<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended March 31, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the transition period from to .
-------- --------
Commission file number 001-13553
BAYARD DRILLING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 73-1508021
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4005 NW EXPRESSWAY, SUITE 550E 73116-1679
OKLAHOMA CITY, OKLAHOMA (Zip Code)
(Address of principal offices)
(405) 840-9550
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Outstanding shares of the registrant's common stock, par value $0.01 per share,
at May 15, 1998: 18,193,945.
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BAYARD DRILLING TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1998 (unaudited) and December 31, 1997...............................1
Statements of Operations (unaudited) - Three months ended
March 31, 1998 and 1997.........................................................................2
Statements of Equity (Deficit) for the years ended December 31, 1996 and
1997 and three months ended March 31, 1998 (unaudited)..........................................3
Statements of Cash Flows (unaudited) - Three months ended March 31,
1998 and 1997...................................................................................4
Notes to Financial Statements (unaudited).......................................................5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................................................6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................12
Item 2. Changes in Securities and Use of Proceeds.......................................................12
Item 6. Exhibits and reports on Form 8-K................................................................14
Signatures...................................................................................................17
Index to Exhibits............................................................................................18
</TABLE>
i
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PART I. FINANCIAL INFORMATION
BAYARD DRILLING TECHNOLOGIES, INC.
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS
(In thousands, except per share data)
(Information at March 31, 1998 is unaudited)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
CURRENT ASSETS: 1997 1998
------------ ---------
<S> <C> <C>
Cash ................................................................................ $ 49,302 $ 27,738
Restricted investments .............................................................. 880 524
Accounts receivable ................................................................. 19,491 23,112
Prepaid expenses and other current assets ........................................... 538 1,065
--------- ---------
Total current assets ...................................................... 70,211 52,439
Property, plant and equipment, net ....................................................... 155,673 179,807
Goodwill, net of accumulated amortization of $375 at
December 31, 1997 and $593 at March 31, 1998 ........................................ 12,704 12,487
Other assets ............................................................................. 1,900 1,861
--------- ---------
Total assets .............................................................. $ 240,488 $ 246,594
========= =========
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable .................................................................... $ 8,246 $ 14,028
Payable to affiliate ................................................................ 494 --
Accrued liabilities ................................................................. 5,067 4,749
Current portion of long-term debt ................................................... 7,450 7,450
--------- ---------
Total current liabilities ................................................. 21,257 26,227
--------- ---------
Deferred income tax liabilities .......................................................... 13,554 14,848
--------- ---------
Other long term liabilities .............................................................. 2,055 2,039
--------- ---------
Long-term debt, less current maturities .................................................. 23,069 21,137
--------- ---------
Subordinated notes, net of debt discount of $429 at
December 31, 1997 and $409 at March 31, 1998 ........................................ 2,091 2,111
--------- ---------
Commitments and Contingencies
EQUITY (DEFICIT):
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;
18,183,945 shares issued and outstanding at December 31, 1997
and at March 31, 1998 ................................................ 182 182
Additional paid-in capital (net of deferred compensation of $258 at
December 31, 1997 and $245 at March 31, 1998) ........................ 180,400 180,413
Retained earnings (accumulated deficit) ............................................. (2,120) (363)
--------- ---------
Total equity ............................................................... 178,462 180,232
--------- ---------
Total liabilities and equity ............................................... $ 240,488 $ 246,594
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
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BAYARD DRILLING TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
REVENUES:
Drilling ......................................... $ 4,111 $ 23,962
Other ............................................ -- --
------------ ------------
Total revenues .............................. 4,111 23,962
------------ ------------
COST AND EXPENSES:
Drilling ......................................... 3,047 17,221
General and administrative ....................... 195 755
Depreciation and amortization .................... 876 3,169
------------ ------------
Total costs and expenses .................... 4,118 21,145
------------ ------------
Operating income (loss) ..................... (7) 2,817
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense ................................. (145) (367)
Interest income .................................. 17 496
Gain on sale of assets ........................... -- 52
Other ............................................ -- 34
------------ ------------
Total other income (expense) ................ (128) 215
------------ ------------
Earnings (loss) before income taxes ................... (135) 3,032
Income tax provision - deferred ...................... 51 1,275
------------ ------------
Net income (loss) ..................................... $ (84) $ 1,757
============ ============
Earnings (loss) per share:
Basic ........................................... $ (.01) $ .10
============ ============
Diluted ......................................... $ (.01) $ .10
============ ============
Weighted average common shares
outstanding , basic .............................. 5,700 18,184
============ ============
Weighted average common shares
outstanding , diluted ............................ 8,191 18,488
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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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> <C> <C>
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 loss ........................................... -- -- -- -- (2,086) (2,086)
