**SECURITIES
        AND EXCHANGE COMMISSION**
 **WASHINGTON,
        D.C. 20549**
  **FORM
        10-K**
   **(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, 2006**
  **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**
              **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 Registered****Common
                    Stock $0.01 Par Value per Share**
                
                **The
                    Nasdaq Stock Market LLC****Securities
                    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 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.  ̈
  Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer or non-accelerated filer. See definition of “accelerated filer
        and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):
 Large
                    Accelerated Filer ̈
              Accelerated
                  Filerx
              Non-Accelerated
                  Filer ̈
  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 (June 30, 2006), based on the price at which the common equity was
        last
        sold on such date: $284,011,792.
  As
        of
        February 28, 2007, 26,019,441 shares of common stock were outstanding.
 -1-
 ***Table
            of
            Contents***




**Documents
      Incorporated By Reference**




Certain
      information called for by Part III is incorporated by reference to certain
      sections of the Proxy Statement for the 2007 Annual Meeting of our stockholders
      which will be filed with the Securities and Exchange Commission not later than
      120 days after December 31, 2006.




-2-
 ***Table
          of
          Contents***


**BRONCO
          DRILLING COMPANY, INC.**
 **INDEX**
 
 **Item**
                  **No.**
                
                **Form**
                  **10-K**
                  **Report**
                  **Page**Cautionary Note Regarding Forward-Looking
                    Statements
                4**PART
                    I**1.
                Business
                41A.
                Risk
                    Factors
                101B.
                Unresolved
                    Staff Comments
                152.
                Properties
                153.
                Legal
                    Proceedings
                154.
                Submission
                    of Matters to a Vote of Security
                    Holders
                16**PART
                    II**5.
                Market
                    for Registrant’s Common Equity,
                    Related Stockholder Matters and Issuer Purchases of Equity
                    Securities
                166.
                Selected
                    Financial Data
                177.
                Management’s
                    Discussion and Analysis of Financial
                    Condition and Results of Operations
                207A.
                Quantitative
                    and Qualitative Disclosures About
                    Market Risk
                258.
                Financial
                    Statements and Supplementary Data
                259.
                Changes
                    in and Disagreements with Accountants on Accounting
                    and Financial Disclosure
                269A.
                Controls
                    and Procedures
                269B.
                Other
                    Information
                28**PART
                    III**10.
                Directors
                    and Executive Officers and Corporate
                    Governance
                2811.
                Executive
                    Compensation
                2812.
                Security
                    Ownership of Certain Beneficial Owners and
                    Management and Related Stockholder Matters
                2813.
                Certain
                    Relationships and Related Transactions and
                    Director Independence
                2814.
                Principal
                    Accounting Fees and Services
                29**PART
                    IV**15.
                Exhibits,
                    Financial Statement Schedules
                30
 -3-
 ***Table
            of
            Contents***


