TMBR SHARP DRILLING INC, 424B3, 1997-06-17

TMBR SHARP DRILLING INC
424B3, 1997-06-17
DRILLING OIL & GAS WELLS

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<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration No. 333-23391

PROSPECTUS

725,000 Shares

TMBR/SHARP DRILLING, INC.

Common Stock
($.10 Par Value)

This prospectus ("Prospectus") relates to the offering and sale from time
to time by certain persons named in this Prospectus (the "Selling
Stockholders") of 725,000 shares of Common Stock, $.10 par value per share (the
"Common Stock"), of TMBR/Sharp Drilling, Inc. (the "Company"). The Company will
not receive any proceeds from the sale of the Common Stock.

The Selling Stockholders may offer and sell from time to time all or any
part of their respective shares of Common Stock through agents, dealers,
underwriters or market makers or directly to prospective purchasers. Such
shares will be offered at the market price or at prices that may be negotiated
by the Selling Stockholders at the time of sale. See "Plan of Distribution".

The Company's Common Stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol "TBDI". As of May 19, 1997, the last
reported sales price of the Common Stock as reported on the Nasdaq National
Market was $9.25.

The aggregate proceeds to the Selling Stockholders from the sale of the
Common Stock will be the purchase price of the Common Stock less the aggregate
brokerage commissions or underwriting discounts, if any. The Company has
agreed, pursuant to a Stock Purchase Agreement dated as of February 13, 1997
between the Company and the Selling Stockholders, to use its best efforts to
register the shares of Common Stock offered hereby and to pay all expenses
incident to the registration of the Common Stock, except for brokerage and
underwriting discounts and commissions associated with the sale of the Common
Stock, the fees and expenses of any attorneys and accountants employed by the
Selling Stockholders and any other costs directly incurred by the Selling
Stockholders in connection with the offering of the Common Stock, all of which
will be paid by the Selling Stockholders. The fees and expenses payable by the
Company in connection with the registration of the Common Stock are estimated
to be approximately $14,000.00. The Company intends to keep the registration
statement, of which this Prospectus is a part, effective for a period of
twenty-four months or, if earlier, until all of the shares of Common Stock
offered hereby have been sold.

----------

PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CAREFULLY
CONSIDER THE MATTERS SET FORTH UNDER "RISK FACTORS" HEREIN.

-----------

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

-----------

The date of this Prospectus is June 13, 1997

<PAGE> 2

NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE HEREIN MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information ......................................................... 3
Incorporation of Certain Documents by Reference ............................... 4
Summary ....................................................................... 5
Risk Factors .................................................................. 11
Capitalization ................................................................ 16
Price Range of Common Stock ................................................... 17
Dividends....................................................................... 17
Selected Financial Data ....................................................... 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations .................................................... 19
Business and Properties ....................................................... 25
Management .................................................................... 39
Compensation of Executives and Related Matters ............................... 40
Principal Stockholders ....................................................... 46
Description of Capital Stock .................................................. 48
Selling Stockholders .......................................................... 49
Plan of Distribution............................................................ 50
Legal Matters .................................................................. 50
Experts ...................................................................... 50
Certain Definitions............................................................. 51
</TABLE>

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<PAGE> 3

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Regional Offices of the Commission located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade Center,
Suite 1300, New York, New York 10048. In addition, copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.

The Company has filed with the Commission a registration statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby (including all exhibits, amendments
or supplements thereto, the "Registration Statement"). This Prospectus, which
forms a part of the Registration Statement, does not contain all the
information set forth in the Registration Statement, certain parts of which
have been omitted in accordance with the rules and regulations of the
Commission. Statements contained in this Prospectus as to the contents of any
contract or other document referred to herein or therein are not necessarily
complete and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement contained herein is
qualified in its entirety by such reference.

The Registration Statement has been filed with the Commission by
electronic transmission through the Commission's Electronic Data Gathering,
Analysis and Retrieval system, commonly known as "Edgar". The Registration
Statement, as well as other reports and information filed electronically by the
Company with the Commission, is publicly available through the Commission's
Wordwide Web site on the Internet at http://www.sec.gov.

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<PAGE> 4

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents filed by the Company with the Commission (File No.
0-12757) pursuant to the Exchange Act are incorporated herein by reference:

(1) The Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996;

(2) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996;

(3) The Company's Proxy Statement, dated July 29, 1996, in connection
with the Annual Meeting of Stockholders of the Company held on August
29, 1996;

(4) The Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996;

(5) The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996;

(6) The Company's Report on Form 10-C, dated February 14, 1997; and

(7) The Company's Report on Form 10-K/A, Amendment No. 1, dated May 1,
1997, and filed with the Commission on May 1, 1997, amending the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1996;

(8) The Company's Report on Form 10-Q/A, Amendment No. 1, dated May 1,
1997, and filed with the Commission on May 1, 1997, amending the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1996;

(9) The Company's Report on Form 10-K/A, Amendment No. 2, dated May 23,
1997 and filed with the Commission on May 27, 1997, amending the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1996; and

(10) All other documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Common
Stock.

Any statement contained herein or in a document or information
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of the Registration Statement and
this Prospectus to the extent that a statement contained in the Registration
Statement or this Prospectus or in any subsequently filed document which also
is, or is deemed to be, incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.

The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request by such person, a copy of
any and all of the information that is incorporated by reference in this
Prospectus (not including exhibits to the information that is incorporated by
reference unless such exhibits are specifically incorporated by reference into
the information that this Prospectus incorporates). These documents are
available upon request directed to Patricia R. Elledge, Assistant Secretary,
TMBR/Sharp Drilling, Inc., 4607 West Industrial, Midland, Texas 79703;
telephone number (915) 699-5050.

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<PAGE> 5

SUMMARY

The following summary is qualified in its entirety by the more detailed
information appearing elsewhere herein and the Company's financial statements
and the notes thereto incorporated by reference in this Prospectus. See
"Certain Definitions" for definitions of certain oil and gas terms used in this
Prospectus. An investment in the Common Stock offered hereby involves a high
degree of risk. Investors should carefully consider the information set forth
in "Risk Factors".

THE COMPANY

TMBR/Sharp Drilling, Inc. (the "Company") is engaged in two lines of
business, which include the domestic onshore contract drilling of oil and gas
wells and the exploration for, development, production and sale of oil and gas.
For the year ended March 31, 1996, revenues attributable to the Company's
contract drilling operations were approximately $21.2 million, or 92.7% of
total revenues, while revenues from the Company's oil and gas exploration and
production activities were approximately $1.68 million, or 7.3% of total
revenues. Although revenues from exploration and production activities have
increased each year since 1991, the Company remains primarily a contract
drilling company. In connection with its contract drilling services, the
Company provides the crews and most of the ancillary equipment used in the
operation of its drilling rigs. The Company is currently experiencing an
increase in demand for its contract drilling services. Rig utilization for the
three months ended December 31, 1996 was 58% compared to 44% for the three
months ended September 30, 1996. The Company is also experiencing increases in
the rates it charges for its contract drilling services. The average price
received by the Company for daywork and footage contracts during the nine-month
period ended December 31, 1996 has increased by approximately 8% and 10%,
respectively, when compared to the average price the Company received during
the fiscal year ended March 31, 1996.

Through its predecessor, Tom Brown, Inc., the Company has been engaged in
contract drilling operations since 1955 and became an independent entity as a
result of a spin-off from Tom Brown, Inc. in 1984. As of May 21, 1997, the
Company owned 15 drilling rigs, 12 of which were operating for non-affiliated
oil producers, one of which was operating on behalf of the Company for its own
account and two of which were inactive or "stacked". All of the Company's rigs
are operational and actively marketed in the Permian Basin of west Texas and
eastern New Mexico.

The Company believes it has established a reputation for reliability, high
quality equipment and well-trained crews. The Company continually seeks to
modify and upgrade its equipment to maximize the performance and capabilities
of its drilling rig fleet, which the Company believes provides it with a
competitive advantage. The Company has the capability to design, repair and
modify its drilling rig fleet from its principal support and storage facilities
in Midland, Texas, and an additional storage yard in Odessa, Texas.

The Company's oil and gas activities complement its onshore drilling
operations. These activities are focused in the mature producing regions in the
Permian Basin. Oil and gas operations comprised approximately 11% of the
Company's revenues for the nine months ended December 31, 1996. When used in
this Prospectus, the term "oil and gas operations" refers to the Company's
activities associated with the exploration for, development and production of
oil and gas, and the revenues derived from such activities. As of March 31,
1996, the Company's proved reserves, all of which were proved developed
producing, were 838 MBOE and had a present value of future net revenues of
approximately $4.9 million. Since March 31, 1992, the Company has increased its
proved reserve base at a compound annual growth rate of approximately 50%.

The Company was incorporated under the laws of Texas in October, 1982
under the name TMBR Drilling, Inc. In August, 1986, the Company changed its
name to TMBR/Sharp Drilling, Inc.

The executive offices of the Company are located at 4607 W. Industrial
Avenue, Midland, Texas, 79703 and its telephone number at that address is (915)
699-5050.

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<PAGE> 6

INDUSTRY CONDITIONS

From 1982 until mid-1996, the U.S. onshore drilling industry has been
characterized by an over-supply of drilling equipment as demand for drilling
services decreased. During the past 14 years, the available onshore drilling
rig fleet declined from approximately 5,139 drilling rigs in 1982 to
approximately 1,425 drilling rigs in 1996. Industry profitability suffered, and
in many cases, insufficient cash flow was generated to support proper drilling
rig maintenance. To maintain operation of drilling equipment in that
environment, drilling contractors cannibalized parts and components from less
desirable drilling rigs. The available domestic drilling fleet has been further
reduced through the mobilization of drilling equipment to international
markets.

During the last two years, however, demand for domestic onshore drilling
services has increased as a result of stronger oil and gas prices and
technological advances that have reduced exploration, development and
production costs. Accordingly, the Baker Hughes rig count for New Mexico and
the Permian Basin of west Texas has increased to 128 at December 31, 1996,
compared to 122 and 108 at December 31, 1995 and 1994, respectively.

BUSINESS STRATEGY

The Company's strategy is to increase cash flow and profitability by
utilizing the factors set forth below. As a result of its quality asset base,
strong reputation and customer relationships and experienced and dedicated
management and employees, the Company believes it receives premium rates for
its contract drilling services. The Company's oil and gas operations can
provide the opportunity for additional growth through its exposure to high
potential oil and gas drilling projects.

MAINTAIN QUALITY ASSET BASE. The Company's drilling rigs are maintained in good
operating condition. The Company believes that the quality and operating
condition of its drilling equipment allows it to maximize its utilization rates
and pricing. The drilling depth capability of the Company's fleet ranges from
8,500 to 30,000 feet with an average drilling depth capability of approximately
14,000 feet. For the fiscal quarter ended December 31, 1996, the Company's
average well depth drilled was approximately 9,500 feet.

CAPITALIZE ON STRONG INDUSTRY REPUTATION. The Company, individually or through
its predecessor, has focused its operations in the Permian Basin for over 40
years. The Company believes that it has a strong reputation within such region
for providing well maintained equipment, quality service and experienced
personnel.

CONTINUE TO BUILD STRONG CUSTOMER RELATIONSHIPS. The Company seeks to maximize
customer satisfaction by maintaining high quality standards and continually
evaluating and seeking to improve its performance.

ATTRACT AND RETAIN EXPERIENCED AND DEDICATED MANAGEMENT AND EMPLOYEES. The
Company believes that it offers its employees attractive compensation, benefits
and incentive programs that are competitive in its industry. The Company
believes that its compensation and training policies enhance its ability to
maintain a stable, productive workforce, which is essential to the efficient
operation and successful expansion of its business.

PURSUE COMPLEMENTARY OIL AND GAS OPERATIONS. The Company believes that its oil
and gas operations provide it with the additional financial flexibility to
generate cash flow during downturns in the drilling market. The Company's
ability to participate in the ownership of interests in oil and gas wells also
generates opportunities to serve as the drilling contractor for other operators
or on its own behalf.

RISK FACTORS

The Company operates in an industry characterized by many significant
risks. In addition to the risks that are associated with the oil and gas
industry generally, the Company also encounters certain other specific risks
that may

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<PAGE> 7

adversely affect the Company's financial condition and results of operations. A
summary of these risk factors is set forth below. For a more complete
discussion of the considerations relevant to an investment in the Common Stock
offered hereby, see "Risk Factors".

LOSS OF KEY PERSONNEL. The Company's business could be materially and
adversely affected if Thomas C. Brown, the Chairman of the Board of Directors
and Chief Executive Officer of the Company, or Joe G. Roper, the President of
the Company, become unavailable.

VOLATILITY OF OIL AND GAS PRICES. The Company's profitability is directly
affected by oil and gas prices. Any significant or extended decline in oil
and/or gas prices will have a material adverse effect on the Company.

MARKET CONDITIONS FOR CONTRACT DRILLING SERVICES. Future declines in
demand for the Company's contract drilling services would have a material
adverse effect on the Company's financial condition and results of operations.

SHORTAGE OF DRILL PIPE IN THE CONTRACT DRILLING INDUSTRY. A shortage of
drill pipe has caused the price of drill pipe to increase significantly and has
resulted in delivery delays for new drill pipe. In the event of an extended
shortage, the Company may be unable to obtain the drill pipe required for its
contract drilling operations which would have a material adverse effect on the
Company's financial condition and results of operations.

SHORTAGE OF QUALIFIED AND EXPERIENCED LABOR. The contract drilling
industry is experiencing a shortage of qualified drilling rig personnel. As a
result, the Company's ability to expand its operations has been, and may
continue to be, restricted.

CAPITAL REQUIREMENTS AND LIQUIDITY. The oil and gas industry is capital
intensive. There can be no assurance that the Company's cash flow from
operations or borrowing capacity will be sufficient to fund capital
expenditures and working capital requirements, nor is there any assurance that
other sources of financing arrangements will be available to the Company.

REPLACEMENT OF OIL AND GAS RESERVES. The Company's oil and gas reserves
are depleted as oil and gas is produced. Unless the Company is able to find,
develop or acquire additional oil and gas reserves, the proved reserves of the
Company will decline. No assurance can be given that the Company will be able
to replace oil and gas that has been produced.

CONCENTRATION OF CUSTOMERS. Three customers accounted for approximately
49% of the Company's total revenues during the fiscal year ended March 31,
1996. The loss of any one of these customers could have a material adverse
effect on the Company's financial condition and results of operations.

RISK OF OIL AND GAS EXPLORATION, DEVELOPMENT AND PRODUCTION. Exploring for
oil and gas often results in unprofitable efforts. In addition, many factors
beyond the Company's control may adversely affect the Company's oil and gas
exploration, development and production operations. These factors include low
oil and gas prices, oil and gas property title problems, inclement weather and
general economic conditions.

IMPRECISE NATURE OF RESERVE ESTIMATES. Estimating accumulations of oil and
gas reserves is a subjective process based upon a number of variable factors
and assumptions, such as the assumed effects of regulations of governmental
authorities, future oil and gas prices and future operating, development,
workover and remedial costs. Accordingly, actual quantities of oil and gas that
are ultimately recovered, production and operating costs, the amount and timing
of future development expenditures and future oil and gas sales prices may all
vary from those assumed in these estimates, and such variances may be material.

SHARES ELIGIBLE FOR FUTURE SALE. As of May 21, 1997, the Company had
outstanding 4,477,386 shares of Common Stock, of which 725,000 shares are
eligible for resale in the public market pursuant to this Prospectus.
Additionally, and at the same date, 861,413 shares of Common Stock were held by
directors and officers of the Company, and stock options to purchase 890,500
shares were held by directors, officers and employees of the Company.

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<PAGE> 8

Sales of substantial amounts of the Common Stock of the Company in the public
market could adversely affect the market price for the Common Stock.

ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION MATTERS. The Company's
operations are affected by numerous federal and state laws and regulations,
including state and federal taxes, regulations pertaining to the manner in
which oil and gas operations must be conducted, permit requirements and laws
and regulations relating to the protection of the environment. The trend toward
more strict compliance standards with environmental laws and regulations could
cause the Company to incur substantial costs to comply with such requirements.
In addition, the imposition of any liabilities on the Company for failure to
comply with any such laws and regulations, including environmental laws, could
have a material adverse effect on the Company's financial condition and results
of operations.

OPERATING RISKS AND INSURANCE. Contract drilling and oil and gas
exploration and production activities are subject to numerous risks and hazards
which could cause serious injury or death to persons or damage to property of
others. The Company is insured against some, but not all, of these risks and
hazards. Accordingly, if the Company sustained an uninsured loss or liability,
its ability to operate may be materially adversely affected.

COMPETITION. The Company encounters intense competition from other
drilling contractors, major oil companies, independent oil and gas companies
and individual operators. Many of the Company's competitors have substantially
greater financial and other resources than the Company.

RECENT LOSS; WRITEDOWNS. For the year ended March 31, 1996, the Company
incurred a loss of approximately $952,000, primarily due to a non-cash charge
of approximately $2.6 million resulting from the writedown of the carrying
value of certain of the Company's oil and gas properties. There can be no
assurance that the Company will not incur additional writedowns in the value of
its oil and gas properties in the future.

EFFECT OF CHANGE IN BENEFICIAL OWNERSHIP ON NET OPERATING LOSS
CARRYFORWARD. The Company had a net operating loss ("NOL") carryforward
approximating $71.4 million for tax purposes at March 31, 1996. The Internal
Revenue Code of 1986, as amended, limits the utilization of NOL carryforwards
upon the occurrence of certain changes in ownership of the Company's Common
Stock. Transfers of Common Stock over which the Company may have no control, or
subsequent issuances by the Company of Common Stock, could result in an
ownership change which would limit the use of the Company's NOL carryforward.

