UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission File Number 000-51471

BRONCO DRILLING COMPANY, INC.

(Exact name of registrant as specified in its charter)

Delaware		20-2902156
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Large Accelerated Filer o		Accelerated Filer þ		Non-Accelerated Filer o		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.): Yes o No þ

As of April 30, 2011, 28,800,059 shares of common stock were outstanding.

 

 

BRONCO DRILLING COMPANY, INC.

INDEX

		Page
PART I—FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Bronco Drilling Company, Inc.:
Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010			3
Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010			4
Consolidated Statement of Stockholders’ Equity and Comprehensive Income (loss) for the three months ended March 31, 2011			5
Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010			6
Notes to Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures about Market Risks			29
Item 4. Controls and Procedures			29
PART II—OTHER INFORMATION
Item 1. Legal Proceedings			30
Item 1A. Risk Factors			30
Item 2. Unregistered Sale of Equity Securities and Use of Proceeds			31
Item 3. Defaults Upon Senior Securities			31
Item 4. Reserved			31
Item 5. Other Information			31
Item 6. Exhibits			31
Signatures			33
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Bronco Drilling Company, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Amounts in thousands, except share par value)

		March 31,				December 31,
		2011				2010
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	14,797			$	11,854
Restricted cash			—				2,700
Receivables
Trade and other, net of allowance for doubtful accounts of $968 and $891 in 2011 and 2010, respectively			22,796				24,656
Affiliate receivables, net of allowance of $800			1,546				1,508
Unbilled receivables			856				428
Income tax receivable			5,671				5,700
Current deferred income taxes			2,558				2,765
Current maturities of note receivable from affiliate			1,639				1,607
Prepaid expenses			1,038				329
Total current assets			50,901				51,547
PROPERTY AND EQUIPMENT — AT COST
Drilling rigs and related equipment			304,886				315,085
Transportation, office and other equipment			16,281				16,236
			321,167				331,321
Less accumulated depreciation			104,093				105,242
			217,074				226,079
OTHER ASSETS
Investment in Challenger			38,730				38,730
Investment in Bronco MX			21,433				20,632
Debt issue costs and other			4,617				3,362
Non-current assets held for sale and discontinued operations			7,000				1,680
			71,780				64,404
		$	339,755			$	342,030
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	8,674			$	7,945
Accrued liabilities			8,757				7,847
Current maturities of long-term debt			96				95
Total current liabilities			17,527				15,887
LONG-TERM DEBT, less current maturities			4,150				6,730
WARRANT			14,690				4,407
DEFERRED INCOME TAXES			17,387				21,664
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS’ EQUITY
Common stock, $.01 par value, 100,000 shares authorized; 27,598 and 27,236 shares issued and outstanding at March 31, 2011 and December 31, 2010			276				277
Additional paid-in capital			309,874				310,580
Accumulated other comprehensive income			1,811				1,012
Retained earnings (Accumulated deficit)			(25,960	)			(18,527	)
Total stockholders’ equity			286,001				293,342
		$	339,755			$	342,030

The accompanying notes are an integral part of these statements.

Bronco Drilling Company, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

		Three Months Ended March 31,
		2011				2010
		(Unaudited)
REVENUES
Contract drilling revenues		$	37,006			$	22,295
EXPENSES
Contract drilling			23,801				18,159
Depreciation and amortization			5,659				7,705
General and administrative			4,209				4,217
Loss (gain) on Bronco MX transaction			—				(1,058	)
Impairment of drilling rigs and related equipment			679				—
Loss on sale of drilling rigs and related equipment			1,175				—
			35,523				29,023
Income (loss) from continuing operations			1,483				(6,728	)
OTHER INCOME (EXPENSE)
Interest expense			(571	)			(1,456	)
Loss from extinguishment of debt			(1,975	)			—
Interest income			—				46
Equity in income (loss) of Challenger			—				(599	)
Equity in income (loss) of Bronco MX			1				(209	)
Other			25				48
Change in fair value of warrant			(10,283	)			272
			(12,803	)			(1,898	)
Loss from continuing operations before income taxes			(11,320	)			(8,626	)
Income tax benefit			(3,981	)			(2,621	)
Loss from continuing operations			(7,339	)			(6,005	)
Loss from discontinued operations, net of tax			(94	)			(1,414	)
NET LOSS		$	(7,433	)		$	(7,419	)
Loss per common share-Basic
Continuing operations			(0.27	)			(0.23	)
Discontinued operations			(0.00	)			(0.05	)
Loss per common share-Basic		$	(0.27	)		$	(0.28	)
Loss per common share-Diluted
Continuing operations			(0.27	)			(0.23	)
Discontinued operations			(0.00	)			(0.05	)
Loss per common share-Diluted		$	(0.27	)		$	(0.28	)
Weighted average number of shares outstanding-Basic			27,468				26,850
Weighted average number of shares outstanding-Diluted			27,468				26,850

The accompanying notes are an integral part of these statements.

Bronco Drilling Company, Inc. and Subsidiaries

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(Amounts in thousands)

														Accumulated
										Additional				Other								Total
		Common				Common				Paid In				Comprehensive				Retained				Stockholders’
		Shares				Amount				Capital				Income				Earnings				Equity
Balance as of December 31, 2010			27,236			$	277			$	310,580			$	1,012			$	(18,527	)		$	293,342
Net loss			—				—				—				—				(7,433	)			(7,433	)
Other Comprehensive Income:
Foreign currency translation adjustment			—				—				—				799				—				799
Total Comprehensive Income (Loss)																							(6,634	)
Stock compensation			531				1				779				—				—				780
Stock withheld for taxes			(169	)			(2	)			(1,485	)			—				—				(1,487	)
Balance as of March 31, 2011			27,598			$	276			$	309,874			$	1,811			$	(25,960	)		$	286,001

The accompanying notes are an integral part of these statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

		Three Months Ended March 31,
		2011				2010
		(Unaudited)
Cash flows from operating activities from continuing operations:
Net loss		$	(7,433	)		$	(7,419	)
Adjustments to reconcile net loss to net cash provided by operating activities from continuing operations:
Loss from discontinued operations, net of tax			94				1,414
Depreciation and amortization			5,860				7,899
Bad debt expense			71				898
Loss (gain) on sale of assets			162				263
Write off of debt issue costs			1,975				—
Loss on sale of drilling rigs and related equipment			1,175				—
Impairment of drilling rigs and related equipment			679				—
Equity in (income) loss of Challenger			—				599
Equity in (income) loss of Bronco MX			(1	)			209
Change in fair value of warrant			10,283				(272	)
Loss on Bronco MX transaction			—				(1,058	)
Imputed interest expense			229				225
Stock compensation			780				395
Deferred income taxes			(3,982	)			(2,749	)
Changes in current assets and liabilities:
Receivables			1,725				(1,216	)
Affiliate receivables			(70	)			6,885
Unbilled receivables			(428	)			65
Prepaid expenses			(1,228	)			(429	)
Accounts payable			(3,648	)			(4,343	)
Accrued expenses			2,445				(463	)
Other			(1,082	)			(65	)
Net cash provided by operating activities from continuing operations			7,606				838
Cash flows from investing activities from continuing operations:
Proceeds from sale of assets			6,321				3,287
Purchase of property and equipment			(7,575	)			(7,830	)
Net cash used in investing activities from continuing operations			(1,254	)			(4,543	)
Cash flows from financing activities from continuing operations:
Proceeds from borrowings			3,000				5,000
Payments of debt			(9,126	)			(22	)
Net cash provided by (used in) financing activities from continuing operations			(6,126	)			4,978
Net increase in cash and cash equivalents from continuing operations			226				1,273
Cash flows from discontinued operations:
Operating cash flows			17				(55	)
Investing cash flows			—				(47	)
Financing cash flows			—				—
Net increase (decrease) in cash and cash equivalents from discontinued operations			17				(102	)
Increase in cash and cash equivalents			243				1,171
Beginning cash and cash equivalents			14,554				9,497
Ending cash and cash equivalents		$	14,797			$	10,668
Supplementary disclosure of cash flow information:
Interest paid, net of amount capitalized		$	526			$	1,255
Income taxes paid			3				128
Supplementary disclosure of non-cash investing and financing:
Purchase of property and equipment in accounts payable			2,865				1,110

The accompanying notes are an integral part of these statements.

Bronco Drilling Company, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

($ Amounts in thousands, except per share amounts)

Unless the context requires otherwise, a reference in this quarterly report to “Bronco,” the “Company,” “we,” “us,” and “our” are to Bronco Drilling Company, Inc., a Delaware corporation, and its consolidated subsidiaries.

1. Organization and Summary of Significant Accounting Policies

Business and Principles of Consolidation

Bronco Drilling Company, Inc. (the “Company”) provides contract land drilling services to oil and natural gas exploration and production companies. The accompanying consolidated financial statements include the Company’s accounts and the accounts of its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

The Company has prepared the accompanying unaudited consolidated financial statements and related notes in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Regulation S-X. In preparing the financial statements, the Company made various estimates and assumptions that affect the amounts of assets and liabilities the Company reports as of the dates of the balance sheets and amounts the Company reports for the periods shown in the consolidated statements of operations, stockholders’ equity and cash flows. The Company’s actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the Company’s recognition of revenues and accrued expenses, estimate of the allowance for doubtful accounts, estimate of asset impairments, estimate of deferred taxes and determination of depreciation and amortization expense.

In management’s opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position of the Company as of March 31, 2011, the related results of operations for the three months ended March 31, 2011 and 2010 and the cash flows for the three months ended March 31, 2011 and 2010. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The results of operations for the three months ended March 31, 2011 are not necessarily an indication of the results expected for the full year.

A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows.

Property and Equipment

Property and equipment, including renewals and betterments, are capitalized and stated at cost, while maintenance and repairs are expensed currently. Assets are depreciated on a straight-line basis. The depreciable lives of drilling rigs and related equipment are three to 15 years. The depreciable life of other equipment is three years. Depreciation is not commenced until acquired rigs are placed in service. Once placed in service, depreciation continues when rigs are being repaired, refurbished or between periods of deployment. Assets not placed in service and not being depreciated were $20,813 and $14,111 as of March 31, 2011 and December 31, 2010, respectively.

The Company capitalizes interest as a component of the cost of drilling rigs constructed for its own use. For the three months ended March 31, 2011 the Company capitalized $40 of interest expense. The Company did not capitalize any interest for the three months ended March 31, 2010.

The Company evaluates for potential impairment of long-lived assets and intangible assets subject to amortization when indicators of impairment are present, as defined in ASC Topic 360, Accounting for the Impairment or Disposal of Long-Lived Assets. Circumstances that could indicate a potential impairment include significant adverse changes in industry trends, economic climate, legal factors, and an adverse action or assessment by a regulator. More specifically, significant adverse changes in industry trends include significant declines in revenue rates, utilization rates, oil and natural gas market prices and industry rig counts for drilling rigs and workover rigs. In performing an impairment evaluation, the Company estimated the future undiscounted net cash flows from the use and eventual disposition of long-lived assets and intangible assets grouped at the lowest level that cash flows can be identified. If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the long-lived assets and intangible assets for these asset grouping levels, then the Company would recognize an impairment charge. The amount of an impairment charge would be measured as the difference between the carrying amount and the fair value of these assets. See Note 7, Asset Sales and Held for Sale, for discussion of impairment of drilling rigs and related equipment due to their classification as held for sale. See Note 8, Discontinued Operations, for discussion of well servicing segment property and equipment impairment relating to its classification as held for sale. The assumptions used in the impairment evaluation for long-lived assets and intangible assets are inherently uncertain and require management judgment.