**Cautionary
        Note Regarding
        Forward-Looking Statements**
  Our
        disclosure and analysis in this Form 10-K may include forward-looking statements
        within the meaning of Section 27A of the Securities Act of 1933, as
        amended, or the Securities Act, Section 21E of the Securities Exchange Act
        of 1934, as amended, or the Exchange Act, and the Private Securities Litigation
        Reform Act of 1995, that are subject to risks and uncertainties. Forward-looking
        statements give our current expectations and projections relating to our
        financial condition, results of operations, plans, objectives, future
        performance and business. You can identify these statements by the fact that
        they do not relate strictly to historical or current facts. These statements
        may
        include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,”
“plan,” “believe” and other words and terms of similar meaning in connection
        with any discussion of the timing or nature of future operating or financial
        performance or other events. All statements other than statements of historical
        facts included in this Form 10-K that address activities, events or developments
        that we expect, believe or anticipate will or may occur in the future are
        forward-looking statements.
  These
        forward-looking statements are largely based on our expectations and beliefs
        concerning future events, which reflect estimates and assumptions made by
        our
        management. These estimates and assumptions reflect our best judgment based
        on
        currently known market conditions and other factors relating to our operations
        and business environment, all of which are difficult to predict and many
        of
        which are beyond our control.
  Although
        we believe our estimates and assumptions to be reasonable, they are inherently
        uncertain and involve a number of risks and uncertainties that are beyond
        our
        control. In addition, management’s assumptions about future events may prove to
        be inaccurate. Management cautions all readers that the forward-looking
        statements contained in this Form 10-K are not guarantees of future performance,
        and we cannot assure any reader that those statements will be realized or
        the
        forward-looking events and circumstances will occur. Actual results may differ
        materially from those anticipated or implied in the forward-looking statements
        due to the factors listed in the “Risk Factors” and “Management’s Discussion and
        Analysis of Financial Condition and Results of Operations” sections and
        elsewhere in this Form 10-K. All forward-looking statements speak only as
        of the
        date of this Form 10-K. We do not intend to publicly update or revise any
        forward-looking statements as a result of new information, future events
        or
        otherwise, except as required by law. These cautionary statements qualify
        all
        forward-looking statements attributable to us or persons acting on our behalf.
  **PART
        I**
 **Item 1.
        Business**
  **Our
        Company**
  We
        provide
        contract land drilling services to oil and natural gas exploration and
        production companies. As of February 28, 2007, we owned a fleet of 65 land
        drilling rigs, of which 51 were operating, three were in the process of being
        refurbished and 11 were held in inventory. As of February 28, 2007, we also
        owned a fleet of 67 trucks used to transport our rigs. On January 9, 2007,
        we
        acquired 31 workover rigs through our acquisition of Eagle Well Service,
        Inc.
        Twenty-four of these rigs were in service at the time of the acquisition,
        and we
        intend to deploy the remaining seven rigs on a periodic basis with the
        expectation that all 31 rigs will be in service by July 2007.
        Seventeen of the acquired workover rigs are less than two years
        old.
  We
        commenced
        operations in 2001 with the purchase of one stacked 650-horsepower drilling
        rig
        that we refurbished and deployed. We subsequently made selective acquisitions
        of
        both operational and inventoried drilling rigs, as well as ancillary
        equipment. Our management team has significant experience not only with
        acquiring rigs, but also with refurbishing and deploying inventoried rigs.
        We
        have successfully refurbished and brought into operation 22 inventoried drilling
        rigs during the period from November 2003 through December 2006. Upon completion
        of refurbishment, the rigs either met or exceeded our operating expectations.
        In
        addition, we have a 41,000 square foot machine shop in Oklahoma City, which
        allows us to refurbish and repair our rigs and equipment in-house. This
        facility, which complements our four drilling rig refurbishment yards,
        significantly reduces our reliance on outside machine shops and the attendant
        risk of third-party delays in our rig refurbishment program.
  We
        currently
        operate our drilling rigs in Oklahoma, Kansas, Texas, Colorado and North
        Dakota. Our workover rigs are currently operating in Oklahoma, Texas, Kansas
        and
        New Mexico. A majority of the wells we have drilled for our customers have
        been
        drilled in search of natural gas reserves. Natural gas is often found in
        deep
        and complex geologic formations that generally require higher horsepower,
        premium rigs and experienced crews to reach targeted depths. Our current
        fleet
        of 65 rigs includes 38 rigs ranging from 950 to 2,500 horsepower.
  **Our
        Acquisitions**
  The
        following table summarizes completed acquisitions in which we acquired rigs
        and
        rig related equipment since June 2001:
 **Date**
                      
                      **Acquisition**
                      
                      **Purchase**
                        **Price**
                      
                      **Number of Land
                          Drilling /Workover Rigs**
                        **Acquired**June
                          2001
                      