Issuance of stock options to employees ............. -- -- 60 (53) -- 7
Sale of stock ...................................... -- 89 107,020 -- -- 107,109
Issuance of stock options and warrants ............. -- -- 5,068 -- -- 5,068
Executive compensation agreements .................. -- -- 250 (205) -- 45
Issuance of stock for acquisitions ................. -- 37 42,031 -- -- 42,068
--------- --------- ---------- --------- --------- ---------
Balance at December 31, 1997 .......................... -- 182 180,658 (258) (2,120) 178,462
Net income ......................................... -- -- -- -- 1,757 1,757
Executive compensation agreements .................. -- -- -- 13 -- 13
--------- --------- ---------- --------- --------- ---------
Balance at March 31, 1998 (unaudited) ................. $ -- $ 182 $ 180,658 $ (245) $ (363) $ 180,232
========= ========= ========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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BAYARD DRILLING TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
MARCH 31,
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) .............................................. $ (84) $ 1,757
Adjustments to reconcile net earnings (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization ................................. 876 3,169
(Gain) loss on sale of assets ................................. -- (52)
Compensation expense .......................................... -- 13
Deferred income taxes ......................................... (51) 1,275
Change in assets and liabilities, net of effects of affiliate
transactions -
Decrease (increase) in accounts receivable .............. (2,157) (3,621)
Decrease (increase) in other assets ..................... (733) (520)
Increase (decrease) in accrued liabilities .............. 1,398 (318)
Increase (decrease) in accounts payable ................. 3,794 5,288
Increase (decrease) in other liabilities ................ -- (16)
-------- --------
Net cash (used in) provided by operating activities... 3,043 6,975
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment ............................ (13,711) (27,094)
Acquisition of businesses ........................................ -- --
Proceeds from sale of assets ..................................... -- 63
Purchase of investments .......................................... (730) 355
-------- --------
Net cash used in investing activities ................ (14,441) (26,676)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings ......................................... 8,700 --
Proceeds from issuance of stock .................................. 250 --
Payments on long-term debt ....................................... (474) (1,863)
Borrowings under line of credit .................................. -- --
-------- --------
Net cash provided by financing activities ............. 8,476 (1,863)
-------- --------
Net change in cash .................................................. (2,922) (21,564)
Cash at beginning of period ......................................... 4,963 49,302
======== ========
Cash at end of period ............................................... $ 2,041 $ 27,738
======== ========
Cash paid during the period for interest ............................ $ -- $ 844
Cash paid during the period for income taxes ........................ $ -- $ --
======== ========
</TABLE>
Supplemental non-cash activity:
During 1997 the Company acquired property and equipment through the issuance of
stock and options for $41,510 and through the issuance of trade payables of
$6,450.
4
<PAGE> 7
BAYARD DRILLING TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. In the opinion of management of Bayard Drilling Technologies, Inc. ("Bayard"
or the "Company"), the unaudited interim financial statements for the three
months ended March 31, 1998 and 1997 include all adjustments, consisting of
normal recurring accruals, necessary to present fairly the Company's financial
position as of March 31, 1998 and results of operations and cash flows for the
three months ended March 31, 1998 and 1997. Results for the period ended March
31, 1998 are not necessarily indicative of the results to be expected for the
entire fiscal year. For further information, refer to the financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
2. Earnings per share are computed based on the weighted average number of basic
and diluted shares outstanding during the period pursuant to SFAS No. 128. SFAS
No. 128 simplifies the standards for computing earnings per share by replacing
the presentation of primary earnings per share with a presentation of basic
earnings per share and by simplifying the calculation of diluted earnings per
share.
3. On October 16, 1997, the Company completed the acquisition of Bonray Drilling
Corporation ("Bonray Acquisition"), subject to certain working capital
adjustments, for 3,015,000 shares of the Company's Common Stock, par value $0.01
per share (the "Common Stock"). The Bonray Acquisition was accounted for as a
purchase. 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. At the time of the Bonray Acquisition, twelve of Bonray's
rigs were operating and under contract and one was awaiting refurbishment. On
March 30, 1998, the Securities and Exchange Commission declared effective a
Registration Statement on Form S-1 (Commission File No. 333-43535) pursuant to
which the Company registered 2,955,000 shares of Common Stock in connection with
a registration rights agreement entered into at the time of the Bonray
Acquisition.
4. In November 1997, the Company and certain of its stockholders consummated an
initial public offering (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 March 31, 1998
these net proceeds have been used as follows: (i) $34.3 million to purchase
machinery and equipment; (ii) $27.1 million to repay indebtedness; (iii)
$817,125 to pay The CIT Group/Equipment Financing, Inc. ("CIT") in connection
with the exercise by CIT of a warrant for 150,000 shares of Common Stock; and
(iv) $27.3 million placed in temporary investments. The Company intends to repay
25% of the amount outstanding under the Term Loan (as hereinafter defined) from
a portion of the temporary investments.
5. 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.
5
<PAGE> 8
BAYARD DRILLING TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company is a leading provider of contract land drilling services to
major and independent oil and gas companies. The Company was formed in December
1996 as a regional competitor with ten rigs and has since grown to operate the
fifth largest land drilling fleet in the United States with a total of 63 rigs,
51 of which are currently being marketed. This growth is due primarily to, and
the Company's operations have been significantly affected by, the following
transactions:
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 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
Drilling Corporation ("Bonray") from DLB Oil & Gas, Inc. ("DLB") for 3,015,000
shares of Common Stock (the "Bonray Acquisition"). 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 silicon controlled
rectifier rigs.
o Oliver Acquisition. 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.
