolving Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,569
-------
Pro forma shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 15,901
=======
</TABLE>

(h) To eliminate pro forma and historical interest expense based on the
assumed repayment of debt as set forth in Note (j) as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------------------------- --------------------------------------
PERCENTAGE PERCENTAGE
INCURRED REPAID* PRO FORMA INCURRED REPAID* PRO FORMA
<S> <C> <C> <C> <C> <C> <C>
Revolving Loan (historical) $ 0 100.0% $ 0 $ 280 100.0% $ 280
Term Loan (historical) . . . 22 50.0% 11 1,400 50.0% 700
Subordinated Notes (pro
forma) . . . . . . . . . . 2,928 87.7% 2,568 2,197 87.7% 1,927
------ ------ ------ ------
$2,950 $2,579 $3,877 $2,907
====== ====== ====== ======
</TABLE>

* Represents the percentage of debt to be repaid from proceeds
of the Initial Public Offering.

(i) To record a provision for federal and state income tax at the
statutory rate of 38%.

(j) To adjust for the Chesapeake Transactions and the CIT Exercise
(collectively, the "Stockholder Exercises"), the Initial Public
Offering and the application of the net proceeds therefrom:

26
<PAGE> 27

<TABLE>
<S> <C>
Net proceeds from the Initial Public Offering . . . . . . . . . . . . . . . . . . . $ 84,590
Stockholder Exercises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,023
----------
95,613
----------
</TABLE>

<TABLE>
<CAPTION>
BALANCE AT
SEPTEMBER 30, PERCENTAGE
1997 REPAID
<S> <C> <C> <C>
Less debt retired --
Term Loan . . . . . . . . . . . . . . . . . . . $ 28,547 50.0% 14,274
Revolving Loan . . . . . . . . . . . . . . . . 7,097 100.0% 7,096
Subordinated Notes . . . . . . . . . . . . . . 16,776 87.7%(1) 14,716
---------- -------
$ 52,420 36,086
Extraordinary loss on early extinguishment of debt . . . . . . . . . . . . . . . . 5,357
-------
41,443
-------
Net adjustment to cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $54,170
=======
</TABLE>

__________
(1) Represents repayment of Chesapeake's portion of the Subordinated Notes
($18 million of $20.52 million) as described under the caption
"Chesapeake Transactions."

(k) To reflect (i) the acquisition of Bonray and the issuance of 3,015,000
shares of Common Stock at $11.86 per share based on the appraisals of
the fair market value of the property and equipment acquired of $35
million, (ii) the allocation of the purchase price as shown below and
(iii) deferred income taxes related to the book/tax differences in the
basis of property and equipment:

<TABLE>
<S> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,591
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,976
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,261
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,733)
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (74)
Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,261)
-------
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,760
=======
</TABLE>

(l) On May 1, 1997, the Company completed the Trend Acquisition for $18
million in cash and 250,000 shares of Common Stock, which equates to
$10.64 per share based on the appraisals of the fair market value of
the property and equipment acquired of $21.5 million. The Company
incurred costs of approximately $307,000 in connection with this
acquisition.

The Trend Acquisition was accounted for as a purchase. The following
is an analysis of the allocation of the purchase price:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,734
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,532
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,330
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,265)
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,340)
Deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . (6,330)
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,661

</TABLE>

On May 30, 1997, pursuant to the Ward Acquisition, the Company
acquired six drilling rigs for approximately $8 million in cash and
400,000 shares of Common Stock which equates to $8.95 per share based
on the appraisal of the fair market value of the assets acquired of
$11.9 million. The Company also issued warrants to purchase 200,000
shares of Common Stock at $10.00 per share. The warrants had an
estimated fair market value of $294,000 at the closing date of the
Ward Acquisition and was recorded as an increase in property and
equipment and additional paid in capital.

27
<PAGE> 28

(m) To eliminate (i) notes receivable, (ii) notes payable and
(iii) loan origination fees related to a certain Credit
Agreement, by and between Lehman Commercial Paper, Inc. and
Bonray, which was retained by DLB in connection with the
Company's acquisition of Bonray.

28
<PAGE> 29

SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA

The historical financial data presented in the table below for and at
the end of each of the years in the five- year period ended December 31, 1996
are derived from the financial statements of the Company and relate to the
operations of Anadarko, the predecessor of the Company, and include, generally,
the financial results of the operation of eight rigs.

The financial statements for the years ended December 31, 1994, 1995
and 1996 have been audited by Grant Thornton LLP, independent certified public
accountants. The historical financial data presented in the table below for
and at the end of the nine month periods ended September 30, 1997 and 1996 are
derived from the unaudited consolidated financial statements of the Company.
In the opinion of management of the Company, such unaudited consolidated
condensed financial statements include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial data
for such periods. The results for the nine months ended September 30, 1997 are
not necessarily indicative of the results to be achieved for the full year.

The data presented below should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
DATA:
Revenues:
Contract drilling . . . . . . . . . $9,368 $ 8,349 $ 9,910 $ 7,405 $ 9,793 $ 6,728 $ 33,214
Other . . . . . . . . . . . . . . . -- -- -- 303 60 59 --
------ ------- ------- ------- -------- ---------- --------
Total revenues . . . . . . . . 9,368 8,349 9,910 7,708 9,853 6,787 33,214
------ ------- ------- ------- -------- ---------- --------
Operating expense:
Drilling . . . . . . . . . . . . . 7,835 7,690 8,572 6,075 7,653 5,244 24,246
Depreciation, depletion and
amortization . . . . . . . . . . 988 1,374 1,557 791 1,126 727 4,918
General and administrative . . . . 651 819 786 880 658 473 1,181
Other . . . . . . . . . . . . . . . -- -- -- 47 46 -- --
------ ------- ------- ------- -------- ---------- --------
Total operating costs . . . . . 9,474 9,883 10,915 7,793 9,483 6,444 30,345
------ ------- ------- ------- -------- ---------- --------
Operating income (loss) . . . . . . . (106) (1,534) (1,005) (85) 370 343 2,869
------ ------- ------- ------- -------- ---------- --------
Other income and (expense):
Interest expense and financing cost (8) (30) (18) (3) (11) -- (2,172)
Interest income . . . . . . . . . . -- -- -- -- -- -- 68
Gain (loss) on sale of assets . . . -- -- 366 (131) 54 -- 303
Other income (expense) . . . . . . 90 24 -- (3) 17 17 5
------ ------- ------- ------- -------- ---------- --------
Income (loss) before income taxes . . (24) (1,540) (657) (222) 430 360 1,073
Income tax expense(1) . . . . . . . . -- -- -- -- 163 137 410
------ ------- ------- ------- -------- ---------- --------
Net income (loss) . . . . . . . . . . $ (24) $(1,540) $ (657) $ (222) $ 267 $ 223 $ 663
======= ======= ======= ======= ======== ========== ========
Earnings (loss) per common share:
primary and fully diluted . . . . . . $ .02 $ .02 $ .06
======== ========= ========

Weighted average shares
outstanding(2): fully diluted . . . . 11,317 11,317 11,317
CASH FLOWS:
Operating activities . . . . . . . . $ (786) $ (51) $ 445 $ 310 $ (462) $ 589 $ 7,212
Investing activities . . . . . . . . (1,352) (1,671) (454) (1,710) (10,441) (6,363) (75,059)
Financing activities . . . . . . . . 2,138 1,722 9 1,400 15,866 5,774 62,966
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . . $6,858 $ 6,791 $ 6,149 $ 8,054 $ 34,673 $ 14,339 $128,064
Working capital (deficit), excluding
current portion of long-term debt . 826 711 802 12 4,974 828 (2,659)
Total long-term debt, including
current portion . . . . . . . . . . 408 365 -- -- 7,000 -- 54,948
BALANCE SHEET DATA
Total stockholders' equity(3) . . . . (6,875) (913) (54) (276) 26,251 402 48,496
OTHER FINANCIAL DATA:
EBITDA(4) . . . . . . . . . . . . . . $ 882 $ (160) $ 552 $ 706 $ 1,496 $ 1,070 $ 7,787
Capital expenditures . . . . . . . . 1,352 1,671 1,183 2,088 10,578 6,499 83,101
</TABLE>

29
<PAGE> 30

<TABLE>
<CAPTION>
Nine Months Ended
YEAR ENDED DECEMBER 31, September 30,
-------------------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT RIG AND DAY RATE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
DRILLING RIG ACTIVITY DATA
(UNAUDITED):
Total rigs at end of period . 7 8 7 8 17 8 41
Marketed rigs at end of
period . . . . . . . . . . 7 8 7 8 8 8 34
Average utilization rate of
drilling rigs available for
service(5) . . . . . . . . 77% 71% 84% 86% 88% 87% 94%
Average revenues per day(6) . 4,020 $ 4,332 $4,148 4,298 $ 4,731 $ 4,678 $ 5,740

</TABLE>

__________

(1) Income tax expense is presented on a pro forma basis (assuming a 38%
statutory rate) for the year ended December 31, 1996 and for the nine
months ended September 30, 1996.

(3) No dividends were declared through September 30, 1997. See "Dividend
Policy."

30
<PAGE> 31

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

The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Company and notes thereto included
elsewhere in this Prospectus.

GENERAL

The Company's operations have been and will be significantly affected
by the Consolidation Transactions which have transformed the Company from a
regional competitor with ten rigs in late 1996 to its current position of
operating the fifth largest land drilling fleet in the United States, with a
total of 54 rigs. The historical financial results presented herein include
the effects of the Formation Transactions (16 rigs), the Trend Acquisition (14
rigs), the Ward Acquisition (six rigs) and the Individual Rig Acquisitions (six
rigs), only for the periods after such transactions. The Bonray Acquisition
(13 rigs) was completed after September 30, 1997, and therefore the historical
financial results presented herein do not reflect the effects of such
transaction. In addition, the historical financial results include periods in
which a number of rigs were being refurbished and did not contribute to
revenues. Accordingly, the Company does not believe that the historical
statements of operations presented herein are necessarily indicative of the
Company's future operating results, particularly in light of the magnitude of
its recent acquisitions and rig refurbishment projects and the increased demand
and contract rates for drilling rigs in its core Mid-Continent and Gulf Coast
regions. See "Business -- Formation and Other Transactions."

DOMESTIC LAND DRILLING INDUSTRY OVERVIEW

Demand for the Company's contract land drilling services is
substantially dependent upon, and affected by, the level of domestic oil and
gas exploration and development activity. Industry sources estimate that from
its peak in 1982, the supply of domestic rigs has fallen as a result of normal
attrition, cannibalization of components to refurbish rigs, the inability of
smaller competitors to raise capital needed to upgrade and modernize rigs and
the export of rigs to international markets. As a result of these factors, the
contract land drilling industry has been cyclical with significant volatility
in profitability and rig values.

The Company's operating margins are influenced by contract drilling
rates, operating costs and drilling rig utilization. The land drilling
industry is experiencing higher utilization, increased day rates and improved
financial performance as a result of the long term decline in the supply of
rigs and increased demand for rigs attributable to improved oil and gas
industry fundamentals. In addition, the industry is experiencing a period of
rapid consolidation as larger, better-capitalized drilling companies have
acquired smaller operators. The convergence of land drilling rig supply and
demand in its core domestic markets, along with the acquisition and
refurbishment of rigs, has contributed to higher utilization, increased day
rates and improved financial results for the Company in recent periods.

Although the Company believes that improved technologies and stable
oil and gas prices have contributed to increased activity in the exploration and
production sector during 1997, there has been a general decline in oil and gas
prices in recent months and there can be no assurance that such decline will not
continue. The recent decline in oil prices has caused the Company's rig
utilization rates to decrease in recent periods. In addition, ongoing movement
or reactivation of land drilling rigs (including the movement of rigs from
outside the United States into domestic markets) or new construction of drilling
rigs could increase rig supply and adversely affect contract drilling rates and
utilization levels. The Company cannot predict the future level of demand for
its contract drilling services, future conditions in the contract drilling
industry or future contract drilling rates.

FINANCIAL CONDITION AND LIQUIDITY

Since December 1996, the Company has completed the Formation
Transactions, the Trend Acquisition, the Ward Acquisition, the Bonray
Acquisition, the Individual Rig Acquisitions and the Oliver Acquisition. The
Formation Transactions involved the issuance of an aggregate of 5,600,000
shares of Common Stock in consideration for the contribution to the Company of
16 rigs and $10 million in cash. At the time of the Formation Transactions,
the Company entered into a $24 million term loan facility with CIT, principally
for the refurbishment of certain of the Company's rigs. In May 1997,
contemporaneously with the Trend Acquisition and in anticipation of the Ward
Acquisition, the Company completed a financing transaction in which it (i)
issued to Chesapeake and Energy Spectrum additional shares of Common Stock, and
two series of warrants together with subordinated notes due May 1, 2003 (the
"Subordinated Notes") for $28.5 million in cash and (ii) increased the
availability under its debt facilities from $24 million to $40.5 million
(collectively, the "May Financing"). In addition, the Company obtained the
right, exercisable solely at the Company's option at any time on or prior to
April 30, 1998, to require Chesapeake to provide an additional $3 million in
cash in exchange for the issuance to Chesapeake of additional shares of Common
Stock, Subordinated Notes and warrants to purchase

31
<PAGE> 32

Common Stock. The Company later waived this right in connection with the
Chesapeake Transactions. See "Certain Relationships and Related Transactions
- --Chesapeake Transactions."

The Company is currently negotiating with a commercial bank to
establish a new revolving credit facility of approximately $50 million. A
commitment letter and term sheet are being reviewed by the Company with due
diligence in progress. This commitment is subject to the signing of a
definitive credit agreement and amendment of certain provisions of the existing
credit agreements governing the Term Loan.

The Company's principal requirements for capital, in addition to the
funding of ongoing contract drilling operations, have been capital
expenditures, including the refurbishment of existing rigs and acquisitions.
From December 1996 through September 30, 1997, the Company spent $20.7 million
on the Trend Acquisition, $11.9 million on the Ward Acquisition, $5.5 million
on the Individual Rig Acquisitions and approximately $45.5 million on
refurbishments and other related equipment purchases, including drill pipe. As
a result, the Company's net property and equipment increased from $27 million
at December 31, 1996 to $105 million at September 30, 1997. The Company's
principal sources of liquidity have been the issuance of Common Stock, warrants
to purchase Common Stock, the Subordinated Notes and borrowings under a $30.5
million term loan facility (the "Term Loan") between the Company, CIT and Fleet
Capital Corporation ("Fleet") and a $10 million revolving loan facility (the
"Revolving Loan") between Fleet and the Company (collectively, the "Loan
Agreements").

The most significant change in the Company's balance sheet from
December 31, 1996 to September 30, 1997 was a $77.7 million increase in net
property and equipment. During this same period, long-term debt, net of
current maturities, increased by $34.3 million and stockholders' equity
increased by $22.2 million. These changes are a direct result of the
acquisition and financing transactions described herein.

From December 31, 1996 to September 30, 1997, the Company's working
capital position declined by $21.3 million to a deficit of $17.2 million. This
decline was primarily the result of a $13.6 million increase in current
maturities of long-term debt and a $4.9 million decrease in cash, as the
Company continued to invest in rig acquisitions and the refurbishment of rigs.

OPERATING ACTIVITIES

During the year ended December 31, 1996, the Company required $462,000
of cash to fund operating activities. This was the result of $1.5 million of
cash provided by operations, partially offset by changes in working capital
items that required $2 million of cash. Cash required for changes in working
capital items included (i) increase in accounts receivable of $2.1 million,
(ii) increase in other assets totaling $185,000 and (iii) decrease of $383,000
in accounts payable, which were partially offset by an increase of $663,000 of
other current liabilities.

During the nine months ended September 30, 1997, net cash provided
from operating activities totaled $8.6 million. The Company generated cash
from operations of $5.7 million and working capital changes provided $2.9
million.

INVESTING ACTIVITIES

During 1996, the Company invested $21.7 million in fixed assets, net
of asset sales. The major components of these expenditures were $10.4 million
of cash expenditures to acquire and refurbish five diesel electric SCR rigs and
$9.8 million of Common Stock issued to acquire rigs in the Formation
Transactions.

During the nine months ended September 30, 1997, the Company invested
$83.1 million in fixed assets, including the Trend Acquisition, the Ward
Acquisition and the Individual Rig Acquisitions. Rig refurbishments consisted
of $28.7 million, and $16.8 million was invested in drill pipe and other
drilling related equipment. The acquisitions of Trend and Ward were partially
funded through the issuance of Common Stock valued at $6.6 million.

FINANCING ACTIVITIES

During 1996, the Company raised $15.9 million from financing
activities. The Company borrowed $7 million during the year under the Term
Loan as described below. The Company also issued 3,600,000 shares of Common
Stock for assets and cash and made debt payments totaling $900,000 during the
year.

32
<PAGE> 33

During the nine months ended September 30, 1997, the Company obtained
$63 million from financing activities, including net borrowings under the Loan
Agreements totaling $31.3 million, $11.2 million from the issuance of Common
Stock and $20.5 million from the issuance of the Subordinated Notes and the
associated warrants. The proceeds from these transactions were used to fund
the Company's working capital requirements and capital expenditures as
discussed above.

Following is a summary of certain material terms of the Formation
Transactions, the Loan Agreements and the May Financing.

Formation Transactions. The Company was formed in December 1996
through a series of affiliated entity transactions in which the Company became
successor to Anadarko, the contract drilling subsidiary of privately held APLP.
In connection with the Formation Transactions (i) APLP contributed ten drilling
rigs in consideration for 2,000,000 shares of Common Stock, (ii) R.T. Oliver
Drilling, Inc. and Mike Mullen Energy Equipment Resource, Inc. and certain of
their affiliated companies (collectively, the "Oliver Companies") exchanged six
drilling rigs for 1,600,000 shares of Common Stock, (iii) Energy Spectrum
contributed $10 million in consideration for 2,000,000 shares of Common Stock
and (iv) Chesapeake entered into drilling contracts with two-year terms for six
of the Company's rigs in consideration for the grant by the Company of the an
option to purchase 2,000,000 shares of Common Stock (the "Chesapeake Option").
See "Business -- Formation and Other Transactions."

Loan Agreements. On December 10, 1996, the Company also entered into
the Term Loan. Subsequent to that date and in connection with the May
Financing, the Company increased the Term Loan from $24 million to $30.5
million. The Term Loan provides the Company up to approximately $30.5 million
of borrowing capacity for the purchase of additional land drilling rigs, the
refurbishment of such rigs and equipment and for working capital purposes. The
Company also entered into a Revolving Loan with Fleet in May 1997. The
Revolving Loan provides for revolving credit loans of up to $10 million, and is
being used for general corporate purposes. Amounts outstanding under the
Revolving Loan ($7.9 million at September 30, 1997) bear interest based on
Fleet's prime rate plus 1.5% (10.0% at September 30, 1997) and mature in April
2000. Amounts outstanding under the Term Loan ($28.5 million at September 30,
1997) bear interest, at the election of the Company, at floating rates equal to
Chase Manhattan Bank's prime rate plus 2.0% or the London Interbank Offered
Rate plus 4.25% (10% at September 30, 1997) and mature in March 2002. To date,
loans under the Revolving Loan and the Term Loan have been used for capital
expenditures and working capital requirements. The Loan Agreements are secured
by substantially all of the assets of the Company, including drilling rigs,
equipment and drilling contracts, and contain customary restrictive covenants
(including covenants restricting the ability of the Company to pay dividends
and encumber assets) and affirmative covenants to maintain specified financial
ratios.

May Financing. In order to fund the Trend Acquisition and the Ward
Acquisition, on May 1, 1997, the Company completed the May Financing in which
the Company issued shares of Common Stock, the Subordinated Notes and warrants
to purchase Common Stock to Chesapeake and Energy Spectrum in exchange for an
aggregate of $28.5 million in cash, as described below. In addition, the
Company modified the Term Loan and entered into the Revolving Loan as described
above.

In the May Financing, the Company issued 1,000,000 shares of Common
Stock to Chesapeake in consideration for $7 million in cash and 140,000 shares
of Common Stock to Energy Spectrum in consideration for $980,000 in cash.
Additionally, the Company issued the Subordinated Notes due May 1, 2003 in the
original principal amounts of $18 million and $2.52 million to Chesapeake and
Energy Spectrum, respectively. The Subordinated Notes bear interest at the
Company's option at either (i) 11% per annum, payable in cash, or (ii) 12.875%
per annum, payable in the form of additional Subordinated Notes, which interest
is payable quarterly in arrears. The Subordinated Notes are general unsecured
subordinated obligations of the Company that are subordinated in right of
payment to all existing and future senior indebtedness of the Company, pari
passu with all existing and future subordinated indebtedness of the Company and
senior in right of payment to all future junior subordinated indebtedness of
the Company. Upon consummation of the Initial Public Offering, the Company
redeemed in full the $18 million principal amount of Subordinated Notes issued
to Chesapeake in consideration for the payment by the Company to Chesapeake of
$18.2 million in cash. See "Certain Relationships and Related Transactions --
Chesapeake Transactions."

33
<PAGE> 34

In connection with the issuance of the Subordinated Notes, the Company
issued two series of detachable warrants (the "Warrants") for the purchase of
shares of Common Stock, designated as "Series A Warrants" and "Series B
Warrants." The Warrants are exercisable on or prior to May 1, 2003 at a price
of $0.01 per share in the case of the Series A Warrants and $7.50 per share in
the case of the Series B Warrants. In the May Financing, Chesapeake was issued
Series A Warrants and Series B Warrants representing the right to purchase
700,000 shares and 800,000 shares of Common Stock, respectively, and Energy
Spectrum was issued Series A Warrants and Series B Warrants representing the
right to purchase 98,000 shares and 112,000 shares of Common Stock,
respectively. On July 31, 1997, Energy Spectrum exercised in full its Series A
Warrants, but continues to hold all of the Series B Warrants issued to it. In
August 1997, Chesapeake agreed to the relinquishment and cancellation in full
of its Series A Warrants and Series B Warrants in connection with the
Chesapeake Transactions. See "Certain Relationships and Related Transactions
- -- Chesapeake Transactions."

Additional Chesapeake Financing. Additionally, in connection with the
May Financing, the Company obtained the right to require Chesapeake, on or
before April 30, 1998, to provide the Company with an additional $3 million in
capital through the purchase of (i) 120,000 shares of Common Stock for a
purchase price of $7.00 per share, (ii) additional Subordinated Notes in the
aggregate principal amount of $2.16 million, (iii) additional Series A Warrants
exercisable for 84,000 shares of Common Stock and (iv) additional Series B
Warrants exercisable for 96,000 shares of Common Stock. In August 1997, the
Company agreed to waive this right in connection with the Chesapeake
Transactions. See "Certain Relationships and Related Transactions --
Chesapeake Transactions."

The foregoing summaries of the material provisions of the Company's
principal financing agreements do not purport to be complete and are subject
to, and qualified in their entirety by reference to, all of the provisions of
the related agreements, copies or forms of which have been filed as exhibits to
the Registration Statement of which this Prospectus is a part.

Recent Events and Future Activities

In October 1997, the Company consummated the Chesapeake Transactions,
resulting in the cancellation of the Chesapeake Option, the payment to the
Company of $9 million in cash by Chesapeake, the redemption of the $18 million
principal amount of Subordinated Notes held by Chesapeake for an aggregate cash
payment by the Company of $18.2 million and the issuance of 3,194,000 shares of
Common Stock to Chesapeake.

Also in October 1997, the Company consummated the Bonray Acquisition,
pursuant to which Bonray became a wholly owned subsidiary of the Company. In
the Bonray Acquisition, the Company issued to DLB and DLJ 2,955,000 and 60,000
shares of Common Stock, respectively. See "Business--Formation and
Other Transactions--The Bonray Acquisition."

In November 1997, the Company and certain of its stockholders
consummated the Initial Public Offering, pursuant to which the Company
registered the sale of an aggregate of 11,040,000 shares of Common Stock. In
the Initial Public Offering, the Company issued and sold 4,229,050 shares of
Common Stock and certain stockholders of the Company sold 6,810,950 shares of
Common Stock. The Company received net proceeds of $89.5 million for the shares
sold by it in the Initial Public Offering. Through February 28, 1998 these net
proceeds have been used as follows: (i) $34.1 million to purchase machinery and
equipment, (ii) $25.6 million to repay indebtedness, (iii) $817,125 to pay CIT
in connection with the CIT Exercise and (iv) $29 million to place in temporary
investments.

On November 24, 1997, the Board of Directors of the Company approved
the acquisition and refurbishment of nine additional drilling rigs as part of an
$87 million capital expenditure budget. This budget includes (i) $14.4 million
for the refurbishment of four rigs in inventory, (ii) $14 million for the
acquisition of the six rigs acquired in the Oliver Acquisition, (iii) $28.6
million for the refurbishment of, and purchase of complementary equipment,
including drill pipe, for, the six rigs acquired in the Oliver Acquisition, (iv)
$11.2 million for the acquisition of components and refurbishment to complete
three additional rigs, (v) $10 million for maintenance capital expenditures,
including drill pipe, and (vi) $8.8 million for spare equipment. The schedule
for rig refurbishment is expected to extend through the first quarter of 1999;
however, the Company may accelerate or delay this schedule at any time and from
time to time based on market conditions and other factors.

The Company believes that the balance of the proceeds from the Initial
Public Offering, cash flow from operations and, to the extent required,
borrowings under the Loan Agreements will be sufficient to fund the Company's

34
<PAGE> 35

1997 rig refurbishment program and to meet its other anticipated capital
requirements for 1997. As of February 28,, 1998, the Company had approximately
$26 million of borrowings outstanding under the Term Loan, no borrowings
outstanding under the Revolving Loan and $2.5 million of borrowings outstanding
under the Subordinated Notes, with $10 million of unused borrowing capacity
under the Revolving Loan and cash or cash equivalents of approximately $29
million.

On January 9, 1998, the Company completed the Oliver Acquisition,
pursuant to which it acquired six rigs from R.T. Oliver Drilling, Inc. for
approximately $14 million in cash. The Company expects to refurbish and
purchase complementary equipment, including drill pipe, for these rigs at an
aggregate cost of approximately $28.6 million.

The Company continues to actively review possible acquisition
opportunities. The Company currently has no agreements to acquire additional
businesses or equipment; however, suitable opportunities may arise in the
future. The timing or success of any acquisition effort and the size of the
associated potential capital commitments cannot be predicted at this time. In
addition, there can be no assurance that adequate funding will be available on
terms satisfactory to the Company.

RESULTS OF OPERATIONS

Comparison of Three Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1997
<S> <C> <C>
Rig days worked(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 502 3,006
Average revenues per day(2) . . . . . . . . . . . . . . . . . . . . . . . $ 4,952 $ 6,024

Drilling revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,486,000 18,107,000

Drilling costs(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,976,000 13,349,000
---------- ----------
Operating Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 510,000 $4,758,000
- ---------------------------- ========== ==========
</TABLE>
(1) Rig days worked represents the number of rigs being marketed by the
Company multiplied by the number of days
during which such rigs are being operated, mobilized, assembled or
dismantled while under contract. Rig days are a common measurement of
both utilization rates and fleet size.

(2) Represents total contract drilling revenues (including mobilization
revenues and reimbursement for fuel and other costs) divided by the
total number of rig days worked by the Company's drilling rig fleet
marketed during the period.

(3) Drilling costs exclude depreciation and amortization and general and
administrative expenses.

Drilling revenues increased approximately $15.6 million, or 628% to
$18.1 million for the three months ended September 30, 1997, from $2.5 million
for the three months ended September 30, 1996. Drilling revenues increased due
to a 2,504 day, or 499%, increase in rig days worked, and a $1,072, or 22%,
increase in the average revenue per day. The increase in days worked was a
result of an increase in the average number of rigs owned and available for
service. As of September 30, 1997, the Company had 36 rigs available for
service. The increase in rigs available for service was principally the result
of the Consolidation Transactions. Rig days worked consisted of 1,096 days
worked in the Gulf Coast region and 1,910 days worked in the Mid-Continent
region. Increases in revenues per day were a result of the overall increase in
demand for land drilling rigs as reflected in the utilization rate increase
from 87% to 94%.

Drilling costs increased by approximately $11.3 million, or 576%, to
$13.3 million for the three months ended September 30, 1997, as compared to $2
million for the three months ended September 30, 1996. The increase in
drilling operating expenses was a direct result of the increase in the number
of rigs owned and available for service and the corresponding 2,504 day
increase in the days worked.

35
<PAGE> 36

Depreciation and amortization expense increased by $2 million, or
629%, to $2.3 million for the three months ended September 30, 1997, as
compared to $312,000 for the three months ended September 30, 1996. The
increase was primarily due to additional depreciation associated with the
Consolidation Transactions.

General and administrative expense increased by $297,000, or 198%, to
$447,000 for the three months ended September 30, 1997, from $150,000 for the
same period of 1996 due primarily to increased payroll costs associated with
new management and increased corporate staff and increased legal fees due to
the Company's acquisition activities.

Interest expense was $1.2 million for the three months ended September
30, 1997. The Company had no outstanding debt for the three months ended
September 30, 1996.

Other income increased for the three months ended September 30, 1997
as compared to the three months ended September 30, 1996, primarily due to
gains on the sale of assets.

Comparison of Nine Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1996 1997
<S> <C> <C>
Rig days worked(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,438 5,786
Average revenues per day(2) . . . . . . . . . . . . . . . . . . . . . . . . . . $4,678 $ 5,740
Drilling revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,728,000 $33,214,000
Drilling costs(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,244,000 24,246,000
--------- -----------
Operating Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,484,000 $ 8,968,000
- ---------- ========== ===========
</TABLE>

(1) Rig days worked represents the number of rigs being marketed by the
Company multiplied by the number of days during which such rigs are
being operated, mobilized, assembled or dismantled while under
contract. Rig days are a common measurement of both utilization rates
and fleet size.

(3) Drilling costs exclude depreciation and amortization and general and
administrative expenses.

Drilling revenues increased approximately $26.5 million, or 394%, to
$33.2 million for the nine months ended September 30, 1997, from $6.7 million
for the nine months ended September 30, 1996. Drilling revenues increased due
to a 4,348 day, or 302%, increase in rig days worked, and a $1,062, or 23%,
increase in the average revenue per day. The increase in days worked was a
result of an increase in the average number of rigs owned and available for
service. As of September 30, 1997, the Company had 36 rigs available for
service. The increase in rigs available for service was principally the result
of the Consolidation Transactions. Rig days worked consisted of 2,533 days
worked in the Gulf Coast region and 3,253 days worked in the Mid-Continent
region. Increases in revenues per day were a result of the overall increase in
demand for land drilling rigs as reflected in the utilization rate increase
from 87% to 94%.

Drilling costs increased by approximately $19 million, or 362%, to
$24.2 million for the nine months ended September 30, 1997, as compared to $5.2
million for the nine months ended September 30, 1996. The increase in drilling
operating expenses was a direct result of the increase in the number of rigs
owned and available for service and the corresponding 4,348 day increase in rig
days worked.

Depreciation and amortization expense increased by $4.2 million, or
576%, to $4.9 million for the nine months ended September 30, 1997, as compared
to $727,000 for the nine months ended September 30, 1996. The increase was
primarily due to additional depreciation associated with the Consolidation
Transactions.

36
<PAGE> 37

General and administrative expense increased by $708,000, or 149%, to
$1.2 million for the nine months ended September 30, 1997, from $473,000 for
the same period of 1996, due primarily to increased payroll costs associated
with new management and increased corporate staff and increased legal fees due
to the Company's acquisition activities.

Interest expense was $2.2 million for the nine months ended September
30, 1997. The Company had no outstanding debt for the nine months ended
September 30, 1996.

Other income increased for the nine months ended September 30, 1997 as
compared to the nine months ended June 30, 1996, primarily due to gains on the
sale of assets.

For the nine months ended September 30, 1997, the income tax provision
was $410,000. For the first nine months of 1996 the Company was not a taxable
entity.

Comparison of Six Months Ended June 30, 1997 and 1996

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1996 1997
<S> <C> <C>
Rig days worked(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 936 2,470
Average revenues per day(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,532 $ 6,116

Drilling revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,242,000 $15,107,000
Drilling costs(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,268,000 10,897,000
---------- -----------
Operating Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 974,000 $ 4,210,000
========== ===========
</TABLE>

__________

(3) Drilling costs exclude depreciation and amortization and general and
administrative expenses.

Drilling revenues increased approximately $10.9 million, or 256% to
$15.1 million for the six months ended June 30, 1997, from $4.2 million for the
six months ended June 30, 1996. Drilling revenues increased due to a 1,534
day, or 164%, increase in rig days worked, and a $1,584, or 34.9%, increase in
the average revenue per day. The increase in days worked was a result of an
increase in the average number of rigs owned and available for service. As of
June 30, 1997, the Company had 34 rigs available for service. The increase in
rigs available for service was principally the result of the Consolidation
Transactions. Rig days worked consisted of 1,305 days worked in the Gulf Coast
region and 1,165 days worked in the Mid-Continent region. Increases in
revenues per day were a result of the overall increase in demand for land
drilling rigs as reflected in the utilization rate increasing from 87% to 97%.

Drilling costs increased by approximately $7.6 million, or 233%, to
$10.9 million for the six months ended June 30, 1997, as compared to $3.3
million for the six months ended June 30, 1996. The increase in drilling
operating expenses was a direct result of the increase in the number of rigs
owned and available for service and the corresponding 1,534 day increase in the
days worked.

Depreciation and amortization expense increased by $2.2 million, or
537%, to $2.6 million for the six months ended June 30, 1997 as compared to
$415,000 for the six months ended June 30, 1996. The increase was primarily
due to additional depreciation associated with the Consolidation Transactions.

37
<PAGE> 38

General and administrative expense increased by $411,000, or 127%, to
$734,000 for the six months ended June 30, 1997, from $323,000 for the same
period of 1996 due primarily to increased payroll costs associated with new
management and increased corporate staff and increased legal fees due to the
Company's acquisition activities.