                      Ram
                          Petroleum
                      
                      $1,250,000
                      
                      1May 2002
                      
                      Bison
                          Drilling and Four Aces Drilling
                      
                      $12,500,000
                      
                      7August 2003
                      
                      Elk Hill Drilling and U.S. Rig & Equipment
                      
                      $49,000,000
                      
                      22July 2005
                      
                      Strata
                          Drilling and Strata Property
                      
                      $20,000,000
                      
                      3October 2005
                      
                      Eagle
                          Drilling
                      
                      $50,000,000
                      
                      12October 2005
                      
                      Thomas
                          Drilling
                      
                      $68,000,000
                      
                      13January 2006
                      
                      Big
                          A Drilling
                      
                      $18,150,000
                      
                      6January 2007
                      
                      Eagle
                          Well Services
                      
                      $33,220,000
                      
                      31
 In
          May
          2002, we purchased seven drilling rigs ranging in size from 400 to 950
          horsepower, associated spare parts and equipment, drill pipe, haul trucks
          and
          vehicles from Bison Drilling L.L.C. and Four Aces Drilling L.L.C. After
          accepting delivery of the rigs, we spent approximately $97,000 upgrading
          the
          rigs before placing six of them into service.
  In
          August
          2003, we purchased all of the outstanding stock of Elk Hill Drilling, Inc.
          and
          certain drilling rig structures and components from U.S. Rig &
Equipment, Inc., an affiliate of Elk Hill. In these transactions, we acquired
          drilling rigs and inventoried structures and components which, with
          refurbishment and upgrades, could be used to assemble 22 drilling rigs.
          At the
          date of its acquisition, Elk Hill was an inactive corporation with no customers,
          employees, operations or operational drilling rigs. We began refurbishing
          the
          acquired rigs and have deployed an average of approximately one of
          these rigs per quarter since November 2003.
  In
          July
          2005, we acquired all of the membership interests of Strata Drilling, L.L.C.
          and
          Strata Property, L.L.C. Included in the Strata acquisitions were two operating
          rigs, one rig that was refurbished, related structures, equipment and components
          and a 16 acre yard in Oklahoma City, Oklahoma used for equipment storage
          and
          refurbishment of inventoried rigs.
  In
          September 2005, we acquired 18 trucks and related equipment through our
          acquisition of Hays Trucking, Inc. for a purchase price consisting of $3.0
          million in cash, which included the repayment of $1.9 million of debt owed
          by Hays Trucking, and 65,368 shares of our common stock.
  In
          October 2005, we purchased 12 land drilling rigs from Eagle Drilling, L.L.C.
          for
          approximately $50.0 million plus approximately $500,000 of related transaction
          costs, and 13 land drilling rigs from Thomas Drilling Co. for approximately
          $68.0 million plus approximately $2.6 million of related transaction
          costs.
  In
          January 2006, we purchased six land drilling rigs and certain other assets,
          including heavy haul trucks and excess rig equipment and inventory, from
          Big A
          Drilling for $16.3 million in cash and 72,571 shares of our common stock.
          In
          connection with this acquisition we also entered into a lease agreement
          with an
          affiliate of Big A Drilling under which we leased a rig refurbishment yard
          located in Woodward, Oklahoma.  We subsequently exercised our option to
          purchase the leased premises in February 2007 for
          $200,000.


-4-
 ***Table
          of
          Contents***




On
        January 9, 2007, we completed the acquisition of 31 workover rigs, 24 of
        which
        were operating, from Eagle Well Services, Inc. and related subsidiaries for
        $2.5
        million in cash, 1,070,390 shares of our common stock, and the assumption
        of
        certain liabilities.  We intend to deploy the remaining seven rigs
        periodically over the coming months with all 31 expected to be active by
        the end
        of the second quarter of 2007. For additional information regarding this
        transaction, see "Management's Discussion and Analysis of Financial Condition
        and Results of Operations-Liquidity and Capital Resources" and "Item 2.
        Properties."


***General***




A
      drilling rig consists of engines, a hoisting system, a rotating system, pumps
      and related equipment to circulate drilling fluid, blowout preventors and
      related equipment.




Diesel
      or
      gas engines are typically the main power sources for a drilling rig. Power
      requirements for drilling jobs may vary considerably, but most drilling rigs
      employ two or more engines to generate between 500 and 2,000 horsepower,
      depending on well depth and rig design. Most drilling rigs capable of drilling
      in deep formations, involving depths greater than 15,000 feet, use
      diesel-electric power units to generate and deliver electric current through
      cables to electrical switch gears, then to direct-current electric motors
      attached to the equipment in the hoisting, rotating and circulating systems.




