UNITED
STATES




SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549







FORM
10-K/A




Amendment
No. 1







(Mark
One)


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






For
the fiscal year ended December 31, 2009






or






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




For
the transition period from
                    
to




Commission
file number 000-51471







Bronco
Drilling Company, Inc.




(Exact
name of registrant as specified in its charter)





Delaware
            20-2902156(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            (I.R.S.
      Employer
              Identification
      No.)16217
      North May Avenue
              Edmond,
      OK
            73013(Address
      of Registrant’s Principal Executive Offices)
            (Zip
      Code)




(405)
242-4444


(Registrant’s
telephone number, including area code)




Securities
      Registered Pursuant to Section 12(b) of the Act:Title
      of Each Class
            
            Name
      of Each Exchange on Which RegisteredCommon
      Stock $0.01 Par Value per Share
            
            The
      Nasdaq Stock Market LLCSecurities
      Registered Pursuant to Section 12(g) of the Act:None







Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes   ̈    No x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x




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




Indicate
by check mark whether the registrant 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   ̈    No   ̈




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




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





Large
      Accelerated Filer   ̈
            Accelerated
      Filer  x
            Non-Accelerated
      Filer   ̈
            Smaller
      Reporting Company   ̈




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





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of the most recently completed second fiscal
quarter based on the closing price on the Nasdaq Stock Market on June 30, 2009
was approximately $113,107,569.




As of
April 29, 2010, 28,434,449 shares of common stock were
outstanding.




Documents
Incorporated By Reference




None.


BRONCO
DRILLING COMPANY, INC.




INDEX


Item
      No.
                
                
                
                Form
      10-K/A Report PageEXPLANATORY
      NOTE
                
                1Part
      III10
                
                Directors,
      Executive Officers and Corporate Governance
                
                211
                
                Executive
      Compensation
                
                312
                
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholer Matters
                
                913
                
                Certain
      Relationships and Related Transactions, and Director
      Independence
                
                1014
                
                Principal
      Accounting Fees and Services
                
                11Part
      IV15
                
                Exhibits
      and Financial Statement Schedules
                
                11
  EXPLANATORY
NOTE





We are filing
this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend our Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, originally
filed on March 15, 2010 (the “Original Filing”).  We are filing this
amendment to include the information required by Part III of Form 10-K and to
present separate audited financial statements of Challenger Limited, a
non-consolidated subsidiary, required pursuant to Regulation S-X, Rule 3-09
“Separate financial statements of subsidiaries not consolidated and 50 percent
or less owned persons.”  The audited financial statements of
Challenger Limited were not available for inclusion with the Original Filing but
are required to be filed as an amendment within six months after the end of our
fiscal year.  Except as set forth herein, this Amendment No. 1 does
not amend any information set forth in the Original Filing and we have not
updated disclosures contained therein to reflect any events that occurred on a
date subsequent to the date of the Original Filing.


-1-





PART
III




Item 10.
Directors, Executive Officers and Corporate Governance.




Directors




The following table sets forth the
name, age and position of each of our directors elected by our
stockholders.  There are no family relationships between any director
and any other director or executive officer.




Name
            Age
            PositionD.
      Frank Harrison
            62
            Chairman
      and Chief Executive OfficerDr.
      Gary C. Hill (2)(3)
            61
            DirectorDavid
      W. House (1)(2)
            58
            DirectorDavid
      L. Houston (1)(3)
            57
            DirectorWilliam
      R. Snipes (1)(2)(3)
            57
            Director




(1)
            Member
      of audit committee


(2)
            Member
      of compensation committee


(3)
            Member
      of nominating and corporate governance
committee





D. Frank
Harrisonhas served as the Chairman of our Board of Directors since
August 2007, and Chief Executive Officer and a director of our company
since May 2005. From 2002 until joining our Company, Mr. Harrison served as
an agent for the purchase and sale of oil and gas properties for entities
controlled by Wexford Capital LLC. From 1999 to 2002, Mr. Harrison served
as President of Harding & Shelton, Inc., a privately held oil and
natural gas exploration, drilling and development firm. He graduated from
Oklahoma State University with a Bachelor of Science degree in
Sociology.





Dr. Gary C. Hillhas served as a director of our company since August 2006. Dr. Hill
has served as the Chief of Surgery Service and Chief of Staff at Edmond Medical
Center. He also has served as the President of the Edmond Medical Center
Hospital Board. Dr. Hill served as the Chief of Surgery Service and Chief
of Staff at St. Joseph’s Regional Hospital in Ponca City, Oklahoma.
Dr. Hill is a graduate of Oklahoma State University, where he received his
Bachelor of Arts in Humanities, and the University of Oklahoma Health Sciences
Center. He served both his Surgery Internship and Residency in Otolaryngology,
Head and Neck Surgery at the University of Texas Health Science Center, Parkland
Hospital in Dallas before performing his Plastic and Reconstructive Surgery
Residency at the University of Kansas Health Sciences Center in Kansas
City.





David W. Househas served as a director of our company since September 2008. Since March
2009, Mr. House has served as President of Jireh Resources, L.L.C., an Oklahoma
based oil and gas exploration and production company. Mr. House served as
the President of Primary Natural Resources, Inc. from 2004 to 2008, and as the
Chief Financial Officer of Primary Natural Resources, Inc. from 2000 until being
appointed its President. From 1996 to 2000, Mr. House served as Senior Vice
President of El Paso Corporation’s Mid-Continent Gas Group. From 1979 to
1996, Mr. House served in various positions with Samson Resources Company,
including Vice President of Administration and President of Premier Gas Company,
a wholly owned subsidiary of Samson Resources Company. Mr. House previously
served as an auditor with Arthur Young & Co., received a Bachelor of
Science degree in Accounting from Harding University and is a licensed Certified
Public Accountant.





David L. Houstonhas served as a director of our company since May 2005. Since 1991,
Mr. Houston has been the principal financial advisor of Houston Financial,
a firm that offers life and disability insurance, compensation and benefits
plans and estate planning. He currently serves on the board of directors of
Gulfport Energy Corporation. He served on the board of directors and
executive committee of Deaconess Hospital, located in Oklahoma City, from 1994
to 2008. Mr. Houston is the former chair of the Oklahoma State Ethics
Commission and the Oklahoma League of Savings Institutions. Prior to 1991,
Mr. Houston was President and Chief Executive Officer of Equity Bank for
Savings, F.A., an Oklahoma-based savings bank. He received a Bachelor of Science
degree in Business from Oklahoma State University and a graduate degree in
Banking from Louisiana State University.





William R. Snipeshas served as a director of our company since February 2006.
Mr. Snipes has served as the owner and President of Snipes Insurance
Agency, Inc., an independent insurance agency concentrating in property and
liability insurance, since 1991. From 1981 to 1991, Mr. Snipes was the
owner and President of William R. Snipes, CPA, Inc., a public
accounting firm concentrating in financial accounting and tax services. He
received a Bachelor of Science degree and a Masters degree in Accounting from
Oklahoma State University and is a licensed Certified Public
Accountant.





Executive
Officers





The following
table sets forth certain information with respect to our executive officers,
other than Mr. Harrison, whose information is set forth above under the caption
“Directors.”





Name
            Age
            PositionMark
      Dubberstein
            56
            PresidentZachary
      M. Graves
            34
            Executive
      Vice President of OperationsMatthew
      S. Porter
            33
            Chief
      Financial Officer, Treasurer and SecretarySteven
      R. Starke
            32
            Chief
      Accounting Officer





Mark Dubbersteinhas served as our President since June 2007. He served as our General
Counsel from January 2006 to June 2007. Prior to joining our company,
Mr. Dubberstein was in private legal practice for twenty-five years. His
previous experience includes serving as Mid-Continent Counsel at Sohio Petroleum
Company in Dallas. He received a Juris Doctorate from the University of Oklahoma
College of Law and a Bachelor of Arts degree in English from Oklahoma State
University.




Zachary M. Graveshas served as our Executive Vice President of Operations since January
2010. He served previously as our Chief Financial Officer, Secretary and
Treasurer since April 2005, and as our Controller and the Controller of Gulfport
Energy Corporation from April 2003 to March 2005. Prior to joining our company,
Mr. Graves served as an accountant with KPMG LLP from 2000 to 2003. He
received a Bachelor of Business Administration degree in Accounting from the
University of Oklahoma and is a licensed Certified Public
Accountant.


Matthew S.
Porter has served as our Chief Financial Officer, Treasurer and Secretary
since January 2010.   Mr. Porter served previously as the
Company’s Vice President of Corporate Finance since June 2007.  He
joined the Company in June 2006 as manager of the corporate development group.
From June 2001 to May 2006, Mr. Porter worked as Vice President and senior
portfolio manager responsible for the investment of a $250 million portfolio of
private and public equity securities. Mr. Porter began his career as a credit
analyst in the commercial lending department of a $20 billion commercial
bank.  He received a Bachelor of Business Administration degree from
the University of Oklahoma and later a Masters of Business Administration,
emphasis in finance, from the Price College of Business at the University of
Oklahoma. He is also a CFA Charterholder.
 
 Steven R. Starkehas served as our Chief Accounting Officer since June 2007.
Mr. Starke served previously as our Controller from May 2005 to June 2007.
Prior to joining our company, Mr. Starke served as an accountant with Grant
Thornton LLP in Oklahoma City from January 2000 to May 2005. He received a
Bachelor of Business Administration degree in Accounting and Management
Information Systems from the University of Oklahoma and is a licensed Certified
Public Accountant.





Section
16(a) Beneficial Ownership Reporting Compliance





Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires our
executive officers and directors, and persons who own more than 10% of a
registered class of our equity securities, to file reports of ownership and
changes of ownership with the Securities and Exchange Commission, or
SEC.  Our officers, directors and 10% stockholders are required by SEC
regulations to furnish us with copies of all Section 16(a) forms so
filed.  Based solely on our review of such forms received, we believe
that, during the last fiscal year, all filing requirements under Section 16(a)
applicable to our officers, directors and 10% stockholders were timely
met.





Code
of Business Conduct and Ethics


-2-





Our Code of
Business Conduct and Ethics is designed to help directors and employees resolve
ethical issues and to help us conduct our business in accordance with all
applicable laws, rules and regulations and with the highest ethical standards.
Our Code of Business Conduct and Ethics applies to all directors and employees,
including our principal executive officer, principal financial officer,
principal accounting officer and all other executive officers. We also expect
any consultants we retain to abide by our Code of Business Conduct and Ethics.
Our Code of Business Conduct and Ethics sets forth our policies with respect to
public disclosure of Company conflicts of interest, corporate opportunities,
fair dealing, confidentiality, equal employment opportunity and harassment,
protection and proper use of our assets and employee complaint procedures. Our
Code of Business Conduct and Ethics is posted on our website at www.broncodrill.com
under the “Corporate Governance” caption and will be provided to any person
without charge upon written request to Bronco Drilling Company, Inc., 16217 N.
May Avenue, Edmond, Oklahoma 73013, Attention: Secretary. Any amendments to, or
a waiver from, a provision of our Code of Business Conduct and Ethics that is
applicable to our principal executive officer, principal financial officer,
principal accounting officer or controller (or persons performing similar
functions) and is required to be disclosed by the relevant rules and regulations
of the SEC will be posted on our website.


Stockholder
Nominations for Director Nominees





No material
changes have been made to the procedures by which our stockholders may recommend
nominees to our board of directors since we described the procedures in our
Proxy Statement for our Annual Meeting of Stockholders held on November 13,
2009.  Our nominating and corporate governance committee will propose
the slate of directors to be put up for election at our annual meeting of
stockholders.


Audit
Committee





We currently
maintain an audit committee in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended.  The audit committee of
our board of directors is composed of Messrs. House (chair), Houston and Snipes.
Our board of directors has determined that each current member of the audit
committee is independent for purposes of serving on such committee under NASDAQ
listing standards and applicable federal law. Our board of directors has also
determined that each current member of the audit committee is financially
literate under NASDAQ listing standards and that Messrs. House, Houston and
Snipes each qualify as an “audit committee financial expert,” as such term is
defined in Item 407(d) of Regulation S-K.  We believe that the
composition and functioning of our audit committee complies with all applicable
requirements of the Sarbanes-Oxley Act of 2002, as well as NASDAQ listing
standards and SEC rules and regulations.





Item 11.
Executive Compensation.





Compensation
Discussion and Analysis





Overview
of Compensation Program




The
compensation committee of our board of directors, which we refer to as the
Committee, was established by our board of directors effective as of
March 25, 2007. Until that date, we relied on the “controlled company”
exemption from the requirement to have a compensation committee and the
applicable transition rules, in each case as provided by NASDAQ listing
standards.





The Committee
is composed entirely of independent directors and has the responsibility for
establishing, implementing and monitoring our compensation
programs.  The Committee annually reviews and recommends to our board
of directors the compensation and benefits for our executive officers and
administers our equity incentive plans.  The Committee ensures that
the total compensation paid to our officers is fair, reasonable and
competitive.  Generally, the types of compensation and benefits
provided to our executive officers are similar to those provided to our other
officers and employees.  We do not have compensation plans that are
solely for executive officers.  Prior to the formation of the
Committee, all compensation programs, including those for our named executive
officers, were administered by our board of directors and all functions of the
Committee described below were performed by our board of directors.





Compensation
Philosophy and Objectives





The
objectives of our compensation programs are to attract and retain key
executives, align the interests of our executives with those of our
stockholders, and motivate and reward individual performance and
contributions.  The key elements of our compensation program are
salary, annual bonus and long-term incentive compensation. We use these elements
to meet our compensation objectives as follows:





·
            Attract
      and retain key executives. We believe that to attract and retain talented
      executives, we must offer compensation that is competitive. We also
      believe that our executive officers are critical to the long-term success
      of our company. To facilitate their retention, we entered into employment
      agreements with Messrs. Harrison, Dubberstein and Graves during 2006, and
      Messrs. Porter and Starke and during 2007, on terms that we believe are
      competitive. In setting the salary and bonus for each of these individuals
      pursuant to such employment agreements, our board of directors believed
      that the combined value of base salary and bonus was competitive with that
      paid to similarly situated
executives.





·
            Align
      the interests of our executives with those of our stockholders. In 2009,
      the Company used restricted stock awards to provide long-term incentive
      compensation and to align the financial interests of our executives with
      those of our stockholders. For a discussion of the Company’s long-term
      incentive policy and equity awards, see “Long Term Incentive Compensation”
      below.





·
            Motivate
      and reward individual performance and contributions. The Company’s
      evaluation of the individual performance of each executive officer affects
      most aspects of the executive’s compensation. Individual performance and
      level of responsibility are considered in determining an executive’s
      annual salary, and are important factors in deciding discretionary bonuses
      and equity awards.





Compensation
Benchmarking





To ensure our
compensation is competitive, the Committee considers the competitive market for
talent and compensation levels provided by comparable companies and seeks to
minimize significant differences that could negatively impact our ability to
attract and retain exceptional executive officers. During the fourth quarter of
2009, the Committee, with the assistance of an external compensation consultant,
Equilar, Inc., reviewed the compensation practices at peer companies with which
we compete for business and/or talent.  Equilar, Inc., an executive
compensation research firm, was retained to provide a competitive market pay
analysis, which included total compensation measurement services, proxy data
studies, board of directors pay studies and market trends. The Committee chose
the companies listed below to serve as the peer group for its review because
those companies, in the Committee’s opinion, consisted of direct competitors,
similar sized companies within the energy industry, and Oklahoma-based energy
companies with which we compete for talent.




·
            Atwood
      Oceanics, Inc.




·
            Basic
      Energy Services Inc.




·
            Chesapeake
      Energy Corporation




·
            Complete
      Production Services Inc.




·
            Devon
      Energy Corporation




·
            Helmerich
      & Payne Inc.




·
            Key
      Energy Services Inc.




·
            Patterson
      UTI Energy




·
            Pioneer
      Drilling Company




·
            Sandridge
      Energy Corporation




·
            Union
      Drilling Inc.




-3-





After
completing its review, the Committee determined that 2009 compensation for our
executive officers was appropriate and competitive with similarly situated
companies, and, therefore, decided to make no changes to our compensation
structure or policies.  The Committee plans to retain Equilar, Inc. or
another compensation consultant during 2010 to provide further analysis of our
compensation structure and philosophy.





Role
of Executive Officers





In 2009, the
Committee made all compensation decisions for our Chairman and Chief Executive
Officer and, after receiving input from the Chairman and Chief Executive
Officer, all other named executive officers of the Company. The Committee
reviewed the performance of our Chairman and Chief Executive Officer, and
following such review, determined to maintain the cash compensation of our Chief
Executive Officer pursuant to his employment agreement, which is described in
more detail below. The Committee, together with our Chairman and Chief Executive
Officer, reviewed the performance of our other named executive officers, and our
Chairman and Chief Executive Officer made compensation recommendations to the
Committee with respect to our other named executive officers. No other executive
officers were present at the time of such discussions. The Committee considered
such recommendations when making its final compensation decision for all named
executive officers other than our Chairman and Chief Executive
Officer.





Base
Salary




Prior to the
establishment of the Committee, our board of directors annually reviewed the
base salaries of our named executive officers.  Since its
establishment, the Committee has reviewed the base salaries of our named
executive officers and, with respect to future salary determinations, will be
reviewed by the Committee on an annual basis. The Committee considered various
factors, including with regard to the position of the named executive officer,
the compensation of executive officers of companies within the peer group
described above, the performance of such executive officer, increases in
responsibilities and recommendations of our Chairman and Chief Executive Officer
with respect to base salaries of other named executive officers.





Each of our
named executive officer’s annual base salary is discussed in more detail below.
The annual base salary may be increased, but not decreased, at the discretion of
the board of directors or the Committee. Based on the considerations described
above, in August 2006, our board of directors established the annual base salary
for Mr. Harrison at $450,000.  The Committee decided to maintain such
annual base salary for Mr. Harrison in 2007, 2008 and 2009.  In April
2010, the Committee decided to increase Mr. Harrison’s base salary by the amount
of his non-discretionary annual cash bonus set forth in his employment agreement
with the Company, and eliminated the non-discretionary bonus required to be paid
under such employment agreement.  As a result, Mr. Harrison’s base
salary was increased to $750,000 in April 2010.  Based on the
considerations described above, Mr. Dubberstein’s annual base salary was
increased to $325,000 in April 2007, and Mr. Graves’ annual base salary was
increased to $325,000 in July 2007.  The Committee decided to maintain
such annual base salaries for 2008 and 2009.  In September 2008, Mr.
Starke’s annual base salary was increased to $150,000.  In January
2010, Mr. Porter’s annual base salary was increased to $250,000.  See
“Summary Compensation Table” below.  The terms of each executive
officer’s employment agreement are discussed in more detail under the heading
“Employment Agreements” below.





Bonus





Under the
terms of his prior employment agreement with the Company, our Chief Executive
Officer was eligible to receive an annual bonus in an amount not less than 66.7%
of his annual base salary. The compensation provided in that employment
agreement was established by our board of directors based upon an assessment of
the compensation practices and competitive market conditions existing at such
time.  See “Employment Agreements” below.  In 2009, we paid
our Chief Executive Officer the compensation required under his employment
agreement, including the minimum bonus required under that agreement, which was
$300,000.  The Committee did not make any determination whether or not
to pay such bonus, as it was required under the employment
agreement.  The Committee did determine not to pay a bonus that was
higher than the minimum amount required because it believed that such amount was
sufficient, when aggregated with his base salary, to cause the cash component of
his compensation to be comparable to similarly situated executives of our
competitors.  The Committee did not consider any other factors in
making such determination.





In 2009, our
other named executive officers were eligible to receive an annual bonus if
recommended by our Chairman and Chief Executive Officer and approved by the
Committee in its discretion. Our President, Chief Financial Officer, Executive
Vice President of Operations, and Chief Accounting Officer did not receive cash
bonuses in 2009.  The decision to not pay such cash bonuses was based
on various factors, including our profitability and overall financial
performance in 2009.  Further details regarding the 2009 bonus for our
Chairman and Chief Executive Officer is set forth under the heading “Summary
Compensation Table” below.





