PARKER DRILLING CO /DE/ - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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FORM 10-Q

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(MARK ONE)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 1-7573

PARKER DRILLING COMPANY
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(Exact name of registrant as specified in its charter)

Delaware 73-0618660
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

1401 Enclave Parkway, Suite 600, Houston, Texas 77077
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(Address of principal executive offices) (Zip code)

(281) 406-2000
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(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

As of April 30, 2004, 94,289,976 common shares were outstanding.

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PARKER DRILLING COMPANY

INDEX

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)

See accompanying notes to the unaudited consolidated
condensed financial statements.

2

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share and Weighted Average Shares Outstanding)
(Unaudited)

See accompanying notes to the unaudited consolidated
condensed financial statements.

3

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

See accompanying notes to the unaudited consolidated
condensed financial statements.

4

PARKER DRILLING COMPANY AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1. General - In the opinion of the management of Parker Drilling Company (the
"Company"), the accompanying unaudited consolidated condensed financial
statements reflect all adjustments (of a normally recurring nature) which
are necessary for a fair presentation of (1) the financial position as of
March 31, 2004 and December 31, 2003, (2) the results of operations for the
three months ended March 31, 2004 and 2003, and (3) cash flows for the
three months ended March 31, 2004 and 2003. Results for the three months
ended March 31, 2004 are not necessarily indicative of the results that
will be realized for the year ending December 31, 2004. The financial
statements should be read in conjunction with the Company's Form 10-K for
the year ended December 31, 2003.

Our independent accountants have performed a review of these interim
financial statements in accordance with standards established by the
American Institute of Certified Public Accountants. Pursuant to Rule 436(c)
under the Securities Act of 1933, their independent accountant's report of
that review should not be considered a report within the meaning of Section
7 and 11 of that Act, and the independent accountants liability under
Section 11 does not extend to it.

Stock-Based Compensation - The Company's stock-based employee compensation
plans are accounted for under the recognition and measurement principles of
the Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations. No stock-based
employee compensation cost related to stock options is reflected in net
loss, as all options granted under the plan had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net loss and loss per share if
the Company had applied the fair value recognition provisions of the
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," to stock-based employee compensation.

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions for the three months ended March 31, 2004 and 2003: no dividend
yield; expected volatility of 59.1% and 56.9% respectively; risk-free
interest rate of 2.74% and 4.88%, respectively; and expected lives of
options, 5-7 years.

5

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

2. Earnings Per Share -

The Company has outstanding $94,669,000 of 5.5% convertible subordinated
notes which are convertible into 6,151,332 shares of common stock at $15.39
per share. The notes have been outstanding since their issuance in July
1997 but were not included in the computation of diluted EPS because the
assumed conversion of the notes would have had an anti-dilutive effect on
EPS. For the three months ended March 31, 2004, options to purchase
9,866,091 shares of common stock at prices ranging from $1.96 to $12.19 per
share, were outstanding but not included in the computation of diluted EPS
because the assumed exercise of the options would have had an anti-dilutive
effect on EPS due to the net loss incurred during the period. For the three
months ended March 31, 2003, options to purchase 9,553,809 shares of common
stock at prices ranging from $2.24 to $12.19 per share, were outstanding
but not included in the computation of diluted EPS because the assumed
exercise of the options would have had an anti-dilutive effect on EPS due
to the net loss incurred during the period.

6

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

3. Business Segments - The primary services the Company provides are as
follows: U.S. drilling, international drilling and rental tools.
Information regarding the Company's operations by industry segment for the
three months ended March 31, 2004 and 2003 is as follows:

4. Discontinued Operations - In June 2003, the Company's board of directors
approved a plan to sell its Latin America assets consisting of 17 land rigs
and related inventory and spare parts and its Gulf of Mexico offshore
assets consisting of seven jackup rigs and four platform rigs. One Latin
America land rig was sold in July 2003 resulting in 16 remaining land rigs.
The Company is actively marketing the assets through an independent broker
and expects to complete the sales during 2004. At June 30, 2003, the net
book value of the assets to be sold exceeded the estimated fair value and
as a result an impairment charge including estimated sales expenses was
recognized in the amount of $54.0 million. The impairment of $54.0 million
was allocated as follows; $50.0 million to the Gulf of Mexico offshore
assets and $4.0 million to the Latin America assets.

The two operations that constitute this plan of disposition meet the
requirements of discontinued operations under the provisions of SFAS No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets." The
consolidated financial statements were restated to present the Latin
America operations and the U.S. jackup and platform drilling operations as
discontinued operations. The discontinued operations assets of $120.8
million at March 31, 2004 are mainly comprised of the estimated fair value
of drilling rigs and related spare parts and supplies. The discontinued
operations liabilities of $5.7 million at March 31, 2004 consist mainly of
deferred revenues and estimated accrued costs to sell the assets. The prior
periods presented have been reclassified to reflect the discontinued
operations.

7

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

4. Discontinued Operations (continued)

On September 11, 2003, a malfunction caused one side of jackup rig 14 to
become partially submerged resulting in significant damage to the rig and
the drilling equipment. The Company received from its insurance
underwriters a total loss settlement of $27.0 million, of which $24.3
million was received in March 2004 with the remaining $2.7 received on
April 8, 2004. The cost incurred to tow the rig to the port and pay for the
damage assessment approximated $4.0 million resulting in net insurance
proceeds of approximately $23.0 million. The net book value of jackup rig
14 was $17.7 million at March 31, 2004. In compliance with Generally
Accepted Accounting Principles ("GAAP") the Company is required to
recognize the gain from the insurance proceeds in excess of the net book
value of the asset. When considered separately from the original Gulf of
Mexico offshore disposal group, this resulted in a gain of approximately
$5.3 million from the involuntary conversion of the jackup rig. Considering
the impact of the gain, the Company still believes that the overall
valuation of the Gulf of Mexico offshore group remains unchanged from that
determined on June 30, 2003, as previously discussed. As a result, the
Company recognized an additional impairment of $5.3 million during the
first quarter of 2004.