Drilling
      rigs use long strings of drill pipe and drill collars to drill wells. Drilling
      rigs are also used to set heavy strings of large-diameter pipe, or casing,
      inside the borehole. Because the total weight of the drill string and the casing
      can exceed 500,000 pounds, drilling rigs require significant hoisting and
      braking capacities. Generally, a drilling rig’s hoisting system is made up of a
      mast, or derrick, a drilling line, a traveling block and hook assembly and
      ancillary equipment that attaches to the rotating system, a mechanism known
      as
      the drawworks. The drawworks mechanism consists of a revolving drum, around
      which the drilling line is wound, and a series of shafts, clutches and chain
      and
      gear drives for generating speed changes and reverse motion. The drawworks
      also
      houses the main brake, which has the capacity to stop and sustain the weights
      used in the drilling process. When heavy loads are being lowered, a hydromatic
      or electric auxiliary brake assists the main brake to absorb the great amount
      of
      energy developed by the mass of the traveling block, hook assembly, drill pipe,
      drill collars and drill bit or casing being lowered into the well.




The
      rotating equipment from top to bottom consists of a swivel, the kelly bushing,
      the kelly, the rotary table, drill pipe, drill collars and the drill bit. We
      refer to the equipment between the swivel and the drill bit as the drill stem.
      The swivel assembly sustains the weight of the drill stem, permits its rotation
      and affords a rotating pressure seal and passageway for circulating drilling
      fluid into the top of the drill string. The swivel also has a large handle
      that
      fits inside the hook assembly at the bottom of the traveling block. Drilling
      fluid enters the drill stem through a hose, called the rotary hose, attached
      to
      the side of the swivel. The kelly is a triangular, square or hexagonal piece
      of
      pipe, usually 40 feet long, that transmits torque from the rotary table to
      the
      drill stem and permits its vertical movement as it is lowered into the hole.
      The
      bottom end of the kelly fits inside a corresponding triangular, square or
      hexagonal opening in a device called the kelly bushing. The kelly bushing,
      in
      turn, fits into a part of the rotary table called the master bushing. As the
      master bushing rotates, the kelly bushing also rotates, turning the kelly,
      which
      rotates the drill pipe and thus the drill bit. Drilling fluid is pumped through
      the kelly on its way to the bottom. The rotary table, equipped with its master
      bushing and kelly bushing, supplies the necessary torque to turn the drill
      stem.
      The drill pipe and drill collars are both steel tubes through which drilling
      fluid can be pumped. Drill pipe, sometimes called drill string, comes in 30-foot
      sections, or joints, with threaded sections on each end. Drill collars are
      heavier than drill pipe and are also threaded on the ends. Collars are used
      on
      the bottom of the drill stem to apply weight to the drilling bit. At the end
      of
      the drill stem is the bit, which chews up the formation rock and dislodges
      it so
      that drilling fluid can circulate the fragmented material back up to the surface
      where the circulating system filters it out of the fluid.




Drilling
      fluid, often called mud, is a mixture of clays, chemicals and water or oil,
      which is carefully formulated for the particular well being drilled. Bulk
      storage of drilling fluid materials, the pumps and the mud-mixing equipment
      are
      placed at the start of the circulating system. Working mud pits and reserve
      storage are at the other end of the system. Between these two points the
      circulating system includes auxiliary equipment for drilling fluid maintenance
      and equipment for well pressure control. Within the system, the drilling mud
      is
      typically routed from the mud pits to the mud pump and from the mud pump through
      a standpipe and the rotary hose to the drill stem. The drilling mud travels
      down
      the drill stem to the bit, up the annular space between the drill stem and
      the
      borehole and through the blowout preventer stack to the return flow line. It
      then travels to a shale shaker for removal of rock cuttings, and then back
      to
      the mud pits, which are usually steel tanks. The reserve pits, usually one
      or
      two fairly shallow excavations, are used for waste material and excess water
      around the location.