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 transactions involved in the December 1996 formation of the
Company (the "Formation Transactions"), the Trend Acquisition, the Ward
Acquisition and the Bonray Acquisition, the "Consolidation Transactions"). In
August 1997, the Company sold one rig. On November 25, 1997, the Company entered
into an agreement to acquire six rigs from R.T. Oliver for approximately $14
million. The Company consummated the Oliver Acquisition on January 9, 1998.
o Initial Public Offering. In November 1997, the Company completed an
initial public offering (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 stockholders 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 March 31, 1998, the
Company completed refurbishment of 14 rigs at an average cost of approximately
$2.7 million per rig (including drill pipe). These rigs were placed in service
at various dates between January 1997 and March 1998. At March 31, 1998, the
Company had 12 additional rigs in various stages of refurbishment. The Company
anticipates placing into service two rigs in 1998 and the remaining ten rigs
during the next 24 months, in each case as market conditions warrant. The
Company expects the cost to refurbish the two rigs scheduled for completion in
1998 to average approximately $3.5 million per rig (including drill pipe).
The historical financial results presented herein include the effects
of the foregoing transactions and the operations of the related rigs, only for
the periods after such transactions. 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, or that comparisons of financial
results between the periods presented
6
<PAGE> 9
herein are necessarily meaningful, particularly in light of the magnitude of the
Company's recent acquisitions and rig refurbishment projects. This discussion
and analysis should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
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.
Although the Company believes that improved technologies and stable oil
and gas prices contributed to increased activity in the exploration and
production sector during 1997, there has been a general decline in oil and gas
prices during 1998 and there can be no assurance that such decline will not
continue. The recent decline in oil prices has contributed to a decrease in the
Company's rig utilization rates from 88% for the fourth quarter of 1997 to 85%
for the first quarter of 1998. 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 Oliver Acquisition and the Individual Rig Acquisitions. The
Formation Transactions involved the issuance of an aggregate of 5,600,000 shares
of common stock, par value $0.01 per share ("Common Stock") of the Company 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 The CIT Group/Equipment Financing, Inc. ("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 Energy Corporation ("Chesapeake") and Energy Spectrum
Partners LP ("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") consisting of 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").
Amounts outstanding under the Revolving Loan (none at March 31, 1998)
bear interest based on Fleet's prime rate plus 1.5% (approximately 10% at March
31, 1998) and mature in April 2000. A portion of the proceeds from the Initial
Public Offering was used to repay all outstanding amounts under the Revolving
Loan. Amounts outstanding under the Term Loan ($25.1 million at March 31, 1998)
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% (approximately 10% at March 31, 1998) 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
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 and encumber assets) and affirmative covenants to
maintain specified financial ratios. As of March 31, 1998, the Company had $25.1
million of borrowings outstanding under the Term Loan, no borrowings
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<PAGE> 10
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 $28
million.
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 March 31, 1998 these net proceeds
have been used as follows: (i) $34.3 million to purchase machinery and
equipment; (ii) $27.1 million to repay indebtedness; (iii) $817,125 to pay CIT
in connection with the CIT Exercise; and (iv) $27.3 million placed in temporary
investments. The Company intends to repay 25% of the amount outstanding under
the Term Loan from a portion of the temporary investments.
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 March 31, 1998, the Company spent $20.7 million on the Trend
Acquisition, $11.9 million on the Ward Acquisition, $35 million on the Bonray
Acquisition, $14 million for the Oliver Acquisition , $5.5 million on the
Individual Rig Acquisitions, and approximately $89 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 $155.7 million at December 31, 1997 and $179.8 million at March 31,
1998. 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 the Loan Agreements.
The most significant change in the Company's balance sheet from
December 31, 1997 to March 31, 1998 was a $24.1 million increase in net property
and equipment. During this same period, long-term debt, net of current
maturities, decreased by $1.9 million and stockholders' equity increased by $1.8
million.
From December 31, 1997 to March 31, 1998, the Company's working capital
position decreased by $22.7 million to $26.2 million. This was primarily the
result of a $21.9 million decrease in cash resulting from additions to fixed
assets.
Operating Activities
During the three months ended March 31, 1998, net cash provided from
operating activities totaled $6.9 million. The Company generated cash from
operations of $6.1 million and working capital changes provided $800,000.
Investing Activities
During the three months ended March 31, 1998, the Company invested $27
million in fixed assets, including $11.1 million in the Oliver Acquisition. Rig
refurbishments consisted of $25.3 million, and $1.7 million was invested in
drill pipe and other drilling related equipment.
Financing Activities
During the three months ended March 31, 1998, the Company's payments
under the Loan Agreements totaled $1.8 million.