Long-Term
Incentive Compensation





2009
Awards.In January 2009, the Committee granted restricted
stock awards of 112,395 shares to Mr. Harrison, 71,429 shares to Mr.
Dubberstein, 81,148 shares to Mr. Graves, 22,573 shares to Mr. Starke, and
10,000 shares to Mr. Porter, under our 2006 Stock Incentive Plan described in
more detail below.  Half of these shares of restricted stock vested on
February 25, 2010, and the remaining half vest on February 25, 2011, subject to
earlier vesting or forfeiture in certain circumstances.  The Committee
also granted restricted stock awards of 11,240 shares to each of Messrs.
Hill, House, Houston and Snipes. These shares of restricted stock vested
immediately prior to our 2009 annual meeting of stockholders, which was held on
November 13, 2009.  The awards were made in the discretion of the
Committee to help incentivize these directors and executive officers by
maintaining a comparable value of unvested shares of restricted stock as they
had prior to recent vestings.





2010
Awards.  In April 2010, the Committee granted restricted
stock awards of 334,000 shares to Mr. Harrison, 330,000 to Mr. Dubberstein,
330,000 to Mr. Graves, 27,000 shares to Mr. Starke, and 50,000 shares to Mr.
Porter under our 2006 Stock Incentive Plan.  200,000 of the shares
awarded to each of Messrs.  Harrison, Dubberstein and Graves were for
their extraordinary efforts and success in consummating the Company’s joint
venture transaction with Carso Infraestructura y Construccion, S.A.B. de C.V.
and revolving credit facility with Banco Inbursa S.A., Institución de Banca
Múltiple, Grupo Financiero Inbursa.  Of these shares, 50,000 vested
immediately upon the date of grant, and the remainder vest in three equal annual
installments beginning on January 1, 2011, subject to earlier vesting or
forfeiture in certain circumstances.  The remainder of the issued
restricted stock award shares vest in three equal installments beginning on
February 25, 2011, subject to earlier vesting or forfeiture in certain
circumstances.  The Committee also granted restricted stock awards of
15,000 shares to each of the Company’s non-employee directors, Messrs. Hill,
House, Houston and Snipes.  These shares of restricted stock vest upon
the earlier to occur of February 25, 2011 or the day preceding our 2010 annual
meeting of stockholders, and are subject to earlier vesting or forfeiture in
certain circumstances.





Long-Term Incentive
Policy. Although in the past we awarded both options and restricted stock
as part of our long-term incentive compensation program, our board of directors
and the Committee believe that restricted stock awards are an essential
component of our compensation strategy, and we intend to continue offering such
awards in the future. Further, we anticipate that any equity awards granted to
our directors and executive officers will be in the form of restricted stock.
The Committee may also determine to issue other forms of stock-based awards to
our named executive officers or other eligible participants under our 2006 Stock
Incentive Plan or other equity incentive plans in effect at that time. Our
current equity incentive plans are described under the headings “2006 Stock
Incentive Plan” and “2005 Stock Incentive Plan” below.





If there is a
change of control of the Company, as defined in our 2006 Stock Incentive Plan,
the vesting for any restricted shares granted that have not yet vested will be
accelerated to immediately prior to the date of the change of control, provided
the eligible holder has remained a director, employee or consultant of ours or
one of our affiliates through the date of such change of control.





Perquisites
and Other Personal Benefits





Our company
provides our named executive officers with a limited number of perquisites or
other personal benefits, primarily consisting of company vehicles and club
memberships, that we believe help provide a competitive package of compensation
and benefits. The value of these benefits is disclosed under the heading
“Summary Compensation Table” below.





Broad-Based
Employee Benefits





401(k) Plan.
We have a defined contribution retirement plan in which certain of the named
executive officers currently participate. The retirement plan is a tax qualified
401(k) plan that covers all U.S. employees including the named executive
officers. Under the plan, we match 100% of employees’ contributions up to 5% of
eligible compensation, up to a maximum in 2009 of $16,500, or $22,000 for
employees eligible for additional catch up contribution limits. Employee and
employer contributions vest immediately.





Our named
executive officers are eligible to participate in all of our other employee
benefit plans which include medical, dental, group life, disability and
accidental death and dismemberment insurance, in each case on the same basis as
all other employees.  Certain of our executive officers receive
supplemental health insurance.


-4-





Employment
Agreements





We believe
that employment agreements are critical to the attraction and retention of our
key executive officers; therefore, the Company is a party to employment
agreements with each of its executive officers. Employment agreements with D.
Frank Harrison, our Chairman of the Board and Chief Executive Officer, and Mark
Dubberstein, our President, were each entered into effective as of
August 8, 2006, as amended on August 2, 2007.  On April 19,
2010, the Company entered into an amended and restated employment agreement with
Mr. Harrison.  Pursuant to the amended and restated employment
agreement, Mr. Harrison’s non-discretionary annual bonus was eliminated and his
annual base salary was increased by the amount of his non-discretionary annual
bonus required to be paid under his prior employment agreement.  The
amended and restated employment agreement also allows Mr. Harrison to utilize
the Company’s computer facilities and the services of one of the company’s
secretarial/administrative employees to provide routine accounting, records
maintenance and preparation for tax returns for him (and his family’s) personal
business investments and activities; provided, that, such payment and use of
services be subject to annual review by the board of directors (or the
Committee). An employment agreement was entered into with Zachary M. Graves
effective as of August 8, 2006, as amended on August 2, 2007, and again amended
on January 6, 2010 to reflect his change in title from Chief Financial Officer,
Treasurer and Secretary to Executive Vice President of Operations.  An
employment agreement was entered into with Steven Starke, our Chief Accounting
Officer, effective as of August 3, 2007. An employment agreement was
entered into with Matthew S. Porter, effective as of July 15, 2007, and as
amended and restated on January 6, 2010 to reflect his change in title from Vice
President of Corporate Finance to Chief Financial Officer, Treasurer and
Secretary.  As used in this section, all references to an individual’s
employment agreement will describe the agreement as amended, if applicable. Each
employment agreement has a three-year term, subject to automatic extensions for
one additional year so that the remaining term will be not less than two nor
more than three years. Annual base salaries are currently $750,000 per year for
Mr. Harrison, $325,000 per year for Mr. Dubberstein, $325,000 per year
for Mr. Graves, $150,000 per year for Mr. Starke, and $250,000 per
year for Mr. Porter. Messrs. Harrison, Dubberstein, Graves, Starke and
Porter are eligible to receive an annual discretionary bonus as established by
the board of directors or the Committee.  If we terminate an
employment agreement without cause, the executive officer is entitled to
severance pay in an amount equal to: (1) the base salary earned and unpaid
through the date of such termination plus the executive officer’s base salary
for the remainder of the term of his agreement; provided, however, that such
amount may not be less than twice the base salary in effect on the date of the
termination, plus (2) the greater of any target bonus for the year of
termination or the average of the two immediately preceding years’ annual
discretionary incentive bonuses; plus (3) any vacation pay accrued through
the date of the termination. In addition, for a period of the greater of
24 months after such termination or the remainder of the term of the
executive officer’s agreement, the Company will continue to provide the
executive officer (and his family, as applicable) with medical, dental, and life
insurance and other similar benefits.





We believe
that the executive’s performance generally may be hampered by distraction,
uncertainty and other activities in the event of an actual or threatened change
of control event. To reduce such adverse effects and encourage fair treatment of
our executive officers in connection with any such change of control event, the
above-referenced employment agreements include change of control protections.
If, within two years following a change of control the Company terminates the
employment of any such executive officer with or without cause or such executive
officer resigns with or without cause or good reason, such executive officer
would be entitled to a severance payment, payable in a lump sum in cash
following such executive officer’s termination, in an amount equal to three
times the sum of (1) his highest paid annual base salary, plus (2) the bonus
calculated as discussed below, plus any applicable gross-up
payment.  We believe that the double trigger requiring both
(1) the termination with or without cause or resignation with or without
cause or good reason and (2) a change of control event is appropriate to
provide fair treatment of these named executive officers without creating a
windfall.





For
Messrs. Harrison, Dubberstein and Graves, the bonus paid upon qualifying
termination in the event of a change of control will be calculated based on the
average of the last three years’ discretionary annual bonuses or such lesser
number of years as such executive may have been employed. For Messrs. Starke and
Porter, the bonus payable upon qualifying termination in the event of a change
of control will be the greater of any target bonus for the year of termination
or the highest bonus paid to him during his employment with the
Company.


The
employment agreements also provide that in the event of a termination of the
executive officer’s employment (1) by the Company without cause,
(2) by the executive officer for good reason or (3) in connection with
a change of control, (a) all units, stock options, incentive stock options,
performance shares, stock appreciation rights and restricted stock held by such
executive officer immediately prior to such termination will immediately become
100% vested and (b) the executive officer’s right to exercise any
previously unexercised options will not terminate until the latest date on which
such option would expire but for the executive officer’s termination of
employment.


As defined in
the employment agreements, “change of control” occurs in the event any
individual, entity or group acquires beneficial ownership of 40% or more of
either (a) the then outstanding shares of Company common stock or
(b) the combined voting power of the Company’s then outstanding voting
securities entitled to vote generally in the election of directors, provided
that any acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the Company will
not constitute a “change in control.” In addition, a change of control occurs
when the individuals who, as of the date of these employment agreements,
constitute the Company’s board of directors (the “incumbent board”) cease for
any reason to constitute at least a majority of the board of directors. Any
individual becoming a director subsequent to the date of these employment
agreements whose election, or nomination for election by our stockholders, is
approved by a vote of at least a majority of the directors then comprising the
incumbent board will be considered a member of the incumbent board as of the
date thereof, but any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a person other than the incumbent board
will not be deemed a member of the incumbent board as of the date of these
employment agreements. In addition, a change of control will occur upon the
consummation of certain specified business combinations and upon the approval by
our stockholders of a complete liquidation or dissolution of the
Company.


The
employment agreements also provide that in the event of termination upon the
disability of the executive officer, the Company will pay him his base salary in
effect on the date of termination through the remaining term of the employment
agreement, but in any event through the expiration date. The payment of such
amounts will be made during the remaining term of the employment agreements in
installments consistent with the Company’s normal payroll practices; provided,
however, that if the named executive officer is a “specified employee” as
defined in regulations under Section 409A of the Internal Revenue Code,
such payments will commence on the first payroll payment date that is more than
six months following the termination date and the first payment will include any
amounts that would have otherwise been payable during the six-months period.
Notwithstanding the foregoing, the amounts payable to the executive officer in
the event of termination upon disability will be reduced by any benefits payable
under any of the Company’s disability plans to such executive officer. If the
executive officer dies during the term of his employment agreement, his
employment will be terminated on such date and his estate will be entitled to
receive his base salary for a period of twelve months after the effective date
of such termination any other benefits accrued through the effective date of
such termination.
  In addition,
in the event it is determined that any payment or distribution by the Company or
its subsidiaries or affiliates to or for the benefit of the executive officer
(whether paid or payable or distributed or distributable pursuant to the terms
of his employment agreement or otherwise) is subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code or any interest or penalties
related to such excise tax, the executive officer will be entitled to receive an
additional gross-up payment from the Company. The gross-up payment will be equal
to the amount such that after payment by the executive officer of all taxes
(including the excise tax, income taxes, interest and penalties imposed with
respect to such taxes) on the gross-up payment, the executive officer will
retain an amount of the gross-up payment equal to the excise tax imposed on the
payment or distribution to or for the benefit of such executive
officer.





The
agreements also provide that each executive officer may not, during the term of
his employment with the Company and for a period extending one year from the
date of the termination of his employment with the Company, disclose any
confidential information regarding the Company or use any such confidential
information for any purpose other than the performance of his employment with
the Company. Each executive officer is also prohibited, during the term of his
employment with the Company and for a period of six months following the
termination of his employment with the Company for any reason other than without
cause or in connection with a change of control, from soliciting, inducing,
enticing or attempting to entice any employee, contractor, customer, vendor or
subcontractor to terminate or breach any relationship with the Company or any of
its subsidiaries or affiliates.


Further
details regarding potential payments to these named executive officers upon
termination or following a change of control event is set forth below under the
heading “Potential Payments upon Termination or
Change-in-Control.”





Other
Change of Control Arrangements





To promote
retention of executives, restricted stock grants contain “change of control”
provisions, which trigger full vesting upon a change of control. We believe that
these acceleration provisions are generally consistent with our competitors’
change of control protections offered to their similarly situated officers.
Potential payments to our Chairman and Chief Executive Officer and other named
executive officers upon termination or following a change of control event are
set forth under the heading “Potential Payments upon Termination or
Change-in-Control.”





Deductibility
of Executive Compensation





Section 162(m)
of the Internal Revenue Code limits the deductibility for federal income tax
purposes of executive compensation paid to the chief executive officer and the
four other most highly compensated officers of a public company to $1,000,000
per year, but contains an exception for certain performance-based compensation.
Our policy is to periodically review and consider whether particular
compensation and incentive payments to our executives will be deductible for
federal income tax purposes. We intend, to the extent feasible and when we
believe it is in the best interests of our Company and our stockholders, to
attempt to qualify executive compensation as tax deductible where it does not
adversely affect the development and execution of our compensation
plans.




Compensation
Committee Report on Executive Compensation





The Committee
has reviewed and discussed the Compensation Discussion and Analysis required by
Item 402(b) of Regulation S-K with management and, based on such
review and discussions, the Committee authorized, approved and recommended the
inclusion of the Compensation Discussion and Analysis in this annual report on
Form 10-K, as amended.


-5-




he
foregoing report is provided by the following directors, who constitute the
Committee.






COMPENSATION COMMITTEE




William
R. Snipes, Chairman


Dr. Gary
C. Hill


David W.
House




Compensation
Tables





Summary
Compensation Table





The
following table sets forth certain information with respect to the total
compensation earned by our named executive officers during the years ended
December 31, 2009, 2008 and 2007.


Name
      and Principal
                Position
              
              Year
              
              Salary
              
              Bonus
      (1)
              
              Stock
      Awards (2)
              
              Option
      Awards
              
              All
      Other Compensation(3)
              
              TotalD.
      Frank Harrison
              
              2009
              
              $467,308
              
              $300,000
              
              $593,446
              
              -
              
              $29,872
              
              $1,390,626Chairman
      and Chief Executive Officer
              
              2008
              
              $450,000
              
              $300,000
              
              $671,000
              
              -
              
              $22,334
              
              $1,443,3342007
              
              $450,000
              
              $300,000
              
              -
              
              -
              
              $15,577
              
              $765,577Mark
      Dubberstein (4)
              
              2009
              
              $337,500
              
              -
              
              $377,145
              
              -
              
              $38,286
              
              $752,931President
              
              2008
              
              $325,000
              
              $100,000
              
              $447,329
              
              -
              
              $37,784
              
              $910,1132007
              
              $291,346
              
              $100,000
              
              $385,500
              
              -
              
              $25,007
              
              $801,853Zachary
      M. Graves (5)
              
              2009
              
              $337,500
              
              -
              
              $428,461
              
              -
              
              $23,036
              
              $788,997Executive
      Vice President of Operations
              
              2008
              
              $325,000
              
              $100,000
              
              $648,629
              
              -
              
              $14,373
              
              $1,088,0022007
              
              $272,115
              
              $100,000
              
              $385,500
              
              -
              
              $17,395
              
              $775,010Steven
      R. Starke (6)
              
              2009
              
              $155,769
              
              -
              
              $119,185
              
              -
              
              $7,788
              
              $282,742Chief
      Accounting Officer
              
              2008
              
              $134,615
              
              $20,000
              
              $134,764
              
              -
              
              $6,731
              
              $296,1102007
              
              $122,692
              
              $20,000
              
              $77,100
              
              -
              
              $8,488
              
              $228,280Matthew
      S. Porter (7)
              
              2009
              
              $234,231
              
              -
              
              $52,800
              
              -
              
              $8,327
              
              $295,358Chief
      Financial Officer, Treasurer and Secretary
              
              2008
              
              $197,308
              
              -
              
              $134,200
              
              -
              
              $7,789
              
              $339,2972007
              
              $117,500
              
              $25,000
              
              $77,100
              
              -
              
              $5,875
              
              $225,475Larry
      Bartlett (8)
              
              2009
              
              -
              
              -
              
              -
              
              -
              
              -
              
              -Former
      Senior Vice President of Rig Operations
              
              2008
              
              $167,019
              
              -
              
              $380,229
              
              -
              
              $601,585
              
              $1,148,8332007
              
              $225,000
              
              $25,000
              
              $385,500
              
              -
              
              $16,488
              
              $651,988


(1)
            Reflects
      cash award paid in 2009, 2008 and 2007,
  respectively.


(2)
            Reflects
      the aggregate grant date fair value of equity awards granted in the
      respective years computed in accordance with ASC Topic
  718.


(3)
            Reflects
      (a) the amount of our matching contributions to our 401(k) plan for
      the benefit for the named executive officer: (1) $21,978 for 2009, $15,577
      for 2008, and $15,577 for 2007 for Mr. Harrison, (2) $16,875 for
      2009, $13,125 for 2008 and $13,942 for 2007 for Mr. Dubberstein,
      (3) $11,875 for 2009, $11,250 for 2008 and $11,106 for 2007 for
      Mr. Graves, (4) $20,500 for 2008, $11,250 for 2007 for
      Mr. Bartlett, (5) $7,788 for 2009, $6,731 for 2008 and $6,135
      for 2007 for Mr. Starke and (6) $8,327 for 2009, $7,789 for 2008 and
      $5,875 for 2007 for Mr. Porter; (b) the amount of club membership
      dues: (1) $5,228 for 2009 and $1,292 for 2007 for Mr. Graves,
      (2) $1,576 for 2008 and $3,720 for 2007 for Mr. Bartlett, (3)
      $8,576 for 2009 and $12,246 for 2008 for Mr. Dubberstein and
      (4) $2,353 for 2007 for Mr. Starke; (c) the amount of
      personal use of company vehicles: (1) $3,332 for 2009, $958 for 2008
      and $4,997 for 2007 for Mr. Graves, (2) $1,722 for 2009 for Mr.
      Dubberstein and (2) $3,704 for 2008 and $761 for 2007 for
      Mr. Bartlett; (d) medical expenses paid by the Company: (1) $7,894
      for 2009 and $6,757 for 2008 for Mr. Harrison, (2) $11,113 for 2009,
      $12,413 for 2008 and $11,065 for 2007 for Mr. Dubberstein, (3) $2,601 for
      2009 and $2,165 for 2008 for Mr. Graves, (4) $3,324 for 2008 and $757 for
      2007 for Mr. Bartlett and (e) the amount of severance expense paid by the
      Company upon termination of employment of our former Senior Vice President
      of Rig Operations ($572,481 for Mr.
Bartlett).


(4)
            Mr. Dubberstein
      has served as our President since June 2007. Mr. Dubberstein
      previously served as our General Counsel from January 2006 to June
      2007.


(5)
            Mr.
      Graves has served as our Executive Vice President of Operations since
      January 2010.  Mr. Graves previously served as our Chief
      Financial Officer, Treasurer and Secretary from April 2005 to January
      2010.


(6)
            Mr. Starke
      has served as our Chief Accounting Officer since June 2007.
      Mr. Starke previously served as our Controller from May 2005 to June
      2007.


(7)
            Mr.
      Porter has served as our Chief Financial Officer, Treasurer and Secretary
      since January 2010.  Mr. Porter previously served as our Vice
      President of Corporate Finance from June 2007 to January 2010, and our
      manager of corporate development from June 2006 to May
    2007.


(8)
            Mr. Bartlett’s
      employment with Company was terminated on September 10,
      2008.





Grants
of Plan-Based Awards





The following
table contains information with respect to the named executive officers
concerning grants of plan-based awards during 2009.