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<PAGE> 9

SUMMARY HISTORICAL AND PRO FORMA COMBINED FINANCIAL INFORMATION
AND OTHER OPERATING DATA

The following table sets forth summary financial and operating data as of
the dates and for the periods indicated. The following data should be read in
conjunction with " Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Company's
financial statements and notes thereto incorporated by reference herein.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-----------------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Operating revenues:
Contract drilling $ 12,203 $ 17,996 $ 18,359 $ 18,357 $ 21,298
Oil and gas 487 557 621 1,042 1,683
----------- ----------- ----------- ----------- -----------
Total operating revenues 12,690 18,553 18,980 19,399 22,981
----------- ----------- ----------- ----------- -----------

Operating costs and expenses:
Contract drilling 13,154 15,570 14,989 14,630 17,252
Oil and gas production 349 221 318 350 554
Dry holes and abandonments 263 236 656 629 945
Depreciation, depletion and amortization 1,390 702 746 876 907
General and administrative 1,432 1,401 1,339 1,553 1,599
Writedown of oil and gas properties 938 -- -- -- 2,624(1)
----------- ----------- ----------- ----------- -----------
Total operating costs and expenses 17,526 18,130 18,048 18,038 23,881
----------- ----------- ----------- ----------- -----------
Operating income (loss) (4,836) 423 932 1,361 (900)
----------- ----------- ----------- ----------- -----------

Other income (expenses):
Interest (927) (424) (89) (154) (139)
Other 3,256 5,118 258 359 117
----------- ----------- ----------- ----------- -----------
Total other income (expense) 2,329 4,694 169 205 (22)
----------- ----------- ----------- ----------- -----------

Net income (loss) before income tax provision (2,507) 5,117 1,101 1,566 (922)
Provision for income taxes -- (149) (62) (30) (30)
----------- ----------- ----------- ----------- -----------
Net income (loss) before extraordinary items $ (2,507) $ 4,968 $ 1,039 $ 1,536 $ (952)
=========== =========== =========== =========== ===========

Net income (loss) before extraordinary
items per share $ (1.72) $ 1.09 $ 0.23 $ 0.38 $ (0.23)
=========== =========== =========== =========== ===========

Weighted average number of common
shares outstanding 3,882,552 4,554,108 4,603,130 4,032,195 4,074,567
=========== =========== =========== =========== ===========

Operating costs and expenses:
Contract drilling 13,872 9,052
Oil and gas production 374 589
Dry holes and abandonments 422 442
Depreciation, depletion and amortization 898 1,071
General and administrative 1,174 1,143
Writedown of oil and gas properties -- --
----------- -----------
Total operating costs and expenses 16,240 12,297
----------- -----------
Operating income (loss) 1,050 962
----------- -----------

Other income (expenses):
Interest (99) (236)
Other 95 94
----------- -----------
Total other income (expense) (4) (142)
----------- -----------

Net income (loss) before income tax provision 1,046 820
Provision for income taxes (30) (16)
----------- -----------
Net income (loss) before extraordinary items $ 1,016 $ 804
=========== ===========

Net income (loss) before extraordinary
items per share $ 0.25 $ 0.19
=========== ===========

Weighted average number of common
shares outstanding 4,083,980 4,181,834
=========== ===========
</TABLE>

<TABLE>
<CAPTION>
AS
ADJUSTED(2)
-----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD)
Cash and cash equivalents $ 709 $ 424 $ 1,039 $ 1,590 $ 339 $ 75 $ 531 $ 3,507
Total assets 9,885 7,932 7,648 10,040 11,660 12,749 14,655 17,883
Total debt -- 16 74 -- 1,300 -- 4,500 --
Stockholders' equity (5,494) 3,081 4,133 5,775 4,959 6,921 5,851 13,579
</TABLE>

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(1) During 1996, the Company recognized a non-cash charge of approximately
$2.6 million due to a writedown of the carrying value of its oil and
gas properties. This charge was a result of the adoption of Statement
of Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". SFAS 121 requires the Company to assess the need for an
impairment of capitalized costs of oil and gas properties on a
property-by-property basis in contrast to the Company's prior policy
of evaluating the undiscounted future net revenues of its oil and gas
properties in total. According to SFAS 121, if an impairment is
indicated based on undiscounted future cash flows, then it is
recognized to the extent that net capitalized costs exceed discounted
future cash flows.

(2) As adjusted at December 31, 1996 to give effect to the completion of
the Company's private placement in February, 1997 of 725,000 shares of
Common Stock at a price of $11.00 per share, and the application of
the net proceeds (approximately $7.47 million) therefrom. The number
of outstanding shares of Common Stock, as adjusted, includes 25,100
shares of Common Stock issued subsequent to December 31, 1996 in
connection with the Company's acquisition of additional working
interests in four wells located in Lea County, New Mexico. Pro forma
earnings (loss) for the periods ended March 31, 1996 and December 31,
1996 were ($924,076) and $1,017,102, respectively. Weighted average
shares outstanding for the periods ended March 31, 1996 and December
31, 1996 were 4,799,597 and 4,906,834, respectively. Pro forma
earnings (loss) per share for the same periods were ($0.19) and $0.21,
respectively.

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<PAGE> 10

SUMMARY OPERATING AND OIL AND GAS RESERVE DATA

The following table sets forth operating and oil and gas data for the
Company for each of the periods indicated. The reserve data set forth below
represent only estimates, which are based on various assumptions and,
therefore, are inherently imprecise. In addition, the reserve data may be
subject to upward or downward revisions depending upon, among other factors,
production history and prevailing oil and gas prices. See "Risk Factors --
Imprecise Nature of Reserve Estimates".

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONTRACT DRILLING OPERATING DATA

Number of wells drilled 128 173 163 114 87 73 75
Total footage drilled 801,593 1,280,848 1,081,275 865,178 681,697 545,822 490,984
Average rigs available for service 51 13 15 15 15 15 15
Average rig utilization rate 11.1% 46.3% 47.6% 43.5% 45.1% 45.3% 45.5%

OIL AND GAS DATA

Production:
Oil (Bbl) 21,400 23,300 28,600 51,300 70,941 49,633 51,100
Gas (Mcf) 28,200 72,200 74,800 104,700 212,062 145,873 232,636
Total (BOE) 26,100 35,333 41,067 68,750 106,285 73,945 89,873

Average sales price per unit:
Oil (Bbl) $ 19.77 $ 20.36 $ 16.13 $ 17.13 $ 17.67 $ 17.56 $ 21.48
Natural gas (Mcf) $ 1.99 $ 1.55 $ 1.92 $ 1.55 $ 1.52 $ 1.54 $ 1.45

Reserve data (end of period):
Proved developed reserves (MBOE) 164.0 167.2 172.7 463.8 837.9 -- --
Present value of future net
revenues (in thousands) $ 1,021 $ 1,139 $ 971 $ 2,879 $ 4,954 -- --
</TABLE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Selling Stockholders . . . . . . . . . . . . . . . . . . . . . 725,000 shares
Common Stock outstanding as of May 21, 1997 . . . . . . . . . . . . . . . . . . . . . . . 4,477,386 shares (1)
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Company will not receive any of
the proceeds from the sale of the
Common Stock by the Selling Stock-
holders.
Nasdaq National Market Symbol. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TBDI
</TABLE>

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

(1) Excludes 939,800 shares issuable upon exercise of outstanding stock
options with a weighted average exercise price of $4.30 per share and a
five - year warrant to purchase 36,250 shares of the Company's Common
Stock at an exercise price of $13.20 per share.

-10-

<PAGE> 11

RISK FACTORS

An investment in the Common Stock offered hereby involves a high degree of
risk. Prior to making an investment decision, prospective purchasers of shares
of the Common Stock offered hereby should consider carefully, together with the
other information contained or incorporated by reference in this Prospectus,
the following risk factors affecting the Company:

LOSS OF KEY PERSONNEL

The success of the Company's business is highly dependent upon the
services, efforts and abilities of Thomas C. Brown, the Chairman of the Board
of Directors and Chief Executive Officer of the Company, and Joe G. Roper, the
President and a Director of the Company. The business of the Company could be
materially and adversely affected if Mr. Brown or Mr. Roper becomes unavailable
for any reason. The Company does not maintain key man life insurance on the
lives of either Mr. Brown or Mr. Roper, nor does the Company have employment
agreements with any of its officers or employees. See "Management."

VOLATILITY OF OIL AND GAS PRICES

The Company's revenues, cash flows and profitability are substantially
dependent upon prevailing prices for oil and gas, both with respect to its
contract drilling operations and its oil and gas operations. In recent years,
oil and gas prices and, therefore, the level of drilling, exploration,
development and production, have been extremely volatile. Prices for oil and
gas are affected by market supply and demand factors as well as actions of
state and local agencies, the U.S. and foreign governments and international
cartels. All of these factors are beyond the control of the Company. Any
significant or extended decline in oil and/or gas prices will have a material
adverse effect on the Company's financial condition and results of operations
and could impair access to future sources of capital. During the fiscal year
ended March 31, 1996, the prices the Company received for oil ranged from a
high of $19.45 per Bbl of oil to a low of $15.46 per Bbl. During the same
period, prices of natural gas that the Company received fluctuated from a high
of $3.51 per Mcf of gas to a low of $0.50 per Mcf. During the nine months ended
December 31, 1996, the prices the Company received for oil ranged from a high
of $25.10 per Bbl of oil to a low of $15.15 per Bbl. During this same period,
prices of natural gas received by the Company fluctuated from a high of $5.60
per Mcf of gas to a low of $0.50 per Mcf.

MARKET CONDITIONS FOR CONTRACT DRILLING SERVICES

The contract drilling business is currently experiencing increased demand
for drilling services primarily due to stronger oil and gas prices. However,
the market for onshore contract drilling services has generally been depressed
since 1982, when oil and gas prices began to weaken. A particularly sharp
decline in demand for contract drilling services occurred in 1986 because of
the world-wide collapse in oil prices. Since this 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 Permian Basin. As a result, drilling
contractors have had difficulty sustaining profit margins. In addition to
adverse effects that future declines in demand could have on the Company,
ongoing movement or reactivation of onshore drilling rigs or new construction
of drilling rigs could adversely affect contract drilling rates and drilling
rig utilization levels, even in an environment of stronger oil and gas prices
and increased drilling activity. 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.

SHORTAGE OF DRILL PIPE IN THE CONTRACT DRILLING INDUSTRY

Currently, there is a growing shortage of drill pipe in the contract
drilling industry in the U.S. 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 approximately 6 months in advance of expected use.
The price increase and the delay in delivery caused

-11-

<PAGE> 12

the Company to substantially increase capital expenditures in its contract
drilling segment over the approximately 30- month period ending December 31,
1996, primarily with respect to new drill pipe purchases. In the event of an
extended shortage, the Company may be unable to obtain the drill pipe required
for its contract drilling operations which would have a material adverse effect
on the Company's financial condition and results of operations.

SHORTAGE OF QUALIFIED AND EXPERIENCED LABOR

Increases in domestic drilling demand since mid-1995 and recent increases
in contract drilling activity have resulted in a shortage of qualified drilling
rig personnel in the industry. As a result, and rather than hiring unqualified
or inexperienced crews, the Company has intentionally restricted the number of
drilling rigs it has in active operation at any one time. At May 21, 1997,
the Company had thirteen rigs operating. If the Company is unable to attract
and retain additional qualified personnel, its ability to market and operate
more drilling rigs will continue to 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.

CAPITAL REQUIREMENTS AND LIQUIDITY

The oil and gas industry is capital intensive. The Company's cash flow
from operations and the continued availability of credit are subject to a
number of variables, including the level of oil and gas the Company is able to
produce from existing wells, the prices at which oil and gas are sold and the
Company's ability to locate and produce new reserves. The Company can provide
no assurance that its cash flow from operations and present borrowing capacity
will be sufficient to fund its anticipated capital expenditures and working
capital requirements. The Company may from time to time seek additional
financing, either in the form of bank borrowings, sales of the Company's
securities or other forms of financing. Except for the Company's loan
agreements with its bank lender, the Company has no agreements for any such
financing and there can be no assurance as to the availability or terms of any
such financing. To the extent the Company's capital resources and earnings are
at any time insufficient to fund its activities or repay its indebtedness as
due, the Company will need to raise additional funds through public or private
financings or additional borrowings. No assurance can be given as to the
Company's ability to obtain any such capital resources. If the Company is at
any time not able to obtain then necessary capital resources, its financial
condition and results of operations could be materially adversely affected. If,
however, additional funds are raised through the issuance of equity securities,
the percentage ownership of the Company's stockholders at that time could be
diluted and, in addition, such equity securities may have rights, preferences
or privileges senior to those of the Common Stock. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."

REPLACEMENT OF RESERVES; RISKS OF OIL AND GAS EXPLORATION, DEVELOPMENT AND
PRODUCTION

The Company's reserves are depleted as it produces oil and gas. Therefore,
the Company's future success will depend, in part, upon its ability to find,
develop or acquire additional oil and gas reserves that are economically
recoverable. Without successful exploration, development or acquisition
activities, the proved reserves of the Company will decline. No assurance can
be given that the Company will be able to acquire or find and develop
additional reserves on an economical basis.

The search for oil and gas often results in unprofitable efforts, not only
from dry holes, but also from wells which, though productive, do not produce
oil or gas in sufficient quantities to be economically viable. No assurance can
be given that any oil or gas reserves located by the Company in the future will
result in commercial production. In addition, the cost of drilling, completing
and operating wells is often uncertain, and drilling may be delayed or canceled
as a result of many factors, including unacceptably low oil and gas prices, oil
and gas property title problems, inclement weather conditions and financial
instability of well operators and working interest owners. Furthermore, the
availability of a ready market for the Company's oil and gas depends on
numerous factors beyond its control, including demand for and supply of oil and
gas, general economic conditions, proximity of gas reserves to pipelines,
shortages or delays in the delivery of equipment, weather conditions and
government regulations.

-12-

<PAGE> 13

CONCENTRATION OF CUSTOMERS

During the fiscal year ended March 31, 1996, the three largest customers
for the Company's contract drilling services, Mobil Exploration & Producing
U.S. Inc., Titan Resources I, Inc. and Arrington Oil and Gas, Inc., accounted
for approximately 18%, 18% and 13% of total revenues, respectively. The loss of
any one of these customers could have a material adverse effect on the
Company's financial condition and results of operations.

IMPRECISE NATURE OF RESERVE ESTIMATES

Information relating to the Company's proved oil and gas reserves is based
upon engineering estimates. Reserve engineering is a subjective process of
estimating the recovery from underground accumulations of oil and gas that
cannot be measured in an exact manner, and the accuracy of any reserve estimate
is a function of the quality of available data and of engineering and
geological interpretation and judgment. Estimates of economically recoverable
oil and gas reserves and of future net cash flows necessarily depend upon a
number of variable factors and assumptions, such as historical production from
the area compared with production from other producing areas, the assumed
effects of regulations by governmental agencies and assumptions concerning
future oil and gas prices, future operating costs, severance and excise taxes,
development costs and workover and remedial costs, all of which may in fact
vary considerably from actual results. Because all reserve estimates are to
some degree speculative, the actual quantities of oil and gas that are
ultimately recovered, production and operation costs, the amount and timing of
future development expenditures and future oil and gas sales prices may all
vary from those assumed in these estimates and such variances may be material.
In addition, different reserve engineers may make different estimates of
reserve quantities and cash flows based upon the same available data. See
"Business and Properties -- Oil and Gas Operations Oil and Gas Reserves."

SHARES ELIGIBLE FOR FUTURE SALE

As of May 21, 1997, the Company had outstanding 4,477,386 shares of
Common Stock, of which 725,000 shares are eligible for resale in the public
market pursuant to this Prospectus. Additionally, and at that same date,
889,713 shares of Common Stock were held by directors and officers of the
Company, and stock options to purchase an aggregate of 890,500 shares of Common
Stock, all of which are currently exercisable or become exercisable in 1997,
were held by directors, officers and employees of the Company. The shares
issuable upon exercise of such options granted under the Company's stock option
plans are registered under the Securities Act of 1933, as amended (the "Act")
and, upon exercise of the options, such shares will be eligible for resale in
the public market, except that any such shares issued to affiliates are subject
to certain volume limitations and other restrictions of Rule 144 under the Act.
Sales of substantial amounts of the Common Stock of the Company could adversely
affect the market price for the Common Stock.

No prediction can be made as to the effect, if any, that the sale of
shares or the availability of shares for sale in the public market will have on
the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of the Common Stock in the public
market could adversely affect prevailing market prices.

ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATION MATTERS

General. The Company's operations are affected from time to time in
varying degrees by political developments and federal and state 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. The Company cannot predict how existing laws and
regulations may be interpreted by enforcement agencies or court rulings,
whether additional laws and regulations will be adopted, or the effect such
changes may have on its business, financial condition or results of operations.
See "Business and Properties -- Regulation."