Income Taxes

Pursuant to ASC Topic 740, Income Taxes, the Company follows the asset and liability method of accounting for income taxes, under which the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities were measured using enacted tax rates expected to apply to taxable income in the years in which the Company expects to recover or settle those temporary differences. A statutory Federal tax rate of 35% and effective state tax rate of 3.7% (net of Federal income tax effects) were used for the enacted tax rates for all periods.

As changes in tax laws or rates are enacted, deferred income tax assets and liabilities are adjusted through the provision for income taxes. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The classification of current and noncurrent deferred tax assets and liabilities is based primarily on the classification of the assets and liabilities generating the difference.

The Company applies the provisions of ASC Topic 740 which addresses the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes interest and/or penalties related to income tax matters as income tax expense. As of March 31, 2011, the tax years ended December 31, 2006 through December 31, 2009 are open for examination by U.S. taxing authorities.

Comprehensive Income (Loss)

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income. Other comprehensive income includes the translation adjustments of the financial statements of Bronco MX at March 31, 2011. The following table sets forth the components of comprehensive income (loss):

		Three Months Ended March 31,
		2011				2010
Net loss		$	(7,433	)		$	(7,419	)
Other comprehensive income — translation adjustment			799				827
Comprehensive loss		$	(6,634	)		$	(6,592	)

Equity Method Investments

Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Statements of Operations; however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption “Equity in income (loss) of Challenger” and “Equity in income (loss) of Bronco MX” in the Consolidated Statements of Operations. The Company’s carrying value in an equity method Investee company is reflected in the caption “Investment in Challenger” and “Investment in Bronco MX” in the Company’s Consolidated Balance Sheets.

Recent Accounting Pronouncements

In January 2010, the FASB issued a new accounting standard which requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by ASC 820, Fair Value Measurements. Also required is a reconciliation of purchases, sales, issuance, and settlements of financial instruments valued with a Level 3 method, which is used to price the hardest to value instruments. Entities are required to provide fair value measurement disclosures for each class of financial assets and liabilities. The guidance is effective for fiscal years beginning after December 15, 2010. The adoption of this standard did not impact our consolidated financial statements.

2. Equity Method Investments

On January 4, 2008, we acquired a 25% equity interest in Challenger Limited, or Challenger, in exchange for six drilling rigs and cash. The Company also sold to Challenger four drilling rigs and ancillary equipment. Challenger is an international provider of contract land drilling and workover services to oil and natural gas companies with its principal operations in Libya. The Company also entered into a term note with Challenger related to the sale of four drilling rigs and ancillary equipment. The term note bears interest at 8.5%. Interest and principal payments of $529 on the note are due quarterly until maturity at February 2, 2011. The note receivable is collateralized by the assets sold to Challenger. The note receivable from Challenger at March 31, 2011 and December 31, 2010 was $1,639 and $1,607, respectively.

On February 20, 2008, the Company entered into a Management Services Agreement and Master Services Agreement with Challenger. The Company agreed to make available to Challenger certain employees of the Company for the purpose of providing land drilling services, certain business consulting services and managerial support to Challenger. The Company invoices Challenger monthly for the services provided. The Company had accounts receivable from Challenger of $1,546 and $1,508 at March 31, 2011 and December 31, 2010, respectively, related to these services provided.

Recent civil and political disturbances in Libya have and will continue to affect Challenger’s operations. Ongoing political unrest may result in loss of revenue and damage to Challenger’s equipment. The political turmoil in Libya and elsewhere in North Africa and impact on Challenger’s operations could negatively impact the Company’s investment in Challenger, including the loss of our investment and write off of our receivables from Challenger. Challenger was unable to provide financial statements or other financial information for the three months ended March 31, 2011 due to the events in Libya and disruptions in their operations. Because of the lack of information and uncertainties caused by the events in Libya, we have not recorded or estimated any adjustments to the carrying value of our investment in Challenger, receivable balances or equity in income (loss) of Challenger. We will continue to monitor and evaluate the developments in Libya and our investment in Challenger during 2011 and the Company intends to make required adjustments to equity in income of Challenger in the period that financial statements or other reasonable information are available.

At March 31, 2011 and December 31, 2010, the book value of the Company’s ordinary share investment in Challenger was $38,730. The Company’s 25% interest of the net assets of Challenger was estimated to be $35,428 at December 31, 2010. The basis difference between the Company’s ordinary equity investment in Challenger and the Company’s 25% interest of the net assets of Challenger primarily consists of certain property, plant and equipment and accumulated depreciation in the net amount of $3,626 and $324 at March 31, 2011. These amounts are being amortized against the Company’s 25% interest of Challenger’s net income over the estimated useful lives of 15 years for the property, plant and equipment. Amortization recorded during the three months ended March 31, 2011 and March 31, 2010 was $0 and $61, respectively. The Company recorded equity in loss of investment of $0 and $(599) for the three months ended March 31, 2011 and 2010, respectively, related to its equity investment in Challenger.

Summarized financial information of Challenger is presented below. As described above, we are unable to provide summarized financial information as of and for the three months ended March 31, 2011.

		Three Months Ended March 31,
		2010
Condensed statement of operations:
Revenues		$	9,875
Gross margin		$	2,030
Net Loss		$	(2,153	)
		December 31,
		2010
Condensed balance sheet:
Current assets		$	56,010
Noncurrent assets			128,829
Total assets		$	184,839
Current liabilities		$	21,675
Noncurrent liabilities			20,722
Equity			142,442
Total liabilities and equity		$	184,839

In September, 2009, Carso Infraestructura y Construcción, S.A.B. de C.V., or CICSA, purchased from us 60% of the outstanding membership interests of Bronco MX. Upon closing of the transaction, the Company owned the remaining 40% of the outstanding membership interests of Bronco MX. Immediately prior to the sale of the membership interests in Bronco MX to CICSA, the Company contributed six drilling rigs (Nos. 4, 43, 53, 58, 60 and 72), and the future net profit from rig leases relating to three additional drilling rigs (Nos. 55, 76 and 78), which the Company contributed to Bronco MX upon the expiration of the leases relating to such rigs.

The Company received $31,735 from CICSA in exchange for the 60% membership interest in Bronco MX, which included reimbursement for 60% of value added taxes previously paid by, or on behalf of, Bronco MX as a result of the importation to Mexico of the six drilling rigs that were contributed by the Company to Bronco MX. Upon completion of the transaction, the Company treated Bronco MX as a deconsolidated subsidiary in order to compute a loss in accordance with ASC Topic 810, Consolidation, due to the Company not retaining a controlling financial interest in Bronco MX subsequent to the sale. The Company recorded a net loss of $23,964 for the nine months ended September 30, 2009 relating to the transactions. The loss was computed based on the proceeds received from CICSA of $31,735 and the value of the Company’s 40% retained interest in Bronco MX of $21,495 less the book value of the net assets of Bronco MX, including rigs contributed to Bronco MX, of $77,194. The Company recorded a negative adjustment to the loss during the year ended 2010 of $1,487 due to post closing adjustments.

On July 1, 2010, CICSA contributed cash of approximately $45,100 in exchange for 735,356,219 shares of Bronco MX. As a result of the contribution, the Company’s membership interest in Bronco MX was decreased to approximately 20%. The Company accounted for the share issuance as if the Company had sold a proportionate amount of its shares. The Company recorded a loss on the transaction in the amount of $1,271.

Bronco MX is jointly managed, with CICSA having four representatives on its board of managers and the Company having one representative on its board of managers. The Company and CICSA, and their respective affiliates, have agreed to conduct all future land drilling and workover rig services, rental, construction, refurbishment, transportation, trucking and mobilization in Mexico and Latin America exclusively through Bronco MX, subject to Bronco MX’s ability to perform.

According to a Schedule 13D/A filed with the SEC on April 19, 2011 by Carlos Slim Helú, certain members of his family and affiliated entities (collectively, the “Slim Affiliates”), these individuals and entities collectively own approximately 19.0% of our common stock. CICSA is also a Slim Affiliate.

At March 31, 2011, the book value of the Company’s ordinary share investment in Bronco MX was $21,433. The Company recorded equity in income (loss) of investment of $1 and $(209) for the three months ended March 31, 2011 and March 31, 2010, respectively, related to its equity investment in Bronco MX. The Company’s investment in Bronco MX was increased by $799 as a result of a currency translation gain for the three months ended March 31, 2011.

Summarized financial information of Bronco MX is presented below:

		Three Months Ended
		March 31, 2011				March 31, 2010
Condensed statement of operations:
Revenues		$	8,832			$	6,514
Gross margin		$	337			$	(485	)
Net Income (loss)		$	7			$	(521	)
		March 31,				December 31,
		2011				2010
Condensed balance sheet:
Current assets		$	29,005			$	25,497
Noncurrent assets			104,453				100,687
Total assets		$	133,458			$	126,184
Current liabilities		$	26,299			$	23,031
Noncurrent liabilities			—				—
Equity			107,159				103,153
Total liabilities and equity		$	133,458			$	126,184

3. Long-term Debt and Warrant

Long-term debt consists of the following:

		March 31,				December 31,
		2011				2010
Revolving credit facility with Banco Inbursa S.A., collateralized by the Company’s assets, and matures on September 17, 2014. Loans under the revolving credit facility bear interest at variable rates as defined in the credit agreement. (1)			3,000				5,555
Note payable to Ameritas Life Insurance Corp., collateralized by a building, payable in principal and interest installments of $14, interest on the note is 6.0%, maturity date of January 1, 2021. (2)			1,246				1,270
		$	4,246			$	6,825
Less current installments			96				95
			4,150				6,730

2012		$	96
2013			102
2014			108
2015			3,115
2016			122
2017 and thereafter			703
		$	4,246

4. Workers’ Compensation and Health Insurance

The Company is insured under a large deductible workers’ compensation insurance policy. The policy generally provides for a $1,000 deductible per covered accident. The Company maintains letters of credit in the aggregate amount of $8,525 for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which may become payable under the terms of the underlying insurance contracts. The letters of credit are typically renewed annually. No amounts have been drawn under the letters of credit. Accrued expenses at March 31, 2011 and December 31, 2010 included approximately $3,481 and $3,695, respectively, for estimated incurred but not reported costs and premium accruals related to our workers’ compensation insurance.

On November 1, 2005, the Company initiated a self-insurance program for major medical, hospitalization and dental coverage for employees and their dependents, which is partially funded by payroll deductions. The Company provided for both reported and incurred but not reported medical costs in the accompanying consolidated balance sheets. We have a maximum liability of $125 per employee/dependent per year. Amounts in excess of the stated maximum are covered under a separate policy provided by an insurance company. Accrued expenses at March 31, 2011 and December 31, 2010 included approximately $718 and $735, respectively, for our estimate of incurred but not reported costs related to the self-insurance portion of our health insurance.