Interest expense was $982,000 for the six months ended June 30, 1997.
The Company had no outstanding debt for the six months ended June 30, 1996.

Other income decreased for the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996.

For the six months ended June 30, 1997, the income tax benefit was
$12,000. For the first six months of 1996 the Company was not a taxable
entity.

Comparison of Years Ended December 31, 1996 and 1995

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
<S> <C> <C>
Rig days worked(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,489 2,029
Average revenues per day(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,973 $ 4,826
Drilling revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,405,000 $9,793,000
Drilling costs(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,075,000 7,653,000
--------- ----------
Operating Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,330,000 $2,140,000
========== ==========
</TABLE>

__________

(3) Drilling costs exclude depreciation and amortization and general and
administrative expenses.

Drilling revenues increased approximately $2.4 million, or 32%, to
$9.8 million for the year ended December 31, 1996 from $7.4 million for the
year ended December 31, 1995. This improvement was due to an increase in the
number of rig days worked offset by a decrease in the average revenue per day.
Rig utilization also improved from 86% to 88% in 1996, due to an overall
improvement in the contract drilling market.

Drilling costs increased by $1.6 million, or 26%, to $7.7 million for
the year ended December 31, 1996, from $6.1 million for the year ended December
31, 1995. This increase was primarily due to increased utilization and, to a
lesser extent, increased direct labor costs.

Depreciation and amortization expenses increased by $335,000, or 42%,
to $1.1 million for the year ended December 31, 1996 from $791,000 for the year
ended December 31, 1995. The increase in depreciation expense was primarily
attributable to acquisition and refurbishment costs.

General and administrative expenses decreased by $222,000 to $658,000
for the year ended December 31, 1996, from $880,000 for the year ended December
31, 1995, due to the discontinued allocation of expenses associated with the
predecessor company.

Interest expense remained fairly constant for the year end December
31, 1996 primarily as a result of the outstanding debt level remaining fairly
constant. Interest rates during these periods remained relatively unchanged.

38
<PAGE> 39

Other income increased $197,000 from 1995 to 1996, primarily as a
result of a loss recorded in 1995 in connection with the sale of certain
assets.

The Company's income tax expense of $163,000 in 1996 was attributable
to the Company's profitable operations.

The Company had net income of $267,000 in 1996 as compared to a net
loss of $222,000 in 1995. The Company's net loss in 1995 includes net losses
from the sale of assets, for which there was no similar transaction in 1996.

Comparison of Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995
<S> <C> <C>
Rig days worked(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,047 1,489
Average revenues per day(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,841 $ 4,973

Drilling revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,910,000 $7,405,000
Drilling costs(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,572,000 6,075,000
--------- ----------
Operating Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,338,000 $1,330,000
========== ==========
</TABLE>

__________

(3) Drilling costs exclude depreciation and amortization and general and
administrative expenses.

Drilling revenues decreased $2.5 million, or 25%, to $7.4 million for
the fiscal year ended December 31, 1995 from $9.9 million for the twelve months
ended December 31, 1994. This decrease was primarily due to a decrease in the
number of rig days worked, offset by an increase in rig utilization from 84%
for the year ended December 31, 1994 to 86% for the year ended December 31,
1995 and an increase in average revenues per day from $4,841 during 1994 to
$4,973 during 1995.

Drilling costs decreased $2.5 million, or 29%, to $6.1 million for the
year ended December 31, 1995, from $8.6 million for the twelve months ended
December 31, 1994. This decrease in costs was due to a decrease in the
Company's rig days worked.

Depreciation and amortization expenses decreased $766,000, or 49%, to
$791,000 for the year ended December 31, 1995 from $1.6 million for the twelve
months ended December 31, 1994. This decrease was primarily due to a change in
the estimated remaining lives of the Company's drilling rigs and other related
drilling equipment. These changes were made to more closely approximate the
remaining useful lives of such assets.

General and administrative expenses increased approximately $94,000 to
$880,000 for the year ended December 31, 1995 from $786,000 for the twelve
months ended December 31, 1994 primarily due to increased personnel costs.

Interest expense remained fairly constant for the year ended December
31, 1995. Interest rates and borrowings outstanding during these periods
remained relatively unchanged.

39
<PAGE> 40

Other income decreased $500,000 from $366,000 in 1994 to a loss of
$134,000 in 1995, primarily due to a loss on sale of assets for the year ended
December 31, 1995 compared to a gain on sale of assets for the prior year.

The Company had a net loss of $222,000 in 1995 as compared to a loss
of $657,000 for the year ended December 31, 1994.

INFLATION AND CHANGING PRICES

Contract drilling revenues do not necessarily track the changes in
general inflation as they tend to respond to the level of activity on the part
of the oil and gas industry in combination with the supply of equipment and the
number of competing companies. Capital and operating costs are influenced to a
larger extent by specific price changes in the oil and gas industry and to a
lesser extent by changes in general inflation.

RECENT ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"). SFAS No. 128, which is effective for periods ending after
December 15, 1997, including interim periods, simplifies the standards for
computing earnings per share and replaces the presentation of primary earnings
per share with a presentation of basic earnings per share. Initial adoption of
this standard is not expected to have a material impact on the Company's
financial position or results of operations. Early adoption is not permitted.

40
<PAGE> 41

BUSINESS

GENERAL

The Company is a leading provider of contract land drilling services
to major and independent oil and gas companies. As of September 30, 1997, the
Company's rig fleet consisted of 54 rigs (including 13 rigs acquired in the
Bonray Acquisition), of which 48 were being marketed and six were to be
refurbished and are expected to be placed in operation within the next 9
months.

The Company's fleet consists primarily of rigs capable of deep
drilling applications (well depths of 15,000 feet or greater). The Company
believes that deep drilling targets are more attractive to oil and gas
companies due to new technologies, including (i) three-dimensional seismic
techniques, (ii) increasingly accurate down hole measurement devices and (iii)
improved guidance systems and directional drilling motors for horizontal and
directional wells. Examples of currently active deep drilling areas include the
Tuscaloosa trend in Louisiana, the Pinnacle Reef trend in East Texas, the
Anadarko and Arkoma basins in Oklahoma and the Austin Chalk in Texas and
Louisiana.

As of September 30, 1997, the Company's fleet included 38 rigs capable
of drilling to depths of 15,000 feet or greater, 25 of which are capable of
drilling to depths of 20,000 feet or greater. Of these 38 rigs, 21 are diesel
electric SCR rigs which offer operators superior control and efficiency,
particularly in deep, directional or horizontal applications. Of the five
largest domestic land drillers, the Company ranked first in average measured
depth per well drilled for the nine month period ended September 30, 1997.

The Company's fleet is concentrated in its two core operating regions
- -- the Mid-Continent region (which includes principally Oklahoma, North Texas
and the Texas Panhandle) and the Gulf Coast region of Texas, Louisiana,
Mississippi and Alabama. At September 30, 1997, the Company had 35 rigs
marketed in Oklahoma (including 11 of the rigs acquired in the Bonray
Acquisition) and was the most active land drilling contractor in the state. In
1996, 1,835 onshore wells were drilled in Oklahoma, making it the third most
active state for domestic onshore drilling. The Company's rigs operating in the
Mid-Continent region are generally capable of drilling to depths of 10,000 feet
or greater and are marketed by the Company to meet the specific well depth and
mobility needs of producers in that region. See "-- Drilling Equipment and
Supplies." At September 30, 1997, the Company had 13 rigs marketed in the Gulf
Coast region, including 11 diesel electric SCR rigs. This region is
characterized by significant drilling activity in deep, technically challenging
formations for which the Company's rigs are particularly well suited. The
Company believes that its high quality equipment, including diesel electric SCR
rigs, powerful mud pumps and high horsepower drawworks, gives the Company a
competitive advantage in attracting premium jobs with customers engaged in
multi-well horizontal drilling programs. In May 1997, one of the Company's rigs
drilled a horizontal well in the Gulf Coast region to a vertical depth of 18,700
feet before initiating a horizontal lateral of 3,239 feet. The Company believes
this to be the deepest vertical depth at which a horizontal lateral had ever
been initiated.

The Company was formed in December 1996 as the successor to Anadarko,
which owned ten rigs, including two rigs requiring refurbishment. At the time
of its formation, the Company also purchased six rigs requiring refurbishment.
See "-- Formation and Other Transactions." Since that time, the Company has
aggressively pursued acquisitions of additional rigs and components and has
acquired 47 additional rigs (net of sales), 32 of which were acquired in
connection with the purchases of Trend, Ward and Bonray, nine of which were
acquired pursuant to individual rig purchases and six of which were acquired in
the Oliver Acquisition. Some of these acquired rigs required refurbishment
before the Company placed such rigs in service. Many of the acquired and
refurbished rigs were put into service in May and June 1997, and therefore
contributed to operating results for less than half of the nine month period
ended September 30, 1997. The Company expects these rigs to be operational and
to contribute to its profitability throughout the second half of 1997.

41
<PAGE> 42

BUSINESS STRATEGY

The Company believes that growth in earnings and cash flow can be
achieved by pursuing the following business strategy:

Operating a Technologically Advanced Rig Fleet. The Company has
assembled its existing rig fleet, and will pursue further acquisitions, with
the goal of operating one of the most technologically sophisticated land
drilling fleets in the United States. Many of the Company's rigs include
engines, pumps and drilling mud systems that represent the best drilling
technology available and that the Company believes offer greater efficiencies
for customers than many of the rigs available from its competitors. For
example, by deploying its diesel electric SCR rigs with two or three high
horsepower pumps and top drive drilling systems in challenging deep and
horizontal drilling situations, the Company believes that it can reduce its
customers' overall drilling costs, thus securing and enhancing its
relationships with some of the most active operators in the domestic market.
The Company is committed to making the capital investments required to maintain
the technological sophistication and operational efficiencies of its fleet.

Developing Deep Drilling Capabilities. The Company believes demand
has been particularly strong for rigs capable of drilling deeper, more complex
wells, including 1,500 horsepower and larger rigs, and has focused, and will
continue to focus, on acquiring rigs with these capabilities. Management
believes that demand and utilization rates for these types of rigs,
particularly SCR rigs, will remain higher than for rigs with lesser depth
capacities due to their greater operational flexibility and efficiency. At
September 30, 1997, 70% of the Company's rig fleet (38 rigs) had deep drilling
capability (15,000 feet or greater).

Focusing on Core Markets. The Company believes that its strong asset
position and operating expertise in the Mid-Continent and Gulf Coast regions
enable it to achieve operating efficiencies and to provide premium service to
its customers in these markets. The Company is the second largest provider of
drilling rigs in Oklahoma and is among the largest operators of deep rigs in
the onshore Gulf Coast region.

Developing and Maintaining Relationships with Operators. In order to
maximize the utilization rate of its rig fleet and to minimize exposure to
market downturns, the Company seeks to maintain and build relationships with
operators committed to active domestic drilling programs. The Company's largest
current customers include Apache Corporation, Chesapeake, Enron Oil and Gas
Company, Marathon Oil Company, Sonat Exploration Company, Union Pacific
Resources Corporation and Unocal. Each of these companies was among the most
active onshore operators in the United States during the last three years.
During the nine months ended September 30, 1997 (pro forma for the Consolidation
Transactions), the three largest customers for the Company's contract drilling
services were Chesapeake, Union Pacific Resources Corporation and Marathon Oil
Company which accounted for approximately 22%, 7% and 7% of total revenues,
respectively. See "Risk Factors -- Concentration of Customer Base."

Acquiring and Refurbishing Additional Rigs and Related Equipment. The
Company intends to continue acquiring additional rigs and related equipment,
including top drive drilling systems. Additionally, the Company has experience
in the acquisition of component parts from which rigs can be assembled or
refurbished and intends to continue to seek opportunities for the expansion and
enhancement of its rig fleet by such means. Since its formation, the Company
has acquired 47 land rigs (net of sales) in ten transactions.

DOMESTIC LAND DRILLING INDUSTRY OVERVIEW

The land drilling industry is experiencing higher utilization,
increased day rates and improved financial performance as a result of a
long-term decline in the supply of rigs and increased demand for rigs
attributable to improved oil and gas industry fundamentals. Industry sources
estimate that from its peak in 1982, the supply of domestic land rigs had
fallen by 72% through October 1997 as a result of normal attrition,
cannibalization of

42
<PAGE> 43

components to refurbish rigs, the inability of smaller competitors to raise
capital needed to upgrade and modernize rigs and the export of rigs to
international markets. Greater demand in the industry is evidenced by the
increase in the active domestic land rig count to 1,032 in September 1997 from
790 in September 1996, according to data published by Baker Hughes
Incorporated. The Company believes that as of September 30, 1997 the domestic
land drilling industry was experiencing utilization rates of approximately 86%
for actively marketed rigs. While the Company's rig utilization rates have
historically been above 90% for the fiscal year ended 1997, the recent decline
in oil prices has caused the Company's utilization levels to decrease.

Beyond the diminished size of the rig fleet, the domestic land
drilling industry is also benefitting from improved fundamentals among domestic
oil and gas exploration and production companies. In particular, new
technologies and improved operating efficiencies have increased drilling
success rates, lowered finding costs and enhanced the industry's profitability
recently as compared to the late 1980's and early 1990's. In addition, the
financial positions of many domestic oil and gas companies, and their access to
additional capital, have improved in recent years, affording these companies
the ability to fund aggressive drilling programs. From 1992 to 1996, the total
equity market capitalization of 35 of the largest domestic exploration and
production companies grew from approximately $255 billion to approximately $465
billion and their aggregate annual capital expenditures increased from $10.5
billion to $16.5 billion. The Company believes that these improved industry
fundamentals have allowed oil and gas companies to maintain more consistently
active drilling programs, even in periods of lower commodity prices. However,
the Company believes that the recent decline in oil prices have led to a
decrease in drilling activities.

Much of the new technology being employed in the oil and gas industry
has increased demand for rigs capable of drilling deeper wells efficiently and
accurately. For example, more sophisticated and, longer life drilling motors
and measurement-while-drilling devices have made deep horizontal drilling less
expensive and more precise. Three-dimensional seismic techniques have also
increased the demand for deep rigs. This technology permits geoscientists to
develop a more complete understanding of deep, complex geology prior to
drilling a well. As shallower fields continue to deplete, oil and gas
companies are likely to continue to pursue deep drilling prospects to maintain
or increase their production levels. While demand for land rigs capable of
drilling greater than 15,000 feet has grown significantly, the supply of such
rigs is limited, contributing to rapid increases in day rates for rigs with
these capabilities.

Driven by expectations of improved economic returns and the
fundamentals discussed above, the domestic land drilling industry has
experienced a period of significant consolidation. In 1996, approximately 33%
of the footage drilled in the United States was drilled by only five
contractors, down from 25 in 1993. This consolidation is ongoing, and the
Company believes that approximately 26 transactions involving the acquisition
of approximately 404 domestic land rigs have been announced from September 1996
through September 1997, including acquisitions by the Company.

FORMATION AND OTHER TRANSACTIONS

Formation Transactions. The Company was formed in December 1996
through a series of affiliated entity transactions in which the Company became
the successor to Anadarko, the contract drilling subsidiary of privately held
APLP. In connection with the Formation Transactions (i) APLP contributed ten
drilling rigs, including two rigs requiring refurbishment, for 2,000,000 shares
of Common Stock, (ii) the Oliver Companies exchanged six drilling rigs
requiring refurbishment for 1,600,000 shares of Common Stock and (iii) Energy
Spectrum acquired 2,000,000 shares of Common Stock for cash. Additionally,
Chesapeake entered into drilling contracts with two-year terms for six of the
Company's rigs in consideration for the Chesapeake Option.

Since the Formation Transactions, the Company has enhanced its
original fleet through acquisitions and refurbishment of rigs as described
below.

Trend Acquisition. In May 1997, the Company completed the acquisition
of Trend for $18 million in cash and 250,000 shares of Common Stock. Trend has
operated a land drilling business in the Mid-Continent region since 1976.
Trend owned 14 rigs, including three diesel electric SCR rigs and six rigs with
depth capacities of 15,000 feet or greater. The Company retained substantially
all of Trend's operating personnel.

43
<PAGE> 44

Ward Acquisition. Also in May 1997, the Company acquired the assets
of Ward for $8 million in cash, 400,000 shares of Common Stock and warrants to
purchase an additional 200,000 shares of Common Stock. Ward has operated a
land drilling business in the Mid-Continent region since 1981. In the Ward
Acquisition, the Company acquired six drilling rigs, including three rigs with
depth capacities of 15,000 feet or greater, further enhancing its presence in
the Mid- Continent region. The Company retained substantially all of Ward's
operating personnel.

Bonray Acquisition. In October 1997, the Company acquired Bonray for
3,015,000 shares of Common Stock. Bonray has operated a land drilling business
in the Mid-Continent region since 1980 and prior to its acquisition by the
Company was a wholly owned subsidiary of DLB. In the Bonray Acquisition, the
Company acquired 13 rigs, including seven rigs with depth capacities of 15,000
feet or greater and two diesel electric SCR rigs. As of September 30, 1997, 12
of Bonray's rigs were operating and under contract and one was awaiting
refurbishment. The Bonray Acquisition further strengthens the Company's
presence in the Mid-Continent region, making it the leading competitor in the
Oklahoma market. The Company retained substantially all of Bonray's operating
personnel.

Individual Rig Acquisitions. In addition to the Trend, Ward and Bonray
Acquisitions, prior to the Initial Public Offering, the Company invested $5.5
million to acquire six rigs in five transactions involving purchases of
individual rigs or rig components. In August 1997, the Company sold one rig.

Initial Public Offering. In November 1997, the Company completed the
Initial Public Offering of 11,040,000 shares of Common Stock. Of the total
shares sold in the Initial Public Offering, the Company sold 4,229,050 shares of
Common Stock and certain shareholders sold 6,810,950 shares of Common Stock.

Refurbishment. The Consolidation Transactions included a number of
rigs in need of refurbishment. From January 1, 1997 through September 30,
1997, the Company completed refurbishment of 12 rigs at an average cost of
approximately $2.6 million per rig (including drill pipe). These rigs were
placed in service at various dates between January and September 30, 1997. At
September 30, 1997, the Company had six additional rigs in various stages of
refurbishment. The Company completed refurbishment and placed one of such rigs
in service during the fourth quarter of 1997, two more rigs in the first quarter
of 1998 and anticipates placing the remaining three rigs in the remainder of
1998. The Company expects the cost to refurbish these six rigs to average
approximately $3.5 million per rig (including drill pipe).

Recent Acquisitions. On January 9, 1998, the Company purchased six
additional rigs from R.T. Oliver Drilling, Inc. for approximately $14 million
in cash. The Company expects to refurbish and purchase complementary equipment,
including drill pipe, for these rigs at a cost of approximately $28.6 million.
Additionally, since the Initial Public Offering, the Company has decided to
refurbish three additional rigs, one of which was purchased for approximately
$54,000 and two of which were assembled from inventoried components, bringing
the Company's rig fleet total to 63 rigs, of which 51 are being marketed.

DRILLING EQUIPMENT AND SUPPLIES

A land drilling rig consists of various components, including engines,
drawworks, a derrick or mast, substructure, pumps to circulate drilling fluid,
blowout preventers, drill pipe and related equipment. The actual drilling
capacity of a rig may be more or less than its rated drilling capacity due to
numerous factors, including the length of its drill pipe and the drilling
conditions of any particular well. The intended well depth and the drill site
conditions determine the rig, drill pipe length and other equipment needed to
complete a well. The Company's rigs can be relocated to areas where demand,
well specifications and day rates allow for maximization of gross operating
margins and utilization. Generally, land rigs operate with crews of five to
six persons.

As of September 30, 1997, the Company's fleet included 21 rigs that are
diesel electric SCR rigs and 33 that are mechanical rigs. Mechanical rigs
utilize diesel engines to produce power that is transferred to drilling
equipment, such as drawworks and pumps, by way of a compound consisting of a
series of chains, sprockets and pneumatic clutches. SCR rigs employ diesel
engines that generate alternating current electricity which is converted and
transferred into amps as alternating current or direct current electricity,
which in turn drives electric motors powering the drilling equipment. The
Company believes that SCR rigs offer a number of advantages over mechanical
rigs. SCR rigs enable flexible power distribution to selected individual
drilling equipment components, providing for more precise drilling control and
efficient operation. SCR rigs are also quieter and safer because the diesel
engines are typically located away from the rig floor and well bore, allowing
for better communication among rig crews. SCR rigs are also more easily adapted
to the use of top drive drilling systems which are typically electrically
powered. The Company has developed a fleet that uses the advanced drilling
technology of diesel electric SCR rigs to provide greater efficiencies to its
customers, especially in deep drilling, horizontal and directional applications,
and uses mechanical rigs primarily in areas such as the Mid-Continent region
where operators target shallower well depths and require more frequent mobility.

In addition to its SCR rigs, the Company has focused its acquisitions
on rigs with efficient and flexible drilling mud systems as well as high
horsepower drawworks and mud pumps, features which give the Company a
competitive

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<PAGE> 45

advantage in attracting premium jobs with customers engaged in multi-well
horizontal drilling programs. The majority of the Company's rigs employ diesel
engines manufactured by Caterpillar, Inc. as the rigs' main power sources. The
Company believes that such engines are lighter and more fuel efficient than
other available engines, thus saving the Company and its customers money in
terms of lower trucking costs and reduced fuel consumption.

Finally, the Company has begun equipping certain of its deep drilling
rigs with top drive drilling systems. Top drives provide the Company's
customers with greater control in transferring horsepower to the bit, precise
orientation of drilling tools while drilling complex directional wells, and
reduced incidence of stuck drill pipe in high risk areas. Moreover, top drives
enable the contractor to drill in 90 foot sections (as opposed to conventional
45 foot sections), a capability which reduces connection time, and are safer
for rig employees and equipment during tubular handling operations and in well
control situations. Currently, the Company has four rigs equipped with top
drives and anticipates using a portion of the proceeds of the Initial Public
Offering for the purchase of additional top drives.

RIG FLEET

The following table identifies certain information as of September 30,
1997 regarding the rigs owned and operated by the Company (including 13 rigs
acquired in the Bonray Acquisition).

<TABLE>
<CAPTION>
HORSEPOWER
DEPTH --------------------------
RIG CAPACITY RIG CURRENT CURRENT
NO. (FT.) DRAWWORKS TYPE(1) DRAWWORKS(2) TOTAL(3) OPERATOR STATUS(4)
<S> <C> <C> <C> <C> <C>
GULF COAST REGION
21 30,000 Continental Emsco C-3 SCR 3,000 4,400 UPR Working
24 25,000 National 1320-UE SCR 2,000 3,960 Refurbishing
11 25,000 Mid Continent U-1220-EB SCR 2,500 3,600 Chesapeake Working
12 25,000 Mid Continent U-1220-EB SCR 2,500 3,600 Chesapeake Working
14 25,000 Mid Continent U-1220-EB SCR 2,500 3,600 Chesapeake Working
15 25,000 Mid Continent U-1220-EB SCR 2,500 3,600 Chesapeake Working
16 25,000 Mid Continent U-1220-EB(5) SCR 2,500 3,600 Chesapeake Working
17 25,000 Mid Continent U-1220-EB SCR 2,500 3,600 UPR Working
18 25,000 Mid Continent U-1220-EB SCR 2,500 3,600 Chesapeake Working
23 25,000 Gardner Denver 1500-E SCR 2,000 3,600 Refurbishing
22 25,000 National 1320-UE (5) SCR 2,000 3,300 Chesapeake Working
40 25,000 National 1320-UE SCR 2,000 3,300 UPR Working
20 20,000 Oilwell 840-E SCR 1,500 2,700 UPR Working
7 20,000 Mid Continent U-914-C Mechanical 1,500 2,700 Oryx Working
4 18,000 Mid Continent U-712-A Mechanical 1,200 2,700 Chesapeake Working
39 16,000 Ideco E-900 SCR 900 2,350 Refurbishing

MID-CONTINENT REGION
10 25,000 Mid Continent U-1220-EB SCR 2,500 3,600 Apache Working
63 25,000 Gardner Denver 1500-E SCR 2,000 3,300 Pioneer Working
46 25,000 BDW 1350 Mechanical 2,000 2,900 Marathon Working
60 25,000 National 1320-M Mechanical 2,000 2,700 SMR Working
52 25,000 National 1320-M Mechanical 2,000 2,700 Toklan Working
35 20,000 National 110-UE SCR 1,500 3,300 Vastar Working
59 20,000 Oilwell 860 Mechanical 1,500 2,700 St. Mary Operating Working
19 20,000 Continental EMSCO C-1 SCR 1,500 2,700 Burlington Working
62 20,000 Mid Continent U914 SCR 1,500 2,700 Unit Petroleum Working
36 20,000 National 110-M Mechanical 1,500 2,700 Sonat Working
61 20,000 National 110-M Mechanical 1,500 2,700 Sanguine Working
5 16,000 Gardner Denver 800 Mechanical 1,000 2,900 Anadarko Working
31 16,000 Gardner Denver 800-E SCR 1,000 2,200 Anadarko Working
27 16,000 National 80-B Mechanical 1,000 1,650 Refurbishing
8 16,000 National 80-B Mechanical 1,000 1,650 Chesapeake Working
</TABLE>

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<PAGE> 46

<TABLE>
<CAPTION>
HORSEPOWER
DEPTH --------------------------
RIG CAPACITY RIG CURRENT CURRENT
NO. (FT.) DRAWWORKS TYPE(1) DRAWWORKS(2) TOTAL(3) OPERATOR STATUS(4)

<S> <C> <C> <C> <C> <C> <C> <C>
51 16,000 Oilwell 760 Mechanical 1,000 1,650 Brigham Working
47 16,000 Ideco H-900 Mechanical 900 1,650 Refurbishing
33 15,000 Brewster N-46 Mechanical 1,000 2,000 Sonat Working
34 15,000 Ideco E-900 SCR 900 1,800 Sonat Working
32 15,000 BDW 800 MI Mechanical 1,000 1,650 Sonat Working
42 15,000 Gardner Denver 700 Mechanical 800 1,650 Seagull Working
44 15,000 Gardner Denver 700 Mechanical 800 1,650 Enron Working
26 14,000 National 610 Mechanical 750 1,650 ONEOK Working
41 14,000 Mid Continent U-36A Mechanical 600 1,650 Enron Working
38 13,000 Mid Continent U-36A Mechanical 600 1,650 Texaco Working
29 13,000 Continental Emsco D-2 Mechanical 750 1,450 National Energy Working
9 12,000 Gardner Denver 500 Mechanical 650 2,250 Universal Resources Working
57 12,000 National 55 Mechanical 550 2,000 St. Mary Operating Working
53 12,000 Unit U-40 Mechanical 850 1,650 Avalon Working
58 12,000 Ideco 750 Mechanical 750 1,650 Oryx Working
43 12,000 Superior 700 Mechanical 650 1,450 Available
45 12,000 Gardner Denver 500 Mechanical 650 1,450 Anadarko Working
37 11,000 Gardner Denver 500 Mechanical 650 1,900 Available
28 11,000 BDW 650 Mechanical 650 1,350 National Energy Working
56 10,000 Cooper LTD 750 Mechanical 750 1,550 Kilpatrick Working
30 10,000 Brewster N-42 Mechanical 550 1,725 Cross Timbers Working
54 10,000 National 50-A Mechanical 450 900 Refurbishing
55 7,500 Cooper LTD 550 Mechanical 550 1,400 Keener Oil Working
- ----------
</TABLE>

(1) "SCR" denotes a diesel electric silicon controlled rectifier rig.
"Mechanical" denotes a mechanical rig powered by diesel engines.

(2) Drawworks horsepower represents the amount of input power required to
achieve the maximum hoisting capability of the drawworks.

(3) Total horsepower represents the maximum horsepower produced by a rig's
diesel engines for consumption by the drilling equipment.

(4) Due to a recent decline in oil prices, the utilization of the
Company's rigs has decreased to some extent from the level at
September 30, 1997 that is indicated by this chart.

(5) Rigs 16 and 22 in the Gulf Coast region are each equipped with
National PS350/500 top drives.

Drilling rigs and related equipment deteriorate over time unless they
are operated and maintained properly. The Company strives to keep its drilling
rigs well maintained and technologically competitive. An active maintenance
program during the life of a drilling rig permits the maintenance, replacement
and upgrading of its components on an individual basis. Over the life of a
typical drilling rig, major components, such as engines, pumps, drawworks and
drill pipe, are replaced or rebuilt on a periodic basis as required while other
components, such as the mast and substructure, can be utilized for extended
periods of time with proper maintenance.

There is a general shortage of certain drilling equipment and supplies
used in the Company's business and the Company believes these shortages may
intensify. Because, until recent years, the land drilling industry was
characterized by an oversupply of land rigs, rig manufacturers have generally
focused on the production of more expensive offshore rigs and rig equipment.
As a result, most rig manufacturers are not currently building new land rigs
and those manufacturers that are building new land rigs and components charge
premium prices (approximately $13 million for a new 2,000 horsepower rig) and
require that orders be placed at least 120 days in advance of requested
delivery. The limited availability of new rigs and equipment has caused land
rig owners and operators, including the Company, to maintain and enhance their
fleets primarily through acquisitions and refurbishments using previously
manufactured rig components and equipment. As the land drilling industry
continues to refurbish rigs using existing components and equipment, the
available supply of such components and equipment continues to deplete.
Additionally, a shortage of drill pipe in the contract drilling industry has
caused the price of drill pipe to increase by more than 54%

46
<PAGE> 47

over the past 24 months and has required orders for new drill pipe to be placed
at least one year in advance of expected use. The Company has established
arrangements to meet its current needs for certain necessary drilling equipment
and supplies, including drill pipe, on satisfactory terms, but there can be no
assurance that it will continue to be able to do so. Accordingly, there can be
no assurance that the Company will not experience shortages of, or material
price increases in, drilling equipment and supplies, including drill pipe, in
the future. Any such shortages could delay and adversely affect the Company's
ability to refurbish its inventory rigs and obtain contracts for its marketed
rigs.

CONTRACT DRILLING OPERATIONS

The Company's drilling rigs are employed under individual contracts
which extend either over a stated period of time or the time required to drill
a well or a number of wells. Drilling contracts are obtained through either a
competitive bidding process or as a result of direct negotiations with
customers. Terms of the Company's drilling contracts vary based on factors
such as the complexity and risk of operations, on-site drilling conditions,
type of equipment used and the anticipated duration of the work to be
performed. Contracts are typically entered into on a single well basis and
obligate the Company to pay certain operating expenses, including wages of
drilling personnel, maintenance expenses and costs for incidental rig supplies,
equipment and local office facilities. Contracts generally are subject to
termination by the customer on short notice, but are sometimes written on a
firm basis for a specified number of wells or years. The Company has ongoing
relationships with a number of customers that often engage a specific rig for
the drilling of consecutive wells.

At September 30, 1997, all of the Company's marketed rigs were
operating under daywork contracts and one rig to be acquired in the Bonray
Acquisition was operating under a footage contract. The Company and its
predecessors in the past have performed drilling services under footage and
turnkey contracts and the Company may do so again in the future. Revenues from
daywork contracts accounted for approximately 98% of total drilling revenues
(excluding mobilization revenues) during the nine months ended September 30,
1997, with the remainder from footage contracts.

Daywork Contracts. Under daywork contracts, the Company provides a
drilling rig with required personnel to the operator, who supervises the
drilling of the well. The Company is paid based on a negotiated fixed rate per
day while the rig is utilized. The rates for the Company's services depend on
market and competitive conditions, the nature of the operations to be
performed, the duration of the work, the equipment and services to be provided,
the geographic area involved and other variables. Lower rates may be paid when
the rig is in transit, or when drilling operations are interrupted or
restricted by equipment breakdowns, actions of the customer or adverse weather
conditions or other conditions beyond the control of the Company. In addition,
daywork contracts typically provide for a lump sum fee for the mobilization and
demobilization of the drilling rig. Daywork drilling contracts generally
specify the type of equipment to be used, the size of the hole and the depth of
the well. Under a daywork drilling contract, the customer bears a large
portion of out-of-pocket costs of drilling and the Company generally bears no
part of the usual capital risks associated with oil and gas exploration (such
as time delays for various reasons, including stuck drill pipe and blowouts).

Footage and Turnkey Contracts. Under footage contracts, the Company
is paid a fixed amount for each foot drilled, regardless of the time required
or the problems encountered in drilling the well. The Company pays more of the
out-of-pocket costs associated with footage contracts compared to daywork
contracts. Under turnkey contracts, the Company contracts to drill a well to
an agreed depth under specified conditions for a fixed price, regardless of the
time required or the problems encountered in drilling the well. The Company
provides technical expertise and engineering services, as well as most of the
equipment required for the well, and is compensated when the contract terms
have been satisfied. Turnkey contracts afford an opportunity to earn a higher
return than would normally be available on daywork or footage contracts if the
contract can be completed successfully without complications.

The risks to the Company under footage and turnkey contracts are
substantially greater than under daywork contracts because the Company assumes
most of the risks associated with drilling operations generally assumed by the
operator in a daywork contract, including risk of blowout, loss of hole, lost
or damaged drill pipe, machinery breakdowns, abnormal drilling conditions and
risks associated with subcontractors' services, supplies, cost escalation and
personnel. See "Risk Factors -- Risks Associated with Footage and Turnkey
Drilling."

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<PAGE> 48

CUSTOMERS AND MARKETING

The Company's customers include major oil companies and independent
oil and gas producers. During the nine months ended September 30, 1997 (pro
forma for the Consolidation Transactions), the three largest customers for the
Company's contract drilling services were Chesapeake, Union Pacific Resources
Corporation and Marathon Oil Company, which accounted for approximately 22%, 7%
and 7% of total revenues, respectively.