-13-

<PAGE> 14

Environmental. The Company's operations are subject to numerous laws and
regulations governing the discharge of materials into the environment or
otherwise relating to environmental protection. These laws and regulations
require the acquisition of a permit before drilling commences, restrict the
types, quantities and concentration of various substances that can be released
into the environment in connection with drilling and production activities,
limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas, and impose substantial liabilities for
pollution which might result from the Company's operations. Moreover, the
recent trend toward stricter standards in environmental legislation and
regulation is likely to continue. For instance, legislation has been proposed
in Congress from time to time that would reclassify certain oil and gas
exploration and production wastes as "hazardous wastes" which would make the
reclassified wastes subject to much more stringent handling, disposal and
clean-up requirements. If such legislation were to be enacted, it could have a
significant impact on the operating costs of the Company, as well as the oil
and gas industry in general. Initiatives to further regulate the disposal of
oil and gas wastes are also pending in certain states, and these various
initiatives could have a similar impact on the Company. The Company could incur
substantial costs to comply with environmental laws and regulations. In
addition to compliance costs, government entities and other third parties may
assert substantial liabilities against owners and operators of oil and gas
properties for oil spills, discharge of hazardous materials, remediation and
clean-up costs and other environmental damages, including damages caused by
previous property owners. The imposition of any such liabilities on the Company
could have a material adverse effect on the Company's financial condition and
results of operations.

OPERATING RISKS AND INSURANCE

Contract drilling and oil and gas activities are subject to a number of
risks and hazards which could cause serious injury or death to persons,
suspension of drilling operations and serious damage to equipment or property
of others, environmental damage, and substantial damage to producing formations
and surrounding areas. The occurrence of a significant event, including any of
the above-mentioned risks and hazards, could subject the Company to significant
liability and could have a material adverse effect on the Company's financial
condition and results of operations. Although the Company believes that it is
adequately insured against risks in its operations resulting in injury or death
to persons in accordance with industry standards, the Company's drilling rigs
and related equipment are not covered by insurance, and the insurance
maintained by the Company does not cover all of the above-mentioned risks and
hazards and may not be adequate to protect the Company against liability from
all consequences of well disasters, extensive fire damage or damage to the
environment. The Company maintains general liability insurance, and obtains
insurance against pollution risks and blowouts on a well-by-well basis, but it
has not obtained insurance against all operating hazards. Should the Company
sustain an uninsured loss or liability, its ability to operate may be
materially adversely affected. No assurance can be given that the Company will
be able to maintain adequate insurance in the future at rates it considers
reasonable or that any particular types of coverage will be available.
Furthermore, a portion of the Company's contract drilling is done on a turnkey
basis, which requires the Company to complete the drilling of a particular well
for a flat fee negotiated in advance and, accordingly, involves substantial
economic risks.

COMPETITION

The Company encounters intense competition in its contract drilling
operations from other drilling contractors. The competitive environment for
contract drilling services involves such factors as drilling rates,
availability and condition of drilling rigs and equipment, reputation and
customer relations. The Company faces strong competition from major oil
companies, independent oil and gas companies and individual producers and
operators in acquiring oil and gas leases for exploration and development. Many
of the competitors in each of the Company's lines of business have
substantially greater financial and other resources than the Company.

RECENT LOSS; WRITEDOWNS

For the year ended March 31, 1996, the Company incurred a loss of
approximately $952,000, primarily due to a non-cash charge of approximately
$2.6 million resulting from the writedown of the carrying value of certain of
the Company's oil and gas properties. This charge was a result of the adoption
of Statement of Financial Accounting

-14-

<PAGE> 15

Standards No. 121 ("SFAS 121") "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of". SFAS 121 requires the
Company to assess the need for an impairment of capitalized costs of oil and
gas properties on a property-by-property basis in contrast to the Company's
prior policy of evaluating the undiscounted future net revenues of its oil and
gas properties in total. According to SFAS 121, if an impairment as indicated
based on undiscounted future cash flows, then it is recognized to the extent
that net capitalized costs exceed discounted future cash flows. Although the
Company had earnings of approximately $804,000 for the nine months ended
December 31, 1996, and although the Company believes that drilling activity has
begun to increase in recent months, there can be no assurance that such rise in
activity will continue or that the Company will be profitable in the current or
subsequent years, nor can there be any assurance that the Company will not
incur additional writedowns in the value of its oil and gas properties in the
future.

EFFECT OF CHANGE IN BENEFICIAL OWNERSHIP ON NET OPERATING LOSS CARRYFORWARD

The Company had a net operating loss ("NOL") carryforward approximating
$71.4 million for tax purposes at March 31, 1996. The Internal Revenue Code of
1986, as amended (the "Code"), limits the utilization of NOL carryforwards
under certain circumstances, including upon the occurrence of certain ownership
changes. The amount of such limitation is calculated pursuant to the Code and
is based on specified interest rates and other variables at the time of such
ownership change. To the extent such a carryforward is not utilized in a year,
it may be utilized in subsequent years. Based upon a review of relevant
transactions in the Common Stock, the Company believes that it has not
undergone an ownership change. However, transfers of Common Stock, over which
the Company may have no control, or subsequent issuances by the Company of
Common Stock or securities convertible into Common Stock, may result in an
ownership change, which could limit the use of the Company's NOL carryforward.
Accordingly, there can be no assurance of the continuing availability of full
utilization of the NOL carryforward of the Company.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus and documents incorporated by reference in this Prospectus
include certain statements that may be deemed to be "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
All statements, other than statements of historical facts, included in this
Prospectus that address activities, events or developments that the Company
estimates, intends, projects, expects, believes or anticipates will or may
occur in the future, including such matters as market conditions, future
capital, development and exploration expenditures (including the amount and
nature thereof), drilling rig utilization rates, drilling of wells, reserve
estimates, business strategies and other plans and objectives of management of
the Company for future operations and activities, expansion and growth of the
Company's operations and other such matters are forward-looking statements.
These statements are based on certain assumptions and analyses made by the
Company in light of its experience and its perception of historical trends,
current conditions, expected future developments and other facts it believes
are appropriate in the circumstances. Such statements are subject to a number
of assumptions, risks and uncertainties, including the risk factors discussed
above, general economic and business conditions, the business opportunities (or
lack thereof) that may be presented to and pursued by the Company, changes in
law or regulations and other factors, many of which are beyond the control of
the Company. Prospective investors are cautioned that any such statements are
not guarantees of future performance and that actual results or developments
may differ materially from those projected in the forward-looking statements.
All subsequent written and oral forward- looking statements attributable to the
Company or any person acting on its behalf are expressly qualified in their
entirety by the foregoing matters.

-15-

<PAGE> 16

CAPITALIZATION

The following table sets forth as of December 31, 1996 the historical
capitalization of the Company and the pro forma capitalization of the Company
and as adjusted to give effect to (i) the Company's issuance and sale of 725,000
shares of Common Stock in February, 1997 upon consummation of the Company's
private placement and the application of the net proceeds (approximately $7.47
million) therefrom, and (ii) the issuance of 25,100 shares of Common Stock in
January, 1997 in connection with the Company's acquisition of certain producing
oil properties in Lea County, New Mexico. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's financial statements, including
the notes thereto, incorporated by reference herein.

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------------
PRO FORMA ADJUSTMENTS
------------------------------------------------
ACQUISITION OF PRIVATE RETIREMENT OF PRO FORMA
ACTUAL WORKING INTEREST PLACEMENT LONG-TERM DEBT AS ADJUSTED
------ ---------------- --------- -------------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Long-term debt ................................. $ 4,500 (4,500)(1) --

Stockholders' equity:

Preferred Stock, $.10 par
value, 10,000,000 shares authorized;
none issued and outstanding ............... -- --

Common Stock, $.10 par value,
50,000,000 shares authorized;
3,677,986 shares issued and outstanding;
(4,428,086 shares issued and outstanding as
adjusted) (2)(3)(4)........................ 494 3(3) 73(4) -- 570

Additional paid-in capital .................. 60,709 248(3) 7,404(4) -- 68,361

Accumulated deficit ......................... (55,202) -- -- -- (55,202)
Treasury stock - common, 1,268,739
shares at December 31, at cost ............ (150) -- -- -- (150)
-------- ----- ------- ------ --------
Total stockholders' equity ............... 5,851 251 7,477 -- 13,579
-------- ----- ------- ------ --------
Total capitalization .................. $ 10,351 $ 251 $ 7,477 (4,500) $ 13,579
======== ===== ======= ====== ========

</TABLE>

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

(1) Retirement of long-term debt with proceeds from the Company's private
placement. See note (4) below.

(2) The number of shares of Common Stock outstanding excludes (i) 890,500
shares of Common Stock reserved for issuance upon exercise of
outstanding stock options with a weighted average exercise price of
$4.30 per share held by Directors, officers and employees of the Company
and (ii) a five-year warrant to purchase 36,250 shares of the Company's
Common Stock at an exercise price of $13.20 per share. See "Description
of Capital Stock - Warrants."

(3) Subsequent to December 31, 1996, the Company issued 25,100 shares of
Common Stock in connection with the Company's acquisition of additional
working interests in four oil wells located in Lea County, New Mexico.
The aggregate purchase price of the properties was $251,000.

- --------------
* footnotes continued on page 17.

-16-

<PAGE> 17
(4) In February, 1997, the Company issued 725,000 shares of Common Stock upon
consummation of a private placement. Net proceeds from the placement were
approximately $7.47 million.

PRICE RANGE OF COMMON STOCK

During the period from November 22, 1993 to December 13, 1994, the
Company's Common Stock was traded on the Nasdaq Small Cap Market and on
December 15, 1994 the Company's Common Stock began trading on the Nasdaq
National Market tier of The Nasdaq Stock Market. The following table sets
forth, on a per share basis for the period indicated, the range of high and low
closing bid quotations of the Common Stock prior to December 15, 1994 and the
high and low last reported sales prices thereafter as reported by Nasdaq. The
quotations are inter-dealer prices without retail mark-ups, mark-downs or
commissions and may not represent actual transactions.

<TABLE>
<CAPTION>
PRICE
----------------------
FISCAL YEAR ENDED MARCH 31, 1995 HIGH LOW
---------- -------
<S> <C> <C>
First quarter $ 4 3/4 $ 4 5/8
Second quarter 5 7/8 4 3/4
Third quarter 7 6 3/8
Fourth quarter 7 1/8 6 5/16

FISCAL YEAR ENDED MARCH 31, 1996

First quarter 7 3/4 6 1/2
Second quarter 10 1/2 9 1/4
Third quarter 9 1/4 8
Fourth quarter 8 1/4 6 3/4

FISCAL YEAR ENDED MARCH 31, 1997

First quarter 8 1/4 6 3/4
Second quarter 12 7
Third quarter 12 9
Fourth quarter 13 7/8 10 3/4
</TABLE>

The last sale price of the Company's Common Stock as of May 19, 1997 was
$9.25 per share, as reported on the Nasdaq National Market. As of May 21,
1997, there were approximately 3,454 shareholders of record of the Company's
Common Stock.

DIVIDENDS

The Company has never declared or paid any cash dividends on shares of its
Common Stock and has no plans to do so in the foreseeable future. The Company
presently intends to retain all earnings to fund its operations and future
growth.

-17-

<PAGE> 18

SELECTED FINANCIAL DATA

The following table sets forth selected financial data for the Company as
of the dates and for the periods indicated. The financial data for the five
years ended March 31, 1996 were derived from the financial statements of the
Company which have been audited by Arthur Anderson LLP, independent
accountants. The data for the nine months ended December 31, 1996 and 1995 have
been derived from unaudited financial statements of the Company. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
have been made that are necessary for a fair presentation of the unaudited
information presented. The nine-month results are not necessarily indicative of
expected annual results because of seasonal fluctuations in demand and prices
for oil and gas and other factors. The data set forth in this table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements, including
the notes thereto, incorporated by reference in this Prospectus.

Net income (loss) before income tax provision (2,507) 5,117 1,101 1,566 (922)
Provision for income taxes -- (149) (62) (30) (30)
----------- ----------- ----------- ----------- -----------
Net income (loss) before extraordinary items ($ 2,507) $ 4,968 $ 1,039 $ 1,536 ($ 952)
=========== =========== =========== =========== ===========

Net income (loss) before extraordinary
items per share ($ 1.72) $ 1.09 $ 0.23 $ 0.38 ($ 0.23)
=========== =========== =========== =========== ===========

Weighted average number of common
shares outstanding 3,882,552 4,554,108 4,603,130 4,032,195 4,074,567
=========== =========== =========== =========== ===========

<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
INCOME STATEMENT DATA
Operating revenues:
Contract drilling $ 16,194 $ 11,820
Oil and gas 1,096 1,439
----------- -----------
Total operating revenues 17,290 13,259
----------- -----------
Operating costs and expenses:
Contract drilling 13,872 9,052
Oil and gas production 374 589
Dry holes and abandonments 422 442
Depreciation, depletion and amortization 898 1,071
General and administrative 1,174 1,143
Writedown of oil and gas properties -- --
----------- -----------
Total operating costs and expenses 16,240 12,297
----------- -----------
Operating income (loss) 1,050 962
----------- -----------

Other income (expenses):
Interest (99) (236)
Other 95 94
----------- -----------
Total other income (expense) (4) (142)
----------- -----------

Net income (loss) before income tax provision 1,046 820
Provision for income taxes (30) (16)
----------- -----------
Net income (loss) before extraordinary items $ 1,016 $ 804
=========== ===========

Net income (loss) before extraordinary
items per share $ 0.25 $ 0.19
=========== ===========

Weighted average number of common
shares outstanding 4,083,980 4,181,834
=========== ===========

</TABLE>

(1) During 1996, the Company recognized a non-cash charge of approximately
$2.6 million due to a writedown of the carrying value of its oil and gas
properties. This charge was a result of the adoption of Statement of
Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS 121 requires the Company to assess the need for an impairment of
capitalized costs of oil and gas properties on a property-by-property
basis in contrast to the Company's prior policy of evaluating the
undiscounted future net revenues of its oil and gas properties in total.
According to SFAS 121, if an impairment is indicated based on undiscounted
future cash flows, then it is recognized to the extent that net
capitalized costs exceed discounted future cash flows.

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

* footnotes continued on page 19.

-18-

<PAGE> 19

(2) As adjusted at December 31, 1996 to give effect to the completion of the
Company's private placement in February, 1997 of 725,000 shares of Common
Stock at a price of $11.00 per share, and the application of the net
proceeds (approximately $7.47 million) therefrom. The number of
outstanding shares of Common Stock, as adjusted, includes 25,100 shares of
Common Stock issued subsequent to December 31, 1996 in connection with the
Company's acquisition of additional working interests in four wells
located in Lea County, New Mexico. Pro forma earnings (loss) for the
periods ended March 31, 1996 and December 31, 1996 were ($924,076) and
$1,017,102, respectively. Weighted average shares outstanding for the
periods ended March 31, 1996 and December 31, 1996 were 4,799,597 and
4,906,834, respectively. Pro forma earnings (loss) per share for the same
periods were ($0.19) and $0.21, respectively.

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

OVERVIEW

Since 1982, the principal business of the Company has been domestic
onshore contract drilling of oil and gas wells. In 1987, the Company began
acquiring and participating in the exploration for and development of oil and
gas reserves.

Contract Drilling Operations

Drilling revenues from footage and daywork contracts are recognized as
work is performed utilizing the percentage- of-completion method. Costs on
footage and daywork contracts are recognized in the period incurred. The
Company utilizes the completed contract method to recognize drilling revenues
and expenses relating to turnkey contracts. Expected losses on all in-process
contracts are recognized in the period the loss can reasonably be determined.

Drilling equipment is depreciated on a units-of-production method based on
the monthly utilization of the equipment. Drilling equipment which is not
utilized during a month is depreciated using a minimum utilization rate of
approximately twenty-five percent. Estimated useful lives range from four to
eight years. Other property and equipment is depreciated using the
straight-line method of depreciation with estimated useful lives of three to
seven years.

The following table sets forth certain information relating to the
Company's contract drilling operations:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
----------------------------------- ----------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT %'S)
<S> <C> <C> <C> <C> <C>
Contract drilling revenues $ 18,359 $ 18,357 $ 21,298 16,194 $ 11,820
Contract drilling expenses 14,989 14,630 17,252 13,372 9,052

Contract drilling expenses
as a percent of drilling revenues 81.6% 79.7% 81.0% 82.6% 76.6%

Rig utilization 47.6% 43.5% 45.1% 45.3% 45.5%
</TABLE>

-19-

<PAGE> 20
Oil and Gas Operations

The Company's oil and gas producing activities are accounted for using the
successful efforts method of accounting. Accordingly, the costs incurred to
acquire oil and gas properties (proved and unproved), all development costs and
successful exploratory costs are capitalized, whereas the costs of unsuccessful
exploratory wells are expensed. Geological and geophysical costs, including
seismic costs, are charged to expense when incurred. In cases where the Company
provides contract drilling services related to oil and gas properties in which
it has an ownership interest, the Company's proportionate share of costs
related to these properties is capitalized as stated above, net of the
Company's working interest share of profits from the related drilling
contracts. Capitalized costs of undeveloped properties, which are not depleted
until proved reserves can be associated with the properties, are periodically
reviewed for possible impairment. Such unevaluated costs totaled approximately
$973,000, $1,100,000 and $137,000 as of March 31, 1995, March 31, 1996 and
December 31, 1996, respectively.

During 1996, 1995, and 1994, depletion, depreciation and amortization of
capitalized oil and gas property costs was provided using the
units-of-production method based on estimated proved or proved developed oil
and gas reserves, as applicable, of the respective property units.