5. Transactions with Affiliates

The Company had receivables from affiliates of $1,546 and $1,508 at March 31, 2011 and December 31, 2010, respectively.

Additional information about our transactions with affiliates is included in Note 2, Equity Method Investments.

6. Commitments and Contingencies

Various claims and lawsuits, incidental to the ordinary course of business, are pending against the Company. In the opinion of management, all matters are adequately covered by insurance or, if not covered, are not expected to have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

On April 14, 2011, we entered into an Agreement and Plan of Merger with Chesapeake Energy Corporation and Nomac Acquisition, Inc., an indirect wholly owned subsidiary of Chesapeake (“Purchaser”), as previously disclosed on a Form 8-K we filed with the SEC on April 18, 2011. Under the terms of the merger agreement, Chesapeake has agreed to acquire the Company through a two-step transaction, consisting of a tender offer by the Purchaser for all of our outstanding common stock at a price of $11.00 per share without interest thereon and less any applicable withholding or stock transfer taxes, followed by the merger of the Purchaser with and into the Company, with the Company surviving as an indirect, wholly owned subsidiary of Chesapeake.

Ten putative class action lawsuits relating to the merger agreement and the transactions contemplated therein have been commenced against the Company and current members of our board of directors, including our chief executive officer (the “Individual Defendants”). Six putative class action lawsuits were filed in the District Court of Oklahoma County, Oklahoma (collectively, the “Oklahoma Suits”). Two of the Oklahoma Suits have been voluntarily dismissed. Four putative class action lawsuits were filed in the Court of Chancery of the State of Delaware (the “Delaware Suits” and together with the four remaining Oklahoma Suits, the “Class Actions”). The Delaware Suits were consolidated into a single action on May 6, 2011. The Class Actions each seek certification of a class of all holders of our common stock and variously allege, among other things, that: (1) the Individual Defendants have breached and continue to breach their fiduciary duties to our stockholders; (2) the offer and the merger are unfair to our public stockholders as the proposed transactions underestimate the value of the Company; (3) the Individual Defendants are pursuing a course of conduct that does not maximize the value of the Company; and (4) the Company aided and abetted the alleged breaches of duties by the Individual Defendants. On April 29, 2011, the Delaware Suits were amended, adding allegations that the Schedule 14D-9 filed by the Company and the Schedule TO filed by Chesapeake did not adequately describe the process that resulted in the offer and that the Schedule 14D-9 did not include adequate information concerning the fairness opinion Johnson Rice & Company L.L.C. provided to our board of directors. The Class Actions seek, among other things, an injunction prohibiting consummation of the tender offer and the merger (each as defined below), attorneys’ fees and expenses and rescission or damages in the event the proposed transactions are consummated. We believe the Class Actions are entirely without merit and intend to defend against them vigorously.

7. Recent Asset Sales and Assets Held for Sale

On March 21, 2011, the Company sold one complete drilling rig (rig 6) in a private sale to Atlas Drilling, LLC, an unaffiliated third party, for net proceeds of $1,550. The Company recorded a $4 loss on the sale of the assets based on a net book value of $1,554.

On March 31, 2011, the Company sold one complete drilling rig (rig 62) in a private sale to Windsor Drilling, LLC, an unaffiliated third party, for net proceeds of $4,651. The Company recorded a $1,175 loss on the sale of the assets based on a net book value of $5,826.

On February 25, 2011, the Company entered into an agreement with Windsor Drilling, LLC, an unaffiliated third party, to sell an additional drilling rig (rig 56). Because the drilling rig meets the held for sale criteria, the Company is required to present such assets, comprised of property and equipment, at the lower of carrying amount or fair value less the anticipated costs to sell. The Company evaluated these assets for impairment as of March 31, 2011, which resulted in recognizing a $679 impairment charge. The net book value for rig 56 was $7,000 at March 31, 2011 and is included in Non-current assets held for sale and discontinued operations on the consolidated balance sheet.

The sale of drilling rigs and related equipment sold are part of a broader strategy by management to divest of older drilling rigs and use the proceeds to pay down existing indebtedness.

8. Discontinued Operations

Well Servicing

In the second quarter of 2010, management determined that our well servicing business segment was no longer consistent with the Company’s long-term strategic objectives and that the Company should seek to market this business for sale. During Q1 and Q2 2010 the market for workover services continued at depressed levels within the primary geographic market of our well servicing assets (Oklahoma). Management determined that higher return projects were available within the core drilling segment of the business and chose to deploy capital in this segment rather than commit the capital required to restructure operations in the well servicing segment. In 2010 management made a decision to market the assets constituting the well servicing segment for sale and redeploy the proceeds to reduce debt and to support the Company’s core drilling business. Well servicing operating results are included in discontinued operations in our Consolidated Statements of Operations.

The results of operations for the three months ended March 31, 2011 and 2010 are below:

		Three Months Ended March 31,
		2011				2010
Revenue		$	—			$	—
Impairment of intangibles		$	—			$	224
Loss from discontinued operations before income tax		$	549			$	1,973

Trucking Assets

In July 2010, the Company completed the sale of all of the Company’s trucking assets, property and equipment, for $11,299 in cash, net of selling expenses of $403. As drilling activity decreased in 2008 and 2009 the utilization of these trucking assets fell sharply. The ongoing operating losses in our trucking division required resources to be directed away from the core drilling business. As such, management made the decision in the second quarter 2010 to sell these assets as their operations were not considered core. Proceeds from this sale were used to prepay existing indebtedness under our revolving credit facility with Banco Inbursa in July 2010. Operating results are included as a component of discontinued operations in our Consolidated Statements of Operations for all periods presented. The trucking assets and operating activities were previously presented as part of our land drilling reportable segment. The results of operations for the three months ended March 31, 2011 and 2010 are below:

		Three Months Ended March 31,
		2011				2010
Revenue		$	—			$	203
Income (loss) from discontinued operations before income tax		$	398			$	(333	)

9. Net Income Per Common Share

The following table presents a reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) and diluted EPS comparisons as required by ASC Topic 260:

		Three Months Ended
		March 31,
		2011				2010
Basic:
Continuing operations			(7,339	)			(6,005	)
Discontinued operations			(94	)			(1,414	)
Net loss		$	(7,433	)		$	(7,419	)
Weighted average shares (thousands)			27,468				26,651
Continuing operations per share			(0.27	)			(0.23	)
Discontinued operations per share			(0.00	)			(0.05	)
Net loss per share		$	(0.27	)		$	(2.16	)
Diluted:
Continuing operations			(7,339	)			(6,005	)
Discontinued operations			(94	)			(1,414	)
Net Loss		$	(7,433	)		$	(7,419	)
Weighted average shares:
Outstanding (thousands)			27,468				26,651
Restricted Stock and Options (thousands)			—				—
			27,468				26,651
Continuing operations per share			(0.27	)			(0.23	)
Discontinued operations per share			(0.00	)			(0.05	)
Income (loss) per share		$	(0.27	)		$	(2.16	)

The weighted average number of diluted shares excludes 464,429 and 55,873 shares for the three months ended March 31, 2011 and 2010, respectively, subject to restricted stock awards due to their antidilutive effects.

10. Fair Value Measurements

As defined in ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an “exit price”). Authoritative guidance on fair value measurements and disclosures clarifies that a fair value measurement for a liability should reflect the entity’s non-performance risk. In addition, a fair value hierarchy is established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources.

Fair Value on Recurring Basis

The Company issued a Warrant in conjunction with its revolving credit facility with Banco Inbursa, which Banco Inbursa subsequently transferred to CICSA. In accordance with accounting standards, the Company revalued the Warrant as of March 31, 2011 and recorded the change in the fair value of the Warrant on the consolidated statement of operations. The fair value of the Warrant was determined using level 3 inputs. The Company used a pricing model based on a version of the Black Scholes model, which is adjusted to account for the dilution resulting from the additional shares issued for the Warrant. The valuation was determined by computing the value of the Warrant if exercised in Year 2 — 3 with the values weighted by the probability that the Warrant would actually be exercised in that year. Some of the assumptions used in the model were volatility of 39% and 49% and a risk free interest rate that ranged from 0.16% to 0.56%. The fair value of the Warrant was $14,690 at March 31, 2011. The Company recorded a change in the fair value of the Warrant on the consolidated statement of operations in the amount of $10,283 and $272 for the three months ended March 31, 2011 and 2010, respectively.

The fair values of our cash equivalents, trade receivables and trade payables approximated their carrying values due to the short-term nature of these instruments.

Fair Value on Non-Recurring Basis

In the first quarter of 2011, management entered into an agreement to sell one drilling rig (rig 56). Because the drilling rig meets the held for sale criteria, the Company is required to present these assets held for sale at the lower of carrying amount or fair value less anticipated cost to sell. The Company evaluated these assets as of March 31, 2011, for impairment. The fair value of the drilling rig was determined using the agreed upon sales price for the rig. The analysis as of March 31, 2011 resulted in a $679 impairment charge.

11. Restricted Stock

The Company’s board of directors and a majority of our stockholders approved our 2006 Stock Incentive Plan, which the Company refers to as the 2006 Plan, effective April 20, 2006. Effective December 10, 2010, the Company’s board of directors and a majority of our shareholders approved an amendment to the 2006 Plan to increase the shares available for issuance thereunder by 2,500,000 shares. The purpose of the 2006 Plan is to provide a means by which eligible recipients of awards may be given an opportunity to benefit from increases in value of our common stock through the granting of one or more of the following awards: (1) incentive stock options, (2) nonstatutory stock options, (3) restricted awards, (4) performance awards and (5) stock appreciation rights.

The purpose of the plan is to enable the Company, and any of its affiliates, to attract and retain the services of the types of employees, consultants and directors who will contribute to our long range success and to provide incentives that are linked directly to increases in share value that will inure to the benefit of our stockholders.

Eligible award recipients are employees, consultants and directors of the Company and its affiliates. Incentive stock options may be granted only to our employees. Awards other than incentive stock options may be granted to employees, consultants and directors. The shares that may be issued pursuant to awards consist of our authorized but unissued common stock, and the maximum aggregate amount of such common stock that may be issued upon exercise of all awards under the plan, including incentive stock options, may not exceed 2,500,000 shares, subject to adjustment to reflect certain corporate transactions or changes in our capital structure.

Under all restricted stock awards to date, nonvested shares are subject to forfeiture for failure to fulfill service conditions. Restricted stock awards consist of our common stock that vest over a two or three year period. Total shares available for future stock option grants and restricted stock grants to employees and directors under existing plans were 2,208,272 as of March 31, 2011. Restricted stock awards are valued at the grant date market value of the underlying common stock and are being amortized to operations over the respective vesting period. Compensation expense for the three months ended March 31, 2011 and 2010 was $779 and $395, respectively. Restricted stock activity for the three months ended March 31, 2011 was as follows:

						Weighted Average
						Grant Date
		Shares				Fair Value
Outstanding at December 31, 2010			1,222,496			$	4.82
Granted			510,740				6.97
Vested			(531,167	)			4.96
Forfeited/expired			—				—
Outstanding at March 31, 2011			1,202,069			$	5.70

There was $6,642 of total unrecognized compensation cost related to nonvested restricted stock awards to be recognized over a weighted-average period of 1.5 years as of March 31, 2011.