Other Matters and Recent Events
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 $14.4 million for
the refurbishment of four rigs in inventory, $14.0 million for the acquisition
and $28.6 million for the refurbishment of six rigs from R.T. Oliver Drilling,
Inc., $11.2 million for the acquisition of components and refurbishment to
complete three additional rigs, $10 million for maintenance capital expenditures
and $8.8 million for spare equipment. The Company has revised its schedule for
rig refurbishment, originally
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<PAGE> 11
expected to extend through the first quarter of 1999, as a result of changes in
market conditions that have caused an industry-wide decrease in rig utilization.
The Company currently anticipates completing refurbishment and placing into
service two of the Company's 12 construction project rigs during 1998 and the
remaining 10 rigs as market conditions warrant. The Company may accelerate or
further delay this schedule at any time and from time to time based on market
conditions and other factors.
In April 1998, the Company redeemed in full the $2.52 million principal
amount of Subordinated Notes issued to Energy Spectrum together with accrued
interest of $47,740. In connection therewith, Energy Spectrum waived its rights
to require the Company to redeem the Subordinated Notes at 110% of par value.
This redemption, coupled with the redemption of $18 million principal amount of
Subordinated Notes from Chesapeake at the time of the Initial Public Offering,
leaves no Subordinated Notes outstanding.
As of May 15, the Company has $18.6 million of borrowings outstanding
under the Term Loan, no borrowings outstanding under the Revolving Loan and no
outstanding Subordinated Notes. The Company expects to fund its 1998 rig
refurbishment program and its other capital requirements for 1998 through the
application of the remaining proceeds from the Initial Public Offering, cash
flow from operations, and, to the extent required, borrowings under the Loan
Agreements. The Company believes that such sources of funds will be sufficient
to meet the Company's anticipated uses for 1998. In addition, the Company is
considering further financing arrangements in connection with the potential
acquisition discussed below.
The Company has entered into a non-binding letter of intent to acquire
25 drilling rigs and related equipment from TransTexas Gas Corporation for an
aggregate purchase price of $75.0 million in cash. In connection with the
potential acquisition, the Company is reviewing sources of financing which could
include, among others, issuance of private or public debt securities,
establishment of a new bank credit facility, amendment of the Company's current
bank loan facilities, or a combination of the foregoing.
Once the Company and TransTexas have entered into a definitive
agreement, the consummation of the transaction will be subject to the
satisfaction of certain conditions, including the receipt of required
governmental approvals under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended. There can be no assurance that a definitive agreement will be
entered into by the parties, that adequate funding will be available on terms
satisfactory to the Company, or that the acquisition will ultimately be
consummated.
The Company continues to actively review possible acquisition
opportunities. While, except with respect to the TransTexas Acquisition, the
Company has not entered into any letters of intent or other agreements to
acquire additional businesses or equipment, suitable opportunities may arise in
the future. The timing or success of any acquisition effort, including the
TransTexas Acquisition, 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.
9
<PAGE> 12
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
1997 1998
---------------------------------------- ----------------------------------------
Gulf Coast Mid- Total Gulf Coast Mid- Total
Continent Continent
<S> <C> <C> <C> <C> <C> <C>
Rig days worked (1) ..... 561 270 831 1,006 2,750 3,756
Average revenues
per day (2) ............. $ 5,132 $ 4,563 $ 4,947 $ 8,026 $ 5,777 $ 6,380
Average costs
per day (2) ............. $ 3,781 $ 3,430 $ 3,667 $ 5,436 $ 4,273 $ 4,585
Average margin
per day (2) ............. $ 1,351 $ 1,133 $ 1,280 $ 2,589 $ 1,504 $ 1,795
Drilling revenues ....... $2,879,000 $1,232,000 $4,111,000 $8,074,000 $15,888,000 $23,962,000
Drilling costs (3) ...... $2,121,000 $ 926,000 $3,047,000 $5,469,000 $11,752,000 $17,221,000
Operating margin ........ $ 758,000 $ 306,000 $1,064,000 $2,605,000 $ 4,136,000 $ 6,741,000
Utilization rate ........ 99% 100% 99% 80% 88% 85%
============================================================================================================
</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 $19.8 million, or 483% to
$23.9 million for the three months ended March 31, 1998, from $4.1 million for
the three months ended March 31, 1997. Drilling revenues increased due to a
2,925 day, or 352%, increase in rig days worked, and a $1,433, or 29%, 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
March 31, 1998, the Company had 51 rigs available for service. The increase in
rigs available for service was principally the result of the Consolidation
Transactions. Rig days worked consisted of 1,006 days worked in the Gulf Coast
region and 2,750 days worked in the Mid-Continent region. Increases in revenues
per day were a result of the increase in the dayrates and the average number of
land drilling rigs being marketed by the Company, offset by a decrease in the
utilization rate from 99% to 85%.
Drilling costs increased by approximately $14.2 million, or 465%, to
$17.2 million for the three months ended March 31, 1998, from $3.0 million for
the three months ended March 31, 1997. 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 2,925 day increase in the days
worked.
