BAYARD DRILLING TECHNOLOGIES INC, 10-K, 1998-03-31

BAYARD DRILLING TECHNOLOGIES INC
10-K, 1998-03-31
OIL & GAS FIELD MACHINERY & EQUIPMENT

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 001-13553

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BAYARD DRILLING TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C>
DELAWARE 73-1508021
(State or other jurisdiction of (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>

4005 NORTHWEST EXPRESSWAY, SUITE 550E
OKLAHOMA CITY, OKLAHOMA 73116
(Address of Principal Executive Offices)

(405) 840-9550
(Registrant's telephone number including area code)

Securities registered pursuant to Section 12(b) of the act:
NONE

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.01 PAR VALUE PER SHARE

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. [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]

THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT, COMPUTED BY USING THE LAST REPORTED SALE PRICE OF REGISTRANT'S
COMMON STOCK AS OF MARCH 27, 1998, WAS $220,218,001.

The number of shares outstanding of each of the registrant's classes of
common stock, as of March 27, 1998, was:

18,183,945 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE.

The information required by Part III of this Annual Report on Form 10-K is
incorporated by reference from the Registrant's definitive proxy statement to be
filed pursuant to Regulation 14A for the Registrant's 1998 Annual Meeting of
Stockholders.
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<PAGE> 2

PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

GENERAL

Bayard Drilling Technologies, Inc. ("Bayard" or the "Company") is a leading
provider of contract land drilling services to major and independent oil and gas
companies. As of December 31, 1997, the Company's rig fleet consisted of 63
rigs, of which 51 were being marketed and 12 were to be refurbished and are
expected to be placed in operation within the next 18 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.

The Company's fleet includes 47 rigs capable of drilling to depths of
15,000 feet or greater, 31 of which are capable of drilling to depths of 20,000
feet or greater. Of these 47 rigs, 31 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 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 December 31, 1997, the Company had 37 rigs marketed
in Oklahoma and was the most active land drilling contractor in the state. 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. At
December 31, 1997, the Company had 14 rigs marketed in the Gulf Coast region,
including 12 diesel electric SCR rigs.

Except as otherwise indicated, all rig data includes the six rigs acquired
from Roy T. Oliver Drilling, Inc. ("R.T. Oliver") in a transaction completed in
January 1998 (the "Oliver Acquisition").

This annual 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 annual report 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 those described elsewhere herein in this annual
report. 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 annual report are expressly
qualified in their entirety by the cautionary statements in this paragraph.

FORMATION AND OTHER TRANSACTIONS

Consolidation 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 the
Company's common stock, par value $0.01 per share ("Common
<PAGE> 3

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 Energy Corporation ("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").
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 Drilling Co. and its 14 rigs ("Trend") for $18 million in cash and 250,000
shares of Common Stock (the "Trend Acquisition").

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").

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"). 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.

Individual Rig Acquisitions. In addition to the Trend, Ward and Bonray
Acquisitions, prior to the Initial Public Offering (as defined herein), 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.

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 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 December 31, 1997, the Company
completed refurbishment of 13 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 December 31, 1997. The Company completed
refurbishment of two rigs during the first quarter of 1998. At December 31,
1997, the Company had twelve additional rigs (including six rigs acquired in the
Oliver Acquisition) at various stages of refurbishment. The Company anticipates
placing four of such rigs in service during 1998, as market conditions warrant.
The Company expects the cost to refurbish these four rigs to average
approximately $4.2 million per rig (including drill pipe). See -- "Drilling
Equipment and Supplies -- Rig Fleet."

Recent Acquisitions.

Since the Consolidation Transactions and the Initial Public Offering and
prior to December 31, 1997, the Company agreed to purchase six additional rigs
from R. T. Oliver for approximately $14 million in cash. The Oliver Acquisition
was completed on January 9, 1998. The Company expects to refurbish and purchase
complementary equipment, including drill pipe, for these rigs at a cost of $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.

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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 December 31, 1997, 75% of the
Company's rig fleet (47 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 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 year ended December 31, 1997, the three largest customers for the
Company's contract drilling services were Chesapeake, Union Pacific Resources
Corporation and Sonat Exploration which accounted for approximately 32%, 12% and
8% of total revenues, respectively. See "Customers and Marketing."

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 and through
December 31, 1997, the Company has acquired 47 land rigs (net of sales) in ten
transactions.

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.

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<PAGE> 5

As of December 31, 1997, the Company's fleet included 31 rigs that are
diesel electric SCR rigs and 32 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 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 is 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 the purchase of additional top drives.

RIG FLEET

The following table identifies certain information as of December 31, 1997
regarding the rigs owned and operated by the Company.

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<TABLE>
<CAPTION>
DEPTH HORSEPOWER
RIG CAPACITY RIG ----------------------- CURRENT CURRENT
NO. (FT.) DRAWWORKS(2) TYPE(1) DRAWWORKS(2) TOTAL(3) OPERATOR STATUS(4)
- --- -------- ------------ ---------- ------------ -------- -------- ---------
<C> <C> <S> <C> <C> <C> <C> <C>
MID-CONTINENT REGION:
10 25,000 Mid Continent U-1220-EB SCR 2,500 3,600 Apache Working
52 25,000 National 1320-M Mechanical 2,000 2,700 Avalon Working
63 25,000 Gardner Denver 1500-E SCR 2,000 3,300 St. Mary Operating Working
19 20,000 Continental Emsco C-1 SCR 1,500 2,700 Burlington Working
35 20,000 National 110-UE SCR 1,500 3,300 Vastar Working
36 20,000 National 110-M Mechanical 1,500 2,700 Sonat Working
46 20,000 BDW 1350 Mechanical 1,500 2,900 Marathon Working
59 20,000 Oilwell 860 Mechanical 1,500 2,700 Sanguine Working
60 20,000 National 1320-M Mechanical 2,000 2,700 Sanguine Working
61 20,000 National 110-M Mechanical 1,500 2,700 Sanguine Working
62 20,000 Mid Continent U914 SCR 1,500 2,700 Marshall Working
5 16,000 Gardner Denver 800 Mechanical 1,000 2,900 Anadarko Working
8 16,000 National 80-B Mechanical 1,000 1,650 Chesapeake Working
31 16,000 Gardner Denver 800-E SCR 1,000 2,200 Anadarko Working
32 16,000 BDW 800 MI Mechanical 1,000 1,650 Sonat Working
33 16,000 Brewster N-46 Mechanical 1,000 2,000 Sonat Working
34 16,000 Ideco E-900 SCR 900 1,800 Chesapeake Working
39 16,000 Ideco E-900 SCR 900 2,350 Sonat Committed(7)
47 16,000 Ideco H-900 Mechanical 900 1,650 Sonat Committed(7)
51 16,000 Oilwell 760 Mechanical 1,000 1,650 Lincoln Petroleum Working
42 15,000 Gardner Denver 700 Mechanical 800 1,650 Ward Working
44 15,000 Gardner Denver 700 Mechanical 800 1,650 Enron Working
26 14,000 National 610 Mechanical 750 1,650 ONEOK Working
29 13,000 Continental Emsco D-2 Mechanical 750 1,450 Sonat Working
38 13,000 Mid Continent U-36A Mechanical 600 1,650 Available
41 13,000 Mid Continent U-36A Mechanical 600 1,650 Available
9 12,000 Gardner Denver 500 Mechanical 650 2,250 Apache Working
43 12,000 Superior 700 Mechanical 650 1,450 Vintage Working
45 12,000 Gardner Denver 500 Mechanical 650 1,450 Anadarko Working
53 12,000 Unit U-40 Mechanical 850 1,650 Avalon Working
57 12,000 National 55 Mechanical 550 2,000 Repairing
58 12,000 Ideco 750 Mechanical 750 1,650 Repairing
28 11,000 BDW 650 Mechanical 650 1,350 Valence Working
37 11,000 Gardner Denver 500 Mechanical 650 1,900 Lomak Working
30 10,000 Brewster N-42 Mechanical 550 1,725 Cross Timbers Working
56 10,000 Cooper LTD 750 Mechanical 750 1,550 RC Taylor Working
55 7,500 Cooper LTD 550 Mechanical 550 1,400 Repairing
CONSTRUCTION PROJECTS:
24 25,000 National 1320-UE SCR 2,000 3,960 Refurbishing
68 25,000 Continental Emsco C-2 SCR 2,000 3,975 Refurbishing
69 25,000 Mid Continent U-1220-EB SCR 2,500 3,975 Refurbishing
50 20,000 BDW 1350 SCR 1,500 2,700 Refurbishing
65 20,000 Oilwell E-2000 SCR 2,000 3,975 Refurbishing
66 20,000 Oilwell 840-E SCR 1,500 3,975 Refurbishing
67 20,000 Oilwell 840-E SCR 1,500 3,975 Refurbishing
27 16,000 National 80-B SCR 1,000 1,650 Refurbishing
48 16,000 SCR 1,000 2,280 Refurbishing
49 16,000 SCR 1,000 2,280 Refurbishing
64 16,000 Ideco E-1200 SCR 1,200 2,280 Refurbishing
54 10,000 National 50-A Mechanical 450 900 Refurbishing
</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.