All
      Other Stock Awards:
            
            
            All
      Other Option Awards:Name
            Grant
      Date
            
            Number
      of Shares of Stock or Units (1)
            
            
            Number
      of Securities Underlying Options
            
            
            Exercise
      or Base Price of Option Awards
            
            
            Grant
      Date Fair Value of Stock and Option Awards (2)D.
      Frank Harrison
            01/30/2009
            
            
            112,395
            
            
            
            -
            
            
            
            -
            
            
            $
            593,446Mark
      Dubberstein
            01/30/2009
            
            
            71,429
            
            
            
            -
            
            
            
            -
            
            
            $
            377,145Zachary
      M. Graves
            01/30/2009
            
            
            81,148
            
            
            
            -
            
            
            
            -
            
            
            $
            428,461Steven
      R. Starke
            01/30/2009
            
            
            22,573
            
            
            
            -
            
            
            
            -
            
            
            $
            119,185Matthew
      S. Porter
            01/30/2009
            
            
            10,000
            
            
            
            -
            
            
            
            -
            
            
            $
            52,800


(1)
            Reflects
      shares of restricted stock awarded in January 2009 under our 2006 Stock
      Incentive Plan.


(2)
            Reflects
      the grant date fair value of each equity award computed in accordance with
      ASC Topic 718.


-6-





Outstanding
Equity Awards at Fiscal Year-End





The following
table contains information with respect to the named executive officers
concerning outstanding equity awards at December 31, 2009.





Option
      Awards
            
            
            Stock
      AwardsName
            
            Number
      of Securities Underlying Unexercised
              Options
              Exercisable
            
            
            Number
      of Securities Underlying Unexercised
              Options
      Unexercisable
            
            
            Option
      Exercise Price
            
            
            Option
      Expiration Date
            
            
            Number
      of Shares or Units of Stock That Have Not Vested
            
            
            Market
      Value of Shares or Units of Stock That Have Not Vested (1)D.
      Frank Harrison
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            137,395
            
            
            $
            696,593Mark
      Dubberstein
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            96,429
            
            
            $
            488,895Zachary
      M.  Graves
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            113,648
            
            
            $
            576,195Steven
      R. Starke
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            29,261
            
            
            $
            148,353Matthew
      S. Porter
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            16,667
            
            
            $
            84,502


(1)
            Calculated
      by multiplying the number of unvested shares of restricted stock by the
      closing price of our common stock on The NASDAQ Global Select Market on
      December 31, 2009, or $5.07.





Option
Exercises and Stock Vested





The following
table contains information with respect to the named executive officers
concerning option exercises and stock vested in fiscal 2009.





Option
      Awards
            
            
            Stock
      AwardsName
            
            Number
      of Shares Acquired on Exercise
            
            
            Value
      Realized on Exercise
            
            
            Number
      of Shares Acquired on Vesting
            
            
            Value Realized on Vesting(1)D.
      Frank Harrison
            
            
            -
            
            
            
            -
            
            
            
            97,222
            
            
            $
            555,277Mark
      Dubberstein
            
            
            -
            
            
            
            -
            
            
            
            50,000
            
            
            $
            296,333Zachary
      M. Graves
            
            
            -
            
            
            
            -
            
            
            
            72,500
            
            
            $
            429,683Steven
      R. Starke
            
            
            -
            
            
            
            -
            
            
            
            15,063
            
            
            $
            89,273Matthew
      S. Porter
            
            
            -
            
            
            
            -
            
            
            
            6,667
            
            
            $
            35,069




(1)
            Calculated
      by multiplying the number of shares of restricted stock by the closing
      price of our common stock on The NASDAQ Global Select Market on the date
      of vesting.





Nonqualified
Deferred Compensation





We do not
currently have in place any nonqualified deferred compensation
arrangements.





Pension
Benefits





We do not
currently offer any pension benefits.





Potential
Payments upon Termination or Change-in-Control





The following
table sets forth the potential payments due to our named executive officers
assuming the executive’s employment was terminated by us without cause or by the
executive for good reason or in the event of a change-in-control at
December 31, 2009. There would be no potential payments due to a named
executive officer upon the executive’s voluntary termination, except for
termination by the executive for good reason.  The termination events,
including those upon change of control, triggering payments or other benefits to
our named executive officers are described under the headings “Employment
Agreements” above.





Termination
Following a Change of Control





Name
            
            Salary
      (1)
            
            
            Bonus
            
            
            Vesting
      of Restricted Stock (4)
            
            
            Excise
      Tax Gross-Up
            
            
            TotalD.
      Frank Harrison
            
            $
            1,350,000
            
            
            $
            900,000
            (2)
            
            $
            696,593
            
            
            
            -
            
            
            $
            2,946,593Mark
      Dubberstein
            
            $
            975,000
            
            
            $
            200,000
            (2)
            
            $
            488,895
            
            
            
            -
            
            
            $
            1,663,895Zachary
      M. Graves
            
            $
            975,000
            
            
            $
            200,000
            (2)
            
            $
            576,195
            
            
            
            -
            
            
            $
            1,751,195Steven
      R. Starke
            
            $
            450,000
            
            
            $
            82,500
            (3)
            
            $
            148,353
            
            
            
            -
            
            
            $
            680,853Matthew
      S. Porter
            
            $
            660,000
            
            
            $
            75,000
            (3)
            
            $
            84,502
            
            
            $
            310,032
            
            
            $
            1,129,534




(1)
            Calculated
      as an amount equal to three times the named executive officers’ highest
      paid annual base salary.


(2)
            Calculated
      as an amount equal to three times the named executive officers’ average
      bonus for the last three years or such lesser number of years as the named
      executive officers may have been
employed.


(3)
            Calculated
      as an amount equal to three times the named executive officer’s highest
      paid annual bonus during his employment with the
  Company.


(4)
            Calculated
      by multiplying the number of unvested shares of restricted stock by the
      closing price of our common stock on The NASDAQ Global Select Market on
      December 31, 2009, or $5.07.





Termination
Without Cause or For Good Reason





Name
            
            Salary
      (1)
            
            
            Bonus
      (2)
            
            
            Vesting
      of Restricted Stock (3)
            
            
            Continued
      Benefit Plan Coverage (4)
            
            
            TotalD.
      Frank Harrison
            
            $
            1,162,500
            
            
            $
            300,000
            
            
            $
            696,593
            
            
            $
            21,111
            
            
            $
            2,180,204Mark
      Dubberstein
            
            $
            839,583
            
            
            $
            50,000
            
            
            $
            488,895
            
            
            $
            26,195
            
            
            $
            1,404,673Zachary
      M. Graves
            
            $
            839,583
            
            
            $
            50,000
            
            
            $
            576,195
            
            
            $
            26,195
            
            
            $
            1,491,973Steven
      R. Starke
            
            $
            387,500
            
            
            $
            10,000
            
            
            $
            148,353
            
            
            $
            26,195
            
            
            $
            572,048Mathew
      S. Porter
            
            $
            559,167
            
            
            
            -
            
            
            $
            84,502
            
            
            $
            30,420
            
            
            $
            674,089




(1)
            Calculated
      as an amount equal to the named executive officers’ base salary as in
      effect on the termination date continuing through the remaining term of
      each named executive officer’s
agreement.


(2)
            Calculated
      as the greater of any target bonus for the year of termination or the
      average of the immediately preceding two years’ annual incentive bonuses
      received by the named executive officer or such lesser number of years as
      the named executive officer may have been
  employed.


(3)
            Calculated
      by multiplying the number of unvested shares of restricted stock by the
      closing price of our common stock on The NASDAQ Global Select Market on
      December 31, 2009, or $5.07.


(4)
            Reflects
      the estimated cost to us to provide existing medical and dental benefits
      to each named executive officer for the time period remaining in each
      named executive officer’s
agreement.


-7-





Termination
Upon Death





In the event
of the death of our Chief Executive Officer, President, Chief Financial Officer,
Executive Vice President of Operations, or Chief Accounting Officer, the
executive’s beneficiary will receive the named executives’ base salary for a
period of 12 months and any benefits accrued through the date of death. At
December 31, 2009, the base salary of our (1) Chief Executive Officer was
$450,000, (2) President was $325,000, (3) Chief Financial Officer was $220,000,
(4) Executive Vice President of Operations was $325,000, and (5) Chief
Accounting Officer was $150,000.





Termination
Upon Disability





In the event
of the disability of our Chief Executive Officer, President, Chief Financial
Officer, Executive Vice President of Operations or Chief Accounting Officer, the
executive will continue to receive his base salary through the remaining term of
the contract. Had the event occurred at December 31, 2009, our Chief
Executive Officer would be entitled to $1,162,500, our President would be
entitled to $839,583, our Chief Financial Officer would be entitled to $559,167,
our Executive Vice President of Operations would be entitled to $839,583 and our
Chief Accounting Officer would be entitled to $387,500 over the remaining term
of the contracts.





Director
Compensation





The following
table contains information with respect to 2009 compensation of our directors
who served in such capacity during that year, except directors who are also our
named executive officers who do not receive compensation for services as
directors.





Director’s
Compensation Table for the Fiscal Year Ended December 31, 2009





Name
            
            Fees
      Earned or Paid in Cash
            
            
            Stock
      Awards (1)
            
            
            Option
      Awards
            
            
            All
      Other Compensation
            
            
            TotalGary
      C. Hill
            
            $
            36,000
            
            
            $
            59,347
            
            
            
            -
            
            
            
            -
            
            
            $
            95,347David
      W. House
            
            $
            36,000
            
            
            $
            59,347
            
            
            
            -
            
            
            
            -
            
            
            $
            95,347David
      L. Houston
            
            $
            36,000
            
            
            $
            59,347
            
            
            
            -
            
            
            
            -
            
            
            $
            95,347William
      R. Snipes
            
            $
            36,000
            
            
            $
            59,347
            
            
            
            -
            
            
            
            -
            
            
            $
            95,347




(1)
            Reflects
      the aggregate grant date fair value of each equity award computed in
      accordance with ASC Topic 718.





Historically,
our non-employee directors were paid a monthly retainer of $1,000 and a per
meeting attendance fee of $500 and were reimbursed for all ordinary and
necessary expenses incurred in the conduct of our business.  To ensure
the compensation of our directors is competitive with other similarly situated
directors, the Committee, with the assistance of an external compensation
consultant, Equilar, Inc., reviewed the director compensation practices at the
peer companies described above under the heading “Compensation
Benchmarking.”   After completing its review in the fourth
quarter of 2008, the Committee determined that the Company’s historical
compensation for directors was not competitive with similarly situated
companies.  The Committee, therefore, recommended to our board of
directors that the cash component of director compensation be increased to a
monthly retainer of $3,000, without per meeting attendance
fees.   The Committee believed that per meeting attendance fees
were unnecessary, as the incentive to attend board meetings should be to comply
with director fiduciary duties as opposed to cash
compensation.  Furthermore, despite many peer companies compensating
board members for committee membership, the Committee concluded that each
non-employee director should serve on board committees without additional
compensation.  Our board of directors approved such recommendations,
which were implemented after our 2008 annual meeting of stockholders held on
November 17, 2008.  In 2009, the Committee determined to maintain such
payments for each non-employee director.





In January
2009, the Committee granted restricted stock awards of 11,240 shares to
each of Messrs. Hill, House, Houston and Snipes under our 2006 Stock Incentive
Plan.  These shares of restricted stock vested on November 12, 2009,
the day preceeding our 2009 Annual Meeting of Stockholders. These awards were
made in the discretion of the Committee to help incentivize these directors by
maintaining a comparable value of unvested shares of restricted stock they had
prior to recent vestings.  In April 2010, the Committee granted
restricted stock awards of 15,000 shares to each of Messrs. Hill, House, Houston
and Snipes under our 2006 Stock Incentive Plan. These shares of restricted stock
vest upon the earlier to occur of February 25, 2011 or the day preceding our
2010 annual meeting of stockholders, and are subject to earlier vesting or
forfeiture in certain circumstances.  We anticipate that in the future
our non-employee directors will receive restricted stock awards, rather than
options, in such amounts that will be determined by the Committee in its
discretion. Members of our board of directors who are also officers or employees
of our company, including our named executive officers, do not receive any
additional compensation for their services as directors.





2006
Stock Incentive Plan





Our board of
directors and a majority of our stockholders approved our 2006 Stock Incentive
Plan, which we refer to as the 2006 Plan, effective April 20, 2006. No
further awards will be made under our 2005 Stock Incentive Plan discussed below.
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 our 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 our 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.





In January
2009, the Committee granted restricted stock awards of (i) 112,395
shares to Mr. Harrison, (ii) 71,429 shares to Mr. Dubberstein, (iii) 81,148
shares to Mr. Graves, (iv) 22,573 shares to Mr. Starke, and (v) 10,000 shares to
Mr. Porter under our 2006 Stock Incentive Plan.  Half of these shares
of restricted stock vested on February 25, 2010, and the remaining half vest on
February 25, 2011, subject to earlier vesting or forfeiture in certain
circumstances.





In April
2010, the Committee granted restricted stock awards of 334,000 shares to
Mr. Harrison, 330,000 to Mr. Dubberstein, 330,000 to Mr. Graves, 27,000 shares
to Mr. Starke, and 50,000 shares to Mr. Porter under the 2006
Plan.  200,000 of the shares awarded to each of Messrs. Harrison,
Dubberstein and Graves were for their extraordinary efforts and success in
consummating the Company’s joint venture transaction with Carso Infraestructura
y Construccion, S.A.B. de C.V. and revolving credit facility with Banco Inbursa
S.A., Institución de Banca Múltiple, Grupo Financiero Inbursa.  Of
these shares, 50,000 vested immediately upon the date of grant, and the
remainder vest in three equal annual installments beginning on January 1, 2011,
subject to earlier vesting or forfeiture in certain
circumstances.  The remainder of the issued restricted stock award
shares vest in three equal installments beginning on February 25, 2011, subject
to earlier vesting or forfeiture in certain circumstances.





As of April
29, 2010, no options to purchase shares of our common stock were outstanding and
1,258,496 shares of restricted common stock were outstanding under our 2006
Plan. There were 73,878 shares available for future grants under our 2006 Plan
as of April 29, 2010.





2005
Stock Incentive Plan




Our 2005
Stock Incentive Plan, which we refer to as the 2005 Plan, was adopted on
July 20, 2005 and amended on November 16, 2005. The purpose of the
2005 Plan was to enable us, and any of our affiliates, to attract and retain the
services of the types of employees, consultants and directors who would
contribute to our long-range success and to provide incentives which were linked
directly to increases in share value which will inure to the benefit of our
stockholders. The 2005 Plan provided 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 incentive stock options and nonstatutory
stock options. Eligible award recipients under the 2005 Plan were our and our
affiliates’ employees, consultants and directors. Incentive stock options under
the 2005 plan could be granted only to employees. Awards other than incentive
stock options under the 2005 Plan could be granted to employees, consultants and
directors. The shares that may be issued upon exercise of the options are from
authorized but unissued common stock, and the maximum aggregate amount of such
common stock which may be issued upon exercise of all awards under the plan,
including incentive stock options, could not exceed 1,000,000 shares, subject to
adjustment to reflect certain corporate transactions or changes in our capital
structure. Under the 2005 Plan, employee stock options generally became
exercisable in equal monthly installments over a three-year period, and all
options generally expire ten years after the date of grant.  All
options granted pursuant to the 2005 Plan have been cancelled.  No
further awards will be made under this plan.


-8-





Liability
Insurance and Indemnification Agreements





We have
obtained liability insurance for our current directors and officers. We have
also entered into contractual indemnification arrangements with our directors
and executive officers under which we have agreed, in certain circumstances, to
compensate them for costs and liabilities incurred in actions brought against
them while acting as directors or executive officers of our
company.





Compensation
Committee Interlocks and Insider Participation




We currently
maintain a compensation committee.  The Committee was established by
our board of directors effective as of March 25, 2007.  The
Committee is composed of Messrs. Snipes (chair), House and Hill.





No Committee
member is or was during the fiscal year ended December 31, 2009 an officer
or employee of us or any of our subsidiaries, was formerly an officer or had any
relationship requiring disclosure pursuant to Item 404 of
Regulation S-K. None of our executive officers served as a director or
member of the Committee (or other board committee performing similar functions
or, in the absence of any such committee, the entire board of directors) of
another entity, one of whose executive officers served on the Committee or as
one of our directors.




Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.





Equity
Compensation Plan Information





The following
table provides information as of December 31, 2009 with respect to shares
of our common stock that may be issued under our equity compensation plans as of
December 31, 2009.





Plan
      Category
            
            Number
      of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
      and Rights
            
            
            Weighted
      Average Exercise Price Per Share of Outstanding Options, Warrants and
      Rights
            
            
            Number
      of Securities Remaining Available for Future Issuance Under Equity
      Compensation Plans (Excluding Securities Reflected in Column
      (a))(a)
            
            
            (b)
            
            
            (c)Equity
      compensation plans approved by security holders
            
            
            -
            
            
            
            -
            
            
            
            73,878Equity
      compensation plans not approved by security holders
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            
            -
            
            
            
            -
            
            
            
            73,878




(1)
            As
      of April 29, 2010, we had no options to purchase shares of our common
      stock outstanding.  As of April 29, 2010, we had issued
      2,426,122 shares of our restricted stock under the 2006
      Plan.  The securities remaining available for future issuance
      reflect securities that may be issued under the 2006 Plan, as no more
      shares remain available for the grant of awards under the 2005
      Plan.





Security
Ownership of Certain Beneficial Owners and Management





The following
tables set forth as of April 29, 2010 (unless otherwise specified) the number
and percentage of shares of our common stock beneficially owned by (1) each
person known by us to beneficially own more than 5% of the outstanding shares of
our common stock, and (2) each of our directors, each of our named executive
officers, and all of our directors and named executive officers as a
group.





Beneficial
ownership is determined in accordance with the rules of the
SEC.  Beneficial ownership is based upon the most recent Forms 3, 4
and 5 and Schedules 13D and 13G filings with the SEC and reports made directly
to us.  In computing the number of shares of our common stock
beneficially owned by a person and the beneficial ownership percentage of that
person, shares of our common stock subject to options held by that person that
are currently exercisable or exercisable within 60 days of April 29, 2010 are
deemed outstanding, but are not deemed outstanding for computing the percentage
ownership of any other person.  Percentage of beneficial ownership of
our common stock is based upon 28,434,449 shares of our common stock outstanding
as of April 29, 2010.  To our knowledge, except as set forth in the
footnotes to this table, the beneficial owners named in the table below have
sole voting and investment power with respect to all shares of capital stock
held by them.





Principal
Stockholders





Name
      and Address of Beneficial Owner
            
            Shares
      Beneficially Owned
            
            
            Percent
      Beneficially Owned (5)5%
      StockholdersThird
      Avenue Management LLC
              622
      Third Avenue
              32
      Floor
              New
      York, NY 10017
            
            
            5,628,487
      (1)
            
            
            
            19.79%Inmobiliaria
      Carso S.A. de C.V
              Insurgentes
      Sur #3500
              PB
      Col. Pena Pobre
              Delegacion
      Tlalpan, CP
              14060 Mexico D.F.
              Mexico
            
            
            4,200,000
      (2)
            
            
            
            14.77%MetLife
      Advisers, LLC
              501
      Boylston Street
              Boston,
      MA 02116
            
            
            3,755,857
      (3)
            
            
            
            13.21%Dimensional
      Fund Advisors LP
              Palisades
      West, Building One
              6300
      Bee Cave Road
              Austin,
      TX 78746
            
            
            2,012,857
      (4)
            
            
            
            7.08%





(1)
            Based
      solely upon information obtained from Schedule 13G filed with the SEC
      on February 16, 2010 on behalf of Third Avenue Management LLC, or TAM.
      TAM, in its capacity as investment advisor, has sole power to vote or to
      direct the vote with respect to 5,628,487 shares of our common stock and
      has sole power to dispose or to direct the disposition of 5,628,487 shares
      of our common stock. Met Investors Series Trust-Third Avenue Small Cap
      Portfolio, an investment company registered under the Investment Company
      Act of 1940, has the right to receive dividends from, and the proceeds
      from the sale of, 3,755,857 of the shares reported by TAM, OFI
      Select-Third Avenue US Equity Fund (SICAV), an offshore fund for which TAM
      acts as investment advisor, has the right to receive dividends from, and
      the proceeds from the sale of, 95,775 of the shares reported by TAM, Third
      Avenue Small Cap Value Fund, an investment company registered under the
      Investment Company Act of 1940, has the right to receive dividends from,
      and the proceeds from the sale of, 1,663,262 of the shares reported by
      TAM, Third Avenue Small Cap Value Fund UCITS, an umbrella open-ended
      investment company authorized by the Irish Financial Services Regulatory
      Authority under the European Communities (Undertakings for Collective
      Investment in Transferable Securities) Regulations, has the right to
      receive dividends from, and the proceeds from the sale of, 900 of the
      shares reported by TAM, Touchstone Variable Series Trust-Touchstone Third
      Avenue Value Fund, an investment company registered under the Investment
      Company Act of 1940, has the right to receive dividends from, and the
      proceeds from the sale of, 112,693 of the shares reported by
      TAM.