There
      are
      numerous factors that differentiate drilling rigs, including their power
      generation systems and their drilling depth capabilities. The actual drilling
      depth capability of a rig may be less than or more than its rated depth
      capability due to numerous factors, including the size, weight and amount of
      the
      drill pipe on the rig. The intended well depth and the drill site conditions
      determine the amount of drill pipe and other equipment needed to drill a well.
      Generally, land rigs operate with crews of five to six persons.




***Our
        Fleet of Drilling Rigs***
  Our
        rig
        fleet consists of 65 drilling rigs, of which 51 are currently operating,
        three
        are in the process of being refurbished and 11 are held in inventory. We
        expect
        to put the three rigs that are currently being refurbished into service by
        the
        end of the second quarter of 2007. The following table sets forth
        information regarding utilization for our fleet of operating drilling rigs:
 **For The Year Ended December 31,****2006**
                
                **2005**
                
                **2004**Average
                    number of operating rigs
                45
                
                17
                
                9Average
                    utilization rate
                93%
                
                95%
                
                81%
  The
        following table sets forth information regarding our drilling fleet as of
        February 28, 2007:
 **Drilling****Rig**
                
                **Design**
                
                **Depth
                    (ft)**
                
                **Type**
                
                **Horsepower*****Working
                    Rigs***19
                
                Mid
                    Continent U-1220 EB
                
                25,000
                
                Electric
                
                2,50018
                
                Gardner
                    Denver 1500E
                
                25,000
                
                Electric
                
                2,00017
                
                Skytop
                    Brewster NE-95
                
                20,000
                
                Electric
                
                1,70012
                
                Gardner
                    Denver 1100E
                
                18,000
                
                Electric
                
                1,50025
                
                Mid
                    Continent U-914
                
                18,000
                
                Electric
                
                1,50027
                
                Mid
                    Continent U-914
                
                18,000
                
                Electric
                
                1,50016
                
                Oilwell
                    840E
                
                18,000
                
                Electric
                
                1,40020
                
                Mid
                    Continent U-914-EC
                
                18,000
                
                Electric
                
                1,40021
                
                Mid
                    Continent U-914-EC
                
                18,000
                
                Electric
                
                1,40015
                
                Mid
                    Continent U-712-EA
                
                16,000
                
                Electric
                
                1,20014
                
                Mid
                    Continent U-712-EA
                
                16,000
                
                Electric
                
                1,20077
                
                Ideco
                    711
                
                16,000
                
                Mechanical
                
                1,20078
                
                Seaco
                    1200
                
                12,000
                
                Mechanical
                
                1,200
 -5-
 ***Table
            of
            Contents***


56
                    
                    BDW
                        800 MI
                    
                    16,500
                    
                    Mechanical
                    
                    1,10060
                    
                    Skytop
                        Brewster N46
                    
                    14,000
                    
                    Mechanical
                    
                    1,10057
                    
                    Continental
                        Emsco D-3
                    
                    15,000
                    
                    Mechanical
                    
                    1,10011
                    
                    Gardner
                        Denver 800E
                    
                    15,000
                    
                    Electric
                    
                    1,00010
                    
                    Gardner
                        Denver 800E
                    
                    15,000
                    
                    Electric
                    
                    1,00043
                    
                    National
                        80B
                    
                    15,000
                    
                    Mechanical
                    
                    1,0008
                    
                    National
                        80-UE
                    
                    15,000
                    
                    Electric
                    
                    1,00023
                    
                    Continental
                        Emsco D-3
                    
                    15,000
                    
                    Electric
                    
                    1,00022
                    
                    Continental
                        Emsco D-3
                    
                    15,000
                    
                    Electric
                    
                    1,00062
                    
                    Brewster
                        N-75
                    
                    12,000
                    
                    Mechanical
                    
                    1,00037
                    
                    Citation
                        A-800
                    
                    14,000
                    
                    Mechanical
                    
                    1,0003
                    
                    Cabot
                        900
                    
                    10,000
                    
                    Mechanical
                    
                    9504
                    
                    Skytop
                        Brewster N46
                    
                    14,000
                    
                    Mechanical
                    
                    95051
                    
                    Skytop
                        Brewster N42
                    