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(4) Due to a recent decline in oil prices, the utilization of the Company's rigs
has decreased to some extent from the level as of December 31, 1997 that is
indicated by this chart.

(5) Rigs 16, 18, 22 and 23 in the Gulf Coast region are each equipped with
National PS350/500 top drives.

(6) Subsequent to December 31, 1997, Chesapeake has released rigs 4, 12 and 18.
See - "Customers and Marketing."

(7) Rig 39 commenced operations in March 1998 and rig 47 commenced operations in
January 1998.

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% 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 of 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 December 31, 1997, all of the Company's marketed rigs were operating
under daywork contracts except three rigs, which were operating under footage
contracts. The Company and its predecessors in the past have performed drilling
services under turnkey contracts and the Company may do so again in the future.

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<PAGE> 8

Revenues from daywork contracts accounted for approximately 96% of total
drilling revenues (excluding mobilization revenues) during the year ended
December 31, 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.

CUSTOMERS AND MARKETING

The Company's customers include major oil companies and independent oil and
gas producers. During the year ended December 31, 1997, the three largest
customers for the Company's contract drilling services were Chesapeake, Union
Pacific Resources Corporation and Sonat Exploration, which accounted for
approximately 32%, 12% and 8% 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 March 27, 1998, 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.

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.

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<PAGE> 9

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. For
the year ended December 31, 1997, the Company recognized aggregate revenues of
$10.9 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 particular 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 27, 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.

INDUSTRY FACTORS

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.

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 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.

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

8
<PAGE> 10

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 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.

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.

OPERATING HAZARDS AND INSURANCE

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, 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,
including property casualty insurance on its rigs and drilling equipment,
commercial general liability and commercial contract indemnity, commercial
umbrella and workers' compensation 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.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

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.

9
<PAGE> 11

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
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

10
<PAGE> 12

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 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
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 and leases approximately 5,000 square feet of
office and warehouse space and ten acres of land in El Reno, Oklahoma for $2,000
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.

11
<PAGE> 13

EMPLOYEES

As of December 31, 1997, 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 are represented by any collective
bargaining unit. Management believes that the Company's relationship with its
employees is good.

ITEM 3. 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 of 1933, as amended (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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

12
<PAGE> 14

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

The Common Stock is traded on the American Stock Exchange (the "AMEX")
under the symbol "BDI." The transfer agent and registrar for the Common Stock is
Norwest Bank Minnesota, N.A.

PRICE RANGE OF COMMON STOCK

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 December 31, 1997 was a high of $28 1/4 and a
low of $14. During such period there have been no dividends paid on the Common
Stock. As of December 31, 1997, there were 18,183,945 shares of Common Stock
outstanding. On March 27, 1998, the latest practical date for providing price
information, the last sales price for the Common Stock was $16 1/4.

HOLDERS

As of March 27, 1998, the Company had approximately 50 record holders of
its shares of Common Stock, including several nominee holders for an
undetermined number of beneficial owners.

DIVIDENDS ON COMMON STOCK

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 the Common Stock in the foreseeable
future. Future dividend policy will be made by the Company's Board of Directors
(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 (as defined
herein) and the Revolving Loan (as defined herein). See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Financial
Condition and Liquidity."

RECENT SALES OF UNREGISTERED SECURITIES

The following information relates to securities of the Company issued or
sold within the past three years, which were not registered under the Securities
Act:

On December 10, 1996, the Company issued 2,000,000, 1,600,000 and 2,000,000
shares (collectively, the "Initial Shares") of Common Stock to APLP, the Oliver
Companies and Energy Spectrum, respectively, and an option (the "Chesapeake
Option") to purchase 2,000,000 shares of Common Stock at a price of $6 per share
to Chesapeake. In consideration for the Initial Shares (i) APLP contributed ten
drilling rigs (and the Company paid APLP approximately $9.3 million in cash),
(ii) the Oliver Companies contributed six drilling rigs and (iii) Energy
Spectrum contributed $10 million. In consideration for the Chesapeake Option,
Chesapeake entered into drilling contracts with two-year terms for six of the
Company's rigs. Such issuances were exempt from the registration requirements of
the Securities Act under Section 4(2) thereof as transactions not involving a
public offering.

On December 10, 1996, the Company issued to The CIT Group/Equipment
Financing, Inc., a New York corporation ("CIT"), a warrant to purchase, at an
exercise price of $8 per share, up to 300,000 shares of Common Stock. The
warrant was issued for and in consideration of $500 in connection with the
entering into a loan agreement between the Company, as borrower, and CIT, as
lender, for a loan from CIT to the Company of up to $24 million. The issuance of
the warrant was exempt from the registration requirements of the Securities Act
under Section 4(2) thereof as not involving a public offering. CIT exercised in
part the warrant for 150,000 shares of Common Stock in connection with the
Initial Public Offering.

On February 28, 1997, the Company issued to James E. Brown, a director and
the President and Chief Executive Officer of the Company, 100,000 shares of
Common Stock (the "Restricted Shares") at a purchase price of $2.50 per share,
pursuant to a restricted stock award agreement. The issuance of the Restricted
Shares

13
<PAGE> 15

was exempt from the registration requirements of the Securities Act under
Section 4(2) thereof as a transaction not involving a public offering.

On May 1, 1997, the Company issued to Harold G. Hamm, as Trustee of the
Harold G. Hamm Revocable Inter Vivos Trust, dated April 23, 1984, 250,000 shares
of Common Stock in connection with the acquisition by the Company of all of the
issued and outstanding capital stock of Trend. The issuance of the shares of
Common Stock was exempt from the registration requirements of the Securities Act
under Section 4(2) thereof as a transaction not involving a public offering.

On May 1, 1997, the Company issued to Chesapeake the following: (i)
1,000,000 shares of Common Stock; (ii) a subordinated note in the original
principal amount of $18 million; (iii) a warrant to purchase up to 700,000
shares of Common Stock at an exercise price of $.01 per share; and (iv) a
warrant to purchase up to 800,000 shares of Common Stock at an exercise price of
$7.50 per share, all in consideration for an aggregate purchase price of $25
million. The Company also issued to Energy Spectrum the following: (i) 140,000
shares of Common Stock; (ii) a subordinated note in the original principal
amount of $2.52 million; (iii) a warrant to purchase up to 98,000 shares of
Common Stock at an exercise price of $.01 per share; and (iv) a warrant to
purchase up to 112,000 shares of Common Stock at an exercise price of $7.50 per
share, all in consideration for an aggregate purchase price of $3.5 million. The
issuances of the shares of Common Stock, subordinated notes and warrants were
exempt from the registration requirements of the Securities Act under Section
4(2) thereof as transactions not involving a public offering.