On May 6, 2004 the Company announced that it had been awarded a five-rig,
27-well contract for land drilling services in southern Mexico. The
contract is part of an integrated services contract to Halliburton de
Mexico, a subsidiary of Halliburton by Petroleos Mexicanos S.A. ("Pemex"),
the state-owned oil company of Mexico. Since June 30, 2003 these five rigs
have been part of the operations of Latin America and included as
discontinued operations (see Note 8 of the notes to the unaudited
consolidated condensed financial statements).

Sale of Property - During January 2004, the Company entered into an
agreement to sell land and buildings in New Iberia, Louisiana. The net
sales price approximates $6.4 million which resulted in a provision for
impairment of $3.4 million for the property. This impairment was recognized
in the December 31, 2003 consolidated financial statements. The Company
will lease certain portions of the land and office building under a
two-year operating lease agreement. As of December 31, 2003 and March 31,
2004, $6.9 million was included on the consolidated condensed balance
sheets as part of assets held for sale. The sale is expected to close
during the second quarter of 2004.

8

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

5. Construction Contract - The Company historically only constructed drilling
rigs for its own use. At the request of one of its significant customers,
the Company entered into a contract to design, construct, mobilize and sell
("construction contract") a specialized drilling rig to drill extended
reach wells to offshore targets from a land-based location on Sakhalin
Island, Russia, for an international consortium of oil and gas companies.
The Company also entered into a contract to subsequently operate the rig on
behalf of the consortium. GAAP requires that revenues received and costs
incurred related to the construction contract be accounted for and reported
on a gross basis and income for the related fees should be recognized on a
percentage-of-completion basis. Because this construction contract is not a
part of the Company's historical or normal operations, the revenues and
costs related to this contract have been shown as a separate component in
the statements of operations. The profit from the design, construction,
mobilization and rig-up fees was calculated on a percentage-of-completion
basis. The construction project was completed during the third quarter of
2003 and the Company is currently operating the rig for the customer. The
total profit recognized under the design, construction, mobilization and
rig-up contract was $4.5 million, $2.0 million in 2003 and $2.5 million
during 2002.

6. Income Tax Expense - Income tax expense from continuing operations consists
of foreign tax expense of $4.0 million for the first quarter of 2004 as
compared to foreign tax expense of $3.8 million for the first quarter of
2003. For the first quarter of 2004 and 2003 we incurred a net loss,
however, no additional deferred tax benefit was recognized since the sum of
our deferred tax assets, principally the net operating loss carryforwards,
exceeds the deferred tax liabilities, principally the excess of tax
depreciation over book depreciation. This additional deferred tax asset was
fully reserved through a valuation allowance in both the first quarter of
2004 and 2003.

7. Contingency - On July 6, 2001, the Ministry of State Revenues of Kazakhstan
("MSR") issued an Act of Audit to the Kazakhstan branch ("PKD Kazakhstan")
of Parker Drilling Company International Limited ("PDCIL"), a wholly-owned
subsidiary of the Company, assessing additional taxes of approximately
$29.0 million for the years 1998-2000. The assessment consisted primarily
of adjustments in corporate income tax based on a determination by the
Kazakhstan tax authorities that payments by Offshore Kazakhstan
International Operating Company, ("OKIOC"), to PDCIL of $99.0 million, in
reimbursement of costs for modifications to rig 257, performed by PDCIL
prior to the importation of the drilling rig into Kazakhstan, are income to
PKD Kazakhstan, and therefore, taxable to PKD Kazakhstan. PKD Kazakhstan
sought judicial review of the assessment and in March 2002 the Supreme
Court of Kazakhstan confirmed the decision of the Astana City Court that
the reimbursements were not income to PKD Kazakhstan. Although the MSR did
not appeal the decision of the Civil Panel to the Supervisory Panel of the
Supreme Court of Kazakhstan within the required time period and has not
offered any material new evidence to re-open the case, the Ministry of
Finance of Kazakhstan ("MinFin") has made additional claims against PKD
Kazakhstan by applying its interpretation of the Supreme Court decision.
Specifically, MinFin has made a claim for additional corporate income taxes
based primarily on the disallowance of depreciation of the full value of
rig 257 in the income tax returns of PKD Kazakhstan in 1999-2001. PKD
Kazakhstan instituted legal proceedings to challenge the validity of these
claims by MinFin and in December 2003 the Astana City Court issued a
decision confirming a substantial portion of the claims of MinFin. This
decision was appealed by PKD Kazakhstan and on March 5, 2004, the Supreme
Court issued a judgment confirming the decision of the Astana City Court.
The judgment provides that approximately $7.7 million of the claims
approved by the Astana City Court are valid and payable upon receipt of the
re-issuance of the corrected notice from the relevant taxing authority.
However, the actual amount which PKD Kazakhstan will ultimately be required
to pay will be reduced by credits available, which originally were
estimated at approximately $5.0 million but at this time are approximately
$5.4 million, resulting in an amount payable of approximately $2.3 million,
which is fully reserved on the financial books of the Company. While the
disallowance of depreciation for the years 1999-2001 will result in a cash
payment at this time, the judgment does allow PKD Kazakhstan to depreciate
the full value of rig 257 on its tax returns beginning in 2002, which will
reduce taxable income and taxes to be paid in the future. In addition, the
Company continues to pursue its petition with the U.S. Treasury Department
for Competent Authority review, which is a tax treaty procedure to resolve
disputes as to which country may tax income covered under the treaty. The
U.S. Treasury Department has granted our petition and has initiated
proceedings with the MSR which are ongoing.