                    12,000
                    
                    Mechanical
                    
                    85052
                    
                    Continental
                        Emsco G-500
                    
                    11,000
                    
                    Mechanical
                    
                    85053
                    
                    Skytop
                        Brewster N42
                    
                    12,000
                    
                    Mechanical
                    
                    85054
                    
                    Skytop
                        Brewster N46
                    
                    13,000
                    
                    Mechanical
                    
                    85055
                    
                    National
                        50-A
                    
                    12,000
                    
                    Mechanical
                    
                    85059
                    
                    Skytop
                        Brewster N46
                    
                    13,000
                    
                    Mechanical
                    
                    85097
                    
                    Brewster
                        N-42
                    
                    12000
                    
                    Mechanical
                    
                    85041
                    
                    Skytop-Brewster
                        N-46
                    
                    13,500
                    
                    Mechanical
                    
                    80058
                    
                    National
                        N55
                    
                    12,000
                    
                    Mechanical
                    
                    80072
                    
                    Skytop
                        Brewster N45
                    
                    10,000
                    
                    Mechanical
                    
                    75075
                    
                    Ideco
                        750
                    
                    14,000
                    
                    Mechanical
                    
                    75076
                    
                    National
                        N55
                    
                    12,000
                    
                    Mechanical
                    
                    70042
                    
                    Gardner
                        Denver 500
                    
                    12,000
                    
                    Mechanical
                    
                    65094
                    
                    Skytop
                        Brewster N45
                    
                    9,000
                    
                    Mechanical
                    
                    65095
                    
                    Unit
                        U-15
                    
                    8,000
                    
                    Mechanical
                    
                    6509
                    
                    Gardner
                        Denver 500
                    
                    11,000
                    
                    Mechanical
                    
                    6507
                    
                    Mid
                        Con U36A
                    
                    12,000
                    
                    Mechanical
                    
                    6506
                    
                    Mid
                        Con U36A
                    
                    12,000
                    
                    Mechanical
                    
                    6505
                    
                    Mid
                        Con U36A
                    
                    12,000
                    
                    Mechanical
                    
                    65092
                    
                    Weiss
                        45
                    
                    8,000
                    
                    Mechanical
                    
                    45070
                    
                    National
                        T32
                    
                    6,000
                    
                    Mechanical
                    
                    4502
                    
                    Cardwell
                        L-350
                    
                    6,000
                    
                    Mechanical
                    
                    40091
                    
                    Ideco
                        H-35
                    
                    8,000
                    
                    Mechanical
                    
                    40096
                    
                    Ideco
                        H-35
                    
                    8,000
                    
                    Mechanical
                    
                    40093
                    
                    Ideco
                        H-30
                    
                    8,000
                    
                    Mechanical
                    
                    350***Rigs
                        Being Refurbished***29
                    
                    Mid
                        Continent U-914
                    
                    18,000
                    
                    Electric
                    
                    1,50026
                    
                    Ideco
                        1200E
                    
                    14,000
                    
                    Electric
                    
                    1,20028
                    
                    Ideco
                        1200E
                    
                    14,000
                    
                    Electric
                    
                    1,200***Rigs
                        In Inventory***24
                    
                    Skytop
                        Brewster N-12
                    
                    25,000
                    
                    Electric
                    
                    2,00073
                    
                    Gardner
                        Denver 1500
                    
                    18,000
                    
                    Mechanical
                    
                    2,00074
                    
                    National
                        1320
                    
                    20,000
                    
                    Mechanical
                    
                    2,00036
                    
                    Continental
                        Emsco C-1
                    
                    18,000
                    
                    Electric
                    
                    1,50031
                    
                    National
                        80 UE
                    
                    14,000
                    
                    Electric
                    
                    1,00030
                    
                    Mid