On May 1, 1997, the Company issued to each of RR&T, Inc., an Oklahoma
corporation, and Mike Mullen warrants to purchase up to 50,000 shares of Common
Stock each at an exercise price of $8 per share in connection with the
acquisition by the Company of a drilling rig for a purchase price of $1.8
million. The issuance of the warrants was exempt from the registration
requirements of the Securities Act under Section 4(2) thereof as transactions
not involving a public offering.

On May 30, 1997, the Company issued to Ward Drilling Company, Inc., an
Oklahoma corporation, (i) 400,000 shares of Common Stock and (ii) a warrant to
purchase up to 200,000 shares of Common Stock at an exercise price of $10 per
share, each in connection with the acquisition by the Company of all of the
issued and outstanding common units of WD Equipment, L.L.C., a Delaware limited
liability company. The issuances of the shares of Common Stock and the warrant
were exempt from the registration requirements of the Securities Act under
Section 4(2) thereof as a transaction not involving a public offering.

On July 31, 1997, upon the exercise by Energy Spectrum of its warrant to
purchase 98,000 shares of Common Stock at an exercise price of $.01 per share
and the payment by Energy Spectrum of an aggregate of $490 in consideration of
such exercise price, the Company issued to Energy Spectrum 98,000 shares of
Common Stock. The issuance of the shares of Common Stock was exempt from the
registration requirements of the Securities Act under Section 4(2) thereof as a
transaction not involving a public offering.

On October 3, 1997, pursuant to a letter agreement dated August 20, 1997,
the Company issued to Chesapeake 3,194,000 shares of Common Stock in
consideration for (i) the cancellation of each of the Chesapeake Option, a
warrant to purchase up to 700,000 shares of Common Stock at an exercise price of
$.01 per share and a warrant to purchase up to 800,000 shares of Common Stock at
an exercise price of $7.50 per share, (ii) the payment by Chesapeake of $9
million in cash and (iii) the redemption in full of $18 million principal amount
of Subordinated Notes issued by the Company to Chesapeake for a cash redemption
price of $18.2 million remitted in November 1997 from a portion of the proceeds
of the Initial Public Offering. The issuance of the shares of Common Stock was
exempt from the registration requirements of the Securities Act under Section
4(2) thereof as not involving a public offering.

On October 10, 1997, upon the exercise by CIT of its warrant to purchase
300,000 shares of Common Stock at an exercise price of $8 per share, pursuant to
the revised net exercise provisions of such warrant, the Company issued to CIT
150,000 shares of Common Stock in consideration for the surrender of the warrant
to the Company and a cash payment to CIT of $817,125 remitted in November 1997
from a portion of the proceeds of the Initial Public Offering. The issuance of
the shares of Common Stock was exempt from the registration requirements of the
Securities Act under Section 4(2) thereof as a transaction not involving a
public offering.

14
<PAGE> 16

On October 16, 1997, the Company issued to DLB and Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") 2,955,000 and 60,000 shares of Common
Stock, respectively, upon the closing of the merger contemplated by the
Agreement and Plan of Merger, dated as of October 9, 1997, by and among DLB, the
Company, Bonray Acquisition Corp. and Bonray, pursuant to which the Company
acquired all of the business of Bonray. The issuance of the shares of Common
Stock was exempt from the registration requirements of the Securities Act under
Section 4(2) thereof as a transaction not involving a public offering.

On December 23, 1997, the Company issued an aggregate of 7,895 shares of
Common Stock to three individuals upon the exercise by them of warrants for the
purchase of an aggregate of 15,000 shares of Common Stock, each with an exercise
price of $10 per share. The warrants were exercised on a net basis pursuant to
the terms of the warrants, and no cash consideration was paid in connection with
such exercises. The issuance of the shares of Common Stock was exempt from the
registration requirements of the Securities Act under Section 4(2) thereof as a
transaction not involving a public offering.

USE OF PROCEEDS FROM REGISTERED SECURITIES

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 in connection with the Initial
Public Offering. Through December 31, 1997, the $89.5 million of 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......................... $14,200
Repayment of indebtedness................................... 25,200
Payment to CIT in connection with warrant exercise.......... 800
Temporary investments (1)................................... 49,300
-------
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 intends to repay 25% of the amount
outstanding under the Term Loan from a portion of the temporary investments.

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
December 31, 1997, the Company had $27.1 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.

15
<PAGE> 17

ITEM 6. SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

The historical financial data presented in the following table for and at
the end of each of the years in the five-year period ended December 31, 1997 are
derived from the historical financial statements of the Company and relate to
the operations of Anadarko for the period ended December 31, 1996 and prior, the
predecessor of the Company, and include, generally, the financial results of the
operations of eight rigs. The Company acquired rigs and related drilling
equipment during the period ended December 31, 1997 thus affecting the
comparability of the historical financial and operating data for the periods
presented.

The financial statements for the years ended December 31, 1994, 1995 and
1996 have been audited by Grant Thornton LLP, independent certified public
accountants and the year ended December 31, 1997 has been audited by Coopers &
Lybrand, L.L.P. This information is not necessarily indicative of the company's
future performance.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------
1993 1994 1995 1996 1997(7)
----------- ------- ------- -------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Contract drilling.......................... $ 8,349 $ 9,910 $ 7,405 $ 9,793 $ 55,747
Other...................................... -- -- 303 60 --
-------- ------- ------- -------- --------
Total revenues........................ 8,349 9,910 7,708 9,853 55,747
-------- ------- ------- -------- --------
Operating expense:
Drilling................................... 7,690 8,572 6,075 7,653 40,705
Depreciation and amortization.............. 1,374 1,557 791 1,126 7,943
General and administrative................. 819 786 880 658 1,868
Other...................................... -- -- 47 46 --
-------- ------- ------- -------- --------
Total operating costs................. 9,883 10,915 7,793 9,483 50,516
-------- ------- ------- -------- --------
Operating income (loss)...................... (1,534) (1,005) (85) 370 5,231
-------- ------- ------- -------- --------
Other income and (expense):
Interest expense and financing cost........ (30) (18) (3) (11) (3,065)
Interest income............................ -- -- -- -- 597
Gain (loss) on sale of assets.............. -- 366 (131) 54 544
Other income (expense)..................... 24 -- (3) 17 37
-------- ------- ------- -------- --------
Income (loss) before income taxes............ (1,540) (657) (222) 430 3,344
Income tax expense(1)........................ -- -- -- 163 1,428
-------- ------- ------- -------- --------
Net income (loss) before extraordinary
item....................................... $ (1,540) $ (657) $ (222) $ 267 $ 1,916
======== ======= ======= ========
Extraordinary loss............................. (4,002)
--------
Net income (loss).............................. $ (2,086)
========
Earnings (loss) per common share before
extraordinary item(2):
Diluted........................................ $ .05 $ .17
======== ========
Weighted average shares outstanding(2):
Diluted........................................ 5,749 11,500
CASH FLOWS:
Operating activities......................... $ (51) $ 445 $ 310 $ (462) $ (1,308)
Investing activities......................... (1,671) (454) (1,710) (10,441) (86,470)
Financing activities......................... 1,722 9 1,400 15,866 132,117
</TABLE>

16
<PAGE> 18

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1993 1994 1995 1996 1997(7)
----------- ------ ------ ------- --------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND
DRILLING RIG ACTIVITY DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets...................................... $6,791 $6,149 $8,054 $34,673 $240,488
Working capital, excluding current portion of
long-term debt.................................. 711 802 12 4,974 56,404
Total long-term debt, including current portion... 365 -- -- 7,000 33,039
Total stockholders' equity(3)..................... (913) (54) (276) 26,251 178,462
OTHER FINANCIAL DATA:
EBITDA(4)......................................... $ (160) $ 552 $ 706 $ 1,496 $ 13,174
Capital expenditures.............................. 1,671 1,183 2,088 10,578 135,229
DRILLING RIG ACTIVITY DATA (UNAUDITED):
Total rigs at end of period....................... 8 7 8 17 63
Marketed rigs at end of period.................... 8 7 8 8 49
Average utilization rate of drilling rigs
available for service(5)........................ 71% 84% 86% 89% 93%
Average revenues per day(6)....................... $4,332 $4,148 $4,298 $ 4,731 $ 5,881
</TABLE>

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

(1) Since the Company's predecessor was a nontaxable entity, income tax expense
is presented on a pro forma basis (assuming a 38% statutory rate) for the
year ended December 31, 1996.