-9-




(2)
            Based
      solely upon information obtained from Schedule 13D/A filed with the
      SEC on March 8, 2010 by Inmobiliaria Carso, S.A. de C.V., or Inmobiliaria,
      and Carso Infraestructura y Construccion, S.A.B. de. C.V., or CICSA.
      Pursuant to the Schedule 13D/A, Inmobiliaria beneficially owns directly
      4,200,000 shares of our common stock as of March 8, 2010. CICSA
      directly owns a warrant, which represents the right, subject to certain
      terms, conditions and limitations, to purchase up to 5,440,770 shares
      of our common stock. As of March 8, 2010, the number of shares of our
      common stock issuable upon exercise of the warrant after giving effect to
      the limitations set forth in the warrant is 1,554,360 shares of our
      common stock. Mr. Carlos Slim Helú, Mr. Carlos Slim Domit,
      Mr. Marco Antonio Slim Domit, Mr. Patrick Slim Domit,
      Ms. Maria Soumaya Slim Domit, Ms. Vanessa Paola Slim Domit and
      Ms. Johanna Monique Slim Domit indirectly beneficially own a majority
      of the issued and outstanding voting and equity securities of each of
      Inmobiliaria and CICSA and therefore may be deemed to share beneficial
      ownership of all of the company shares beneficially owned by Inmobiliaria
      and CICSA. Due to the relationship among Inmobiliaria, CICSA and each of
      the individuals listed above, these reporting persons may be deemed to
      constitute a “group”, and therefore each reporting person may be deemed to
      beneficially own all of the company shares beneficially owned by
      Inmobiliaria and CICSA. Each of Inmobiliaria and CICSA disclaims
      beneficial ownership of all of the shares of our common stock that may be
      deemed to be beneficially owned by it except with respect to any shares of
      our common stock directly owned by such reporting
  person.





(3)
            Based
      solely upon information obtained from Schedule 13G filed with the SEC on
      February 10, 2010 by MetLife Advisers, LLC, or Met.  Met, in its
      capacity as an investment advisor, serves as investment manager of each
      series of Met Investors Series Trust, or the Trust.  In its role
      as investment manager of the Trust, Met has contracted with certain
      sub-advisers to make the day-to-day investment decisions for the certain
      series of the Trust.  Pursuant to the 13G, Met has shared power
      to vote or to direct the vote with respect to 3,755,857 shares of our
      common stock and has shared power to dispose or direct the disposition of
      3,755,857 shares of our common
stock.





(4)
            Based
      solely upon information obtained from Schedule 13G filed with the SEC
      on February 8, 2010 on behalf of Dimensional Fund Advisors LP, or
      Dimensional. Pursuant to the Schedule 13G, Dimensional, in its capacity as
      investment advisor, furnishes investment advice to investment companies,
      and serves as investment manager to certain other commingled group trusts
      and separate accounts (collectively, the “Funds”). In certain cases,
      subsidiaries of Dimensional may act as an adviser or sub-adviser to
      certain Funds. In its role as investment advisor, sub-adviser and/or
      manager, Dimensional or its subsidiaries has sole power to vote or direct
      the vote with respect to 2,012,857 shares of our common stock and has sole
      power to dispose or to direct the disposition of 2,012,857 shares of our
      common stock, and may be deemed to be the beneficial owner of our shares
      held by the Funds. However, pursuant to the Schedule 13G, all securities
      reported are owned by the Funds. Dimensional disclaims beneficial
      ownership of such securities.





(5)
            Determined
      by dividing the number of shares reported as beneficially owned by
      28,434,449 shares of common stock
outstanding.





Directors
and Named Executive Officers





Name
            
            Shares
      Beneficially Owned
            
            
            Percent
      Beneficially OwnedD.
      Frank Harrison
            
            
            215,927
      (1)
            
            
            
            *Dr.
      Gary C. Hill
            
            
            13,740
      (2)
            
            
            
            *David
      L. Houston
            
            
            26,240
      (3)
            
            
            
            *David
      W. House
            
            
            31,240
      (4)
            
            
            
            *William
      R. Snipes
            
            
            -
      (5)
            
            
            
            *Mark
      Dubberstein
            
            
            62,382
      (6)
            
            
            
            *Zachary M.
      Graves
            
            
            142,619
      (7)
            
            
            
            *Matthew
      S. Porter
            
            
            5,000
      (8)
            
            
            
            *Steven
      R. Starke
            
            
            16,952
      (9)
            
            
            
            *Directors
      and executive officers as a group (9 persons)
            
            
            514,100
      (10)
            
            
            
            1.81%


(1)
            Does
      not include 340,197 shares of restricted stock, none of which restrictions
      will lapse within 60 days of the date hereof except pursuant to a
      change of control.





(2)
            Does
      not include 15,000 shares of restricted stock, none of which restrictions
      will lapse within 60 days of the date hereof except pursuant to a
      change of control.





(3)
            Does
      not include 15,000 shares of restricted stock, none of which restrictions
      will lapse within 60 days of the date hereof except pursuant to a
      change of control.





(4)
            Does
      not include 15,000 shares of restricted stock, none of which restrictions
      will lapse within 60 days of the date hereof except pursuant to a
      change of control.





(5)
            Does
      not include 15,000 shares of restricted stock, none of which restrictions
      will lapse within 60 days of the date hereof except pursuant to a
      change of control.





(6)
            Does
      not include 315,714 shares of restricted stock, none of which restrictions
      will lapse within 60 days of the record date except pursuant to a
      change of control.





(7)
            Does
      not include 320,574 shares of restricted stock, none of which restrictions
      will lapse within 60 days of the record date except pursuant to a
      change of control.





(8)
            Does
      not include 55,000 shares of restricted stock, none of which restrictions
      will lapse within 60 days of the record date except pursuant to a
      change of control.





(9)
            Does
      not include 38,286 shares of restricted stock, none of which restrictions
      will lapse within 60 days of the record date except pursuant to a
      change of control.





(10)
            Does
      not include 1,129,771 shares of restricted stock, none of which
      restrictions will lapse within 60 days of the record date except
      pursuant to a change of control.





*             Less
than 1%.




Item
13. Certain Relationships and Related Transactions, and Director
Independence.





Review and Approval of Related Party
Transactions





It is our
policy that all employees and directors, as well as their family members, must
avoid any activity that is or has the appearance of conflicting with our
business interest. This policy is included in our Code of Business Conduct and
Ethics posted on our website. Each director and executive officer is instructed
to always inform the designated compliance officer when confronted with any
situation that may be perceived as a conflict of interest. Only our board of
directors or a committee consisting solely of independent directors may grant
waivers of the provisions of our Code of Business Conduct and Ethics for our
executive officers and directors. In addition, at least annually, each director
and executive officer completes a detailed questionnaire specifying any business
relationship that may give rise to a conflict of interest.




Under the
audit committee charter, the audit committee of our board of directors is
responsible for reviewing and monitoring compliance with our Code of Business
Conduct and Ethics and recommending any warranted changes to the board of
directors. In addition, our board of directors, and pursuant to its charter, our
audit committee, reviews and approves all relationships and transactions in
which we and our directors, director nominees and executive officers and their
immediate family members, as well as holders of more than 5% of any class of our
voting securities and their family members, have a direct or indirect material
interest. Our board of directors and our audit committee will approve only those
transactions that, in light of known circumstances, are consistent, or are not
inconsistent with, our best interests, as they determine in the good faith
exercise of their discretion.





Administrative
Services Agreement and Lease of Space





The Company
has entered into six noncancelable operating leases with Grace Properties, LLC,
which we refer to as Grace Properties, that have expirations of July 31,
2011. Grace Properties is owned by Kim Snell, former President of Eagle Well
Service, Inc. (d/b/a Bronco Energy Services), a wholly owned subsidiary of the
Company. Mr. Snell’s employment with Eagle Well Service, Inc. terminated on
January 9, 2010.  Related rent expense was approximately $520,000 for
the year ended December 31, 2009.





Director
Independence





Our board of
directors has determined that the following directors, constituting 80% of our
board, are “independent” as defined by Rule 5605(a)(2) of the NASDAQ
listing standards: Dr. Gary C. Hill, David W. House, David L. Houston, and
William R. Snipes.


-10-





Item 14.
Principal Accounting Fees and Services





Grant
Thornton LLP served as our independent auditor for fiscal 2009 and 2007.
Aggregate fees billed to us by Grant Thornton LLP for 2009 and 2008 were as
follows:


Fees
              
              2009
              
              
              2008Audit
      Fees (1)
              
              $
              365,703
              
              
              $
              461,631Audit
      Related Fees (2)
              
              
              -
              
              
              $
              23,854Tax
      Fees (3)
              
              $
              49,938
              
              
              $
              26,735All
      Other Fees
              
              
              -
              
              
              
              -Total
              
              $
              415,641
              
              
              $
              512,220


(1)
            
            Fees
      for audit service included billings for our annual audit, reviews of our
      quarterly reports, regulatory filings to the SEC, issuance of comfort
      letters and consents, Section 404 services, and out-of-pocket
      expenses associated with the services.(2)
            
            Audit
      related fees include fees for due diligence associated with acquisitions
      and benefit plan audits, including out-of-pocket
  expenses.(3)
            
            Tax
      fees include tax compliance and related consultation
    services.





It is our
audit committee’s policy to pre-approve all audit, audit related and permissible
non-audit services rendered to us by our independent auditor. Consistent with
such policy, all of the fees listed above that we incurred for services rendered
by Grant Thornton LLP in fiscal 2009 and 2008 were pre-approved by our audit
committee. Non-audit services that received pre-approval in 2009 and 2008
include tax compliance and related consultation services. The audit committee
has considered whether the provisions of the non-audit services in 2009 is
compatible with maintaining the independent auditors’ independence and concluded
that the payment of such fees would not prohibit Grant Thornton LLP from
maintaining its independence.





Grant
Thornton LLP has been selected by the audit committee as our independent
auditors for the fiscal year ending December 31, 2010.





PART
IV


Item
      15. Exhibits, Financial Statement Schedules.(1)
                    
                    Financial
      StatementsSee
      Index to Consolidated Financial Statements on page 30 of the Company's
      Form 10-K Filed with the Securities and Exchange Commission on March 15,
      2010.Consolidated
      Financial Statements of Challenger Limited:
                    Page
      No.Independent
      Auditors Report
                    14Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                    15Consolidated
      Statement of Operations for the years ended December 31, 2009 and
      2008
                    16Consolidated
      Statements of Stockholders' Equity for the years ended December 31, 2009
      and 2008
                    18Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008
                    19(2)
                    
                    Financial
      Statement SchedulesSee
      Notes to Consolidated Financial Statements on page 36 of the Company's
      Form 10-K Filed with the Securities and Exchange Commission on March 15,
      2010.See
      Notes to Consolidated Financial Statements of Challenger Limited on
      page 20 of this Form 10-K/A.(3)
                    
                    ExhibitsThe
      following exhibits are filed as part of this report or, where indicated,
      were previously filed and are hereby incorporated by
      reference.


-11-


Exhibit
      No.
              Description


2.1
            Merger
      Agreement, dated as of August 11, 2005, by and among Bronco Drilling
      Holdings, L.L.C, Bronco Drilling Company, L.L.C. and Bronco Drilling
      Company, Inc. (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).




2.2
            Agreement
      and Plan of Merger by and among the Company, BDC Acquisition Company,
      Eagle Well Service, Inc. (“Eagle”), and the stockholders of Eagle dated as
      of January 9, 2007 (incorporated by reference to Exhibit 2.1 to the
      Company’s Current Report on Form 8-K, File No. 000-51571, filed by the
      Company with the SEC on January 16,
  2007).




2.3
            Agreement
      and Plan of Merger, dated as of January 23, 2008, by and among
      Allis-Chalmers Energy, Inc., Bronco Drilling Company, Inc. and Elway
      Merger Sub, 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 January 24, 2008).




2.4
            First
      Amendment, dated as of June 1, 2008, to Agreement and Plan of Merger by
      and among Allis-Chalmers Energy, Inc., Bronco Drilling Company, Inc. and
      Elway Merger Sub, 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 June 2,
2008).




2.5
            Membership
      Interest Purchase Agreement, dated September 18, 2009, by and among Bronco
      Drilling Company, Inc., Saddleback Properties LLC and Carso
      Infraestructura y Construccion, S.A.B. de C.V. (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 September 23,
      2009).




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).




10.1
            Credit
      Agreement, dated September 18, 2009, by and among Bronco Drilling Company,
      Inc., certain subsidiaries of Bronco Drilling Company, Inc., as
      guarantors, and Banco Inbursa S.A., Institución de Banca Múltiple, Grupo
      Financiero Inbursa, as lender and as the issuing bank (incorporated by
      reference to Exhibit 10.1 to the Current Report on Form 8-K, File No.
      000-51471, filed by the Company with the SEC on September 23,
      2009).




10.2
            Warrant
      Agreement, dated September 18, 2009, by and among Bronco Drilling Company,
      Inc. and Banco Inbursa S.A., Institución de Banca Múltiple, Grupo
      Financiero Inbursa (incorporated by reference to Exhibit 10.2 to the
      Current Report on Form 8-K, File No. 000-51471, filed by the Company with
      the SEC on September 23,
2009).




10.3
            Warrant
      No. W-1, dated September 18, 2009, by and among Bronco Drilling Company,
      Inc. and Banco Inbursa S.A., Institución de Banca Múltiple, Grupo
      Financiero Inbursa (incorporated by reference to Exhibit 10.3 to the
      Current Report on Form 8-K, File No. 000-51471, filed by the Company with
      the SEC on September 23,
2009).




10.4
            Registration
      Rights Agreement, dated September 18, 2009, by and among Bronco Drilling
      Company, Inc., Banco Inbursa S.A., Institución de Banca Múltiple, Grupo
      Financiero Inbursa (incorporated by reference to Exhibit 10.4 to the
      Current Report on Form 8-K, File No. 000-51471, filed by the Company with
      the SEC on September 23,
2009).




*+10.5
            Amended
      and Restated Employment Agreement, dated January 6, 2010, by and between
      the Company and Matthew S.
Porter.




+10.6
            Amended
      and Restated Employment Agreement, dated April 19, 2010, by and between
      the Company and Frank Harrison (incorporated by reference to Exhibit 10.1
      to the Current Report on Form 8-K, File No. 000-51571, filed by the
      Company with the SEC on April 21,
  2010).




*10.7
            Warrant
      No. W-2, dated September 18, 2009, by and among Bronco Drilling Company,
      Inc. and Carso Infraestructura y Construcción, S.A.B. de
      C.V..




10.8
            Waiver
      Letter, dated February 9, 2010, by and between Bronco Drilling Company,
      Inc. and Banco Inbursa S.A., Institución de Banca Múltiple, Grupo
      Financiero Inbursa (incorporated by reference to Exhibit 10.1 to the
      Current Report on Form 8-K, File No. 000-51471, filed by the Company with
      the SEC on February 16,
2010).




+10.9
            Bronco
      Drilling Company, Inc. 2008 Stock Incentive Plan (incorporated by
      reference to Appendix B to the Company’s Proxy Statement, filed by the
      Company with the SEC on April 28,
  2008).


+10.10
            Form
      of Restricted Stock Award Agreement (incorporated by reference to Exhibit
      10.2 to the Company’s Current Report on Form 8-K, File No. 000-51571,
      filed by the Company with the SEC on June 15,
      2008).


+10.111
            Form
      of Stock Option Agreement (incorporated by reference to Exhibit 10.3 to
      the Company’s Current Report on Form 8-K, File No. 000-51571, filed by the
      Company with the SEC on June 15,
  2008).


*21.1
            List
      of the Company’s
Subsidiaries.


*23.1
            Consent
      of Grant Thornton LLP




**23.2
            Consent
      of PricewaterhouseCoopers LLP




*24.1
            Power
      of Attorney (included on signature
page).  *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.





**31.1(a)
            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.




**31.2(a)
            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.


*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.


**32.1(a)
            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.




**32.2(a)
            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.




+
            Management
      contract, compensatory plan or
arrangement


*
            Previously
      filed with the Company’s Annual Report on Form 10-K for the year ended
      December 31, 2009, filed with the SEC on March 15,
    2010.


**
            Filed
      herewith.  -12-


Schedule
      III
            Financial
      Statements and Notes for Challenger
Limited





Challenger
Limited


Financial
Statements


For
the Year Ended December 31, 2009




Contents
              
              
              PageNo.Independent
      Auditor's Report
              
              
              14Balance
      Sheet
              
              
              15Statements
      of Income
              
              
              16Statements
      of Comprehensive Income
              
              
              17Statements
      of Changes in Equity
              
              
              18Statements
      of Cash Flows
              
              
              19Notes
      to Financial Statement
              
              
              20
  -13-





Independent
Auditor’s Report





To:           The
Shareholders of Challenger Limited, Douglas, Isle of Man “Private Company
Limited by Shares”





Report
on the financial statements





We have
audited the accompanying financial statements of Challenger Limited, Douglas,
Isle of Man “Private Company Limited by Shares” (the Parent) and the
consolidated financial statements of the Parent and its Subsidiary (the Group),
which comprise the balance sheets as at 31 December 2009, and the statements of
comprehensive income, changes in shareholders’ equity and cash flows for the
year then ended, and a summary of significant accounting policies and other
explanatory notes.





Group’s
Management responsibility for the financial statements


The
Group’s management is responsible for the preparation and fair presentation of
the financial statements in accordance with International Financial Reporting
Standards.  This responsibility includes: designing, implementing and
maintaining internal control relevant to the preparation and fair presentation
of financial statements that are free from material misstatement, whether due to
fraud or error, selecting and applying appropriate accounting policies; and
making accounting estimates that are reasonable in the
circumstances.





Auditor’s
responsibility





Our
responsibility is to express an opinion on these financial statements based on
our audit.  We conducted our audit in accordance with International
Standards on Auditing.  Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable
assurance whether the financial statements are free from material
misstatement.





An audit
involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements.  The procedures selected
depend on the auditor’s judgment, including the assessment of the risks of
material misstatement of the financial statements, whether due to fraud or
error.  In making those risk assessments, the auditor considers
internal control relevant to the Group’s preparation and fair presentation of
the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.  An
audit also includes evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the financial statements.





We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.





Opinion





In our
opinion, the financial statements, referred to above present fairly, in all
material aspects of financial position of the Parent and the Group as of 31
December 2009, and of their financial performance and cash flows for the year
then ended in accordance with International Financial Reporting
Standards.