12. Subsequent Event

On April 14, 2011, we entered into an Agreement and Plan of Merger with Chesapeake Energy Corporation and Nomac Acquisition, Inc., an indirect wholly owned subsidiary of Chesapeake (“Purchaser”), as previously disclosed on a Form 8-K we filed with the SEC on April 18, 2011. Under the terms of the merger agreement, Chesapeake has agreed to acquire the Company through a two-step transaction, consisting of a tender offer by the Purchaser for all of our outstanding common stock at a price of $11.00 per share without interest thereon and less any applicable withholding or stock transfer taxes, followed by the merger of the Purchaser with and into the Company, with the Company surviving as an indirect, wholly owned subsidiary of Chesapeake. If, after completion of the tender offer, stockholder adoption of the merger agreement is required under Delaware law, we have agreed to hold a meeting of our stockholders for the purpose of adopting the merger agreement. In the Merger, each outstanding share of our common stock, other than shares of our common stock owned by the Company, Chesapeake or Purchaser or their respective wholly owned subsidiaries, or by stockholders who have validly exercised their appraisal rights under Delaware law, will be converted into the right to receive cash in an amount equal to the $11.00 per share offer price, without interest thereon and less any applicable withholding or stock transfer taxes.

Purchaser commenced the tender offer on April 26, 2011. Consummation of the tender offer and the merger is subject to the satisfaction or waiver of a number of customary closing conditions set forth in the merger agreement. We currently expect that the tender offer and merger will be completed during the second quarter of 2011, however, no assurance can be given as to when, or if, the merger will occur.

ITEM 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on March 15, 2011 and with the unaudited consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.

Disclosure Regarding Forward-Looking Statements

Our disclosure and analysis in this Form 10-Q may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical facts included in this Form 10-Q that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.

These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control.

Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Form 10-Q are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K. All forward-looking statements speak only as of the date of this Form 10-Q. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Overview

We provide contract land drilling services to oil and gas exploration and production companies throughout the United States. We commenced operations in 2001 with the purchase of one stacked 650-horsepower drilling rig that we refurbished and deployed. We subsequently made selective acquisitions of both operational and inventoried drilling rigs, as well as ancillary equipment. Our management team has significant experience not only with acquiring rigs, but also with building, refurbishing and deploying inventoried rigs. We have successfully refurbished and brought into operation 25 inventoried drilling rigs during the period from November 2003 through March 2011. In addition, we have a 41,000 square foot machine shop in Oklahoma City, which allows us to build, refurbish and repair our rigs and equipment in-house. This facility, which complements our two drilling rig refurbishment yards, significantly reduces our reliance on outside machine shops and the attendant risk of third-party delays in our rig refurbishment program.

Additionally, we have exposure to the international drilling market through a 20% equity investment in Bronco MX S.A. de C.V., a company organized under the laws of Mexico, or Bronco MX. Bronco MX provides contract land drilling services and leases land drilling rigs to Petroleos Mexicanos, or PEMEX, and/or companies contracted with PEMEX. We also have a 25% equity investment in Challenger Limited, a company organized under the laws of the Isle of Man, or Challenger. Challenger is an international provider of contract land drilling and workover services to oil and natural gas companies with its principal operations in Libya.

Recent Developments

On April 14, 2011, we entered into an Agreement and Plan of Merger with Chesapeake Energy Corporation and Nomac Acquisition, Inc., an indirect wholly owned subsidiary of Chesapeake (“Purchaser”), as previously disclosed on a Form 8-K we filed with the SEC on April 18, 2011. Under the terms of the merger agreement, Chesapeake has agreed to acquire the Company through a two-step transaction, consisting of a tender offer by the Purchaser for all of our outstanding common stock at a price of $11.00 per share without interest thereon and less any applicable withholding or stock transfer taxes, followed by the merger of the Purchaser with and into the Company, with the Company surviving as an indirect, wholly owned subsidiary of Chesapeake. If, after completion of the tender offer, stockholder adoption of the merger agreement is required under Delaware law, we have agreed to hold a meeting of our stockholders for the purpose of adopting the merger agreement. In the Merger, each outstanding share of our common stock, other than shares of our common stock owned by the Company, Chesapeake or Purchaser or their respective wholly owned subsidiaries, or by stockholders who have validly exercised their appraisal rights under Delaware law, will be converted into the right to receive cash in an amount equal to the $11.00 per share offer price, without interest thereon and less any applicable withholding or stock transfer taxes.

Purchaser commenced the tender offer on April 26, 2011. Consummation of the tender offer and the merger is subject to the satisfaction or waiver of a number of customary closing conditions set forth in the merger agreement. We currently expect that the tender offer and merger will be completed during the second quarter of 2011, however, no assurance can be given as to when, or if, the merger will occur.

Operating Segments

We currently conduct our operations through one operating segment: contract land drilling. In June of 2009 we made the decision to suspend operations in our well servicing segment because of deteriorating market conditions resulting from the decrease in oil and natural gas prices which began in the third quarter of 2008, as well as the inability of many customers to obtain financing related to their drilling and workover programs.

Through the second quarter of 2010, we explored alternatives to restructure the well servicing segment. During Q1 and Q2 2010 the market for workover services continued at depressed levels within our primary geographic well servicing market (Oklahoma). Late in Q2 2010, we determined that higher NPV projects were available within our drilling segment and chose to deploy capital in this segment rather than commit the capital required to restructure operations in the well servicing segment.

In late June 2010 we made a decision to market the assets constituting the well servicing segment for sale and redeploy the proceeds to reduce debt and to support our drilling segment. We have presented all well servicing operating results as discontinued operations in our Consolidated Statements of Operations for all periods presented. In September 2010, substantially all of the assets of the well servicing segment were sold at auction to multiple bidders. We used the proceeds to pay down existing indebtedness under our revolving credit facility.

In September and November 2010, we sold at auction in separate lots to multiple bidders two complete mechanical drilling rigs and components comprising six other drilling rigs (rigs 2, 9, 51, 52, 54, 70, 75 and 94), and ancillary equipment. The mechanical drilling rigs and equipment sold at auction were not being utilized currently in our business. In an unrelated transaction on September 23, 2010, we sold two mechanical drilling rigs (rigs 41 and 42) in a private sale to Windsor Permian LLC, an unaffiliated third party. On November 29, 2010, the Company sold two mechanical drilling rigs (rigs 5 and 7) in a private sale to Atlas Drilling, LLC, an unaffiliated third party. On March 21, 2011, the Company sold a mechanical drilling rig (rig 6) in a private sale to Atlas Drilling, LLC, an unaffiliated third party. On March 31, 2011, the Company sold a mechanical drilling rig (rig 62) in a private sale to Windsor Drilling, LLC, an unaffiliated third party.

In the first quarter we entered into an agreement to sell an additional mechanical drilling rig (rig 56). This transaction closed on April 11, 2011. The drilling rigs and related equipment sold at auction and held for sale are being sold as part of our broader strategy to divest of older mechanical drilling rigs and use the proceeds to pay down existing indebtedness and invest in next generation drilling equipment.

The following is a description of our operating segment.

Contract Land Drilling — Our contract land drilling segment provides contract land drilling services. As of April 30, 2011, we owned a fleet of 22 operating land drilling rigs. We currently operate our drilling rigs in North Dakota, Pennsylvania, Oklahoma, and Texas. A majority of the wells we drill for our customers are drilled in unconventional basins also known as resource plays. These plays are generally characterized by complex geologic formations that often require higher horsepower, premium rigs and experienced crews to reach targeted depths. Our current fleet of 22 operating drilling rigs range from 650 to 2,000 horsepower. Accordingly, such rigs can reach the depths required and have the capability of drilling horizontal and directional wells, which are increasing as a percentage of total wells drilled in North America and are frequently utilized in unconventional resource plays. We believe our premium rig fleet, inventory and experienced crews position us to benefit from the natural gas drilling activity in our core operating areas.

We obtain our contracts for drilling oil and natural gas wells either through competitive bidding or through direct negotiations with customers. We typically enter into drilling contracts that provide for compensation on a daywork basis. Occasionally, we enter into drilling contracts that provide for compensation on a footage basis. We have not historically entered into turnkey contracts; however, we may decide to enter into such contracts in the future. It is also possible that we may acquire such contracts in connection with future acquisitions. Contract terms we offer generally depend on the complexity and risk of operations, the on-site drilling conditions, the type of equipment used and the anticipated duration of the work to be performed. Although, we currently have 22 of our drilling rigs operating under term contracts, our contracts generally provide for the drilling of a single well and typically permit the customer to terminate on short notice, usually upon payment of an agreed fee.

A significant performance measurement that we use to evaluate this segment is operating rig utilization. We compute operating drilling rig utilization rates by dividing revenue days by total available days during a period. Total available days are the number of calendar days during the period that we have owned the operating rig. Revenue days for each operating rig are days when the rig is earning revenues under a contract, i.e. when the rig begins moving to the drilling location until the rig is released from the contract. On daywork contracts, during the mobilization period we typically receive a fixed amount of revenue based on the mobilization rate stated in the contract. We begin earning our contracted daywork rate and mobilization revenue when we begin drilling the well. Occasionally, in periods of increased demand, we will receive a percentage of the contracted dayrate during the mobilization period. We account for these revenues as mobilization fees.

For the three months ended March 31, 2011 and 2010 and years ended December 31, 2010, 2009 and 2008, our rig utilization rates, revenue days and average number of marketed rigs were as follows:

		Three Months Ended
		March 31,								Years Ended December 31,
		2011				2010				2010				2009				2008
Average number of marketed rigs			24				37				33				44				44
Revenue days			2,088				1,428				7,450				5,699				12,712
Utilization Rates			96	%			43	%			62	%			36	%			79	%

The increase in the number of revenue days for the three month-period ended March 31, 2011 as compared to the same period in 2010 is primarily attributable to the increase in oil and natural gas drilling activity in response to strong commodity prices and the availability of financing to our customers to fund their drilling programs.

Market Conditions in Our Industry

The United States contract land drilling industry is highly cyclical. Volatility in oil and natural gas prices can produce wide swings in the levels of overall drilling activity in the markets we serve and affect the demand for our drilling services and the revenue rates we can charge for our drilling rigs. The availability of financing sources, past trends in oil and natural gas prices and the outlook for future oil and natural gas prices strongly influence the capital expenditure budgets of exploration and production companies our business depends on.

Our business environment was adversely affected by the decline in oil and natural gas prices and the deteriorating global economic environment beginning in the third quarter of 2008. As a result of this deterioration, there was and continues to be significant uncertainty in the capital markets and access to financing has been adversely impacted. As a result of these conditions, our customers reduced their exploration budgets which resulted in a significant decrease in demand for our services and a reduction in revenue rates and utilization. During 2010, demand for drilling activity improved as certain commodity prices strengthened in the latter half of the year.