(2) For the year ended December 31, 1997 historical weighted average shares
outstanding were calculated in accordance with the provisions of Statement
of Financial Accounting Standards No. 128. For the year ended December 31,
1996, the historical weighted average shares outstanding were calculated in
accordance with the provisions of Statement of Financial Accounting
Standards No. 128 (except for the 5.6 million shares of common stock issued
in the Formation Transaction) as if the Formation Transaction (which took
place on December 10, 1996) were treated outstanding since January 1, 1996.

(3) No dividends were declared through December 31, 1997. See "Dividends on
Common Stock."

(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 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.

(7) Results for 1997 include the results of operations for Trend (May 1, 1997 to
December 31, 1997), Ward (May 30, 1997 to December 31, 1997) and Bonray
(October 16, 1997 to December 31, 1997).

17
<PAGE> 19

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

GENERAL

The Company's operations have been 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 a
land drilling fleet with a total of 63 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), the Bonray
Acquisition (13 rigs) and the Individual Rig Acquisitions (15 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, particularly in light of the
magnitude of its recent acquisitions and rig refurbishment projects. 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

18
<PAGE> 20

(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 Common Stock. The Company
later waived this right.

The Company is currently negotiating with a 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 December 31, 1997, the Company spent $20.7 million on the Trend
Acquisition, $11.9 million on the Ward Acquisition, $35 million on the Bonray
Acquisition, $5.5 million on the Individual Rig Acquisitions, $3.5 million for
the down-payment on the Oliver Acquisition and approximately $62 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 $156 million at December 31, 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 December 31, 1997 was a $128.7 million increase in net property and
equipment. During this same period, long-term debt, net of current maturities,
increased by $19.5 million and stockholders' equity increased by $152.2 million.
These changes are a direct result of the acquisition and financing transactions,
including the Initial Public Offering, described herein.

From December 31, 1996 to December 31, 1997, the Company's working capital
position increased by $44.9 million to $49.0 million. This was primarily the
result of a $44.3 million increase in cash resulting from proceeds of the
Initial Public Offering.

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 year ended December 31, 1997, net cash used in operating
activities totaled $1.3 million. The Company generated cash from operations of
$10.8 million and working capital changes used $12.1 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 year ended December 31, 1997, the Company invested $135 million
in fixed assets, including the Trend Acquisition, the Ward Acquisition, the
Bonray Acquisition and the Individual Rig Acquisitions. Rig refurbishments
consisted of $51.5 million, and $10.6 million was invested in drill pipe and
other drilling related equipment. The acquisitions of Trend, Ward, and Bonray
were partially funded through the issuance of Common Stock valued at $42.3
million.

19
<PAGE> 21

Financing and Acquisition 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.

During the year ended December 31, 1997, the Company obtained $132.1
million from financing activities, including net borrowings under the Loan
Agreements totaling $25.8 million and $107.1 million from the issuance of Common
Stock. 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, the May Financing, the Additional Chesapeake
Financing and Chesapeake Transactions, the Bonray Acquisition and the Initial
Public Offering.

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 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 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 entered into the Term
Loan between the Company and CIT. Subsequent to that date and in connection with
the May Financing, the Company increased the Term Loan from $24 million to $30.5
million and added Fleet as a lender thereunder. 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 the Revolving
Loan with Fleet in May 1997. Amounts outstanding under the Revolving Loan (none
at December 31, 1997) bear interest based on Fleet's prime rate plus 1.5%
(approximately 10.0% at December 31, 1997) 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 ($27.1 million at December 31, 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% (approximately 10.0% at December
31, 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 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.

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

20
<PAGE> 22

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."

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 and Chesapeake Transactions. 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."

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 and the issuance of 3,194,000 shares
of Common Stock to 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 was completed in November 1997 from a portion of
the proceeds from the Initial Public Offering.

Bonray Acquisition. 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."

Initial Public Offering. 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 December 31, 1997
these net proceeds have been used as follows: (i) $14.2 million to purchase
machinery and equipment; (ii) $25.2 million to repay indebtedness; (iii)
$817,125 to pay CIT in connection with the CIT Exercise; and (iv) $49.3 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.

Other Matters

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

21
<PAGE> 23

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, $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 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
1998 rig refurbishment program and to meet its other anticipated capital
requirements for 1998. As of December 31, 1997, the Company had $27.1 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 $49 million.

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.

RECENT EVENTS AND FUTURE ACTIVITIES

On November 25, 1997, the Company entered into an agreement to acquire six
rigs from R.T. Oliver for $14 million. The Company consummated the Oliver
Acquisition on January 9, 1998.

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.

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 and 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, was
filed on February 3, 1998 in the United States District Court for the Western
District of Oklahoma.

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 preoffering 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

22
<PAGE> 24

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.

RESULTS OF OPERATIONS

Comparison of Year ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1996 1997
---------- -----------
<S> <C> <C>
Rig days worked(1)......................................... 2,029 9,479
Average revenues per day(2)................................ $ 4,826 $ 5,881
Drilling revenues.......................................... $9,793,000 $55,747,000
Drilling costs(3).......................................... 7,653,000 40,705,000
---------- -----------
Operating Margin........................................... $2,140,000 $15,042,000
========== ===========
</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 $46.0 million, or 469% to $55.7
million for the year ended December 31, 1997, from $9.8 million for the year
ended December 31, 1996. Drilling revenues increased due to a 7,450 day, or
367%, increase in rig days worked, and a $1,055, 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 December 31, 1997,
the Company had 49 rigs available for service. The increase in rigs available
for service was principally the result of the Consolidation Transactions. Rig
days worked consisted of 3,672 days worked in the Gulf Coast region and 5,807
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 89% to 93%. The Company's customers include
major oil companies and independent oil and gas producers. During the year ended
December 31, 1997, the three largest customers for the Company's contract
drilling services were Chesapeake, Union Pacific Resources Corporation and Sonat
Exploration, which accounted for approximately 32%, 12% and 8% of total
revenues, respectively.

Drilling costs increased by approximately $33.1 million, or 432%, to $40.7
million for the year ended December 31, 1997, as compared to $7.7 million for
the year ended December 31, 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 7,450 day increase in the days worked.

Depreciation and amortization expense increased by $6.8 million, or 605%,
to $7.9 million for the year ended December 31, 1997, as compared to $1.1
million for the year ended December 31, 1996. The increase was primarily due to
additional depreciation associated with the Consolidation Transactions.

General and administrative expense increased by $1.2 million, or 184%, to
$1.9 million for the year ended December 31, 1997, from $658,000 for the same
period of 1996 due primarily to increased payroll costs

23
<PAGE> 25

associated with new management and increased corporate staff and increased
professional fees due to the Company's acquisition activities.

Interest expense increased to $3.1 million for the year ended December 31,
1997 from $11,000 for the year ended 1996 due to increased debt outstanding
during 1997.

Other income increased for the year ended December 31, 1997 as compared to
the year ended December 31, 1996, primarily due to gains on the sale of assets.

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 89% 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 ended December 31,
1996 primarily as a result of the outstanding debt level remaining fairly
constant. Interest rates during these periods remained relatively unchanged.