9

NOTES TO THE UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)

8. Subsequent Events - Mexico Operations - On May 6, 2004 the Company
announced that it had been awarded a five-rig, 27-well contract for land
drilling services in southern Mexico. The contract is part of an integrated
services contract awarded to Halliburton de Mexico, a subsidiary of
Halliburton by Pemex.

The five-rig contract will utilize Parker rigs 121, 122, 165, 174, and 260
in the Samaria, Iride, and Cunduacan fields in the state of Tabasco in
southern Mexico. The rigs will be mobilized from their current locations in
Bolivia and Colombia, and operations are expected to begin in June 2004.
Since June 30, 2003 these five rigs have been part of the operations of
Latin America and included as discontinued operations. Effective in the
second quarter these five rigs will transfer to continuing operations as
part of the international drilling segment. As of March 31, 2004 the net
book value, including any allocated impairment, approximated $13.7 million.
At the time of the transfer to continuing operations the net book value of
the rigs will reduce assets held for sale and increase property, plant and
equipment. On a pro forma basis, as if the transfer had occurred at the
beginning of the first quarter, the loss from continuing operations would
have increased $0.2 million and $1.1 million for the three months ended
March 31, 2004 and 2003, respectively. The five rigs had not operated since
2002 thus the impact on revenues is minimal. The largest portion of the
increased loss related to the rigs in the first quarter of 2003 was
depreciation expense. Depreciation expense ceased upon classification as
discontinued operations at the end of June 2003.

Repayment of Debt - In early April 2004, the Company bought $5.3 million
and called an additional $25.0 million of the 5.5% Convertible Subordinated
Notes. After settlement of this call on May 6, 2004, the Company will have
$64.4 million of the 5.5% Convertible Subordinated Notes outstanding.

9. Parent, Guarantor, Non-Guarantor Consolidating Condensed Financial
Statements - Set forth on the following pages are the consolidating
condensed financial statements of the restricted subsidiaries and the
Company's subsidiaries which are not restricted by the Senior Notes. All of
the Company's Senior Notes are guaranteed by substantially all wholly-owned
subsidiaries of Parker Drilling. There are currently no restrictions on the
ability of the subsidiaries to transfer funds to Parker Drilling in the
form of cash dividends, loans or advances. Parker Drilling is a holding
company with no operations, other than through its subsidiaries.

AralParker (a Kazakhstan closed joint stock company, owned 50 percent by
Parker Drilling International Limited and 50 percent by Aralnedra, CJSC),
Casuarina Limited (a wholly-owned captive insurance company) and Parker
Drilling Investment Company (a wholly-owned subsidiary) are all
non-guarantor subsidiaries. The Company is providing consolidating
condensed financial information of the parent, Parker Drilling, the
guarantor subsidiaries, and the non-guarantor subsidiaries as of March 31,
2004 and December 31, 2003 and for the three months ended March 31, 2004
and 2003.

10

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)

11

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED BALANCE SHEET
(Dollars in Thousands)
(Unaudited)

12

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)

(1) All field operations general and administrative expenses are included in
operating expenses.

13

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(Dollars in Thousands)
(Unaudited)

(1) All field operations general and administrative expenses are included in
operating expenses.

14

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

15

PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)

16

Report of Independent Accountants

To the Board of Directors and Shareholders
Parker Drilling Company

We have reviewed the accompanying consolidated condensed balance sheet of
Parker Drilling Company and subsidiaries as of March 31, 2004 and the related
consolidated condensed statements of operations for the three month periods
ended March 31, 2004 and 2003 and the consolidated condensed statements of cash
flows for the three month periods ended March 31, 2004 and 2003. These interim
financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.

Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated condensed financial statements
referred to above for them to be in conformity with accounting principles
generally accepted in the United States of America.

We previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2003, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report (which contains an explanatory paragraph for a change
in accounting for goodwill and an explanatory paragraph for the revision of the
2002 and 2001 statements of operations related to reimbursable costs), dated
February 6, 2004, except for Note 17 as to which the date is March 5, 2004, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated
condensed balance sheet as of December 31, 2003, is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.

/s/PricewaterhouseCoopers LLP
--------------------------------------
PricewaterhouseCoopers LLP

Houston, Texas
May 7, 2004

17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

In this Quarterly Report on Form 10-Q, the terms "Parker Drilling," "we,"
"us" and "our" refer to Parker Drilling Company, its subsidiaries and the
consolidated joint venture, unless the context requires otherwise.