PricewaterhouseCoopers
– Egypt





28
February 2010


Cairo


-14-


CHALLENGER
LIMITED, DOUGLAS, ISLE OF MAN
 “PRIVATE
COMPANY LIMITED BY SHARES” AND ITS SUBSIDIARY


Balance
      Sheets - At 31 December 2009(all
      amounts in US Dollars)Parent
            
            
            GroupNote
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008AssetsNon-current
      AssetsProperty,
      plant and equipment
            
            
            5
            
            
            
            141,652,388
            
            
            
            152,425,129
            
            
            
            141,652,388
            
            
            
            152,425,129Investment
      in subsidiary
            
            
            6
            
            
            
            397,569
            
            
            
            397,569
            
            
            
            -
            
            
            
            -Total
      Non-current Assets
            
            
            
            
            
            
            142,049,957
            
            
            
            152,822,698
            
            
            
            141,652,388
            
            
            
            152,425,129Current
      AssetsSpare
      parts inventory
            
            
            
            
            
            
            13,631,106
            
            
            
            6,956,849
            
            
            
            13,631,106
            
            
            
            6,956,849Receivables
      and prepayments
            
            
            7
            
            
            
            34,887,304
            
            
            
            40,518,272
            
            
            
            34,887,304
            
            
            
            40,518,272Due
      from related parties
            
            
            14
            
            
            
            687,043
            
            
            
            519,044
            
            
            
            687,043
            
            
            
            519,044Cash
      and cash equivalents
            
            
            8
            
            
            
            10,765,109
            
            
            
            2,842,761
            
            
            
            10,765,227
            
            
            
            2,842,879Total
      Current Assets
            
            
            
            
            
            
            59,970,562
            
            
            
            50,836,926
            
            
            
            59,970,680
            
            
            
            50,837,044Total
      Assets
            
            
            
            
            
            
            202,020,519
            
            
            
            203,659,624
            
            
            
            201,623,068
            
            
            
            203,262,173Equity and LiabilitiesEquityCapital
            
            
            9
            
            
            
            64,957,265
            
            
            
            64,957,265
            
            
            
            64,957,265
            
            
            
            64,957,265Additional
      paid in capital
            
            
            9
            
            
            
            70,795,653
            
            
            
            70,795,653
            
            
            
            70,795,653
            
            
            
            70,795,653Revaluation
      reserve
            
            
            10
            
            
            
            20,182,327
            
            
            
            15,414,422
            
            
            
            20,182,327
            
            
            
            15,414,422Retained
      earnings
            
            
            
            
            
            
            1,031,022
            
            
            
            9,240,432
            
            
            
            1,031,022
            
            
            
            9,240,432Total
      Equity
            
            
            
            
            
            
            156,966,267
            
            
            
            160,407,772
            
            
            
            156,966,267
            
            
            
            160,407,772LiabilitiesNon-current
      LiabilitiesBorrowings
            
            
            11
            
            
            
            13,643,007
            
            
            
            4,545,190
            
            
            
            13,643,007
            
            
            
            4,545,190Total
      Non-current Liabilities
            
            
            
            
            
            
            13,643,007
            
            
            
            4,545,190
            
            
            
            13,643,007
            
            
            
            4,545,190Current
      LiabilitiesBorrowings
            
            
            11
            
            
            
            6,887,851
            
            
            
            13,554,645
            
            
            
            6,887,851
            
            
            
            13,554,645Trade
      and other payables
            
            
            12
            
            
            
            13,897,059
            
            
            
            14,060,820
            
            
            
            13,897,059
            
            
            
            14,060,820Current
      tax liabilities
            
            
            13
            
            
            
            4,919,673
            
            
            
            4,062,411
            
            
            
            4,919,673
            
            
            
            4,062,411Provisions
            
            
            
            
            
            
            864,771
            
            
            
            491,280
            
            
            
            864,771
            
            
            
            491,280Dividends
      and redemption payable
            
            
            
            
            
            
            2,044,363
            
            
            
            3,078,302
            
            
            
            2,044,363
            
            
            
            3,078,302Due
      to related parties
            
            
            1
            
            
            
            2,797,528
            
            
            
            3,459,204
            
            
            
            2,400,077
            
            
            
            3,061,753Total
      Current Liabilities
            
            
            
            
            
            
            31,411,245
            
            
            
            38,706,662
            
            
            
            31,013,794
            
            
            
            38,309,211Total
      Liabilities
            
            
            
            
            
            
            45,054,252
            
            
            
            43,251,852
            
            
            
            44,656,801
            
            
            
            42,854,401Total
      Equity and Liabilities
            
            
            
            
            
            
            202,020,519
            
            
            
            203,659,624
            
            
            
            201,623,068
            
            
            
            203,262,173The
      accompanying notes on pages 8 to 33 form an integral part of these
      financial statements.Authorized
      on behalf of the BoardMr.
      Hatem Fakhr14-Feb-10Independent
      auditor's report attached.





-15-




CHALLENGER
LIMITED, DOUGLAS, ISLE OF MAN
 “PRIVATE
COMPANY LIMITED BY SHARES” AND ITS SUBSIDIARY


Statements
      of Income - For the year ended 31 December 2009(all
      amounts in US Dollars)Parent
            
            
            GroupNote
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Drilling
      revenue
            
            
            
            
            
            55,531,321
            
            
            
            73,071,917
            
            
            
            55,531,321
            
            
            
            73,071,917Drilling
      costs
            
            
            
            
            
            (51,868,857
            )
            
            
            (52,933,369
            )
            
            
            (51,868,857
            )
            
            
            (52,933,369
            )Gross
      profit
            
            
            
            
            
            3,662,464
            
            
            
            20,138,548
            
            
            
            3,662,464
            
            
            
            20,138,548General
      and administrative expenses
            
            
            15
            
            
            
            (10,143,813
            )
            
            
            (9,775,827
            )
            
            
            (10,143,813
            )
            
            
            (9,775,827
            )Other
      income
            
            
            16
            
            
            
            1,424,469
            
            
            
            2,446,433
            
            
            
            1,424,469
            
            
            
            2,446,433Other
      expense
            
            
            17
            
            
            
            -
            
            
            
            (1,870,000
            )
            
            
            -
            
            
            
            (1,870,000
            )Operating
      (loss)/profit from Operations
            
            
            
            
            
            
            (5,056,880
            )
            
            
            10,939,154
            
            
            
            (5,056,880
            )
            
            
            10,939,154Finance
      income
            
            
            18
            
            
            
            333,889
            
            
            
            46,015
            
            
            
            333,889
            
            
            
            46,015Finance
      cost
            
            
            19
            
            
            
            (909,048
            )
            
            
            (673,397
            )
            
            
            (909,048
            )
            
            
            (673,397
            )(Loss)/profit
      before income tax
            
            
            
            
            
            
            (5,632,039
            )
            
            
            10,311,772
            
            
            
            (5,632,039
            )
            
            
            10,311,772Income
      tax
            
            
            13
            
            
            
            (2,577,371
            )
            
            
            (3,389,127
            )
            
            
            (2,577,371
            )
            
            
            (3,389,127
            )(Loss)/profit
      for the year
            
            
            
            
            
            
            (8,209,410
            )
            
            
            (6,922,645
            )
            
            
            (8,209,410
            )
            
            
            (6,922,645
            )The
      accompanying notes on pages 8 to 33 form an integral part of these
      financial statements.


-16-
   CHALLENGER
LIMITED, DOUGLAS, ISLE OF MAN
 “PRIVATE
COMPANY LIMITED BY SHARES” AND ITS SUBSIDIARY


Statements
      of Comprehensive Income - For the year ended 31 December
    2009(all
      amounts in US Dollars)Parent
            
            
            Group2009
            
            
            2008
            
            
            2009
            
            
            2008(Loss)/profit
      for the year
            
            
            (8,209,410
            )
            
            
            6,922,645
            
            
            
            (8,209,410
            )
            
            
            6,922,645Other
      comprehensive Income:Change
      on revaluation of rigs
            
            
            4,767,905
            
            
            
            14,010,439
            
            
            
            4,767,905
            
            
            
            14,010,439Total
      comprehensive Income for the year
            
            
            (3,441,505
            )
            
            
            20,933,084
            
            
            
            (3,441,505
            )
            
            
            20,933,084The
      accompanying notes on pages 8 to 33 form an integral part of these
      financial statements.





-17-





CHALLENGER
LIMITED, DOUGLAS, ISLE OF MAN


“PRIVATE
COMPANY LIMITED BY SHARES” AND ITS SUBSIDIARY





Statement
      of Changes in Equity - For the year ended 31 December 2009(all
      amounts in US Dollars)Share
      Capital
            
            
            Additional
      Paid in Capital
            
            
            Revaluation
      Reserve
            
            
            Retained
      Earnings
            
            
            TotalBalance
      at 1 January 2008
            
            
            50,000,000
            
            
            
            15,000,000
            
            
            
            1,403,983
            
            
            
            2,317,787
            
            
            
            68,721,770comprehensive
      incomeProfit
      for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            6,922,645
            
            
            
            6,922,645change
      in rigs' revaluation
            
            
            -
            
            
            
            -
            
            
            
            15,378,561
            
            
            
            -
            
            
            
            15,378,561Total
      comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            15,378,561
            
            
            
            6,922,645
            
            
            
            22,301,206Transactions
      with OwnersRedemption
      of ordinary shares
            
            
            (1,282,051
            )
            
            
            (3,717,949
            )
            
            
            -
            
            
            
            -
            
            
            
            (5,000,000
            )Increase
      in capital
            
            
            16,239,316
            
            
            
            59,513,602
            
            
            
            (1,368,122
            )
            
            
            -
            
            
            
            74,384,796Net
      Transactions with Owners
            
            
            14,957,265
            
            
            
            55,795,653
            
            
            
            (1,368,122
            )
            
            
            -
            
            
            
            69,384,796Balance
      at 31 December 2008
            
            
            64,957,265
            
            
            
            70,795,653
            
            
            
            15,414,422
            
            
            
            9,240,432
            
            
            
            160,407,772Balance
      at 1 January 2009
            
            
            64,957,265
            
            
            
            70,795,653
            
            
            
            15,414,422
            
            
            
            9,240,432
            
            
            
            160,407,772comprehensive
      incomeLoss
      for the year
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (8,209,410
            )
            
            
            (8,209,410
            )Change
      in rigs' revaluation
            
            
            -
            
            
            
            -
            
            
            
            4,767,905
            
            
            
            -
            
            
            
            4,767,905Total
      comprehensive income
            
            
            -
            
            
            
            -
            
            
            
            4,767,905
            
            
            
            (8,209,410
            )
            
            
            (3,441,505
            )Balance
      at 31 December 2009
            
            
            64,957,265
            
            
            
            70,795,653
            
            
            
            20,182,327
            
            
            
            1,031,022
            
            
            
            156,966,267The
      accompanying notes on pages 8 to 33 form an integral part of these
      financial statements.





-18-




CHALLENGER
LIMITED, DOUGLAS, ISLE OF MAN
 “PRIVATE
COMPANY LIMITED BY SHARES” AND ITS SUBSIDIARY





Statements
      of Cash Flows - For the year ended 31 December 2009(all
      amounts in US Dollars)Parent
            
            
            GroupNote
            
            
            2009
            
            
            2008
            
            
            2009
            
            
            2008Cash flows from operating
      activities(Loss)/Profit
      before income tax
            
            
            
            
            
            (5,632,039
            )
            
            
            10,311,772
            
            
            
            (5,632,039
            )
            
            
            10,311,772Adjustments
      for:Finance
      cost
            
            
            19
            
            
            
            909,048
            
            
            
            320,173
            
            
            
            909,048
            
            
            
            320,173Interest
      income
            
            
            18
            
            
            
            (4,632
            )
            
            
            (46,015
            )
            
            
            (4,632
            )
            
            
            (46,015
            )Depreciation
            
            
            5
            
            
            
            16,141,266
            
            
            
            13,288,407
            
            
            
            16,141,266
            
            
            
            13,288,407Projects
      under construction write off
            
            
            
            
            
            
            -
            
            
            
            1,870,000
            
            
            
            -
            
            
            
            1,870,000Provisions
            
            
            
            
            
            
            373,491
            
            
            
            491,280
            
            
            
            373,491
            
            
            
            491,280Changes
      in working capital:Receivables
      and prepayments
            
            
            
            
            
            
            5,620,548
            
            
            
            (21,630,492
            )
            
            
            5,620,548
            
            
            
            (21,630,492
            )Inventories
            
            
            
            
            
            
            (6,674,257
            )
            
            
            5,917,827
            
            
            
            (6,674,257
            )
            
            
            5,917,827Trade
      and other payables
            
            
            
            
            
            
            (211,213
            )
            
            
            7,044,656
            
            
            
            (211,213
            )
            
            
            7,044,656Due
      from related parties
            
            
            
            
            
            
            (167,999
            )
            
            
            (378,908
            )
            
            
            (167,999
            )
            
            
            (378,908
            )Due
      to related parties
            
            
            
            
            
            
            (661,676
            )
            
            
            3,061,753
            
            
            
            (661,676
            )
            
            
            3,061,753Cash
      generated from Operations
            
            
            
            
            
            
            9,692,537
            
            
            
            20,250,453
            
            
            
            9,692,537
            
            
            
            20,250,453Interest
      paid
            
            
            
            
            
            
            (909,048
            )
            
            
            (320,173
            )
            
            
            (909,048
            )
            
            
            (320,173
            )Income
      tax paid
            
            
            13
            
            
            
            (1,720,109
            )
            
            
            (2,196,359
            )
            
            
            (1,720,109
            )
            
            
            (2,196,359
            )Net
      cash (used in) generated from operating activities
            
            
            
            
            
            
            7,063,380
            
            
            
            17,733,921
            
            
            
            7,063,380
            
            
            
            17,733,921Cash flows from investing
      activitiesPurchase
      of property, plant and equipment
            
            
            5
            
            
            
            (5,368,525
            )
            
            
            (21,000,878
            )
            
            
            (5,368,525
            )
            
            
            (21,000,878
            )Interest
      income received
            
            
            
            
            
            
            4,632
            
            
            
            46,015
            
            
            
            4,632
            
            
            
            46,015Net
      cash used in investing activities
            
            
            
            
            
            
            (5,363,893
            )
            
            
            (20,954,863
            )
            
            
            (5,363,893
            )
            
            
            (20,954,863
            )Cash flows from financing
      activitiesProceeds
      from borrowings
            
            
            
            
            
            
            7,701,951
            
            
            
            5,000,000
            
            
            
            7,701,951
            
            
            
            5,000,000Transaction
      cost
            
            
            
            
            
            
            (445,151
            )
            
            
            -
            
            
            
            (445,151
            )
            
            
            -Repayment
      of borrowings
            
            
            
            
            
            
            -
            
            
            
            (2,723,120
            )
            
            
            -
            
            
            
            (2,723,120
            )Dividends
      paid
            
            
            
            
            
            
            (1,033,939
            )
            
            
            (3,966,062
            )
            
            
            -
            
            
            
            (3,966,062
            )Proceeds
      from issuance of shares
            
            
            
            
            
            
            -
            
            
            
            5,000,000
            
            
            
            (1,033,939
            )
            
            
            5,000,000Net
      cash generated from financing activities
            
            
            
            
            
            
            6,222,861
            
            
            
            3,310,818
            
            
            
            6,222,861
            
            
            
            3,310,818Net
      increase in cash and cash equivalents
            
            
            
            
            
            
            7,922,348
            
            
            
            89,876
            
            
            
            7,922,348
            
            
            
            89,876Cash
      and cash equivalents at beginning of the year
            
            
            
            
            
            
            2,842,761
            
            
            
            2,752,885
            
            
            
            2,842,879
            
            
            
            2,753,003Cash
      and cash equivalents at end of the year
            
            
            8
            
            
            
            10,765,109
            
            
            
            2,842,761
            
            
            
            10,765,227
            
            
            
            2,842,879The
      accompanying notes on pages 8 to 3 form an integral part of these
      financial statements.





-19-


CHALLENGER
      LIMITED, DOUGLAS, ISLE OF MAN"PRIVATE
      COMPANY LIMITED BY SHARES" AND ITS SUBSIDIARYNotes
      to the financial statements-For the year ended 31 December
      2009(In
      the notes all amounts are shown in US Dollars unless otherwise
      stated)


1.
            General
      information





Challenger
Limited, Douglas, Isle of Man “Private Company Limited by Shares” (the Parent)
was incorporated on 14 October 1991 and registered in the General Registry, Isle
of Man under No. 503V.  The Parent has a wholly owned subsidiary in
Saudi Arabia (the Group) and maintains a Corporate Regional Office in Cairo,
Egypt.





The
Parent Company operates as a commercial company through a network of branches in
Liechtenstein, the Middle East and Africa.





The Group
provides professional services in the field of oilfield drilling, work over and
civil works through its branches in Middle East and Africa.





These
financial statements have been approved for issue by the Managing Director on
behalf of the management on 12 February 2010.  The General Assembly of
Shareholders has the power to amend the financial statements after being
issued.




2.
            Summary
      of Significant accounting policies





The
principal accounting policies applied in the preparation of these consolidated
financial statements are summarized below.  These policies have been
consistently applied to all the years presented, unless otherwise
stated.





A.
            Basis
      of preparation





The
Parent and Group financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS).  The Parent and
Group financial statements have been prepared under the historical cost
convention as modified by the revaluation of the Rigs.





The
preparation of financial statements in conformity with the IFRSs requires the
use of certain critical accounting estimates.  It also requires
management to exercise its judgment in the process of applying its accounting
policies.  The areas involve a higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to the
financial statements are disclosed in Note 4.





(i)
            New
      and amended standards effective in
2009:





The Group
has adopted the following new and amended IFRSs as of 1 January
2009:




·
              IFRS
      7 ‘Financial instruments – Disclosures’ (amendment) – effective 1 January
      2009.  The amendment requires enhanced disclosures about fair
      value measurement and liquidity risk.  In particular, the
      amendment requires disclosure of fair value measurements by level of a
      fair value measurement hierarchy.  As the change in accounting
      policy only results in additional disclosures, there is no impact on
      earnings per share.
 ·
              IAS
      1 (revised).  ‘Presentation of financial statements’ – effective
      1 January 2009.  The revised standard prohibits the presentation
      of items of income and expenses (that is, ‘non-owner changes in equity’)
      in the statement of changes in equity, requiring ‘non-owner changes in
      equity’ to be presented separately from owner changes in equity in a
      statement of comprehensive income.  As a result the Group
      presents in the consolidated statement of changes in equity all owner
      changes in equity, whereas all non-owner changes in equity are presented
      in the consolidated statement of comprehensive
      income.  Comparative information has been re-presented so that
      is also is in conformity with the revised standard.  As the
      changes in accounting policy only impacts presentation aspects, there is
      no impact on earnings per share.
 ·
              IFRS
      2 (amendment). ‘Share-based payment’ (effective 1 January 2009) deals with
      vesting conditions and cancellations.  It clarifies that vesting
      conditions are service conditions and performance conditions
      only.  Other features of a share-based payment are not vesting
      conditions.  These features would need to be included in the
      grant date fair value for transactions with employees and other providing
      similar services; they would not impact the number of awards expected to
      vest or valuation there of subsequent to grant date.  All
      cancellations, whether by the entity or by other parties, should receive
      the same accounting treatment.  The Group and Company has
      adopted IFRS 2 (amendment) from 1 January 2009.  The amendment
      does not have a material impact on the Group or Company’s financial
      statements.
 ·
              In
      respect of borrowing costs relating to qualifying assets for which the
      commencement date for capitalization is on or after 1 January 2009, the
      Group capitalizes borrowing costs directly attributable to the
      acquisition, construction or production of a qualifying asset as part of
      the cost of that asset.  The Group previously recognized all
      borrowing costs as an expense immediately.  This change in
      accounting policy was due to the adoption of IAS 23, ‘Borrowing costs’
      (2007) in accordance with the transition provisions of the standard;
      comparative figures have not been restated.  The change in
      accounting policy had no material impact on earnings per
      share.  The Group has capitalized borrowing costs with respect
      to intangible asset arising from internally generated software
      costs.