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.

24
<PAGE> 26

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
year ended December 31, 1995 from $9.9 million for the year 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.

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.

25
<PAGE> 27

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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The Financial Statements of the Company required by this Item 8 are
included as part of Item 14(a)(1) hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

In preparation for the 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 ended 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 L.L.P. 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.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item 10 is set forth in the sections
entitled "Election of Directors" and "Certain Relationships and Related
Transactions -- Section 16 Reporting" in the Company's definitive proxy
statement for its 1998 Annual Meeting of Shareholders (the "Proxy Statement")
and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is set forth in the section
entitled "Executive Compensation" in the Proxy Statement, and is incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item 12 is set forth in the section
entitled "Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 is set forth in the section
entitled "Certain Relationships and Related Transactions" in the Proxy
Statement, and is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) FINANCIAL STATEMENTS:

26
<PAGE> 28

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF BAYARD DRILLING
TECHNOLOGIES, INC.
Report of Independent Accountants......................... F-2
Report of Independent Certified Public Accountants........ F-3
Balance Sheets as of December 31, 1996 and 1997........... F-4
Statements of Operations for the years ended December 31,
1995, 1996 and 1997.................................... F-5
Statements of Equity for the years ended December 31,
1995, 1996 and 1997.................................... F-6
Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................... F-7
Notes to Financial Statements............................. F-9
</TABLE>

F-1
<PAGE> 29

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders
Bayard Drilling Technologies, Inc.

We have audited the accompanying consolidated balance sheet of Bayard
Drilling Technologies, Inc., as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year ended December 31, 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 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 consolidated financial position of Bayard Drilling
Technologies, Inc., as of December 31, 1997, and the consolidated results of its
operations and its cash flows for the year ended December 31, 1997 in conformity
with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Oklahoma City, Oklahoma
February 19, 1998

F-2
<PAGE> 30

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 the related statements
of operations, equity (deficit), and cash flows for each of the two 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.

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 the results of its operations
and its cash flows for each of the two 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-3
<PAGE> 31

BAYARD DRILLING TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1996 1997
------- --------
<S> <C> <C>
Current Assets:
Cash...................................................... $ 4,963 $ 49,302
Restricted investments.................................... -- 880
Accounts receivable....................................... 286 19,491
Accounts receivable -- affiliate.......................... 798 --
Prepaid expenses and other current assets................. 1 538
------- --------
Total current assets.............................. 6,048 70,211
Property, plant and equipment, net.......................... 26,973 155,673
Goodwill, net of accumulated amortization of $375........... -- 12,704
Other assets................................................ 1,652 1,900
------- --------
Total assets...................................... $34,673 $240,488
======= ========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts payable.......................................... $ 409 $ 8,246
Accounts payable -- affiliate............................. 412 494
Accrued liabilities....................................... 253 5,067
Current portion of long-term debt......................... 947 7,450
------- --------
Total current liabilities......................... 2,021 21,257
------- --------
Deferred income tax liabilities............................. 348 13,554
------- --------
Other long term liabilities................................. -- 2,055
------- --------
Long-term debt, less current maturities..................... 6,053 23,069
------- --------
Subordinated notes, net of debt discount of $429............ -- 2,091
------- --------
Commitments and Contingencies -- Note G, H & K
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; shares issued and outstanding 5,600,000 at
December 31, 1996 and 18,183,945 at December 31,
1997................................................... 56 182
Additional paid-in capital (net of deferred compensation
of $258 at December 31, 1997).......................... 26,229 180,400
Retained earnings (accumulated deficit)................... (34) (2,120)
------- --------
Total equity...................................... 26,251 178,462
------- --------
Total liabilities and equity...................... $34,673 $240,488
======= ========
</TABLE>

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

F-4
<PAGE> 32

BAYARD DRILLING TECHNOLOGIES, INC.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Revenues:
Drilling.................................................. $5,491 $8,995 $39,165
Drilling -- affiliate..................................... 1,914 798 16,582
Other..................................................... 303 60 --
------ ------ -------
Total revenues.................................... 7,708 9,853 55,747
====== ====== =======
Costs and expenses:
Drilling.................................................. 6,075 7,653 40,705
General and administrative................................ 880 658 1,868
Depreciation and amortization............................. 791 1,126 7,943
Other..................................................... 47 46 --
------ ------ -------
Total costs and expenses.......................... 7,793 9,483 50,516
====== ====== =======
Operating income (loss)........................... (85) 370 5,231
====== ====== =======
Other income (expense):
Interest expense.......................................... (3) (11) (3,065)
Interest income........................................... -- -- 597
Gain (loss) on sale of assets............................. (131) 54 544
Other..................................................... (3) 17 37
------ ------ -------
Total other income (expense)...................... (137) 60 (1,887)
====== ====== =======
Earnings (loss) before income taxes......................... (222) 430 3,344
Income tax provision -- deferred............................ -- 17 1,428
------ ------ -------
Net income (loss) before extraordinary item................. (222) 413 1,916
Extraordinary loss.......................................... -- -- (4,002)
------ ------ -------
Net income (loss)........................................... $ (222) $ 413 $(2,086)
====== ====== =======
Earnings (loss) per share:
Basic:
Before extraordinary item.............................. $ .21
=======
Extraordinary item..................................... $ (.44)
=======
Net loss............................................... $ (.23)
=======
Diluted:
Before extraordinary item.............................. $ .17
=======
Extraordinary item..................................... $ (.35)
=======
Net loss............................................... $ (.18)
=======
Pro forma information:
Additional income tax expense............................. -- 146
====== ======
Pro forma net earnings (loss)............................. $ (222) $ 267
====== ======
Pro forma earnings (loss) per share, basic and diluted.... $ (.04) $ .05
====== ======
Weighted average common shares outstanding, basic........... 5,600 5,600 9,064
====== ====== =======
Weighted average common shares outstanding, diluted......... 5,600 5,749 11,500
====== ====== =======
</TABLE>

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

F-5
<PAGE> 33

BAYARD DRILLING TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
---------------------------------------------------------------------
PARTNERS ADDITIONAL RETAINED
CAPITAL COMMON PAID-IN DEFERRED EARNINGS
(DEFICIT) STOCK CAPITAL COMPENSATION (DEFICIT) TOTAL
--------- ------ ---------- ------------ --------- --------
<S> <C> <C> <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 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
======= ==== ======== ===== ======= ========
</TABLE>

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

F-6
<PAGE> 34

BAYARD DRILLING TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $ (222) $ 413 $ (2,086)
Adjustments to reconcile net earnings (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization.......................... 791 1,126 7,943
(Gain) loss on sale of assets.......................... 131 (54) (544)
Extraordinary loss..................................... -- -- 4,002
Compensation expense................................... -- -- 52
Deferred income taxes.................................. -- 17 1,428
Change in assets and liabilities, net of effects of
affiliate transactions:
Decrease (increase) in accounts receivable........... 242 (2,059) (18,407)
Increase in prepaid expenses......................... -- -- (537)
Decrease (increase) in other assets.................. (6) (185) 513
Increase (decrease) in accrued liabilities........... (237) 251 4,814
Increase (decrease) in accounts payable.............. (389) (383) 1,432
Increase (decrease) in payable to affiliate.......... -- 412 82
------- -------- --------
Net cash (used in) provided by operating
activities...................................... 310 (462) (1,308)
------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment..................... (2,088) (10,578) (60,924)
Acquisition of businesses................................. -- -- (26,056)
Proceeds from sale of assets.............................. 378 137 1,390
Purchase of investments................................... -- -- (880)
------- -------- --------
Net cash used in investing activities............. (1,710) (10,441) (86,470)
------- -------- --------
Cash flows from financing activities:
Payments made to affiliates............................... (8,828) (19,719) --
Advances received from affiliates......................... 10,228 18,791 --
Proceeds from borrowings.................................. -- 7,000 49,780
Net proceeds from issuance of stock....................... -- 10,000 107,109
Debt issuance costs....................................... -- (206) (761)
Payments on long-term debt................................ -- -- (24,011)
Payments under line of credit............................. -- -- (8,701)
Borrowings under line of credit........................... -- -- 8,701
------- -------- --------
Net cash provided by financing activities......... 1,400 15,866 132,117
------- -------- --------
Net change in cash.......................................... -- 4,963 44,339
Cash at beginning of period................................. -- -- 4,963
------- -------- --------
Cash at end of period....................................... $ -- $ 4,963 $ 49,302
======= ======== ========
Cash paid during the period for interest.................... $ -- $ -- $ 2,854
Cash paid during the period for income taxes................ $ -- $ -- $ --
======= ======== ========
</TABLE>

F-7
<PAGE> 35

BAYARD DRILLING TECHNOLOGIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

Supplemental noncash activity:

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 affiliate 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 $41,510 and through the issuance of trade
payables of $6,405. See -- Note "C" for further detail on such activity.