The following table sets forth certain information relating to the
Company's oil and gas operations:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------ -------------------
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Oil and gas revenues $ 621 $ 1,042 $ 1,683 $ 1,096 $ 1,439
Production expenses 318 350 554 374 589
Dry holes and abandonments 656 629 945 422 442
Depreciation, depletion and
amortization 281 400 468 584 494
Writedown of properties -- -- 2,624 -- --
</TABLE>

The contract drilling industry remains highly competitive. Recently,
however, the demand for drilling rigs has improved from previous years. The
Company believes it owns a sufficient number of drilling rigs to remain
competitive within its areas of operation. In addition, the Company believes it
competes favorably with respect to the depth capacity of its rigs, the
availability of drilling equipment, the experience level of its personnel, the
reputation of the Company and its relationship with existing customers.
However, cash flow generated from operations and the Company's operating
results will continue to be directly affected by the level of drilling activity
in the Company's operating areas.

The Company has not entered into hedging arrangements and does not have
any delivery commitments. While hedging arrangements reduce exposure to losses
as a result of unfavorable price changes, they also limit the ability to
benefit from favorable market price changes.

RESULTS OF OPERATIONS

Comparison of nine months ended December 31, 1996 to nine months ended
December 31, 1995

Contract drilling revenues were approximately $5,051,000 and $11,820,000
for the three and nine months ended December 31, 1996. When compared to the
same periods in the prior year, contract drilling revenues were relatively

-20-

<PAGE> 21

flat for the three month period ended December 31, 1996 and decreased 27% for
the nine months ended December 31, 1996. The average price received by the
Company for daywork and footage contracts during the nine month period ended
December 31, 1996 has increased by approximately 8% and 10%, respectively, when
compared to the average price the Company received during the fiscal year ended
March 31, 1996. Even though the Company experienced these increases in rates,
total drilling revenues for the nine months ended December 31, 1996 decreased
27%. This decrease can be attributed to a reduction in the number of turnkey
wells drilled by the Company. During the nine months ended December 31, 1995,
the Company drilled 9 turnkey wells, while there were no turnkey wells drilled
by the Company during the nine months ended December 31, 1996.

Rig utilization rates were 58% and 45% for the three and nine months ended
December 31, 1996 compared to 42% and 45% in the same periods in 1995. Rig
utilization rates and contract drilling revenues for the nine months ended
December 31, 1996 were adversely affected by extremely low utilization in the
first three months of the fiscal year. The utilization rate for the first
quarter was 34% compared to 58% for the third quarter of this fiscal year.
During the first quarter of the period, drilling prices were depressed and the
Company chose to underutilize its drilling equipment rather than subjecting
such equipment to additional wear and tear at unacceptable operating margins.
From July, 1996 through December, 1996, the Company experienced, and is
continuing to experience, a substantial increase in demand for its contract
drilling services. Rig utilization in the Company's operating market is
difficult to project because contract drilling is a highly competitive
industry. In addition, the number of rigs, industry wide, actually available
for work cannot be accurately determined.

Contract drilling expenses as a percent of contract drilling revenues were
75% and 77% for the three and nine months ended December 31, 1996, compared to
87% and 83% for the same periods in the prior year. These decreases can be
attributed to an increase in rates the Company charges for contract drilling
services.

Oil and gas revenues increased by approximately 62% and 31% for the three
and nine months ended December 31, 1996 compared to the same period in 1995.
Accordingly, oil and gas production expenses increased 57% for the nine months
ended December 31, 1996 when compared to the nine months ended December 31,
1995.

Depreciation, depletion and amortization expense has also increased due to
the addition of drill pipe and an increase in the number of producing wells in
which the Company has an ownership interest.

Interest expense increased approximately 138% for the nine months ended
December 31, 1996 due to borrowings under the Company's credit facilities with
its bank lender during this period. See "- Liquidity and Capital Resources"
below.

Net working capital was $56,000 at December 31, 1996 compared to a
negative $1,236,000 at March 31, 1996. The increase in working capital can be
attributed to a decrease in trade payables and an increase in accounts
receivable.

Comparison of Year Ended March 31, 1996 to Year Ended March 31, 1995

Contract drilling revenues increased for the year ended March 31, 1996 by
approximately 16% over the year ended March 31, 1995. The Company has
experienced an increased demand for turnkey drilling contracts. During fiscal
year 1996, the Company drilled 12 turnkey wells which represented 45% of total
drilling revenues, compared to 8 in fiscal year 1995, which represented 28% of
total drilling revenues. Operating costs as a percent of revenues remained
relatively constant as did the Company's rig utilization rates.

Oil and gas revenues increased by approximately 62% and 68% for the years
ended March 31, 1996 and 1995, respectively. This increase is primarily a
result of an increase in the number of wells in which the Company owned an
interest. Accordingly, the related oil and gas production expenses increased
over the same periods by 58% and 10%, respectively.

The Company participated as a working interest owner in the drilling of 28
wells during 1996, of which 14 were dry holes. The Company participated as a
working interest owner in the drilling of 24 wells in 1995, of which 11 were
dry holes.

-21-

<PAGE> 22

During 1996, the Company recognized a non-cash charge of approximately
$2.6 million due to a writedown of the carrying value of its oil and gas
properties. This charge was a result of the adoption of Statement of Financial
Accounting Standards No. 121 (SFAS 121) "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS 121
requires the Company to assess the need for an impairment of capitalized costs
of oil and gas properties on a property-by-property basis in contrast to the
company's prior policy of evaluating the undiscounted future net revenues of
its oil and gas properties in total. According to SFAS 121, if an impairment is
indicated based on undiscounted future cash flows, then it is recognized to the
extent that net capitalized costs exceed discounted future cash flows.

Comparison of Year Ended March 31, 1995 to Year Ended March 31, 1994

Contract drilling expenses as a percentage of revenues decreased from 1994
to 1995 due to the implementation of cost containment programs. The Company
experienced increased demand for turnkey contracts which resulted in relatively
constant drilling revenues from 1994 to 1995, despite a slight decrease in rig
utilization.

Oil and gas revenues increased by approximately 68% and 11% for the years
ended March 31, 1995 and 1994, respectively. This increase was primarily a
result of an increase in the number of wells in which the Company owned an
interest. The related oil and gas production expenses increased by 10% during
1995 as a result of new wells coming on-line and increased 44% during 1994 due
to workovers of existing wells.

The Company participated as a working interest owner in the drilling of 24
wells during 1995, of which 11 were dry holes. The Company participated as a
working interest owner in the drilling of 19 wells during 1994, of which 10
were dry holes and 1 was a disposal well.

Depreciation, depletion and amortization increased by approximately 17%
during 1995 due to the Company's additional investment in oil and gas
properties.

For the year ended March 31, 1995, other income included a recovery of
approximately $163,000 from antitrust litigation relating to drill bits.

The continued volatility in oil and gas prices coupled with the continued
low level of drilling activity and extreme uncertainty and competitive
conditions prevalent in the contract drilling industry during this period had a
considerable negative impact on the Company and its operating margin.

INCOME TAXES

At March 31, 1996, the Company had approximately $71,409,000 of unused
net operating loss ("NOL") carryforwards for tax purposes. Realization of the
benefits of these carryforwards is dependent upon the Company's ability to
generate taxable earnings in future periods. If these carryforwards are not
utilized, they will begin to expire in 1998. The Company's ability to utilize
its NOL carryforwards may be substantially limited in the future under the
Internal Revenue Code of 1986, as amended (the "Code"). If the Company
experiences an ownership change under applicable provisions of the Code, the
carryforward would be limited to an annual amount calculated based on specified
interest rates and other variables. The Company does not believe an ownership
change has occurred to date.

The effective tax rates for the years ended March 31, 1996 and 1995
differ from the statutory tax rate of 34% primarily due to utilization of NOLs.
Tax expense is generally limited to alternative minimum tax.

The Company utilizes an asset and liability approach for financial
accounting and reporting for income taxes. The Company has a deferred tax asset
primarily due to net operating loss carryforwards. The Company has provided a
valuation allowance for the entire balance of deferred tax assets as it is
likely that a portion of the NOLs may expire before the Company is able to use
them.

-22-

<PAGE> 23

LIQUIDITY AND CAPITAL RESOURCES

In January, 1996, the Company entered into a loan agreement with its
bank lender providing for a revolving credit facility (the "Credit Facility")
maturing on January 15, 1998. The aggregate principal amount of the Company's
borrowings outstanding at any one time under the revolving facility are limited
to the lesser of $3.0 million or one-third of the borrowing base amount then in
effect. The borrowing base amount is redetermined by the bank monthly. At
December 31, 1996, the borrowing base amount was approximately $12.6 million
and the aggregate principal amount outstanding at the same date was $3.0
million. These borrowings were incurred to finance the Company's purchases of
drill pipe and oil and gas exploration activities. With respect to the
principal amount outstanding from time to time under the revolving facility,
interest only is payable on the fifteenth day of each month. On January 15,
1998, the principal amount then outstanding is due and payable, plus accrued
and unpaid interest. The Credit Facility bears interest at the bank's base rate
(8.25% at December 31, 1996) and is secured by substantially all of the
Company's accounts receivable, drilling rigs and related equipment.

In August, 1996, the Company entered into a second loan agreement with
its bank lender. This second loan agreement provides for a $2.0 million
revolving line of credit (the "Line of Credit") secured by substantially all of
the Company's producing oil and gas properties. At December 31, 1996,
approximately $1.5 million was outstanding under the Line of Credit. Borrowings
under the Line of Credit were incurred to finance the Company's oil and gas
exploration activities and for general corporate purposes. The Line of Credit
bears interest at the bank's base rate (8.25% at December 31, 1996) and the
interest only is payable monthly. The Line of Credit matures on February 15,
1998, at which time the principal amount then outstanding is due and payable,
plus any accrued and unpaid interest.

On February 13, 1997, the Company closed a private placement of 725,000
shares of Common Stock at a price of $11.00 per share. The net proceeds from
the placement were approximately $7.4 million. Of such amount, $4,532,438 was
used to repay all of the Company's bank debt then outstanding under the Credit
Facility and Line of Credit. The remaining proceeds, approximately $2.86
million, will be used for the purchase of drill pipe and for general corporate
purposes. Management believes that the Company's improved liquidity resulting
from the infusion of equity capital will also enhance the Company's ability to
meet any unexpected capital needs and to fund planned capital expenditures. The
Company may reborrow under its Credit Facility and Line of Credit in the
future.

The Company intends to meet its fiscal 1998 cash flow requirements,
including amounts, if any, that may be required to be paid by the Company as a
result of the claims asserted against the Company as described in "Business and
Properties - Legal Proceedings", through cash flow provided from operations
and, if needed, additional borrowings under the Credit Facility and Line of
Credit. As described in "Business and Properties - Legal Proceedings", the
Company is a defendant in a lawsuit filed against it by Texas Property and
Casualty Insurance Guaranty Association which has resulted in the Company's
accrual of approximately $854,000 for a contingent liability. If the Company
ultimately incurs any liability as a result of a final, adverse judgment or if
the Company pays any amount in settlement of the lawsuit, the Company's
liquidity could be adversely affected to the extent of the amount actually paid
in settlement of the lawsuit or in satisfaction of any judgment against the
Company. However, in either event, the Company believes its capital sources are
more than adequate to fund any such liability and that any adverse effects on
the Company's liquidity would not be material and would not result in any
material constraints on the Company's future operations.

The following table sets forth information regarding the capital
expenditures made by the Company during the last three fiscal years.

<TABLE>
<CAPTION>
Nine Months Ended
Year Ended March 31, December 31,
--------------------------------- ---------
1994 1995 1996 1996
--------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Oil and gas exploration and development ...... $ 1,019 $ 2,980 $ 5,553 $ 2,122
Drill pipe and related equipment ............. 742 459 1,452 2,138
Other ........................................ 209 56 11 79
--------- --------- --------- ---------

Total ................................ $ 1,970 $ 3,495 $ 7,016 $ 4,339
========= ========= ========= =========
</TABLE>

-23-

<PAGE> 24

The Company estimates that its capital expenditures for the fiscal year
ending March 31, 1997 will be approximately $5.4 million, including
approximately $2.9 million for drill pipe and drilling equipment, and $2.5
million for oil and gas exploration and development, approximately 80% of which
has been expended through the nine months ended December 31, 1996.

The Company presently anticipates making capital expenditures of
approximately $7.0 million in its 1998 fiscal year. Of this amount, the Company
expects that approximately $3.0 million will be spent for the acquisition of
drill pipe, drill collars and related equipment, and approximately $4.0 million
for oil and gas exploration and development activities. It is the Company's
policy, however, to maintain maximum flexibility to make capital expenditures
for its lines of business based on then existing economic conditions, the
results of the Company's drilling activities, and other factors affecting the
Company's business. Accordingly, the amounts actually expended in the Company's
activities in fiscal 1998 could differ substantially from the amounts estimated
above.

The Company anticipates that funds for its capital expenditures in
fiscal 1998 will be available through a combination of sources, including (i)
borrowings under its Credit Facility and Line of Credit, (ii) funds raised
through issuances of equity or debt securities in public or private
transactions, and (iii) internally generated funds.

TRENDS AND PRICES

As described under "Risk Factors", the contract drilling industry is
experiencing a shortage of qualified drilling rig personnel. This shortage has
resulted in the Company's intentional restriction on the number of drilling
rigs it has in active operations at any one time. The continued growth and
expansion of the Company will depend upon, among other factors, the successful
retention of skilled and qualified drilling rig personnel. If the Company is
unable to attract and retain additional qualified personnel, its ability to
market and operate more drilling rigs and expand its operations will continue
to be restricted.

In recent years, oil and gas prices have been extremely volatile.
Prices for oil and gas are affected by market supply and demand factors as well
as actions of state and local agencies, the U.S. and foreign governments and
international cartels. The Company has no way of accurately predicting the
supply and demand for oil and gas, domestic or worldwide political events or
the effects of any such factors on the prices received by the Company for its
oil and gas.

INDUSTRY CONDITIONS

From 1982 until mid-1996, the U.S. onshore drilling industry has been
characterized by an over-supply of drilling equipment as demand for land
drilling services decreased. During the past 14 years, the available onshore
drilling rig fleet declined from approximately 5,139 drilling rigs in 1982 to
approximately 1,425 drilling rigs in 1996. Industry profitability suffered, and
in many cases, insufficient cash flow was generated to support proper drilling
rig maintenance. To maintain operation of drilling equipment in that
environment, drilling contractors cannibalized parts and components from less
desirable drilling rigs. The available domestic drilling fleet has been further
reduced through the mobilization of drilling equipment to international
markets.

During the last two years, however, demand for domestic onshore
drilling services has increased as a result of stronger oil and gas prices and
technological advances that have reduced exploration, development and
production costs. Accordingly, the Baker Hughes rig count for New Mexico and
the Permian Basin of west Texas has increased to 128 at December 31, 1996,
compared to 122 and 108 at December 31, 1995 and 1994, respectively.

-24-

<PAGE> 25

BUSINESS AND PROPERTIES

GENERAL

TMBR/Sharp Drilling, Inc. (the "Company") provides domestic onshore
drilling services to major and independent oil and gas companies. Formed in
1982, the Company focuses its operations in the Permian Basin of west Texas and
eastern New Mexico. The Company provides the crews and most of the ancillary
equipment used in the operation of its drilling rigs. The Company is also
engaged in the acquisition, exploration, development and production of oil and
gas. The Company is currently experiencing a substantial increase in demand for
its contract drilling services. Rig utilization for the three months ended
December 31, 1996 is estimated to be approximately 58% compared to 44% for the
three months ended September 30, 1996. The Company is also experiencing a
substantial increase in the rates it charges for its contract drilling
services.

Through its predecessor, Tom Brown, Inc., the Company has been engaged
in contract drilling operations since 1955 and became an independent entity as
a result of a spin-off from Tom Brown, Inc. in 1984. As of May 21, 1997, the
Company owned 15 drilling rigs, 12 of which were operating for non-affiliated
oil producers, 1 of which was operating on behalf of the Company for its own
account and 2 of which were inactive, or "stacked". All of the Company's
rigs are operational and actively marketed in the Permian Basin of west Texas
and eastern New Mexico.

The Company has established a reputation for reliability, high quality
equipment and well-trained crews. The Company continually seeks to modify and
upgrade its equipment to maximize the performance and capabilities of its
drilling rig fleet, which the Company believes provides it with a competitive
advantage. The Company has the capability to design, repair and modify its
drilling rig fleet from its principal support and storage facilities in
Midland, Texas, and an additional storage yard in Odessa, Texas.

The Company's oil and gas activities complement its onshore drilling
operations. These activities are focused in the mature producing regions in the
Permian Basin. Oil and gas operations comprised approximately 11% of the
Company's revenues for the nine months ended December 31, 1996. As of March 31,
1996, the Company's proved reserves, all of which were proved developed
producing, were 838 MBOE and had a present value of future net revenues of
approximately $4.9 million. Since March 31, 1992, the Company has increased its
proved reserve base at a compounded annual growth rate of approximately 50%.

BUSINESS STRATEGY

The Company's strategy is to increase cash flow and profitability
by utilizing the factors set forth below. As a result of its quality asset
base, strong reputation and customer relationships and experienced and
dedicated management and employees, the Company believes it receives premium
rates for its contract drilling services. The Company's oil and gas operations
can provide additional growth through its exposure to high potential oil and
gas drilling projects.

-25-

<PAGE> 26

ATTRACT AND RETAIN EXPERIENCED AND DEDICATED MANAGEMENT AND EMPLOYEES. The
Company believes that it offers its employees attractive compensation, benefits
and incentive programs that are competitive within its industry. The Company
believes that its compensation and training policies enhance its ability to
maintain a stable, productive workforce, which is essential to the efficient
operation and successful expansion of its business.