(ii)
            Standards,
      amendments and interpretations to existing standards that are not yet
      effective and have not been early adopted by the
  Group:





The
following standards and amendments to existing standards have been published and
are mandatory for the Group’s accounting periods beginning on or after 1 January
2010 or later periods, but the group has not early adopted them:





*
            IFRIC
      17, ‘Distribution of non-cash assets to owners’ (effective on or after 1
      July 2009).  The interpretation is part of the IASB’s annual
      improvements project published in April 2009.  This
      interpretation provides guidance on accounting for arrangements whereby an
      entity distributes non-cash assets to shareholders either as a
      distribution of reserves or as dividends.  IFRS 5 has also been
      amended to require that assets are classified as held for distribution
      only when they are available for distribution in their present condition
      and the distribution is highly probable.  The Group and Company
      will apply IFRIC 17 from 1 January 2010.  It is not expected to
      have a material impact on the Group or Company’s financial
      statements.


*
            IAS
      27 (revised), ‘Consolidated and separate financial statements’, (effective
      from 1 July 2009).  The revised standard requires the effects of
      all transactions with non-controlling interests to be recorded in equity
      if there is no change in control and these transactions will no longer
      result in goodwill or gains and losses.  The standard also
      specifies the accounting when control is lost.  Any remaining
      interest in the entity is re-measured to fair value, and a gain or loss is
      recognized in profit or loss.  The Group will apply IAS 27
      (revised) prospectively to transactions with non-controlling interests
      from 1 January 2010.


*
            IFRS
      3 (revised), ‘Business combinations’ (effective from 1 July
      2009).  The revised standard continues to apply the acquisition
      method to business combinations, with some significant
      changes.  For example, all payments to purchase a business are
      to be recorded at fair value at the acquisition date, with contingent
      payments classified as debt subsequently re-measured through the income
      statement.  There is a choice on an acquisition-by-acquisition
      basis to measure the non-controlling interest in the acquire at fair value
      or at the non-controlling interest’s proportionate share of the acquiree’s
      net assets.  All acquisition-related costs should be
      expensed.  The Group will apply IFRS 3 (revised) prospectively
      to all business combinations from 1 January
  2010.


*
            IAS
      38 (amendment), ‘Intangible Assets’.  The amendment is part of
      the IASB’s annual improvements project published in April 2009 and the
      Group and Company will apply IAS 38 (amendment) from the date IFRS 3
      (revised) is adopted.  The amendment clarifies guidance in
      measuring the fair value of an intangible asset acquired in a business
      combination and it permits the Grouping of intangible assets a as a single
      asset if each asset has similar useful economic lives.  The
      amendment will not result in a material impact on the Group or Company’s
      financial statements.


*
            IFRS
      5 (amendment), ‘Measurement of non-current assets (or disposal Groups)
      classified as held-for-sale’.  The amendment is part of the
      IASB’s annual improvements project published in April 2009.  The
      amendment provides clarification that IFRS 5 specifies the disclosures
      required in respect of non-current assets (or disposal Groups) classified
      as held for sale or discontinued operations.  It also clarifies
      that the general requirement of IAS 1 still apply, particularly paragraph
      15 (to achieve a fair presentation) and paragraph 125 (sources of
      estimation uncertainty) of IAS 1.  The Group and Company will
      apply IFRS 5 (amendment) from 1 January 2010.  It is not
      expected to have a material impact on the Group or Company’s financial
      statements.


*
            IAS
      1 (amendment), ‘Presentation of financial statements’.  The
      amendment is part of the IASB’s annual improvements project published in
      April 2009.  The amendment provides clarification that the
      potential settlement of a liability by the issue of equity is not relevant
      to its classification as current or non-current.  By amending
      the definition of current liability, the amendment permits a liability to
      be classified as non-current (provided that the entity has an
      unconditional right to defer settlement by transfer of cash or other
      assets for at least 12 months after the accounting period) notwithstanding
      the fact that the entity could be required by the counterparty to settle
      in shares at any time.  The Group and Company will apply IAS 1
      (amendment) from 1 January 2010.  It is not expected to have a
      material impact on the Group or Company’s financial
      statements.


-20-


CHALLENGER
      LIMITED, DOUGLAS, ISLE OF MAN"PRIVATE
      COMPANY LIMITED BY SHARES" AND ITS SUBSIDIARYNotes
      to the financial statements-For the year ended 31 December
      2009(In
      the notes all amounts are shown in US Dollars unless otherwise
      stated)


*
              IFRS
      2 (amendments), ‘Group cash-settled and share-based payment
      transactions’.  In addition to incorporating IFRIC 8, “Scope of
      IFRS 2’, and IFRIC 11, “IFRS 2 – Group and treasury share transactions’,
      the amendments expand on the guidance in IFRIC 11 to address the
      classification of Group arrangements that were not covered by that
      interpretation.  The new guidance is not expected to have a
      material impact on the Group’s financial
  statements.


B.
            Consolidation





(i)   Subsidiaries


Subsidiaries
are all entities over which the Group has the power to govern the financial
and operating policies generally accompanying a shareholding of more than
one half of the voting rights.  The existence and effect of potential
voting rights that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity.





Subsidiaries
are fully consolidated from the date on which control is transferred to the
Group.





Inter-company
transactions, balances and unrealized gains on transactions between Group
companies are eliminated.  Unrealized losses are also eliminated but
considered an impairment indicator of the asset
transferred.  Accounting policies of subsidiaries have been changed
where necessary to ensure consistency with the policies adopted by the
Group.





In our
Parent separate financial statements investment in subsidiary is accounted for
cost less impairment.





(ii)
Transactions and minority
interests


The Group
applies a policy of treating transactions with minority interests, if any, as
transactions with parties external to the Group.  Disposals to
minority interests result in gains and losses for the Group that are recorded in
the income statement.  Purchases from minority interests results in
goodwill, being the difference between any consideration paid and the relevant
share acquired of the carrying value of net assets of the
subsidiary.





C.
            Foreign
      currency translation





(i)  Functional and
presentation currency


Items
included in the financial statements of each of the parent and Group’s entities
are measured using the currency of the primary economic environment in which the
entity operates (‘the functional currency’).  The consolidated
financial statements are presented in US Dollars, which is the Company’s
functional and presentation currency.





(ii)  Transactions and
balances


Foreign
currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the
transactions.  Foreign exchange gains and losses resulting from the
settlement of such transactions and from the translation at year-end exchange
rates of monetary assets and liabilities denominated in foreign currencies are
recognized in the income statement.





Foreign
exchange gains and losses that relate to borrowings and cash and cash
equivalents are presented in the income statement within ‘finance income or
cost’.  All other foreign exchange gains and losses are presented in
the income statement within ‘other (losses)/gains-net.




D.
            Property,
      plant and equipment





Buildings,
trucks, motors vehicles, camps, furniture, fixtures, office equipment, and
computers are stated at historical cost less depreciation.  Historical
cost includes expenditures that is directly attributable to the acquisition of
the item.  Rigs are shown at fair value, based on periodic valuations
by external independent valuers, less subsequent depreciation for property,
plant and equipment.  Any accumulated depreciation at the date of the
revaluation is eliminated against the gross carrying amount of the asset, and
the net amount is restated to the revalued amount of the asset.





Subsequent
costs in relation to revalued assets are included in the asset’s carrying
amount, or recognized as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the
Group, and the cost of the item can be measured reliably.





Increases
in the carrying amount arising on revaluation of rigs are credited to a
revaluation reserve in shareholder’s equity.  Decreases that offset
previous increases of the same asset are charged against the revaluation reserve
directly in equity; all other decreases are charged to the statement of
income.





Revaluations
are made with sufficient regularity, and at least triennial, such that the
carrying amount does not differ materially from that which would be determined
using fair value at the balance sheet date.  The last revaluation of
property, plant and equipment was made by a professionally qualified valuer,
Moduspec International, as at 30 June 2009.





For
additions during the period between the revaluation dates, property, plant and
equipment are stated at historical cost less accumulated
depreciation.  Historical cost includes all costs associated with
possessing the asset in a ready-for-use condition.





Depreciation
is calculated using the straight-in-line method to allocate the cost of revalued
amounts over the assets estimated useful life, as follows:





Buildings
            20
      YearsRigs
      and camps
            2-10
      YearsTrucks
            3-8
      YearsMotor
      vehicles
            3-8
      YearsFurniture,
      fixtures and office equipment
            3-8
      YearsComputers
      and software
            3-8
      Years





The
assets’ residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date.





An
asset’s carrying amount is written down immediately to its recoverable amount if
the asset’s carrying amount is greater than its estimated recoverable
amount.





Gains and
losses on disposals are determined by comparing disposal proceeds with the
assets carrying amount.  Gains and losses are included in the
statement of income.  When revalued assets are disposed, the related
amounts included in the revaluation reserve are transferred to retained
earnings.





Repairs
and maintenance are charged to the statement of income during the financial year
in which they are incurred.  The cost of major renovations is included
in the carrying amount of the asset when it is probable that future economic
benefits in excess of the originally assessed standard of performance of the
existing asset will flow to the Parent Company and Group.  Major
renovations are depreciated over the remaining useful life of the related asset
or the estimated useful life of the renovation, whichever is less.





E.
            Financial
      Assets





(i)
Classification


The
management classifies its receivables as financial assets.  The
classification depends on the purpose for which the financial assets were
acquired.  Management determines the classification of its financial
assets at initial recognition.





Receivables
are non-derivative financial assets with fixed or determinable payments that are
not quoted in an active market.They are included in current assets, except for
maturities greater than 12 months after the balance sheet date, if
any.  These are classified as non-current assets.  The
Group’s receivables comprise ‘trade and other receivables’, cash and cash
equivalents and due from related parties in the balance sheets.


-21-


CHALLENGER
      LIMITED, DOUGLAS, ISLE OF MAN"PRIVATE
      COMPANY LIMITED BY SHARES" AND ITS SUBSIDIARYNotes
      to the financial statements-For the year ended 31 December
      2009(In
      the notes all amounts are shown in US Dollars unless otherwise
      stated)


(ii)
            Recognition
      and measurement





Receivables


Receivables
are recognized initially at fair value and subsequently measured at amortized
cost using the effective interest method, less provision for
impairment.  A provision for impairment of trade receivables is
established when there is objective evidence that the Parent Company or Group
will not be able to collect all amounts due according to the original terms of
receivables.  Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial reorganization,
and default or delinquency in payments (more than 60 days) are considered
indicators that the trade receivable is impaired.  The amount of the
provision is the difference between the asset’s carrying amount and the present
value of estimated future cash flows, discounted at the effective interest
rate.  The provision is recognized in the statements of
income.  When a receivable is uncollectible, it is written off against
the allowance account for trade receivables.  Subsequent recoveries of
amounts previously written off are credited against the income
statement.




F.
            Inventories





Inventories
represent spare parts and are stated at the lower of cost or net realizable
value.  Cost is determined using the first-in, first-out (FIFO)
method.  Net realizable value is the estimated selling price in the
ordinary course of business, less applicable variable selling
expenses.





G.
            Cash
      and cash equivalents





Cash and
cash equivalents includes cash in hand, deposits held at call with
banks.





H.
            Capital





Ordinary
shares are classified as equity.  Share premiums, if any, are included
in the additional paid in capital.  The costs of issuing capital and
amounts collected from shareholders to recover such costs are included in the
additional paid in capital.





I.
            Borrowings





Borrowings
are recognized initially at fair value, net of transaction costs
incurred.  Borrowings are subsequently stated at amortized cost; any
difference between the proceeds (net of transaction costs) and the redemption
value is recognized in the statement of income over the period of the borrowings
using the effective interest method.





Fees paid
on the establishment of loan facilities are recognized as transactions costs of
the loan to the extent that it is probable that some or all of the facility will
be drawn down.  In this case, the fee is deferred until the draw-down
occurs.  To the extent there is no evidence that it is probable that
some or all of the facility will be drawn down, the fee is capitalized as a
pre-payment for liquidity services and amortized over the period of the facility
to which it relates.





Borrowings
are classified as current liabilities unless the Group has an unconditional
right to defer settlement of the liability for at least 12 months after the
balance sheet date.





J.
            Current
      and deferred income taxes





The
current income tax charge is calculated on the basis of the tax laws enacted or
substantively enacted at the balance sheet date in the countries where the
Company’s branches and subsidiaries operate and generate taxable
income.  Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax regulation is subject
to interpretation and establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.





Deferred
income tax is recognized, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities, and their carrying
amounts in the financial statements.  Currently enacted tax rates are
used in the determination of deferred income tax.




Deferred
tax assets are recognized to the extent that it is probable that future taxable
profit will be available against which the temporary differences can be
utilized.




Deferred
income tax is provided on temporary differences arising on investments in
subsidiaries, except where the timing of the reversal of the temporary
difference can be controlled and it is probable that the temporary difference
will not reverse in the foreseeable future.





K.
            Provisions





Provisions
for regulatory obligations, costs and legal claims are recognized when the
Parent Company and Group has a present legal or constructive obligation as a
result of past events; it is more likely than not that an outflow of resources
will be required to settle the obligation; and the amount can be reliably
estimated.  Provisions are not recognized for future operating
losses.





Where
there are a number of similar obligations, the likelihood that an outflow will
be required in settlement is determined by considering the class of obligations
as a whole.  A provision is recognized even if the likelihood of an
outflow with respect to any one item included in the same class of obligations
may be small.





Provisions
are measured at the present value of the expenditures expected to be required to
settle the obligation using a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the
obligation.  The increase in the provision due to the passage of time
is recognized as interest expense.





L.
            Trade
      payables





Trade
payables are obligations to pay for goods or services that have been acquired in
the ordinary course of business from suppliers.  Accounts payable are
classified as current liabilities if payment is due within one year or less (or
in the normal operating cycle of the business if longer).  If not,
they are presented as non-current liabilities.





Trade
payables are recognized initially at fair value and subsequently measured at
amortized cost using the effective interest method.





M.
            Revenue
      recognition





Revenue
comprises the fair value of the consideration received or receivable for the
sale of services in the ordinary course of the Parent and Group’s
activities.





The Group
recognizes revenue when the amount of revenue can be reliably measured, it is
probably that future economic benefits will flow to the entity and when specific
criteria have been met for each of the Group’s activities as described
below.  The amount of revenue is not considered to be reliably
measurable until all contingencies relating to the service have been
resolved.  The Group bases its estimates on historical results, taking
into consideration the type of customer, the type of transaction and the
specifics of each arrangement.





i)  Sales
of services


The
Parent and Group sell oilfield drilling services, work-over and civil works
through
its       branches.  Revenue from
these services is recognized in the accounting period in which the services are
rendered, by reference to the specific transaction assessed on the basis of the
actual service provided.





ii)
Interest Income


Interest
income is recognized on a time-proportion basis using the effective interest
method.  When a receivable is impaired, the Group reduces the carrying
amount to its recoverable amount, being the estimated future cash flow
discounted at the original effective interest rate of the instrument, and
continues unwinding the discount as interest income.  Interest income
on impaired loans is recognized using the original effective interest
rate.


-22-


CHALLENGER
      LIMITED, DOUGLAS, ISLE OF MAN"PRIVATE
      COMPANY LIMITED BY SHARES" AND ITS SUBSIDIARYNotes
      to the financial statements-For the year ended 31 December
      2009(In
      the notes all amounts are shown in US Dollars unless otherwise
      stated)


iii)
              Dividend
      income
 Dividend income is recognized when
the right to receive payment is established.


N.
            Leases





Leases in
which a significant portion of the risks and rewards of ownership are retained
by the lessor are classified as operating leases.  Payments made under
operating leases (net of any incentives received from the lessor) are charged to
the statement of income on a straight-line basis over the period of the
lease.





O.
            Dividend
      distribution





Dividend
distributions to the Parent Company shareholders are recognized as a liability
in the financial statements in the period in which the dividends are approved by
the shareholders.





P.
            Comparative
      figures





Where
necessary, comparative figures have been reclassified to conform to changes in
presentation in the current year.





3.  Financial
risk management





3.1
            Financial
      risk factors





Since
2008, the world had faced financial crises that resulted in an unsettled global
economy, the Group activities expose it to a variety of financial
risks:  market risk (including foreign currency exchange risk and
interest rate risk), credit risk, and liquidity risk.  The Group’s
overall risk management programme seeks to minimize and access the potential
adverse effects on the Group’s financial performance accordingly the management
had considered the effect of the change in economy and the impact of the
associated risks and concluded that there is no significant impact over their
business activities.





(a)
            Market
      risk





i)
            Foreign
      currency exchange risk





The Group
operates internationally and is exposed to foreign exchange risk arising from
various currency exposures, primarily with respect to the Libyan Dinar, Sterling
pound and Euro.  Foreign exchange risk arises from future commercial
transactions, recognized assets liabilities.





Foreign
exchange risk arises when future commercial transactions or recognized assets or
liabilities are denominated in a currency that is not the entity’s functional
currency.  Neither the parent nor the Group use derivative instruments
to hedge foreign currency exposures.  However, the management aims to
minimize open positions in foreign currencies to the extent that is necessary to
conduct its activities.





The Group
aims to minimize the risk of being subject to foreign currency fluctuation;
accordingly the Group manages to enter contracts to provide drilling services
with mixed currencies.





The
management had considered the strengthening of the US Dollar against other
currencies (Libyan Dinar, Euro and Sterling Pound), the management had
determined the percentage of strengthening based on the average of the
historical fluctuation of the US Dollar against other currencies taking into
consideration the subsequent fluctuations till 28 February 2010.





If the US
Dollar had strengthened by 6% against Euro (2008: 3%), 2% against L.D (2008: 3%)
and 10% against Sterling pound (2008: 13%) with all other variables held
constant, post-tax losses for the year would have been US $5,158K (2008: US
$10,865K) higher, mainly as a result of foreign exchange losses/gains on
translation of other currencies denominated borrowings.  Profit is
more sensitive to movement in other currency specially Euro and Sterling Pound
exchange rates in 2008 than 2007 because of the increased amount of Euro
Dominated trade receivables and Sterling Pound denominated
borrowings.




ii)
            Interest
      rate risk





The Group
has no significant interest-bearing assets and liabilities that are measured at
fair value.




The
Group’s interest rate risk arises from long-term debts, borrowings issued at
variable rates expose the Group to cash flow interest rate risk which is
partially offset by cash held at variable rates, if any.





The Group
analyzes its interest rate exposure on a dynamic basis.  Various
scenarios are simulated, taking into consideration refinancing, renewal of
existing positions, and alternative financing.  Based on these
scenarios, the Group calculates the impact on profit and loss of a defined
interest rate shift.  For each simulation, the same interest rate
shift is used for all currencies.  The scenarios are run only for
borrowings that represent the major interest-bearing positions.





Based on
the simulations performed, the impact on post tax profit of a 1.5% shift would
be a maximum increase of US $279K (2008: Nil).





(b)
            Credit
      risk





Credit
risk is managed on group basis.  Credit risk arises from cash and cash
equivalents, deposits with bank and related parties, as well as credit exposures
to wholesale customers, including outstanding receivables.  For banks
only independently rated parties with a minimum rating of ‘A+’ are
accepted.  There is no independent rating for customers yet the Group
has policies in place to ensure that revenues from services provided are made to
customers with an appropriate credit history, taking into account its financial
position, past experience and other factors as all the group’s customers are
governmental authorities.





Although
the some of the group’s customers exceeded their credit limit, yet the
management does not expect any losses from non-performance by these
counterparties and consider these financial assets as not
impaired.  Additionally the management assessed the recoverability of
these financial assets on a case by case bases and recognizes the necessary
provision if required.





(c)
            Liquidity
      risk





Prudent
liquidity risk management implies maintaining sufficient cash and marketable
securities, the availability of funding through an adequate amount of committed
credit facilities and the ability to close out market positions.  Due
to the dynamic nature of the underlying businesses, Group treasury maintains
flexibility in funding by maintaining availability under committed credit
lines.