This Form 10-Q contains statements that are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
contained in this Form 10-Q, other than statements of historical facts, are
"forward-looking statements" for purposes of these provisions, including any
statements regarding:

* prices and demand for oil and natural gas,
* levels of oil and natural gas exploration and production activities,
* demand for contract drilling and drilling related services and demand
for rental tools,
* operating results, including our efforts to reduce costs and our
projected net loss from continuing operations,
* rig utilization, dayrates and rental tools activity,
* capital expenditures and investments in the acquisition and
refurbishment of rigs and equipment,
* reducing our debt, including our liquidity and the sources and
availability of funds to reduce our debt,
* sales of assets,
* formation of alliances with operators,
* the outcome of pending and future legal proceedings, including the
outcome of our dispute with the Ministry of State Revenues of the
Republic of Kazakhstan,
* our recovery of insurance proceeds in respect of our damaged rig in
Nigeria,
* maintenance of the borrowing base under our revolving credit facility,
and
* expansion and growth of our operations.

In some cases, you can identify these statements by words that indicate
future events such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "outlook," "may," "should," "will" and "would" or similar words.
Forward-looking statements are based on certain assumptions and analyses made by
our management in light of their experience and perception of historical trends,
current conditions, expected future developments and other factors they believe
are relevant. Although our management believes that their assumptions are
reasonable based on information currently available, those assumptions are
subject to significant risks and uncertainties, many of which are outside of our
control. The following factors, as well as any other cautionary language in this
Form 10-Q, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements:

* worldwide economic and business conditions that adversely affect market
conditions and/or the cost of doing business,
* the pace of recovery in the U.S. economy and the demand for natural gas,
* fluctuations in the market prices of oil and gas,
* imposition of unanticipated trade restrictions and political
instability,
* operating hazards and uninsured risks,
* political instability, terrorism or war,
* governmental regulations, including changes in tax laws or ability to
remit funds to the U.S., that adversely affect the cost of doing
business,
* adverse environmental events,
* adverse weather conditions,
* changes in concentration of customer and supplier relationships,
* unexpected cost increases for upgrade and refurbishment projects,
* unanticipated cancellation of contracts by operators without cause,
* breakdown of equipment and other operational problems,
* changes in competition, and
* other similar factors (some of which are discussed in documents referred
to in this Form 10-Q).

Each forward-looking statement speaks only as of the date of this Form
10-Q, and we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. You should be aware that the occurrence of the events
described above and elsewhere in this Form 10-Q could have a material adverse
effect on our business, results of operations and financial condition.

18

OUTLOOK AND OVERVIEW

Consistent with the early indications we noted in our Annual Report on Form
10-K, market conditions for drilling operations have improved during the first
quarter of 2004, as the impact of the factors that resulted in depressed market
conditions for drilling operations during 2003 have diminished. As a result of
improved market conditions, rig utilization and dayrates have continued to
increase during the first quarter. We expect this trend to continue at a modest
rate during the remainder of 2004, although the drilling market remains subject
to volatility due to uncertainty over the current level of energy prices and
instability in the Middle East. We anticipate that activity in our rental tools
business will also continue to increase during 2004.

The Commonwealth of Independent States (former Soviet Union, referred to
herein as "CIS"), our leading market of international land operations,
contributed to our increased utilization with the commencement of drilling
operations of the second rig in Turkmenistan under contract to Calik Enerji,
A.S. International utilization will also benefit this year as we enter the
Mexican market for the first time during the second quarter with a contract for
Petroleos Mexicanos S.A. ("Pemex"), the state-owned oil company of Mexico,
utilizing barge rig 53, which will be mobilized from the U.S. Gulf of Mexico to
the Macuspana Basin in Mexico. In addition on May 6, 2004, we announced the
award of a five-rig, 27-well contract for land drilling services in southern
Mexico. The contract is part of an integrated services contract awarded to
Halliburton de Mexico, a subsidiary of Halliburton by Pemex. The five-rig
contract will utilize rigs that will be mobilized from their current locations
in Bolivia and Colombia to the Samaria, Iride, and Cunduacan fields in the state
of Tabasco in southern Mexico. These five rigs have been classified as
discontinued operations since June 30, 2003 as discussed in Note 8 of the notes
to the unaudited consolidated condensed financial statements. We continue to
actively pursue additional contracts in Mexico.

We anticipate improvement in certain areas of our international barge
drilling operations, as we are currently negotiating with two operators in the
Caspian Sea, which may result in utilization of rig 257 during the last quarter
of 2004. However we expect rig 257 to work for a significant portion of 2005.
The international barge drilling in Nigeria continues to suffer due to community
unrest. We continue to earn revenues on two of the four drilling barges in
Nigeria. Rig 73 is currently operating, however we have received notification
that the contract will end at the completion of the current well. Rig 75 was
recently moved to Warri, Nigeria, where it will continue to earn a standby rate
until the third quarter of 2004. The current contract with Shell has an option
to extend which can be exercised prior to the end of the contract in the third
quarter of 2004. Rig 74, was recently accessed by inspectors to assess damage
but the area is still too unsafe to proceed with operations to secure the well
or to move the rig to port. We remain confident that the damage will be covered
by insurance, but it has not yet been determined if the rig will be declared a
complete loss or if insurers will determine it is repairable. Rig 74 had been on
a standby rate since April 2003; however, this rate was terminated in early
March 2004. Despite the potential for rig 257, due to continued unrest in
Nigeria, we expect international barge drilling operations to remain flat or
decline somewhat in 2004.

We anticipate that revenues and operating income in our rental tools
business will continue to increase in 2004 due primarily to improved drilling
market conditions, especially for deep water drilling, in the Gulf of Mexico and
the Rocky Mountain area serviced by our new facility in Evanston, Wyoming. Our
rental tools utilization rate during the first quarter of 2004 was the highest
rental tools utilization rate since the third quarter of 2001.