PURSUE COMPLEMENTARY OIL AND GAS OPERATIONS. The Company believes that its oil
and gas operations provide it with the additional financial flexibility to
generate cash flow during downturns in the onshore drilling market. The
Company's ability to participate in the ownership of interests in oil and gas
wells also generates opportunities to serve as the onshore drilling contractor
for other operators or on its own behalf.

CONTRACT DRILLING OPERATIONS

Although incorporated in 1982, the Company and its predecessor have
been engaged in domestic onshore contract drilling operations for a total of 41
years. The Company markets its contract drilling services to both major oil
companies and independent oil producers. As of May 21, 1997, the Company
owned 15 drilling rigs, 13 of which were operating for non-affiliated oil
producers, and 2 of which were stacked. All of the Company's drilling rigs are
located in the Permian Basin area of west Texas and eastern New Mexico. The
depth capabilities of the Company's rigs range from 8,500 feet to 30,000 feet.

In addition to the drilling rigs, the Company provides the crews and
most of the ancillary equipment used in the operation of the rigs. An onshore
drilling rig consists of engines, drawworks, mast, pumps to circulate drilling
fluids, blowout preventers, the drill string and related equipment. The size
and type of rig utilized for each drilling project depends upon the location of
the well, the well depth and equipment requirements specified in the drilling
contract, as well as other factors.

Major overhauls, repairs and general maintenance for the drilling rigs
are primarily conducted at the Company's principal support and storage
facilities in Midland, Texas. The Company emphasizes the maintenance and
periodic improvement of its drilling equipment and believes that its rigs are
generally in good condition.

-26-

<PAGE> 27

Drilling Rigs

The following table sets forth the type and depth capabilities of the
Company's 15 onshore drilling rigs.

<TABLE>
<CAPTION>
RIG NO. DEPTH CAPACITY TYPE
------- -------------- ----
<S> <C> <C> <C>
2* 8,500 Weiss W-45
3* 8,500 Weiss W-45
6 12,500 National 75A
10* 12,500 National 75A
12 11,500 National 50A
14* 12,500 BDW 650
17* 9,500 Unit 15
22* 13,500 Brewster N-75
23* 13,500 National 75A
24* 13,500 Gardner Denver 700
27* 13,500 Gardner Denver 700
28* 16,000 Gardner Denver 800
29* 16,000 Gardner Denver 800
55* 30,000 Gardner Denver DW-2100
56* 20,000 National 110-M
</TABLE>

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

* In active operation at May 21, 1997.

Drilling Contracts

The Company's drilling contracts are usually obtained through
competitive bidding or as a result of direct negotiations with customers. Such
contracts typically obligate the Company to pay all expenses associated with
drilling an oil or gas well, including wages of drilling personnel, maintenance
expenses and incidental purchases of rig supplies and equipment. The majority
of the Company's contracts are "footage" contracts with the remainder being
"daywork" or "turnkey" contracts. Under a footage contract, the Company charges
an agreed price per foot drilled, whereas a day- work contract permits the
Company to charge a per diem fixed rate for each day the rig is in operation. A
turnkey contract specifies a total price for drilling a well plus providing
other services, materials or equipment which are typically the responsibility
of the operator under footage or daywork contracts. Prices for all contracts
vary depending on the location, depth, duration, complexity of the well to be
drilled, operating conditions and other factors peculiar to each proposed well.
Under footage and turnkey contracts, the Company manages the drilling operation
and the type of equipment to be used, subject to certain customer
specifications. The Company also bears the risk and expense of mechanical
malfunctions, equipment shortages, and other delays arising from problems
caused in drilling a well. Daywork contracts permit the operator of the well to
manage drilling operations and to specify the type of equipment to be used.
Under daywork contracts, the Company generally bears none of the risk due to
time delays caused by unforeseeable circumstances such as stuck or broken drill
pipe or blowouts. Of the 13 rigs working at May 21, 1997, 4 were subject to
daywork contracts and 9 were subject to footage contracts.

Rig Utilization

The Company's contract drilling revenues depend upon the utilization of
its drilling rigs and the contract rates received for its drilling operations.
These two factors are affected by a number of variables, including competitive
conditions in the drilling industry and the level of exploration and
development activity conducted by oil and gas producers at any given time. The
level of domestic drilling activity has historically fluctuated and cannot be
accurately predicted because of numerous factors affecting the petroleum
industry, including oil and gas prices and the degree of government regulation
of the industry.

-27-

<PAGE> 28

Although all 15 of the Company's drilling rigs are operational and are
actively marketed for service to the oil and gas exploration industry, the
conditions that have existed in the drilling industry have, until recently,
caused the Company to limit the number of active rigs at any one time to a
maximum of 10, primarily due to a shortage of qualified and experienced crews.
Operating more than 10 rigs under such conditions might have required the
Company to hire less experienced crews which it believes would result in
operating inefficiencies and higher accident rates which, in turn, could
adversely affect the Company's profitability and competitive position. However,
as a result of recent and further increases in demand for the Company's
contract drilling services, coupled with the ability of the Company to maximize
its business strategy of attracting and retaining experienced and qualified
employees, the Company had 13 drilling rigs in active service at May 21,
1997. In an effort to achieve and maintain more efficient drilling operations,
the Company prefers not to hire less experienced crews.

Markets and Customers

During the fiscal year ended March 31, 1996, the Company drilled a
total of 87 wells for approximately 27 customers. The following table sets
forth certain information with respect to the principal customers for the
Company's contract drilling services during such period.

<TABLE>
<CAPTION>
PERCENT OF NUMBER OF WELLS
NAME OF CUSTOMER TOTAL REVENUES DRILLED
---------------- -------------- -------

<S> <C> <C>
Mobil Exploration & Producing U. S. Inc. 18% 23
Titan Resources I, Inc. 18% 4
Arrington Oil and Gas, Inc. 13% 1
</TABLE>

In the nine months ended December 31, 1996, the Company drilled a total
of 75 wells for approximately 21 customers.

The loss of any one or more of the above customers could have a
material adverse effect on the Company, depending upon the demand for the
Company's drilling rigs at the time of such loss and the Company's ability to
attract new customers.

OIL AND GAS OPERATIONS

The Company's oil and gas acquisition exploration, development and
production activities are primarily concentrated in the Permian Basin, an
approximately 70-county region of west Texas and southeast New Mexico. The
Company individually acquires or participates in joint ventures or other
arrangements as a working interest owner for such projects and usually provides
the contract drilling services for projects in which it has an interest. The
Company believes that its involvement in such projects complements its contract
drilling services by providing the Company with an additional source of
revenues and a profitable source of additional rig utilization.

Exploration for oil and gas requires substantial expenditures,
especially for exploration in more remote areas. As is customary in the oil and
gas industry, the drilling of oil and gas wells is accomplished through
participation with other individuals, partnerships or corporations. One of the
parties experienced with operations in the area is usually designated as the
operator of the property and is responsible for the direct supervision,
administration and accounting for wells drilled and completed pursuant to an
operating agreement between the parties. The Company typically serves as
operator of oil and gas prospects assembled by the Company and participates as
a non-operating working interest owner in prospects assembled and generated by
third parties. As operator, the Company supervises the drilling and completion
of wells and production therefrom and the further development of surrounding
properties. The operator of a well has significant control over its location
and the timing of its drilling. In addition, the operator of a well receives
fees from other working interest owners as reimbursement for the general and
administrative expenses attendant to the operation of the wells. The operator
will normally receive revenues and pay expenses equal to more than its
ownership interest in the wells, and then must remit or collect all but its
share to or from the other respective participants in the well. At May 21,
1997 the Company was operator of 33 wells.

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<PAGE> 29

Principal Oil and Gas Properties

The following sets forth a brief summary of the Company's principal
exploration and development prospects in progress at May 21, 1997. In total,
the Company has identified more than 27 potential drilling locations in the
Permian Basin, none of which are included in the Company's current reserve
report.

Big Mac Prospect. Since August, 1996, the Company has drilled two
gross (0.5 net) successful wells and 1 gross (.25 net) dry holes on this
prospect. As of May 21, 1997, the No. 1 well was producing approximately 22
Bbls of oil per day, approximately 23 Mcf of gas per day and 25 barrels of water
per day. A pumping unit was in process of being installed at May 21, 1997. The
No. 1A well has been shut-in indefinitely because of the appearance of water
production in both wells. Due to the close proximity of these two wells, the
Company believes that producing both wells concurrently would be detrimental to
the reservoir. The Company has identified six additional potential drilling
locations on the Company's 900 gross (225 net) leasehold acres in the McElroy
(Glorietta Baxter) Field in Crane County, Texas. The Company's working interest
and net revenue interest in this prospect are 25% and 18.75%, respectively. As
of May 21, 1997 other independent oil and gas operators and producers working
in this area were conducting a three dimensional ("3D") seismic survey of the
area. The Company has entered into an agreement with these operators to utilize
the 3D data covering the Company's acreage. The Company plans to drill as many
as six additional wells in this field, and expects to drill as many as three of
these wells in 1997, pending evaluation of the 3D data.

North Pearl Prospect. The Company has identified three additional
potential drilling locations at depths of approximately 7,000 feet on the
Company's 640 gross (128 net) leasehold acres at Arkansas Junction in Lea
County, New Mexico. The Company's working interest and net revenue interest in
this prospect are 25% and 18.75%, respectively. The Company has completed its
first well in the Corbin West Sand (a Delaware-Cherry Canyon sand) and at May
21, 1997, the well had stabilized and was producing approximately 13 Bbls of
oil per day and 20 Bbls of water per day. The Company plans to re-enter an
offset well and attempt a dual completion in the Queen formation as a producer
and a lower Delaware sand as a salt water disposal.

Phase III Partnership. The Company has identified three potential
drilling locations on the Company's 4,353 gross (218 net) leasehold acres in
the Phase III (Fusselman) Field in Glasscock County, Texas. The Company may
increase its current 5% working interest by 12.5%. The Ray #1 well was drilled
in January 1995 and as of May 21, 1997, was producing approximately 72 BOE per
day from the Fusselman formation. The three remaining locations also target the
Fusselman formation. The Glass "22" #1 well was in process of being drilled at
May 21, 1997.

Petco Prospect. The Company has identified one potential drilling
location targeting the Devonian and Ellenberger formations at depths of
approximately 13,500 feet on the Company's 640 gross (160 net) leasehold acres
in the Petco Field in Pecos County, Texas. The Company's working interest and
net revenue interest in this prospect are 25% and 18.75%, respectively. The
Reed #2303 well was in process of being completed at May 21, 1997.

Barstow Fusselman Prospect - Miller Unit. The Company has identified
two potential drilling locations at the Fusselman formation at a depth of
approximately 17,400 feet on the Company's 2,094 gross (523 net) leasehold
acres in the Barstow Fusselman Field in Ward County, Texas. The Company drilled
the Fuller #1 well in December, 1996. The Company is currently completing the
second well. The Company's working interest and net revenue interest in this
prospect are 25% and 18.75%, respectively. As of May 21, 1997, the Fuller #1
well was producing 2,250 Mcf of gas per day. However, the gas has a 31% CO2 gas
content.

SOC Prospect. The Company has an 8% working interest and 5.92% net
revenue interest in the initial well on this prospect. The Roark #1 well is
currently producing 4,000 Mcf of gas per day. The Company has identified up to
four potential drilling locations on the Company's 3,200 gross (155 net)
leasehold acres in Winkler County, Texas. The Company expects to shoot an
additional seismic survey to confirm its current locations. The target
formations are the Atoka, Morrow and Fusselman at a depth of approximately
18,500 feet. Upon processing and interpretation of the seismic data, the
Company intends to drill up to four locations.

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<PAGE> 30

Pinnacle Prospect. The Company has assembled a 1804 gross (451 net)
acreage position in the Yates Plateau area of Ector County, Texas, which will
provide up to eight drilling locations depending upon initial drilling results.
The Company anticipates that drilling of the first well may commence within
sixty days. The Company owns a 25% working interest in the prospect, of which
12.5% is a carried working interest.

Other. In addition to the Company's oil and gas properties in the
United States, the Company owns an offshore concession in the Republic of
Palau. The concession, which was acquired in 1996, is not significant to the
Company's oil and gas operations, and, except as otherwise indicated, all
information herein excludes information relating to this concession.

Oil and Gas Reserves

The following table sets forth certain information regarding the
Company's proved reserves at March 31, 1996, all of which were proved developed
producing, as estimated by Joe C. Neal and Associates, Midland, Texas.

<TABLE>
<CAPTION>
PROVED DEVELOPED RESERVES
--------------------------------------------------------
PRESENT
GAS OIL VALUE OF ESTIMATED
(MCF) (BBLS) FUTURE NET REVENUES
----- ------ -------------------
<S> <C> <C> <C>
2,815,591 368,643 $4,953,616
</TABLE>

Additional information concerning the Company's estimated proved oil
and gas reserves is included in the notes to the Company's financial statements
incorporated by reference into this Prospectus.

The reserve information is only an estimate. There are numerous
uncertainties inherent in estimating oil and gas reserves and their estimated
values, including many factors beyond the control of the producer. Reserve
engineering is a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact manner. The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. As a result, estimates
of different engineers often vary. In addition, estimates of reserves are
subject to revision due to the results of drilling, testing and production
subsequent to the date of such estimates. Accordingly, reserve estimates are
often different from the quantities of oil and gas that are ultimately
recovered. The accuracy of such estimates is highly dependent upon the accuracy
of the underlying assumptions upon which they were based.

In general, the volume of production from oil and gas properties
declines as reserves are depleted. Except to the extent the Company acquires
properties containing proved reserves or conducts successful exploration and
development activities, or both, the proved reserves of, and volumes of
production by, the Company will decline as reserves are produced. The Company's
future oil and gas production is therefore highly dependent upon its level of
success in acquiring or finding additional reserves. See "Risk Factors --
Replacement of Reserves; Risks of Oil and Gas Exploration, Development and
Production".

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<PAGE> 31

Productive Wells and Acreage

The following tables set forth the gross and net productive oil and
gas wells and developed and undeveloped acreage in which the company owned a
working interest as of March 31, 1996. Excluded from the table is acreage in
which the Company's interest is limited to royalty or similar interests.

<TABLE>
<CAPTION>
PRODUCTIVE WELLS
---------------------------------
GROSS NET
--------------- ---------------
OIL GAS OIL GAS
------ ------ ------ ------
<S> <C> <C> <C> <C>
Texas ........ 66 7 9.25 .85
New Mexico ... 10 2 1.73 .14

------ ------ ------ ------
76 9 10.98 .99
====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
ACREAGE
---------------------------------
DEVELOPED UNDEVELOPED
--------------- ---------------
GROSS NET GROSS NET
------ ------ ------ ------
<S> <C> <C> <C> <C>
Texas ............... 15,808 2,004 7,051 1,941
New Mexico ..... 2,009 295 639 639

17,817 2,299 7,690 2,580
====== ====== ====== ======
</TABLE>

Generally, the terms of developed oil and gas leaseholds are continuing
and such leases remain in force by virtue of, and so long as, production from
lands under lease is maintained. Undeveloped oil and gas leaseholds are
generally for a primary term, such as five or ten years, subject to maintenance
with the payment of specified minimum delay rentals or extension by production.

-31-

<PAGE> 32

Drilling Activity

The following table sets forth certain information concerning the
number of gross and net wells drilled for the Company's account during the
periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------
1994 1995 1996
------------ ------------ ------------
TYPE OF WELL GROSS NET GROSS NET GROSS NET
------------ ----- ---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Exploratory
Oil 6 .61 4 .44 7 1.34
Gas -- -- 3 .29 1 .25
Dry 9 1.25 9 1.19 11 2.07

Development
Oil 3 .20 6 .84 6 .48
Gas 1 .13 -- -- -- --
Dry -- -- 2 .21 3 .51
</TABLE>

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

(1) An exploratory well is a well drilled to find and produce oil or gas in
an unproved area, to find a new reservoir in a field previously found to
be productive of oil or gas in another reservoir, or to extend a known
reservoir.

(2) A development well is a well drilled within the proved area of a oil or
gas reservoir to the depth of a stratigraphic horizon known to be
productive.

At May 21, 1997, the Company was participating in the drilling of 1
gross (.05 net) exploratory well in Glasscock County, Texas.

Substantially all of the equipment used in the Company's drilling
operations is owned by the Company; however, certain insignificant items of
drilling equipment are leased or rented as needed as such equipment either
cannot be purchased or is only necessary for the drilling of certain types of
wells located in certain areas.

-32-

<PAGE> 33

Production, Prices and Costs

The following table sets forth certain information regarding
volumes of the Company's net production of oil and gas, the average sales
prices received associated with its sales of oil and gas, and the average
production (lifting) cost per equivalent barrel of oil.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------------------- -------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net production
Oil (Bbls) 28,600 51,300 70,941 49,633 51,100
Gas (Mcf) 74,800 104,700 212,062 145,873 232,636

Sales prices
Oil ($/Bbl) $ 16.13 $ 17.13 $ 17.67 $ 17.56 $ 21.48
Gas ($/Mcf) $ 1.92 $ 1.55 $ 1.52 $ 1.54 $ 1.45

Production (lifting)
Costs per BOE $ 8.50 $ 4.07 $ 5.20 $ 5.06 $ 6.55
</TABLE>

Markets and Customers

The Company sells its oil and gas at the wellhead on an "as-produced"
basis and does not refine petroleum products. Other than normal production
facilities, the Company does not own an interest in any bulk storage facilities
or pipelines. As is customary in the industry, the Company sells its production
in any one area to relatively few purchasers, including transmission companies
that have pipelines near the Company's producing wells. Gas purchase contracts
are generally on a short-term "spot market" basis and usually contain
provisions by which the prices and delivery quantities for future deliveries
will be determined. During the year ended March 31, 1996, Amoco Production
Company accounted for approximately 38% of the Company's oil and gas revenues
for such period. The loss of any significant purchaser, including Amoco
Production Company, could cease or delay the Company's production and sale of
its oil and gas reserves to the extent that alternative purchasers having
adequate gathering facilities are not found to replace such purchaser's volume
of oil or gas purchased. However, in the event of a loss of any purchaser,
including Amoco Production Company, the Company believes that, under present
circumstances, it would be able to find other purchases for its oil and gas
production.