The Company's operating margin increased by approximately $5.7 million,
or 534%, to $6.7 million for the three months ended March 31, 1998, as compared
to $1.1 million for the three months ended March 31, 1997. The increase in
operating margin resulted from the increase in the average revenue per day and
the increase in days worked.
Depreciation and amortization expense increased by $2.3 million, or
262%, to $3.2 million for the three months ended March 31, 1998, as compared to
$876,000 for the three months ended March 31, 1997. The increase was primarily
due to additional depreciation associated with the Consolidation Transactions.
10
<PAGE> 13
General and administrative expense increased by $560,000, or 287%, to
$755,000 for the three months ended March 31, 1998, from $195,000 for the same
period of 1997 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 and public status.
Interest expense was $367,000 for the three months ended March 31, 1998
as compared to $145,000 for the three months ended March 31, 1997.
Other income increased for the three months ended March 31, 1998 as
compared to the three months ended March 31, 1997, primarily due to interest
income received on funds being invested in short-term investments.
For the three months ended March 31, 1998, the income tax provision was
$1.2 million compared to $51,000 for the first three months of 1997.
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.
FORWARD LOOKING INFORMATION
This Report 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 Report constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including but not limited to statements identified by the words
"anticipate," "believe," "intend," "estimate" 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 set forth in the Company's
Registration Statement on Form S-1 (Registration No. 333-43535), copies of which
may be obtained from the Securities and Exchange Commission or from the Internet
site maintained by the Commission at http://www.sec.gov. 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 disclaims any intention or obligation to update or
review any forward-looking statements or information, whether as a result of new
information, future events or otherwise.
11
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
A purported class action lawsuit is pending 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 securities laws in connection with the
Initial Public Offering. The lawsuit, 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 Yuan is Tom Yuan. The defendants in this case 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 this lawsuit 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 the lawsuit, plaintiffs allege claims against
all defendants under the Securities Act of 1933, as amended (the "Securities
Act"). 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 flows. In each of these
lawsuits, the plaintiffs are seeking rescission and damages.
Two other suits, Khan v. Bayard Drilling Technologies, Inc., et al.
("Khan") and Burkett v. Bayard Drilling Technologies, Inc., et al. ("Burkett"),
which were filed in District Court in and for Oklahoma County, State of Oklahoma
on January 14, 1998 and February 2, 1998, respectively, and alleged essentially
the same claims as Yuan were dismissed without prejudice in May 1998 on a joint
application filed by all parties. The plaintiffs in Khan and Burkett, along
with others, have joined in Yuan's motion to be appointed as lead plaintiffs in
the Yuan federal court suit.
The Company believes the allegations in the lawsuit are without merit
and is defending vigorously the claims brought against it. The Company is
unable, however, to predict the outcome of this lawsuit or the costs to be
incurred in connection with its 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.
ITEM 2. Changes in Securities and Use of Proceeds
On November 3, 1997, the Securities and Exchange Commission declared
effective two Registration Statements on Form S-1 (Commission File Nos.
333-34451 and 333-39393) pursuant to which the Company registered the sale of an
aggregate of 11,040,000 shares of Common Stock. The Initial Public Offering
commenced on November 4, 1997 and was concluded promptly thereafter by the sale
of all 11,040,000 of the registered shares. The managing underwriters in the
Initial Public Offering were Donaldson, Lufkin & Jenrette Securities
Corporation, Lehman Brothers Inc., Prudential Securities Incorporated, Rauscher
Pierce Refsnes, Inc. and Raymond James & Associates, Inc. Of the 11,040,000
shares of Common Stock registered in the Initial Public Offering, 4,229,050
shares were sold by the Company for an aggregate offering price of $97,268,150
and an aggregate of 6,810,950 shares were sold by certain stockholders for an
aggregate offering price of $156,651,850.
12
<PAGE> 15
The following is a statement of expenses incurred by the Company in
connection with the issuance and distribution of the securities described above.
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C>
Underwriting discounts and commissions $6,565,600
Finders' fees 0
Securities Act registration fee 70,534
NASD filing fee 17,600
Blue sky qualification fees and expenses 5,000*
Printing and engraving fees and expenses 350,000
Legal fees and expenses 330,000
Accounting fees and expenses 325,000
Transfer agent and registrar fees and expenses 5,000*
American Stock Exchange listing fee 50,000
Miscellaneous 46,866*
----------
TOTAL $7,765,600
==========
</TABLE>
- ---------
*Estimate
After deducting such expenses, the net proceeds to the Company from the
Initial Public Offering were $89.5 million.
Through March 31, 1998, the net proceeds received by the Company in the
Initial Public Offering have been used for the following purposes:
<TABLE>
<CAPTION>
PURPOSE AMOUNT
- ------- ------
(IN THOUSANDS)
-------------
<S> <C>
Purchase of machinery and equipment $34,300
Repayment of indebtedness 27,100
Payment to CIT in connection with warrant exercise 817
Temporary investments (1) 27,283
-------
TOTAL $89,500
=======
</TABLE>
(1) Such funds are currently being invested in short-term instruments until
they are required for the purposes described in the prospectus related
to the Initial Public Offering. The Company repaid 25% ($6.2 million)
of the amount outstanding under the Term Loan from a portion of the
temporary investments on May 14, 1998.