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

F-8
<PAGE> 36

BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 to major and
independent oil and gas companies in the Mid-Continent and Gulf Coast regions of
the United States.

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"), WD Equipment,
L.L.C. and Bonray Drilling Corporation. 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. At December 31, 1997,
the Company had cash and cash equivalents in or at four financial institutions,
where the balance exceeded federally insured limits, in total, by approximately
$48.9 million.

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, 1997, 1996 or 1995. At December 31, approximately 53% of the
Company's trade receivables and over 63% of total revenues were derived from the
Company's five largest customers in terms of total revenues.

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 method (which approximates straight line) over the estimated useful
lives from

F-9
<PAGE> 37
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

five to fifteen years. Other property and equipment are depreciated on the same
basis over estimated useful lives from three to ten years. Refurbishments and
upgrades of 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.

It is the Company's policy to capitalize interest on construction costs for
rig refurbishments during the period in which those costs are incurred. The
Company incurred interest costs of approximately $3.6 million during 1997 of
which approximately $565,000 was capitalized in property and equipment for rig
construction. No interest costs were capitalized in 1996 or 1995.

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 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. A reconciliation of the numerator and denominator used in the
calculation of earnings per share is as follows:

FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Income before extraordinary item.................. $1,916
------
Basic earnings per share.......................... 1,916 9,064 $.21
------ ----
Effect of dilutive securities:
Warrants and options............................ 2,436
------
Diluted earnings per share........................ $1,916 11,500 $.17
====== ====== ====
</TABLE>

Pro forma net earnings (loss) per share are presented to reflect the
provision for income taxes for periods Anadarko was a partnership.

Options to purchase 397,000 shares of common stock at $23 per share were
granted in November 1997 but were not included in the computation of diluted
earnings per share because the options' exercise price was greater than the
average market price of the common shares. The options, which expire on November
4, 2003, were still outstanding at December 31, 1997.

8. INCOME TAXES

Historical 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

F-10
<PAGE> 38
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Anadarko's taxable income or loss. The proforma income tax expense for 1996 was
calculated using an effective tax 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 than not that 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 and Bonray is being amortized
over fifteen years. Amortization expense of goodwill of $375,062 has been
recognized as of December 31, 1997.

Other assets consist of (i) organizational costs incurred for the
organization of Bayard and (ii) debt issuance costs incurred on the term loan.
Amortization expense for organization costs is recognized over five years and
debt issuance costs over the life of the loan, which approximates five years,
both on a straight-line basis. Amortization expense of $1.4 million and $63,000
has been recognized for the years ended December 31, 1997 and 1996,
respectively.

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 carrying
value 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 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.

The Company has significant estimates for workers compensation liability
due to the retention of $500,000 per occurrence. At December 31, 1997 and 1996
estimates for this retention were $1.7 million and $20,000, respectively.

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, 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. 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 year ended December 31, 1997, the Company recognized $0 and
approximately $310,000 of deferred compensation and $0 and approximately $52,000
of compensation expense, respectively resulting in net deferred compensation at
December 31, 1997 of $258,000. 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

F-11
<PAGE> 39
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

On October 16, 1997, the Company completed the acquisition of Bonray
("Bonray Acquisition"), subject to certain working capital adjustments, for
3,015,000 shares of common stock, which equates to $11.86 per share based on the
appraisals of the fair market value of the property and equipment acquired of
$34,976,000.

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

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Current assets.............................................. $ 4,020
Property and equipment...................................... 34,976
Goodwill.................................................... 6,750
Current liabilities......................................... (3,162)
Long-term liabilities....................................... (74)
Deferred income tax liability............................... (6,750)
-------
Purchase price.............................................. $35,760
=======
</TABLE>

F-12
<PAGE> 40
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is the unaudited pro forma results of operations as if Trend,
Ward and Bonray had been acquired January 1, 1996 and January 1, 1997,
respectively:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revenues.................................................... $47,952 $80,670
======= =======
Net income (loss)........................................... $(1,848) $ 256
======= =======
Net income (loss) per common share, basic................... $ (.33) $ .03
======= =======
Net income (loss) per common share, diluted................. $ (.32) $ .02
======= =======
</TABLE>

NOTE D -- PROPERTY AND EQUIPMENT

Major classes of property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31
----------------------------
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Drilling rigs and components........................... $21,152 $42,303 $173,674
Automobiles, trucks, and trailers...................... 1,546 431 2,041
Buildings and property................................. -- -- 461
Furniture, fixtures, and other......................... 69 7 532
------- ------- --------
22,767 42,741 176,708
Less accumulated depreciation.......................... 16,424 15,768 21,035
------- ------- --------
$ 6,343 $26,973 $155,673
======= ======= ========
</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 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 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 earnings for the year ended December 31, 1997 by
approximately $505,000, net of income taxes of $310,000, or $.04 per share, on a
diluted basis.

F-13
<PAGE> 41
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 1997,
the Company has net operating loss carry forwards of approximately $2 million,
of which $418,000 and $1,582,000 will expire in 2011 and 2012, respectively, if
unused.

Income tax expense for the years ended December 31, 1995, 1996 and 1997 is
summarized as follows:

<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current.................................................. $ -- $ -- $ --
Deferred................................................. -- 17 1,428
------ ------ ------
$ -- $ 17 $1,428
====== ====== ======
</TABLE>

Components of net deferred income tax liabilities are as follows:

<TABLE>
<CAPTION>
OCTOBER 28 DECEMBER 31 DECEMBER 31
----------- ------------ ------------
1996 1996 1997
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets (liabilities)
Operating loss carryforwards................. $ -- $ 167 $ 760
Property and equipment....................... 1,818 (515) (14,314)
Total valuation allowance.................... (1,818) -- --
------- ----- --------
Net deferred tax liabilities.............. $ -- $(348) $(13,554)
======= ===== ========
</TABLE>

The Company's actual income tax expense, before extraordinary item,
differed from the federal statutory expense (based on a federal statutory rate
of 34%) for the years ended December 31, as follows:

<TABLE>
<CAPTION>
1995 1996 1997
---- ----- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax expense (benefit) at federal statutory rate..... $(75) $ 146 $1,069
State income taxes......................................... -- -- 201
Amortization of goodwill................................... -- -- 142
Other items................................................ -- 16
Exclusion of partnership income taxes...................... 75 (129) --
---- ----- ------
$ -- $ 17 $1,428
==== ===== ======
</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. 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. In 1997 the Company acquired assets with
deferred tax liabilities of approximately $13,080,000, which eliminated the
Company's tax asset valuation.

F-14
<PAGE> 42
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
bore 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 required monthly
payments of principal and interest in amounts sufficient to repay borrowings at
maturity on March 31, 2002. The Loan Agreements permitted borrowings to a
maximum of $20 million under the Term Loan if defined collateral provisions are
met. The loan was collateralized by drilling equipment. The Loan Agreements also
permitted 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.