The Company's oil and gas reserves and production are not subject to
any long-term supply or similar agreements with foreign governments or
authorities.

OFFICES AND SUPPORT FACILITIES

In addition to its drilling rigs and related equipment and its oil and
gas properties, the Company owns a 31 acre tract of land in Midland, Texas on
which the Company's executive offices are located and on which the principal
support and storage facilities for its contract drilling operations are
located. Such facilities include an office building and fabrication and
maintenance shop. The facility allows for open storage of drilling equipment
and drill pipe.

The Company also owns a 78 acre tract of land in Odessa, Texas, which
is presently being utilized as a secondary storage location. From time to time,
the Company's rigs are stored and stacked in the field at the rig's last
location site.

-33-

<PAGE> 34

The Company owns a warehouse and yard facility situated on
approximately 4 acres in Midland, Texas. This additional storage is being used
to complement the existing Midland yard facility. The Company believes that the
support and storage facilities for its drilling rigs and related equipment are
more than adequate.

In connection with its drilling and exploration operations, the Company
maintains 56 automobiles and pick-up trucks, 15 trucks and one airplane.

EMPLOYEES

At May 21, 1997, the Company had 40 salaried employees and
approximately 283 hourly paid employees. Employees of the Company are not
covered by any collective bargaining agreements and the Company has never
experienced a strike or work stoppage. The Company considers its employee
relations to be satisfactory.

COMPETITION

Contract Drilling. The Company encounters substantial competition from
other drilling contractors in its contract drilling operations. The Company's
principal market areas of west Texas and eastern New Mexico are highly
fragmented and competitive. Companies compete primarily on the basis of
contract rates, suitability and availability of equipment and crews, experience
of drilling in certain areas and reputation. The Company believes it competes
favorably with respect to all of these factors. Competition is primarily on a
well-by-well basis and may vary significantly at any particular time. Drilling
rigs can be moved from one region to another in response to perceived long-term
changes in levels of activity. In recent years, competition within the industry
has been intense due to the oversupply of rigs which resulted from the rig
overbuilding during the peak drilling years of 1980 and 1981, and depressed
demand resulting from lower oil and gas prices and excess deliverability of
gas.

Oil and Gas Operations. The Company also encounters strong competition
from major oil companies and independent producers and operators in acquiring
properties and leases for exploration for oil and gas. Competition is
particularly intense with respect to the acquisition of desirable undeveloped
oil and gas leases. The principal competitive factors in the acquisition of
such undeveloped oil and gas leases include the staff and data necessary to
acquire and develop such leases, as well as the amount of consideration and
terms offered. Many of the Company's competitors have financial resources,
staffs and facilities substantially greater than those of the Company. In
addition, the producing and marketing of oil and gas is affected by a number of
factors which are beyond the control of the Company, the effect of which cannot
be accurately predicted. Of significant importance recently has been the
domination and control of oil markets and prices by foreign producers.

TITLE TO PROPERTIES

As is customary in the oil and gas industry, a preliminary title
examination is conducted at the time oil or gas properties believed to be
suitable for drilling are acquired by the operator. Prior to the commencement
of operations, curative work determined to be appropriate as a result of a
title search is performed with respect to significant defects before the
operator commences development. Title examinations have been performed with
respect to substantially all of the Company's interests in its producing
properties. The Company believes that title to its properties is good and
defensible in accordance with standards generally acceptable in the oil and gas
industry, subject to such exceptions which, in the Company's opinion, are not
so material as to detract substantially from the value of such properties. The
Company's properties are subject to royalty, overriding royalty, and other
outstanding interests customary in the industry, and are also subject to
burdens such as liens incident to operating agreements, current taxes not yet
due, development obligations under oil and gas leases, and other encumbrances,
easements and restrictions. The Company does not believe that any of these
burdens will materially interfere with the use of its properties in the
operation of the Company's business.

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<PAGE> 35

LEGAL PROCEEDINGS

In March, 1992, the Company was notified by the Texas Department of
Insurance that the Company's former workers' compensation insurance carriers,
Sir Lloyd's Insurance Company and its affiliate, Standard Financial Indemnity
Corporation ("SFIC"), had been placed into liquidation by order of the 201st
District Court of Travis County, Texas, on March 12, 1992 in Cause No.
92-12765, The State of Texas vs. Sir Lloyd's Insurance Company and Sir
Insurance Agency, Inc., and in Cause No. 91-12766, The State of Texas vs.
Standard Financial Indemnity Corporation. Approximately two months before being
ordered into liquidation, SFIC requested that the Company pay policy premiums
in the approximate amount of $646,000. On July 22, 1993 the special deputy
receiver of SFIC billed the Company approximately $1,061,000 for retrospective
premiums, but adjusted the amount to $854,153 on January 12, 1994. Although the
Company disputes the amount claimed by the receiver for SFIC, the Company is
presently unable to determine whether and to what extent such amount is, in
fact, an accurate estimate of amounts owed to SFIC, if any. However, an accrual
was made in the company's financial statements for the amount in question. In a
related development, on June 5, 1995, the Company received a letter from the
Texas Property and Casualty Insurance Guaranty Association ("Guaranty
Association") requesting payment in the approximate amount of $729,000 for
claims that the Guaranty Association has paid on behalf of SFIC. The Guaranty
Association does not believe that the policies written by SFIC involved a
transfer of insurance risk as required by the Texas Insurance Code and is
asserting that it is entitled to reimbursement for all monies paid to claimants
under these policies. In November, 1995, the Guaranty Association filed a
lawsuit against the Company in Travis County, Texas, styled Texas Property and
Casualty Insurance Guaranty Association vs. TMBR/Sharp Drilling, Inc., Cause
No. 95-12318. The Guaranty Association is seeking to recover past workers'
compensation claims in the amount of approximately $803,000, which have been
advanced by the Guaranty Association under the Company's workers compensation
insurance program with SFIC. In May, 1996, and pursuant to an order of the
Travis County District Court, the claims of the receiver for SFIC were assigned
to and became a part of the Guaranty Association's claims against the Company.
The Company has rejected a settlement offer made by the Guaranty Association
for an amount substantially less than the amount accrued by the Company, and
the Company intends to vigorously defend its position against the Guaranty
Association.

In September, 1993, the Company was notified that it had been named as
a defendant in a lawsuit styled Bobbie Simmons, et al vs. TMBR/Sharp Drilling,
Inc., et al and filed in Midland County, Texas, Cause No. B-39,649. The
plaintiffs are members of the family of a former employee of the Company. The
lawsuit alleges that the former employee died as the result of an accident
while working on one of the Company's drilling rigs and that the accident was a
result of the Company's negligence. The plaintiffs allege an unspecified amount
of damages from pain and suffering, mental anguish and wrongful death and also
seek an unspecified amount of exemplary damages. The Company, along with its
workers' compensation carrier, is vigorously defending the lawsuit. No
contingencies have been recorded in the Company's financial statements as
management believes that there is no risk of loss to the Company as the Company
is adequately insured against any potential loss the Company may incur. The
Company's insurance covering this lawsuit provides coverage for punitive
damages. The parties to the lawsuit have participated in discovery proceedings.
As of the date of this Prospectus, the case had not been set for trial.

In June, 1995, a lawsuit was filed by William E. Richards, plaintiff,
against Texaco, Inc. and the Company in the Fifth Judicial District Court,
Cause No. CV 95-269j, Lea County, New Mexico. The Company was providing
contract drilling services to Texaco, Inc. at the time of the alleged accident
which led to the filing of plaintiff's lawsuit. At the time of the alleged
accident, the plaintiff was an employee of an oil field service company
providing services to Texaco, Inc. The plaintiff has alleged that he sustained
personal injuries arising out of an accident that resulted from the Company's
drilling rig coming in contact with an electrical power line, and that the
Company failed to provide the plaintiff a safe place to work. The petition
seeks an unspecified amount of damages, including punitive damages, from
Texaco, Inc. and the Company. The Company's insurance covering this lawsuit
does not provide coverage against punitive damages. Nevertheless, the Company
believes that any loss it may incur will be immaterial to the financial
statements taken as a whole and will be within insurance policy limits.
Accordingly, no amounts have been accrued as contingent losses in the Company's
financial statements. On June 3, 1997, the parties to the lawsuit entered into
a settlement agreement pursuant to which the Company agreed to pay $18,750 in
full settlement of all claims against the Company.

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<PAGE> 36

REGULATION

Oil and Gas

The Company's operations are regulated by certain federal and state
agencies. In particular, oil and gas production and related operations are or
have been subject to price controls, taxes and other laws relating to the oil
and gas industry. The Company cannot predict how existing laws and regulations
may be interpreted by enforcement agencies or court rulings, whether additional
laws and regulations will be adopted, or the effect such changes may have on
its business, financial condition or results of operations.

The Company's oil and gas exploration, production and related
operations are subject to extensive rules and regulations promulgated by
federal, state and local agencies. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil and gas industry increases the Company's cost of doing business and affects
its profitability. Because such rules and regulations are frequently amended or
reinterpreted, the Company is unable to predict the future cost or impact of
complying with such laws.

The State of Texas and many other states require permits for drilling
operations, drilling bonds and reports concerning operations and impose other
requirements relating to the exploration and production of oil and gas. Such
states also have statutes or regulations addressing conservation matters,
including provisions for the unitization or pooling of oil and gas properties,
the establishment of maximum rates of production from oil and gas wells and the
regulation of spacing, plugging and abandonment of such wells.

Sales of gas by the Company are not regulated and are made at market
prices. However, the Federal Energy Regulatory Commission ("FERC") regulates
interstate and certain intrastate gas transportation rates and service
conditions, which affect the marketing of gas produced by the Company, as well
as the revenues received by the Company for sales of such production. Since the
mid-1980s, FERC has issued a series of orders, culminating in Order Nos. 636,
636-A and 636-B ("Order 636"), that have significantly altered the marketing
and transportation of gas. Order 636 mandates a fundamental restructuring of
interstate pipeline sales and transportation service, including the unbundling
by interstate pipelines of the sales, transportation, storage and other
components of the city-gate sales services such pipelines previously performed.
One of FERC's purposes in issuing the orders was to increase competition within
all phases of the gas industry. Order 636 and subsequent FERC orders issued in
individual pipeline restructuring proceedings have been the subject of appeals,
the results of which have generally been supportive of the FERC's open-access
policy. In 1996, the United States Court of Appeals for the District of
Columbia Circuit largely upheld Order No. 636, et seq. Because further review
of certain of these orders is still possible, and other appeals remain pending,
it is difficult to predict the ultimate impact of the orders on the Company and
its gas marketing efforts. Generally, Order 636 has eliminated or substantially
reduced the interstate pipelines' traditional role as wholesalers of gas, and
has substantially increased competition and volatility in gas markets. While
significant regulatory uncertainty remains, Order 636 may ultimately enhance
the Company's ability to market and transport its gas, although it may also
subject the Company to greater competition.

The sale of oil by the Company is not regulated and is made at market
prices. The price the Company receives from the sale of oil is affected by the
cost of transporting the product to market. Effective as of January 1, 1995,
FERC implemented regulations establishing an indexing system for transportation
rates for interstate common carrier oil pipelines, which, generally, would
index such rates to inflation, subject to certain conditions and limitations.
These regulations could increase the cost of transporting oil by interstate
pipelines, although the most recent adjustment generally decreased rates. These
regulations have generally been approved on judicial review. The Company is not
able to predict with certainty what effect, if any, these regulations will have
on it, but, other factors being equal, the regulations may, over time, tend to
increase transportation costs or reduce wellhead prices for oil.

-36-

<PAGE> 37

The Company is required to comply with various federal and state
regulations regarding plugging and abandonment of oil and gas wells.

Environmental

Various federal, state and local laws and regulations governing the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, health and safety, affect the Company's
operations and costs. These laws and regulations sometimes require governmental
authorization before certain activities, limit or prohibit other activities
because of protected areas or species, impose substantial liabilities for
pollution related to Company operations or properties, and provide penalties
for noncompliance. In particular, the Company's exploration and production
operations, its activities in connection with storage and transportation of oil
and other liquid hydrocarbons, and its use of facilities for treating,
processing or otherwise handling hydrocarbons and related exploration and
production wastes are subject to stringent environmental regulation. As with
the industry generally, compliance with existing and anticipated regulations
increases the Company's overall cost of business. While these regulations
affect the Company's capital expenditures and earnings, the Company believes
that such regulations do not affect its competitive position in the industry
because its competitors are similarly affected by environmental regulatory
programs. Environmental regulations have historically been subject to frequent
change and, therefore, the Company is unable to predict the future costs or
other future impacts of environmental regulations on its future operations. A
discharge of hydrocarbons or hazardous substances into the environment could
subject the Company to substantial expense, including the cost to comply with
applicable regulations that require a response to the discharge, such as
containment or cleanup, claims by neighboring landowners or other third parties
for personal injury, property damage or their response costs and penalties
assessed, or other claims sought by regulatory agencies for response cost or
for natural resource damages.

The following are examples of some environmental laws that potentially
impact the Company and its operations.

WATER. The Oil Pollution Act ("OPA") was enacted in 1990 and amends
provisions of the Federal Water Pollution Control Act of 1972 ("FWPCA") and
other statutes as they pertain to prevention of and response to major oil
spills. The OPA subjects owners of facilities to strict, joint and potentially
unlimited liability for removal costs and certain other consequences of an oil
spill, where such spill is into navigable waters, or along shorelines. In the
event of an oil spill into such waters, substantial liabilities could be
imposed upon the Company. States in which the Company operates have also
enacted similar laws. Regulations are currently being developed under the OPA
and similar state laws that may also impose additional regulatory burdens on
the Company.

The FWPCA imposes restrictions and strict controls regarding the
discharge of produced waters, other oil and gas wastes, any form of pollutant,
and, in some instances, storm water runoff, into waters of the United States.
The FWPCA provides for civil, criminal and administrative penalties for any
unauthorized discharges and, along with the OPA, imposes substantial potential
liability for the costs of removal, remediation or damages resulting from an
unauthorized discharge. State laws for the control of water pollution also
provide civil, criminal and administrative penalties and liabilities in the
case of an unauthorized discharge into state waters. The cost of compliance
with the OPA and the FWPCA have not historically been material to the Company's
operations, but there can be no assurance that changes in federal, state or
local water pollution control programs will not materially adversely effect the
Company in the future. Although no assurances can be given, the Company
believes that compliance with existing permits and compliance with foreseeable
new permit requirements will not have a material adverse effect on the
Company's financial condition or results of operations.

AIR EMISSIONS. Amendments to the Federal Clean Air Act enacted in late
1990 (the "1990 CAA Amendments") require or will require most industrial
operations in the United States to incur capital expenditures in order to meet
air emissions control standards developed by the Environmental Protection
Agency ("EPA") and state environmental agencies. Although no assurances can be
given, the Company believes implementation of the 1990 CAA Amendments will not
have a material adverse effect on the Company's financial condition or results
of operations.

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<PAGE> 38

SOLID WASTE. The Company generates non-hazardous solid wastes that are
subject to the requirements of the Federal Resource Conservation and Recovery
Act ("RCRA") and comparable state statutes. The EPA and the states in which the
Company operates are considering the adoption of stricter disposal standards
for the type of non-hazardous wastes generated by the Company. RCRA also
governs the generation, management, and disposal of hazardous wastes. At
present, the Company is not required to comply with a substantial portion of
the RCRA requirements because the Company's operations generate minimal
quantities of hazardous wastes. However, it is anticipated that additional
wastes, which could include wastes currently generated during operations, could
in the future be designated as "hazardous wastes." Hazardous wastes are subject
to more rigorous and costly disposal and management requirements than are
non-hazardous wastes. Such changes in the regulations may result in additional
capital expenditures or operating expenses by the Company

SUPERFUND. The Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA"), also known as "Superfund", imposes liability, without
regard to fault or the legality of the original act, on certain classes of
persons in connection with the release of a "hazardous substance" into the
environment. These persons include the current owner or operator of any site
where a release historically occurred and companies that disposed or arranged
for the disposal of the hazardous substances found at the site. CERCLA also
authorizes the EPA and, in some instances, third parties to act in response to
threats to the public health or the environment and to seek to recover from the
responsible classes of persons the costs they incur. In the course of its
ordinary operations, the Company may have managed substances that may fall
within CERCLA's definition of a "hazardous substance". The Company may be
jointly and severally liable under CERCLA for all or part of the costs required
to clean up sites where the Company disposed of or arranged for the disposal of
these substances. This potential liability extends to properties that the
Company owned or operated, as well as to properties owned and operated by
others at which disposal of the Company's hazardous substances occurred.