On April 29, 2011, the closing prices for near month delivery contracts for crude oil and natural gas as traded on the NYMEX were $113.93 per barrel and $4.51 per MMbtu, respectively. The Baker Hughes domestic land rig drilling rig count as of April 30, 2011 was 1,789. Baker Hughes is a large oil field services firm that has issued the rotary rig counts as a service to the petroleum industry since 1944.

The following table depicts the prices for near month delivery contracts for crude oil and natural gas as traded on the NYMEX, as well as the most recent Baker Hughes domestic land rig count, on the dates indicated:

		At March 31,				At December 31,
		2011				2010				2009				2008
Crude oil (Bbl)		$	106.72			$	91.38			$	79.36			$	44.60
Natural gas (Mmbtu)		$	4.39			$	4.41			$	5.57			$	5.62
U.S. Land Rig Count			1,749				1,670				1,150				1,653

Increased expenditures for exploration and production activities generally lead to increased demand for our services. Until mid-2008, rising oil and natural gas prices and the corresponding increase in onshore oil and natural gas exploration and production spending led to expanded drilling as reflected by the increases in the U.S. land rig counts over the previous several years. Falling commodity prices and the oversupply of rigs, similar to what we began experiencing in the third quarter of 2008, generally leads to lower demand for our services.

The decline in oil and natural gas prices and the deteriorating global economic environment resulted in reductions in our rig utilization and revenue rates in 2009. During 2010, these commodity prices strengthened and the overall demand for drilling activity increased in oil and natural gas resource plays. We expect continued increases in exploration and production spending during the remainder of 2011, which we expect will result in modest increases in industry rig utilization and revenue rates in 2011, as compared to 2010. Continued fluctuations in the demand for gas and oil, among other factors including supply, could contribute to price volatility which may continue to affect demand for our services and could materially affect our future financial results.

Recent civil and political disturbances in Libya have and will continue to affect Challenger’s operations. Ongoing political unrest may result in loss of revenue and damage to Challenger’s equipment. The political turmoil in Libya and elsewhere in North Africa and impact on Challenger’s operations could negatively impact the Company’s investment in Challenger, including the loss of our investment and write off of our receivables from Challenger. Challenger was unable to provide financial statements or other financial information for the three months ended March 31, 2011 due to the events in Libya and disruptions in their operations. Because of the lack of information and uncertainties caused by the events in Libya, we have not recorded or estimated any adjustments to the carrying value of our investment in Challenger, receivable balances or equity in income (loss) of Challenger. We will continue to monitor and evaluate the developments in Libya and our investment in Challenger during 2011 and the Company intends to make required adjustments to equity in income of Challenger in the period that financial statements or other reasonable information are available.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting policies that are described in the notes to our consolidated financial statements. The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our judgments and estimates in determining our financial condition and operating results. Estimates are based upon information available as of the date of the financial statements and, accordingly, actual results could differ from these estimates, sometimes materially. Critical accounting policies and estimates are defined as those that are both most important to the portrayal of our financial condition and operating results and require management’s most subjective judgments. The most critical accounting policies and estimates are described below.

Revenue and Cost Recognition— Our contract land drilling segment earns revenues by drilling oil and natural gas wells for our customers typically under daywork contracts, which usually provide for the drilling of a single well. We occasionally enter into footage contracts, which also usually provide for the drilling of a single well. We recognize revenues on daywork contracts for the days completed based on the dayrate each contract specifies. Mobilization revenues and costs are deferred and recognized over the drilling days of the related drilling contract. Individual contracts are usually completed in less than 120 days. We follow the percentage-of-completion method of accounting for footage contract drilling arrangements. Under this method, drilling revenues and costs related to a well in progress are recognized proportionately over the time it takes to drill the well. Percentage of completion is determined based upon the amount of expenses incurred through the measurement date as compared to total estimated expenses to be incurred drilling the well. Mobilization costs are not included in costs incurred for percentage-of-completion calculations. Mobilization costs on footage contracts and daywork contracts are deferred and recognized over the days of actual drilling. Under the percentage-of-completion method, management estimates are relied upon in the determination of the total estimated expenses to be incurred drilling the well. When estimates of revenues and expenses indicate a loss on a contract, the total estimated loss is accrued.

Our management has determined that it is appropriate to use the percentage-of-completion method to recognize revenue on our footage contracts, which is the predominant practice in the industry. Although our footage contracts do not have express terms that provide us with rights to receive payment for the work that we perform prior to drilling wells to the agreed upon depth, we use this method because, as provided in applicable accounting literature, we believe we achieve a continuous sale for our work-in-progress and we believe, under applicable state law, we ultimately could recover the fair value of our work-in-progress even in the event we were unable to drill to the agreed upon depth in breach of the applicable contract. However, ultimate recovery of that value, in the event we were unable to drill to the agreed upon depth in breach of the contract, would be subject to negotiations with the customer and the possibility of litigation.

We are entitled to receive payment under footage contracts when we deliver to our customer a well completed to the depth specified in the contract, unless the customer authorizes us to drill to a shallower depth. Since inception, we have completed all our footage contracts. Although our initial cost estimates for footage contracts do not include cost estimates for risks such as stuck drill pipe or loss of circulation, we believe that our experienced management team, our knowledge of geologic formations in our areas of operations, the condition of our drilling equipment and our experienced crews enable us to make reasonably dependable cost estimates and complete contracts according to our drilling plan. While we do bear the risk of loss for cost overruns and other events that are not specifically provided for in our initial cost estimates, our pricing of footage contracts takes such risks into consideration. When we encounter, during the course of our drilling operations, conditions unforeseen in the preparation of our original cost estimate, we immediately adjust our cost estimate for the additional costs to complete the contracts. If we anticipate a loss on a contract in progress at the end of a reporting period due to a change in our cost estimate, we immediately accrue the entire amount of the estimated loss, including all costs that are included in our revised estimated cost to complete that contract, in our consolidated statement of operations for that reporting period. We had no footage contracts in progress at March 31, 2011 or December 31, 2010. When we enter into footage contracts, we are more likely to encounter losses on them in years in which revenue rates are lower for all types of contracts.

Revenues and costs during a reporting period could be affected by contracts in progress at the end of a reporting period that have not been completed before our financial statements for that period are released. At March 31, 2011 and December 31, 2010, our unbilled receivables totaled $856,000 and $428,000, respectively, all of which relates to the revenue recognized but not yet billed or costs deferred on daywork contracts in progress.

We accrue estimated contract costs on footage contracts for each day of work completed based on our estimate of the total costs to complete the contract divided by our estimate of the number of days to complete the contract. Contract costs include labor, materials, supplies, repairs and maintenance and operating overhead allocations. In addition, the occurrence of uninsured or under-insured losses or operating cost overruns on our footage contracts could have a material adverse effect on our financial position and results of operations. Therefore, our actual results could differ significantly if our cost estimates are later revised from our original estimates for contracts in progress at the end of a reporting period that were not completed prior to the release of our financial statements.

Accounts Receivable—We evaluate the creditworthiness of our customers based on their financial information, if available, information obtained from major industry suppliers, current prices of oil and natural gas and any past experience we have with the customer. Consequently, an adverse change in those factors could affect our estimate of our allowance for doubtful accounts. In some instances, we require new customers to establish escrow accounts or make prepayments. We typically invoice our customers at 15-day intervals during the performance of daywork contracts and upon completion of the daywork contract. Footage contracts are invoiced upon completion of the contract. Our typical contract provides for payment of invoices in 30 days. We generally do not extend payment terms beyond 30 days. We are currently involved in legal actions to collect various overdue accounts receivable. Our allowance for doubtful accounts was $1.8 million and $1.7 million at March 31, 2011 and December 31, 2010, respectively. Any allowance established is subject to judgment and estimates made by management. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, our customer’s current ability to pay its obligation to us and the condition of the general economy and the industry as a whole. We write off specific accounts receivable when they become uncollectible and payments subsequently received on such receivables reduce the allowance for doubtful accounts.

If a customer defaults on its payment obligation to us under a footage contract, we would need to rely on applicable law to enforce our lien rights, because our contracts do not expressly grant to us a security interest in the work we have completed under the contract and we have no ownership rights in the work-in-progress or completed drilling work, except any rights arising under applicable law. If we were unable to drill to the agreed on depth in breach of a footage contract, we might also need to rely on equitable remedies to recover the fair value of our work-in-progress under a footage contract.

Asset Impairment and Depreciation— We evaluate for potential impairment of long-lived assets and intangible assets subject to amortization when indicators of impairment are present, as defined in ASC Topic 360, Accounting for the Impairment or Disposal of Long-Lived Assets. Circumstances that could indicate a potential impairment include significant adverse changes in industry trends, economic climate, legal factors, and an adverse action or assessment by a regulator. More specifically, significant adverse changes in industry trends include significant declines in revenue rates, utilization rates, oil and natural gas market prices and industry rig counts for drilling rigs and workover rigs. In performing an impairment evaluation, we estimate the future undiscounted net cash flows from the use and eventual disposition of long-lived assets and intangible assets grouped at the lowest level that cash flows can be identified. If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the long-lived assets and intangible assets for these asset grouping levels, then we would recognize an impairment charge. The amount of an impairment charge would be measured as the difference between the carrying amount and the fair value of these assets. The assumptions used in the impairment evaluation for long-lived assets and intangible assets are inherently uncertain and require management judgment.

In the first quarter of 2011, management entered into an agreement to sell an additional drilling rig (rig 56). Because the drilling rig met the held for sale criteria, we are required to present these assets held for sale at the lower of carrying amount or fair value less anticipated cost to sell. We evaluated these assets of March 31, 2011, for impairment. The fair value of the drilling rig was determined using the agreed upon sales price for the rig. The analysis as of March 31, 2011 resulted in a $679,000 impairment charge.

Our determination of the estimated useful lives of our depreciable assets, directly affects our determination of depreciation expense and deferred taxes. A decrease in the useful life of our drilling equipment would increase depreciation expense and reduce deferred taxes. We provide for depreciation of our drilling rigs, transportation and other equipment on a straight-line method over useful lives that we have estimated and that range from three to fifteen years after the rig was placed into service. We record the same depreciation expense whether an operating rig is idle or working. Depreciation is not recorded on an inventoried rig until placed in service. Our estimates of the useful lives of our drilling, transportation and other equipment are based on our experience in the drilling industry with similar equipment.

We capitalize interest cost as a component of drilling and workover rigs refurbished for our own use. During the three months ended March 31, 2011 and 2010, we capitalized interest in the amount of $40 and $0, respectively.

Stock Based Compensation—We have adopted ASC Topic 718, Stock Compensation, upon granting our first stock options on August 16, 2005. ASC Topic 718 requires a public entity to measure the costs of employee services received in exchange for an award of equity or liability instruments based on the grant-date fair value of the award. That cost will be recognized over the periods during which an employee is required to provide service in exchange for the award. Stock compensation expense was $779,000 and $395,000 for the three months ended March 31, 2011 and 2010, respectively.