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 impose certain limitations on capital expenditures and the
incurrence of additional debt.

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
revolving credit loans of up to $10 million ($2 million of which is available
for the issuance of letters of credit) for general corporate purposes. Amounts
outstanding under the Revolving Loan (none at December 31, 1997) bear interest
based on Fleet National Bank's prime rate plus 1.5% (approximately 10% at
December 31) and mature in April 2000. Amounts outstanding under the Term Loan
of approximately $27.1 million at December 31, 1997, bear 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% (approximately 10% at December 31) 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. As a result of the debt discount on Energy Spectrum's
Subordinated Notes, the effective interest rate approximates 14%. 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

F-15
<PAGE> 43
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. At
December 31, 1997 the amount of Subordinated Notes outstanding was approximately
$2.5 million as the $18 million Subordinated Note to Chesapeake was extinguished
in November 1997 with proceeds from the Initial Public Offering. See Note "J"
for further discussion on the discount that was recorded related to this
subordinate debt.

The Company also has three notes totaling approximately $3.4 million at
December 31, 1997, with a capital financing corporation. The debt bears interest
at December 31, 1997 of 9.5% and is collateralized by certain equipment (top
drives) of the Company. The debt matures in July, October and November of 2000.
The note agreement does not specify any restrictive financial covenants that
must be met but contains a cross default provision that states any default on
the Company's Term or Revolving Notes constitutes a default on this note as
well.

The Company recorded an extraordinary loss of $4.0 million (net of income
tax effect of $1.3 million) in the fourth quarter relating to the early
extinguishment of certain subordinate debt in the amount of approximately $2.1
million and other payments in the amount of approximately $3.2 million by
utilizing proceeds from the Company's Initial Public Offering completed in
November 1997.

At December 31, 1997, the aggregate yearly maturities of long-term
obligations are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31
-----------
<S> <C>
1998...................................................... $ 7,450,000
1999...................................................... 7,647,000
2000...................................................... 7,331,000
2001...................................................... 6,385,000
2002...................................................... 1,706,000
Thereafter................................................ 2,520,000
-----------
$33,039,000
===========
</TABLE>

NOTE H -- RELATED PARTY TRANSACTIONS

Before the corporate capitalization, Anson Gas Corporation, a wholly owned
affiliate of APLP, 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 and $390,000 for such
services received in 1996 and 1995, 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

In December 1996, Anadarko granted the Company a transferable 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,

F-16
<PAGE> 44
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

including the evaluation and negotiation of the Trend Acquisition and for
assistance in the arrangement of alternative financing sources and structuring,
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 purchased drilling equipment and supplies from an affiliate
totaling $2,862,000, and $779,000 in 1996 and 1995, 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. The Company has in the past purchased rigs and related
equipment from U.S. Rig & Equipment, Inc., an affiliate of Roy T. Oliver, who
served as a director of the Company until his resignation on August 13, 1997.
During 1997, the Company purchased approximately $5.0 million from U.S. Rig &
Equipment, Inc. Additionally, in August 1997, the Company sold one of its rigs
to an affiliate of Mr. Oliver for $500,000. 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 closed the transaction in January 1998.

The Company has engaged affiliates of APLP and other related affiliates for
trucking services related to the movement of the Company's rigs on numerous
occasions. During 1997, the Company utilized these affiliates in consideration
for such trucking services of approximately $1.7 million.

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 has
reimbursed APLP approximately $236,000 as of December 31, 1997.

Interest expense incurred during 1997 included approximately $680,000 to
current or former affiliates.

NOTE I -- SIGNIFICANT CUSTOMERS

During the year ended December 31, 1997, approximately 30% of revenues were
generated from current or former affiliated customers. Except for six rigs under
long term contracts with Chesapeake, dayrates billed to affiliated customers
approximated those billed to nonaffiliated customers. 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.

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 ($9.5 million) and
the net deferred income tax liability assumed. 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. At December 31, 1997, the deferred
charge was fully amortized, and the Company and Chesapeake were unable to agree
on an appropriate rate
F-17
<PAGE> 45
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

adjustment related to these drilling agreements, therefore the Company exercised
its option to terminate the Chesapeake Drilling Agreements

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".

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 an 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. The remaining discount to be
amortized at December 31, 1997 is approximately $429,000. The amortization of
this discount has been included in interest expense.

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 and
executive officers to purchase 397,000 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.

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.

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 August 22, 1997 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.

F-18
<PAGE> 46
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE K -- COMMITMENTS AND CONTINGENCIES

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 December 31, 1997, benefits under such
agreements, assuming a change of control, would aggregate approximately
$416,000.

As of December 31, 1997, the Company had construction commitments totaling
approximately $14.5 million for 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 30 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 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. The Company has committed to purchases of
approximately $7.4 million for drill pipe and has approximately $9.0 million of
drill pipe ordered which is subject to cancellation without penalty 90 days
prior to the scheduled delivery date.

NOTE L -- SUBSEQUENT EVENTS

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 and 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, was
filed on February 3, 1998 in the United States District Court for the Western
District of Oklahoma.

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.

F-19
<PAGE> 47
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

Since the Consolidation Transactions and the Initial Public Offering of
11,040,000 shares of Common Stock, par value $0.01 per share of the Company,
which was completed in November 1997, and prior to December 31, 1997, the
Company agreed to purchase six additional rigs from R. T. Oliver for
approximately $14 million in cash. The Oliver Acquisition was completed on
January 9, 1998. The Company expects to refurbish and purchase complementary
equipment, including drill pipe, for these rigs at an aggregate cost of
approximately $28 million.

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 $116,000 through December 31, 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 December 31, 1997 was based on the Company's estimate of
the fair market value on the date of the grant. Through December 31, 1997,
756,600 options and 100,000 shares of restricted stock (denoted below) were
issued under the Plan, 40,000 of which were exercisable at December 31, 1997, at
a weighted average exercise price of $5.

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................................................... 656,600 $16.16
Exercised................................................. -- --
-------
December 31, 1997......................................... 856,600 $13.55
-------
</TABLE>

F-20
<PAGE> 48
BAYARD DRILLING TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
FAIR MARKET
VALUE OF
WEIGHTED AVERAGE WEIGHTED AVERAGE COMMON STOCK DEFERRED
EXERCISE NUMBER OF REMAINING WEIGHTED AVERAGE FAIR VALUE ON AT DATE OF COMPENSATION
PRICE SHARES CONTRACTUAL LIFE EXERCISE PRICE DATE OF GRANT GRANT COST
- -------- --------- ---------------- ---------------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
$ 2.50 100,000(1) -- $ 2.50 $ 5.00 $ 5.00 $205,000
5.00 250,000 4.95 5.00 2.09 5.00 --
8.00 59,600 5.46 8.00 4.18 9.00 53,000
10.00 50,000 5.54 10.00 3.59 9.00 --
23.00 397,000 5.84 23.00 10.12 23.00 --
</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
----------------------
1996 1997
------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net income (loss):
As reported............................................... $267 $(2,086)
Pro forma (net of effective tax of 38%)................... 261 (2,677)
Earnings per share, basic and fully diluted:
As reported, basic........................................ .05 (.23)
Pro forma, basic.......................................... .05 (.30)
As reported, diluted...................................... .05 (.18)
Pro forma, diluted........................................ .05 (.23)
</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 has not established a significant trading history, the volatility used
in the model was .40 for options granted through June 30, 1997 and .43 for
options granted since July 1, 1997 based on volatility of the stock price of a
similar entity that has been publicly traded for several years. 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 approximately $4.6 million and
$416,000, respectively.

F-21
<PAGE> 49

(a)(2) FINANCIAL STATEMENT SCHEDULES

None.