The Company enters into informal, nonbinding commitments with many of
its customers to provide drilling rigs for future periods at agreed upon rates
plus fuel and mobilization charges, if applicable, and escalation provisions.
This practice is customary in the land drilling business during times of
tightening rig supply. Although neither the Company nor the customer is
legally required to honor these commitments, the Company strives to satisfy
such commitments in order to maintain good customer relations.

The Company's sales force consists of industry professionals with
significant land drilling sales experience who utilize industry contacts and
available public data to determine how to most appropriately market available
rigs.

COMPETITION

The contract drilling industry is a highly competitive and fragmented
business characterized by high capital and maintenance costs. As a result,
even though the Company has the fifth largest active land drilling rig fleet in
the United States, the Company believes that such fleet represents a market
share of approximately 6% of the domestic land drilling industry. Drilling
contracts are usually awarded through a competitive bid process and, while the
Company believes that operators consider factors such as quality of service,
type and location of equipment, or the ability to provide ancillary services,
price and rig availability are the primary factors in determining which
contractor is awarded a job. Certain of the Company's competitors have greater
financial and human resources than the Company, which may enable them to better
withstand periods of low rig utilization, to compete more effectively on the
basis of price and technology, to build new rigs or acquire existing rigs and
to provide rigs more quickly than the Company in periods of high rig
utilization.

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<PAGE> 49

OPERATING HAZARDS AND INSURANCE

The Company's insurance coverage for property damage to its rigs and
drilling equipment is based on the Company's estimate of the cost of comparable
used equipment to replace the insured property. There is a deductible per
occurrence on rigs and equipment of $500,000.

The Company's third party liability insurance coverage under the
general policy is $1 million per occurrence, with a self insured retention of
$100,000 per occurrence. The commercial umbrella policy has a self insured
retention of $10,000 per occurrence with coverage of $5 million per occurrence.
The Company believes that it is adequately insured for public liability and
property damage to others with respect to its operations. However, such
insurance may not be sufficient to protect the Company against liability for
all consequences of well disasters, extensive fire damage or damage to the
environment. See "Risk Factors -- Operating Hazards and Uninsured Risks."

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

General

The Company's operations are affected from time to time in varying
degrees by political developments and federal, state and local laws and
regulations. In particular, oil and gas production, operations and economics
are or have been affected by price controls, taxes and other laws relating to
the oil and gas industry, by changes in such laws and by changes in
administrative regulations. Although significant capital expenditures may be
required to comply with such laws and regulations, to date, such compliance
costs have not had a material adverse effect on the earnings or competitive
position of the Company. In addition, the Company's operations are vulnerable
to risks arising from the numerous laws and regulations governing the discharge
of materials into the environment or otherwise relating to environmental
protection.

Environmental Regulation

The Company's activities are subject to existing federal, state and
local laws and regulations governing environmental quality, pollution control
and the preservation of natural resources. Such laws and regulations concern,
among other things, air emissions, the containment, disposal and recycling of
waste materials, and reporting of the storage, use or release of certain
chemicals or hazardous substances. Numerous federal and state environmental
laws regulate drilling activities and impose liability for discharges of waste
or spills, including those in coastal areas. The Company has conducted
drilling activities in or near ecologically sensitive areas, such as wetlands
and coastal environments, which are subject to additional regulatory
requirements. State and federal legislation also provide special protections
to animal and marine life that could be affected by the Company's activities.
In general, under various applicable environmental programs, the Company may
potentially be subject to regulatory enforcement action in the form of
injunctions, cease and desist orders and administrative, civil and criminal
penalties for violations of environmental laws. The Company may also be
subject to liability for natural resource damages and other civil claims
arising out of a pollution event.

Except for the handling of solid wastes directly generated from the
operation and maintenance of the Company's drilling rigs, such as waste oils
and wash water, it is the Company's practice to require its customers to

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<PAGE> 50

contractually assume responsibility for compliance with environmental
regulations. Laws and regulations protecting the environment have become more
stringent in recent years, and may, in certain circumstances, impose strict
liability, rendering a person liable for environmental damage without regard to
negligence or fault on the part of such person. Such laws and regulations may
expose the Company to liability for the conduct of or conditions caused by
others, or for acts of the Company which were in compliance with all applicable
laws at the time such acts were performed. The application of these
requirements or adoption of new requirements could have a material adverse
effect on the Company.

Environmental regulations that affect the Company's customers also
have an indirect impact on the Company. Increasingly stringent environmental
regulation of the oil and gas industry has led to higher drilling costs and a
more difficult and lengthy well permitting process.

The primary environmental statutory and regulatory programs that
affect the Company's operations include the following:

Oil Pollution Act and Clean Water Act. The Oil Pollution Act of 1990
("OPA") amends certain provisions of the federal Water Pollution Control Act of
1972, commonly referred to as the Clean Water Act ("CWA"), and other statutes
as they pertain to the prevention of and response to spills or discharges of
hazardous substances or oil into navigable waters. Under OPA, a person owning
or operating a facility or equipment (including land drilling equipment) from
which there is a discharge or threat of a discharge of oil into or upon
navigable waters and adjoining shorelines is liable, regardless of fault, as a
"responsible party" for removal costs and damages. Federal law imposes strict,
joint and several liability on facility owners for containment and clean-up
costs and certain other damages, including natural resource damages, arising
from a spill.

The United States Environmental Protection Agency ("EPA") is also
authorized to seek preliminary and permanent injunctive relief and, in certain
cases, criminal penalties and fines. State laws governing the control of water
pollution also provide varying civil and criminal penalties and liabilities in
the case of releases of petroleum or its derivatives into surface waters or
into the ground. In the event that a discharge occurs at a well site at which
the Company is conducting drilling or pressure pumping operations, the Company
may be exposed to claims that it is liable under the CWA or similar state laws.

Certain of the Company's operations are also subject to EPA
regulations, including regulations that require the preparation and
implementation of spill prevention control and countermeasure ("SPCC") plans to
address the possible discharge of oil into navigable waters. Where so
required, the Company has SPCC plans in place.

Superfund. The Comprehensive Environmental, Response, Compensation,
and Liability Act, as amended ("CERCLA"), also known as the "Superfund" Law,
imposes liability, without regard to fault or the legality of the original
conduct, on certain classes of persons with respect to the release of a
"hazardous substance" into the environment. These persons include (i) the
current owner and operator of a facility from which hazardous substances are
released, (ii) owners and operators of a facility at the time any hazardous
substances were disposed, (iii) generators of hazardous substances who arranged
for the disposal or treatment at or transportation to such facility of
hazardous substances and (iv) transporters of hazardous substances to disposal
or treatment facilities selected by them. The Company may be responsible under
CERCLA for all or part of the costs to clean up sites at which hazardous
substances have been released. To date, however, the Company has not been
named a potentially responsible party under CERCLA or any similar state
Superfund laws.

Hazardous Waste Disposal. The Company's operations involve the
generation or handling of materials that may be classified as hazardous waste
and subject to the federal Resource Conservation and Recovery Act and
comparable state statutes. The EPA and various state agencies have limited the
disposal options for certain hazardous and nonhazardous wastes and is
considering the adoption of stricter handling and disposal standards for
nonhazardous wastes.

As part of the Bonray Acquisition, the Company acquired an equipment
yard which may require certain expenditures or remedial actions for the removal
or cleanup of contamination. In exchange for a $1 million cash

50
<PAGE> 51

payment to the Company at closing, the Company did not require DLB to
indemnify the Company with respect to such expenditures or remedial actions.
While the Company has not yet determined whether and to what extent such
expenditures or remedial actions may be necessary or advisable, based on the
presently available information, the Company does not believe that such
expenditures will exceed $1 million. Management believes that the Company and
its operations are in material compliance with applicable environmental laws and
regulations.

Health and Safety Matters

The Company's facilities and operations are also governed by laws and
regulations, including the federal Occupational Safety and Health Act ("OSHA"),
relating to worker health and workplace safety. As an example, the
Occupational Safety and Health Administration has issued the Hazard
Communication Standard ("HCS") requiring employers to identify the chemical
hazards at their facilities and to educate employees about these hazards. HCS
applies to all private-sector employers, including the oil and gas exploration
and producing industry. HCS requires that employers assess their chemical
hazards, obtain and maintain certain written descriptions of these hazards,
develop a hazard communication program and train employees to work safely with
the chemicals on site. Failure to comply with the requirements of the standard
may result in administrative, civil and criminal penalties. The Company
believes that appropriate precautions are taken to protect employees and others
from harmful exposure to materials handled and managed at its facilities and
that it operates in substantial compliance with all OSHA regulations. While it
is not anticipated that the Company will be required in the near future to
expend material amounts by reason of such health and safety laws and
regulations, the Company is unable to predict the ultimate cost of compliance
with these changing regulations.

FACILITIES AND OTHER PROPERTY

The Company leases approximately 7,500 square feet of office space for
its principal executive offices in Oklahoma City, Oklahoma at a cost of
approximately $7,000 per month. In addition, the Company owns approximately
ten acres of land in El Reno, Oklahoma and five acres of land in Weatherford,
Oklahoma that it uses for rig storage and maintenance. The Company has
negotiated the lease of a facility in Houston, Texas that includes
approximately 5,000 square feet of warehouse space and 1,300 square feet of
office space. As part of the Bonray Acquisition, the Company acquired
approximately 40 acres of land in Oklahoma City with facilities including 3,600
square feet of office space, an 8,000 square foot repair shop and three
warehouses. The Company considers all of its facilities to be in good
operating condition and adequate for their present uses.

EMPLOYEES
As of February 28, 1998, the Company had approximately 935 employees,
of which approximately 120 were salaried and approximately 815 were employed on
an hourly basis. None of the Company's employees is represented by any
collective bargaining unit. Management believes that the Company's
relationship with its employees is good.

LEGAL PROCEEDINGS

Three purported class action lawsuits have been filed against the Company,
certain directors and officers of the Company, the managing underwriters of the
Initial Public Offering, and certain current and former stockholders of the
Company, alleging violations of federal and state securities laws in connection
with the Initial Public Offering. The first two suits, Khan v. Bayard Drilling
Technologies, Inc., et al. ("Khan") and Burkett v. Bayard Drilling Technologies,
Inc., et. al. ("Burkett"), were filed in the District Court in and for Oklahoma
County, State of Oklahoma on January 14, 1998 and February 2, 1998,
respectively. The third suit, Yuan v. Bayard Drilling Technologies, Inc., et.
al. ("Yuan"), was filed on February 3, 1998 in the United States District Court
for the Western District of Oklahoma. The principal plaintiff in Khan is Michael
W. Khan. The principal plaintiffs in Burkett are Diane Burkett, Julian Swadel
and Robert T. Greenberg. The principal plaintiff in Yuan is Tom Yuan. The
defendants in each of the cases include the Company, Chesapeake, Energy Spectrum
LLC, James E. Brown, David E. Grose, Carl B. Anderson, III, Merrill A. Miller,
Jr., Sidney L. Tassin, Lew O. Ward, Mike Mullen, Roy T. Oliver, Donaldson,
Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc., Prudential
Securities, Inc., Rauscher Pierce Refsnes, Inc. and Raymond James & Associates,
Inc.

The plaintiffs in these lawsuits purport to sue on their own behalf and
on behalf of all persons who purchased shares of Common Stock on or traceable to
the Initial Public Offering. In each of the lawsuits, plaintiffs allege claims
against all defendants under the Securities Act. The two state court actions
also assert claims against all defendants under an Oklahoma state securities
law.

All of the suits contain substantially the same allegations. The
plaintiffs allege that the registration statement and prospectus for the Initial
Public Offering contained materially false and misleading information and
omitted to disclose material facts. In particular, the plaintiffs allege that
such registration statement and prospectus failed to disclose financial
difficulties of Chesapeake, the Company's largest customer, and the effects of
such difficulties on Chesapeake's ability to continue to provide the Company
with substantial drilling contracts. The petitions further allege that the
Company failed to disclose pre-offering negotiations with R.T. Oliver Drilling,
Inc., whom the plaintiffs allege was a related party, for the purchase of
drilling rigs. In addition, the petitions allege that the Company failed to
disclose that its growth strategy required costly refurbishment of older
drilling rigs that would dramatically increase the Company's costs, which could
not be sustained by internally generated cash flow. In each of these lawsuits,
the plaintiffs are seeking rescission and damages.

The Company believes the allegations in the lawsuits are without merit
and is defending vigorously the claims brought against it. The Company is
unable, however, to predict the outcome of these lawsuits or the costs to be
incurred in connection with their defense and there can be no assurance that
this litigation will be resolved in the Company's favor. An adverse result or
prolonged litigation could have a material adverse effect on the Company's
financial position or results of operations.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information regarding the
Company's directors and executive officers, including their respective ages.

<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
James E. Brown . . . . . . . . . . . . . . . . . . . . . . . . . 45 Chairman of the Board, President and Chief
Executive Officer
Edward S. Jacob, III . . . . . . . . . . . . . . . . . . . . . . 45 Executive Vice President -- Operations &
Marketing
David E. Grose . . . . . . . . . . . . . . . . . . . . . . . . . 45 Vice President and Chief Financial Officer
Carl B. Anderson, III . . . . . . . . . . . . . . . . . . . . . . 42 Director
Mark Liddell . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Director
Merrill A. Miller, Jr . . . . . . . . . . . . . . . . . . . . . . 47 Director
Sidney L. Tassin . . . . . . . . . . . . . . . . . . . . . . . . 41 Director
Lew O. Ward . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Director
</TABLE>

James E. Brown is Chairman of the Board and has served as President
and Chief Executive Officer and as a director of the Company since its
formation in 1996. From 1992 until joining the Company in 1996, Mr. Brown
served as President of Anadarko Drilling Company, an Oklahoma general
partnership and the predecessor of the Company. From 1982 through 1992, Mr.
Brown served as Chief Financial Officer of AnSon Gas Corporation and its
predecessor entities. From 1979 through 1982, Mr. Brown served as Vice
President, Treasurer and Controller of Blocker Energy Corporation. Prior
thereto, Mr. Brown served as an accountant in various positions with Arthur
Andersen & Co.

Edward S. Jacob, III has served as Executive Vice President --
Operations & Marketing since April 1997 and prior thereto served as Vice
President of Operations and Marketing for the Company since its formation.
From 1983 until joining the Company, Mr. Jacob was employed by Helmerich &
Payne International Drilling Co., serving as U.S. Marketing Manager from 1990
through 1996. Mr. Jacob is a Director of the International Association of
Drilling Contractors ("IADC"), serving on its Contracts and Marketing
Committee, and is a former IADC Chapter Chairman.

David E. Grose has served as Vice President and Chief Financial
Officer of the Company since July 1997. Prior to joining the Company, Mr.
Grose was affiliated with Alexander Energy Corporation from its inception in
March 1980, serving from 1987 through 1996 as a director and Vice President,
Treasurer and Chief Financial Officer. In August 1996, National Energy Group
acquired Alexander Energy Corporation and Mr. Grose served as Vice President --
Finance and Treasurer through February 1997.

Carl B. Anderson, III has served as a director of the Company since
its formation in December 1996. Since 1994, Mr. Anderson has served as
Managing General Partner and Chief Executive Officer of APLP, a diversified
energy company and parent of Anadarko, the Company's predecessor. From 1978
through 1994, Mr. Anderson served in various capacities for APLP.

Mark Liddell has served as a director of the Company since November
1997. Since 1991, Mr. Liddell has served in various capacities for DLB,
including President since October 1994 and Vice President from 1991 to 1994.
Mr. Liddell is a Director of DLB and Davidson Oil & Gas, Inc. From 1991 to May
1995, Mr. Liddell served as a Director of TGX Corporation, a publicly traded
oil and gas company, and from 1989 to 1990, Mr. Liddell served as a Director of
Kaneb Services, Inc., a publicly traded industrial services and pipeline
transportation company.

Merrill A. Miller, Jr. has served as a director of the Company since
October 1997. Since February 1996, Mr. Miller has served in various
capacities for National-Oilwell, Inc., a publicly traded oilfield services
company, including President of its Products & Technology Group since May 1997,
Vice President and General Manager of Drilling Systems since July 1996 and Vice
President of Marketing, Drilling Systems from February 1996 through July 1996.
Prior thereto, Mr. Miller served in various capacities for Anadarko, the
Company's predecessor, from January 1995

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<PAGE> 53

through February 1996. From May 1980 through January 1995, Mr. Miller served
in various capacities with Helmerich & Payne International Drilling Co.,
including Vice President of U.S. Operations.

Sidney L. Tassin has served as a director of the Company since its
formation in 1996. Since March 1996, Mr. Tassin has been the President of
Energy Spectrum Capital LP, the general partner of Energy Spectrum, an equity
fund that invests in the energy industry. From 1980 to 1994, Mr. Tassin was
associated with MESA Inc., serving in various financial executive capacities,
including Vice President -- Finance from 1986 to 1988 and President of BTC
Partners Inc., a financial and strategic consultant to MESA Inc., from 1988 to
1994.

Lew O. Ward has served as a director of the Company since May 1997.
Since 1981, Mr. Ward has served as Chairman and Chief Executive Officer of Ward
Petroleum Corporation, an independent oil and gas company founded by Mr. Ward.
Mr. Ward is a former Director and Area Vice President of the Independent
Petroleum Association of America ("IPAA") and currently serves as Chairman of
the IPAA.

BOARD OF DIRECTORS

Board Composition. The Board is currently composed of six directors.
Directors are elected for one-year terms at each annual meeting of
stockholders. Three of the Company's current directors were elected pursuant
to the terms of the Stockholders and Voting Agreement. See "Certain
Relationships and Related Transactions -- Stockholders and Voting Agreement."

Board Committees. The Company has established two standing committees
of the Board: a Compensation Committee and an Audit Committee. The current
members of the Compensation Committee are Carl B. Anderson, III and Sidney L.
Tassin. The Compensation Committee recommends to the Board the base salaries
and incentive bonuses for the officers of the Company and is charged with
administering the Company Stock Plans. The current members of the Audit
Committee are Merrill A. Miller, Jr., Sidney L. Tassin and Lew O. Ward. The
Audit Committee reviews the functions of the Company's management and
independent auditors pertaining to the Company's financial statements and
performs such other related duties and functions as are deemed appropriate by
the Audit Committee or the Board. The Board does not have a standing
nominating committee or other committee performing similar functions.

Director Compensation. Directors who are also employees of the
Company are not compensated for service on the Board or on any committee of the
Board. Non-employee directors of the Company receive an annual retainer of
$10,000. Additionally, all directors of the Company are entitled to
reimbursement for their reasonable out-of-pocket expenses in connection with
their travel to and attendance at meetings of the Board or committees thereof.
In October 1997, the Company adopted the Director Stock Plan pursuant to which
each non-employee director is entitled to receive (i) upon such director's
initial election to the Board, an option to purchase 15,000 shares of Common
Stock and (ii) immediately following each annual meeting at which such director
is reelected to the Board, an option to purchase 5,000 shares of Common Stock.
Such non-employee directors are also entitled under the Director Stock Plan to
elect to receive options to purchase Common Stock in lieu of their annual cash
retainer and to receive certain other stock option awards. Directors who are
also employees of the Company are not eligible to receive awards under the
Director Stock Plan. See "-- 1997 Non-Employee Directors' Stock Option Plan."

EXECUTIVE COMPENSATION

Because the Company was formed in December 1996, total compensation
awarded to or earned by James E. Brown, the Chairman of the Board, President and
Chief Executive Officer of the Company, for the Company's fiscal year ended
December 31, 1996 included only $9,167 in salary, an option to purchase 200,000
shares of Common Stock and $900 in other compensation. No options to purchase
Common Stock were exercised by Mr. Brown at any time during the fiscal year
ended December 31, 1996. No executive officer of the Company received salary
and bonus in excess of $100,000 for services rendered in all capacities during
such fiscal year. For anticipated executive compensation levels in 1997 and
beyond, see "-- Executive Salaries and Employment Agreements."

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<PAGE> 54

On December 10, 1996, the Company granted Mr. Brown an option (the
"1996 Brown Option") to purchase 200,000 shares of Common Stock at an exercise
price of $5 per share, becoming exercisable with respect to 20% of the
underlying shares each anniversary of the grant date. The option terminates as
to any unexercised portion on December 10, 2002. The potential realizable
values of the 1996 Brown Option, assuming that the market price of the Common
Stock appreciates in value from $5 per share (the estimated market price of the
Common Stock based upon the cash price paid for shares of Common Stock by an
independent third party in a separate transaction consummated on the date of
grant) through the end of the option term at annualized rates of 5% and 10%,
would be $340,096 and $771,561, respectively. If the 1996 Brown Option was
fully exercisable and exercised on December 31, 1997, on which the closing
price of a share of Common Stock on the AMEX was $16 1/4, the realized value of
the option would have been $2.3 million. The Company did not grant any options
to purchase Common Stock to any other executive officer or other employee of
the Company during the fiscal year ended December 31, 1996. The Company has
not granted any stock appreciation rights.

The Company adopted the Employee Stock Plan in April 1997 and made the
terms thereof applicable to the 1996 Brown Option. Including the 1996 Brown
Option, the Company has granted to James E. Brown, Edward S. Jacob, III, and
David E. Grose options to purchase 200,000, 50,000 and 50,000 shares of Common
Stock, respectively, at exercise prices of $5, $5 and $10 per share,
respectively. Additionally, the Company has granted to Messrs. Brown, Jacob and
Grose, options to purchase 200,000, 100,000 and 10,000 shares of Common Stock,
respectively, at an exercise price of $23 per share (the Initial Public Offering
price). Effective March 10, 1998, the Company granted Mr. Jacob an option to
purchase an additional 40,000 shares of Common Stock at an exercise price of $14
per share. None of such options has been exercised, and all of such options
remain outstanding, as of the date of this Prospectus. Each of the option
agreements relating to stock options granted under the Employee Stock Plan
provides for the vesting of 20% of the shares subject to the option each year
beginning on the first anniversary of the date of grant. The option ceases to be
exercisable on the earliest of (i) the sixth anniversary of the date of grant,
(ii) the date of the employee's voluntary termination of employment with the
Company or the Company's termination of the employee's employment for Due Cause
(as defined in the employee's employment agreement) or (iii) the date that is 90
days after termination of the employee's employment by means of retirement,
disability or death. In the event of a Change of Control (as defined in the
Employee Stock Plan), the committee that is charged with administering the
Employee Stock Plan (the "Committee") may accelerate the exercisability of the
options or take certain other actions provided in the Employee Stock Plan. See
"-- 1997 Stock Option and Stock Award Plan." The options are exercisable for
cash, or in the Committee's discretion, in an acceptable equivalent, by the
assignment of shares of Common Stock owned by the option holder or the surrender
of another Incentive Award (as hereinafter defined).

The Company and James E. Brown are parties to a restricted stock award
agreement (the "Restricted Stock Award Agreement") pursuant to which Mr. Brown
purchased 100,000 shares (the "Restricted Shares") of Common Stock at a price
of $2.50 per share in February 1997. The Restricted Stock Award Agreement
provides for vesting of the Restricted Shares at a rate of 20% per year
beginning on December 10, 1997. Mr. Brown is required to remain continuously
employed by the Company through each vesting date for the applicable portion of
the Restricted Shares to vest and, prior to vesting, the Restricted Shares are
not transferable. In the event of termination of Mr. Brown's employment due to
a Change of Control (as defined in the Employee Stock Plan), all Restricted
Shares will vest immediately and all restrictions on transfer will terminate.
If Mr. Brown's employment with the Company terminates for any other reason, all
unvested Restricted Shares (the "Unvested Shares") will no longer be eligible
for vesting but, under certain circumstances, will be eligible for purchase by
the Company or Mr. Brown, as applicable. If Mr. Brown resigns or is terminated
by the Company for Due Cause (as defined in the Restricted Stock Award
Agreement), the Company may purchase the Unvested Shares from Mr. Brown for
$2.50 per share. If the Company elects not to purchase the Unvested Shares
from Mr. Brown, Mr. Brown will forfeit such Unvested Shares to the Company
without any payment therefor. If the Company terminates Mr. Brown's employment
for any reason other than Due Cause or if Mr. Brown's employment with the
Company terminates due to the death or disability of Mr. Brown, Mr. Brown may
keep the Unvested Shares by paying the Company an additional $5.00 per share.
If Mr. Brown elects not to make such additional payment, the Company may
purchase the Unvested Shares from Mr. Brown for $2.50 per share or allow Mr.
Brown to keep the Unvested Shares.

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EXECUTIVE SALARIES AND EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with James E.
Brown, Edward S. Jacob, III and David E. Grose. The aggregate of the annual
base salaries for all three executive officers (taken as a group) is $375,000.

Pursuant to an employment agreement dated December 10, 1996 (the
"Brown Agreement"), James E. Brown is employed as President of the Company and,
if elected by the Board, the Chairman of the Board. The Brown Agreement
provides that Mr. Brown will receive an annual salary of not less than
$120,000, subject to annual adjustment in the sole discretion of the Board
based upon the performance and accomplishments of Mr. Brown. Currently, Mr.
Brown's annual salary is $140,000. If the Company's earnings before deducting
interest, taxes and depreciation during any full quarterly period equal or
exceed the greater of (i) $1.5 million or (ii) 5% of the sum of the Company's
stockholders' equity and long- term debt (averaged on a daily basis throughout
such quarterly period), then Mr. Brown will be eligible to receive a quarterly
bonus of $12,500. The Brown Agreement also provides for the grant of
non-transferrable options to purchase 200,000 shares of Common Stock at an
exercise price of $5 per share, which options are subject to vesting and other
restrictions provided in an option agreement. Pursuant to the Brown Agreement,
Mr. Brown purchased 100,000 shares of restricted Common Stock which are subject
to vesting in equal amounts annually over a five year period and other
restrictions provided in the agreement, including Mr. Brown's continued
employment with the Company and Mr. Brown's right, under certain circumstances,
to purchase unvested shares for $2.50 per share. See "-- Executive
Compensation." Mr. Brown is also entitled to reimbursement of reasonable
business expenses incurred by him in the performance of his duties, as well as
certain fringe benefits. The initial term of the Brown Agreement expires on
November 30, 1998 and is subject to extension for additional one-year periods
by mutual consent of Mr. Brown and the Company. In the event Mr. Brown's
employment is terminated by Mr. Brown voluntarily or by the Company for due
cause, Mr. Brown has agreed, for a period of two years thereafter, not to take
certain actions in competition with the Company in the states of Oklahoma,
Texas, New Mexico, Louisiana or any other state in which the Company then owns,
leases or operates its assets. If, in the event of a Change of Control (as
defined in the Brown Agreement), Mr. Brown is terminated without due cause or
Mr. Brown voluntarily elects to terminate his employment for any reason, then
Mr. Brown will be entitled to continue to receive his base salary and other
employee benefits through the remaining term of the Brown Agreement and to
receive a cash payment in an amount equal to any earned but unpaid quarterly
bonus for the previous quarter.

The Company has entered into employment agreements dated as of January
1, 1997 with Edward S. Jacob, III (the "Jacob Agreement") and July 16, 1997
with David E. Grose (the "Grose Agreement" and collectively with the Jacob
Agreement, the "Executive Agreements"). Pursuant to the Executive Agreements,
Mr. Jacob is employed as Executive Vice President -- Operations & Marketing and
Mr. Grose is employed as Vice President and Chief Financial Officer. The Jacob
Agreement provides that Mr. Jacob will receive an annual salary of not less
than $105,000 in 1997 and $115,000 in 1998, subject to annual adjustment in the
sole discretion of the Board based upon performance and accomplishments of Mr.
Jacob. Currently, Mr. Jacob's annual salary is $130,000. The Grose Agreement
provides that Mr. Grose will receive an annual salary of not less than
$105,000, subject to annual adjustment in the sole discretion of the Board
based upon performance and accomplishments of Mr. Grose. If the Company's
earnings before deducting interest, taxes and depreciation during any full
quarterly period equal or exceed the greater of (i) $1.5 million or (ii) 5% of
the sum of the Company's stockholders' equity and long-term debt (averaged on a
daily basis throughout such quarterly period), then each of Messrs. Jacob and
Grose will be eligible to receive a quarterly bonus of $5,000. The Executive
Agreements also provide for the grant of non-transferrable options to purchase
50,000 shares of Common Stock to each of Messrs. Jacob and Grose at an exercise
price of $5 per share, for Mr. Jacob, and $10 per share, for Mr. Grose. Such
options were granted to Mr. Jacob on January 1, 1997 and to Mr. Grose on July
16, 1997 and are subject to vesting and other restrictions. Such options
generally become exercisable in equal annual amounts over five years. Each of
Messrs. Jacob and Grose are entitled to reimbursement of reasonable business
expenses incurred by him in the performance of his duties, as well as certain
fringe benefits. The Jacob Agreement also provided for payment to Mr. Jacob of
a relocation allowance of $50,000, which was paid by the Company in January
1997. The initial terms of the Jacob Agreement and the Grose Agreement expire
on December 31, 1998 and June 30, 1999, respectively, and are subject to
extension for additional one-year periods by mutual consent. Each of the
Executive Agreements provides that if the applicable executive officer's
employment is terminated by the executive voluntarily or by the Company for due
cause, for a period of two years thereafter, the executive will not take
certain actions in competition with the

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<PAGE> 56

Company in the states of Oklahoma, Texas, New Mexico, Louisiana or any other
state in which the Company then owns, leases or operates its assets. If, in
the event of a Change of Control (as defined in the Executive Agreement), the
executive is terminated without due cause or the executive voluntarily elects
to terminate his employment for any reason, then the executive will be entitled
to continue to receive his base salary and other employee benefits through the
remaining term of his Executive Agreement and to receive a cash payment in an
amount equal to any earned but unpaid quarterly bonus for the previous quarter.

1997 STOCK OPTION AND STOCK AWARD PLAN

The description set forth below represents a summary of the principal
terms and conditions of the Employee Stock Plan and does not purport to be
complete. Such description is qualified in its entirety by reference to the
Employee Stock Plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.

General

Purpose. The Company adopted the Employee Stock Plan for the purposes
of strengthening the ability of the Company and its subsidiaries to attract,
motivate and retain employees of superior capability and encouraging valued
employees to have a proprietary interest in the Company. To accomplish these
purposes, the Employee Stock Plan provides terms upon which certain eligible
employees of the Company and its subsidiaries may be granted stock options
("Options"), stock appreciation rights ("SARs"), restricted stock, performance
units, performance shares or phantom stock rights (collectively, "Incentive
Awards").

Administration. The Employee Stock Plan is administered by a
committee (the "Committee") consisting of two or more non-employee members of
the Board elected to the Committee by a majority of the Board. Presently, the
members of the Committee are Carl B. Anderson, III and Sidney L. Tassin.
Subject to the terms of the Employee Stock Plan, the Committee has the ability
to (i) determine, among other things, which full-time employees (by individual
or by class) are eligible to receive Incentive Awards and the time or times at
which Incentive Awards are granted, (ii) determine the number of shares of
Common Stock, Options, SARs, restricted stock awards, performance units or
shares or phantom stock rights that will be subject to each Incentive Award and
the terms and provisions of each Incentive Award, (iii) interpret the Employee
Stock Plan and agreements thereunder, (iv) prescribe, amend and rescind any
rules relating to the Employee Stock Plan and (v) make all other determinations
necessary for Employee Stock Plan administration.

Shares Subject to Employee Stock Plan. Initially, an aggregate of
1,600,000 shares of Common Stock (subject to certain adjustments) may be
issued, transferred or exercised pursuant to Incentive Awards under the
Employee Stock Plan. If the total number of issued and outstanding shares of
Common Stock increases, (other than any increase due to issuances of Common
Stock in connection with Incentive Awards under the Employee Stock Plan), then
the number of shares reserved under the Employee Stock Plan will be increased
one time per year, each January 1 during the existence of the plan, commencing
January 1, 1998, such that the number of shares reserved and available for
issuance under the Employee Stock Plan will equal 10% of the total number of
shares of issued and outstanding Common Stock. As a result, on January 1, 1998,
the number of shares reserved under the Employee Stock Plan increased to
1,818,394 shares. Notwithstanding the foregoing, only a total of 400,000 of the
original 1,600,000 shares of Common Stock reserved under the Employee Stock Plan
may be issued, transferred or exercised pursuant to incentive stock options
("ISOs") that comply with the requirements of Section 422 of the Internal
Revenue Code of 1986 (the "Code") under the Employee Stock Plan, and the number
of shares eligible for such treatment as ISOs shall not be subject to annual
adjustment. At the discretion of the Board or the Committee, the shares of
Common Stock delivered under the Employee Stock Plan may be made available from
(i) authorized but unissued shares, (ii) treasury shares or (iii) previously
issued but reacquired shares (or through a combination thereof).

Eligibility and Participation. The Employee Stock Plan authorizes the
Committee to designate, by individual or class, those persons who are eligible
to receive Incentive Awards under the Plan ("Participants"). Participants must
be employed on a full-time basis by the Company or its subsidiaries. Members
of the Board who are not officers or employees of the Company may not be
Participants.