Deferred Income Taxes—We provide deferred income taxes for the basis difference in our property and equipment, stock compensation expense and other items between financial reporting and tax reporting purposes. For property and equipment, basis differences arise from differences in depreciation periods and methods and the value of assets acquired in a business acquisition where we acquire the stock in an entity rather than just its assets. For financial reporting purposes, we depreciate the various components of our drilling rigs and refurbishments over fifteen years, while federal income tax rules require that we depreciate drilling rigs and refurbishments over five years. Therefore, in the first five years of our ownership of a drilling rig, our tax depreciation exceeds our financial reporting depreciation, resulting in our providing deferred taxes on this depreciation difference. After five years, financial reporting depreciation exceeds tax depreciation, and the deferred tax liability begins to reverse. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Equity Method Investments—Investee companies that are not consolidated, but over which we exercise significant influence, are accounted for under the equity method of accounting. Whether or not we exercise significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within our Consolidated Balance Sheets and Statements of Operations; however, our share of the earnings or losses of the Investee company is reflected in the captions “Equity in loss of Bronco MX” and “Equity in loss of Challenger” in the Consolidated Statements of Operations. Our carrying value in an equity method Investee company is reflected in the captions “Investment in Bronco MX” and “Investment in Challenger” in our Consolidated Balance Sheets.

Other Accounting Estimates—Our other accrued expenses as of March 31, 2011 and December 31, 2010 included accruals of approximately $3.5 million and $3.7 million, respectively, for costs under our workers’ compensation insurance. We have a deductible of $1.0 million per covered accident under our workers’ compensation insurance. We maintain letters of credit in the aggregate amount of $8.5 million for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which may become payable under the terms of the underlying insurance contracts. The letters of credit are typically renewed annually. No amounts have been drawn under the letters of credit. We accrue for these costs as claims are incurred based on cost estimates established for each claim by the insurance companies providing the administrative services for processing the claims, including an estimate for incurred but not reported claims, estimates for claims paid directly by us, our estimate of the administrative costs associated with these claims and our historical experience with these types of claims. We also have a self-insurance program for major medical, hospitalization and dental coverage for employees and their dependents. We recognize both reported and incurred but not reported costs related to the self-insurance portion of our health insurance. Since the accrual is based on estimates of expenses for claims, the ultimate amount paid may differ from accrued amounts.

Recent Accounting Pronouncements—In January 2010, the FASB issued a new accounting standard which requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by ASC 820, Fair Value Measurements. Also required will be a reconciliation of purchases, sales, issuance, and settlements of financial instruments valued with a Level 3 method, which is used to price the hardest to value instruments. Entities will have to provide fair value measurement disclosures for each class of financial assets and liabilities. The guidance will be effective for fiscal years beginning after December 15, 2010. The adoption of this standard did not impact our consolidated financial statements.

Off Balance Sheet Arrangements

We do not have any off balance sheet arrangements.

Recent Highlights

Asset Sales and Held for Sale

On September 21, 2010 through September 23, 2010, we sold at auction in separate lots to multiple bidders two complete drilling rigs and components comprising four other drilling rigs (rigs 2, 9, 52, 70, 75 and 94), and ancillary equipment. The drilling rigs and equipment sold at auction were not being utilized currently in our business. We received net proceeds of approximately $8.3 million, net of selling expenses of $817,000, for the drilling rigs and related equipment. We recorded losses of $19.9 million related to the sale of the drilling rigs and ancillary equipment. The loss was based on net book values of approximately $28.2 million for the drilling rigs and ancillary equipment. We used the entire proceeds to pay down existing indebtedness under our revolving credit facility.

In an unrelated transaction on September 23, 2010, we sold two drilling rigs (rigs 41 and 42) in a private sale to Windsor Permian LLC, an unaffiliated third party, for estimated net proceeds of $7.2 million. We recorded a $1.7 million loss on the sale of these assets based on a net book value of $8.9 million.

The decision was made by management in the third quarter to sell an additional five drilling rigs (rigs 5, 6, 7, 51, and 54). Because the drilling rigs met the held for sale criteria, we were required to present such assets, comprised of property and equipment, at the lower of carrying amount or fair value less the anticipated costs to sell. We evaluated these assets for impairment as of September 30, 2010, which resulted in recognizing a $7.8 million impairment charge which includes estimated selling expenses of approximately $125,000. At September 30, 2010, the fair value estimate was derived from the sale price of similar assets sold at auction during the third quarter and negotiated prices with interested parties. The drilling rigs and related equipment were presented as part of our land drilling segment.

On November 17, 2010, the Company sold at auction in separate lots to multiple bidders two complete drilling rigs (rigs 51 & 54) and ancillary equipment. The drilling rigs and equipment sold at auction were not being utilized currently in the Company’s business. The Company received net proceeds of approximately $1.7 million, net of selling expenses of $115,000, for the drilling rigs and related equipment. The Company recorded a loss of $2.2 million related to the sale of the drilling rigs and ancillary equipment. The loss was based on net book values of approximately $3.9 million for the drilling rigs and ancillary equipment.

On November 29, 2010, the Company sold two drilling rigs (rigs 5 and 7) in a private sale to Atlas Drilling, LLC, an unaffiliated third party, for estimated net proceeds of $2.7 million. The Company recorded a $14,000 gain on the sale of these assets based on a net book value of $2.7 million.

On March 21, 2011, the Company sold one complete drilling rig (rig 6) in a private sale to Atlas Drilling, LLC, an unaffiliated third party, for net proceeds of $1.6 million. The Company recorded a $4,000 loss on the sale of the assets based on a net book value of $1.6 million.

On March 31, 2011, the Company sold one complete drilling rig (rig 62) in a private sale to Windsor Drilling, LLC, an unaffiliated third party, for net proceeds of $4.7 million. The Company recorded a $1.2 million loss on the sale of the assets based on a net book value of $5.8 million.

On February 25, 2011, the Company entered into an agreement with Windsor Drilling, LLC, an unaffiliated third party, to sell an additional drilling rig (rig 56). Because the drilling rig meets the held for sale criteria, the Company is required to present such assets, comprised of property and equipment, at the lower of carrying amount or fair value less the anticipated costs to sell. The Company evaluated these assets for impairment as of March 31, 2011, which resulted in recognizing a $679,000 impairment charge.

The drilling rigs and related equipment sold at auction and the drilling rig held for sale are being sold as part of a broader strategy by management to divest of older drilling rigs and use the proceeds to pay down existing indebtedness.

Well Servicing Segment

In June 2009, management made the decision to temporarily suspend operations in the well servicing segment. As previously discussed, market conditions had sharply deteriorated. The dramatic decline in activity was evident as revenue hours decreased 87% from a peak of 25,533 hours in the third quarter of 2008 to 3,374 hours in the second quarter of 2009. This represents a utilization rate of 75% and 10% for the respective quarters. The decrease in activity was coupled with similar erosions in pricing and margin. As such, the segment was unable to generate adequate rates of return on capital in the near future. Because the core drilling business is very capital intensive and was at the same time experiencing a similar slowdown, management felt it prudent to temporarily suspend operations in the well service segment.

Through the second quarter of 2010, Bronco senior management explored alternatives to restructure the well servicing segment. During Q1 and Q2 2010 the market for workover services continued at depressed levels within the primary geographic market of our well servicing assets (Oklahoma). Late in Q2 2010, management determined that higher NPV projects were available within the core drilling segment of the business and chose to deploy capital in this segment rather than commit the capital required to restructure operations in the well servicing segment.

In late June management made a decision to market the assets constituting the well servicing segment for sale and redeploy the proceeds to reduce debt and to support the Company’s core drilling business. Since the well servicing property and equipment met the held for sale criteria, we were required to present its property and equipment held for sale at the lower of carrying amount or fair value less cost to sell. Accordingly, in the second quarter of 2010, we evaluated well servicing’s respective assets held for sale for impairment. We engaged a third party independent appraisal company to determine the fair value of the well servicing assets. The analysis resulted in $23.4 million impairment charge ($14.3 million after tax).

In September 2010, substantially all of the assets of the well servicing segment were sold at auction to multiple bidders. We received proceeds of $12.4 million, net of selling expenses of $638,000. The sale of the assets of the well servicing segment resulted in a loss of $8.9 million, which is reflected as a component of loss from discontinued operations in our Consolidated Statements of Operations. We used the proceeds to pay down existing indebtedness under our revolving credit facility.

Bronco MX

In September of 2009, CICSA purchased 60% of the outstanding membership interests of Bronco MX from us. Immediately prior to the sale of the membership interests in Bronco MX to CICSA, the Company contributed six drilling rigs (Nos. 4, 43, 53, 58, 60 and 72), and the future net profit from rig leases relating to three additional drilling rigs (Nos. 55, 76 and 78), which the Company contributed to Bronco MX upon the expiration of the leases relating to such rigs.

The Company received $31.7 million from CICSA in exchange for the 60% membership interest in Bronco MX. CICSA also reimbursed the Company for 60% of the value added taxes previously paid by, or on behalf of, Bronco MX as a result of the importation of six drilling rigs that were contributed by the Company to Bronco MX to Mexico.

On July 1, 2010, CICSA contributed cash of approximately $45.1 million in exchange for 735,356,219 shares of Bronco MX. The cash contributed was used to purchase five drilling rigs. As a result of the contribution, our membership interest in Bronco MX was decreased to approximately 20%. We accounted for the share issuance as if we had sold a proportionate amount of our shares. The Company recorded a loss on the transaction in the amount of $1.3 million, which was included in our consolidated statements of operations in the second quarter of 2010.

Bronco MX is jointly managed, with CICSA having four representatives on its board of managers and the Company having one representative on its board of managers. The Company and CICSA, and their respective affiliates, agreed to conduct all future land drilling and workover rig services, rental, construction, refurbishment, transportation, trucking and mobilization in Mexico and Latin America exclusively through Bronco MX, subject to Bronco MX’s ability to perform.

Senior Secured Revolving Credit Facility with Banco Inbursa

On February 9, 2011, the Company amended its senior secured revolving credit facility with Banco Inbursa. The borrowing base under the credit facility has been reduced from $75.0 million to $45.0 million. Outstanding borrowings under the credit facility bear interest at the Eurodollar rate plus 5.80% per annum, subject to adjustment under certain circumstances.

Global Financial Markets

Events, both within the United States and the world, have brought about significant and immediate changes in the global financial markets which in turn have affected the United States economy, our industry and us. In the United States, these events and others have had a significant impact on the prices for oil and natural gas as reflected in the following table:

		Natural Gas Price
		per Mcf								Oil Price per Bbl
Quarter		High				Low				High				Low
2011:
Second (through April 30, 2011)
First		$	4.74			$	3.78			$	106.72			$	84.32
2010:
Fourth		$	4.61			$	3.29			$	91.51			$	79.49
Third		$	4.92			$	3.65			$	82.55			$	71.63
Second		$	5.19			$	3.91			$	86.79			$	68.01
First		$	6.01			$	3.84			$	83.76			$	71.19
2009:
Fourth		$	5.99			$	4.25			$	81.37			$	69.57
Third		$	4.88			$	2.51			$	74.37			$	59.52
Second		$	4.45			$	3.25			$	72.68			$	45.88
First		$	6.07			$	3.63			$	54.34			$	33.98
2008:
Fourth		$	7.73			$	5.29			$	98.53			$	33.87
Third		$	13.58			$	7.22			$	145.29			$	95.71
Second		$	13.35			$	9.32			$	140.21			$	100.98
First		$	10.23			$	7.62			$	110.33			$	86.99

As noted in the table, oil and natural gas prices declined significantly in late calendar 2008 and there was a deteriorating national and global economic environment. During 2009, the economic recession, including the decline in oil and natural gas prices and deterioration in the credit markets, had a significant effect on customer spending and drilling activity. When drilling activity and spending decline for any sustained period of time our dayrates and utilization rates also tend to decline. In addition, lower commodity prices for any sustained period of time could impact the liquidity condition of some of our customers, which, in turn, might limit their ability to meet their financial obligations to us.