None of the aforementioned expenses or uses of proceeds constituted
direct or indirect payments to directors or officers of the Company or their
associates, to persons owning 10% or more of any class of equity securities of
the Company or to any affiliates of the Company.
The Company and CIT recently agreed to certain changes to their
existing credit arrangements. In particular, CIT 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 agreed that it
would 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). As of March 31, 1998, the Company had $25.1 million of borrowings
outstanding under the Term Loan. 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.
13
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
Exhibit
Number Description
- -------- -------------
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Registration No.
333-34451)).
3.2 Amended and Restated Bylaws of the Company, as adopted
August 19, 1997 (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
4.1 Specimen Stock Certificate for due Common Stock, par value
$0.01 per share, of the Company (incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on
Forms S-1 (Registration No. 333-34451)).
10.1 1997 Stock Option and Stock Award Plan of the Company
(incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-34451)).
10.2 Forms of Non-Qualified Stock Option Agreements under the
1997 Stock Option and Stock Award Plan (incorporated by
reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-34451)).
10.3 Master Agreement, dated as of November 26, 1996, by and
among the Company and the stockholders of the Company that
are signatories thereto (incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (Registration No. 333-34451)).
10.4 Master Drilling Agreement, dated as of December 10, 1996,
by and among the Company, Chesapeake Energy Corporation
and Chesapeake Operating, Inc. (incorporated by reference
to Exhibit 10.6 to the Company's Registration Statement on
Form S-1 (Registration No. 333-34451)).
10.5 Form of Chesapeake Drilling Agreement, by and between
Chesapeake Operating, Inc., as Operator, and the Company,
as Contractor (incorporated by reference to Exhibit 10.7
to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.6 Securities Purchase Agreement, dated as of April 30, 1997,
by and among the Company, Energy Spectrum Partners LP and
Chesapeake Energy Corporation (the "May Securities
Purchase Agreement") (incorporated by reference to Exhibit
10.10 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.7 Form of Subordinated Note of the Company issued pursuant
to the May Securities Purchase Agreement (incorporated by
reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (Registration No. 333-34451)).
10.8 Form of Series B Warrant to Purchase Common Stock of the
Company issued pursuant to the May Securities Purchase
Agreement (incorporated by reference to Exhibit 10.13 to
the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.9 Ward Drilling Company, Inc. Warrant to Purchase Common
Stock of the Company, dated May 30, 1997 (incorporated by
reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (Registration No. 333-34451)).
14
<PAGE> 17
10.10 Preferential Right to Transport Agreement, dated as of May 30,
1997, by and between the Company and Geronimo Trucking Company
(incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-1 (Registration No. 333-34451)).
10.11 RR&T, Inc. Warrant to Purchase Common Stock of the Company, dated
May 1, 1997 (incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (Registration No.
333-34451)).
10.12 Mike Mullen Warrant to Purchase Common Stock of the Company, dated
May 1, 1997 (incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1 (Registration No.
333-34451)).
10.13 Loan and Security Agreement, dated as of May 1, 1997, by and among
Fleet Capital Corporation, the Company and Trend Drilling Co.
(incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1 (Registration No. 333-34451)).
10.14 Amended and Restated Loan Agreement, dated as of May 1, 1997, by
and among the CIT Group/Equipment Financing, Inc. and Fleet Capital
Corporation, as Lenders, and the Company and Trend Drilling Co., as
Borrowers (incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (Registration No.
333-34451)).
10.15 Employment Agreement, dated as of December 10, 1996, by and between
the Company and James E. Brown (incorporated by reference to
Exhibit 10.21 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.16 Restricted Stock Award Agreement, dated as of December 10, 1996, by
and between the Company and James E. Brown (incorporated by
reference to Exhibit 10.22 to the Company's Registration Statement
on Form S-1 (Registration No. 333-34451)).
10.17 Employment Agreement, dated as of January 1, 1997, by and between
the Company and Ed Jacob (incorporated by reference to Exhibit
10.23 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.18 Employment Agreement, dated as of July 16, 1997, by and between the
Company and David E. Grose (incorporated by reference to Exhibit
10.24 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.19 Letter Agreement, dated as of August 20, 1997, by and between the
Company and Chesapeake Energy Corporation (incorporated by
reference to Exhibit 10.25 to the Company's Registration Statement
on Form S-1 (Registration No. 333-34451)).
10.20 Form of Indemnification Agreement entered into by the Company and
each of the directors and certain officers of the Company in
connection with the Initial Public Offering (incorporated by
reference to Exhibit 10.26 to the Company's Registration Statement
on Form S-1 (Registration No. 333-34451)).