The table
below analyses the Group’s financial liabilities and net-settled derivative
financial liabilities into relevant maturity groupings based on the remaining
period at the balance sheet to the contractual maturity date.  The
amounts disclosed in the table are the contractual undiscounted cash
flows.  Balance due within 12 months equal their carrying balances as
the impact of discounting is not significant.


-23-


CHALLENGER
      LIMITED, DOUGLAS, ISLE OF MAN"PRIVATE
      COMPANY LIMITED BY SHARES" AND ITS SUBSIDIARYNotes
      to the financial statements-For the year ended 31 December
      2009(In
      the notes all amounts are shown in US Dollars unless otherwise
      stated)


At
      31 December 2009:Less
      than 1 year
              
              
              Between
      1 and 2 yearsBorrowings
              
              
              7,072,051
              
              
              
              13,903,958Trade
      and other payables
              
              
              13,897,059
              
              
              
              -Due
      to related parties
              
              
              2,400,077
              
              
              
              397,451At
      31 December 2008:Less
      than 1 year
              
              
              Between
      1 and 2 yearsBorrowings
              
              
              17,408,456
              
              
              
              691,379Trade
      and other payables
              
              
              13,907,479
              
              
              
              -Due
      to related parties
              
              
              3,459,204
              
              
              
              435,069Commitment
      (letters of credit)
              
              
              2,700,000
              
              
              
              -


3.2
            Capital
      risk management





The
Group’s objectives when managing capital are to safeguard the Group’s ability to
continue as a going concern in order to provide returns for shareholders and
benefits for other stakeholders and to maintain an optimal structure to reduce
the cost of capital.  In order to maintain or adjust the capital
structure, the Group may adjust the amount of dividends paid to shareholders,
return capital to shareholders, issue new shares or sell assets to reduce
debt.





The
management monitors capital on the basis of the gearing ratio.  This
ratio is calculated as net debt divided by total capital.  Net debt is
calculated as total borrowings (including ‘current and non-current borrowings’
as shown in the balance sheet) less cash and cash equivalents.  Total
capital is calculated as equity, as shown in the balance sheets, plus net
debt.  The gearing ratios at 31 December 2009 and 31 December 2008
were as follows:


Parent
              
              
              Group2009
              
              
              2008
              
              
              2009
              
              
              2008Total
      borrowings and trade payable and other credit balancesTrade
      payable and other credit balances
              
              
              13,897,059
              
              
              
              14,060,820
              
              
              
              13,897,059
              
              
              
              14,060,820Due
      to related parties
              
              
              2,797,528
              
              
              
              3,459,204
              
              
              
              2,400,077
              
              
              
              3,061,753Borrowings
              
              
              20,530,858
              
              
              
              18,099,835
              
              
              
              20,530,858
              
              
              
              18,099,835Total
      borrowings
              
              
              37,225,445
              
              
              
              35,619,859
              
              
              
              36,827,994
              
              
              
              35,222,408Less:
      cash and cash equivalents
              
              
              10,765,109
              
              
              
              2,842,761
              
              
              
              10,765,227
              
              
              
              2,842,879Net
      debt
              
              
              26,460,336
              
              
              
              32,777,098
              
              
              
              26,062,767
              
              
              
              32,379,529Total
      equity
              
              
              156,966,267
              
              
              
              160,407,772
              
              
              
              156,966,267
              
              
              
              160,407,772Total
      capital
              
              
              183,426,603
              
              
              
              193,184,870
              
              
              
              183,029,034
              
              
              
              192,787,301Gearing
      ratio
              
              
              14
              %
              
              
              17
              %
              
              
              14
              %
              
              
              17
              %


The
gearing ratio decreased during 2009 compared to 2008 primarily due to the
increase in the cash surpluses on 2009, accompanying with the decrease in the
equity as a results of the loss sustained during 2009 compared to the profit
achieved in 2008.





3.3
            Fair
      value Estimation





The
carrying value less impairment provision of trade receivables and payables are
assumed to approximate their fair values.  The carrying values of the
financial assets and liabilities are assumed to approximate their fair
value.


The
carrying values of long-term loans and receivables are assumed to approximate
their fair values at the balance sheets date.




4.
            Critical
      estimates and judgments





Estimates
and judgments are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to
be reasonable under the circumstances.





4.1
            Critical
      accounting estimates and
assumptions





The Group
makes estimates and assumptions concerning the future.  The resulting
accounting estimates will, by definition, seldom equal the related actual
results.  The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below:





Income
taxes


The
Parent’s activities are subject to income taxes in various
jurisdictions.  Significant judgment is required in determining the
provision for income taxes.  There are many transactions and
calculations for which the ultimate tax determination is
uncertain.  The Group recognizes liabilities for anticipated tax audit
issues based on estimates of whether additional taxes will be
due.  Where the final outcome of these matters is different from the
amounts that were initially recorded, such differences will impact the income
tax provisions in the period in which such determination is made.  If
the tax liability had been 10% higher than management estimates approximately US
$339,000, the Group would have recognized a future liability against income tax
by some amount.





4.2
            Critical
      judgments in applying the entity’s accounting
  policies





a.
            Revenue
      recognition





The
Parent Company has recognized revenue and profit amounting to US $3,983,907
(2008: US $5,289,352) for services provided to the Great Man – Made River
Authority (GMRA) project in Libya during 2009.  The buyer has the
right to rescind any percentage of the service fees if they are not in
conformity with the service contract agreement.  Based on past
experience with the provision of similar services, the dissatisfaction rate is
not expected to exceed 5%.  For the revenue recognized in 2009, the
amounts invoiced have been fully accepted by the concerned customer, and it is
therefore appropriate to recognize all the revenue on this transaction during
2009.





b.
            Property,
      plant and equipment – useful life





The
property, plant and equipment owned by the Parent have long lives that vary from
3 to 20 years.  To ensure the use of reliable estimates, the
management has benchmarked the useful lives of its owned assets with estimates
made by the evaluation (Note 2.E).  Management, in line with the
requirements of IFRSs, will review the useful lives of property, plant and
equipment regularly, to ensure consistency with its original estimate, or
otherwise, revise the remainder of useful lives as appropriate.


-24-


CHALLENGER
      LIMITED, DOUGLAS, ISLE OF MAN"PRIVATE
      COMPANY LIMITED BY SHARES" AND ITS SUBSIDIARYNotes
      to the financial statements-For the year ended 31 December
      2009(In
      the notes all amounts are shown in US Dollars unless otherwise
      stated)




If the
useful lives of property, plant and equipment vary up/down by 10% from its
original estimate, the depreciation charge for the year would decrease/increase
by US $1,614,127.


5.
            Property,
      plant and equipment


Buildings
              
              
              Rigs*
              
              
              Auxiliary
      Equipment
              
              
              Trucks
              
              
              Motor
      Vehicles
              
              
              Camps
              
              
              Furniture,
      Fixtures, and Office Equipment
              
              
              Computers
      and Software
              
              
              Projects
      under construction
              
              
              TotalAt
      1 January 2008Cost
      of valuation
              
              
              95,000
              
              
              
              53,481,725
              
              
              
              11,411,844
              
              
              
              6,352,905
              
              
              
              1,968,900
              
              
              
              7,741,559
              
              
              
              1,404,560
              
              
              
              360,952
              
              
              
              956,966
              
              
              
              83,774,411Accumulated
      depreciation
              
              
              (28,500
              )
              
              
              (21,400,246
              )
              
              
              (3,371,750
              )
              
              
              (4,437,521
              )
              
              
              (757,656
              )
              
              
              (3,363,831
              )
              
              
              (928,136
              )
              
              
              (75,927
              )
              
              
              -
              
              
              
              (34,363,567
              )Net
      book amount
              
              
              66,500
              
              
              
              32,081,479
              
              
              
              8,040,094
              
              
              
              1,915,384
              
              
              
              1,211,244
              
              
              
              4,377,728
              
              
              
              476,424
              
              
              
              285,025
              
              
              
              956,966
              
              
              
              49,410,844Year
      ended 31 December 2008Opening
      net book amount
              
              
              66,500
              
              
              
              32,081,479
              
              
              
              8,040,094
              
              
              
              1,915,384
              
              
              
              1,211,244
              
              
              
              4,377,728
              
              
              
              476,424
              
              
              
              285,025
              
              
              
              956,966
              
              
              
              49,410,844Additions
              
              
              -
              
              
              
              7,901,852
              
              
              
              605,974
              
              
              
              96,034
              
              
              
              909,998
              
              
              
              2,839,100
              
              
              
              145,837
              
              
              
              128,441
              
              
              
              88,296,895
              
              
              
              100,924,131Transfers
              
              
              -
              
              
              
              69,071,114
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (69,071,114
              )
              
              
              -Effects
      of revaluation
              
              
              -
              
              
              
              39,581,987
              
              
              
              (12,017,818
              )
              
              
              -
              
              
              
              -
              
              
              
              (1,055,416
              )
              
              
              -
              
              
              
              -
              
              
              
              (6,026,930
              )
              
              
              20,481,823Depreciation
      charges
              
              
              (4,750
              )
              
              
              (9,562,508
              )
              
              
              (803,614
              )
              
              
              (920,371
              )
              
              
              (438,437
              )
              
              
              (1,287,729
              )
              
              
              (208,183
              )
              
              
              (62,815
              )
              
              
              -
              
              
              
              (13,288,407
              )Effects
      of revaluation on accumulated depreciation
              
              
              -
              
              
              
              (9,800,985
              )
              
              
              4,175,364
              
              
              
              -
              
              
              
              -
              
              
              
              522,359
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (5,103,262
              )Closing
      Net book amount
              
              
              61,750
              
              
              
              129,272,939
              
              
              
              -
              
              
              
              1,091,047
              
              
              
              1,682,805
              
              
              
              5,396,042
              
              
              
              414,078
              
              
              
              350,651
              
              
              
              14,155,817
              
              
              
              152,425,129At
      31 December 2008Cost
      of valuation
              
              
              95,000
              
              
              
              170,036,678
              
              
              
              -
              
              
              
              6,448,939
              
              
              
              2,878,898
              
              
              
              9,525,243
              
              
              
              1,550,397
              
              
              
              489,393
              
              
              
              14,155,817
              
              
              
              205,180,365Accumulated
      depreciation
              
              
              (33,250
              )
              
              
              (40,763,739
              )
              
              
              -
              
              
              
              (5,357,892
              )
              
              
              (1,196,093
              )
              
              
              (4,129,201
              )
              
              
              (1,136,319
              )
              
              
              (138,742
              )
              
              
              -
              
              
              
              (52,755,236
              )Net
      book amount
              
              
              61,750
              
              
              
              129,272,939
              
              
              
              -
              
              
              
              1,091,047
              
              
              
              1,682,805
              
              
              
              5,396,042
              
              
              
              414,078
              
              
              
              350,651
              
              
              
              14,155,817
              
              
              
              152,425,129Year
      ended 31 December 2009Opening
      net book amount
              
              
              61,750
              
              
              
              129,272,939
              
              
              
              -
              
              
              
              1,091,047
              
              
              
              1,682,805
              
              
              
              5,396,042
              
              
              
              414,078
              
              
              
              350,651
              
              
              
              14,155,817
              
              
              
              152,425,129Additions
              
              
              -
              
              
              
              4,382,422
              
              
              
              -
              
              
              
              398,856
              
              
              
              226,994
              
              
              
              160,161
              
              
              
              3,223
              
              
              
              91,275
              
              
              
              105,594
              
              
              
              5,368,525Transfers
              
              
              -
              
              
              
              5,662,410
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (5,662,410
              )
              
              
              -Depreciation
      charges
              
              
              (4,750
              )
              
              
              (12,631,951
              )
              
              
              -
              
              
              
              (956,033
              )
              
              
              (519,322
              )
              
              
              (1,724,561
              )
              
              
              (226,626
              )
              
              
              (78,023
              )
              
              
              -
              
              
              
              (16,141,266
              )Closing
      Net book amount
              
              
              57,000
              
              
              
              126,685,820
              
              
              
              -
              
              
              
              533,870
              
              
              
              1,390,477
              
              
              
              3,831,642
              
              
              
              190,675
              
              
              
              363,903
              
              
              
              8,599,001
              
              
              
              141,652,388At
      31 December 2009Cost
      of valuation
              
              
              95,000
              
              
              
              180,081,510
              
              
              
              -
              
              
              
              6,847,795
              
              
              
              3,105,892
              
              
              
              9,685,404
              
              
              
              1,553,620
              
              
              
              580,668
              
              
              
              8,599,001
              
              
              
              210,548,890Accumulated
      depreciation
              
              
              (38,000
              )
              
              
              (53,395,690
              )
              
              
              -
              
              
              
              (6,313,925
              )
              
              
              (1,715,415
              )
              
              
              (5,853,762
              )
              
              
              (1,362,945
              )
              
              
              (216,765
              )
              
              
              -
              
              
              
              (68,896,502
              )Net
      book amount
              
              
              57,000
              
              
              
              126,685,820
              
              
              
              -
              
              
              
              533,870
              
              
              
              1,390,477
              
              
              
              3,831,642
              
              
              
              190,675
              
              
              
              363,903
              
              
              
              8,599,001
              
              
              
              141,652,388


*
            Rigs
      comprise of the followings:




-25-


CHALLENGER
      LIMITED, DOUGLAS, ISLE OF MAN"PRIVATE
      COMPANY LIMITED BY SHARES" AND ITS SUBSIDIARYNotes
      to the financial statements-For the year ended 31 December
      2009(In
      the notes all amounts are shown in US Dollars unless otherwise
      stated)




Drilling
      equipment
              
              
              Electrical
      equipment
              
              
              Mud
      system
              
              
              Power
      plant
              
              
              Safety
      equipment
              
              
              Well
      control equipment
              
              
              TotalRig
      #7
              
              
              904,545
              
              
              
              85,003
              
              
              
              87,750
              
              
              
              84,065
              
              
              
              5,912
              
              
              
              114,800
              
              
              
              1,282,075Rig
      #10
              
              
              513,245
              
              
              
              -
              
              
              
              64,050
              
              
              
              73,450
              
              
              
              2,438
              
              
              
              243,750
              
              
              
              896,933Rig
      #14
              
              
              4,462,321
              
              
              
              973,080
              
              
              
              1,191,125
              
              
              
              1,311,550
              
              
              
              86,284
              
              
              
              330,363
              
              
              
              8,354,723Rig
      #19
              
              
              5,087,730
              
              
              
              425,000
              
              
              
              1,748,875
              
              
              
              1,361,700
              
              
              
              26,406
              
              
              
              658,580
              
              
              
              9,308,291Rig
      #20
              
              
              792,462
              
              
              
              58,500
              
              
              
              95,875
              
              
              
              147,468
              
              
              
              5,260
              
              
              
              539,750
              
              
              
              1,639,315Rig
      #23
              
              
              794,120
              
              
              
              73,125
              
              
              
              305,900
              
              
              
              376,187
              
              
              
              -
              
              
              
              39,200
              
              
              
              1,588,532Rig
      #26
              
              
              7,847,229
              
              
              
              1,400,630
              
              
              
              2,704,588
              
              
              
              990,930
              
              
              
              175,780
              
              
              
              1,684,488
              
              
              
              14,803,645Rig
      #27
              
              
              3,646,133
              
              
              
              1,111,355
              
              
              
              1,635,370
              
              
              
              865,150
              
              
              
              81,684
              
              
              
              541,572
              
              
              
              7,881,264Rig
      #28
              
              
              3,643,048
              
              
              
              528,700
              
              
              
              1,080,625
              
              
              
              844,985
              
              
              
              59,073
              
              
              
              653,291
              
              
              
              6,809,722Rig
      #29
              
              
              1,345,892
              
              
              
              33,150
              
              
              
              121,875
              
              
              
              166,813
              
              
              
              1,888
              
              
              
              496,400
              
              
              
              2,166,018Rig
      #31
              
              
              597,386
              
              
              
              28,770
              
              
              
              55,650
              
              
              
              56,420
              
              
              
              6,272
              
              
              
              172,550
              
              
              
              917,048Rig
      #32
              
              
              614,903
              
              
              
              35,840
              
              
              
              58,450
              
              
              
              78,244
              
              
              
              12,009
              
              
              
              175,000
              
              
              
              974,446Rig
      #34
              
              
              191,795
              
              
              
              -
              
              
              
              -
              
              
              
              23,170
              
              
              
              -
              
              
              
              -
              
              
              
              214,965Rig
      #36
              
              
              12,078,122
              
              
              
              1,759,542
              
              
              
              3,694,487
              
              
              
              1,365,962
              
              
              
              20,167
              
              
              
              1,247,125
              
              
              
              20,165,405Rig
      #37
              
              
              11,660,452
              
              
              
              1,766,700
              
              
              
              3,550,550
              
              
              
              1,644,300
              
              
              
              94,052
              
              
              
              1,610,730
              
              
              
              20,326,784Rig
      #38
              
              
              12,089,301
              
              
              
              2,150,448
              
              
              
              3,808,598
              
              
              
              1,652,400
              
              
              
              81,288
              
              
              
              1,688,130
              
              
              
              21,470,165Rig
      #41
              
              
              608,566
              
              
              
              12,145
              
              
              
              111,434
              
              
              
              82,469
              
              
              
              3,453
              
              
              
              121,875
              
              
              
              939,942Rig
      #90
              
              
              2,053,990
              
              
              
              32,625
              
              
              
              438,912
              
              
              
              444,694
              
              
              
              -
              
              
              
              917,137
              
              
              
              3,887,358Rig
      #91
              
              
              977,309
              
              
              
              82,318
              
              
              
              290,031
              
              
              
              129,970
              
              
              
              20,656
              
              
              
              -
              
              
              
              1,500,284Rig
      #96
              
              
              994,485
              
              
              
              30,625
              
              
              
              210,510
              
              
              
              176,085
              
              
              
              7,200
              
              
              
              140,000
              
              
              
              1,558,905Total
              
              
              70,903,033
              
              
              
              10,587,556
              
              
              
              21,254,656
              
              
              
              11,876,015
              
              
              
              689,822
              
              
              
              11,374,742
              
              
              
              126,685,820




6.
              Investment
      in subsidiary-(Parent)
 
 The
investment in subsidiary represents the amounts paid by the Parent as a
long-tern investment to incorporate Challenger Saudi Arabia Limited, a Saudi
Arabian land drilling and oilfield services Company.  The subsidiary
is fully owned by the Parent and there is no change in the Parent’s ownership
percentage during the current Year.




7.
              Receivables
      and prepayments


2009
              
              
              2008Trade
      receivables
              
              
              18,432,097
              
              
              
              23,068,411Accrued
      revenues
              
              
              6,935,840
              
              
              
              7,708,700Advance
      payments
              
              
              4,045,641
              
              
              
              6,619,372Other
      debit balances
              
              
              3,801,277
              
              
              
              1,281,380Prepaid
      tax stamp
              
              
              1,493,336
              
              
              
              1,733,796Refundable
      deposits
              
              
              106,613
              
              
              
              106,613Cash
      margin on letter of credit
              
              
              72,500
              
              
              
              -Total
              
              
              34,887,304
              
              
              
              40,518,272
 
 Trade
receivables of US $12,035,822 (2008: US $11,346,015) were past due but not
impaired.  These relate to a number of independent customers fees whom
there is no recent history of default considering they are Governmental
Authorities with no indication for default.  The aging analysis of
trade receivables is as follows:




2009
              
              
              2008Up
      to 6 months
              
              
              7,943,262
              
              
              
              7,631,6436
      to 18 months
              
              
              4,092,560
              
              
              
              3,714,37212,035,822
              
              
              
              11,346,015


8.
            Cash
      and cash equivalents





Cash and
cash equivalents represent cash on hand and current account at banks as
summarized below.  The Group deals with banks rated “AA”.