The impact on our business and financial results as a consequence of the volatility in oil and natural gas prices and the global economic crisis is uncertain in the long term, but in the short term, it has had a number of consequences for us, including the following:

•

In December 2008, we incurred goodwill impairment of our contract land drilling and well servicing segments of $24.3 million due to the fair value of the segments being less than their carrying value;

•

In June 2009, we temporarily suspended operations in our well servicing segment;

•

In September 2009, we incurred an impairment charge to our investment in Challenger of $21.2 million due to the fair value of the investment being less than its carrying value;

•

In June 2010, management made a decision to sell the assets in the well servicing segment. We recorded a $23.4 million impairment charge ($14.3 million after tax).

•

In July 2010, subsequent to the end of our second quarter, we completed the sale of the property and equipment of our trucking assets for $11.3 million in cash, net of selling expenses in the amount of $403,000. Proceeds from this sale were used to repay existing indebtedness under our revolving credit facility with Banco Inbursa.

•

In September 2010, we sold at auction in separate lots to multiple bidders substantially all of the assets of our discontinued well servicing segment, two complete drilling rigs and components comprising four other drilling rigs (rigs 2, 9, 52, 70, 75 and 94), and ancillary equipment. We recorded losses of $8.9 million and $19.9 million from the sale of the assets of our well servicing segment and drilling rigs and related equipment, respectively.

•

In September 2010, we sold two drilling rigs (rigs 41 and 42) in a private sale to Windsor Permian LLC, an unaffiliated third party, for estimated proceeds of $7.2 million. We recorded a loss of $1.7 million on the sale of these assets.

Additionally, in the third quarter of 2010 management made the decision to continue to divest of smaller legacy mechanical rigs and invest the proceeds into new generation drilling rigs and equipment. That decision resulted in the following transactions.

•

In September 2010, management made a decision to sell five drilling rigs (rigs 5, 6, 7, 51 and 54). We recorded a $7.9 million impairment charge on these rigs.

•

In November 2010, we sold at auction in separate lots to multiple bidders two complete drilling rigs (rigs 51 and 54) and ancillary equipment. We recorded a loss of $2.2 million on the sale of these assets.

•

In November 2010, we sold two drilling rigs (rigs 5 and 7) in a private sale to Atlas Drilling, LLC, an unaffiliated third party, for proceeds of $2.7 million. The Company recorded a $14,000 gain on the sale.

•

In February 2011, we agreed to sale two drilling rigs (rigs 56 and 62) in a private sale to Windsor Permian LLC, an unaffiliated third party, for proceeds of $11.5 million.

•

In March 2011, we sold one drilling rig (rig 6) in a private sale to Atlas Drilling, LLC, an unaffiliated third party, for proceeds of $1.6 million. We recorded a $4,000 loss on the sale.

Results of Operations

Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010

Contract Drilling Revenue. For the three months ended March 31, 2011, we reported contract drilling revenues of $37.0 million, a 66% increase from revenues of $22.3 million for the same period in 2010. The increase is primarily due to an increase in average dayrates and total revenue days for the three months ended March 31, 2011 as compared to the same period in 2010. Average dayrates for our drilling services increased $2,439, or 15%, to $18,389 for the three months ended March 31, 2011 from $15,949 for the same period in 2010. Revenue days increased 46% to 2,088 days for the three months ended March 31, 2011 from 1,428 days during the same period in 2010. The increase in the number of revenue days for the three months ended March 31, 2011 as compared to the same period in 2010 is primarily due to an increase in the utilization rate for the same period. Utilization increased to 96% for the three months ended March 31, 2011 from 43% for the same period in 2010. The 123% increase in utilization was primarily due to an increase in demand for our services related to increased drilling activity as a result of higher oil and natural gas prices.

Equity in Income (Loss) of Challenger. Equity in loss of Challenger was $599,000 for the three months ended March 31, 2010 related to our investment in Challenger. The equity in income (loss) of Challenger represents our 25% share of Challenger’s income (loss). For the three months ended March 31, 2010, Challenger had operating revenues of $9.9 million and operating costs of $7.8 million.

Recent civil and political disturbances in Libya have and will continue to affect Challenger’s operations. Ongoing political unrest may result in loss of revenue and damage to Challenger’s equipment. The political turmoil in Libya and elsewhere in North Africa and impact on Challenger’s operations could negatively impact the Company’s investment in Challenger, including the loss of our investment and write off of our receivables from Challenger. Challenger was unable to provide financial statements or other financial information for the three months ended March 31, 2011 due to the events in Libya and disruptions in their operations. Because of the lack of information and uncertainties caused by the events in Libya, we have not recorded or estimated any adjustments to the carrying value of our investment in Challenger, receivable balances or equity in income (loss) of Challenger. We will continue to monitor and evaluate the developments in Libya and our investment in Challenger during 2011 and the Company intends to make required adjustments to equity in income of Challenger in the period that financial statements or other reasonable information are available.

Equity in Income (Loss) of Bronco MX. Equity in income of Bronco MX was $1,000 for the three months ended March 31, 2011 related to our investment in Bronco MX compared to equity in loss of $209,000 for the three months ended March 31, 2010. The equity in loss of Bronco MX represents our 25% share of Bronco MX’s loss. For the three months ended March 31, 2011, Bronco MX had operating revenues of $8.8 million and operating costs of $8.5 million compared to $6.5 million and $7.0 million for the three months ended March 31, 2010.

Contract Drilling Expense. Direct rig cost increased $5.6 million to $23.8 million for the three months ended March 31, 2011 from $18.2 million for the same period in 2010. This 31% increase is primarily due to the increase in revenue days for the three months ended March 31, 2011 as compared to the same period in 2010. As a percentage of contract drilling revenue, drilling expense decreased to 64% for the three-month period ended March 31, 2011 from 81% for the same period in 2010. The decrease is due primarily to fixed costs on idle rigs and start up costs for rigs incurred in 2010.

Depreciation and Amortization Expense. Depreciation expense decreased $2.0 million to $5.7 million for the three months ended March 31, 2011 from $7.7 million for the same period in 2010. The decrease is primarily due to the sale of 17 drilling rigs throughout 2010.

General and Administrative Expense. General and administrative expense was flat at $4.2 million for the three months ended March 31, 2011 and 2010. Significant fluctuations from the three months ended March 31, 2010 to the same period in 2011 included a decrease in accounts receivable write offs of $828,000, partially offset by an increase in yard expense of $322,000, an increase in stock compensation expense of $301,000, and an increase in payroll and related costs of $160,000.

Interest Expense. Interest expense decreased $885,000 to $571,000 for the three months ended March 31, 2011 from $1.5 million for the same period in 2010. The decrease is due to a decrease in the average outstanding balance under our revolving credit facilities. We capitalized $40,000 of interest expense for the three months ended March 31, 2011. We did not capitalize any interest for the three months ended March 31, 2010.

Income Tax Expense. We recorded an income tax benefit of $4.0 million for the three months ended March 31, 2011. This compares to an income tax benefit of $2.6 million for the three months ended March 31, 2010. This increase is primarily due to a $2.7 million increase in the pre-tax loss to a pre-tax loss of $11.3 million for the three months ended March 31, 2011 from a pre-tax loss of $8.6 million for the three months ended March 31, 2010.

Liquidity and Capital Resources

Operating Activities. Net cash provided by operating activities was $7.6 million for the three months ended March 31, 2011 as compared to $838,000 in 2010. The increase of $6.8 million from 2010 to 2011 was primarily due to a increase in cash receipts from customers and lower cash payments to suppliers.

Investing Activities. We use a significant portion of our cash flows from operations and financing activities for acquisitions and the refurbishment of our rigs. Cash used by investing activities was $1.3 million for the three months ended March 31, 2011 as compared to $4.6 million for the same period in 2010. For the three months ended March 31, 2011, we used $7.6 million to purchase fixed assets. This amount was offset by $6.3 million of proceeds received from the sale of assets. For the three months ended March 31, 2010, we used $7.8 million to purchase fixed assets. This amount was partially offset by $3.3 million of proceeds received from the sale of assets and payments received from notes receivable in the amount of $483,000.

Financing Activities. Our cash flows used in financing activities was $6.1 million for the three months ended March 31, 2011 as compared to $5.0 million provided by financing activities for the same period in 2010. For the three months ended March 31, 2011 our net cash used in financing activities related to borrowings of $3.0 million under our credit facility with Banco Inbursa, partially offset by payments of $9.1 million under our credit facility with Banco Inbursa. For the three months ended March 31, 2010, our net cash provided by financing activities related to borrowings of $5.0 million under our credit facility with Banco Inbursa, partially offset by principal payments of $22,000 to various lenders.

Sources of Liquidity. Our primary sources of liquidity are cash from operations and debt and equity financing.

Debt Financing. On September 18, 2009, we entered into a new senior secured revolving credit facility with Banco Inbursa, as lender and as the issuing bank. We utilized (i) borrowings under the credit facility, (ii) proceeds from the sale of the membership interests of Bronco MX, and (iii) cash-on-hand to repay all amounts outstanding under our prior revolving credit agreement with Fortis Bank SA/NV, which has been replaced by the credit facility.

The credit facility provided for revolving advances of up to $75.0 million and matures on September 17, 2014. The commitment under the credit facility was initially set at $75.0 million, subject to borrowing base limitations. On February 9, 2011 we amended the credit facility to reduce the commitment to $45.0 million. The Company incurred a loss from extinguishment of debt of approximately $2.0 million related to the reduction in availability under the credit facility. Outstanding borrowings under the credit facility bear interest at the Eurodollar rate plus 5.80% per annum, subject to adjustment under certain circumstances.

We pay a quarterly commitment fee of 0.5% per annum on the unused portion of the credit facility and a fee of 1.50% for each letter of credit issued under the facility. In addition, an upfront fee equal to 1.50% of the aggregate commitments under the credit facility was paid by us at closing. Our domestic subsidiaries have guaranteed the loans and other obligations under the credit facility. The obligations under the credit facility and the related guarantees are secured by a first priority security interest in substantially all of our assets and our domestic subsidiaries, including the equity interests of our direct and indirect subsidiaries.