10.21 Agreement and Plan of Merger, dated as of October 9, 1997, by and
among DLB Oil & Gas, Inc., the Company, Bonray Acquisition Corp.
and Bonray Drilling Corporation (incorporated by reference to
Exhibit 10.27 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.22 1997 Non-Employee Directors' Stock Option Plan of the Company
(incorporated by reference to Exhibit 10.28 to the Company's
Registration Statement on Form S-1 (Registration No. 333-34451)).
15
<PAGE> 18
10.23 Form of Nonqualified Option Agreement under the 1997 Non-Employee
Directors' Option Plan of the Company (incorporated by reference to
Exhibit 10.29 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.24 Registration Rights Agreement, dated as of October 16, 1997, by and
among the Company, DLB Oil & Gas, Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation (incorporated by reference to
Exhibit 10.30 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.25 Letter Agreement, dated as of October 3, 1997, by and between the
Company and The CIT Group/Equipment Financing, Inc. (incorporated
by reference to Exhibit 10.31 to the Company's Registration
Statement on Form S-1 (Registration No. 333-34451)).
10.26 Second Amended and Restated Registration Rights Agreement, dated as
of October 30, 1997, by and among the Company and the stockholders
of the Company that are signatories thereto (incorporated by
reference to Exhibit 10.32 to the Company's Registration Statement
on Form S-1 (Registration No. 333-34451)).
10.27 Stock Transfer Restriction Agreement, dated as of November 3, 1997,
by and between the Company and Donaldson, Lufkin & Jenrette
Securities Corporation (incorporated by reference to Exhibit 10.27
to the Company's Registration Statement on Form S-1 dated December
31, 1997, Registration No. 333-43535).
10.28 Asset Purchase Agreement, dated as of November 25, 1997, by and
between the Company and R.T. Oliver Drilling, Inc (incorporated by
reference to Exhibit 10.28 to the Company's Registration Statement
on Form S-1 dated December 31, 1997, Registration No. 333-43535).
27.1 Financial Data Schedule. *
REPORTS ON FORM 8-K
(b) No reports on Form 8-K were filed during the three months ended March
31, 1998.
- -------------
* Filed herewith
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BAYARD DRILLING TECHNOLOGIES, INC.
DATE May 15, 1998 /s/ James E. Brown
--------------------------- --------------------------------------
James E. Brown, Chairman, President and
Chief Executive Officer
DATE May 15, 1998 /s/ David E. Grose
--------------------------- --------------------------------------
David E. Grose, Vice President and
Chief Financial Officer
(Principal Financial Officer)
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -------------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-1 (Registration No.
333-34451)).
3.2 Amended and Restated Bylaws of the Company, as adopted
August 19, 1997 (incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
4.1 Specimen Stock Certificate for due Common Stock, par value
$0.01 per share, of the Company (incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on
Forms S-1 (Registration No. 333-34451)).
10.1 1997 Stock Option and Stock Award Plan of the Company
(incorporated by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-34451)).
10.2 Forms of Non-Qualified Stock Option Agreements under the
1997 Stock Option and Stock Award Plan (incorporated by
reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-34451)).
10.3 Master Agreement, dated as of November 26, 1996, by and
among the Company and the stockholders of the Company that
are signatories thereto (incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on
Form S-1 (Registration No. 333-34451)).
10.4 Master Drilling Agreement, dated as of December 10, 1996,
by and among the Company, Chesapeake Energy Corporation
and Chesapeake Operating, Inc. (incorporated by reference
to Exhibit 10.6 to the Company's Registration Statement on
Form S-1 (Registration No. 333-34451)).
10.5 Form of Chesapeake Drilling Agreement, by and between
Chesapeake Operating, Inc., as Operator, and the Company,
as Contractor (incorporated by reference to Exhibit 10.7
to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.6 Securities Purchase Agreement, dated as of April 30, 1997,
by and among the Company, Energy Spectrum Partners LP and
Chesapeake Energy Corporation (the "May Securities
Purchase Agreement") (incorporated by reference to Exhibit
10.10 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.7 Form of Subordinated Note of the Company issued pursuant
to the May Securities Purchase Agreement (incorporated by
reference to Exhibit 10.11 to the Company's Registration
Statement on Form S-1 (Registration No. 333-34451)).
10.8 Form of Series B Warrant to Purchase Common Stock of the
Company issued pursuant to the May Securities Purchase
Agreement (incorporated by reference to Exhibit 10.13 to
the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.9 Ward Drilling Company, Inc. Warrant to Purchase Common
Stock of the Company, dated May 30, 1997 (incorporated by
reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (Registration No. 333-34451)).
</TABLE>
<PAGE> 21
<TABLE>
<S> <C>
10.10 Preferential Right to Transport Agreement, dated as of May 30,
1997, by and between the Company and Geronimo Trucking Company
(incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-1 (Registration No. 333-34451)).
10.11 RR&T, Inc. Warrant to Purchase Common Stock of the Company, dated
May 1, 1997 (incorporated by reference to Exhibit 10.16 to the
Company's Registration Statement on Form S-1 (Registration No.