                        Continent U-914
                    
                    18,000
                    
                    Electric
                    
                    1,50032
                    
                    Mid
                        Continent U-914
                    
                    18,000
                    
                    Electric
                    
                    1,50033
                    
                    Continental
                        Emsco D-3
                    
                    15,000
                    
                    Electric
                    
                    1,00035
                    
                    Supboz
                        7-11
                    
                    12,000
                    
                    Electric
                    
                    1,00034
                    
                    Ideco
                        900E
                    
                    12,000
                    
                    Electric
                    
                    90061
                    
                    National
                        50-A
                    
                    11,500
                    
                    Mechanical
                    
                    850***Excess
                        Rig Inventory***79
                    
                    Oilwell
                        500
                    
                    10,000
                    
                    Mechanical
                    
                    50080
                    
                    Mac
                        400
                    
                    6,000
                    
                    Mechanical
                    
                    40081
                    
                    Mid
                        Continent U34B
                    
                    6,000
                    
                    Mechanical
                    
                    40082
                    
                    Ideco
                        H-35 Hydrair
                    
                    6,000
                    
                    Mechanical
                    
                    400




***Working
        Rigs***
  We
        currently have 51 operating rigs. Twenty-one of the rigs are currently operating
        on term contracts ranging from one to two years. Thirty of the rigs are
        operating on a well-to-well basis. Twenty-nine of the fifty-one rigs we
        currently operate have undergone significant refurbishment since October
        2003 by
        us or the parties from which the rigs were purchased.
  -6-
 ***Table
            of
            Contents***
  ***Rigs
        Being Refurbished***
  We
        are
        currently in the process of refurbishing three drilling rigs, all of which
        we
        anticipate will be completed by the end of the second quarter of 2007*.*


Rigs
        in Inventory
  We
        currently have 11 drilling rigs held in inventory in our rig yards in Oklahoma.
        We define an inventoried rig as a rig that is included in our refurbishment
        plan
        and could be assigned a start and delivery date. We intend to refurbish and
        deploy our remaining rigs held in inventory on a periodic basis, with such
        refurbishment commencing upon time of favorable market conditions.
  ***Excess
        Rig Inventory***
  We
        currently have four drilling rigs that we believe can be refurbished, but
        are
        not currently part of our refurbishment plan. We periodically review the
        market,
        our financial condition and our refurbishment yard capacity to determine
        if we
        will add additional rigs to our refurbishment plan.
  ***Other
        Equipment***
 As
          of
          February 28, 2007, we own a fleet of 67 trucks and related transportation
          equipment that we use to transport our drilling rigs to and from drilling
          sites.
          By owning our own trucks, we reduce the cost of rig moves, downtime between
          rig
          moves and general wear and tear on our drilling rigs.
  We
          believe that our operating drilling rigs and other related equipment are
          in good
          operating condition. Our employees perform periodic maintenance and minor
          repair
          work on our drilling rigs. Historically, we have relied on various oilfield
          service companies for major repair work and overhaul of our drilling equipment.
          In April 2005, we opened a 41,000 square foot machine shop in Oklahoma
          City,
          which allows us to refurbish and repair our rigs and equipment in-house.
          In the
          event of major breakdowns or mechanical problems, our rigs could be subject
          to
          significant idle time and a resulting loss of revenue if the necessary
          repair
          services are not immediately available.
  In
          January
          2007, we acquired 31 workover rigs, 24 of which were in service at the time
          of acquisition, and we intend to deploy the remaining seven workover rigs
          on a
          periodic basis with the expectation that all 31 rigs will be in service
          by July
          2007.
  **Drilling
          Contracts**
  As
          a
          provider of contract land drilling services, our business and the profitability
          of our operations depend on the level of drilling activity by oil and natural
          gas exploration and production companies operating in the geographic markets
          where we operate. Our business has generally not been affected by seasonal
          fluctuations. The oil and natural gas exploration and production industry
          is a
          historically cyclical industry characterized by significant changes in
          the
          levels of exploration and development activities. During periods of lower
          levels
          of drilling activity, price competition tends to increase and results in
          decreases in the profitability of daywork contracts. In this lower level
          drilling activity and competitive price environment, we may be more inclined
          to
          enter into footage contracts that expose us to greater risk of loss without
          commensurate increases in potential contract profitability.
  We
          obtain
          our contracts for drilling oil and natural gas wells either through competitive
          bidding or through direct negotiations with customers. Our drilling contracts
          generally provide for compensation on either a daywork or footage basis.
          The
          contract terms we offer generally depend on the complexity and risk of
          operations, the on-site drilling conditions, the type of equipment used
          and the
          anticipated duration of the work to be performed. Generally, our contracts
          provide for the drilling of a single well and typically permit the customer
          to
          terminate on short notice, usually on payment of an agreed fee.
  The
          following
          table presents, by type of contract, information about the total number
          of wells
          we completed for our customers during the years ended December 31, 2006,
          2005, and 2004
 **Year
                                      Ended December 31,****2006**
                                  