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<PAGE> 57

Incentive Awards

Except to the extent that the Committee in a written agreement
evidencing an Incentive Award (an "Incentive Award Agreement") or the Employee
Stock Plan provides otherwise, Incentive Awards vest and become exercisable in
equal amounts on the first, second, third, fourth and fifth anniversaries of
their grant. For purposes of all Incentive Awards under the Employee Stock
Plan, the term "Fair Market Value" means the closing price per share of such
Common Stock on the principal stock exchange or quotation system on which the
Common Stock is traded or listed on the date of grant or other specified
measuring date, or, if there shall have been no such price so reported or
listed on that date, on the last preceding date on which a price was so
reported or listed. If Common Stock is not publicly traded, then "Fair Market
Value" shall mean the value of a share of Common Stock, as determined by the
Committee, in the Committee's sole and absolute discretion, at least annually.
The Committee may utilize the services of an independent third party in
determining the Fair Market Value of the Common Stock for this purpose. The
types of Incentive Awards that may be made under the Employee Stock Plan are as
follows:

Options. Options are rights to purchase a specified number of shares
of Common Stock at a specified price. An Option granted pursuant to the
Employee Stock Plan may consist of either an ISO or a non-qualified stock
option ("NQSO") that does not comply with the requirements of section 422 of
the Code. ISOs may not be granted to any employee who owns or would own
immediately after the grant of such ISO, directly or indirectly, stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company (unless at the time of such grant, the incentive stock
option price is at least 110% of fair market value and such Option is not
exercisable after the expiration of five years from the date of grant). The
exercise price for an ISO must be at least equal to fair market value of the
Common Stock on the date of grant and the term of such option cannot be greater
than 10 years. The exercise price for a NQSO must be equal to at least the
greater of (i) the par value of the Common Stock or (ii) 50% of the fair market
value of the Common Stock on the date of grant. The exercise price of an
Option is payable in cash or an equivalent acceptable to the Committee. At the
discretion of the Committee, the exercise price for an Option may be paid in
Common Stock valued at fair market value on the exercise date, another
Incentive Award valued at fair market value, or a combination thereof equal in
value to the exercise price. Subject to the foregoing, the exercise price and
other terms and conditions relating to each Option are determined by the
Committee at the time of grant.

Stock Appreciation Rights. SARs are rights to receive a payment, in
cash or Common Stock, equal to the excess of the fair market value of a
specified number of shares of Common Stock on the date of exercise over a
specified strike price. The Committee may grant SARs in connection with an
Option (either at the time of grant or at any time during the term of the
Option) or without relation to an Option. For SARs related to Options, the
applicable strike price is the exercise price of the related Stock Option and
for SARs granted without relationship to an Option, the applicable strike price
is the fair market value of a share of Common Stock on the date of grant of the
SAR. Options related to SARs cease to be exercisable when the SAR is
exercised. Subject to certain exceptions, an SAR granted in connection with an
Option is exercisable at such time or times and only to the extent that the
related Option is exercisable, and may not be disposed by the holder except to
the extent that such related Option may be disposed. The Committee may provide
at the date of grant of an SAR for a limit on the amount payable upon exercise
of the SAR. Any such limitation must be noted in the agreement evidencing the
holder's SAR.

Restricted Stock Awards. The Committee may grant shares of restricted
stock pursuant to the Employee Stock Plan. Shares of restricted stock may not
be disposed of until the restrictions are removed or expire, and the Committee
may impose other conditions on such shares as it may deem advisable. The
restrictions upon restricted stock awards lapse as determined by the Committee,
subject to certain other lapse provisions. Shares of restricted stock may
remain subject to certain restrictions as set forth in the restricted stock
agreement. Each restricted stock award may have a different restriction
period, in the discretion of the Committee. The Committee may, in its
discretion, prospectively change the restriction period applicable to a
particular restricted stock award. Subject to certain provisions, the
Committee may, in its discretion, determine what rights, if any, a grantee of a
restricted stock award will have with respect to such stock, including the
right to vote the shares and receive all dividends and other distributions paid
or made with respect thereto.

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Performance Awards. Performance units or performance shares
(collectively, "Performance Awards") may be granted under the Employee Stock
Plan subject to the attainment of one or more performance goals. Performance
goals may relate to any financial, production, sales or cost performance
objectives determined by the Committee at the beginning of a designated period.
If minimum performance is achieved or exceeded, the value of a Performance
Award will be based on the degree to which actual performance exceeds the
preestablished minimum performance standards. The Committee may, at any time,
modify the performance measures previously established for a Performance Award
as it considers appropriate and equitable. Payments with respect to
Performance Awards are made in cash or Common Stock valued at fair market value
as of the close of the applicable performance period (or a combination of both)
in the discretion of the Committee following the close of the applicable
performance period.

Phantom Stock Rights. Phantom stock rights entitle a holder, upon
conversion, to receive payment of cash or in shares of Common Stock valued at
fair market value on the date of conversion of the phantom stock right (or
both) in the discretion of the Committee. Upon conversion of a phantom stock
right, the Participant shall be entitled to receive payment of an amount
determined by multiplying (i) the fair market value of a share of Common Stock
on the date of conversion, by (ii) the number of shares of Common Stock as to
which such phantom stock right has been converted. Any payment of shares of
Common Stock upon conversion of a phantom stock right may be made in shares of
restricted stock.

Additional Provisions of the Employee Stock Plan

Expiration of Incentive Awards and Effects of Employment Separation.
Except to the extent that the Committee provides otherwise in an Incentive
Award Agreement, Incentive Awards (whether or not vested) expire immediately or
are forfeited by the recipient upon termination of such recipient's employment
with the Company or any subsidiary employing such recipient for any reason
other than death, disability or retirement. Most, if not all, of the Incentive
Award Agreements provide that vested Incentive Awards are not forfeited if the
recipient is terminated for reasons other than Due Cause (as defined in the
Incentive Award Agreement). Upon death, retirement, or disability resulting in
the cessation of an employee's employment with the Company or its subsidiaries,
any unexercised Options or SARs or outstanding phantom stock rights terminate
on the date that is 90 days following the date of death, retirement or
disability (unless it expires by its terms on an earlier date). In the event
of death, disability or retirement, or other reasons that the Committee deems
appropriate, the Performance Awards will continue after the date of the
applicable event for such period of time as determined by the Committee,
subject to the terms of the Incentive Award Agreement or any other applicable
agreement, but only to the extent exercisable on the date of the applicable
event.

If a holder of a restricted stock award ceases to be an employee
because of retirement, death, permanent and total disability, or because of
other reasons as the Committee deems appropriate, the Committee may determine
that restrictions on all or some portion of the restricted stock award subject
to restrictions at the time of such employment termination will be deemed to
have lapsed. If an eligible employee who has purchased restricted stock under
the Employee Stock Plan terminates employment with the Company for any reason,
then all shares of restricted stock that have not previously vested will be
repurchased by the Company at the cost paid by such employee. In addition,
upon an eligible employee's termination of employment with the Company and all
of its subsidiaries for any reason (including by reason of death or
disability), the Company has the right to purchase from such employee all
shares of Common Stock awarded under the Employee Stock Plan on the terms and
conditions set forth in the applicable Incentive Award.

Adjustment Provisions. The Employee Stock Plan provides that upon the
dissolution or liquidation of the Company, certain types of reorganizations,
mergers or consolidations, the sale of all or substantially all of the assets
of the Company, or a "change of control" (as defined in the Employee Stock
Plan), the Committee may determine (without stockholder approval), subject to
the terms of any applicable agreement evidencing an Incentive Award, that (i)
all or some Incentive Awards then outstanding under the Employee Stock Plan
will be fully vested and exercisable or convertible, as applicable, (ii) some
or all restrictions on restricted stock lapse immediately, or (iii) there will
be a substitution of new Incentive Awards by such successor employer
corporation or a parent or subsidiary company therefor, with appropriate
adjustments as to the number and kind of shares or units subject to such awards
and prices. In addition, in the event of a "change of control," the Committee
may take certain actions, without stockholder approval, including but not
limited to (i) acceleration of the exercise dates of any outstanding SARs or
Options or immediate

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<PAGE> 59

vesting, (ii) acceleration of the restriction (lapse of forfeiture provision)
period of any restricted stock award, (iii) grants of SARs to holders of
outstanding Options, (iv) payment of cash to holders of Options in exchange for
the cancellation of their outstanding Options, (v) payment for outstanding
Performance Awards, (vi) acceleration of the conversion dates of outstanding
phantom stock rights, (vii) grants of new Incentive Awards or (viii) other
adjustments or amendments to outstanding Incentive Awards.

Transfer of Incentive Awards. No Incentive Award and no right under
the Employee Stock Plan, contingent or otherwise, may be assigned, transferred
or otherwise disposed by a recipient other than pursuant to a court order, by
will or beneficiary designation, or pursuant to the laws of descent and
distribution. Pursuant to the Employee Stock Plan, so long as the Common Stock
has not been publicly traded for at least 90 days, any Common Stock obtained
pursuant to an Incentive Award will be subject to the Company's right of first
purchase for the price and upon the other terms provided in the Incentive Award
agreement if the holder of such shares intends to transfer them. In addition,
upon an employee's death, the Company has the right to purchase all or some of
the Common Stock that such employee obtained pursuant to an Incentive Award at
its fair market value within nine months of the employee's death.

Amendment and Termination of the Employee Stock Plan. Subject to
stockholder approval where expressly required by law, the Board may amend,
suspend or terminate the Employee Stock Plan at any time. No amendment, unless
approved by the holders of a majority of the outstanding shares of voting stock
of the Company may (i) change the class of persons eligible to receive Incentive
Awards, (ii) materially increase the benefits accruing to Participants, (iii)
increase by more than 10% the number of shares of Common Stock subject to the
Employee Stock Plan (except for certain adjustments required by the Employee
Stock Plan) or (iv) transfer the administration of the Employee Stock Plan to
any person who is not a nonemployee director. Except as otherwise provided in
the Employee Stock Plan, the Committee may not, without the applicable
Participant's consent, modify the terms and conditions of such Participant's
Incentive Award. No amendment, suspension, or termination of the Employee Stock
Plan may, without the applicable Participant's consent, alter, terminate or
impair any right or obligation under any Incentive Award previously granted
under the Employee Stock Plan. Unless previously terminated, the Employee Stock
Plan will terminate and no more Incentive Awards may be granted after the tenth
anniversary of the adoption of the Employee Stock Plan by the Board. The
Employee Stock Plan will continue in effect with respect to Incentive Awards
granted before termination of the Employee Stock Plan and until such Incentive
Awards have been settled, terminated or forfeited.

1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

The description set forth below represents a summary of the principal
terms and conditions of the Director Stock Plan and does not purport to be
complete. Such description is qualified in its entirety by reference to the
Director Stock Plan, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.

General

Purpose. The Company adopted the Director Stock Plan for the purposes
of strengthening the ability of the Company to attract and retain experienced
and knowledgeable independent individuals to act as non-employee directors of
the Company and encouraging such directors to have a proprietary interest in
the Company. To accomplish these purposes, the Director Stock Plan provides
terms upon which members of the Board who are not employees of the Company or
any of its subsidiaries ("non-employee directors") will be granted
non-qualified Options.

Administration. The Director Stock Plan is administered by a
committee (the "Director Plan Committee") consisting of two or more
non-employee directors elected to the Director Plan Committee by a majority of
the Board. Currently, the members of the Director Plan Committee are Carl B.
Anderson, III and Sidney L. Tassin. Subject to the terms of the Director Stock
Plan, the Director Plan Committee has the ability to (i) determine the terms
and provisions of the agreements under which Options are granted under the
Director Stock Plan, (ii) to interpret the Director Stock Plan and the
agreements thereunder, (iii) to prescribe, amend and rescind any rules relating
to the Director Stock Plan and (iv) to make all other determinations necessary
for the administration of the Director Stock Plan. The Director Plan Committee
does not have discretion or authority to disregard or change any of the terms
and conditions under which Options are granted to non-employee directors.

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<PAGE> 60

Shares Subject to Director Stock Plan. Initially, an aggregate of
200,000 shares of Common Stock may be issued, transferred or exercised pursuant
to Options under the Director Stock Plan (the "Authorized Shares"). If the
total number of issued and outstanding shares of Common Stock increases after
the consummation of the Initial Public Offering (other than any increase due to
issuances of Common Stock in connection with awards of Options under the
Director Stock Plan), then the number of Authorized Shares automatically
increases one time per year, commencing January 1, 1998 and occurring each
January 1 thereafter during the existence of the Director Stock Plan, by a
sufficient number of shares of Common Stock such that the number of Authorized
Shares reserved and available for issuance under the Plan shall equal 1.2% of
the total number of shares of issued and outstanding Common Stock. As result,
on January 1, 1998, the number of Authorized Shares increased to 218,207 shares.
At the discretion of the Board or the Director Plan Committee, the shares of
Common Stock delivered under the Director Stock Plan may be made available from
(i) authorized but unissued shares, (ii) treasury shares or (iii) previously
issued but reacquired shares (or through a combination thereof).

Eligibility and Participation. Each non-employee director is
automatically eligible to participate in the Director Stock Plan unless he does
not retain the annual retainer to which he is entitled for service on the
Board. No non-employee director may be issued an Option to acquire more than
15,000 shares of Common Stock in any plan year.

Options

Automatic Initial and Annual Awards of Options. Upon the consummation
of the Initial Public Offering, each person who was then a non-employee director
received, and thereafter on the date at which a person first becomes a non-
employee director, such non-employee director will receive, a one-time grant of
an Option to acquire 15,000 shares of Common Stock (an "Initial Award"), which
shall be exercisable on or after November 4, 1998. In each year succeeding the
year in which a non-employee director receives an Initial Award, the
non-employee director, if reelected to the Board, will be granted an additional
Option to acquire 5,000 shares of Common Stock (an "Annual Award"). Annual
Awards will be made as of the date of the Company's regular annual meeting of
stockholders and will be immediately exercisable. No Option granted as an
Initial Award or Annual Award will be exercisable after the tenth anniversary of
the date of grant.

Retainer Options. Under the Director Stock Plan, a non-employee
director may elect to receive, in lieu of any or all of the annual cash
retainer he would otherwise receive in cash during the succeeding plan year
(currently $10,000 annually), Options for the purchase of a number of shares
equal to the amount of the annual retainer so forgone divided by the fair
market value of the Common Stock on the date of grant.

Exercise Price. Each Option granted pursuant to the Director Stock
Plan will be exercisable at a per share price equal to the fair market value of
a share of Common Stock as of the date of grant. Such price may be paid in
cash or, in the discretion of the Director Plan Committee, by assigning to the
Company shares equal in value to the exercise price.

Termination. Except to the extent the Director Plan Committee
provides otherwise in the agreement evidencing an Option under the Director
Stock Plan, all Options granted under the Director Stock Plan that are held by
a non- employee director will expire and be forfeited upon the date of
resignation or removal from the Board of such non- employee director, unless
such resignation or removal results from the death or permanent and total
disability of the director, or resignation upon the attainment of 65 years.
Upon such death, disability or resignation at age 65, such Options will remain
exercisable and effective for six months following the date of the event
causing the non-employee director to cease membership on the Board.

Effect of Corporate Changes. In the event of certain significant
corporate changes, including (i) dissolution or liquidation of the Company,
(ii) a reorganization, merger or consolidation (other than for purposes of
reincorporation in a different state) in which the Company is not the survivor,
(iii) the sale of all or substantially all of the assets of the Company, or
(iv) a Change of Control (as defined in the Director Stock Plan), subject to
the terms of any applicable agreement, the Director Plan Committee may, in its
discretion, without obtaining stockholder approval, take any one or more of the
following actions: (a) determine that all or some Options then outstanding will
be fully vested and exercisable, (b) substitute new Options by a successor
employer with appropriate adjustments as to the number and kind of shares
subject to such awards and prices or (c) cancel such Options and pay the
non-employee directors or their

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<PAGE> 61

beneficiaries the difference between the exercise price and the fair market
value of the shares subject to the Options as of the date of such corporate
change.

STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS

Certain of the directors and executive officers of the Company are
beneficial owners of shares of Common Stock. See "Principal and Selling
Stockholders."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal year ended December 31, 1996, the Company had no
compensation committee or other committee of the Board performing similar
functions and no executive officer of the Company participated in deliberations
of the Board concerning executive officer compensation. Decisions concerning
compensation of executive officers during 1996 were made by, and the Company's
Compensation Committee currently consists of, Carl B. Anderson, III and Sidney
L. Tassin, both of whom are nonemployee directors. See "-- Board of Directors
- -- Board Committees." Mr. Anderson and Mr. Tassin each had direct or indirect
interests in certain transactions described in "Certain Relationships and
Related Transactions."

INDEMNIFICATION AGREEMENTS

The Company has entered into Indemnification Agreements (the
"Indemnification Agreements") with its directors and certain of its officers
(the "Indemnitees"), a form of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. Under the terms of
the Indemnification Agreements, the Company is required to indemnify the
Indemnitees against certain liabilities arising out of their services for the
Company. The Indemnification Agreements require the Company to indemnify each
Indemnitee to the fullest extent permitted by law and to advance certain
expenses incurred by an Indemnitee. The Indemnification Agreements provide
limitations on the Indemnitees' rights to indemnification in certain
circumstances. To the extent that indemnification provisions contained in the
Indemnification Agreements purport to include indemnification for liabilities
arising under the Securities Act, the Company has been informed that in the
opinion of the Commission, such indemnification is contrary to public policy
and is therefore unenforceable.

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of January 31, 1998 both prior to
and after giving effect to the Merger Share Distribution by (i) each person
known by the Company to own more than 5% of the outstanding shares of Common
Stock, (ii) each of the Company's directors, (iii) each named executive officer,
(iv) all executive officers and directors as a group and (v) DLB. All persons
listed have an address in care of the Company's principal executive offices and
have sole voting and investment power with respect to their shares unless
otherwise indicated.

<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
BEFORE THE MERGER SHARE AFTER THE MERGER SHARE
DISTRIBUTION(1) DISTRIBUTION(1)
-------------------------- --------------------------
NAME AND ADDRESS
OF BENEFICIAL OWNER NUMBER PERCENTAGE(2) SHARES TO BE NUMBER PERCENTAGE(2)
DISTRIBUTED
<S> <C> <C> <C> <C>
Charles E. Davidson
411 West Putnam Avenue
Greenwich, Connecticut 06830 . . . . . . -- -- -- 1,707,887(15) 9.4%
DLB Oil & Gas, Inc.
1601 Northwest Expressway, Suite 700
Oklahoma City, Oklahoma 73118 . . . . . . 2,955,000(3) 16.3% 2,955,000 -- --

Energy Spectrum LLC
5956 Sherry Lane, Suite 600
Dallas, Texas 75225 . . . . . . . . . . . 1,100,000(4) 6.0 -- 1,100,000 6.0

Carl B. Anderson, III
c/o AnSon Partners Limited Partnership
4005 Northwest Expressway, Suite 400E
Oklahoma City, Oklahoma 73116 . . . . . . 1,288,000(5)(6) 7.1 -- 1,288,000 7.1

James E. Brown . . . . . . . . . . . . . . 313,000(7) 1.7 -- 313,000 1.7
Edward S. Jacob, III . . . . . . . . . . . 10,000(8) * -- 10,000 *
David E. Grose . . . . . . . . . . . . . . --(9) -- -- -- --
Mark Liddell
c/o DLB Oil & Gas, Inc.
1601 Northwest Expressway, Suite 700
Oklahoma City, Oklahoma 73118 2,955,000(6)(10) 16.3 -- 291,456(15) 1.6
Merrill A. Miller, Jr.
c/o National-Oilwell, Inc.
5555 San Felipe
Houston, Texas 77056 . . . . . . . . . . --(6) -- -- -- --
Sidney L. Tassin
c/o Energy Spectrum Partners LP
5956 Sherry Lane, Suite 600
Dallas, Texas 75225 . . . . . . . . . . . 1,100,000(6)(11) 6.0 -- 1,100,000 6.0

Lew O. Ward
c/o Ward Petroleum Corporation
502 South Fillmore Road
Enid, Oklahoma 73703 . . . . . . . . . . 423,125(6)(12) 2.3 -- 423,125 2.3
All parties to the Stockholders and
Voting Agreement as a group (13) . . . . 5,343,000 29.4 -- 4,682,647 25.8

All directors and executive officers
as a group (8 persons) . . . . . . . . . 6,089,125(14) 33.4% -- 3,422,581 18.8%

</TABLE>

__________
* Less than one percent.

(1) The information contained in this table with respect to beneficial
ownership reflects "beneficial ownership" as defined in Rule 13d-3
under the Exchange Act. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by
that person that are exercisable on January 31, 1998 or become
exercisable within 60 days following January 31, 1998 are deemed
outstanding. However, such shares are not deemed outstanding for the
purpose

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<PAGE> 63

of computing the percentage ownership of any other person. All
information with respect to the beneficial ownership of any
stockholder has been furnished by such stockholder and, unless
otherwise indicated, each stockholder has sole voting and investment
power with respect to the shares listed as beneficially owned by such
stockholder, subject to community property laws where applicable.

(2) Percentage of ownership is based on 18,183,945 shares of Common Stock
outstanding.

(3) Represents shares of Common Stock issued to DLB in connection with the
Bonray Acquisition, less 60,000 shares issued to DLJ at the direction
of DLB. Charles E. Davidson, Chairman of the Board of DLB, is the
beneficial owner of a majority of the outstanding common stock of DLB
and may be deemed to have beneficial ownership of the shares of Common
Stock held by DLB. Mark Liddell and Mike Liddell, as executive
officers and significant stockholders of DLB, may also be deemed to
have beneficial ownership of these shares.

(4) Represents shares of Common Stock (including 112,000 shares of Common
Stock that may be acquired within the next 60 days upon exercise of
outstanding Series B Warrants) held of record by Energy Spectrum
Partners LP, of which Energy Spectrum Capital LP is the sole general
partner. Energy Spectrum LLC is the sole general partner of Energy
Spectrum Capital LP and possesses sole voting and investment power
with respect to such shares. Sidney L. Tassin, as President and a
member of Energy Spectrum LLC, may be deemed to have beneficial
ownership of these shares. Mr. Tassin disclaims beneficial ownership
of such shares.

(5) Includes (i) 1,018,000 shares held of record by APLP, of which Mr.
Anderson is managing general partner, (ii) 170,000 shares held of
record by James E. Brown that are subject to voting rights retained by
Mr. Anderson pursuant to an irrevocable proxy and (iii) 100,000 shares
held of record and beneficially by Mr. Anderson.

(6) Excludes 15,000 shares of Common Stock that may be acquired upon
exercise of options granted in connection with the Initial Public
Offering pursuant to the Director Stock Plan. None of such options
are exercisable within the next 60 days.

(7) Includes (i) 100,000 shares of Common Stock held by Mr. Brown which
vest pro rata over five years starting on December 10, 1997 and are
subject to certain restrictions on resale and provisions for the
repurchase by the Company at a specified price and upon certain
conditions, including termination of employment with the Company, (ii)
170,000 shares for which an irrevocable voting proxy has been granted
to Carl B. Anderson, III and (iii) 40,000 shares subject to options
granted pursuant to the Employee Stock Plan that are exercisable
within the next 60 days. Excludes options to purchase an aggregate of
360,000 shares held by Mr. Brown which were granted pursuant to the
Employee Stock Plan, subject to vesting and other conditions contained
in stock option agreements, none of which options are exercisable
within the next 60 days.

(8) Includes 10,000 shares subject to options granted pursuant to the
Employee Stock Plan that are exercisable within the next 60 days.
Excludes options to purchase an aggregate of 180,000 shares held by Mr.
Jacob which were granted pursuant to the Employee Stock Plan, subject
to vesting and other conditions contained in stock option agreements,
none of which options are exercisable within the next 60 days.

(9) Excludes options to purchase an aggregate of 60,000 shares held by
Mr. Grose which were granted pursuant to the Employee Stock Plan,
subject to vesting and other conditions contained in stock option
agreements, none of which options are exercisable within the next 60
days.

(10) Represents shares held of record and beneficially by DLB. Mr.
Liddell, a director of the Company, is President and a significant
stockholder of DLB. Mr. Liddell disclaims beneficial ownership of
such shares.

(11) Represents shares held of record by Energy Spectrum Partners LP and
beneficially by Energy Spectrum LLC. Mr. Tassin, a director of the
Company, is the President of Energy Spectrum LLC, which is the
ultimate general partner of Energy Spectrum Partners LP. Mr. Tassin
disclaims beneficial ownership of such shares. See note (4) above.

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<PAGE> 64

(12) Includes (i) 253,725 shares held of record by Wil-Cas Investments,
L.P., a family limited partnership controlled by Lew O. Ward and a
family trust for the benefit of Mr. Ward's children, William C. Ward
and Casidy Ward, of which Bank of Oklahoma, N.A. is trustee, and (ii)
169,400 shares that may be acquired within the next 60 days upon the
exercise of outstanding warrants held by Wil-Cas Investments, L.P.

(13) Currently, DLB is a party to the Stockholders and Voting Agreement.
Upon consummation of the Merger Share Distribution, DLB will cease to
be such a party and the stockholders of the Company party to the
Stockholders and Voting Agreement will be Energy Spectrum, APLP and
Carl B. Anderson, III. At the time of the Merger Share Distribution,
each of Mike Liddell, Mark Liddell and Charles E. Davidson will be
required to execute a supplemental agreement, agreeing to become
parties to and to be bound by the Stockholders and Voting Agreement, at
which time, assuming a Merger Share Distribution Ratio of 0.2277, an
aggregate of 4,682,647 shares (25.4%) of Common Stock will be
beneficially owned by the parties to the Stockholders and Voting
Agreement. See "Certain Relationships and Related Transactions --
Stockholders and Voting Agreement."

(14) Includes (i) 112,000 shares that may be acquired by Energy Spectrum
Partners LP within the next 60 days upon the exercise of outstanding
Series B Warrants, (ii) 170,000 shares subject to voting rights
retained by Mr. Anderson, (iii) 100,000 shares of restricted stock held
by Mr. Brown, (iv) 40,000 shares subject to options granted to Mr.
Brown pursuant to the Employee Stock Plan that vest within the next 60
days, (v) 10,000 shares subject to options granted to Mr. Jacob
pursuant to the Employee Stock Plan that are exercisable within the
next 60 days and (vi) 169,400 shares that may be acquired by Wil-Cas
Investments, L.P. within the next 60 days upon the exercise of
outstanding warrants.

(15) Based on a Merger Share Distribution Ratio of 0.2277.

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<PAGE> 65

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The following discussion identifies certain of the Company's
relationships and related transactions in which any founder, director or
executive officer of the Company, any person known to the Company to own of
record or beneficially over 5% of the Common Stock, or any member of the
immediate family of any such persons had, or has, a direct or indirect material
interest. Transactions involving any former director of the Company that have
occurred since the formation of the Company in December 1996 are also included.
DLB, Energy Spectrum and APLP are each record or beneficial owners of over 5% of
the Common Stock. Prior to the Initial Public Offering, Chesapeake and the
Oliver Companies were record or beneficial owners of over 5% of the Common
Stock. APLP, Energy Spectrum, the Oliver Companies and Chesapeake participated
in the Formation Transactions as founders of the Company. Three of the
Company's former directors, Aubrey K. McClendon, Tom L. Ward and Marcus C.
Rowland, are stockholders, executive officers and/or directors of Chesapeake.
One of the Company's directors, Sidney L. Tassin, and one of the Company's
former directors, James W. Spann, are executive officers and partners of the
ultimate general partner of Energy Spectrum. Roy T. Oliver, a former director
of the Company, is a director, executive officer and significant stockholder of
certain of the Oliver Companies. Mike Mullen is a director, executive officer
and significant stockholder of certain of the Oliver Companies. Prior to the
Ward Acquisition, Lew O. Ward, a director of the Company, was a director,
executive officer and significant stockholder of Ward. Carl B. Anderson, III,
a director of the Company, and Robert E. Bell, a former director of the Company,
are directors, executive officers and holders of substantial ownership interests
in APLP (of which Anadarko is a subsidiary). James E. Brown is a director and
executive officer of the Company and, prior to the formation of the Company, was
a director and executive officer of Anadarko. Edward S. Jacob, III and David E.
Grose are each executive officers of the Company. Each of such persons and
entities has or had a direct or indirect material interest in one or more of the
arrangements and transactions described below.

REGISTRATION RIGHTS AGREEMENTS

The Company and certain of its investors, including certain directors,
officers and significant stockholders, are party to a Registration Rights
Agreement (the "Registration Rights Agreement") covering shares of Common Stock,
including the shares of Common Stock issuable upon the exercise of options,
warrants and other Company securities (collectively, "Common Stock
Equivalents"), owned by such investors (the "Registrable Securities"). The
Registration Rights Agreement applies to Registrable Securities owned by Energy
Spectrum, APLP, the Oliver Companies and certain of their affiliates, Ward and
certain of its transferees, Carl B. Anderson, III, James E. Brown, Edward S.
Jacob, III, David E. Grose and certain other persons. As of December 31, 1997,
4,062,725 outstanding shares of Common Stock and 1,061,400 Common Stock
Equivalents (640,000 of which remain subject to further vesting pursuant to the
Employee Stock Plan) were subject to the Registration Rights Agreement.
Additionally, any shares issued by the Company upon conversion of the
Subordinated Notes will be subject to the Registration Rights Agreement.

The Registration Rights Agreement provides, among other things, that,
at any time after 180 days following the Initial Public Offering (subject to
customary "black-out" periods) certain holders of Registrable Securities with a
minimum aggregate share value of at least $20 million may require the Company
to effect the registration under the Securities Act of the Registrable
Securities owned by such holders, subject to certain limitations. The
Registration Rights Agreement also provides certain "piggyback" registration
rights to the holders of Registrable Securities whenever the Company proposes
to register an offering of any of its capital stock under the Securities Act,
subject to certain exceptions, including pro rata reduction if, in the
reasonable opinion of the managing underwriter of the offering, such a
reduction is necessary to prevent an adverse effect on the marketability or
offering price of all the securities proposed to be offered in such offering.

The Registration Rights Agreement contains customary provisions
regarding the payment of expenses by the Company and regarding mutual
indemnification agreements between the Company and the holders of Registrable
Securities for certain securities law violations.

In connection with the Bonray Acquisition, the Company entered into a
registration rights agreement (the "DLB Registration Rights Agreement") for the
benefit of DLB and its financial advisor with respect to such transaction. The
DLB Registration Rights Agreement covers 3,015,000 shares of Common Stock
issued in the Bonray Acquisition. The DLB Registration Rights Agreement
provides, among other things, that, at any time (subject to customary
"black-out"

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<PAGE> 66

periods following 120 days after the Initial Public Offering) DLB may request
the Company to register the Merger Share Distribution. All of the Shares the
subject of the Merger Share Distribution are being registered pursuant to the
terms of the DLB Registration Rights Agreement.

The DLB Registration Rights Agreement requires the Company to pay
expenses associated with the Merger Share Distribution. In addition, the DLB
Registration Statement contains customary provisions regarding mutual
indemnification agreements between the Company and the holders of registrable
securities for certain securities law violations.

The foregoing summary of the principal provisions of the Company's
registration rights agreements does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all of the provisions of the
Registration Rights Agreement and the DLB Registration Rights Agreement, copies
of which have been filed as exhibits to the Registration Statement of which
this Prospectus is a part.

STOCKHOLDERS AND VOTING AGREEMENT

The Company is party to the Stockholders and Voting Agreement among
DLB, Energy Spectrum, APLP and Carl B. Anderson, III that provides for certain
agreements regarding the corporate governance of the Company, transfer
restrictions on shares of Common Stock and Common Stock Equivalents, and other
customary terms and conditions. Immediately following the Merger Share
Distribution, DLB will no longer be a party to the Stockholders and Voting
Agreement, the DLB Group will become parties to the Stockholders and Voting
Agreement and the remaining original parties thereto, together with the DLB
Group, will beneficially own approximately 4,682,647 shares of Common Stock,
representing 25.8% of the outstanding shares of Common Stock. The Stockholders
and Voting Agreement will terminate on November 4, 2007.

Board Representation. The Stockholders and Voting Agreement provides
that the Board shall not consist of more than ten members. In addition, the
Stockholders and Voting Agreement provides that, certain stockholders who are
party thereto have the right to designate a specified number of persons to be
nominated for election as directors. Each of Energy Spectrum, Anadarko and the
DLB Group (to the extent the DLB Group elects to be bound thereby) have the
right to designate one nominee for director as follows: (i) Energy Spectrum has
the right to designate one nominee for director as long as it owns at least (a)
5% of the outstanding Common Stock of the Company, (b) 50% in principal amount
of the Subordinated Notes purchased by it in the May Financing or (c) 600,000
shares of Common Stock, (ii) Anadarko has the right to designate one nominee
for director as long as it owns at least (a) 5% of the outstanding Common Stock
of the Company or (b) 600,000 shares of Common Stock, and (iii) the DLB Group
has the right to designate one nominee for director as long as the DLB Group
owns at least 5% of the outstanding Common Stock of the Company. The parties
to the Stockholders and Voting Agreement (the "Bound Stockholders") are
obligated to vote all of their voting securities (including certain Common
Stock Equivalents) of the Company for these designees.

Certain Transfer Restrictions. In accordance with the Stockholders and
Voting Agreement and in connection with the Initial Public Offering, the Bound
Stockholders agreed to a "lock-up" period of up to 180 days, during which such
stockholders will not transfer (other than pursuant to the Merger Share
Distribution) any Common Stock or Common Stock Equivalents without the prior
written consent of the Board, with any members of the Board designated by such
Bound Stockholder abstaining. The Bound Stockholders have agreed that any such
Bound Stockholder holding 5% or more of the Common Stock (on a fully diluted
basis) shall not, subject to certain exceptions, transfer 5% or more of the
Common Stock (on a fully diluted basis) unless such Bound Stockholder has
received the prior written consent of the Board, with any member of the Board
designated by such Bound Stockholder abstaining.

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<PAGE> 67

The foregoing summary of the material provisions of the Stockholders
and Voting Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of such
agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.