The Company may also fall into the category of the "current owner or
operator". The Company currently owns or leases numerous properties that for
many years have been used for the exploration and production of oil and gas.
Although the Company believes it has utilized operating and disposal practices
that were standard in the industry at the time, hydrocarbons or other wastes
may have been disposed of or released by the Company on or under the properties
owned or leased by the Company. In addition, many of these properties have been
previously owned or operated by third parties who may have disposed of or
released hydrocarbons or other wastes at these properties. Under CERCLA, and
analogous state laws, the Company could be subject to certain liabilities and
obligations, such as being required to remove or remediate previously disposed
wastes (including wastes disposed of or released by prior owners or operators),
to clean up contaminated property (including contaminated groundwater) or to
perform remedial plugging operations to prevent future contamination.

-38-

<PAGE> 39

MANAGEMENT

Directors of the Company hold office until the annual meeting of
stockholders following their election or appointment and until their respective
successors have been duly elected and qualified. Officers of the Company are
selected by the Board of Directors of the Company and serve at the discretion
of the Board of Directors. Set forth below are the name, age and the office
held by each Director and officer of the Company as of May 21, 1997.

<TABLE>
<CAPTION>
DIRECTOR OR OFFICER
NAME AGE POSITION WITH COMPANY SINCE
---- --- --------------------- -----
<S> <C> <C> <C>
Thomas C. Brown 70 Chairman of the Board of Directors 1982
and Chief Executive Officer

Joe G. Roper 69 Director and President 1982

Donald L. Evans (1) 49 Director 1982

David N. Fitzgerald (1) 73 Director 1984

Don H. Lawson 58 Vice President - Operations 1992

Patricia R. Elledge 39 Controller - Treasurer 1994

James M. Alsup 60 Secretary 1982
</TABLE>

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

(1) Member of Audit Committee and Compensation Committee

Mr. Brown has served as a Director of the Company since the Company's
formation in 1982. He is presently Chairman of the Board of Directors and Chief
Executive Officer of the Company and has served in such capacities since 1990.
Mr. Brown is also a Director of Tom Brown, Inc., the former parent of the
Company.

Mr. Roper has served as a Director of the Company since the Company's
formation in 1982. He served as Chairman of the Board of Directors and Chief
Executive Officer of the Company from 1982 until 1990 when he became President
of the Company.

Mr. Evans has been a Director of the Company since the Company's
formation in 1982. He served as President of the Company from 1982 until 1990
when Mr. Roper was elected to the office of President. Mr. Evans is currently
the Chairman of the Board of Directors and Chief Executive Officer of Tom
Brown, Inc., positions he has held since 1990 and 1985, respectively.

Mr. Fitzgerald has served as a Director of the Company since his
initial election to the Board of Directors in 1984. He is the President and a
shareholder of Dave Fitzgerald, Inc., a privately held oilfield equipment sales
company that Mr. Fitzgerald has owned and operated since 1963 . Mr. Fitzgerald
is also a Director of Mineral Development, Inc.

Mr. Lawson has been employed by the Company since 1967. He has been
the Vice President - Operations of the Company since 1992.

Ms. Elledge was employed by the Company from September, 1989 to
December, 1993 when she resigned to relocate. Ms. Elledge returned to the
employ of the Company in September, 1994 in her current capacity as Controller
- - Treasurer.

Mr. Alsup has been the Secretary of the Company since the Company's
formation in 1982. He has been a partner in the law firm of Lynch, Chappell &
Alsup since 1970.

There are no family relationships between any of the Directors or
officers of the Company, except that Patricia R. Elledge is the daughter of Joe
G. Roper.

-39-

<PAGE> 40

COMPENSATION OF EXECUTIVES
AND RELATED MATTERS

SUMMARY OF ANNUAL COMPENSATION

The following table sets forth for each of the three fiscal years
ended March 31, 1996, a summary of the types and amounts of compensation paid
to the Chief Executive Officer of the Company and the only other executive
officer of the Company whose salary and bonuses for the fiscal year ended March
31, 1996 exceeded $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------- ------------------------ -------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
NAME AND SALARY BONUS SATION AWARDS SARS PAYOUTS SATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- -------------------- ----- ------- ------ ------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thomas C. Brown, 1996 72,000 0 (1) 0 0 0 0
Chairman of the Board 1995 72,000 0 (1) 0 0 0 0
of Directors and Chief 1994 72,000 0 (1) 0 0 0 0
Executive Officer

Joe G. Roper, 1996 150,615 0 (1) 0 0 0 244,808(2)
President and Director 1995 150,398 0 (1) 0 0 0 234,146(2)
1994 144,913 0 (1) 0 95,000 0 229,087(2)
</TABLE>

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

(1) The named executive officers of the Company were also provided certain
non-cash compensation and personal benefits. However, the aggregate
amount of such other compensation did not exceed $50,000 or 10% of the
named executive officer's salary during such fiscal year.

(2) Includes (i) $1,152 allocated to Mr. Roper's account under the Company's
401(k) profit sharing plan for the fiscal year ended March 31, 1996,
(ii) insurance premiums paid by the Company in the amounts of $38,896,
$29,386 and $24,327 for the years ended March 31, 1996, 1995 and 1994,
respectively, for an insurance policy on the life of Mr. Roper and (iii)
annual premiums of $204,760 under a split-dollar life insurance plan
maintained by the Company on behalf of Mr. Roper, of which $17,697,
$16,868 and $15,543 is attributable to term life insurance for the
fiscal years ended March 31, 1996, 1995 and 1994, respectively. During
the years ended March 31, 1996, 1995 and 1994, and pursuant to the terms
of the split-dollar agreement, the Company borrowed aggregate amounts of
$339,855, $316,655 and $126,453, respectively, against the cash value of
such insurance policy to pay the policy premiums and a portion of the
accrued interest on the cumulative amount of such borrowings. The
remaining portion of the accrued interest on such borrowings is paid
annually by the Company. At March 31, 1996, 1995 and 1994, the
outstanding loan balances were $3,174,386, $2,834,530 and $2,517,875,
respectively. The interest expense paid by the Company for the fiscal
years ended March 31, 1996, 1995, and 1994 was $91,412, $89,309 and
$78,307, respectively. A portion of the death benefit of the
split-dollar policy equal to the Company's net premium outlay is payable
to the Company upon the death of Mr. Roper, and the aggregate loan
amount is deducted from the insurance proceeds payable to the
beneficiaries of the policy. The balance of the proceeds are payable to
Mr. Roper's beneficiaries. The Company is not the beneficiary of either
insurance policy. In July, 1996, the Company terminated the split-dollar
life insurance plan.

-40-

<PAGE> 41

STOCK OPTIONS

The Company has in the past utilized stock options as part of its
overall compensation of Directors, officers and employees. However, no options
were granted during the fiscal year ended March 31, 1996 to either of the
executive officers named in the preceding Summary Compensation Table. Narrative
descriptions of the Company's stock option plans and outstanding stock options
are set forth under the captions "1984 Stock Option Plan" and "1994 Stock
Option Plan" below.

The following table sets forth certain information with respect to
stock option exercises during the fiscal year ended March 31, 1996 by the named
executive officers of the Company, and the value of each such officer's
unexercised stock options at March 31, 1996.

AGGREGATED OPTION/SAR EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR - END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS OPTIONS/SARS
ON VALUE AT FISCAL YEAR-END (#) AT FISCAL YEAR-END ($)(2)
EXERCISE REALIZED
NAME (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
T. C. Brown -- -- 462,000 -- $ 3,003,000 --

J. G. Roper 164,000 $ 1,226,575 283,500 47,500 $ 1,697,875 $ 163,875
</TABLE>

(1) The "value realized" is equal to the fair market value of a share of
Common Stock on the date of exercise (based on the closing price of
the Company's Common Stock), less the exercise price.

(2) Value of in-the-money options is equal to the fair market value of a
share of Common Stock at fiscal year-end (based on the closing price
of the Company's Common Stock), less the exercise price.

PROFIT SHARING PLAN

The Company maintains under Section 401(k) of the Internal Revenue
Code of 1986, as amended (the "Code"), a profit sharing plan (the "Profit
Sharing Plan") for the benefit of all employees. Under the Profit Sharing Plan,
the Company contributes to a trust administered by a third party trustee, out
of current or accumulated net profits, such amounts as it may, from time to
time, deem advisable. The contributions are invested by the Profit Sharing
Trustee in various investments selected by employee participants. Company
contributions to the Profit Sharing Plan are allocated monthly to the
individual accounts of employee-participants. A participant's accrued benefit
derived from Company contributions is 100% vested after seven years of
continuous employment, upon attaining age 65, or upon death or disability. Each
employee of the Company becomes eligible to participate in the Profit Sharing
Plan after one year of continuous employment. Directors of the Company who are
not also employees of the Company are not eligible to participate in the Profit
Sharing Plan. In addition to Company contributions, participants may also
contribute such amount as the participant determines each year, subject to
certain annual maximum limitations. Participants are always 100% vested in
their individual contributions. For the year ended March 31, 1996, the Company
contributed an amount equal to 25% of the contributions made by eligible
employees, limited, however, to a maximum of 5% of each eligible employee's
compensation. During the fiscal year ended March 31, 1996, the Company made
cash contributions in the total amount of $14,409 to the Profit Sharing Plan on
behalf of participating employees, of which $1,152 was allocated to the account
of Mr. Roper.

-41-

<PAGE> 42

COMPENSATION OF DIRECTORS

The Company has, from time to time, paid fees to its Directors for
attending Directors' meetings and reimbursed Directors for their expenses
incurred in connection with attending meetings. However, no such fees or
reimbursements were paid to any Director of the Company during the fiscal year
ended March 31, 1996.

In order to attract, retain and reward qualified Directors for the
successful conduct of the Company's business, the Company has in the past
granted stock options to its Directors. However, no options were granted to any
of the Company's Directors during the fiscal year ended March 31, 1996.

1984 STOCK OPTION PLAN

The Board of Directors authorized and adopted the TMBR/Sharp Drilling,
Inc. Stock Option Plan (the "1984 Plan") in August, 1984. Although the 1984
Plan expired by its own terms on August 8, 1994, options granted under the 1984
Plan prior to August 8, 1994 will remain outstanding until such options are
exercised or expire by their own terms and will continue to be subject to all
terms and conditions of the 1984 Plan. No additional options may be granted
under the 1984 Plan. Options granted under the 1984 Plan are either incentive
stock options within the meaning of Section 422 of the Code, or options which
do not constitute incentive stock options. Options granted under the 1984 Plan
have been, as provided in the 1984 Plan, granted only to key employees
(including officers and Directors who were also key employees) of the Company.

The 1984 Plan is administered by the Compensation Committee of the
Board of Directors. Members of the Compensation Committee were not eligible for
selection as a person to whom options could be granted pursuant to the 1984
Plan and were not eligible to participate in the 1984 Plan or any other stock
plan of the Company during the one year period prior to their appointment to
the Compensation Committee. Options granted under the 1984 Plan have exercise
prices equal to the fair market value of the shares at the time the options
were granted, as determined by the Compensation Committee. Options granted
under the 1984 Plan are exercisable for such periods as have been approved by
the Compensation Committee, except that such options are not exercisable, in
any event, for a period in excess of ten years from the date of grant.

An aggregate of 475,000 shares of the Company's Common Stock, $.10 par
value, are authorized to be issued under the 1984 Plan. Common Stock issued
under the 1984 Plan may be from authorized but unissued shares of Common Stock
or previously issued shares reacquired by the Company. The shares of Common
Stock with respect to which options have been granted are subject to adjustment
upon the occurrence of certain corporate reorganizations or recapitalizations,
including stock splits or stock dividends.

As required by the terms of the 1984 Plan, for an option granted under
the 1984 Plan to qualify as an incentive stock option, the aggregate fair
market value (determined at the time of grant) of the stock with respect to
which the incentive stock option was exercisable for the first time by an
employee during any calendar year could not exceed $100,000 and could not be
issued to an employee if, at the time the option was granted, such employee
owned stock possessing more than 10% of the combined voting power of all
classes of the Company's outstanding stock, unless (i) at the time the option
was granted the exercise price of such option was at least 110% of the fair
market value of the Common Stock on the date of grant and (ii) such option was
not exercisable after five years from the date of grant.

All or part of an option may be exercised by tendering cash or shares
of Common Stock having a fair market value equal to the option price, or a
combination of shares and cash. At the discretion of the Compensation
Committee, an option agreement may provide for the right to surrender an option
in return for a payment in cash and/or shares of Common Stock equal to the
excess of the fair market value of the shares with respect to which the option
is surrendered over the option price therefor, on such terms and conditions as
the Compensation Committee shall determine.

At May 21, 1997, there were outstanding under the 1984 Plan incentive
stock options to purchase a total of 106,000 shares of Common Stock.

-42-

<PAGE> 43

1994 STOCK OPTION PLAN

In July, 1994, the Board of Directors adopted the Company's 1994 Stock
Option Plan (the "1994 Plan"), which was ratified and adopted by the Company's
shareholders at the 1994 annual meeting of shareholders held on August 30,
1994. Options granted under the 1994 Plan may be either incentive stock options
within the meaning of Section 422 of the Code, or options which do not
constitute the incentive stock options. Key employees (including officers and
Directors who are also key employees) of the Company are eligible to receive
options under the 1994 Plan.

The 1994 Plan is administered by the Compensation Committee, none of
whom are eligible to participate in the 1994 Plan. The Compensation Committee
has the sole authority to select the employees who are to be granted options
and to establish the number of shares issuable under each option. Options
granted to an employee contain such terms and conditions and may be exercisable
for such periods as may be approved by the Compensation Committee. The purchase
price of Common Stock issued under each option will not be less than the fair
market value of the stock subject to the option at the time of grant. The
Compensation Committee, in its discretion, may provide for the payment of the
option price, in whole or in part, (i) in cash at the time of such exercise,
(ii) by the delivery of a number of shares of Common Stock (plus cash if
necessary) having a fair market value on the date of delivery equal to such
option price, or (iii) any combination of cash and stock.

The aggregate number of shares of Common Stock which may be issued
pursuant to the exercise of stock options granted under the 1994 Plan may not
exceed 750,000 shares, subject to adjustment in the number of shares with
respect to options and purchase prices therefor in the event of stock splits or
stock dividends, and for equitable adjustments in the event of certain
recapitalizations, mergers, consolidations or acquisitions. If any outstanding
option granted under the 1994 Plan expires or terminates prior to its exercise
in full, the shares allocable to the unexercised portion of such option may be
subsequently granted under the 1994 Plan.

The 1994 Plan provides that to the extent the aggregate fair market
value of the Common Stock (determined at the time of grant) with respect to
which incentive options are exercisable for the first time by an individual
during any calendar year under all incentive stock option plans of the Company
exceeds $100,000, such incentive stock options shall be treated as options
which do not constitute incentive stock options. The Compensation Committee
determines, in accordance with applicable provisions of the Code, which of an
optionee's incentive stock options will not constitute incentive stock options
because of such limitation. No incentive stock option may be granted to an
individual if, at the time the option is granted, such individual owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, unless (i) at the time such option is granted the option
price is at least 110% of the fair market value of the stock subject to the
option and (ii) such option by its terms is not exercisable after the
expiration of five years from the date of grant.

An option may be granted in exchange for an individual's right and
option to purchase shares of Common Stock pursuant to the terms of an agreement
that existed prior to the date such option is granted ("Prior Option"). An
option agreement that grants an option in exchange for a Prior Option must
provide for the surrender and cancellation of the Prior Option. The purchase
price of Common Stock issued under an option granted in exchange for a Prior
Option shall be determined by the Compensation Committee and, such purchase
price may, without limitation, be equal to the price for which the optionee
could have purchased Common Stock under the Prior Option.

The Board of Directors of the Company may amend or terminate the 1994
Plan at any time, but may not in any way impair the rights of an optionee under
an outstanding option without the consent of such optionee. The 1994 Plan
provides that no amendment may be made without shareholder approval if such
amendment would materially increase the benefits accruing to employee optionees
under the 1994 Plan; materially increase the number of securities issuable
under the 1994 Plan; or materially modify the requirements as to eligibility
for participation in the 1994 Plan. Unless earlier terminated, the 1994 Plan
will terminate upon and no further options may be granted after the expiration
of ten years from the date of its adoption by the Board of Directors.

-43-

<PAGE> 44

CHANGE OF CONTROL ARRANGEMENTS

The Company's 1984 and 1994 stock option plans, and its stock option
agreements with Messrs. Brown and Roper and other employees of the Company,
contain provisions which, upon the occurrence of certain events, could result
in additional compensation to such option holders, including Mr. Brown and Mr.
Roper. Such events include the following: if (i) the Company is not the
surviving entity in any merger or consolidation, (ii) the Company sells, leases
or exchanges or agrees to sell, lease or exchange all or substantially all of
its assets, (iii) the Company is to be dissolved and liquidated, (iv) any
person or entity, including a "group" as contemplated by Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended, acquires or gains ownership or
control of more than 50% of the outstanding shares of Common Stock, or (v) as a
result of or in connection with a contested election of directors, the persons
who were directors of the Company before such election shall cease to
constitute a majority of the Board (each such event is referred to herein as a
"Corporate Change"), then the Compensation Committee shall effect one or more
of the following alternatives with respect to the then outstanding options held
by employees, which may vary among individual employee optionees: (1)
accelerate the time at which such options may be exercised so that such options
may be exercised in full for a limited period of time on or before a specified
date (before or after such Corporation Change) fixed by the Compensation
Committee, after which specified date all unexercised options and all rights of
employee optionees thereunder shall terminate, (2) require the mandatory
surrender to the Company by selected optionees of some or all of such options
as of a date specified by the Compensation Committee, in which event the
Compensation Committee shall cancel such options and pay to each optionee an
amount of cash per share equal to the excess of the fair market value, or in
the case of stock options granted under the 1994 stock option plan the "Change
of Control Value" of the shares subject to such option, over the exercise
price(s) under such options for such shares, (3) make such adjustments to such
options as the Compensation Committee deems appropriate to reflect such
Corporate Change or (4) provide that thereafter upon any exercise of an option
theretofore granted the optionee shall be entitled to purchase under such
option, in lieu of the number of shares of Common Stock as to which such option
shall then be exercisable, the number and class of shares of stock or other
securities or property to which the optionee would have been entitled pursuant
to the terms of the agreement of merger, consolidation or sale of assets and
dissolution if, immediately prior to such merger, consolidation or sale of
assets and dissolution the optionee had been the holder of record of the number
of shares of Common Stock as to which such option is then exercisable.