333-34451)).
10.12 Mike Mullen Warrant to Purchase Common Stock of the Company, dated
May 1, 1997 (incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1 (Registration No.
333-34451)).
10.13 Loan and Security Agreement, dated as of May 1, 1997, by and among
Fleet Capital Corporation, the Company and Trend Drilling Co.
(incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1 (Registration No. 333-34451)).
10.14 Amended and Restated Loan Agreement, dated as of May 1, 1997, by
and among the CIT Group/Equipment Financing, Inc. and Fleet Capital
Corporation, as Lenders, and the Company and Trend Drilling Co., as
Borrowers (incorporated by reference to Exhibit 10.20 to the
Company's Registration Statement on Form S-1 (Registration No.
333-34451)).
10.15 Employment Agreement, dated as of December 10, 1996, by and between
the Company and James E. Brown (incorporated by reference to
Exhibit 10.21 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.16 Restricted Stock Award Agreement, dated as of December 10, 1996, by
and between the Company and James E. Brown (incorporated by
reference to Exhibit 10.22 to the Company's Registration Statement
on Form S-1 (Registration No. 333-34451)).
10.17 Employment Agreement, dated as of January 1, 1997, by and between
the Company and Ed Jacob (incorporated by reference to Exhibit
10.23 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.18 Employment Agreement, dated as of July 16, 1997, by and between the
Company and David E. Grose (incorporated by reference to Exhibit
10.24 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.19 Letter Agreement, dated as of August 20, 1997, by and between the
Company and Chesapeake Energy Corporation (incorporated by
reference to Exhibit 10.25 to the Company's Registration Statement
on Form S-1 (Registration No. 333-34451)).
10.20 Form of Indemnification Agreement entered into by the Company and
each of the directors and certain officers of the Company in
connection with the Initial Public Offering (incorporated by
reference to Exhibit 10.26 to the Company's Registration Statement
on Form S-1 (Registration No. 333-34451)).
10.21 Agreement and Plan of Merger, dated as of October 9, 1997, by and
among DLB Oil & Gas, Inc., the Company, Bonray Acquisition Corp.
and Bonray Drilling Corporation (incorporated by reference to
Exhibit 10.27 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.22 1997 Non-Employee Directors' Stock Option Plan of the Company
(incorporated by reference to Exhibit 10.28 to the Company's
Registration Statement on Form S-1 (Registration No. 333-34451)).
</TABLE>
<PAGE> 22
<TABLE>
<S> <C>
10.23 Form of Nonqualified Option Agreement under the 1997 Non-Employee
Directors' Option Plan of the Company (incorporated by reference to
Exhibit 10.29 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.24 Registration Rights Agreement, dated as of October 16, 1997, by and
among the Company, DLB Oil & Gas, Inc. and Donaldson, Lufkin &
Jenrette Securities Corporation (incorporated by reference to
Exhibit 10.30 to the Company's Registration Statement on Form S-1
(Registration No. 333-34451)).
10.25 Letter Agreement, dated as of October 3, 1997, by and between the
Company and The CIT Group/Equipment Financing, Inc. (incorporated
by reference to Exhibit 10.31 to the Company's Registration
Statement on Form S-1 (Registration No. 333-34451)).
10.26 Second Amended and Restated Registration Rights Agreement, dated as
of October 30, 1997, by and among the Company and the stockholders
of the Company that are signatories thereto (incorporated by
reference to Exhibit 10.32 to the Company's Registration Statement
on Form S-1 (Registration No. 333-34451)).
10.27 Stock Transfer Restriction Agreement, dated as of November 3, 1997,
by and between the Company and Donaldson, Lufkin & Jenrette
Securities Corporation (incorporated by reference to Exhibit 10.27
to the Company's Registration Statement on Form S-1 dated December
31, 1997, Registration No. 333-43535).
10.28 Asset Purchase Agreement, dated as of November 25, 1997, by and
between the Company and R.T. Oliver Drilling, Inc (incorporated by
reference to Exhibit 10.28 to the Company's Registration Statement
on Form S-1 dated December 31, 1997, Registration No. 333-43535).
27.1 Financial Data Schedule. *
</TABLE>
REPORTS ON FORM 8-K
(b) No reports on Form 8-K were filed during the three months ended March
31, 1998.
- -------------
* Filed herewith
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 28,262
<SECURITIES> 0
<RECEIVABLES> 23,112
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,439
<PP&E> 203,181
<DEPRECIATION> 23,374
<TOTAL-ASSETS> 246,594
<CURRENT-LIABILITIES> 26,227
<BONDS> 23,248
0
0
<COMMON> 182
<OTHER-SE> 180,050
<TOTAL-LIABILITY-AND-EQUITY> 246,594
<SALES> 23,962
<TOTAL-REVENUES> 23,962
<CGS> 21,145
<TOTAL-COSTS> 21,145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 367
<INCOME-PRETAX> 3,032
<INCOME-TAX> 1,275
<INCOME-CONTINUING> 1,757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,757
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
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