As previously reported, on September 11, 2003, a malfunction on jackup rig
14 resulted in significant damage to the rig and the loss of certain drilling
equipment overboard. During March and April 2004, we received $27.0 million in
insurance proceeds in settlement of the damages to jackup rig 14. The funds
received will be used to pay down indebtedness, as described below.

Despite our diligence to accomplish our debt reduction plan, we have not
yet completed an asset sale in 2004. However, we are confident that current
negotiations with two entities will result in the announcement during the second
quarter of 2004 of the sale of at least one group of assets. Although no asset
sales have been consummated, as noted above we will utilize the insurance
proceeds from jackup rig 14 and cash on hand to reduce our debt an additional
$30.3 million. In early April 2004, we bought $5.3 million and called an
additional $25.0 million of our 5.5% Convertible Subordinated Notes. After
settlement of this call on May 6, 2004, we will have $64.4 million of the 5.5%
Convertible Subordinated Notes outstanding. We remain very committed to
achieving our goal of reducing debt by $200 million by the end of 2004. After
completing the above call on our 5.5% Convertible Subordinated Notes in May
2004, we will have retired $45.7 million of debt this year and our outstanding
debt balance will be $525.9 million, compared to the balance as of December 31,
2003, of $571.6 million and a balance of $589.9 million when we established our
goal.

19

OUTLOOK AND OVERVIEW (continued)

As of March 31, 2004, we had approximately $181.7 million of liquidity.
This liquidity was comprised of $93.5 million of cash on hand, $38.2 million of
availability under the new revolving credit facility and $50.0 million
of availability under the delayed draw term loan facility (which may only be
used to repay the 5.5% Convertible Subordinated Notes). In the third quarter of
2003, we advised that due to cross default provisions in our debt agreements, if
we were unable to pay the 5.5% Convertible Subordinated Notes when due, all of
our debt would be declared in default and would become immediately due and
payable. We believe that any such concern has been substantially alleviated. We
believe our current liquidity, along with cash generated from operations, will
be sufficient to repay the 5.5% Convertible Subordinated Notes. After giving
consideration for additional purchases in the open market of $5.3 million in
April 2004 and the $25.0 million partial call redemption upcoming on May 6,
2004, the outstanding balance of the 5.5% Convertible Subordinated Notes will be
$64.4 million.

During our first quarter conference call with investors, management
confirmed its previously released earnings guidance based on the trends
indicated above. The combined result of the anticipated debt reduction and
improved utilization is expected to result in a net loss in diluted earnings per
share for 2004 of $0.10 to $0.20. We are projecting to return to profitability
during the third quarter of 2004.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2004 Compared with Three Months Ended March 31,
2003

We have recorded a net loss of $4.9 million for the three months ended
March 31, 2004, including net income of $3.8 million attributed to discontinued
operations, as compared to a net loss of $16.2 million for the three months
ended March 31, 2003 which includes a loss of $5.6 million attributed to
discontinued operations. The loss from continuing operations for the current
quarter was $8.7 million compared to a loss of $10.6 million for the three
months ended March 31, 2003.

In June 2003, the board of directors approved a plan to sell the U.S.
jackup and platform drilling operations and the Latin America operations. In
compliance with Generally Accepted Accounting Principles ("GAAP") we have
recognized the U.S. jackup and platform drilling and the Latin America
operations as discontinued operations. Reclassifications have been made to
reflect operations from continuing operations and discontinued operations for
the three months ended March 31, 2003. The analysis below reflects these
reclassifications, beginning with an analysis of the continuing operations
followed by a discussion of discontinued operations.

20

RESULTS OF OPERATIONS (continued)

1) Drilling and rental gross margins are computed as drilling and rental
revenues less direct drilling and rental operating expenses, excluding
depreciation and amortization expense; drilling and rental gross margin
percentages are computed as drilling and rental gross margin as a percent
of drilling and rental revenues. The gross margin amounts and gross margin
percentages should not be used as a substitute to those amounts reported
under GAAP. However, we monitor our business segments based on several
criteria, including drilling and rental gross margin. Management believes
that this information is useful to our investors because it more closely
tracks cash generated by segment. Such gross margin amounts are reconciled
to our most comparable GAAP measure as follows:

2) Drilling and rental operating income - drilling and rental revenues less
direct drilling and rental operating expenses, including depreciation and
amortization expense.

21

RESULTS OF OPERATIONS (continued)

U.S. Drilling Segment

The U.S. drilling segment, consisting of 21 barge rigs, experienced slight
increases in both rig utilization and dayrates during the first quarter of 2004.
As a result, revenues increased $2.1 million in the first quarter of 2004 as
compared to the first quarter of 2003. Barge rig utilization increased from 52
percent to 56 percent and dayrates increased approximately six percent. Though
the anticipated increase in drilling activity due to high commodities pricing
has been slow, we are encouraged by continued firm natural gas fundamentals and
steady interest in shallow-water prospects. As noted in the Outlook and
Overview, during the second quarter of 2004 we will enter the Mexican drilling
market with one deep drilling barge rig, which will be moving from the US Gulf
of Mexico to drill in the Macuspana Basin pursuant to a two-year contract with
Pemex. After the move of this rig, we will have eight deep drilling barges and a
total of 20 barge rigs in the U.S. Gulf of Mexico market.

Gross margins in the U.S. drilling segment increased $1.5 million. Gross
margins were positively impacted by the increased utilization and dayrates. We
have continued to maintain tight control over our expenses and as a result had
only a slight increase in operating expenses. Gross margin percentage increased
from 31 percent during the first quarter of 2003 to 36 percent during the
current quarter.