CERTAIN ARRANGEMENTS RELATED TO THE CONSOLIDATION TRANSACTIONS

The Formation Transactions

The Company was formed in December 1996 through a series of affiliated
entity transactions in which the Company became the successor to Anadarko, the
contract drilling subsidiary of privately held APLP. In connection with the
Formation Transactions (i) APLP contributed ten drilling rigs, including two
rigs requiring refurbishment, for 2,000,000 shares of Common Stock, (ii) the
Oliver Companies exchanged six drilling rigs requiring refurbishment for
1,600,000 shares of Common Stock and (iii) Energy Spectrum acquired 2,000,000
shares of Common Stock for $10 million. Additionally, Chesapeake entered into
drilling contracts with two-year terms for six of the Company's rigs in
consideration for the Chesapeake Option. See "Business -- Formation and
Other Transactions." In connection with the Formation Transactions, the ten rigs
acquired from APLP were valued at an aggregate of $10.8 million, the six rigs
acquired from the Oliver Companies were valued at an aggregate of $9.5 million
and the six Chesapeake Drilling Agreements were valued at an aggregate of $1.1
million. The valuations of the rigs acquired in the Formation Transactions
from APLP and the Oliver Companies, the values placed upon the Chesapeake
Drilling Agreements and the consideration to be received by each such founder
were determined and established through negotiations among representatives of
APLP and Anadarko (including Carl B. Anderson, III), Energy Spectrum (including
Sidney L. Tassin), the Oliver Companies (including Roy T. Oliver and Mike
Mullen) and Chesapeake (including Aubrey McClendon), taking into account the
then existing market values of available rigs, the anticipated costs to
complete the necessary refurbishment of the contributed rigs and the expected
values of revenues to be received by the Company from the Chesapeake Drilling
Agreements.

Three of the rigs acquired by the Company from APLP were acquired by
APLP within the two years prior to their contribution to the Company. APLP
acquired one rig in each of August, September and October 1996 for $1.3
million, $922,000 and $450,000, respectively. At the time of their
contribution to the Company, such rigs were valued on the books of the Company
at $2.7 million. Four of the rigs acquired by the Company from the Oliver
Companies were acquired by the contributing founder within the two years prior
to their contribution to the Company at an aggregate cost of $2.6 million. At
the time of their contribution to the Company, such rigs were valued on the
books of the Company at $4.4 million.

Chesapeake Option. Upon issuance by the Company, the Chesapeake
Option provided Chesapeake with the right to purchase up to 2,000,000 shares of
Common Stock from the Company at an exercise price of $6 per share. The
Chesapeake Option would have expired (i) as to 668,000 shares, on December 5,
2000 and (ii) as to 1,332,000 shares, on December 5, 1998, subject to extension
to December 5, 2000 if Chesapeake extended four of the Chesapeake Drilling
Agreements for additional two-year terms. In August 1997, Chesapeake
relinquished the Chesapeake Option in connection with the Chesapeake
Transactions. See "-- Chesapeake Transactions."

Chesapeake Drilling Agreements. In December 1996 in connection with
the Formation Transactions, Chesapeake and its operating subsidiary
(collectively referred to in this discussion as "Chesapeake") entered into
drilling contracts (the "Chesapeake Drilling Agreements") with the Company
pursuant to which Chesapeake agreed to engage six of the Company's rigs for two-
year terms.

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Through September 30, 1997, the Company had recognized aggregate revenues of
$7.5 million from the Chesapeake Drilling Agreements.

Under the terms of the Chesapeake Drilling Agreements, the standard day
rates were subject to upward, but not downward, adjustment annually in November
to the average then-current market rates for the areas of operation, less $100
per day. The Company and Chesapeake were required to consider such adjustment
each November during the term of the applicable Chesapeake Drilling Agreement
and if no agreement could be timely reached as to the appropriate rate
adjustment, the Company had the option to terminate the contract for such rig at
the conclusion of operations at the well then being drilled. In December 1997,
the Company and Chesapeake were unable to agree on an appropriate rate
adjustment, so the Company exercised its option to terminate the Chesapeake
Drilling Agreements. At March 25, 1998, three of the Company's six rigs formerly
covered by the Chesapeake Drilling Agreements remained under contract with
Chesapeake on a well-to-well basis.

In addition to the Chesapeake Drilling Agreements, between December
1996 and September 30, 1997, Chesapeake engaged five of the Company's rigs
under short term drilling contracts on standard daywork terms. The Company
recognized aggregate revenues of $4.4 million from such contracts over that
period. The Company recognized aggregate revenues of $11.9 million over that
period from all drilling contracts with Chesapeake.

Oliver Companies' Put Rights. Also in connection with the Formation
Transactions, the Company granted the Oliver Companies a right, exercisable at
any time between June 2, 1998 and July 2, 1998 if the Company had not
previously completed an IPO (as defined in the Master Agreement providing for
such right), to require the Company to either (at the Company's option) (i)
repurchase all 1,600,000 of the shares of Common Stock held by the Oliver
Companies for an aggregate purchase price of $12 million ($7.50 per share) in
cash or (ii) issue to the Oliver Companies an aggregate of 400,000 additional
shares of Common Stock. This right terminated upon consummation of the Initial
Public Offering.

Fees Paid to Energy Spectrum. In January 1997, the Company paid
Energy Spectrum Capital LP ("ESC"), the general partner of Energy Spectrum, a
fee in the amount of $300,000 in consideration for assistance provided by
Energy Spectrum in the structuring of the Formation Transactions and
arrangement and negotiation of external financing. The Company also reimbursed
ESC for expenses incurred in connection with the rendering of such services.

The Ward Acquisition

On May 31, 1997, the Company completed the Ward Acquisition involving
the acquisition by the Company of all of the issued and outstanding common
units of a subsidiary of Ward that held six drilling rigs in consideration for
$8 million in cash, 400,000 shares of Common Stock and a warrant (the "Ward
Warrant") to purchase up to 200,000 shares of Common Stock at an exercise price
of $10 per share. The Ward Warrant is exercisable at any time on or before the
later of (i) May 30, 2000 or (ii) one year after the completion of an initial
public offering of the Common Stock (which was satisfied by the Initial Public
Offering), but no later than June 1, 2003.

In connection with the Ward Acquisition, the Company entered into an
agreement (the "Ward Transportation Agreement") with Geronimo Trucking Company
("Geronimo"), a company owned and controlled by Lew O. Ward, a

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director of the Company. The Ward Transportation Agreement provides that the
Company will have a preferential right to engage Geronimo's trucking services
for covered transportation needs and that Geronimo will make its trucking
services available to the Company at rates that are competitive in the area. The
Ward Transportation Agreement also provides Geronimo with the preferential right
to perform trucking services contracted for by the Company for the movement of
the rigs acquired by the Company in the Ward Acquisition. The Company is
obligated to allow Geronimo to bid on any covered rig movement required by the
Company and to allow Geronimo the opportunity to match or better any bid
received from a third party. Unless earlier terminated by the parties, the Ward
Transportation Agreement is effective through May 2000. Through September 30,
1997, the Company paid an aggregate of $135,000 under the Ward Transportation
Agreement.

The Bonray Acquisition

In October 1997, the Company acquired all of the issued and
outstanding capital stock of Bonray from DLB in consideration for the issuance
of 3,015,000 shares of Common Stock. In connection with the Bonray
Acquisition, DLB obtained certain rights to require the Company to effect the
registration under the Securities Act of the shares of Common Stock acquired by
DLB in the Bonray Acquisition. See "-- Registration Rights Agreements."
Additionally, DLB is a party to the Stockholders and Voting Agreement and is
entitled to designate one Board nominee as long as DLB owns at least 5% of the
Common Stock of the Company. Upon the consummation of the Merger Share
Distribution, DLB will no longer be a party to the Stockholders and Voting
Agreement, the members of the DLB Group will become parties to the Stockholders
and Voting Agreement and such members of the DLB Group, rather than DLB, will
be entitled to designate one Board nominee as long as the DLB Group owns at
least 5% of the Common Stock of the Company. See "-- Stockholders and Voting
Agreement."

Individual Rig Acquisitions

In May 1997, the Company purchased from R.T. Oliver Drilling, Inc. two
drilling rigs for an aggregate purchase price consisting of $3.3 million in cash
and warrants (the "Oliver Warrants") for the purchase of an aggregate of 100,000
shares of Common Stock at an exercise price of $8 per share. One of the Oliver
Warrants was issued to RR&T, Inc., an affiliate of Roy T. Oliver, and the other
was issued to Mike Mullen. Each of the Oliver Warrants expires on May 1, 2000
and is separately exercisable for 50,000 shares of Common Stock.

CERTAIN FINANCING ARRANGEMENTS

On May 1, 1997, the Company completed a financing transaction (the
"May Financing") in which the Company issued shares of Common Stock,
subordinated notes and warrants to purchase Common Stock to certain significant
stockholders in exchange for an aggregate of $28.5 million in cash, as
described below. The following summary of terms of the May Financing does not
purport to be complete and is qualified in its entirety by reference to the
Securities Purchase Agreement, dated as of April 30, 1997 (the "May Securities
Purchase Agreement"), the Subordinated Notes, Series A Warrants and Series B
Warrants, copies or forms of which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.

Common Stock and Subordinated Notes. In the May Financing, the
Company issued 1,000,000 shares of Common Stock to Chesapeake in consideration
for $7 million in cash and 140,000 shares of Common Stock to Energy Spectrum in
consideration for $980,000 in cash. Additionally, the Company issued the
Subordinated Notes due May 1, 2003 in the original principal amounts of $18
million and $2.52 million to Chesapeake and Energy Spectrum, respectively. The
Subordinated Notes bear interest at the Company's option at either (i) 11% per
annum, payable in cash, or (ii) 12.875% per annum, payable in the form of
additional Subordinated Notes, which interest is payable quarterly in arrears.
On each quarterly interest payment date, the Company may make an election as to
the interest rate to be applied for the previous quarter. The Subordinated
Notes are redeemable, solely at the option of the Company, in whole or in part,
at any time at varying redemption prices. The Company must offer to redeem the
Subordinated Notes upon the occurrence of certain events constituting a "Change
of Control" (as defined in the Subordinated Notes) at a redemption price equal
to 100% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of redemption. The Subordinated Notes are
convertible into Common Stock at the option of the Company,

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in whole or in part, in conjunction with a "Convertible Event" (as defined in
the Subordinated Notes), which includes certain underwritten public offerings
(including the Initial Public Offering), mergers, consolidations and other
business combination transactions. The Subordinated Notes are general
unsecured subordinated obligations of the Company that are subordinated in
right of payment to all existing and future senior indebtedness of the Company,
pari passu with all existing and future subordinated indebtedness of the
Company and senior in right of payment to all future junior subordinated
indebtedness of the Company. Upon consummation of the Initial Public Offering,
the Company redeemed in full the $18 million principal amount of Subordinated
Notes issued to Chesapeake in consideration for the payment by the Company to
Chesapeake of $18.2 million in cash, based on the price to public in the
Initial Public Offering. See "-- Chesapeake Transactions." In May 1997, the
Company paid Chesapeake a commitment fee of $250,000 in connection with the
funding of the Common Stock and Subordinated Notes in the May Financing.

Warrants. In the May Financing, the Company also issued the Series A
Warrants and the Series B Warrants. The Warrants are exercisable on or prior to
May 1, 2003 at a price of $0.01 per share in the case of the Series A Warrants
and $7.50 per share in the case of the Series B Warrants. In the May
Financing, Chesapeake was issued Series A Warrants and Series B Warrants
representing the right to purchase 700,000 shares and 800,000 shares of Common
Stock, respectively, and Energy Spectrum was issued Series A Warrants and
Series B Warrants representing the right to purchase 98,000 shares and 112,000
shares of Common Stock, respectively. The Warrants expire on May 1, 2003 and
are exercisable (i) at any time with a cash payment or (ii) pursuant to a
cashless exercise at any time after the completion of a "Qualified IPO" (as
defined in the Warrants), which includes certain underwritten public offerings
(including the Initial Public Offering), mergers, consolidations and other
business combination transactions. The exercise prices, as well as the number
and kind of shares issuable under the Warrants, are subject to adjustment upon
the happening of certain events described in the Warrants, including, the
payment of in-kind dividends or distributions and the subdivision,
reclassification or recapitalization of the Common Stock, whether in connection
with a consolidation or merger or otherwise. On July 31, 1997, Energy Spectrum
exercised in full its Series A Warrants. On the date hereof, Energy Spectrum
holds all of the Series B Warrants issued to it in the May Financing. In
August 1997, Chesapeake relinquished its Series A Warrants and Series B
Warrants as part of the Chesapeake Transactions. See "-- Chesapeake
Transactions."

CHESAPEAKE TRANSACTIONS

In August 1997, Chesapeake and the Company agreed to complete a series
of transactions (the "Chesapeake Transactions") pursuant to which the Company
has issued 3,194,000 shares of Common Stock to Chesapeake in consideration for
(i) $9 million in cash, (ii) the relinquishment and cancellation of the
Chesapeake Option and the Warrants issued to Chesapeake in connection with the
May Financing and (iii) the redemption in full of the $18 million principal
amount of Subordinated Notes held by Chesapeake at a cash redemption price of
$18.2 million which was paid from the proceeds of the Initial Public Offering.
Also in connection with the Chesapeake Transactions, the Company waived its
right under the May Securities Purchase Agreement to require Chesapeake to
purchase additional Common Stock, Warrants and Subordinated Notes for $3
million.

OTHER RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

Weatherford Storage Yard. In connection with the Formation
Transactions, Anadarko granted the Company a transferrable option, exercisable
at any time prior to June 30, 1998, to either purchase from Anadarko a storage
yard located in Weatherford, Oklahoma (the "Weatherford Storage Yard") for a
price of $1,000 in cash or lease from Anadarko, for any period specified by the
Company through a date not later than December 31, 1999, the Weatherford
Storage Yard for a lease price of $100 per year. In August 1997, the Company
acquired from Anadarko approximately five acres of land also in Weatherford,
Oklahoma, in consideration for the relinquishment of the Company's option to
acquire or lease the Weatherford Storage Yard.

Fees Paid to Energy Spectrum. In May 1997, the Company paid ESC a fee
in the amount of $220,000 for financial advisory and other services rendered to
the Company in connection with the valuation, negotiation and closing of the
Trend Acquisition, for assistance in the arrangement of alternative financing
sources, and for structuring,

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negotiating and closing the amended financing arrangements with CIT and Fleet.
The Company also reimbursed ESC for expenses incurred in connection with the
rendering of such services.

Fees Paid to Energy Spectrum Advisors. The Company has engaged Energy
Spectrum Advisors Inc. ("ESA") to provide financial advisory and investment
banking services to the Company in connection with a possible restructuring or
refinancing of the Company's existing funded debt. As compensation for such
services, the Company has agreed to pay ESA an initial fee of $50,000 and an
additional fee of $25,000 per month through the term of the engagement. The
engagement letter expires on May 31, 1998 and may be terminated at the
Company's option at any time after March 1, 1998. To date the Company has paid
$75,000 in fees to ESA in connection with this arrangement. ESA is an affiliate
of Energy Spectrum, which is the beneficial owner of approximately 6% of the
Common Stock. Sidney L. Tassin, a director of the Company designated to serve
on the Board by Energy Spectrum pursuant to the Stockholders and Voting
Agreement, has a right under certain circumstances to acquire, and as a result
may be deemed to beneficially own, a minority equity interest in ESA.

Transactions with Affiliates of Roy T. Oliver. The Company has in the
past purchased drilling rig equipment from U.S. Rig & Equipment, Inc., an
affiliate of Roy T. Oliver, a former director of the Company and control person
of certain of the Oliver Companies. From December 1996 through September 30,
1997, the Company paid U.S. Rig & Equipment, Inc. an aggregate of $5 million in
connection with such purchases. Additionally, in August 1997, the Company sold
to an affiliate of Mr. Oliver one rig acquired in the Trend Acquisition that did
not meet the Company's operational and technical standards. The Company
believes that the $500,000 price received by the Company in that sale is
equivalent to the price that would have been received from an unaffiliated third
party. Additionally, in the Oliver Acquisition, which was completed in January
1998, the Company acquired six rigs and related drilling equipment from R.T.
Oliver Drilling, Inc. for $14 million. Such rigs will require additional
refurbishment prior to placement into service.

APLP Trucking Services. The Company has engaged affiliates of APLP
for the provision of trucking services related to the movement of the Company's
rigs on numerous occasions. From December 1996 through September 30, 1997, the
Company paid such affiliates of APLP an aggregate of $630,000 in consideration
for such trucking services.

APLP Administrative Services. Since December 13, 1996, APLP has made
available to the Company certain of APLP's employees, office space and
administrative equipment, such as computer and telephone systems. In
consideration for such assistance, through September 30, 1997, the Company had
reimbursed APLP an aggregate of $179,000. APLP continues to provide certain
computer services to the Company.

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DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000
shares of common stock, par value $0.01 per share, and 20,000,000 shares of
preferred stock, par value $0.01 per share ("Preferred Stock"). As of March 27,
1998, 18,183,945 shares of Common Stock and no shares of Preferred Stock were
outstanding. The following summary is qualified in its entirety by reference to
the Certificate and Bylaws, copies of which are filed as exhibits to the
Registration Statement of which this Prospectus is a part.

COMMON STOCK

All shares of Common Stock transferred in the Merger Share Distribution
are fully paid and nonassessable. As of March 27, 1998, there were 18,183,945
shares of Common Stock outstanding held of record by approximately 50
stockholders. The holders of Common Stock are entitled to one vote for each
share held on all matters submitted to a vote of common stockholders of the
Company. The Common Stock does not have cumulative voting rights in the
election of directors. Shares of Common Stock have no preemptive rights,
conversion rights, redemption rights or sinking fund provisions. The Common
Stock is not subject to redemption by the Company.

Subject to the rights of the holders of any class of capital stock of
the Company having any preference or priority over the Common Stock, the
holders of Common Stock are entitled to dividends in such amounts as may be
declared by the Board from time to time out of funds legally available for such
payments and, in the event of liquidation, to share ratably in any assets of
the Company remaining after payment in full of all creditors and provision for
any liquidation preferences on any outstanding preferred stock ranking prior to
the Common Stock.

PREFERRED STOCK

The Certificate authorizes the Board, subject to limitations
prescribed by law, to provide for the issuance of up to 20,000,000 shares of
Preferred Stock in one or more series. The Board is authorized to establish
the number of shares to be included in any such series and to fix the
designations, powers, preferences and rights of the shares of each such series,
and any qualifications, limitations or restrictions thereof.

The Company believes that the ability of the Board to issue one or
more series of Preferred Stock will provide the Company with flexibility in
structuring possible future financings and acquisitions, and in meeting other
corporate needs which might arise from time to time. The authorized shares of
Preferred Stock, as well as shares of Common Stock, will be available for
issuance without further action by the Company's stockholders, unless such
action is required by applicable law or the rules of any stock exchange or
automated quotation system on which the Company's securities may be listed or
traded. If the approval of the Company's stockholders is not required for the
issuance of shares of Preferred Stock or Common Stock, the Board may determine
not to seek stockholder approval.

Although the Board has no intention at the present time of doing so,
it could issue a series of Preferred Stock that may, depending on the terms of
such series, hinder, delay or prevent the completion of a merger, tender offer
or other takeover attempt. Among other things, the Board could issue a series
of Preferred Stock having terms that could discourage an acquisition attempt
through which an acquiror may be able to change the composition of the Board,
including a tender offer or other transaction that some, or a majority, of the
Company's stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then current
market price of such stock.

CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS

The Board consists of directors who are elected for one-year terms at
each annual meeting of stockholders. Stockholders may remove a director only
for cause. In general, the Board, not the stockholders, has the right to
appoint persons to fill vacancies on the Board.

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The Certificate contains a "fair price" provision that requires the
affirmative vote of the holders of at least 80% of the Company's voting stock
and the affirmative vote of at least 66 2/3% of the Company's voting stock not
owned, directly or indirectly, by a Company Related Person (hereinafter
defined) to approve any merger, consolidation, sale or lease of all or
substantially all of the Company's assets, or certain other transactions
involving a Company Related Person. For purposes of this fair price provision,
a "Company Related Person" is any person beneficially owning 10% or more of the
voting power of the outstanding capital stock of the Company who is a party to
the transaction at issue. The voting requirement is not applicable to certain
transactions, including those that are approved by the Company's Continuing
Directors (as defined in the Certificate) or that meet certain "fair price"
criteria contained in the Certificate.

The Certificate further provides that stockholders may act only at
annual or special meetings of stockholders and not by written consent, that
special meetings of stockholders may be called only by the Board, and that only
business proposed by the Board may be considered at special meetings of
stockholders.

The Certificate also provides that the only business (including
election of directors) that may be considered at an annual meeting of
stockholders, in addition to business proposed (or persons nominated to be
directors) by the directors of the Company, is business proposed (or persons
nominated to be directors) by stockholders who comply with the notice and
disclosure requirements set forth in the Certificate. In general, the
Certificate requires that a stockholder give the Company notice of proposed
business or nominations no later than 60 days before the annual meeting of
stockholders (meaning the date on which the meeting is first scheduled and not
postponements or adjournments thereof) or (if later) ten days after the first
public notice of the annual meeting is sent to common stockholders. In
general, the notice must also contain information about the stockholder
proposing the business or nomination, his interest in the business, and (with
respect to nominations for director) information about the nominee of the
nature ordinarily required to be disclosed in public proxy solicitations. The
stockholder also must submit a notarized letter from each of his nominees
stating the nominee's acceptance of the nominations and indicating the
nominee's intention to serve as director if elected.

The Certificate also restricts the ability of stockholders to
interfere with the powers of the Board in certain specified ways, including the
constitution and composition of committees and the election and removal of
officers.

The Certificate provides that approval by the holders of at least 66
2/3% of the outstanding voting stock of the Company is required to amend the
provisions of the Certificate discussed above and certain other provisions,
except that (i) approval by the holders of at least 80% of the outstanding
voting stock of the Company, together with approval by the holders of at least
66 2/3% of the outstanding voting stock not owned, directly or indirectly, by
the Company Related Person, is required to amend the fair price provisions and
(ii) approval of the holders of at least 80% of the outstanding voting stock is
required to amend the provisions prohibiting stockholders from acting by
written consent.

DELAWARE ANTI-TAKEOVER STATUTE

The Company is a Delaware corporation and is subject to Section 203 of
the DGCL. In general, Section 203 prevents an "interested stockholder"
(defined generally as a person owning 15% or more of the outstanding voting
stock of the Company) from engaging in a "business combination" (as defined in
Section 203) with the Company for three years following the date that person
becomes an interested stockholder unless (i) before that person became an
interested stockholder, the Board approved the transaction in which the
interested stockholder became an interested stockholder or approved the
business combination, (ii) upon completion of the transaction that resulted in
the interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the Company's voting stock outstanding at the
time the transaction commenced (excluding stock held by directors who are also
officers of the Company and by employee stock plans that do not provide
employees with the right 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 that person became an interested
stockholder, the business combination is approved by the Board and authorized
at a meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of the Company not owned by the
interested stockholder.

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Under Section 203, these restrictions 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 Company and a person who was not an interested stockholder during
the previous three years or who became an interested stockholder with the
approval of a majority of the Company's directors, if that extraordinary
transaction is approved or not opposed by a majority of the directors who were
directors before any person became an interested stockholder in the previous
three years or who were recommended for election or elected to succeed such
directors by a majority of such directors then in office.

LIABILITY OF DIRECTORS; INDEMNIFICATION

The Certificate provides, as authorized by Section 102(b)(7) of the
DGCL, that a director of the Company will not be personally liable to the
Company or any of its stockholders for monetary damages for breach of fiduciary
duty as a director involving any act or omission of any such director, except
that such provisions do not eliminate or limit the liability of a director (i)
for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, as it now exists or hereafter may be amended, or (iv) for any
transaction from which the director derived an improper personal benefit. The
Certificate also provides that if the DGCL is amended after the date of filing
of the Certificate to authorize corporate action further limiting or
eliminating the personal liability of directors, then the liability of a
director of the Company, in addition to the limitation on personal liability
provided for already, shall be limited to the fullest extent permitted by the
DGCL as so amended. Any repeal or modification of such provision in the
Certificate by the stockholders of the Company will be effective prospective
only, and will not adversely affect any limitation on the personal liability of
a director of the Company existing at the time of such repeal or modification.

The Certificate also provides for indemnification of directors to the
fullest extent permitted by the DGCL. Such indemnification may be available for
liabilities arising in connection with the Merger Share Distribution. Insofar
as indemnification for liabilities under the Securities Act may be permitted to
directors, officers or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that, in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. Pursuant to its Certificate, the
Company may indemnify its officers, employees, agents and other persons to the
fullest extent permitted by the DGCL. The Company's Bylaws obligate the
Company, under certain circumstances, to advance expenses to its directors and
officers in defending an action, suit or proceeding for which indemnification
may be sought. The Company has entered into Indemnification Agreements with
certain of its directors and officers. See "Management -- Indemnification
Agreements."

The Company's Bylaws also provide that the Company shall have the
power to purchase and maintain insurance on behalf of any person who is or was
a director, officer, employee or agent of the Company, or who, while a
director, officer, employee or agent, is or was serving as a director, officer,
trustee, general partner, employee or agent of one of the Company's
subsidiaries or, at the request of the Company, of any other organization,
against any liability asserted against such person or incurred by such person
in any such capacity, where the Company would have the power to indemnify such
person against such liability under the DGCL.

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SHARES ELIGIBLE FOR FUTURE SALE

As of March 27, 1998, the Company had 18,183,945 shares of Common Stock
outstanding. Additionally, as of such date, (i) options for the purchase of
806,600 shares of Common Stock had been granted to certain employees of the
Company pursuant to the Employee Stock Plan, (ii) options for the purchase of
75,000 shares of Common Stock had been granted to certain non-employee directors
of the Company pursuant to the Director Stock Plan and (iii) 397,000 shares of
Common Stock were subject to outstanding warrants issued by the Company. The
exercise prices of some of these options and warrants are lower than the recent
trading prices of the Common Stock. In addition, the Subordinated Notes are
convertible, solely at the Company's option, into shares of Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Certain Relationship and
Related Transactions -- Certain Financing Arrangements -- Common Stock and
Subordinated Notes."

Of the outstanding shares, the 11,040,000 shares sold in the Initial
Public Offering and the 2,955,000 shares the subject of the Merger Share
Distribution will be freely tradeable in the public market without restriction
or limitation under the Securities Act, except for any shares purchased by or
distributed to an "affiliate" (as defined in the Securities Act) of the Company.
The shares of Common Stock that were not registered in connection with the
Initial Public Offering or the Merger Share Distribution will constitute
"restricted shares" for purposes of Rule 144 under the Securities Act, and may
not be sold by the holders of such shares other than in compliance with the
registration requirements of the Securities Act or pursuant to an available
exemption therefrom. The Company, its officers, directors and the selling
stockholders in the Initial Public Offering have agreed that they will not offer
or sell any shares of Common Stock for a period of 180 days after November 4,
1997 without the prior written consent of the representatives of the
underwriters of the Initial Public Offering. Following the consummation of the
Merger Share Distribution, the expiration of the lock-up agreements with the
underwriters executed in connection with the Initial Public Offering, each of
the Company's directors and executive officers and each of its existing
stockholders who hold restricted shares, who hold (as a group) an aggregate of
approximately 23% of the outstanding shares of Common Stock, may sell such
shares subject to the requirements of Rule 144 under the Securities Act or
pursuant to the terms of a registration rights agreement. See "Certain
Relationships and Related Transactions -- Registration Rights Agreements." The
Company is also a party to certain registration rights agreements pursuant to
which it has granted demand and piggyback registration rights which, as of
December 31, 1997, covered an aggregate of 8,139,125 shares of Common Stock and
Common Stock Equivalents. The beneficiaries of the registration rights
agreements include DLB, Energy Spectrum, APLP, the Oliver Companies and certain
of their affiliates, Ward and certain of its transferees, DLJ, Carl B. Anderson,
III, James E. Brown, Edward S. Jacob, III, David E. Grose and certain other
parties. The terms of these agreements prohibit the exercise of such
registration rights for a period of 180 days following the date of the Initial
Public Offering, subject to certain exceptions. In addition, the Company
intends to file registration statements on Form S-8 covering the issuance of
shares of Common Stock registered pursuant to the Company Stock Plans within 180
days of the Initial Public Offering. Accordingly, shares of Common Stock issued
pursuant to the Company Stock Plans will be available for sale in the public
market without restriction or limitation under the Securities Act, except for
any shares held by an "affiliate" of the Company.
In general, under Rule 144 as currently in effect, an "affiliate" of
the Company may sell within any three- month period a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares of such
class or (ii) the average weekly trading volume on the AMEX during the four
calendar weeks preceding the date on which a notice of sale is filed with the
Commission with respect to the proposed sale. Sales under Rule 144 are subject
to certain restrictions relating to the manner of sale, notice and the
availability of current public information about the issuer. A person who has
not been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned shares for at least two years (including
the holding period of any prior owner other than an affiliate), would be
entitled to sell such shares without regard to the volume limitations, manner
of sale provisions, notice or other requirements of Rule 144.

75
<PAGE> 76

FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes the principal federal income tax
consequences associated with the Merger Share Distribution of the Shares to the
DLB Stockholders. The following discussion applies only to a DLB Stockholder
who is a citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States and
who holds shares of DLB as a capital asset. The following discussion does not
address the potential tax consequences applicable to DLB Stockholders (i) who
have received such shares in connection with the performance of services, (ii)
who are dealers in securities or (iii) who are subject to special treatment
under the Code (such as insurance companies, tax-exempt organizations,
nonresident alien individuals or foreign entities). Moreover, the discussion
does not discuss every aspect of federal income taxation that may be relevant
to a particular taxpayer under special circumstances or to persons who are
otherwise subject to a special tax treatment.

The following summary is based on the Code, applicable Treasury
Regulations, judicial authority and administrative rulings and practice, all as
of the date hereof. There can be no assurance that future legislative, judicial
or administrative changes or interpretations will not materially alter the
statements and conclusions set forth herein. Any such changes or
interpretations could be applied retroactively and could affect the tax
consequences of the Merger Share Distribution to the DLB Stockholders. No
ruling has been requested from the IRS with respect to any of the matters
discussed herein and, thus, no assurance can be provided that statements set
forth herein (which do not bind the courts or the IRS) will not be challenged by
the IRS or would be sustained by a court if so challenged. Furthermore, the
following discussion addresses only certain United States federal income tax
matters and does not consider any state, local or foreign tax consequences of
the Merger Share Distribution.

In connection with the Merger Share Distribution, the DLB Stockholders will
also be exchanging their DLB shares for shares of the common stock of
Chesapeake, WRT and the Company, cash and certain other contingent
consideration. The sale of DLB shares to Chesapeake together with the
redemption of the DLB Stockholders' remaining shares in exchange for shares of
Chesapeake, WRT and the Company, cash and certain other contingent consideration
should be treated for federal income tax purposes as a redemption in complete
termination of the DLB Stockholders' interests in the DLB shares resulting in
capital gain or loss to the DLB Stockholders. Accordingly, each DLB Stockholder
will recognize gain or loss on the above described sale and redemption equal to
the difference between (i) the amount of cash and the fair market value of
all of the shares of the Company, WRT and Chesapeake and any contingent
consideration received by such Stockholder and (ii) such Stockholder's adjusted
tax basis in his or her DLB shares exchanged therefor.

In accordance with recent changes in the capital gains tax rate,
capital gains of each noncorporate DLB Stockholder relating to the Merger Share
Distribution generally will be subject to tax at a rate of (i) 28% if such
Stockholder's DLB shares have been held for more than 12 months but not more
than 18 months or (ii) 20% if such Stockholder's DLB shares have been held for
more than 18 months. If a DLB Stockholder has held its shares for 12 months or
less, any such capital gain recognized on the sale and redemption will be
subject to tax at ordinary income tax rates (of which the maximum rate is
39.6%). The DLB Stockholders will be considered to have a new holding period
with respect to each of the shares of the Company and Chesapeake received and
will have an adjusted tax basis in each such share equal to the fair market
value thereof.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered by
this Prospectus will be passed upon for the Company by Baker & Botts, L.L.P.,
Dallas, Texas.

INDEPENDENT PUBLIC ACCOUNTANTS

The financial statements of the Company as of December 31, 1994, 1995
and 1996 and for the fiscal years then ended included in this Prospectus and
elsewhere in the Registration Statement have been audited by Grant Thornton

76
<PAGE> 77

LLP, independent public accountants, as stated in their reports thereon
appearing elsewhere herein, and are so included in reliance on such reports
given upon the authority of that firm as experts in auditing and accounting.
The financial statements of the Company as of June 30, 1997 and for the six
months then ended, the financial statements of Trend as of December 31, 1995
and 1996 and for the three fiscal years ended December 31, 1996, 1995 and 1994,
and the financial statements of Ward as of December 31, 1996 and for the fiscal
year then ended, included in this Prospectus and elsewhere in the Registration
Statement have been included herein in reliance on the report of Coopers &
Lybrand L.L.P., independent public accountants, given upon the authority of
that firm as experts in auditing and accounting. The financial statements of
Bonray as of December 31, 1996 and June 30, 1996 and for the six-month period
ended December 31, 1996 and years ended June 30, 1996 and 1995 included in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance on such report given upon the authority of
such firm as experts in accounting and auditing.

In preparation for its initial public offering, the Board appointed
Coopers & Lybrand L.L.P. as auditors for the Company's financial statements for
the six months ended June 30, 1997, and for the year ending December 31, 1997.
During the period Grant Thornton LLP was engaged by the Company and up to and
including March 7, 1997, the date of the Coopers & Lybrand engagement, there
were no disagreements with Grant Thornton LLP on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure and there were no "reportable events" as the term is defined under
the Securities Act. The audit reports previously issued by Grant Thornton LLP
with respect to the Company's financial statements did not contain an adverse
opinion or a disclaimer of opinion, nor were such reports qualified or modified
as to uncertainty, audit scope or accounting principles.