For purposes of the 1994 stock option plan, the "Change of Control
Value" is an amount determined as follows, which is applicable: (i) the per
share price offered to shareholders of the Company in any such merger,
consolidation, sale of assets or dissolution transaction, (ii) the price per
share offered to shareholders of the Company in any tender offer or exchange
offer whereby a Corporate Change takes place, or (iii) if such Corporate Change
occurs other than pursuant to a tender or exchange offer, the fair market value
per share of the shares into which such options being surrendered are
exercisable, as determined by the Compensation Committee as of the date
determined by the Compensation Committee to be the date of cancellation and
surrender of such options. If the consideration offered to shareholders of the
Company consists of anything other than cash, the Compensation Committee shall
determine the fair cash equivalent of the portion of the consideration offered
which is other than cash.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Thomas C. Brown, the Chairman of the Board of Directors and Chief
Executive Officer of the Company, is a Director of Tom Brown, Inc. and Donald
L. Evans, the Chairman of the Board of Directors and Chief Executive Officer of
Tom Brown, Inc., is a Director of the Company and serves on the Compensation
Committee of the Company's Board of Directors.

CERTAIN TRANSACTIONS

Until September, 1984, the Company was a wholly owned subsidiary of
Tom Brown, Inc. ("TBI"). In September, 1984, TBI distributed the Common Stock
of the Company to the stockholders of TBI. Mr. Brown, the Chairman of the Board
of Directors and Chief Executive Officer of the Company, is also a Director of
TBI and Mr. Evans, a Director of the Company, is the Chairman of the Board of
Directors and Chief Executive Officer of TBI. Following the spin-off of the
Company, TBI and the Company have each made available to the other certain
personnel, office services and records with each party being reimbursed for any
costs and expenses incurred in connection there-

-44-

<PAGE> 45

with. During the fiscal year ended March 31, 1996, TBI charged the Company
approximately $72,500 for such services provided by TBI, of which approximately
$13,100 was outstanding and unpaid at March 31, 1996.

Historically, the Company has provided contract drilling and other
related oil and gas services to TBI in connection with TBI's oil and gas
exploration and development activities, and it is anticipated that the Company
will continue to perform similar services for TBI in the future. Such services
are provided in instances where the Company and TBI both own, for their
separate accounts, interests in oil and gas leases being drilled, as well as in
instances, where only TBI and other third parties own interests. During the
fiscal year ended March 31, 1996, the Company billed TBI the aggregate amount
of approximately $555,800 for TBI's pro rata share of contract drilling
expenses, lease acquisition costs and operating expenses. At March 31, 1996,
TBI owed the Company approximately $16,300 for such expenses. The largest
aggregate amount owed by TBI to the Company at one time during the fiscal year
ended March 31, 1996 was approximately $216,900. TBI and the Company
participate on the same or similar terms afforded non-affiliated third parties.

From time to time, the Company acquires interests in leases from TBI
and participates with TBI and other interest owners in the drilling and
development of such leases where TBI acts as operator. The Company participates
in such drilling ventures under standard form operating agreements on the same
or similar terms afforded by TBI to unaffiliated third parties. TBI invoices
all working interest owners, including the Company, on a monthly basis for
their respective share of operating and drilling expenses. During the year
ended March 31, 1996, TBI billed the Company approximately $52,700 for the
Company's proportionate share of drilling costs and related expenses incurred
on properties operated by TBI. The largest amount owed by the Company to TBI at
any one time during the fiscal year ended March 31, 1996 for its share of
drilling costs and related expenses and for services provided by TBI was
approximately $35,400, and at March 31, 1996 the Company owed TBI approximately
$6,100 for lease operating expenses.

Management of the Company believes that each of the above referenced
transactions was made on terms no less favorable to the Company than if such
transactions had been entered into with an unrelated party.

-45-

<PAGE> 46

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information as of May 21,
1997 with respect to the beneficial ownership of Common Stock by (i) each
person known to the Company to own beneficially more than five percent of the
outstanding Common Stock, excluding, however, the persons named under "Selling
Stockholders", (ii) the executive officers named in the Summary Compensation
Table under "Compensation of Executives and Related Matters", (iii) each
Director of the Company, and (iv) all Directors and executive officers of the
Company as a group:

<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENTAGE OF COMMON STOCK
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) BENEFICIALLY OWNED (2)
- ------------------- -------------------- --- --------------------------
<S> <C> <C>
Thomas C. Brown ........................................... 616,153(3) 12.34%
4607 West Industries Blvd
Midland, Texas 79703

Donald L. Evans ........................................... 12,846 *
500 Empire Plaza
Midland, Texas 79701

David N. Fitzgerald ....................................... 30,182(4) *
2300 West 42nd Street
Odessa, Texas 79764

Joe G. Roper .............................................. 858,768(5) 18.38%
4607 West Industrial Blvd
Midland, Texas 79703

Metropolitan Life Insurance ............................... 246,300(6) 5.50%
Company (6)
One Madison Avenue
New York, New York 10010

State Farm Mutual Automobile .............................. 400,000(7) 8.93%
Insurance Company
One State Farm Plaza
Bloomington, Illinois 61710

F. Howard Walsh, Jr ....................................... 266,246(8) 5.95%
500 West Seventh St., Suite 1007
Fort Worth, Texas 76102-4782

All Directors and Executive ............................... 1,592,413(9) 30.47%
Officers as a Group (7 persons)
</TABLE>

- ----------
* Less than one percent

(1) Unless otherwise indicated, all shares of Common Stock are held directly
with sole voting and investment powers.

(2) Securities not outstanding, but included in the beneficial ownership of
each such person, are deemed to be outstanding for the purpose of
computing the percentage of outstanding securities of the class owned by
such person if such securities may be acquired within sixty days, but
are not deemed to be outstanding for the purpose of computing the
percentage of the class owned by any other person.

-46-

<PAGE> 47

(3) Includes 514,500 shares of Common Stock underlying a presently
exercisable stock option and 19,856 shares of Common Stock owned by the
Estate of C. V. Lyman, deceased, of which estate Mr. Brown serves as Co-
Executor.

(4) Includes 5,000 shares of Common Stock held by Mr. Fitzgerald's wife as
her separate property. Mr. Fitzgerald disclaims beneficial ownership of
such shares.

(5) Includes 195,000 shares of Common Stock underlying presently exercisable
stock options.

(6) As of April 30, 1997, represents shares beneficially owned by certain
clients of State Street Research & Management Company, a registered
investment adviser ("State Street Research"), and by certain registered
investment companies for which State Street Research serves as
investment adviser. State Street Research is an indirect wholly-owned
subsidiary of Metropolitan Life Insurance Company ("MetLife"). Excludes
shares beneficially owned by Metropolitan Life Insurance Company
Separate Account En as reported herein. See "Selling Stockholders".
MetLife and State Street Research have sole voting power with respect to
228,500 of the shares listed above and sole dispositive power with
respect to the 246,300 shares listed above. MetLife and State Street
Research each disclaim beneficial ownership of all such shares.

(7) Includes 5,250 shares of Common Stock which are reported to be
beneficially owned by State Farm Fire and Casualty Company.

(8) As reported in Schedule 13D, as amended, filed with the Securities and
Exchange Commission, Mr. Walsh has sole voting and dispositive power
with respect to 261,900 shares and shared voting and dispositive power
with respect to 4,346 shares.

(9) Includes 749,500 shares of Common Stock underlying presently exercisable
stock options.

-47-

<PAGE> 48

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of (i) 50,000,000
shares of Common Stock, par value $.10 per share, of which 4,477,386 shares
were outstanding at May 21, 1997, and (ii) 10,000,000 shares of preferred
stock, $.10 par value, issuable in one or more series, with such dividend
rates, liquidation preferences, redemption, conversion and voting rights and
such further designations, powers, preferences, rights, limitations and
restrictions as may be fixed and determined by the Board of Directors of the
Company, all without action of the Company's stockholders. No shares of
preferred stock are outstanding or reserved for issuance as of the date of this
Prospectus. None of the authorized capital stock is entitled to preemptive
rights.

COMMON STOCK

Each share of Common Stock has one vote on all matters submitted to
stockholders. Subject to the rights and preferences of any series of preferred
stock which may be designated and issued, the holders of the Company's Common
Stock are entitled to receive dividends when and if declared by the Board of
Directors, and upon liquidation to share pro rata in any and all assets
remaining after the payment of corporate liabilities and after satisfaction of
any liquidation preferences on any series of the Company's preferred stock. The
Company's Common Stock has no preemptive or other subscription rights, and
outstanding shares of such stock are fully paid and nonassessable. There are no
conversion rights or redemption or sinking fund provisions with respect to the
Common Stock. The Common Stock does not have cumulative voting rights.

PREFERRED STOCK

The articles of incorporation authorize blank check preferred stock.
The Board of Directors is empowered, without approval of the stockholders, to
cause shares of preferred stock to be issued in one or more series, with the
number of shares of each series and the rights, preferences and limitations of
each series to be determined by it. Among the specific matters that may be
determined by the Board of Directors are the rate of dividends, redemption and
conversion rights and prices, terms and amounts payable in the event of
liquidation, voting rights and other rights relating to such preferred stock
and could issue such stock in either a private or public transaction. In some
circumstances, the blank check preferred stock could be issued and have the
effect of preventing a merger, tender offer or other takeover attempt which the
Board of Directors opposes. Issuance of shares of preferred stock could involve
dilution of the equity of the holders of Common Stock and further restrict the
rights of such stockholders to receive dividends.

WARRANTS

In connection with the closing of the Company's private placement of
725,000 shares of Common Stock in February, 1997, the Company issued and sold
to Rauscher Pierce Refsnes, Inc. ("Rauscher"), the Company's placement agent, a
five-year stock purchase warrant (the "Warrant") to purchase 36,250 shares of
Common Stock. The Warrant is exercisable at $13.20 per share, or 120% of the
per share price of the Common Stock sold by the Company in the private
placement. The Warrant will expire five years after the date of issuance, and
is exercisable in whole or in part from time to time at any time after one year
from the issuance of the Warrant to Rauscher. Generally, the Warrant may be
assigned to stockholders, officers or directors of Rauscher.

Rauscher has been a market maker in the Common Stock and expects to
continue in such capacity in the future.

The Warrant contains customary anti-dilution provisions and the Company
has granted certain rights to register, under the Securities Act of 1933, the
shares issuable upon exercise of the Warrant.

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<PAGE> 49

SELLING STOCKHOLDERS

The 725,000 shares of Common Stock being offered by the Selling
Stockholders were purchased by the Selling Stockholders from the Company in a
private placement completed by the Company on February 13, 1997. In the private
placement, the Company committed to use its best efforts to file a registration
statement with the Commission covering the Common Stock issued to each Selling
Stockholder. The following table sets forth certain information as of May 21,
1997 with respect to the Common Stock beneficially owned and to be offered
under this Prospectus from time to time by each Selling Stockholder.

<TABLE>
<CAPTION>
Percentage of
Number of Common Stock
Name of Shares Number Beneficially Owned*
Selling Beneficially of Shares Before After
Stockholder Owned Offered Offering Offering
----------- --------- --------- ---- ----
<S> <C> <C> <C> <C>
Metropolitan Life Insurance Company 423,600(1) 225,000(1) 9.46% 4.44%
Separate Account EN

Spindrift Partners, L.P. 225,000 225,000 5.02% --

Spindrift Partners (Bermuda), L.P. 40,000 40,000 * --

Westfield Capital Management 100,000(2) 100,000(2) 2.23% --

Pequot Energy Fund, L.P. 50,000 50,000 1.12% --

ARBCO Associates, L.P. 19,000 19,000 * --

Offense Group Associates, L.P. 19,000 19,000 * --

Kayne, Anderson Non-Traditional 19,000 19,000 * --
Investments, L.P.

Opportunity Associates, L.P. 10,500 10,500 * --

Cleveland Capital L.P. 10,000 10,000 * --

Kayne, Anderson Offshore Limited 7,500 7,500 * --
</TABLE>

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

* Less than one percent.

(1) Metropolitan Life Insurance Company Separate Account EN ("Account EN")
is an insurance company separate account that is managed by State Street
Research & Management Company, a registered investment adviser ("State
Street Research"). State Street Research has investment power over the
securities held in Account EN, including the shares of Common Stock
listed above. State Street Research disclaims any beneficial interest in
the shares of Common Stock listed above.

(2) Of the total number of shares, 25,000 are held in the name of Trussul
and Co. - MFOB and 75,000 shares are held in the name of Trussul and Co.
- MFOA, custodial accounts managed by Westfield Capital Management.

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<PAGE> 50

PLAN OF DISTRIBUTION

The shares of Common Stock offered hereby are being sold for the
respective account of each Selling Stockholder. The shares may be sold from
time to time by each Selling Stockholder, or by its pledgees, donees,
transferees or other successors in interest. Such sales may be made on the
Nasdaq National Market System, or otherwise, at prices and on terms then
prevailing or at prices related to the then current market price, or in
negotiated transactions. The shares may be sold by any one or more of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (d) privately
negotiated transactions. In addition, any securities covered by this Prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be
sold under Rule 144 rather than pursuant to this Prospectus. In effecting
sales, brokers or dealers engaged by the Selling Stockholders may arrange for
other brokers or dealers to participate. The Selling Stockholder or its
successors in interest, and any underwriters, brokers, dealers or agents that
participate in the distribution of shares of Common Stock, may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of the shares of Common Stock by them and any discounts, commissions or
concessions received by any such underwriters, brokers, dealers or agents may
be deemed to be underwriting commissions or discounts under the Securities Act.

Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Common Stock may not simultaneously
engage in market-making activities with respect to such shares for a period of
one to five business days prior to the commencement of such distribution. In
addition to and without limiting the foregoing, the Selling Stockholders and
any other person participating in a distribution will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Regulation M, which may affect the timing of
purchases and sales of any of the Common Stock by the Selling Stockholders or
any such other person. All of the foregoing may affect the marketability of the
Common Stock and the ability of any person to engage in market-making
activities with respect to the Common Stock.

Under the Stock Purchase Agreement between the Company and the Selling
Stockholders, the Selling Stockholders will be indemnified by the Company to
the extent that companies generally indemnify and hold harmless underwriters in
connection with public offerings, including liabilities under the Securities
Act.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for
the Company by Lynch, Chappell & Alsup, a Professional Corporation, Midland,
Texas. James M. Alsup, Secretary of the Company, is a shareholder in such firm
and the beneficial owner of 345 shares of the Company's Common Stock.

EXPERTS

The financial statements and schedules of TMBR/Sharp Drilling, Inc.
incorporated by reference in this Prospectus and elsewhere in the registration
statement, to the extent and for the periods indicated in their report, have
been audited by Arthur Andersen LLP, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in
giving said report.

The estimated reserve evaluations and related calculations of Joe C.
Neal & Associates incorporated by reference in this Prospectus have been
included herein in reliance upon the authority of said firm as experts in
petroleum engineering.

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<PAGE> 51

CERTAIN DEFINITIONS

As used in this Prospectus:

"Bbl" means barrel or barrels of oil.

"BOE" means barrels of oil equivalents, determined using the ratio
of six Mcf of gas to one barrel of oil, condensate and natural gas liquids.

"Bcf" means billion cubic feet.

"MBOE" means thousand barrels of oil equivalent.

"Mcf" means thousand cubic feet of gas.

"Gross" oil and gas wells or "gross" acres is the number of wells or
acres in which the Company has an interest.

"Net" oil and gas wells or "net" acres are determined by multiplying
"gross" wells or acres by the Company's working interest in such wells or
acres.

"Capital Expenditures" means cost associated with exploratory and
development drilling (including exploratory dry holes); leasehold acquisitions;
seismic data acquisitions; geological, geophysical and land related overhead
expenditures; delay rentals; producing property acquisitions; and other
miscellaneous capital expenditures.

"Present Value of Future Net Revenues" means the present value of
estimated future revenues to be generated from the production of proved
reserves calculated in accordance with Securities and Exchange Commission
guidelines, net of estimated production and future development costs, using
prices and costs as of the date of estimation without future escalation,
without giving effect to non-property related expenses such as general and
administrative expenses, debt service, future income tax expense and
depreciation, depletion and amortization, and discounted using an annual
discount rate of 10%.

"Production costs" means lease operating expenses and taxes on oil
and gas production.

"Proved reserves" or "reserves" means oil and gas, condensate and
natural gas liquids on a net revenue interest basis, found to be commercially
recoverable.

"Proved developed reserves" includes only those proved reserves
expected to be recovered from existing completion intervals in existing wells
and those reserves that exist behind the casing of existing wells when the cost
of making such reserves available for production is relatively small compared
to the cost of a new well.

-51-