International Drilling Segment

International drilling revenues increased $2.5 million during the current
quarter as compared to the first quarter of 2003. Our international land
drilling revenues increased $13.9 million partially offset by a decrease of
$11.4 million in our international offshore drilling operations. The
international land drilling increase is primarily attributed to new drilling
operations in Turkmenistan, where the second rig of a two rig contract commenced
operations; Bangladesh, where our one drilling rig, which began drilling in
October 2003, continues to operate and Sakhalin Island, where we continue to
operate a labor and management contract, all of which contributed $11.4 million
in revenues during the first quarter of 2004. In addition, one rig returned to
drilling operations in New Zealand and one TCO-owned rig resumed operations in
November 2003 and worked through the first quarter of 2004. The TCO-owned rig
had previously been released in December of 2002 and did not work during the
first quarter of 2003. Operating expenses for the international land operations
were consistent with the increase in revenues. Gross margin percentages for the
quarters ended March 31, 2004 and 2003 were both 35 percent.

International offshore revenues decreased $11.4 million during the first
quarter of 2004 as compared to the first quarter of 2003. The decrease in
revenues is attributed equally to our Caspian Sea operation and our operations
in Nigeria. In the Caspian Sea, our arctic-class barge rig 257 completed its
initial four-year contract in November 2003. As of the end of 2003 and for the
first quarter of 2004, barge rig 257 was stacked and we are currently in
discussions with potential customers; however, we anticipate that this rig will
resume operations in late 2004 or early 2005. Our barge operations in Nigeria
have been negatively impacted by continued community unrest. Barge rig 74 has
been evacuated since sustaining substantial damage due to community unrest in
March 2003. Since April 2003 barge rig 74 had been on a standby rate
approximating 45 percent of the full dayrate. The standby rate terminated in
early March 2004. For the first quarter of 2004 two of the four barge rigs were
on full dayrates as compared to three barge rigs on full dayrate during the
first quarter of 2003. The significant decrease in revenues negatively impacted
our gross margins for the current quarter. Gross margin percentage for the first
quarter of 2004 was 12 percent as compared to 29 percent for the first quarter
of 2003. In addition to the reduction in revenues, the costs to stack barge rig
257 and retain limited personnel to maintain the rig will be approximately $1.0
million per quarter.

22

RESULTS OF OPERATIONS (continued)

Rental Tools Segment

Rental Tools revenues increased $2.5 million to $15.1 million during the
first quarter of 2004 as compared to the first quarter of 2003. Revenues
increased $1.6 million from the New Iberia, Louisiana operations, increased $0.2
million from the Odessa, Texas operations and increased $0.7 million from its
operations in Evanston, Wyoming. The Victoria, Texas operation revenues remained
flat in the quarter to quarter comparison. The revenues increase was driven by
increased rental tools utilization, which increased eight percent during the
current quarter compared to the first quarter of 2003. Rental tools gross
margins increased $1.3 million to $8.5 million for the current quarter as
compared to the first quarter of 2003. Gross margin percentage decreased to 56
percent as compared to 57 percent for the first quarter of 2003. Direct costs
increased during the current quarter due to higher costs associated with
repairing and maintaining tools, primarily at the New Iberia location, and
increased costs from tool dispositions, both of which are partially offset by
billings to customers.

Other Financial Data

Depreciation and amortization expense decreased $0.9 million in the first
quarter of 2004 as compared to the comparable quarter of 2003. The decrease is
attributable to the continued controls over new capital spending the last
several years. For the years 2003 and 2002 we reduced capital expenditures to
$35.0 million and $45.2 million, respectively.

General and administrative expense increased approximately $1.0 million to
$6.0 million during the first quarter of 2004. The $1.0 million increase is
entirely attributed to the vesting of restricted shares and our portion of the
FICA tax expense on those restricted shares. The restricted shares were granted
in July 2003 and were scheduled to vest over seven years, but included an
accelerated vesting feature based on stock performance goals. In accordance with
the accelerated vesting feature, 50 percent of the grant vested in March 2004
based on meeting the initial stock performance goal of $3.50 per share for 30
consecutive days. The remaining 50 percent of the grant will vest when our stock
price has equaled or exceeded $5.00 per share for 30 consecutive days, or at the
end of the seven-year period.

In conjunction with our refinancing of a portion of our debt, we incurred
and recognized $5.3 million of costs during the fourth quarter of 2003 related
to the retirement of our 9.75% Senior Notes. During the first quarter of 2004,
an additional $0.3 million was recognized as loss on extinguishment of debt
related to this retirement of debt.

Income tax expense from continuing operations consists of foreign tax
expense of $4.0 million for the first quarter of 2004 as compared to foreign tax
expense of $3.8 million for the first quarter of 2003. For the first quarter of
2004 and 2003 we incurred a net loss, however, no additional deferred tax
benefit was recognized since the sum of our deferred tax assets, principally the
net operating loss carryforwards, exceeds the deferred tax liabilities,
principally the excess of tax depreciation over book depreciation. This
additional deferred tax asset was fully reserved through a valuation allowance
in both the first quarter of 2004 and 2003.

23

RESULTS OF OPERATIONS (continued)

Analysis of Discontinued Operations

(1) Drilling gross margins are computed as drilling revenues less direct
drilling operating expenses, excluding depreciation and amortization
expense. The gross margin amounts and gross margin percentages should not
be used as a substitute to those amounts reported under GAAP. However, we
monitor our business segments based on several criteria, including drilling
gross margin. Management believes that this information is useful to our
investors because it more closely tracks cash generated by segment. Such
gross margin amounts are reconciled to our most comparable GAAP measure as
follows:

(2) Depreciation and amortization - in accordance with SFAS No. 144, we no
longer record depreciation expense related to the discontinued operations.