78
<PAGE> 78
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF BAYARD DRILLING
TECHNOLOGIES, INC.
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . F-2
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Balance Sheets as of December 31, 1995 and 1996, June 30,
1997 and September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Operations for the years ended December 31, 1994,
1995 and 1996, six months ended June 30, 1997 and nine
months ended September 30, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Equity (Deficit) for the years ended
December 31, 1994, 1995 and 1996 and nine months ended
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Statements of Cash Flows for the years ended December 31, 1994,
1995 and 1996, six months ended June 30, 1997 and nine
months ended September 30, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
FINANCIAL STATEMENTS OF TREND DRILLING COMPANY
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-19
Balance Sheets as of December 31, 1995 and 1996 and as of
April 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-20
Statements of Operations for the years ended December 31,
1994, 1995 and 1996 and four months ended April 30,
1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-21
Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-22
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and four months ended April 30,
1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-23
Notes to the Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-24
FINANCIAL STATEMENTS OF WARD DRILLING COMPANY, INC.
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-28
Balance Sheet as of December 31, 1996 and May 31, 1997 . . . . . . . . . . . . . . . . . . . . F-29
Statements of Operations and Retained Earnings for the
year ended December 31, 1996 and five months ended May
31, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Statements of Cash Flows for the year ended December 31,
1996 and five months ended May 31, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . F-31
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32
FINANCIAL STATEMENTS OF BONRAY DRILLING CORPORATION
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35
Balance Sheets as of September 30, 1997 (unaudited) and
December 31, 1996 and June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36
Statements of Operations and Accumulated Deficit for the
nine-month period ended September 30, 1997 (unaudited)
and for the six-month period ended December 31, 1996
and years ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-37
Statements of Cash Flows for the nine-month period ended
September 30, 1997 (unaudited) and for the six-month
period ended December 31, 1996 and years ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-38
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-39
</TABLE>

F-1
<PAGE> 79
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Bayard Drilling Technologies, Inc.

We have audited the accompanying balance sheets of Bayard Drilling
Technologies, Inc. (Note A), as of December 31, 1996 and 1995, and the related
statements of operations, equity (deficit), and cash flows for each of the
three years in the period ended December 31, 1996. 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, the financial statements referred to above present
fairly, in all material respects, the financial position of Bayard Drilling
Technologies, Inc., as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.

GRANT THORNTON LLP

Oklahoma City, Oklahoma
January 20, 1997

F-2
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
Bayard Drilling Technologies, Inc.

We have audited the accompanying balance sheet of Bayard Drilling
Technologies, Inc., as of June 30, 1997, and the related statements of
operations, equity (deficit), and cash flows for the six months ended June 30,
1997. 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 audit.

We conducted our audit 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 audit provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Bayard Drilling
Technologies, Inc., as of June 30, 1997 and the results of its operations and
its cash flows for the six months ended June 30, 1997 in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Oklahoma City, Oklahoma
October 3, 1997

F-3
<PAGE> 81
BAYARD DRILLING TECHNOLOGIES, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, SEPTEMBER 30,
----------------------- ------------------------
1995 1996 1997 1997
----------- -------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 4,963 $ 240 $ $82
Restricted investments . . . . . . . . . . . . . . . . . . . . . -- -- 730 730
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . 1,692 286 5,993 10,462
Accounts receivable -- affiliate . . . . . . . . . . . . . . . . -- 798 4,524 3,148
Other current assets . . . . . . . . . . . . . . . . . . . . . . 19 1 559 452
-- -- -- --
Total current assets . . . . . . . . . . . . . . . . . . 1,711 6,048 12,046 14,874
Property, plant and equipment, net . . . . . . . . . . . . . . . . 6,343 26,973 92,658 104,674
Goodwill, net of accumulated amortization of $216 . . . . . . . . . -- -- 6,402 6,285
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,652 2,066 2,231
------ ------- -------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . $8,054 $34,673 $113,172 $128,064
====== ======= ======== ========

LIABILITIES AND EQUITY (DEFICIT)

CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $1,219 $ 409 $ 8,794 $ 12,529
Accounts payable -- affiliate . . . . . . . . . . . . . . . . . . -- -- 838 1,187
Payable to affiliate . . . . . . . . . . . . . . . . . . . . . . 433 412 -- --
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 47 253 3,691 3,817
Current portion of long-term debt . . . . . . . . . . . . . . . . -- 947 12,869 14,589
------ ------- -------- --------
Total current liabilities . . . . . . . . . . . . . . . . 1,699 2,021 26,192 32,122
------ ------- -------- --------
Payable to affiliate . . . . . . . . . . . . . . . . . . . . . . . 6,631 -- -- --

Deferred income tax liabilities . . . . . . . . . . . . . . . . . . -- 348 6,665 7,087

Long-term debt, less current maturities . . . . . . . . . . . . . . -- 6,053 18,894 23,583
------ ------- -------- --------
Subordinated notes . . . . . . . . . . . . . . . . . . . . . . . . -- -- 16,608 16,776

Commitments and Contingencies

EQUITY (DEFICIT):
Partners' deficit . . . . . . . . . . . . . . . . . . . . . . . . (276) -- -- --
Stockholders' equity
Preferred stock, $0.01 par value, 20,000,000 shares
authorized; none issued or outstanding . . . . . . . . . . . -- -- -- --
Common stock, $0.01 par value, 100,000,000 shares
authorized; 5,600,000 shares issued and outstanding
at December 31, 1996; 7,490,000 at June 30, 1997; 7,588,000
at September 30, 1997 . . . . . . . . . . . . . . . . . . . -- 56 75 76
Additional paid-in capital (net of deferred compensation
of $292 at September 30, 1997) . . . . . . . . . . . . . . . . -- 26,229 44,792 47,791
Retained earnings (accumulated deficit) . . . . . . . . . . . . . -- (34) (54) 629

Total equity (deficit) . . . . . . . . . . . . . . . . . (276) 26,251 44,813 48,496
----- ------- -------- --------
Total liabilities and equity (deficit) . . . . . . . . . $8,054 $34,673 $113,172 $128,064
====== ======= ======== ========
</TABLE>

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

F-4
<PAGE> 82
BAYARD DRILLING TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30, SEPTEMBER 30,
------------------------------- -----------------------------------------------
1994 1995 1996 1997 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Drilling . . . . . . . . . . . . . . $7,842 $5,491 $8,995 $ 7,029 $ 6,728 $ 20,711
Drilling -- affiliate . . . . . . . . 2,068 1,914 798 8,078 -- 12,503
Other . . . . . . . . . . . . . . . . -- 303 60 -- 59
-- --- -- ------------ ------------- ----------
--
--
Total revenues . . . . . . . . . . 9,910 7,708 9,853 15,107 6,787 33,214
----- ----- ----- --------- ----------- ----------
COSTS AND EXPENSES:
Drilling . . . . . . . . . . . . . . 8,572 6,075 7,653 10,897 5,244 24,246
General and administrative . . . . . 786 880 658 734 473 1,181
Depreciation and amortization . . . . 1,557 791 1,126 2,645 727 4,918
Other . . . . . . . . . . . . . . . . -- 47 46 -- -- --
-- -- -- ------------ -------------------------

Total costs and expenses . . . . . 10,915 7,793 9,483 14,276 6,444 30,345
------ ----- ----- --------- ----------- ---------
Operating income (loss) . . . . . (1,005) (85) 370 831 343 2,869
------ --- --- ----------- ------------ ----------
OTHER INCOME (EXPENSE):
Interest expense . . . . . . . . . . (18) (3) (11) (982) -- (2,172)
Interest income . . . . . . . . . . . -- -- -- 51 -- 68
Gain (loss) on sale of assets . . . . 366 (131) 54 60 -- 303
Other . . . . . . . . . . . . . . . . -- (3) 17 8 17
-- -- -- ------------- ------------- -----------
5
-
Total other income (expense) . . . 348 (137) 60 (863) 17 (1,796)
--- ---- -- ----------- ------------- ----------
Earnings (loss) before income taxes . . (657) (222) 430 (32) 360 1,073
Income tax provision (benefit) -- -- -- 17 (12) -- 410
-- -- -- ------------ ------------- -----------
deferred . . . . . . . . . . . . . . .
Net earnings (loss) . . . . . . . . . . $(657) $(222) $413 $ (20) $360 $ 663
===== ===== ==== =========== =========== ==========
Net earnings (loss) per share . . . . . $ .00 $ .03 $ .06
=========== ============ ===========

PRO FORMA INFORMATION:
Additional income tax expense . . . . -- -- 146 137
-- -- --- ------------
Pro forma net earnings (loss) . . . . $(657) $(222) $267 $ 223
----- ----- ---- -----------
Pro forma earnings per share . . . . $(.06) $(.02) $.02 $ .02
===== ===== ==== ============
Weighted average common shares 11,317 11,317 11,317 11,317 11,317 11,317
====== ====== ====== =========== ============ ==========
outstanding . . . . . . . . . . . . . .
</TABLE>

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

F-5
<PAGE> 83
BAYARD DRILLING TECHNOLOGIES, INC.

STATEMENTS OF EQUITY (DEFICIT)
(IN THOUSANDS)

<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
---------------------------------------------------
PARTNERS ADDITIONAL
CAPITAL COMMON PAID-IN DEFERRED RETAINED
(DEFICIT) STOCK CAPITAL COST EARNINGS TOTAL
<S> <C> <C> <C> <C>
Balance at January 1, 1994 . . . . . . . . $(912) $-- $-- $-- $-- $--
Net loss . . . . . . . . . . . . . . . . (657) -- -- -- -- --
Capital contribution . . . . . . . . . . 1,515 -- -- -- -- --
----- -- -- -- -- --
Balance at December 31, 1994 . . . . . . . (54) -- -- -- -- --
Net loss . . . . . . . . . . . . . . . . (222) -- -- -- -- --
---- -- -- -- -- --
Balance at December 31, 1995 . . . . . . . (276) -- -- -- -- --
Net earnings through date of corporate
capitalization . . . . . . . . . . . . 447 -- -- -- -- --
Net increase in equity arising from
affiliate transactions . . . . . . . . 5,285 -- -- -- -- --
Issuance of stock in corporate
capitalization . . . . . . . . . . . . (5,456) 20 5,436 -- -- 5,456
Sale of stock . . . . . . . . . . . . . . -- 20 9,980 -- -- 10,000
Issuance of stock options and warrants
for drilling agreements and debt . . . -- -- 1,319 -- -- 1,319
Issuance of stock and options for
property and equipment . . . . . . . . -- 16 9,494 -- -- 9,510
Net loss from date of corporate
capitalization to December 31,
1996 . . . . . . . . . . . . . . . . . -- -- -- -- (34) (34)
-- -- -- -- --- ---
Balance at December 31, 1996 . . . . . . . -- 56 26,229 -- (34) 26,251
Net earnings . . . . . . . . . . . . . . -- -- -- -- 663 663
Issuance of stock options to
employees . . . . . . . . . . . . . . -- -- 60 (59) -- 1
Sale of stock . . . . . . . . . . . . . . -- 13 11,217 -- -- 11,230
Issuance of stock options and
warrants . . . . . . . . . . . . . . . -- -- 4,023 -- -- 4,023
Executive compensation agreements . . . . -- -- 250 (233) -- 17
Issuance of stock for acquisitions . . . -- 7 6,304 -- -- 6,311
-- - ----- -- -- -----
Balance at September 30, 1997 (unaudited) . $-- $76 $48,083 $(292) $629 $48,496
=== === ======= ===== ==== =======
</TABLE>

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

F-6
<PAGE> 84
BAYARD DRILLING TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30, SEPTEMBER 30,
----------------------------------------------------------------------------
1994 1995 1996 1997 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) . . . . . . . . . . . . . . . . . $ (657) $ (222) $ 413 $ (20) $ 360 $ 663
Adjustments to reconcile net earnings (loss) to net
cash (used in) provided by operating
activities --
Depreciation and amortization . . . . . . . . . . . 1,557 791 1,126 2,645 727 4,918
(Gain) loss on sale of assets . . . . . . . . . . . (366) 131 (54) (60) -- (303)
Compensation expense . . . . . . . . . . . . . . . -- -- -- 18 -- 21
Deferred income taxes . . . . . . . . . . . . . . . -- -- 17 (12) -- 410
Change in assets and liabilities, net of effects of
affiliate transactions --
Decrease (increase) in accounts receivable . . . (96) 242 (2,059) (5,707) (525) (10,176)
(Increase) in accounts receivable from
affiliate . . . . . . . . . . . . . . . . . . -- -- -- (3,726) -- (2,350)
Decrease (increase) in other assets . . . . . . . 2 (6) (185) (1,608) (124) (1,030)
Increase (decrease) in accrued liabilities . . . (101) (237) 251 3,438 (315) 3,564
Increase (decrease) in accounts payable . . . . . 106 (389) (383) 5,635 459 10,720
Increase in accounts payable to affiliate . . . . -- -- -- 838 -- 1,187
Increase (decrease) in payable to affiliate . . . -- -- 412 (412) 7 (412)
--------- --------- --------- ---------- ---------------------
Net cash (used in) provided by operating
activities . . . . . . . . . . . . . . . . . 445 310 (462) 1,029 589 7,212
-------- -------- -------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment . . . . . . . . (1,183) (2,088) (10,578) (32,539) (6,499) (49,054)
Acquisition of businesses . . . . . . . . . . . . . . -- -- -- (26,056) -- (26,056)
Proceeds from sale of assets . . . . . . . . . . . . 729 378 137 60 136 781
Purchase of investments . . . . . . . . . . . . . . . -- -- -- (730) -- (730)
--------- --------- --------- ---------- ---------- ---------
Net cash used in investing activities . . . . (454) (1,710) (10,441) (59,265) (6,363) (75,059)
----- ------- -------- ---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made to affiliates . . . . . . . . . . . . . 16,608) (8,828) (19,719) -- (9,015) --
Advances received from affiliates . . . . . . . . . . 16,982 10,228 18,791 -- 14,789 --
Retirement of notes payable . . . . . . . . . . . . . (365) -- -- -- -- --
Proceeds from borrowings . . . . . . . . . . . . . . -- -- 7,000 41,044 -- 47,944
Proceeds from issuance of stock . . . . . . . . . . . -- -- 10,000 8,230 -- 11,230
Debt issuance costs . . . . . . . . . . . . . . . . . -- -- (206) -- -- --
Payments on long-term debt . . . . . . . . . . . . . -- -- -- (2,572) -- (4,114)
Borrowings under line of credit . . . . . . . . . . . -- -- -- 6,811 -- 7,906
--------- --------- --------- ---------- ---------- ----------
Net cash provided by financing activities . . 9 1,400 15,866 53,513 5,774 62,966
---------- ------- --------- ---------- ---------- ----------
Net change in cash . . . . . . . . . . . . . . . . . . -- -- 4,963 (4,723) -- (4,881)
Cash at beginning of period . . . . . . . . . . . . . . -- -- -- 4,963 -- 4,963
--------- --------- --------- ---------- ---------- -----------
Cash at end of period . . . . . . . . . . . . . . . . . $ -- $ -- $ 4,963 $ 240 $ --$ 82
======== ======== ========= ========== =====================
Cash paid during the period for interest . . . . . . . $ 20 $ -- $ -- $ 653 $ -- $ 2,275
Cash paid during the period for income taxes . . . . . $ -- $ -- $ -- $ -- $ --$ --
======== ======== ========= ========== =====================
</TABLE>

Continued

F-7
<PAGE> 85
BAYARD DRILLING TECHNOLOGIES, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

Continued

Supplemental noncash activity:

During 1994 certain affiliate payables were extinguished resulting in
a $1,515 capital contribution to the Company.

During 1995 an affiliate transferred drilling equipment to the Company
at the affiliate's basis totaling $173, net of accumulated depreciation of
$1,306, which has been reflected as an increase in payable to affiliate.
Additionally, the Company acquired property and equipment through trade
payables totaling $1,180.

During 1996 the Company acquired property and equipment totaling
$9,841 through the issuance of stock and options and assumed a net deferred
income tax liability of $331. The Company acquired property and equipment
through trade payables and payables to affiliates totaling $1,390. The Company
transferred property and equipment totaling $29, net of accumulated
depreciation of $1,254 to an affiliate which has been reflected as a decrease
in payables to affiliates. The Company issued stock options and warrants in
exchange for certain drilling agreements and debt. The stock options were
valued at $1,100 and the warrants associated with the debt were valued at $219.

Additionally in 1996, the Company transferred the following assets and
liabilities to affiliates which resulted in a net increase in equity at the
time of corporate capitalization, effective December 1, 1996.

<TABLE>
<S> <C>
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,667
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,252
Accounts payable and accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,799)
Payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,422)
--------
$ (5,285)
========
</TABLE>

During 1997 the Company acquired property and equipment through the
issuance of stock and options for $6,591 and through the issuance of trade
payables of $1,400.

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

F-8
<PAGE> 86
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO FINANCIAL STATEMENTS
INFORMATION FOR THE PERIODS ENDED SEPTEMBER 30, 1997 AND 1996 IS UNAUDITED

NOTE A -- NATURE OF OPERATIONS

Bayard Drilling Technologies, Inc. together with its predecessor, (the
"Company"), a Delaware corporation, is the successor to the drilling operations
of Anadarko Drilling Company ("Anadarko"), which began drilling operations in
1980. The Company provides land-based contract drilling services primarily to
independent oil and gas companies in the Mid-Continent and Gulf Coast regions
of the United States whose level of drilling activity is related to oil and gas
prices, among other factors.

Beginning in October 1996, AnSon Partners Limited Partnership ("APLP")
initiated a series of transactions among its wholly owned affiliates, Anadarko,
a partnership, and Bayard Drilling Company ("BDC"), a corporation, and the
Company. These series of transactions resulted in the corporate capitalization
of the Company in December 1996 with net assets, primarily drilling rigs,
previously owned by Anadarko. Such transactions were accounted for as a
reorganization of entities under common control.

NOTE B -- SUMMARY OF ACCOUNTING POLICIES

The summary of significant accounting policies applied in the
preparation of the accompanying financial statements follows.

1. Basis of Presentation and Consolidation

The financial statements and information for periods prior to December
1, 1996 represent those of the predecessor. The consolidated financial
statements for periods after December 31, 1996 include the accounts of the
Company and its wholly-owned subsidiaries, Trend Drilling Company ("Trend") and
WD Equipment, L.L.C. All significant intercompany accounts and transactions
have been eliminated.

2. Cash

The Company considers all cash and investments with an original
maturity of 90 days or less to be cash equivalents. The Company maintains its
cash in a bank deposit account which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash.

3. Restricted Investments

Restricted Investments consist of certificates of deposits pledged to
state insurance departments and insurance companies to support payment of
workers compensation claims.

4. Concentration of Credit Risk

The primary market for the Company's services are independent oil and
gas companies whose level of activities are related to, among other things, oil
and gas prices. The Company performs ongoing credit evaluations of its
customers and provides for potential credit losses when necessary. No
allowance was required at December 31, 1996 and 1995 or September 30, and June
30, 1997. At September 30, and June 30, 1997, approximately 71% of the
Company's trade receivables and at September 30, 1997 over 75% of total
revenues were derived from seven customers and approximately 71% was derived
from five customers at June 30, 1997.

5. Property and Equipment

Property and equipment are stated at cost, reduced by provisions to
recognize economic impairment in value when management determines that such
impairment has occurred. Drilling equipment is depreciated using the declining
balance

F-9
<PAGE> 87

method over the estimated useful lives from five to fifteen years. Other
property and equipment are depreciated on a declining balance basis over
estimated useful lives from three to ten years. Refurbishments and betterments
on drilling equipment are capitalized if such expenditures are significant and
extend the lives of the equipment. Maintenance and repairs are expensed as
incurred. When assets are sold, retired or disposed of, the cost and related
accumulated depreciation are eliminated from the accounts and the gain or loss
is recognized.

6. Revenue Recognition

Revenues generated from the Company's dayrate drilling contracts are
recognized as services are performed and revenues generated from the Company's
footage drilling contracts are recognized as a percentage of completion. For
all drilling contracts under which the Company bears the risk of completion
(such as turnkey contracts) revenues and expenses are recognized using the
completed contracts method. When estimates of projected revenues and expenses
indicate a loss, the total estimated loss is accrued.

7. Net Earnings (Loss) Per Share

Earnings per common and equivalent shares is computed based on the
weighted average number of common and equivalent shares outstanding during the
period. Pro forma net earnings (loss) per share are presented to reflect the
provision for income taxes for periods Anadarko was a partnership. Pro forma
net earnings (loss) per share is computed by dividing the pro forma net
earnings (loss) by the weighted average number of shares of common stock and
equivalent shares outstanding during the period.

Under guidelines issued by the Securities and Exchange Commission,
common shares, options and warrants issued prior to a public offering at prices
below the initial offering price are treated as outstanding for all periods
presented (using the Treasury stock method) in computing net earnings (loss)
per share.

8. Income Taxes

Income taxes were not provided in the financial statements for
earnings attributable to Anadarko since the partners would pay income taxes or
receive as a deduction their distributive share of Anadarko's taxable income or
loss. Pro forma adjustments are reflected on the statement of operations to
provide for income taxes in accordance with Statement of Financial Accounting
Standards No. 109 at an effective rate of 38%.

The Company uses the liability method of accounting for deferred
income taxes under SFAS No. 109, whereby deferred tax assets and liabilities
are recognized based upon differences between the financial statement and tax
bases of assets and liabilities using presently enacted tax rates. If it is
more likely that not some portion or all of a deferred tax asset will not be
realized, a valuation allowance is recognized.

9. Goodwill and Other Assets

Goodwill related to the acquisition of Trend is being amortized over
fifteen years. Amortization expense of $216,030 and $97,527 has been
recognized as of September 30, and June 30, 1997, respectively.

Other assets consist of (i) organizational costs incurred for the
organization of Bayard, (ii) debt issuance costs incurred on the term loan
disclosed in Note G, and (iii) deferred contract costs related to options
granted to a related party. Amortization expense for such other assets is
recognized over one to five years on a straight-line basis. $1,196,630 of
amortization expense has been recognized for the nine months ended September
30, and $667,626 for the six months ended June 30, 1997 for these costs.

On an ongoing basis, management reviews the valuation and amortization
of goodwill and other intangibles to determine possible impairment. The
recoverability of these assets is assessed by determining whether the
amortization can be recovered from undiscounted future cash flows.

10. Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and liabilities and
disclosure

F-10
<PAGE> 88
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period;
accordingly actual results could differ from those estimates.

11. Fair Value of Financial Instruments

The Company's financial instruments consist of cash and investments
which approximate fair value because of the short maturity of those
instruments, a payable to an affiliate which approximates fair value due to the
demand nature of this obligation and a floating rate term loan which
approximates fair value because the interest rate adjusts to the market rate,
and notes payable which approximate fair value because the interest rates on
these notes reflects the borrowing terms currently available to the Company.

12. Interim Financial Statements and Disclosures

In the opinion of management, the unaudited interim financial
statements for September 30, 1997 and 1996 and unaudited interim financial
statement disclosures subsequent to December 31, 1996 include all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
Company's financial position as of September 30, 1997 and results of operations
and cash flows for the nine months ended September 30, 1997 and 1996. Results
for the period ended September 30, 1997 are not necessarily indicative of the
results to be expected for the entire fiscal year.

13. Stock Based Compensation

The Company applies APB Opinion 25 in accounting for its stock option
plans. Under this standard, compensation expense is only recognized for grants
of options which include an exercise price less than the market price of the
stock on the date of grant. Accordingly, based on the Company's grants for
1996 and for the nine months ended September 30, 1997, the Company recognized
$0 and approximately $292,000 of deferred compensation and $0 and approximately
$21,000 of compensation expense, respectively. For grants of options which
include an exercise price equal to or greater than the market price of the
stock on the date of grant, the Company has disclosed the pro forma effects of
recording compensation based on fair value in Note N to the financial
statements as allowed by Financial Accounting Standard No. 123 "Accounting for
Stock-Based Compensation."

NOTE C -- ACQUISITIONS

On May 1, 1997, the Company completed the acquisition of the common
stock of Trend ("Trend Acquisition") for $18 million in cash and 250,000 shares
of common stock which equates to $10.64 per share based on the appraisals of
the fair market value of the property and equipment acquired of $21,532,000.
The Company incurred costs of approximately $307,000 in connection with this
acquisition.

The Trend Acquisition was accounted for as a purchase. The following
is an analysis of the allocation of the purchase price:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,734
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,532
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,330
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,265)
Long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,340)
Deferred income tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6,330)
-------
Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,661
=======
</TABLE>

On May 30, 1997, the Company acquired WD Equipment, L.L.C. (which
owned six drilling rigs, but had no operations) from Ward Drilling Company,
Inc. ("Ward Acquisition") for approximately $8 million in cash and 400,000
shares of common stock which equates to $8.95 per share based on the appraisal
of the fair market value of the assets acquired of $11,931,000. The Company
also issued warrants to purchase 200,000 shares of common stock at $10.00 per
share. The warrant had an estimated fair market value of $294,000 at the
agreement closing date and was recorded as an increase in property and
equipment and additional paid in capital.

The following is the unaudited pro forma results of operations as if
Trend and Ward had been acquired January 1, 1996 (in thousands):

F-11
<PAGE> 89
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,930 $44,561
======= =======
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,347) $ 471
======= =======
Net income (loss) per common share . . . . . . . . . . . . . . . . . . . $ (.16) $ .03
======== =======
</TABLE>

NOTE D -- PROPERTY AND EQUIPMENT

Major classes of property and equipment consist of the following:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C>
Drilling rigs and components . . . . . . . . . . . . . . . . . . . . 21,152 $42,303 $122,012

Automobiles, trucks, and trailers . . . . . . . . . . . . . . . . . . 1,546 431 1,443
Buildings and property . . . . . . . . . . . . . . . . . . . . . . . -- -- 277
Furniture, fixtures, and other . . . . . . . . . . . . . . . . . . . 69 7 289
------ ------- ------------
22,767 42,741 124,021
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . 16,424 15,768 19,347
------ ------- ----------
$6,343 $26,973 $104,674
====== ======= ========
</TABLE>

NOTE E -- CHANGE IN ESTIMATED LIVES

Effective January 1, 1995, the Company changed the estimated remaining
lives of its drilling rigs and other related drilling equipment to 84 months
from remaining lives which ranged from 31 months to 113 months. The Company
also changed the estimated remaining life of drill collars from 20 months to 36
months. These changes were made to more closely approximate the remaining
useful lives of such assets. The effect of this change was to decrease the
historical net loss by approximately $539,000 and to reduce the pro forma net
loss by approximately $539,000 or $.05 per share (Note B(7)) for the year ended
December 31, 1995.

Effective January 1, 1996, the Company changed the estimated remaining
lives of certain drilling component equipment from 84 months to 120 months and
changed the estimated remaining life of drill collars and pipe from 36 months
to 60 months. After review and study by the Company, the useful lives of
drilling rigs acquired after January 1, 1996 were changed from 84 months to 144
months. These changes were made to more closely approximate the remaining
useful lives of such assets. The effect of these changes was to increase the
historical net earnings by approximately $405,000 and to increase pro forma net
earnings by approximately $251,000, net of pro forma income taxes of $154,000,
or $.02 per share (Note B(7)) for the year ended December 31, 1996.

Effective July 1, 1997, the Company changed the estimated remaining
lives of its drilling rigs and other related drilling equipment to 180 months
from remaining lives of 144 months. These changes were made to more closely
approximate the remaining useful lives of such assets. The effect of these
changes was to increase net earnings for the third quarter ended September 30,
1997 by approximately $229,000, net of income taxes of $141,000, or $.02 per
share.

NOTE F -- INCOME TAXES

On October 28, 1996, Anadarko conveyed its operating assets to its
wholly-owned subsidiary, BDC, which caused a change in tax status of the
drilling operations from a partnership to a taxable corporation. A deferred
tax asset was recognized for the temporary differences which existed at the
date of conveyance together with a related valuation allowance. At December
31, 1996, the Company has net operating loss carry forwards of approximately
$418,000 which will expire in 2011 if unused.

F-12
<PAGE> 90
Components of net deferred income tax liabilities are as follows:

<TABLE>
<CAPTION>
OCTOBER 28, DECEMBER 31,
1996 1996
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets (liabilities)
Operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 167
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 1,818 (515)
Total valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . (1,818) --
------- -----
Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . $ -- $(348)
======= =====
</TABLE>

The Company's effective income tax rate differed from the federal
statutory rate of 34% as follows for the years ended December 31: (in
thousands)

<TABLE>
<CAPTION>
1995 1996
<S> <C>
Income tax expense (benefit) at federal statutory rate . . . . . . . . . . . . . . . $(75) $ 146
Income tax (expense) benefit attributable to individual
partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 (129)
---- ------
$ -- $ 17
==== ======
</TABLE>

The Company's valuation allowance on tax assets was established
October 28, 1996 due to a change in taxable status and decreased $1,818,000
during the period from October 28, 1996 to December 31, 1996. The Company was
not a taxable entity in 1995 and had no valuation allowance. Effective
December 1, 1996, the Company acquired assets with deferred tax liabilities of
approximately $2 million in which the purchase price allocation resulted in the
reduction of the Company's tax asset valuation allowance of approximately
$1,724,000.

NOTE G -- LONG-TERM DEBT AND SUBORDINATED NOTES

Long-term debt at December 31, 1996 consisted of borrowings under loan
agreements (the "Loan Agreements") which provide for a term loan (the "Term
Loan") and a revolving loan (the "Revolving Loan"). The Term Loan of
$7,000,000 bears interest at the Company's choice of LIBOR plus 4.25% (9.65% at
December 31, 1996) or the prime rate of Chase Manhattan Bank, N.A. and requires
monthly payments of principal and interest in amounts sufficient to repay
borrowings at maturity on March 31, 2002. The Loan Agreements permit
borrowings to a maximum of $20 million under the Term Loan if defined
collateral provisions are met. The loan is collateralized by drilling
equipment.

The Loan Agreements also permit borrowings up to $4 million under the
Revolving Loan through December 31, 1998 subject to a $2 million limitation if
the borrowings under the Term Loan exceed $17 million. Amounts advanced under
the Revolving Loan, if any, will be converted to a term loan on December 31,
1998 and will be repaid in monthly installments until maturity on January 31,
2002.

Starting in 1997, the Loan Agreements require the maintenance of
defined collateral values, cash flow and liquidity ratios, financial reporting
requirements, and the maintenance of total liabilities to tangible net worth
not greater than 1.25 and imposes certain limitations on capital expenditures
and incurrence of additional debt.

At December 31, 1996, the aggregate yearly maturities on long-term
obligations are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 947,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,240,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,365,000
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,503,000
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,654,000
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291,000
---------
$7,000,000
==========
</TABLE>

In May 1997, the Company amended and increased the availability under
the Loan Agreements. The Term Loan provides the Company up to $30.5 million
for the purchase of additional land drilling rigs, the refurbishment of such
rigs and equipment and for working capital purposes. The Revolving Loan
provides the revolving credit loans of up to $10 million, $2 million of which
is available for the issuance of letters of credit, and which is being used for
general corporate purposes. Amounts outstanding under the Revolving Loan bear
interest based on Fleet National Bank's prime rate plus 1.5% (10% at September
30, and June 30, 1997) and mature in April 2000. Amounts outstanding under the
Term Loan bear

F-13
<PAGE> 91
interest, at the election of the Company, at floating rates equal to Chase
Manhattan Bank's prime rate plus 2.0% or LIBOR plus 4.25% (10% at September 30,
and 9.94% at June 30, 1997) and mature in March 2002. The Loan Agreements are
collateralized by substantially all of the assets of the Company, including
drilling rigs, equipment and drilling contracts, and contain customary
restrictive covenants (including covenants restricting the ability of the
Company to pay dividends or encumber assets) and an affirmative covenant to
maintain Total Available Liquidity (as defined in the Loan Agreements) of at
least $4.5 million through December 31, 1997 and $3 million through December
31, 1998. Pursuant to the Loan Agreements, the Company must maintain certain
financial ratios, including a Cash Flow Coverage ratio (as defined in the Loan
Agreements) of at least 1.25 to 1 until December 1997, 1.5 to 1 in 1998 and
1.75 to 1 thereafter and a ratio of Total Liabilities (as defined in the Loan
Agreements) to Tangible Net Worth no greater than 1.25 to 1 in 1997 and 1 to 1
in 1998. Under the Loan Agreements the Company is obligated to pay certain
fees, including an annual commitment fee in an amount equal to 0.5% of the
unused portion of the commitment.

Additionally, the Company issued Subordinated Notes due May 1, 2003 in
the original principal amounts of $18 million and $2.52 million (the
"Subordinated Notes") to Chesapeake Energy Corporation ("Chesapeake") and
Energy Spectrum Partners LP ("Energy Spectrum"), respectively. The
Subordinated Notes bear interest at either (i) 11% per annum, payable in cash
or (ii) 12.875% per annum, payable in the form of additional Subordinated
Notes, which interest is payable quarterly in arrears. On each quarterly
interest payment date, the Company may make an election as to the interest rate
to be applied for the previous quarter. The Subordinated Notes are redeemable,
solely at the option of the Company, in whole or in part, at any time after May
31, 1998 at varying redemption prices. The Company must offer to redeem the
Subordinated Notes upon the occurrence of certain events constituting a "Change
of Control" (as defined in the Subordinated Notes) at a redemption price equal
to 100% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of redemption. The Subordinated Notes are
convertible into Common Stock at the option of the Company, in whole or in
part, in conjunction with a "Convertible Event" (as defined in the Subordinated
Notes), which includes certain underwritten public offerings (including the
Initial Public Offering), mergers, consolidations and other business
combination transactions. The Subordinated Notes are general unsecured
subordinated obligations of the Company that are subordinated in rights of
payment to all existing and future senior indebtedness of the Company, pari
passu with all existing and future subordinated indebtedness of the Company and
senior in right of payment to all future junior subordinated indebtedness of
the Company.

NOTE H -- RELATED PARTY TRANSACTIONS

Before the corporate capitalization, AnSon Gas Corporation served as
the managing general partner responsible for all management and operational
functions of the Company and charged the Company for such expenses. The
Company expensed approximately $198,000, $390,000 and $435,000 for such
services received in 1996, 1995 and 1994, respectively.