The credit facility contains customary representations and warranties and various affirmative and negative covenants, including, but not limited to, covenants that restrict our ability to make capital expenditures, incur indebtedness, incur liens, dispose of property, repay debt, pay dividends, repurchase shares and make certain acquisitions, and a financial covenant requiring that we maintain a ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation and amortization for any four consecutive fiscal quarters of not more than 3.5 to 1.0. We were in compliance with all covenants at March 31, 2011. A violation of these covenants or any other covenant in the credit facility could result in a default under the credit facility which would permit the lender to restrict our ability to access the credit facility and require the immediate repayment of any outstanding advances under the credit facility. The credit facility also provides for mandatory prepayments in certain circumstances.

In conjunction with our entry into the credit facility, we entered into a Warrant Agreement, pursuant to which we, issued a three-year warrant (the “Warrant”) to Banco Inbursa evidencing the right to purchase up to 5,440,770 shares of our common stock, $0.01 par value per share (the “Common Stock”), subject to the terms and conditions set forth in the Warrant, including the limitations on exercise set forth below, at an exercise price of $6.50 per share of Common Stock from the date of issuance of the Warrant (the “Issue Date”) through the first anniversary of the Issue Date, $7.00 per share following the first anniversary of the Issue Date through the second anniversary of the Issue Date, and $7.50 per share following the second anniversary of the Issue Date through the third anniversary of the Issue Date. The Warrant may be exercised by the payment of the exercise price in cash or through a cashless exercise whereby we withhold shares issuable under the Warrant having a value equal to the aggregate exercise price. Banco Inbursa subsequently transferred the Warrant to CICSA.

In accordance with accounting standards, the proceeds from the revolving credit facility were allocated to the credit facility and Warrant based on their respective fair values. Based on this allocation, $50.3 million and $4.7 million of the net proceeds were allocated to the credit facility and Warrant, respectively. The Warrant has been classified as a liability on the consolidated balance sheet due to our obligation to pay the seller of the Warrant a make-whole payment, in cash, under certain circumstances. The fair value of the Warrant was determined using a pricing model based on a version of the Black Scholes model, which is adjusted to account for the dilution resulting from the additional shares issued for the Warrant. The valuation was determined by computing the value of the Warrant if exercised in Year 1 — 3 with the values weighted by the probability that the Warrant would actually be exercised in that year. Some of the assumptions used in the model were a volatility of 45% and a risk free interest rate that ranged from 0.41% to 1.57%.

The resulting discount to the revolving credit facility will be amortized to interest expense over the term of the revolving credit facility such that, in the absence of any conversions, the carrying value of the revolving credit facility at maturity would be equal to $55.0 million. Accordingly, we will recognize annual interest expense on the debt at an effective interest rate of Eurodollar rate plus 6.25%. The discount was reclassified to debt issue costs at March 31, 2011.

In accordance with accounting standards, we revalued the Warrant as of March 31, 2011 and recorded the change in the fair value of the Warrant on the consolidated statement of operations. The fair value of the Warrant was determined using a pricing model based on a version of the Black Scholes model, which is adjusted to account for the dilution resulting from the additional shares issued for the Warrant. The valuation was determined by computing the value of the Warrant if exercised in Year 2 — 3 with the values weighted by the probability that the warrant would actually be exercised in that year. Some of the assumptions used in the model were volatilities of 39% and 49% and a risk free interest rate that ranged from 0.16% to .56%. The fair value of the Warrant was $14.7 million at March 31, 2011. We recorded a change in the fair value of the Warrant on the consolidated statement of operations in the amount of $10.3 million for the three months ended March 31, 2011.

The description of the credit facility set forth herein is a summary, is not complete and is qualified in its entirety by reference to the full text of such agreement, which was filed as exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 23, 2009.

We are party to a term loan agreement with Ameritas Life Insurance Corp. for an aggregate principal amount of approximately $1.6 million related to the acquisition of a building. This term loan is payable in 166 monthly installments, matures in 2021 and has an interest rate of 6%.

Working Capital. Our working capital was $33.4 million at March 31, 2011 compared to $35.7 million at December 31, 2010. Our current ratio, which we calculate by dividing our current assets by our current liabilities, was 2.9 at March 31, 2011 compared to 3.2 at December 31, 2010.

We believe that the liquidity shown on our balance sheet as of March 31, 2011, which includes approximately $33.4 million in working capital (including $14.8 million in cash) and availability under our $45.0 million credit facility of $33.5 million at March 31, 2011 (net of outstanding letters of credit of $8.5 million), together with cash expected to be generated from operations, provides us with sufficient ability to fund our operations for at least the next twelve months. However, additional capital may be required for future rig acquisitions. While we would expect to fund such acquisitions with additional borrowings and the issuance of debt and equity securities, we cannot assure you that such funding will be available or, if available, that it will be on terms acceptable to us. The changes in the components of our working capital were as follows (amounts in thousands):

		March 31,				December 31,
		2011				2010				Change
Cash and cash equivalents		$	14,797			$	11,854			$	2,943
Restricted cash			—				2,700				(2,700	)
Trade and other receivables			22,796				24,656				(1,860	)
Affiliate receivables			1,546				1,508				38
Unbilled receivables			856				428				428
Income tax receivable			5,671				5,700				(29	)
Current deferred income taxes			2,558				2,765				(207	)
Current maturities of note receivable			1,639				1,607				32
Prepaid expenses			1,038				329				709
Current assets			50,901				51,547				(646	)
Current debt			96				95				1
Accounts payable			8,674				7,945				729
Accrued liabilities and deferred revenues			8,757				7,847				910
Current liabilities			17,527				15,887				1,640
Working capital		$	33,374			$	35,660			$	(2,286	)

Item 3.		Quantitative and Qualitative Disclosures About Market Risks

We are subject to market risk exposure related to changes in interest rates on our outstanding floating rate debt. Borrowings under our revolving credit facility bear interest at a floating rate equal to LIBOR plus a margin of 5.80%. An increase or decrease of 1% in the interest rate would have a corresponding decrease or increase in our net income (loss) of approximately $18,000 annually, based on the $3.0 million outstanding in the aggregate under our credit facility as of March 31, 2011.

Item 4.		Controls and Procedures

Evaluation of Disclosure Control and Procedures.

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2011 our disclosure controls and procedures are effective.

Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and include controls and procedures designed to ensure that information is accumulated and communicated to our management, and made known to our Chief Executive Officer and Chief Financial Officer, particularly during the period when this Quarterly Report on Form 10-Q was prepared, as appropriate to allow timely decision regarding the required disclosure.

Changes in Internal Control over Financial Reporting.

There were no changes in our internal control over financial reporting that occurred during the first quarter of 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II: OTHER INFORMATION

Item 1.		Legal Proceedings

Various claims and lawsuits, incidental to the ordinary course of business, are pending against the Company. In the opinion of management, all matters are adequately covered by insurance or, if not covered, are not expected to have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

In addition, please see the lawsuits referenced in Note 6 Commitments and Contingencies to Part I, Item 1 above.

Item 1A.		Risk Factors

Our business is subject to many risks. We describe the risks and factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our common stock under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011. This information should be considered carefully together with the other information in this report and other reports and materials we file with the SEC. There have been no material changes from the risk factors disclosed in Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2010, other than the following:

Failure to complete our proposed merger with Chesapeake could negatively impact our stock price and our future business and financial results.

On April 14, 2011, we entered into an Agreement and Plan of Merger with Chesapeake Energy Corporation and Nomac Acquisition, Inc., an indirect wholly owned subsidiary of Chesapeake (“Purchaser”), as previously disclosed on a Form 8-K we filed with the SEC on April 18, 2011. Under the terms of the merger agreement, Chesapeake has agreed to acquire the Company through a two-step transaction, consisting of a tender offer by the Purchaser for all of our outstanding common stock at a price of $11.00 per share without interest thereon and less any applicable withholding or stock transfer taxes, followed by the merger of the Purchaser with and into the Company, with the Company surviving as an indirect, wholly owned subsidiary of Chesapeake. If the proposed tender offer and merger are not completed, our ongoing businesses may be adversely affected and, without realizing any of the benefits of having completed the merger, we would be subject to a number of risks, including the following:

•

we may experience negative reactions from our customers and employees;

•

the current market price of our common stock may reflect a market assumption that the tender offer and merger will occur and a failure to complete the tender offer or the merger could result in a negative perception by the stock market and a resulting decline in the market price of our common stock;

•

certain costs relating to the tender offer and merger, including certain investment banking, financing, legal and accounting fees and expenses, must be paid even if the merger is not completed, and we may be required to pay a fee of $13.0 million plus expense reimbursements up to $1.5 million to Chesapeake if the merger agreement is terminated under specified circumstances; and

•

there may be substantial disruption to our business and distraction of our management and employees from day-to-day operations because matters related to the tender offer and merger (including integration planning) may require substantial commitments of time and resources, which could otherwise have been devoted to other opportunities that could have been beneficial to us.

There can be no assurance that the risks described above will not materialize, and if any of them do, they may materially adversely affect our business, financial results and stock price.

We may have difficulty attracting, motivating and retaining officers and other key employees in light of our recently announced merger agreement with Chesapeake.

Uncertainty about the effect of the proposed tender offer and merger on our officers and employees may have an adverse effect on us. This uncertainty may impair our ability to attract, retain and motivate key personnel during the pendency of the merger, as employees may experience uncertainty about their future roles with us and with Chesapeake. If we are unable to attract, retain and motivate key personnel, we could face disruptions in our operations, loss of existing customers and loss of key information, expertise or know-how, which may adversely affect our business and financial results.

Business uncertainties and contractual restrictions while the proposed tender offer and merger is pending may have an adverse effect on us.

Uncertainty about the effect of the proposed tender offer and merger on suppliers, partners and customers may have an adverse effect on us. These uncertainties may cause suppliers, customers and others that deal with us to defer purchases or other decisions concerning us or seek to change existing business relationships with us. In addition, the merger agreement restricts us from making certain acquisitions and taking other specified actions without Chesapeake’s approval. These restrictions could prevent us from pursuing certain business opportunities that may arise prior to the completion of the merger. The adverse effect of such disruptions could be exacerbated by a delay in the completion of the tender offer or merger or termination of the merger agreement.

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.		Defaults Upon Senior Securities

None.

Item 4.		Reserved

Item 5.		Other Information

None.

Item 6.		Exhibits

Exhibits:

Exhibit No.				Description
	2.1			Agreement and Plan of Merger, dated as of April 14, 2011, by and among Bronco Drilling Company, Inc., Chesapeake Energy Corporation and Nomac Acquisition, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, File No. 000-51471, filed by the Company with the SEC on April 18, 2011).
	3.1			Amended and Restated Certificate of Incorporation of the Company, dated August 11, 2005 (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form S-1, File No. 333-128861, filed by the Company with the SEC on October 6, 2005).
	3.2			Bylaws of the Company (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-125405, filed by the Company with the SEC on July 14, 2005).
	4.1			Form of Common Stock certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Registration Statement on Form S-1, File No. 333-125405, filed by the Company with the SEC on August 2, 2005).
	*31.1			Certification of Chief Executive Officer of Bronco Drilling Company, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
	*31.2			Certification of Chief Financial Officer of Bronco Drilling Company, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.

Exhibit No.				Description
	*32.1			Certification of Chief Executive Officer of Bronco Drilling Company, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
	*32.2			Certification of Chief Financial Officer of Bronco Drilling Company, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.

SIGNATURE

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