(3) Drilling operating income (loss) - drilling revenues less direct drilling
operating expenses, including depreciation and amortization expense.

Revenues in Latin America decreased $0.7 million primarily due to lower
average dayrates in Colombia. During the first quarter of 2004 and 2003 Colombia
averaged 2.5 rigs operating; however, one of the rigs, (rig 221) was operating
during the current quarter on a reduced rate pending completion of a well. Rig
228 operating in Peru was on a moving rate in February and March of 2004 and
beginning in April 2004 has been placed on a reduced standby rate while the
customer performs additional seismic work. Rig 228 is not expected to return to
a full operating dayrate until early 2005. Gross margin percentage was 19
percent for both the first quarter of 2004 and 2003.

24

RESULTS OF OPERATIONS (continued)

U. S. jackup and platform drilling revenues increased $1.8 million in the
current quarter as compared to the first quarter of 2003. Jackup rig revenues
increased $0.2 million as a result of higher average dayrates during the current
quarter as compared to the first quarter of 2003. Jackup rig average dayrates
for the current quarter increased 23 percent to $24,500 per day. However, the
dayrate increase was offset by the removal of jackup rig 14 from service. The
first quarter of 2004 had 72 percent utilization of six jackup rigs as compared
to 75 percent utilization with seven jackup rigs during the first quarter of
2003. Platform revenues increased $1.6 million as one platform rig worked the
entire first quarter of 2004 as compared to one platform working only one month
during the first quarter of 2003. Gross margin increased $1.9 million for the
jackup and platform drilling rigs during the current quarter. Gross margin
increased due primarily to increasing revenues and a reduction in labor, payroll
burden and lower workers compensation expense.

On September 11, 2003, a malfunction of jackup rig 14 resulted in
significant damage to the rig and the drilling equipment. We received a total
loss settlement of $27.0 million from insurance underwriters during March and
early April 2004. The cost incurred to tow the rig to the port and pay for the
damage assessment approximated $4.0 million resulting in net insurance proceeds
of approximately $23.0 million. The net book value of jackup rig 14 was $17.7
million at March 31, 2004. In compliance with GAAP, we are required to recognize
the gain from the insurance proceeds in excess of the net book value of the
asset. When considered separately from the original Gulf of Mexico offshore
disposal group, this resulted in a gain of approximately $5.3 million from the
involuntary conversion of the jackup rig. Considering the impact of the gain, we
still believe that the overall valuation of the Gulf of Mexico offshore group
remains unchanged from that determined on June 30, 2003, as previously
discussed. As a result, we recognized an additional impairment of $5.3 million
during the first quarter of 2004.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2004, we had cash and cash equivalents of $93.5 million, an
increase of $25.8 million from December 31, 2003. The primary sources of cash
for the three-month period as reflected on the consolidated condensed statements
of cash flows were $20.7 million provided by operating activities, $24.3 million
of insurance proceeds, and $1.3 million proceeds from the disposition of
equipment. The remaining $2.7 million of insurance proceeds were collected in
early April 2004. The primary uses of cash for the three-month period ended
March 31, 2004 were $5.3 million for capital expenditures and $15.4 million for
reduction of debt. Major capital expenditures for the period included $1.5
million to refurbish barge rig 53 for an upcoming contract in Mexico. The major
components of our debt reduction were the purchases of $10.5 million face value
of our outstanding 5.5% Convertible Subordinated Notes on the open market, $9.5
million in January 2004 at a price of 100.625 percent and $1.0 million in March
2004 at a price of 100.25 percent. In addition, we paid off $5.1 million of a
secured promissory note to Boeing Capital Corporation at a premium.

As of March 31, 2003, the Company had cash and cash equivalents of $84.4
million, an increase of $32.4 million from December 31, 2002. The primary
sources of cash for the three-month period as reflected on the consolidated
condensed statements of cash flows were $38.7 million provided by operating
activities and $2.3 million from the disposition of equipment. The primary uses
of cash for the three-month period ended March 31, 2003 were $6.9 million for
capital expenditures and $1.6 million for repayment of debt. Major projects
during the current three-month period included expenditures on drill pipe and
tubulars for Quail Tools.

In October 2003, we refinanced a portion of our existing debt by issuing
$175.0 million of new 9.625% Senior Notes due 2013 and replaced our senior
credit facility with a $150.0 million senior credit agreement. The senior credit
agreement consists of a four-year $100.0 million delayed draw term loan facility
and a three-year $50.0 million revolving credit facility that are secured by
certain drilling rigs, rental tools equipment, accounts receivable and
substantially all of the stock of the subsidiaries, and contains customary
affirmative and negative covenants. The proceeds of the new 9.625% Senior Notes,
plus an initial draw of $50.0 million under the term loan facility, were used to
retire $184.3 million of the 9.75% Senior Notes due 2006 that had been tendered
pursuant to a tender offer dated September 24, 2003. The balance of the proceeds
from the new Senior Notes and the initial draw down under the term loan facility
were used to retire the remaining $29.9 million of 9.75% Senior Notes that were
not tendered. We redeemed the remaining 9.75% Senior Notes on November 15, 2003
at a redemption price of 101.625 percent.