Prior to December 31, 1996, the Company and its affiliates made
advances to each other from time to time which generally had no specific
repayment terms. The Company's payable to affiliate at December 31, 1995 was
in the form of a noninterest-bearing payable to APLP.

The Company purchased drilling equipment and supplies from an
affiliate totaling $2,862,000, $779,000 and $904,000 in 1996, 1995 and 1994,
respectively. The Company also transferred drilling equipment to an affiliate
at the Company's basis totaling $29,000, net of accumulated depreciation, which
resulted in a decrease in payable to affiliate.

An affiliate transferred drilling equipment to Anadarko at the
affiliates basis totaling $173,000, net of accumulated depreciation, during
1995 which has been reflected as an increase in payable to affiliate.

In December 1996, Anadarko granted the Company a transferrable option,
exercisable at any time prior to June 30, 1998, to either purchase from
Anadarko a storage yard located in Weatherford, Oklahoma (the "Weatherford
Storage Yard") for a price of $1,000 in cash or lease from Anadarko, for any
period specified by the Company through a date not later than December 31,
1999, the Weatherford Storage Yard for a lease price of $100 per year. In
August 1997, the Company acquired from Anadarko approximately 5 acres of land
also in Weatherford, Oklahoma, in consideration for the relinquishment by the
Company of the option to acquire or lease the Weatherford Storage Yard.

In May 1997, the Company paid Energy Spectrum a fee in the amount of
$220,000 for financial advisory and other services rendered to the Company in
connection with the completion of the Trend Acquisition, including the
valuation and negotiation of the Trend Acquisition and for assistance in the
arrangement of alternative financing sources and structuring,

F-14
<PAGE> 92
negotiating and closing the amended financing arrangements with CIT and Fleet.
The Company also reimbursed Energy Spectrum for expenses incurred in connection
with the rendering of such services.

The Company has in the past purchased rigs and related equipment from
U.S. Rig & Equipment, Inc., an affiliate of Roy T. Oliver, a director of the
Company. From January 1997 through September 30, 1997, the Company paid U.S.
Rig & Equipment, Inc. an aggregate of $5.0 million in connection with such
purchases. Additionally, in August 1997, the Company sold one of its rigs to
an affiliate of Mr. Oliver for $500,000. The Company believes that this sale
price is equivalent to the price that would have been received from an
unaffiliated third party. Additionally, in November 1997, the Company agreed
to acquire six rigs and related drilling equipment for $14 million and such
rigs will require additional refurbishment prior to placement into service. In
connection therewith, the Company made a cash down payment of $3.5 million and
anticipates closing the transaction in January 1998.

The Company has engaged affiliates of APLP for the provision of
trucking services related to the movement of the Company's rigs on numerous
occasions. From January 1997 through September 30, 1997, the Company paid such
affiliates of APLP an aggregate of $630,000 in consideration for such trucking
services.

Since December 13, 1996, APLP has made available to the Company
certain of APLP's employees, office space and administrative equipment, such as
computer and telephone systems. In consideration for such assistance, the
Company had reimbursed APLP an aggregate of $179,000 as of September 30, 1997
and APLP continues to provide certain computer services to the Company.

Accounts receivable at September 30, 1997 included $3.1 million of
receivables from affiliates. Accounts payable at September 30, 1997 included
$1,187,000 owed to affiliates. Interest expense at September 30, 1997 included
$495,000 to affiliates.

NOTE I -- SIGNIFICANT CUSTOMERS

During the first nine months of 1997, 38% of revenues were generated
from affiliated customers and for the six months ended June 30, 1997, 51% of
revenues was generated from an affiliated customer and 10% of revenues was
generated from an unaffiliated customer. During 1996, sales to two customers
were, respectively, 75% (inclusive of $798,000 attributable to Chesapeake,
which became an affiliate in December 1996) and 18% of drilling revenues.
During 1995, sales to one customer totaled 36% of drilling revenue. During
1994, sales to two customers totaled 34% and 11% of total drilling revenues.

NOTE J -- STOCKHOLDER'S EQUITY AND OPTIONS

In December 1996, the Company issued 2,000,000 shares of Common Stock
to Anadarko for the operating assets of BDC, Anadarko's subsidiary. Further,
the Company issued 2,000,000 shares of Common Stock to Energy Spectrum for $10
million cash. The Company also acquired six drilling rigs and related
equipment by the issuance of 1,600,000 shares of Common Stock and put options
on the Company's common stock. The drilling rigs were recorded in accordance
with appraisals of the estimated fair value of the assets acquired ($9,500) and
the net deferred income tax liability assumed. If the Company does not
complete an initial public stock offering prior to June 2, 1998, the holder of
the options has a thirty-day period in which to request that the Company
purchase the 1,600,000 shares of Common Stock at $7.50 per share. The Company,
at its option, can either purchase the shares or issue 400,000 additional
shares of Common Stock to the holder. The estimated fair value of the put
options are recorded as additional contributed capital to the Company.

The Company executed in December 1996 certain drilling agreements to
supply six drilling rigs to Chesapeake at rates equal to defined comparable
market rates but not less than $5,000 per day per rig. The Company granted the
operator an option to purchase 2,000,000 shares of Common Stock at $6 per
share, subject to performance of the operator under the drilling agreement.
The estimated fair value of the options of $1,100,000 was recorded as
additional paid-in capital and a deferred charge to be amortized over a twelve
month period consistent with the annual negotiations of contract terms.

In February 1997, the Company sold 100,000 shares of Common Stock at
$2.50 per share to the President of the Company, which are subject to the terms
of a Restricted Stock Award Agreement. Deferred compensation in the amount of
$250,000 was recorded related to this stock grant as the purchase price was
below the fair market value of the Company's Common Stock at the date of grant.
See Note N.

F-15
<PAGE> 93
On December 10, 1996, the Company granted the issuer of the Term Loan
(Note G) warrants to immediately purchase up to 290,000 shares of the Company's
Common Stock at $8 per share or up to 300,000 shares at $8 per share when total
outstanding Common Stock exceeds 6,000,000 shares. The warrants expire at the
earlier of December 13, 2001 or eighteen months after completion of the initial
public stock offering by the Company. The warrant holder can also elect to
receive in stock the excess of the stock market value over the warrant exercise
price. These warrants have an estimated fair value of $219,000, which has been
recorded as debt issue costs and is being amortized over the term of the loan.

The Company purchased during May 1997, two drilling rigs from U.S. Rig
& Equipment, Inc. for cash and granted options to purchase 100,000 shares of
Common Stock at $8 per share.

In connection with the issuance of Subordinated Notes executed in May
1997, the Company issued 1,140,000 shares of Common Stock at $7 per share.
Additionally, the Company issued two series of detachable Warrants, designated
as Series A Warrants and Series B Warrants. The Series A Warrants are
exercisable at a price of $.01 per share and the Series B Warrants are
exercisable at $7.50 per share. Both Warrants expire 72 months from issuance.
The Company issued Series A Warrants and Series B Warrants representing the
right to purchase 798,000 shares and 912,000 shares of Common Stock,
respectively. The fair market value of these warrants at the agreement closing
date was $6 million, $4,024,000 of which was attributable to the Subordinated
Notes. The warrant value applicable to the Subordinated Notes was allocated
between the Subordinated Notes and warrants and recorded as a discount to the
Subordinated Notes and additional paid in capital.

In October, 1995 SFAS No. 123 "Accounting for Stock Based
Compensation" was issued. The statement required the computation of
compensation expense for stock, stock options and other equity instruments
issued to employees based on the fair value of the instrument at the date the
instrument was granted. The compensation is to be recorded as an expense in
the financial statements or alternatively, disclosed. The Company has elected
to disclose such information.

In June 1997, the Company granted options to employees to purchase
59,600 shares of Common Stock at $8 per share. Deferred compensation in the
amount of $59,600 was recorded related to these stock options as the exercise
price was below the fair market value of the Company's Common Stock at the date
of grant. See Note N. In November 1997, the Company granted options to
employees to purchase 197,500 shares of Common Stock at $23 per share. During
1996 and 1997, the Company issued stock options to three executive officers
pursuant to the 1997 Stock Option and Stock Award Plan to purchase 200,000,
50,000 and 50,000 shares of Common Stock, respectively, at an exercise price of
$5, $5 and $10 per share, respectively. None of such options has been
exercised, and all of such options remain outstanding.

NOTE K -- COMMITMENTS AND CONTINGENCIES

In December 1996, the Company entered into a drilling agreement whereby
Chesapeake agreed to engage six of the Company's rigs for two-year terms,
subject to annual negotiations. The Company has the option to extend the
agreement with respect to any two of the rigs for two additional years on the
same terms. Chesapeake has the option to extend each of the other four
individual drilling rigs for two additional years on the same terms. The
agreement provides standard day rates, subject to upward, but not downward,
adjustment annually to approximately $100 per day less than the average
then-current market rates for the areas of operation. This adjustment is
determined each November during the term of the agreement and becomes effective
for any wells spudded after December 1, while such agreement remains in effect.
The contract has been negotiated whereby the dayrate for each rig engaged by
Chesapeake will be determined on a well to well basis, based on the prevailing
market conditions at such time. Three of the six rigs have been released by
Chesapeake which allowed the Company to provide one rig to another customer at a
higher day rate, due to the current market conditions, than would have been
received if Chesapeake had retained the rig.

The Company has entered into two year employment agreements with three
executive officers, which provide for the payment of the remaining term of each
agreement upon a change of control. As of September 30, 1997, benefits under
such agreements, assuming a change of control, would aggregate approximately
$465,000.

As of September 30, 1997, the Company had construction commitments
totaling approximately $3.5 million for five rigs in various stages of
refurbishment.

A shortage of drill pipe exists in the contract drilling industry in
the United States. This shortage has caused the price of drill pipe to
increase significantly over the past 24 months and has required orders for new
drill pipe to be placed at least one year in advance of expected use. The
price increase and the delay in delivery has caused the Company to

F-16
<PAGE> 94
substantially increase capital expenditures for drill pipe in recent months.
In the event the shortage continues, the Company may be unable to obtain the
drill pipe required to expand its contract drilling operations.

NOTE L -- SUBSEQUENT EVENTS

In August 1997, the Company issued 3,149,000 shares of Common Stock to
Chesapeake for $9 million in cash and the relinquishment by Chesapeake of its
right to exercise the Chesapeake Option and the warrants issued to it in
connection with the May Financing (the "Chesapeake Transactions"). In
connection with the Chesapeake Transactions and upon consummation of the
Initial Public Offering, the Company redeemed in full the $18 million principal
amount of Subordinated Notes held by Chesapeake at a cash redemption price of
$18.2 million. The Company estimates a $5.3 million extraordinary loss from
early extinguishment of debt on the Subordinated Notes, subject to adjustment.
Also in connection with the Chesapeake Transactions, the Company waived its
right under the May Securities Purchase Agreement to require Chesapeake to
purchase additional Common Stock, Warrants and Subordinated Notes for $3
million.

At the August 19, 1997 Board of Directors meeting, the number of
authorized shares of Common Stock was increased from 10,000,000 to 100,000,000
and the number of authorized shares of preferred stock was increased from
2,000,000 to 20,000,000. Additionally, a two-for-one stock split effected as a
stock dividend on an August 22, 1997 record date was approved. All stock
option data, per share earnings and references to common stock have been
restated to give effect to the stock split.

On July 31, 1997, Energy Spectrum exercised in full its Series A
Warrants, at a price of $0.01 per share, for 98,000 shares of Common Stock.

SUBSEQUENT EVENTS -- UNAUDITED

On October 16, 1997, the Company acquired Bonray Drilling Corporation
("Bonray") for 3,015,000 shares of Common Stock, subject to certain working
capital adjustments. The acquisition will be accounted for as a purchase.

NOTE M -- EMPLOYEE BENEFIT PLAN

The Company has a profit sharing plan for certain eligible employees
who have attained the age of 21 and completed at least one year of service.
Participants may contribute up to 15% (20% prior to October 1997) of
compensation for any plan year. The Company's discretionary contribution is
based on the participants total years of service. The Company has made
contributions of approximately $60,900 through September 30, 1997.

NOTE N -- BENEFIT AND COMPENSATION PLAN

In April 1997, the Board of Directors approved the adoption of an
Employee Stock Plan ("the Plan") whereby 1,600,000 shares of Common Stock are
authorized for issuance under the Plan to officers and employees. The Plan
permits the issuance of qualified or nonqualified stock options, as well as
granting of certain other awards, including shares of restricted stock.
Options granted become vested at the rate of 20% per year one year after being
granted, with the options expiring six years from the original grant date. The
exercise price for options granted through September 30, 1997 was based on the
Company's estimate of the fair market value on the date of the grant. Through
September 30, 1997, 309,600 options and 100,000 shares of restricted stock
(denoted below) were issued under the Plan, none of which were exercisable at
September 30, 1997.

F-17
<PAGE> 95
Activity pertaining to the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding at
December 10, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- $ --
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 5.00
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
--
Outstanding at
January 1, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 5.00
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 209,600 4.66
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- --
--
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409,600 $4.83
=======
</TABLE>

<TABLE>
<CAPTION>
WEIGHTED AVERAGE FAIR MARKET
WEIGHTED AVERAGE FAIR VALUE OF VALUE OF DEFERRED
EXERCISE NUMBER OF REMAINING WEIGHTED AVERAGE STOCK OPTIONS ON COMMON STOCK COMPENSATION
PRICE RANGE SHARES CONTRACTUAL LIFE EXERCISE PRICE DATE OF GRANT AT DATE OF GRANT COST
- ----------- ---------- ---------------- --------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 2.50 100,000 0 $ 2.50 $ -- $5.00 $233,000
5.00 250,000(1) 5.46 5.00 2.09 5.00 --
8.00 59,600 5.96 8.00 4.18 9.00 59,000
</TABLE>

__________

(1) Unvested restricted stock.

The Company applies APB Opinion 25 in accounting for the Plan. Had
compensation been determined on the basis of fair value pursuant to FASB
Statement No. 123, net income and earnings per share would have been reduced as
follows:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ ------------
<S> <C> <C>
Net income (in thousands):
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413 (20)
Pro forma (net of effective tax of 38%) . . . . . . . . . . . . . . . . . . . . . . 407 (90)
Primary earnings per share, primary and fully diluted:
As reported . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .04 (.00)
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .04 (.01)
</TABLE>

The fair value of each option granted is estimated using the
Black-Scholes model. This model includes, among others, a variable of stock
volatility. As the Company is not yet public, the volatility used in the model
was .40 based on volatilities of a similar entity that is currently publicly
traded. Dividend yield was estimated to remain at zero with risk free interest
rates ranging between 5.72 and 6.31 percent. As there is no prior experience
available to use in estimating an expected life for the options, an average of
the time between the vesting and expiration dates of the options was used in
determining the expected lives of the options ranging from 3.5 to 5.5 years.
Fair value of options granted during 1997 and 1996 under the Plan were $415,990
and $354,590, respectively.

F-18
<PAGE> 96
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Bayard Drilling Technologies, Inc.

We have audited the accompanying balance sheets of Trend Drilling
Company as of December 31, 1996 and 1995, and the related statements of
operations, stockholder's equity, and cash flows for each of the three years in
the period ended December 31, 1996. 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 audits 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, the financial statements referred to above present
fairly, in all material respect, the financial position of Trend Drilling
Company as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.

COOPERS & LYBRAND, L.L.P.

Oklahoma City, Oklahoma
April 28, 1997

F-19
<PAGE> 97
TREND DRILLING COMPANY

BALANCE SHEETS

ASSETS

AS OF DECEMBER 31,
---------------------------- AS OF
1995 1996 APRIL 30, 1997
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . $ 448,857 $ 570,873 $ 149,352
Accounts receivable . . . . . . . . . . . . . . . . 2,398,231 3,474,043 2,544,526
Other current assets . . . . . . . . . . . . . . . 34,899 40,661 40,661
Deferred tax asset . . . . . . . . . . . . . . . . 175,593 -- --
------------- --------- ---------
Total current assets . . . . . . . . . . . 3,057,580 4,085,577 2,734,539
Property, plant and equipment, net . . . . . . . . . 4,781,019 4,176,964 4,133,639
Goodwill, net of accumulated amortization of $60,000,
$84,000 and $92,000, respectively . . . . . . . . . 60,000 36,000 28,000
Deferred tax asset . . . . . . . . . . . . . . . . . 186,688 379,850 379,850
------------- ---------- ----------
Total assets . . . . . . . . . . . . . . . $ 8,085,287 $8,678,391 $7,276,028
============= ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable . . . . . . . . . . . . . . . . . $ 2,358,575 1,424,415 $ 583,405

Accrued liabilities . . . . . . . . . . . . . . . . 626,883 1,049,338 280,049
Income taxes payable . . . . . . . . . . . . . . . -- 986,834 1,157,103
Current portion of long-term debt . . . . . . . . . 1,457,976 415,445 232,394
Deferred tax liability . . . . . . . . . . . . . . -- 11,939 11,939
------------- --------- ---------
Total current liabilities . . . . . . . . . 4,443,434 3,887,971 2,264,890
------------- --------- ---------
Long-term debt . . . . . . . . . . . . . . . . . . . 1,755,437 1,339,992 1,339,992
------------- --------- ---------

Commitments and contingencies

STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 25,000 shares
authorized; 500 shares issued and outstanding . 500 500 500
Additional paid-in capital . . . . . . . . . . . . 2,483,880 2,483,880 2,483,880
Retained earnings (accumulated deficit) . . . . . . (597,964) 966,048 1,186,766
------------- --------- ---------
Stockholders' equity . . . . . . . . . . . 1,886,416 3,450,428 3,671,146
------------- --------- ---------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . . . $ 8,085,287 $8,678,391 $7,276,028
============= ========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-20
<PAGE> 98
TREND DRILLING COMPANY

STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, FOUR MONTHS
-------------------------------------------- ENDED
1994 1995 1996 APRIL 30, 1997
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Drilling contracts . . . . . $12,563,991 $12,283,649 $15,692,056 $6,389,703
----------- ----------- ----------- ----------
OPERATING EXPENSES:
Drilling . . . . . . . . . . 10,070,842 9,218,081 11,752,135 4,844,669
General and administrative . 1,415,842 1,878,347 1,647,330 514,937
Depreciation and amortization 1,077,292 1,344,835 1,602,832 627,350
---------- ----------- ----------- ----------
Total operating
expenses . . . . . 12,563,976 12,441,263 15,002,297 5,986,956
---------- ----------- ----------- ----------
Operating income (loss) . . . . 15 (157,614) 689,759 402,747
---------- ----------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest expense . . . . . . (183,768) (280,741) (261,331) (46,750)
Interest income . . . . . . . 5,880 17,380 8,035 --
Other . . . . . . . . . . . . 140,021 43,673 53,523 --
Gain on disposition of
equipment . . . . . . . . 71,366 42,573 2,055,230 --
---------- ----------- ----------- ----------
Total other income
(expense) . . . . . 33,499 (177,115) 1,855,457 (46,750)
---------- ----------- ----------- ----------
Income (loss) before income
taxes . . . . . . . . . . . . 33,514 (334,729) 2,545,216 355,997
Income tax benefit (expense) . (17,177) 112,906 (981,204) (135,279)
---------- ----------- ----------- ----------
Net Income (loss) . . . . . . . $ 16,337 $ (221,823) $ 1,564,012 $ 220,718
========== =========== =========== ==========

</TABLE>

F-21
<PAGE> 99
TREND DRILLING COMPANY

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
RETAINED
CAPITAL IN EARNINGS
COMMON EXCESS OF (ACCUMULATED
STOCK PAR VALUE DEFICIT) TOTAL
<S> <C> <C> <C> <C>
Balance, December 31, 1993 . . . . . . . . . . $500 $2,483,880 $(392,478) $2,091,902
Net income . . . . . . . . . . . . . . . . . -- -- 16,337 16,337
---- ---------- --------- ----------
Balance, December 31, 1994 . . . . . . . . . . 500 2,483,880 (376,141) 2,108,239
Net loss . . . . . . . . . . . . . . . . . . -- -- (221,823) (221,823)
---- ---------- --------- ----------
Balance, December 31, 1995 . . . . . . . . . . 500 2,483,880 (597,964) 1,886,416
Net income . . . . . . . . . . . . . . . . . -- -- 1,564,012 1,564,012
---- ---------- --------- ----------
Balance, December 31, 1996 . . . . . . . . . . $500 $2,483,880 $ 966,048 $3,450,428
==== ========== ========= ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-22
<PAGE> 100
TREND DRILLING COMPANY

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
FOUR MONTHS
ENDED
1994 1995 1996 APRIL 30, 1997
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . $ 16,337 $ (221,823) $1,564,012 $ 220,718
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization . . . . . . . 1,077,292 1,344,836 1,602,832 627,350
Gain on disposition of property,
plant and equipment . . . . . . . . . . . (71,366) (42,573) (2,055,230) --
Deferred tax expense (benefit) . . . . . . . 17,177 (112,906) (5,630) --
Change in assets and liabilities:
Accounts receivable . . . . . . . . . . . (1,436,642) (120,759) (1,075,812) 929,517
Prepaid expenses . . . . . . . . . . . . . 2,867 (19,349) (5,762) --
Accounts payable and accrued
liabilities . . . . . . . . . . . . . . 903,866 929,719 (511,705) (1,610,299)
Income taxes payable . . . . . . . . . . . -- -- 986,834 170,269
Deferred revenue . . . . . . . . . . . . . (172,250) -- -- --
---------- ---------- ---------- ----------
Net cash provided by operating
activities . . . . . . . . . . . . . 337,281 1,757,145 499,539 337,555
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from the sale of equipment . . . . . . 264,219 42,573 2,872,647 --
Capital expenditures . . . . . . . . . . . . . (3,645,969) (1,552,257) (1,792,194) (576,027)
---------- ---------- ---------- ----------
Net cash provided by (used in)
investing activities . . . . . . . . (3,381,750) (1,509,684) 1,080,453 (576,027)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of debt . . . . . . . . 3,000,000 850,000 775,000 --
Principal payments under debt
obligations . . . . . . . . . . . . . . . . (299,809) (658,104) (2,232,976) (183,049)
---------- ---------- ---------- ----------
Net cash provided by (used in)
financing activities . . . . . . . . 2,700,191 191,896 (1,457,976) (183,049)
---------- ---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . (344,278) 439,357 122,016 (421,521)
Cash and cash equivalents, beginning of
period . . . . . . . . . . . . . . . . . . . . 353,778 9,500 448,857 570,873
---------- ---------- ---------- ----------
Cash and cash equivalents, end of
period . . . . . . . . . . . . . . . . . . . . $ 9,500 $ 448,857 $ 570,873 $ 149,352
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . $ 136,857 $ 232,553 $ 254,110 $ 46,750
========== ========== ========== ==========
Income taxes . . . . . . . . . . . . . . . . $ -- $ -- $ -- $ 275,000
========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-23
<PAGE> 101
TREND DRILLING COMPANY

NOTES TO THE FINANCIAL STATEMENTS
INFORMATION RELATING TO THE FOUR MONTHS ENDED APRIL 30, 1997 IS UNAUDITED

(A) NATURE OF OPERATIONS

Trend Drilling Company (the "Company"), an Oklahoma corporation, began
operations in 1981. The Company provides contract drilling services in the
Mid-Continent region of the United States. The Company's customers are
primarily independent oil and gas companies.

On February 13, 1997, the owner of the Company and sole stockholder,
entered into a stock purchase agreement (the "Agreement"), with Bayard Drilling
Technologies, Inc. ("Bayard") for the sale of the Company (the "Bayard
Acquisition"). The executed agreement states a purchase price of $18 million
plus shares of Bayard stock, adjusted for changes in working capital as of the
closing date compared to December 31, 1996.

(B) SUMMARY OF SIGNIFICANT ACCOUNT POLICIES

REVENUE RECOGNITION

The Company recognizes revenue and expenses on dayrate contracts as
the drilling progresses (percentage-of- completion method). For footage and
turnkey contracts, the Company recognizes the revenue and expenses upon
completion of the well (completed-contract method).

Revenue earned of $279,390, but not billed, is included in accounts
receivable at December 31, 1996.

CASH AND CASH EQUIVALENTS

For purposes of the balance sheet, the Company considers cash
equivalents to be all instruments that had a remaining maturity of three months
or less at the date of purchase.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recorded at cost. Depreciation of
property, plant and equipment is determined primarily on the straight-line
method over the estimated useful lives of the assets at the following rates:

<TABLE>
<CAPTION>
YEARS
<S> <C>
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-39
Drilling rigs and related equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-14
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Furniture and office equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5-10
</TABLE>

Upon retirement or disposal, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss is included in
operations. Repairs and maintenance, which extend the useful life of property,
plant and equipment, are capitalized.

GOODWILL

The excess of the purchase price over the fair value of assets
acquired is amortized on the straight-line method over five years.
Amortization expense was $24,000 for the years-ended December 31, 1996, 1995
and 1994.

F-24
<PAGE> 102
INCOME TAXES

The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
No. 109"). Accordingly, deferred taxes are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
the enacted tax rate in effect in the years in which the differences are
expected to reverse. Deferred tax expense represents the change in the
deferred tax liability balance.

CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables with oil
and natural gas companies. For the years ended December 31, 1996 and 1995 over
ninety- five percent of the Company's trade receivables were from ten or less
customers. These customers also represented 63%, 51% and 54% of total revenues
for 1996, 1995 and 1994, respectively.

At December 31, 1996 and 1995, the Company had deposits in domestic
banks in excess of federally insured limits of approximately $467,000 and
$348,000, respectively.

ACCOUNTING 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 for certain revenues and expenses during
the reporting period. Actual results could differ from those estimates.

INTERIM FINANCIAL STATEMENTS AND DISCLOSURES

In the opinion of management, the unaudited interim financial
statements for the period ended April 30, 1997 and unaudited interim financial
statement disclosures subsequent to December 31, 1996 include all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
Company's results of operations for the four months ended April 30, 1997.

Property, plant and equipment consist of the following at December 31,

<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$ 295,946 $ 295,946
Drilling rigs and related equipment . . . . . . . . . . . . . . . . . . 12,323,939 12,887,107
Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233,018 227,018
Furniture and office equipment . . . . . . . . . . . . . . . . . . . . 153,984 141,131
Leasehold costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 9,290
----------- -----------
13,006,887 13,560,492
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . 8,225,868 9,383,528
----------- -----------
$ 4,781,019 $ 4,176,964
=========== ===========
</TABLE>

(D) LONG-TERM DEBT

Long-term debt consisted of the following at December 31,

<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Notes payable to banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,213,413 1,755,437

Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,457,976 415,445
--------- ---------
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . $1,755,437 $1,339,922
========== ==========
</TABLE>

On March 26, 1996, the Company entered into a term loan (the "Note")
of $3,098,058, which consolidated all of the Company's bank borrowings into one
term loan. At December 31, 1996, long-term debt consisted of borrowings under
this note of $1,755,437 which bears an interest rate at the prime rate,
adjusted quarterly (8.25% at December 31, 1996). The Note contains a
subjective acceleration clause which allows the lender to demand payment of the
Note when the lender,

F-25
<PAGE> 103
at its sole discretion, determines that the Note is impaired. However, the
Note has been classified based on the scheduled maturities in the accompanying
balance sheet as management does not believe such impairment has occurred. The
Note requires the maintenance of financial reporting requirements and annual
personal financial statements from the owner of the Company.

The Note requires monthly payments of principal and interest in
amounts sufficient to repay borrowings at maturity on March 26, 2001. The Note
is collateralized by Accounts Receivable and Property, Plant and Equipment and
is personally guaranteed by the owner of the Company.

At December 31, 1995, long-term debt consisted of borrowings under
four bank notes with an aggregate amount of $3,213,413 which bore interest at a
rate of 1% over prime (which was 8.75% on December 31, 1995).

At December 31, 1996, the aggregate scheduled yearly maturities on
long-term obligations are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 415,445
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373,762
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 406,799
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 442,757
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,674
---------
$1,755,437
==========
</TABLE>

(E) INCOME TAXES

Income tax expense (benefit) for the years ended December 31, 1994,
1995 and 1996 is summarized as follows:

<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $882,957
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 103,877
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,369 (101,021) (5,037)
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,808 (11,885) (593)
------- --------- --------
$17,177 $(112,906) $981,204
======= ========= ========
</TABLE>

Total income tax expense (benefit) differs from the amount computed by
multiplying income (loss) before income taxes by the U.S. federal income tax
statutory rate. The reasons for this difference are as follows:

<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Computed expected tax expense (benefit) . . . . . . . . . . . . . . . . . $11,394 $(113,807) $865,373
State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,340 (13,389) 101,808
Non-deductible business meals and entertainment
expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,443 14,290 14,023
------- --------- --------
$17,177 $(112,906) $981,204
======= ========= ========
</TABLE>

F-26
<PAGE> 104
The components of the deferred tax assets and (liabilities) consisted
of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Deferred tax assets:
Net operating loss and tax credit carry-forwards . . . . . . . . . . . . . . . . . $ 38,549 $ --
Excess of book basis over tax basis of current
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,054 --
Excess of tax basis over book basis of current assets . . . . . . . . . . . . . . . 24,990 --
Depreciation of property, plant and equipment . . . . . . . . . . . . . . . . . . . 190,488 383,650
Deferred tax liabilities:
Excess of tax basis over book basis of current
liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (11,939)
Amortization of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,800) (3,800)
-------- --------
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $362,281 $367,911
======== ========
</TABLE>

(F) RELATED PARTIES

The Company has several affiliates in the oil and gas industry with
which the Company does business throughout the year. The type of transactions
with these related parties varies from the Company drilling wells for
affiliates to affiliates moving rigs from one well site to another, as well as
receiving certain administrative support for which the Company was not billed
(i.e., computer support).

As of December 31, 1996 and 1995, the Company had trade receivables
with related parties in the amount of $375,016 and $32,633, respectively, and
trade payables with related parties of $168,169 and $505,426, respectively.

For the period ended December 31, 1996, 1995 and 1994 the Company had
revenues of $462,535, $917,743 and $1,422,658, respectively and expenses of
$2,121,975, $2,003,356 and $1,660,169, respectively, with related parties.

The Company leases office space from an affiliate. For the years
ended December 31, 1996, 1995 and 1994, the Company paid rent of approximately
$10,000.

The Company has an agreement for 1997 to continue renting this office
space for approximately $1,000 per month.

(G) EMPLOYEE BENEFIT PLAN

The Company has a profit sharing plan ("the Plan") for certain
eligible employees who have attained the age of 21 and completed at least six
months of service. Participants may contribute up to 15% of compensation for
any Plan year. The Company's discretionary contribution is allocated to each
participant's account in the proportion which that participant's compensation
bears to the total compensation of all eligible participants. The Company made
contributions of approximately $130,000, $35,000 and $20,000 to the Plan in
1996, 1995 and 1994, respectively.

F-27
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Bayard Drilling Technologies, Inc.

We have audited the accompanying balance sheet of Ward Drilling
Company, Inc. as of December 31, 1996, and the related statement of operations
and retained earnings, and cash flows for the year ended December 31, 1996.
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.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ward Drilling
Company as of December 31, 1996, and the results of its operations and its cash
flows for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.

COOPERS & LYBRAND, L.L.P.

Oklahoma City, Oklahoma
August 22, 1997

F-28
<PAGE> 106
WARD DRILLING COMPANY, INC.

BALANCE SHEET

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, MAY 31,
1996 1997
<S> <C> <C>
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,038 $--
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,733,647 1,287,069
Prepaids and other assets . . . . . . . . . . . . . . . . . . . . . . . . . 781,470 520,204
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . 2,522,155 1,807,273
--------- ---------
EQUIPMENT:
Drilling equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,701,019 14,843,582
Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444,606 448,918
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373,263 376,882
------- -------
15,518,888 15,669,382
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . 8,569,372 8,509,445
--------- ---------
Net equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,949,516 7,159,937
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $9,471,671 $8,967,210
========== ===========

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Book overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $118,765 $5,295
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,246,022 383,329
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 590,161 474,582
Advances from affiliate and stockholder . . . . . . . . . . . . . . . . . . 3,265,480 3,899,629
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 5,220,428 4,762,835
--------- ---------
Note payable to bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 --
------- --
Commitments and contingencies
STOCKHOLDER'S EQUITY:
Common stock of $1 par value. Authorized 25,000 shares;
issued and outstanding 1,000 shares . . . . . . . . . . . . . . . . . . 1,000 1,000
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 99,014 99,014
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,651,229 4,104,361
--------- ---------
Total stockholder's equity . . . . . . . . . . . . . . . . . . . . 3,751,243 4,204,375
--------- ---------
Total liabilities and stockholder's equity . . . . . . . . . . $9,471,671 $8,967,210
========== ===========
</TABLE>

See accompanying notes to financial statements.

F-29
<PAGE> 107
WARD DRILLING COMPANY, INC.

STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

<TABLE>
<CAPTION>
DECEMBER 31, FIVE MONTHS ENDED
1996 MAY 31, 1997
(UNAUDITED)
<S> <C> <C>
DRILLING REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . $11,384,944 $4,956,971
----------- -----------
OPERATING EXPENSES:
Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,890,597 3,914,240
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 966,328 413,249
General and administrative . . . . . . . . . . . . . . . . . . . 484,748 196,747
------- -------
Total operating expenses . . . . . . . . . . . . . . . . 11,341,673 4,524,236
---------- ---------
Operating income . . . . . . . . . . . . . . . . . . . . 43,271 432,735
------ -------
OTHER INCOME (EXPENSE):
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . 34,536 16,810
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . (72,056) (27,224)
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . 7,895 --
Miscellaneous income . . . . . . . . . . . . . . . . . . . . . . 66,678 30,810
------ -------
Total other income . . . . . . . . . . . . . . . . . . . 37,053 20,396
------ -------
Net income (loss) . . . . . . . . . . . . . . . . . . . . $80,324 $453,131
======= =========

Retained earnings at beginning of year . . . . . . . . . . . . . . $3,570,905
==========

Retained earnings at end of year . . . . . . . . . . . . . . . . . $3,651,229
==========
</TABLE>

See accompanying notes to financial statements.