(a)(3) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
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 dated November 4, 1997,
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 dated
November 4, 1997, Registration No. 333-34451).
9.1 -- Second Amended and Restated Stockholders and Voting
Agreement, dated as of October 16, 1997, by and among the
Company and the several stockholders that are signatories
thereto (incorporated by reference to Exhibit 9.1 to the
Company's Registration Statement on Form S-1 dated November
4, 1997, Registration No. 333-34451).
9.2 -- First Amendment to Second Amended and Restated Stockholders
and Voting Agreement, dated as of November 3, 1997, by and
among the Company and the several stockholders that are
signatories hereto (incorporated by reference to Exhibit 9.2
to the Company's Registration Statement on Form S-1 dated
December 31, 1997, Registration No. 333-43535).
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 dated November 4, 1997,
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 dated November 4, 1997, 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 dated November 4, 1997, 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 dated November 4, 1997, 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 dated November
4, 1997, 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 dated
November 4, 1997, 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 dated November 4, 1997, 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 dated November
4, 1997, Registration No. 333-34451).
</TABLE>

27
<PAGE> 50

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
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 dated November 4, 1997, Registration
No. 333-34451).
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 dated November
4, 1997, 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
dated November 4, 1997, 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
dated November 4, 1997, 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 10.9 to
the Company's Registration Statement on Form S-1 dated
November 4, 1997, 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 dated November 4, 1997, 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 dated November 4, 1997, 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 dated November 4, 1997,
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 dated November 4, 1997, 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 dated November 4, 1997, 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 dated November 4, 1997,
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 dated November 4, 1997,
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 dated November 4, 1997,
Registration No. 333-34451).
</TABLE>

28
<PAGE> 51

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
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 dated November
4, 1997, Registration No. 333-34451).**
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 dated November 4, 1997,
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 dated November 4, 1997, 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 dated November
4, 1997, 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 dated November 4, 1997,
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).
16.1 -- Letter re: Change in Certifying Accountant.*
21.1 -- Subsidiaries of the Company (incorporated by reference to
Exhibit 21.1 to the Company's Registration Statement on Form
S-1 dated November 4, 1997, Registration No. 333-34451).
24.1 -- Powers of Attorney (included in the signature page hereof).
27 -- Financial Data Schedule.*
</TABLE>

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

* Filed herewith.

** Management contract or compensatory plan arrangement.

(b) REPORTS OF FORM 8-K

None.

29
<PAGE> 52

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oklahoma City, State of
Oklahoma, on March 31, 1998.

BAYARD DRILLING TECHNOLOGIES, INC.

By: /s/ JAMES E. BROWN
------------------------------------
James E. Brown
Chairman of the Board, President and
Chief
Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors and
officers of Bayard Drilling Technologies, Inc., a Delaware corporation, which is
filing an Annual Report on Form 10-K (the "Form 10-K") with the Securities and
Exchange Commission under the provisions of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), hereby constitutes and appoints James E. Brown
and David E. Grose, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, and in any and all capacities, to sign and file any and
all amendments to this Form 10-K, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, it being
understood that said attorneys-in-fact and agents, and each of them, shall have
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person and that each of the
undersigned hereby ratifies and confirms all that said attorneys-in-fact as
agents or any of them, or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Exchange Act, this Report has been
signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ JAMES E. BROWN Chairman of the Board, March 31, 1998
- ----------------------------------------------------- President and Chief Executive
James E. Brown Officer (Principal Executive
Officer)

/s/ DAVID E. GROSE Vice President and Chief March 31, 1998
- ----------------------------------------------------- Financial Officer (Principal
David E. Grose Financial and Accounting
Officer)

/s/ CARL B. ANDERSON, III Director March 31, 1998
- -----------------------------------------------------
Carl B. Anderson, III

/s/ MARK LIDDELL Director March 31, 1998
- -----------------------------------------------------
Mark Liddell

/s/ MERRILL A. MILLER, JR. Director March 31, 1998
- -----------------------------------------------------
Merrill A. Miller, Jr.

/s/ SIDNEY L. TASSIN Director March 31, 1998
- -----------------------------------------------------
Sidney L. Tassin

/s/ LEW O. WARD Director March 31, 1998
- -----------------------------------------------------
Lew O. Ward
</TABLE>
<PAGE> 53

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 dated
November 4, 1997, 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 dated
November 4, 1997, Registration No. 333-34451).
9.1 -- Second Amended and Restated Stockholders and Voting
Agreement, dated as of October 16, 1997, by and among the
Company and the several stockholders that are signatories
thereto (incorporated by reference to Exhibit 9.1 to the
Company's Registration Statement on Form S-1 dated
November 4, 1997, Registration No. 333-34451).
9.2 -- First Amendment to Second Amended and Restated
Stockholders and Voting Agreement, dated as of November
3, 1997, by and among the Company and the several
stockholders that are signatories hereto (incorporated by
reference to Exhibit 9.2 to the Company's Registration
Statement on Form S-1 dated December 31, 1997,
Registration No. 333-43535).
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 dated
November 4, 1997, 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 dated November 4, 1997,
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 dated November 4, 1997, 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 dated November 4, 1997, 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 dated
November 4, 1997, 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 dated November 4, 1997, 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 dated November 4, 1997,
Registration No. 333-34451).
</TABLE>
<PAGE> 54

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 dated
November 4, 1997, 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 dated November 4, 1997,
Registration No. 333-34451).
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
dated November 4, 1997, 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 dated November 4, 1997, 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 dated November 4, 1997, 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
10.9 to the Company's Registration Statement on Form S-1
dated November 4, 1997, 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 dated
November 4, 1997, 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 dated November 4,
1997, 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 dated
November 4, 1997, 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 dated November 4, 1997,
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 dated November 4, 1997,
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 dated
November 4, 1997, Registration No. 333-34451).
</TABLE>
<PAGE> 55

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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 dated
November 4, 1997, 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 dated
November 4, 1997, 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 dated
November 4, 1997, Registration No. 333-34451).
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 dated
November 4, 1997, 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 dated
November 4, 1997, 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
dated November 4, 1997, 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
dated November 4, 1997, 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).
16.1 -- Letter re: Change in Certifying Accountant.*
21.1 -- Subsidiaries of the Company (incorporated by reference to
Exhibit 21.1 to the Company's Registration Statement on
Form S-1 dated November 4, 1997, Registration No.
333-34451).
24.1 -- Powers of Attorney (included in the signature page
hereof).
27 -- Financial Data Schedule.*
</TABLE>

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

* Filed herewith.

<PAGE> 1
EXHIBIT 16.1

March 27, 1998

Mr. David E. Grose
VP-Finance and Chief Financial Officer
Bayard Drilling Technologies, Inc.
4005 Northwest Expressway, Suite 550E
Oklahoma City, Oklahoma 73116

Dear Mr. Grose:

We have read the information in Item 9, "CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE", contained in the Company's
Form 10-K for the year ended December 31, 1997 and agree with the statements
contained therein.

Very truly yours,

/s/ GRANT THORNTON LLP

GRANT THORNTON LLP

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 50,182
<SECURITIES> 0
<RECEIVABLES> 19,491
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 70,211
<PP&E> 176,708
<DEPRECIATION> 21,035
<TOTAL-ASSETS> 240,488
<CURRENT-LIABILITIES> 21,257
<BONDS> 25,160
0
0
<COMMON> 182
<OTHER-SE> 178,280
<TOTAL-LIABILITY-AND-EQUITY> 240,488
<SALES> 55,747
<TOTAL-REVENUES> 55,747
<CGS> 50,516
<TOTAL-COSTS> 50,516
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,065
<INCOME-PRETAX> 3,344
<INCOME-TAX> 1,428
<INCOME-CONTINUING> 1,916
<DISCONTINUED> 0
<EXTRAORDINARY> (4,002)
<CHANGES> 0
<NET-INCOME> (2,086)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.18)

</TABLE>