25

LIQUIDITY AND CAPITAL RESOURCES (continued)

The revolving credit facility is available for working capital
requirements, general corporate purposes and to support letters of credit.
Availability under the revolving credit facility is subject to a borrowing base
limitation based on 85 percent of eligible receivables plus a value for eligible
rental tools equipment. As of March 31, 2004, the borrowing base was $48.7
million, of which none had been drawn down, and $10.5 million had been reserved
for letters of credit, resulting in available revolving credit of $38.2 million.

We had total long-term debt of $556.2 million, including the current
portion of $44.8 million, at March 31, 2004. The long-term debt included:

o $94.7 million aggregate principal amount of 5.5% Convertible
Subordinated Notes, which are due August 1, 2004; (The undrawn portion
of the term loan can only be used to repay the 5.5% Convertible
Subordinated Notes, therefore $50.0 million of these notes have been
classified as long-term.)

o $50.0 million term loan, with an additional $50.0 million available
for the sole purpose of repaying the 5.5% Convertible Subordinated
Notes, which is due on October 10, 2007;

o $236.4 million aggregate principal amount of 10.125% Senior Notes,
which are due November 15, 2009;

o $175.0 million aggregate principal amount of 9.625% Senior Notes,
which are due October 1, 2013; and

o $0.1 million capital lease.

As of March 31, 2004, we had approximately $181.7 million of liquidity.
This liquidity was comprised of $93.5 million of cash on hand, $38.2 million of
availability under the new revolving credit facility and $50.0 million of
availability under the delayed draw term loan facility (which may only be used
to repay the 5.5% Convertible Subordinated Notes). In the third quarter of 2003,
we advised that due to cross default provisions in our debt agreements, if we
were unable to pay the 5.5% Convertible Subordinated Notes when due, all of our
debt would be declared in default and would become immediately due and payable.
We believe that any such concern has been substantially alleviated. We believe
our current liquidity, along with cash generated from operations, will be
sufficient to repay the 5.5% Convertible Subordinated Notes. After giving
consideration for additional purchases in the open market of $5.3 million in
April 2004 and the $25.0 million partial redemption upcoming on May 6, 2004, the
outstanding balance of the 5.5% Convertible Subordinated Notes will be $64.4
million.

26

LIQUIDITY AND CAPITAL RESOURCES (continued)

In April 2004, we purchased an additional $5.3 million face value of our
5.5% Convertible Subordinated Notes at an average price of 100.6 percent. We
also gave notice of a partial redemption of $25.0 million of the 5.5%
Convertible Subordinated Notes effective May 6, 2004 at the redemption price of
100.786 percent. The following table summarizes our future contractual cash
obligations as of March 31, 2004.

(1) Long-term debt includes the principal and interest cash obligations of the
9.625% Senior Notes, the 10.125% Senior Notes, the 5.5% Convertible
Subordinated Notes and the capital leases. The unamortized premiums of $0.8
million at March 31, 2004 related to the 10.125% Senior Notes are not
included in the contractual cash obligations schedule.

(2) Operating leases consist of lease agreements in excess of one year for
office space, equipment, vehicles and personal property.

(3) We have a $50.0 million revolving credit facility. As of March 31, 2004 we
had available borrowing base of $48.7 million, of which none has been drawn
down, but $10.5 million of availability has been used to support letters of
credit that have been issued, resulting in a remaining $38.2 million
availability. The revolving credit facility expires in October 2006.

We do not have any unconsolidated special-purpose entities,
off-balance-sheet financing arrangements or guarantees of third-party financial
obligations. We have no energy or commodity contracts.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures - The Company's management, with the
participation of our Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
quarterly report. Based on such evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, our
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by us in the reports that we file or submit under the Exchange Act.

Internal Control Over Financial Reporting - There have not been any changes
in our internal control over financial reporting (as such term is defined in
Rules 13a-15(f) under the Exchange Act) during the quarter ended March 31, 2004
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

27

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

On March 4, 2004, the Company purchased 89,725 shares at a price per share
of $4.20 from executives resulting from the vesting of a portion of a restricted
stock grant issued in July 2003. Upon vesting of the restricted shares a tax
withholding obligation to the Company from the executive was satisfied by
delivering back to the Company some of the shares on which the restrictions had
lapsed.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

At the Annual Meeting of Stockholders held on April 28, 2004, there were
represented in person or by proxy, 84,994,919 shares out of 94,236,855 entitled
to vote as of March 12, 2004, the record date, constituting a quorum.

The two matters voted upon at the Annual Meeting were:

1. Election of Directors: The Stockholders elected three Class II
directors to the board of directors of Parker Drilling Company to
serve for a three-year term, until 2006:

Bernard Duroc-Danner
Votes cast in favor: 80,589,049
Votes withheld: 4,405,540

James E. Barnes
Votes cast in favor: 82,204,379
Votes withheld: 2,790,540

Robert M. Gates
Votes cast in favor: 82,232,674
Votes withheld: 2,762,245

2. Election of independent accountants: PricewaterhouseCoopers LLP was
approved as the independent accountants for 2004 with:

Votes cast in favor: 83,349,103
Votes withheld: 1,198,989

ITEM 5. OTHER INFORMATION

None

28

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:
The following exhibits are filed as a part of this report:

29

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Parker Drilling Company

Registrant

Date: May 7, 2004

By: /s/ James W. Whalen
------------------------------------
James W. Whalen
Senior Vice President and Chief
Financial Officer

By: /s/ W. Kirk Brassfield
------------------------------------
W. Kirk Brassfield
Vice President and Controller

30

INDEX TO EXHIBITS