F-30
<PAGE> 108
WARD DRILLING COMPANY, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
DECEMBER 31, FIVE MONTHS ENDED
1996 MAY 31, 1997
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,324 $ 453,131
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 966,328 413,249
Gain on sale of assets . . . . . . . . . . . . . . . . . . . . . . (7,895) --
Change in assets and liabilities:
(Increase) decrease in accounts receivable . . . . . . . . . . . (485,735) 446,578
(Increase) decrease in prepaids and other assets . . . . . . . . (330,577) 261,266
Decrease in cost incurred or contracts in progress . . . . . . . 463,588 --
Decrease in accounts payable . . . . . . . . . . . . . . . . . . (75,797) (862,693)
Increase (decrease) in accrued expenses . . . . . . . . . . . . 250,400 (115,579)
---------- ---------
Net cash provided by operating activities . . . . . . . . . . . . 860,636 595,952
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, including major
repairs and betterments . . . . . . . . . . . . . . . . . . . . . (1,564,162) (623,669)
Proceeds from sale of assets . . . . . . . . . . . . . . . . . . . . 21,034 --
---------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . (1,543,128) (623,669)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on revolving line of credit . . . . . . . . . . . . . . . . 50,000
Payments on revolving line of credit . . . . . . . . . . . . . . . . -- (500,000)
Advances from affiliate and stockholder . . . . . . . . . . . . . . . 1,301,282 634,149
Payments to affiliates . . . . . . . . . . . . . . . . . . . . . . . (616,136) --
Decrease in book overdraft . . . . . . . . . . . . . . . . . . . . . (52,671) (113,470)
---------- ---------
Net cash provided by financing activities . . . . . . . . . . . . 682,475 20,679
---------- ---------
Net decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . (17) (7,038)
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . 7,055 7,038
---------- ---------
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,038 $ --
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . $ 57,244 $ 20,000
========== =========
</TABLE>

See accompanying notes to financial statements.

F-31
<PAGE> 109
WARD DRILLING COMPANY, INC.

NOTES TO FINANCIAL STATEMENTS
INFORMATION RELATING TO THE FIVE MONTHS ENDED MAY 31, 1997 IS UNAUDITED

(A) NATURE OF OPERATIONS

Ward Drilling Company (the "Company"), an Oklahoma corporation, began
operations in 1981. The Company provides contract drilling services in the
Mid-Continent region of the United States for independent oil and gas
companies.

In May 1997, the Company's parent, L.O. Ward Revocable Trust
transferred all the fixed assets of the Company into WD Equipment L.L.C. in
anticipation of the sale of these assets to Bayard Drilling Technologies, Inc.
("Bayard"), which was consummated on May 31, 1997 (the "Bayard Acquisition").
The Company and Bayard agreed to a purchase price of approximately $8 million
plus 400,000 shares of Bayard stock plus warrants to purchase up to 200,000
shares of Bayard stock in exchange for the purchase of WD Equipment L.L.C.

(B) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION

The Company recognizes revenue and expenses on dayrate contracts as
the drilling progresses (percentage-of- completion method). For turnkey and
footage contracts, the Company recognizes the revenue and expenses upon
completion of the well (completed-contract method).

CASH AND CASH EQUIVALENTS

The Company considers cash equivalents to be all instruments that had
a remaining maturity of three months or less at the date of purchase.

EQUIPMENT

Equipment is recorded at cost. Depreciation on drilling equipment is
determined using the units-of-production method based upon management's
estimates of remaining drilling days by rig. Depreciation on all other
equipment is determined using the straight-line method over the estimated
useful lives of the assets ranging from three to seven years. Upon retirement
or disposal, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in operations.

The costs of major repairs and overhauls which extend the useful life
of drilling equipment are capitalized by charges to the allowance for
accumulated depreciation. Other additions and improvements are charged to the
applicable equipment account.

INCOME TAXES

The Company is an electing S corporation for federal and state income
tax purposes. The Company's taxable income or loss will be included in its
stockholder's income tax return. Accordingly, no provision for income taxes
has been included in these financial statements.

F-32
<PAGE> 110
CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables with oil
and natural gas companies. At December 31, 1996 over ninety-eight percent of
the Company's trade receivables were from four customers. For the year ended
December 31, 1996 the ten largest customers account for over 96% of total
revenues.

At December 31, 1996 the Company had deposits in domestic banks in
excess of federally insured limits of approximately $156,000.

ACCOUNTING ESTIMATES

The Company has available a line of credit with a bank for $500,000
which expires in March 1998. The line of credit is collateralized by
inventory, accounts receivable, and other miscellaneous assets. Interest is at
the bank's base rate plus one percent (9.25% and 9.5% at December 31, 1996 and
1995, respectively.) Upon consummation of the sale of the Company on May 31,
1997, this line of credit was extinguished.

(D) RELATED PARTIES

The Company conducts drilling activities for companies owned or
controlled by L.O. Ward, one of the trustees of the L.O. Ward Revocable Trust
(the Related Parties); however no drilling activities were conducted for the
Related Parties in 1996.

General and administrative expense in the accompanying statement of
operations is net of management fee income received from one of the Related
Parties aggregating $10,320 in 1996.

The Company allocates office space and administrative expenses
directly to Related Parties. Amounts allocated under this arrangement
aggregated approximately $25,000 for 1996.

The Company paid approximately $75,000 in 1996 to one of the Related
Parties for services which includes finding drilling contracts for the Company
and certain other administrative services. Certain expenses incurred by the
Related Parties and attributable to the Company's operations are not billed to
the Company.

Accounts receivable at December 31, 1996 included $8,446 of
receivables from affiliated entities. Accounts payable at December 31, 1996
included $241,233 owed to affiliated entities.

(E) EMPLOYMENT AGREEMENTS

The Company has issued stock appreciation rights to certain employees
which may entitle them to receive bonuses. These bonuses are based on net
income and the ratio of stock appreciation rights owned by the employees to
total outstanding shares of common stock at year end. Ninety-nine stock
appreciation rights were outstanding at December 31, 1996. A bonus payment of
approximately $37,500 was payable to employees at December 31, 1996.

(F) SAVINGS PLAN

The Company participates in a salary deferral retirement plan which is
available to substantially all employees. Participants in the plan may make
contributions to the plan, with the Company matching up to 25% of the
employee's basic contribution. The basic contribution cannot exceed 5% of the
employee's base salary. Total contributions by the Company were approximately
$10,000 in 1996.

F-33
<PAGE> 111
(G) CONTINGENCIES

The Company maintains a self insurance plan for workers' compensation
and is liable for claims up to $400,000 per-occurrence. The Company is
involved in legal actions arising out of workers' compensation claims. In the
opinion of management, the ultimate disposition of these matters will not have
a material adverse effect on the Company's financial position. Total expense
for workers' compensation was approximately $335,000 in 1996, and accrued
liabilities included a reserve for unpaid and incurred but not reported claims
of $310,000 at December 31, 1996.

F-34
<PAGE> 112
REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Bonray Drilling Corporation

We have audited the accompanying balance sheets of Bonray Drilling
Corporation as of December 31, 1996 and June 30, 1996, and the related
statements of operations and accumulated deficit and cash flows for the
six-month period ended December 31, 1996 and the years ended June 30, 1996 and
1995. 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.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Bonray Drilling
Corporation at December 31, 1996 and June 30, 1996, and the results of its
operations and its cash flows for the six-month period ended December 31, 1996
and the years ended June 30, 1996 and 1995, in conformity with generally
accepted accounting principles.

Ernst & Young LLP

Oklahoma City, Oklahoma
April 17, 1997

F-35
<PAGE> 113
THE ACQUISITION OF BONRAY DRILLING CORPORATION BY DLB WAS ACCOUNTED FOR USING
THE PURCHASE METHOD OF ACCOUNTING. ACCORDINGLY, THE PURCHASE PRICE WAS
"PUSHED-DOWN" AND RECORDED IN THE ACCOMPANYING FINANCIAL STATEMENTS WHICH
AFFECTS THE COMPARABILITY OF THE SEPTEMBER 30, 1997 FINANCIAL POSITION, RESULTS
OF OPERATIONS AND CASH FLOWS.

BONRAY DRILLING CORPORATION

BALANCE SHEETS

ASSETS
<TABLE>
<CAPTION>
June 30, December 31, September 30,
1996 1996 1997
(Unaudited)

(Dollars in Thousands)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 187 $ 58 $ 667
Temporary Investments . . . . . . . . . . . . . . . . . . . -- -- 150
Accounts receivable (Note 5) . . . . . . . . . . . . . . . 2,172 2,100 4,131
Accounts receivable - parent . . . . . . . . . . . . . . . -- -- 55
Drilling contracts in progress . . . . . . . . . . . . . . 20 -- 115
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . 89 166 184
------------- ------------ ------------
Total current assets . . . . . . . . . . . . . . . 2,468 2,324 5,302
Properties and equipment:
Drilling equipment (Notes 1 and 3) . . . . . . . . . . . . 20,411 20,927 19,400
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 110 110
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . 356 356 73
Other equipment . . . . . . . . . . . . . . . . . . . . . . 1,145 1,006 546
----------- ----------- ------------
22,022 22,399 20,129
Less accumulated depreciation (Note 1) . . . . . . . . . . 14,179 14,210 1,519
---------- ---------- -----------
Net properties and equipment . . . . . . . . . . . . . . . . 7,843 8,189 18,610
----------- ----------- ----------
Note receivable - parent (Note 3) . . . . . . . . . . . . . . -- -- 21,820
------------- ------------- ----------
Loan origination fees . . . . . . . . . . . . . . . . . . . . -- -- 545
------------- ------------- ------------
Total assets . . . . . . . . . . . . . . . . . . . $ 10,311 $ 10,513 $ 46,277
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . $ 689 $ 871 $ 1,529
Notes payable (Note 3):
Short-term line of credit . . . . . . . . . . . . . . . 555 -- --
Other . . . . . . . . . . . . . . . . . . . . . . . . . 189 343 --
Accrued liabilities:
Salaries and wages . . . . . . . . . . . . . . . . . . . 246 268 271
Payroll and other taxes . . . . . . . . . . . . . . . . 57 17 62
Workers' compensation insurance (Note 4) . . . . . . . . 446 768 879
Income taxes payable . . . . . . . . . . . . . . . . . . -- 4 19
Other . . . . . . . . . . . . . . . . . . . . . . . . . 120 120 34
------------ ------------ -------------
Total current liabilities . . . . . . . . . . . . . 2,302 2,391 2,794
Obligations due after one year:
Note payable (Note 3) . . . . . . . . . . . . . . . . . . . -- -- 23,000
Workers' compensation insurance (Note 4) . . . . . . . . . 75 75 70
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 14 --
Deferred income taxes . . . . . . . . . . . . . . . . . . . -- -- 2,030
Stockholders' equity:
Common stock, $1.00 par value; 800,000 shares
authorized; 432,740 shares issued at December 31,
1996 and June 30, 1996; 423,540 shares issued
at September 30, 1997 . . . . . . . . . . . . . . . . . 433 433 424
Capital in excess of par value . . . . . . . . . . . . . . 12,497 12,497 17,146
Retained earnings (accumulated deficit) (Note 1) . . . . . (4,932) (4,805) 813
------------ ------------ ------------
7,998 8,125 18,383
Less 9,200 shares of treasury stock, at cost . . . . . . . 92 92 --
------------- ------------- -------------
Total stockholders' equity . . . . . . . . . . . . 7,906 8,033 18,383
----------- ----------- ----------
Total liabilities and stockholders' equity . . . . $ 10,311 $ 10,513 $ 46,277
========= ========= =========
</TABLE>

See accompanying notes.

F-36
<PAGE> 114
THE ACQUISITION OF BONRAY DRILLING CORPORATION BY DLB WAS ACCOUNTED FOR USING
THE PURCHASE METHOD OF ACCOUNTING. ACCORDINGLY, THE PURCHASE PRICE WAS
"PUSHED-DOWN" AND RECORDED IN THE ACCOMPANYING FINANCIAL STATEMENTS WHICH
AFFECTS THE COMPARABILITY OF THE SEPTEMBER 30, 1997 FINANCIAL POSITION, RESULTS
OF OPERATIONS AND CASH FLOWS.

BONRAY DRILLING CORPORATION

STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT

<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH NINE-MONTH
------------------------
PERIOD ENDED PERIOD ENDED
JUNE 30, JUNE 30, DECEMBER 31, SEPTEMBER 30,
1995 1996 1996 1997
(DOLLARS IN THOUSANDS, (UNAUDITED)
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues:
Contract drilling operations (Note 5) . . $ 8,486 $ 10,257 $ 6,004 $ 14,279
Gain (loss) on sales of assets . . . . . 1,029 (66) 27 (57)
Interest and other income . . . . . . . . 172 89 27 456
-------- -------- -------- --------
Total revenues . . . . . . . . . 9,687 10,280 6,058 14,678
Costs and expenses (Note 4):
Contract drilling operations . . . . . . 6,865 8,189 4,836 10,240
General and administrative . . . . . . . 752 864 473 860
Interest and other expense . . . . . . . 39 85 43 548
Depreciation . . . . . . . . . . . . . . 1,130 1,284 569 1,707
-------- -------- -------- --------
8,786 10,422 5,921 13,355
-------- -------- -------- --------
Income (loss) before provision for income
taxes . . . . . . . . . . . . . . . . . . 901 (142) 137 1,323
Provision for income taxes (Note 2) . . . . 35 -- 10 563
-------- -------- -------- --------
Net income (loss) . . . . . . . . . . . . . 866 (142) 127 760
Accumulated deficit at beginning of period (5,656) (4,790) (4,932) (4,805)
Elimination of accumulated deficit from
purchase -- -- -- 4,858
-------- -------- -------- --------
adjustment (Note 1) . . . . . . . . . . .
Retained earnings (accumulated deficit) at
end of $ (4,790) $ (4,932) $ (4,805) $ 813
======== ======== ======== ========
period . . . . . . . . . . . . . . . . .
Net income (loss) per share . . . . . . . . $ 2.05 $ (0.34) $ 0.30 $ 1.79
======== ========= ======== ========
Weighted average shares outstanding . . . . 423,540 423,540 423,540 423,540
======== ======== ======== ========
</TABLE>

See accompanying notes.

F-37
<PAGE> 115
THE ACQUISITION OF BONRAY DRILLING CORPORATION BY DLB WAS ACCOUNTED FOR USING
THE PURCHASE METHOD OF ACCOUNTING. ACCORDINGLY, THE PURCHASE PRICE WAS
"PUSHED-DOWN" AND RECORDED IN THE ACCOMPANYING FINANCIAL STATEMENTS WHICH
AFFECTS THE COMPARABILITY OF THE SEPTEMBER 30, 1997 FINANCIAL POSITION, RESULTS
OF OPERATIONS AND CASH FLOWS.

BONRAY DRILLING CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH NINE-MONTH
-----------------
PERIOD ENDED PERIOD ENDED
JUNE 30, JUNE 30, DECEMBER 31 SEPTEMBER 30,

1995 1996 1996 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers . . . . . . . . . . . . . . . $ 10,910 $10,628 $ 6,457 13,123

Cash paid to suppliers and employees . . . . . . . . . . . (10,178) (9,662) (5,325) (12,233)
Interest received . . . . . . . . . . . . . . . . . . . . . 36 5 -- 408
Interest paid . . . . . . . . . . . . . . . . . . . . . . . (27) (66) (27) (436)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . (30) (5) (6) --
Other cash receipts . . . . . . . . . . . . . . . . . . . . 152 85 61 35
-------- ------- ------- ------
Net cash provided by operating activities . . . . . . . . . 863 985 1,160 897
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of assets . . . . . . . . . . . . . . . 1,659 27 43 --
Capital expenditures . . . . . . . . . . . . . . . . . . . (2,120) (987) (931) (6,051)
-------- ------- ------- ------
Net cash used by investing activities . . . . . . . . . . . (461) (960) (888) (6,051)
CASH FLOWS FROM FINANCING ACTIVITIES
Contributed capital . . . . . . . . . . . . . . . . . . . . -- -- -- 4,582
Borrowings on notes payable . . . . . . . . . . . . . . . . -- -- 395 23,000
Note receivable - parent . . . . . . . . . . . . . . . . . -- -- -- (21,820)
Short term investment . . . . . . . . . . . . . . . . . . . -- -- -- (150)
Payments on notes payable . . . . . . . . . . . . . . . . . (86) (553) (241) (171)
Net increase (decrease) in borrowings on short-term
line of credit . . . . . . . . . . . . . . . . . . . . . (165) 555 (555) 322
-------- ------- ------- ------
Net cash provided (used) by financing activities . . . . . (251) 2 (401) 5,763
-------- ------- ------- ------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . . 151 27 (129) 609
Cash and cash equivalents at beginning of period . . . . . 9 160 187 58
-------- ------- ------- ------
Cash and cash equivalents at end of period . . . . . . . . $ 160 $ 187 $ 58 $ 667
======== ======= ======= ======
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ 866 $ (142) $ 127 $ 760
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . 1,130 1,284 569 1,707
(Gain) loss on sales of assets . . . . . . . . . . . . . (1,029) 66 (27) (57)
Deferred income taxes . . . . . . . . . . . . . . . . . . -- -- -- 563
Change in assets and liabilities:
Decrease (increase) in current assets:
Accounts receivable . . . . . . . . . . . . . . . . . (434) (33) 72 (2,086)
Drilling contracts in progress . . . . . . . . . . . 13 1 20 (115)
Prepaid expenses . . . . . . . . . . . . . . . . . . 9 5 (77) (18)
Loan origination fees . . . . . . . . . . . . . . . . -- -- -- (545)
Increase (decrease) in current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . 68 (276) 182 658
Accrued liabilities . . . . . . . . . . . . . . . . . . (48) 479 308 49
Accrued workers' compensation insurance and other
due after one year . . . . . . . . . . . . . . . . . 288 (399) (14) (19)
-------- ------- ------- ------
Total adjustments . . . . . . . . . . . . . . . . (3) 1,127 1,033 137
-------- ------- ------- ------
Net cash provided by operating activities . . . . $ 863 $ 985 $ 1,160 $ 897
======== ======= ======= ======
</TABLE>

DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITY
During the year ended June 30, 1995, the Company acquired property,
plant and equipment by issuing a note payable of $828,050.

See accompanying notes.

F-38
<PAGE> 116
THE ACQUISITION OF BONRAY DRILLING CORPORATION BY DLB WAS ACCOUNTED FOR USING
THE PURCHASE METHOD OF ACCOUNTING. ACCORDINGLY, THE PURCHASE PRICE WAS
"PUSHED-DOWN" AND RECORDED IN THE ACCOMPANYING FINANCIAL STATEMENTS WHICH
AFFECTS THE COMPARABILITY OF THE SEPTEMBER 30, 1997 FINANCIAL POSITION, RESULTS
OF OPERATIONS AND CASH FLOWS.

BONRAY DRILLING CORPORATION

NOTES TO FINANCIAL STATEMENTS
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND SIX-MONTH
PERIOD ENDED DECEMBER 31, 1996 AND
YEARS ENDED JUNE 30, 1996 AND 1995

INFORMATION RELATING TO THE NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1997 IS UNAUDITED

1. BASIS OF FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Bonray Drilling Corporation (the "Company") is engaged in domestic
onshore contract drilling of oil and gas wells. The Company currently owns and
has available for operation fifteen drilling rigs located in Oklahoma, having
depth capabilities ranging from 7,000 to 25,000 feet.

On February 10, 1997, substantially all of the Company's shares of
outstanding common stock were purchased by DLB Oil & Gas, Inc. ("DLB") for $30
per share or approximately $12,700,000. As a result of the completed
transaction, the Company became a subsidiary of DLB. Effective on the date of
the acquisition, the Company changed its fiscal year end from June 30 to
December 31 to correspond with the year end of DLB.

The transaction was accounted for as a purchase using push down
accounting treatment. This resulted in a step up in the basis of the acquired
assets of approximately $6.3 million, the establishment of approximately $1.5
million of deferred income taxes and the elimination of the previously recorded
balance of accumulated depreciation and amortization. Additionally, the
accumulated deficit of $4,858,000 was eliminated as a result of a new basis
established for the acquired assets and liabilities.

Cash and Cash Equivalents

Cash and cash equivalents include cash deposits in banks and
short-term investments with original maturities of three months or less from
the date of purchase by the Company.

Contract Drilling Operations

Revenue earned from footage and turnkey contracts is recognized by the
completed contract method, while revenue earned from daywork contracts is
recognized by the percentage-of-completion method. Provision is made for the
entire amount of expected losses on contracts, if any, in the period in which
such losses are first determined.

Valuation of Properties and Equipment

Drilling equipment is stated at amounts representing historical cost
prior to the February 10, 1997 acquisition by DLB (pushed-down cost thereafter)
adjusted by prior year write-downs based on the expected future economic value
of such equipment. This value was determined by projecting the estimated
future undiscounted cash flows generated by drilling equipment based on the
Company's historical utilization rates and profit margins as well as
consideration of the economic conditions of the industry. The Company
continues to review these assets for possible impairment based on expected
future cash flows and other available information and has determined that no
impairment in the value of the assets exists at September 30, 1997, December
31, 1996 or June 30, 1996 or 1995. However, due to the uncertainty of such
factors it is reasonably possible that the estimated future cash flows may
change. Additions to drilling equipment, land, buildings and other equipment
are reported at cost.

F-39
<PAGE> 117
THE ACQUISITION OF BONRAY DRILLING CORPORATION BY DLB WAS ACCOUNTED FOR USING
THE PURCHASE METHOD OF ACCOUNTING. ACCORDINGLY, THE PURCHASE PRICE WAS
"PUSHED-DOWN" AND RECORDED IN THE ACCOMPANYING FINANCIAL STATEMENTS WHICH
AFFECTS THE COMPARABILITY OF THE SEPTEMBER 30, 1997 FINANCIAL POSITION, RESULTS
OF OPERATIONS AND CASH FLOWS.

Depreciation

Depreciation of drilling equipment is computed on an operating day
basis (net of estimated salvage value), except for drilling rigs and related
equipment which are "mothballed" or otherwise not expected to be used for an
extended period of time. During the year ended June 30, 1996, there was a
decrease in the estimated salvage value of these inactive drilling rigs and
equipment. As a result, depreciation on this equipment was increased during
the year ended June 30, 1996 to reduce the net book value of these assets to
their estimated salvage value. Depreciation recorded on these inactive rigs
and equipment was $269,000 and $36,000 for the years ended June 30, 1996 and
1995, respectively (none for the six-month period ended December 31, 1996).
The net book value of such drilling equipment is $457,000, which approximates
the estimated salvage value of the equipment at December 31, 1996.

Depreciation of buildings and other equipment is computed by the
straight-line method over the estimated useful lives of the assets.

Income (Loss) Per Share

Income (loss) per share is computed on the basis of weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding.

Credit Risk

The Company operates its rigs in the state of Oklahoma and grants
credit, which is generally unsecured, to its customers (Note 5). At December
31, 1996, approximately 90% of the Company's accounts receivable were from five
customers. The Company has not experienced any significant credit losses in
the six-month period ended December 31, 1996 or the nine-month period ended
September 30, 1997, or the years ended June 30, 1996 or 1995 and is not aware
of any significant uncollectible accounts at December 31, 1996.

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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in
estimating their fair values of financial instruments: Cash and cash
equivalents are estimated to have a fair value approximating the carrying
amount due to the short maturity of those instruments. Notes payable have
variable interest rates with carrying values approximating fair values.

Interim Financial Statements and Disclosures

In the opinion of management, the unaudited interim financial
statements as of and for the nine-month period ended September 30, 1997 and
unaudited interim financial statement disclosures subsequent to December 31,
1996 include all adjustments, consisting of normal recurring accruals and
push-down adjustments, necessary to present fairly the Company's financial
position as of September 30, 1997 and results of operations and cash flows for
the nine-month period ended September 30, 1997. Results for the period ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the entire year.

F-40
<PAGE> 118
THE ACQUISITION OF BONRAY DRILLING CORPORATION BY DLB WAS ACCOUNTED FOR USING
THE PURCHASE METHOD OF ACCOUNTING. ACCORDINGLY, THE PURCHASE PRICE WAS
"PUSHED-DOWN" AND RECORDED IN THE ACCOMPANYING FINANCIAL STATEMENTS WHICH
AFFECTS THE COMPARABILITY OF THE SEPTEMBER 30, 1997 FINANCIAL POSITION, RESULTS
OF OPERATIONS AND CASH FLOWS.

2. INCOME TAXES

Deferred income taxes reflect 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.
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1996 and June 30, 1996 are as follows (dollars in thousands):

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1996
<S> <C> <C>
Deferred tax liability --
Tax depreciation over book depreciation and
write-downs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $658 $629
==== ====
Deferred tax assets:
Net revenues and expenses recognized for tax purposes
which are deferred for financial purposes . . . . . . . . . . . . . . . . . . . $25 $25
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . 2,073 1,999
----- -----
Total deferred tax assets before valuation allowance . . . . . . . . . . . . . . . . 2,098 2,024
Less valuation allowance recognized . . . . . . . . . . . . . . . . . . . . . . . . 1,440 1,395
----- -----
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $658 $629
==== ====
</TABLE>

The deferred tax assets and liability are offset and, therefore, no
deferred tax asset or liability is reflected in the Company's balance sheets at
December 31, 1996 and June 30, 1996.

The difference between the amount of the provision for income taxes
and the amount which would result from the application of the statutory rate to
income (loss) before provision for income taxes is analyzed as follows (dollars
in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH
JUNE 30, PERIOD ENDED
-------------------
DECEMBER 31,
1995 1996 1996
<S> <C> <C> <C>
Provision (credit) for income taxes at a statutory
rate . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 306 $(48) $ 47
Difference resulting from:
Increase (decrease) in valuation allowance for net
deferred tax assets . . . . . . . . . . . . . . . . . . (330) 24 (45)
Alternative minimum tax . . . . . . . . . . . . . . . . . . 35 -- --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 24 8
----- ---- ----
Provision for income taxes . . . . . . . . . . . . . . . . . $ 35 $ -- $ 10
===== ==== ====
</TABLE>

At December 31, 1996, the Company has net operating loss carryforwards
for federal tax purposes of approximately $4,600,000 which will expire
beginning in the year 2001 if not used. At December 31, 1996, the net
operating loss carryforwards for state tax purposes amounted to approximately
$12,100,000.

3. NOTES PAYABLE

In July 1997, the Company entered into a $23 million credit agreement
in connection with which substantially all of the Company's assets were pledged
as collateral. Additionally, the company's parent, DLB, pledged as collateral
all of the outstanding common stock of the Company. Upon consummation of the
acquisition of the Company by Bayard, the shares of common stock of the Company
were released by the lender and the shares of common stock of Bayard acquired
by DLB in the acquisition were pledged in lieu thereof. In connection with the
acquisition, the note payable to Lehman Commercial Paper, Inc. was transferred
to DLB, thereby eliminating the note receivable from DLB.

F-41
<PAGE> 119
THE ACQUISITION OF BONRAY DRILLING CORPORATION BY DLB WAS ACCOUNTED FOR USING
THE PURCHASE METHOD OF ACCOUNTING. ACCORDINGLY, THE PURCHASE PRICE WAS
"PUSHED-DOWN" AND RECORDED IN THE ACCOMPANYING FINANCIAL STATEMENTS WHICH
AFFECTS THE COMPARABILITY OF THE SEPTEMBER 30, 1997 FINANCIAL POSITION, RESULTS
OF OPERATIONS AND CASH FLOWS.

During the six-month period ended December 31, 1996, the Company
acquired drilling equipment with the proceeds from two notes with a bank in the
amounts of $245,000 and $150,000, respectively. The notes are payable in
monthly installments of principal and interest in the amounts of $21,415 and
$13,102, respectively, until paid in full with interest at a rate of 1/2%
above the national prime lending rate (aggregate rate of 8.75% at December 31,
1996) and are secured by the equipment purchased as well as other specific
drilling equipment owned by the Company. The balances of the two notes at
December 31, 1996 are $205,000 and $138,000, respectively, all of which is due
within one year. During 1997, all of these outstanding note balances were
retired by DLB.

The Company has a revolving line of credit agreement (the "credit
agreement") with a bank. Credit availability is subject to a monthly borrowing
base determination calculated as 75% of the Company's accounts receivable less
than 90 days old, not to exceed $750,000. At December 31, 1996, no borrowings
were outstanding under the revolving line of credit ($555,000 outstanding at
June 30, 1996). The credit agreement, which expired November 3, 1997, provided
for monthly interest payments, which accrued at a rate of 1/2 of 1% over the
lender's national prime rate (aggregate rate of 8.75% at December 31, 1996).
Outstanding advances and accrued interest are due in full upon expiration of
the credit agreement. The credit agreement is secured by the Company's
accounts receivable.

During the year ended June 30, 1995, the Company acquired drilling and
other equipment by issuing a note payable to the seller of the equipment. The
$189,000 balance on the note at June 30, 1996 was paid by the Company during
the six-month period ended December 31, 1996.

4. WORKERS' COMPENSATION

The Company is covered by a workers' compensation insurance plan for
its employees under which the Company is responsible for claims up to $100,000
per incident.

At December 31, 1996 and June 30, 1996, the Company has an estimated
net liability for accrued workers' compensation costs totaling $843,000 and
$521,000 respectively. Under the plan, the Company is to reimburse the
administrator for costs as the administrator pays those costs, normally over a
five-year period. Accordingly, at both December 31, 1996 and June 30, 1996,
$75,000 is classified as due after one year, in the accompanying balance
sheets.

Total workers' compensation costs incurred by the Company were
$538,000 for the six-month period ended December 31, 1996 and $597,000 and
$979,000 for the years ended June 30, 1996 and 1995, respectively, and were
based on actual and estimated claims incurred. For the six-month period ended
December 31, 1996 and the year ended June 30, 1996, workers' compensation
expense was reduced by $38,000 and $48,000 ($0.09 and $0.11 per share,
respectively) for changes in estimates of claims relating to prior fiscal
years. Workers' compensation expense for the year ended June 30, 1995 was
increased by $40,000 ($0.09 per share), for changes in the estimated costs of
claims that occurred in prior fiscal years.

The Company accrues losses for workers' compensation based on
management's estimate of the expected cost of claims incurred. The estimates
are based upon known information, historical experiences and consideration of
risk reduction techniques, when applicable, such as stop loss insurance on
individual claims. Due to uncertainties inherent in the estimation process, it
is reasonably possible that these estimates will be revised in the near-term;
however, management does not expect that such changes will be material to the
financial position or results of operations of the Company.

5. MAJOR CUSTOMERS

Contract drilling operations revenues include revenues from certain
customers, which individually account for 10% or more of contract drilling
operations revenues as follows (dollars in thousands):

F-42
<PAGE> 120
THE ACQUISITION OF BONRAY DRILLING CORPORATION BY DLB WAS ACCOUNTED FOR USING
THE PURCHASE METHOD OF ACCOUNTING. ACCORDINGLY, THE PURCHASE PRICE WAS
"PUSHED-DOWN" AND RECORDED IN THE ACCOMPANYING FINANCIAL STATEMENTS WHICH
AFFECTS THE COMPARABILITY OF THE SEPTEMBER 30, 1997 FINANCIAL POSITION, RESULTS
OF OPERATIONS AND CASH FLOWS.

<TABLE>
<CAPTION>
YEAR ENDED SIX-MONTH
----------
PERIOD ENDED
CUSTOMER JUNE 30, 1995 JUNE 30, 1996 DECEMBER 31, 1996
<S> <C> <C> <C>
A . . . . . . . . . . . . . . . $ 879 $3,333 $1,301
B . . . . . . . . . . . . . . . 2,561 1,881 1,166
C . . . . . . . . . . . . . . . -- -- 728
D . . . . . . . . . . . . . . . 2,082 1,042 721
E . . . . . . . . . . . . . . . -- -- 695
------ ------ ------
$5,522 $6,256 $4,611
====== ====== ======
</TABLE>

6. SUBSEQUENT EVENTS

On October 16, 1997, the Company was acquired by Bayard for 3,015,000
shares of common stock, par value $0.01 per share, of Bayard, subject to
certain working capital adjustments.

7. CONTINGENCIES

During the normal course of business, the Company enters into
agreements and executes transactions that may result in a contingent liability
to the Company. At September 30, 1997, management does not believe such
contingencies would be material to the financial statements.

F-43
<PAGE> 121
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, 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 THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
_______________

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Available Information . . . . . . . . . . . 2
Disclosure Regarding Forward-Looking
Statements . . . . . . . . . . . . . . . . 2
Prospectus Summary . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . 9
Plan of Distribution . . . . . . . . . . . 16
Price Range of Common Stock and
Dividends . . . . . . . . . . . . . . . . . 18
Capitalization . . . . . . . . . . . . . . 19
Pro Forma Consolidated Financial Data . . . 20
Selected Consolidated Financial and
Operating Data . . . . . . . . . . . . . . 26
Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 28
Business . . . . . . . . . . . . . . . . . 38
Management . . . . . . . . . . . . . . . . 50
Principal Stockholders . . . . . . . . . . 59
Certain Relationships and Related
Transactions . . . . . . . . . . . . . . . 62
Description of Capital Stock . . . . . . . 68
Shares Eligible for Future Sale . . . . . . 71
Federal Income Tax Considerations . . . . . 72
Legal Matters . . . . . . . . . . . . . . . 72
Independent Public Accountants . . . . . . 72
Index to Financial Statements . . . . . . . F-1
</TABLE>
_______________

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

2,955,000 SHARES

BAYARD DRILLING TECHNOLOGIES, INC.

COMMON STOCK

_______________

PROSPECTUS

_______________

March 30, 1998

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