Company
              
              
              Group2009
              
              
              2008
              
              
              2009
              
              
              2008Cash
      at banks
              
              
              10,451,826
              
              
              
              2,678,599
              
              
              
              10,451,944
              
              
              
              2,678,717Cash
      on hand
              
              
              313,283
              
              
              
              164,162
              
              
              
              313,283
              
              
              
              164,162Total
              
              
              10,765,109
              
              
              
              2,842,761
              
              
              
              10,765,227
              
              
              
              2,842,879


9.
            Capital




2009
            
            
            2008Authorized
      capital 70,000,000 ordinary shares of one US Dollar each
            
            
            70,000,000
            
            
            
            70,000,000Issued
      capital 2009: 64,957,265 (2008: 50,000,000 shares)
            
            
            64,957,265
            
            
            
            64,957,265Additional
      paid up capital
            
            
            70,795,653
            
            
            
            70,795,653135,752,918
            
            
            
            135,752,918





Additional
paid in capital represents the amounts paid by the new joiners of shareholders’
in excess of their capital share against the agreed fair value of the Parent
business at the transaction time.


Based on
the new shareholders agreement dated 4 January 2009, a series of corporate
changes took place in the Company to reflect the change in ownership of
shares.
 -26-
 CHALLENGER
      LIMITED, DOUGLAS, ISLE OF MAN"PRIVATE
      COMPANY LIMITED BY SHARES" AND ITS SUBSIDIARYNotes
      to the financial statements-For the year ended 31 December
      2009(In
      the notes all amounts are shown in US Dollars unless otherwise
      stated)
 The
change in share capital for the Company during the year is summarized as
follows:


Challenger
      Group Limited
              
              
              MENA
      Oil Drilling Company
              
              
              Venture
      Capital Bank
              
              
              Bronco
      Mena Investment
              
              
              TotalIssued
      shares at par value one US Dollar
              
              
              32,806,666
              
              
              
              14,615,385
              
              
              
              1,295,898
              
              
              
              16,239,316
              
              
              
              64,957,265Number
      of shares as at 31 December 2009
              
              
              32,806,666
              
              
              
              14,615,385
              
              
              
              1,295,898
              
              
              
              16,239,316
              
              
              
              64,957,265Ownership
      percentage
              
              
              50.5
              %
              
              
              22.5
              %
              
              
              2
              %
              
              
              25
              %
              
              
              100
              %


10.
            Revaluation
      reserve





Revaluation
reserve include the difference between the revaluation value of the Group’s rigs
and the net book value of those rigs at the revaluation date as well as any
subsequent transactions effects the revaluation of these rigs or its
disposition.




11.
            Borrowings





The
borrowing represents the loans obtained as following:




2009
              
              
              2008Non-currentNatixis
              
              
              13,375,423
              
              
              
              -Bronco
      Drilling Company Inc. (Note 14)
              
              
              528,535
              
              
              
              4,545,190Total
              
              
              13,903,958
              
              
              
              4,545,190Deferred
      transaction cost
              
              
              (260,951
              )
              
              
              -Total
      Non current portion of long-term debts
              
              
              13,643,007
              
              
              
              4,545,190CurrentNatixis
              
              
              4,957,911
              
              
              
              -Bronco
      Drilling Company Inc. (Note 14)
              
              
              2,114,140
              
              
              
              6,823,266Hassan
      Tatanaki (Note 14)
              
              
              -
              
              
              
              5,000,000Hays
      Trucking Inc. (Note 14)
              
              
              -
              
              
              
              1,040,000Artworld
      Financial Corporation (Note 14)
              
              
              -
              
              
              
              470,093Noreen
      Overseas Limited (Note 14)
              
              
              -
              
              
              
              221,286Total
              
              
              7,072,051
              
              
              
              13,554,645Deferred
      transaction cost
              
              
              (184,200
              )
              
              
              -Total
      current portion of long-term debts
              
              
              6,887,851
              
              
              
              13,554,645Total
      Borrowings
              
              
              20,530,858
              
              
              
              18,099,835


i)
            Facility
      agreement from Natixis SA (France).


On 16
February 2009, a Facility Agreement was signed between Natixis SA (a French
Banking Institution) as Lender Agent, Lead Arranger, and the Parent as Borrower,
against a security package comprising of; charge of Challenger shares, pledge of
working assets and assignment of drilling contracts.  The facility
grants the Parent a 3year, US $20 million Revolving Operating Capital Financing
Facility, which also includes an accordion feature to increase the facility
amount to US $40 million, with the participation of a small number of syndicate
banks, against the same security package.





The
facility bears a floating interest rate (LIBOR + 4.25%) and the last installment
is due on June 2012.





ii)
            Finance
      from Bronco Drilling Company


On 3
January 2008, the Parent signed an agreement with Bronco Drilling Company Inc.
(Shareholder), where Bronco Drilling Company agreed to sell four rigs and their
auxiliary equipment to the Parent against credit facility to be paid over 3
years of the execution date.  The aggregate initial deal price was US
$13,408,456 and the deal was amended in June 2009 to be US $7,795,975 for the
two rigs only and waiving of US $572,805 of the credit facility to the other
income (Note 16).





Bronco
credit facility is to be paid on quarterly equal installments where the last
installment is due on 2 February 2011.





The
outstanding balance due to the sellers at 31 December 2009 is US $2.642,675
(2008: US $12,408,456).





iii)
            Long-term
      debt fair values





The
carrying amounts of the long-term debt approximate their fair value as all
long-term debts are under floating rates.





12.
            Trade
      and other payables




2009
              
              
              2008Trade
      payables
              
              
              9,409,407
              
              
              
              6,928,716Other
      credit balances
              
              
              2,908,720
              
              
              
              4,927,380Accrued
      expenses
              
              
              1,521,060
              
              
              
              2,204,724Accrued
      interest
              
              
              57,872
              
              
              
              -Total
              
              
              13,897,059
              
              
              
              14,060,820


13.
            Taxation





Each
Branch of the Group determines its tax obligations according to the Branches’
location, as the Parent itself is free of tax in the Isle of Man.





Challenger
Limited Free Zone – Eqypt Branch is exempted from Egyptian corporate tax for ten
years started from 27 January 2004 up till 26 January 2014.





Challenger
Limited - Libya Branch is subject to corporate income tax at progressive tax
rates, in addition to a Jehad tax of 4% of the taxable income.  Total
income tax for the Year amounted to US $2,577,371 (2008: US
$3,389,127).  During 2009, the Branch had received the final
settlement from the Libyan Tax Authority for the fiscal years till 2007 and the
preliminary assessment from the Tax Authority for the year 2008.





The tax
liabilities are subject to the final outcome of the tax assessment
process.  Management however believes that adequate provision is made
within these financial statements for all expected taxes due.


-27-


CHALLENGER
      LIMITED, DOUGLAS, ISLE OF MAN"PRIVATE
      COMPANY LIMITED BY SHARES" AND ITS SUBSIDIARYNotes
      to the financial statements-For the year ended 31 December
      2009(In
      the notes all amounts are shown in US Dollars unless otherwise
      stated)




Current
tax liabilities




2009
            
            
            2008Balance
      at 1 January
            
            
            4,062,411
            
            
            
            2,869,643Current
      Income tax expense
            
            
            2,577,371
            
            
            
            3,389,127Payment
      to Tax Authority
            
            
            (1,720,109
            )
            
            
            (2,196,359
            )Total
            
            
            4,919,673
            
            
            
            4,062,411





Income
Tax




2009
            
            
            2008Current
      tax
            
            
            2,577,371
            
            
            
            3,389,127Total
            
            
            2,577,371
            
            
            
            3,389,127





The tax
on the Group’s profit before tax differs from the theoretical amount that would
arise using the weighted average tax rate applicable to the profits of the
consolidated companies as follows:





2009
            
            
            2008(Loss)/Profit
      before tax
            
            
            5,632,039
            
            
            
            10,664,514Tax
      calculated at the domestic tax rate applicable in the respective
      countries
            
            
            2,252,816
            
            
            
            3,484,783Tax
      effect of expenses not subject to tax
            
            
            1,918,117
            
            
            
            1,632,725Tax
      effect of revenue not subject to tax
            
            
            (1,593,562
            )
            
            
            (1,728,381
            )Tax
      charge
            
            
            2,577,371
            
            
            
            3,389,127





Challenger
Limited Libya Branch is subject to income tax according to Libyan laws and
regulations.  The rest of the Group is free of tax as located in the
Isle of Man, Kingdom of Saudi Arabia and Egypt Free Zone.





14.
            Related
      party transactions





Related
parties are comprised of the following:





1.
            Entities
      owned by Challenger Group L.T.D. or by it’s ultimate
  owners


2.
            Challenger
      Saudi Arabia L.T.D. (subsidiary).


3.
            Venture
      Capital Bank (shareholder).


4.
            MENA
      Oil Drilling Company (shareholder).


5.
            Bronco
      MENA Investment (shareholder) and its
  subsidiaries.





The
following transactions were carried out with related parties:





i)
            Due
      from related parties





Company
              
              
              Group2009
              
              
              2008
              
              
              2009
              
              
              2008Sogedico
      Company
              
              
              687,043
              
              
              
              519,044
              
              
              
              687,043
              
              
              
              519,044Total
              
              
              687,043
              
              
              
              519,044
              
              
              
              687,043
              
              
              
              519,044


The
outstanding balance due from related parties represent the transaction with
Sogedico (entity owned by Challenger Group L.L.C.), where the Parent had
contracted with Sogedico to provide Challenger Libya branch with civil
work.  The service provided during the year is US $167,999 (2008: US
$140,136).





The
receivables from related parties are past due but not impaired amounting to US
$687,043 (2008: US $519,044).  The receivables bear no interest, there
are no provisions held against receivables from related parties (2008:
Nil).





ii)
            Due
      to related parties





In the
prior years, the Parent  obtained financial support from the Group
shareholders and one of their subsidiaries.  The financial support
received was free from interest and payable on demand.




Company
              
              
              Group2009
              
              
              2008
              
              
              2009
              
              
              2008Bronco
      Mena Investment
              
              
              2,062,577
              
              
              
              2,874,253
              
              
              
              2,062,577
              
              
              
              2,874,253Venture
      Capital Bank
              
              
              337,500
              
              
              
              187,500
              
              
              
              337,500
              
              
              
              187,500Challenger
      Saudi Arabia Ltd.
              
              
              397,451
              
              
              
              397,451
              
              
              
              -
              
              
              
              -Total
              
              
              2,797,528
              
              
              
              3,459,204
              
              
              
              2,400,077
              
              
              
              3,061,753
 The
outstanding balance due to Bronco Mena Investment represents management services
with annual fee amounting to US $150,000, in addition to the services rendered
Bronco according to agreement between the Parent and Bronco Mena
Investment.





The
payables to related parties arise mainly from purchase transactions and are past
due but not impaired.  The payables bear  no
interest.





iii)
            Key
      management compensation


Key
management includes direct and three ultimate beneficial owners of Challenger
Group L.L.C.





According
to the Board of Directors resolution dated 1 April 2004, each one of the three
ultimate beneficial owners of Challenger Group L.L.C. is receiving a fixed
annual remuneration amounting to US $300,000 regarding to his daily work and
efforts in the Group business.


-28-


CHALLENGER
      LIMITED, DOUGLAS, ISLE OF MAN"PRIVATE
      COMPANY LIMITED BY SHARES" AND ITS SUBSIDIARYNotes
      to the financial statements-For the year ended 31 December
      2009(In
      the notes all amounts are shown in US Dollars unless otherwise
      stated)




iv)
            Loans
      from related parties





The
Parent obtained financial support from its shareholders and their related
entities in the form of loans.  The loans balances as at 31 December
2009 are as follows:




Company
            
            
            Group2009
            
            
            2008
            
            
            2009
            
            
            2008Loan
      from Bronco Drilling Company, Inc. (Note 11)
            
            
            2,642,675
            
            
            
            11,368,456
            
            
            
            2,642,675
            
            
            
            11,368,456Loan
      from Hassan Tatanaki (Note 11)
            
            
            -
            
            
            
            5,000,000
            
            
            
            -
            
            
            
            5,000,000Hays
      Trucking Inc.
            
            
            -
            
            
            
            1,040,000
            
            
            
            -
            
            
            
            1,040,000Loan
      from Artworld Financial Corporation (Note 12)
            
            
            -
            
            
            
            470,093
            
            
            
            -
            
            
            
            470,093Loan
      from Noreen Overseas Limited (Note 11)
            
            
            -
            
            
            
            221,286
            
            
            
            -
            
            
            
            221,286Total
            
            
            2,642,675
            
            
            
            18,099,835
            
            
            
            2,642,675
            
            
            
            18,099,835





Artworld
Financial Corporation and Noreen Overseas Limited are owned by Mr. Faiz
Tatanaki, one of the three ultimate beneficial owners of Challenger group.All loans obtained from the ultimate
beneficial owners and their companies were paid during 2009.




v)
            The
      Parent rented the administrative building from Challenger Investments,
      which is fully owned by Mr. Hassan Tatanaki.  The administrative
      building rent expense for 2009 is US $110,122 (2008: US $102,918) with
      annual increase of 7%.  Such rent expenses are paid on due
      dates.





vi)
            The
      Parent signed a contract with Venture Capital Bank – Bahrain (VCB) to
      provide management consultation services with an annual fee amounting to
      US $150,000.  VCB has a significant influence over the decisions
      of MENA Oil Drilling Company, a shareholder of the
  Parent.





15.
            General
      and administrative expenses




2009
            
            
            2008Tax
      calculated at the domestic tax rate applicable in the respective
      countries
            
            
            2,252,816
            
            
            
            3,484,783





The
following expenses were included in the general and administrative
expenses:




2009
              
              
              2008Salaries
      and wages
              
              
              3,444,759
              
              
              
              3,763,139Rent
              
              
              523,132
              
              
              
              738,535Insurance
      expenses
              
              
              126,807
              
              
              
              132,767Depreciation
              
              
              79,589
              
              
              
              73,268Management
      fees
              
              
              900,000
              
              
              
              900,000


16.
            Other
      Income




2009
              
              
              2008Other
      income
              
              
              1,424,469
              
              
              
              137,252Refund
      from insurance company
              
              
              0
              
              
              
              2,309,1811,424,469
              
              
              
              2,446,433


17.
            Other
      expense




2009
              
              2008Write
      off for projects under construction
              
              -
              
              1,870,000-
              
              1,870,000


18.
            Finance
      income




2009
                
                
                2008Interest
      income
                
                
                4,632
                
                
                
                46,015Net
      foreign exchange gain on financing activity
                
                
                329,257
                
                
                
                -333,889
                
                
                
                46,015


19.
            Finance
      cost




2009
              
              
              2008Interest
      expense
              
              
              909,048
              
              
              
              320,173Net
      foreign exchange loss on financing activity
              
              
              0
              
              
              
              353,224909,048
              
              
              
              673,397


20.
            Staff
      costs





Staff
costs are included in the statement of income under the following:




2009
              
              
              2008Operating
      costs
              
              
              9,193,819
              
              
              
              8,297,876General
      and administrative expenses
              
              
              3,444,759
              
              
              
              3,763,13912,638,578
              
              
              
              12,061,015
  -29-


CHALLENGER
      LIMITED, DOUGLAS, ISLE OF MAN"PRIVATE
      COMPANY LIMITED BY SHARES" AND ITS SUBSIDIARYNotes
      to the financial statements-For the year ended 31 December
      2009(In
      the notes all amounts are shown in US Dollars unless otherwise
      stated)




21.
            Income
      statement by nature




2009
              
              
              2008Operating
      revenues
              
              
              55,531,321
              
              
              
              73,071,917Other
      income
              
              
              1,424,469
              
              
              
              2,446,433Foreign
      currency fluctuations
              
              
              329,258
              
              
              
              (353,224
              )Interest
      income
              
              
              4,632
              
              
              
              46,015Depreciation
              
              
              (16,664,266
              )
              
              
              (13,288,407
              )Repair
      and maintenance
              
              
              (16,087,668
              )
              
              
              (20,740,080
              )Salaries
      and wages
              
              
              (7,780,012
              )
              
              
              (6,837,310
              )Rent
              
              
              (4,092,958
              )
              
              
              (4,202,060
              )Catering
              
              
              (3,386,934
              )
              
              
              (3,537,669
              )Income
      tax expense
              
              
              (2,577,371
              )
              
              
              (3,389,127
              )Recruitment
              
              
              (1,295,639
              )
              
              
              (103,014
              )Rigs
      fuel and oil
              
              
              (1,232,864
              )
              
              
              (1,320,769
              )Consultancies
              
              
              (1,083,617
              )
              
              
              (587,274
              )Stamp
      tax
              
              
              (1,077,828
              )
              
              
              (1,409,334
              )Air
      tickets and trip allowances
              
              
              (1,027,732
              )
              
              
              (1,165,984
              )Interest
      expense
              
              
              (909,048
              )
              
              
              (320,173
              )Directors
      representation fees
              
              
              (900,000
              )
              
              
              (900,000
              )Mobilization
      and demobilization
              
              
              (751,440
              )
              
              
              (1,041,265
              )Social
      insurance
              
              
              (737,252
              )
              
              
              (701,018
              )Transportation
      of rigs and employees and fuel
              
              
              (718,509
              )
              
              
              (681,768
              )Insurance
              
              
              (701,873
              )
              
              
              (468,648
              )Miscellaneous
              
              
              (638,965
              )
              
              
              (85,956
              )Professional
      fees
              
              
              (527,255
              )
              
              
              (204,990
              )Telecommunication
              
              
              (515,680
              )
              
              
              (513,249
              )Courier,
      mail, and stamp
              
              
              (443,136
              )
              
              
              (6,253
              )Bank
      charges and commissions
              
              
              (391,548
              )
              
              
              (423,743
              )Public
      relation
              
              
              (376,183
              )
              
              
              (986,495
              )Provision
      for GMRA service providers
              
              
              (373,491
              )
              
              
              (491,280
              )Safety
      and security
              
              
              (251,111
              )
              
              
              (274,823
              )Medical
      expense
              
              
              (183,610
              )
              
              
              (343,658
              )Salary
      tax
              
              
              (134,242
              )
              
              
              (26,169
              )Cars
      fuel and oil
              
              
              (118,063
              )
              
              
              (82,169
              )Philanthropic
      expense
              
              
              (107,176
              )
              
              
              -Freight
              
              
              (104,898
              )
              
              
              (823,509
              )Accommodation
              
              
              (101,516
              )
              
              
              (218,827
              )Marketing
      expense
              
              
              (38,625
              )
              
              
              -Customs
              
              
              (34,125
              )
              
              
              (41,959
              )Stationary
              
              
              (33,642
              )
              
              
              (64,092
              )Licenses
              
              
              (23,880
              )
              
              
              (24,287
              )Write
      off for projects under construction
              
              
              -
              
              
              
              (1,870,000
              )Administrative
      expenses
              
              
              -
              
              
              
              (904,730
              )Water
              
              
              (18,816
              )
              
              
              (43,068
              )Training
              
              
              (18,035
              )
              
              
              (126,617
              )Electricity
              
              
              (15,330
              )
              
              
              (22,794
              )Gas
              
              
              (14,000
              )
              
              
              (11,860
              )Advertising
      expense
              
              
              (10,752
              )
              
              
              (4,068
              )(loss)/profit
      for the year
              
              
              (8,209,410
              )
              
              
              6,922,645


22.
            Contingencies
      and commitments





Contingencies


At 31
December 2009, the Group had contingent liabilities in respect of bank, other
guarantees and other matters arising in the ordinary course of business from
which it is anticipated that no material liabilities will arise amounting to US
$2,014,000 (2008: US $2,743,000).  -30-




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, Bronco Drilling Company, Inc. has duly caused this Amendment No. 1 to
its Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.





BRONCO DRILLING COMPANY, INC.Date:
      April 30, 2010
            By:
            /S/ D. FRANK HARRISOND.
      Frank Harrison
              Chairman
      and Chief Executive Officer





-31-