                                  **2005**
                                  
                                  **2004**Daywork
                                  449
                                  
                                  148
                                  
                                  80Footage
                                  1
                                  
                                  5
                                  
                                  11Turnkey
                                  —
                                  
                                  —
                                  
                                  —Total
                                  450
                                  
                                  153
                                  
                                  91
 *Daywork
          Contracts* .
          Under
          daywork drilling contracts, we provide a drilling rig with required personnel
          to
          our customer who supervises the drilling of the well. We are paid based
          on a
          negotiated fixed rate per day while the rig is used. Daywork drilling contracts
          specify the equipment to be used, the size of the hole and the depth of
          the
          well. Under a daywork drilling contract, the customer bears a large portion
          of
          the out-of-pocket drilling costs and we generally bear no part of the usual
          risks associated with drilling, such as time delays and unanticipated costs.
  *Footage
            Contracts* .
            Under
            footage contracts, we are paid a fixed amount for each foot drilled,
            regardless
            of the time required or the problems encountered in drilling the well.
            We
            typically pay more of the out-of-pocket costs associated with footage
            contracts
            as compared to daywork contracts. The risks to us on a footage contract
            are
            greater because we assume most of the risks associated with drilling
            operations
            generally assumed by the operator in a daywork contract, including the
            risk of
            blowout, loss of hole, stuck drill pipe, machinery breakdowns, abnormal
            drilling
            conditions and risks associated with subcontractors’ services, supplies, cost
            escalation and personnel. We manage this additional risk through the
            use of
            engineering expertise and bid the footage contracts accordingly, and
            we maintain
            insurance coverage against some, but not all, drilling hazards. However,
            the
            occurrence of uninsured or under-insured losses or operating cost overruns
            on
            our footage jobs could have a negative impact on our profitability.
  *Turnkey
            Contracts* .
            Turnkey
            contracts typically provide for a drilling company to drill a well for
            a
            customer to a specified depth and under specified conditions for a fixed
            price,
            regardless of the time required or the problems encountered in drilling
            the
            well. The drilling company would provide technical expertise and engineering
            services, as well as most of the equipment and drilling supplies required
            to
            drill the well. The drilling company may subcontract for related services,
            such
            as the provision of casing crews, cementing and well logging. Under typical
            turnkey drilling arrangements, a drilling company would not receive progress
            payments and would be paid by its customer only after it had performed
            the terms
            of the drilling contract in full.
  Although
            we have not historically entered into any turnkey contracts, we may decide
            to
            enter into such arrangements in the future. The risks to a drilling company
            under a turnkey contract are substantially greater than on a well drilled
            on a
            daywork basis. This is primarily because under a turnkey contract the
            drilling
            company assumes most of the risks associated with drilling operations
            generally
            assumed by the operator in a daywork contract, including the risk of
            blowout,
            loss of hole, stuck drill pipe, machinery breakdowns, abnormal drilling
            conditions and risks associated with subcontractors’ services, supplies, cost
            escalations and personnel.
 -7-
 ***Table
                of
                Contents***




**Customers
        and Marketing**
  We
        market
        our rigs to a number of customers. In 2006, we drilled wells for 80 different
        customers, compared to 52 customers in 2005, and 29 customers in 2004. The
        following table shows our customers that accounted for more than 5% of our
        total
        contract drilling revenue for each of our last three years.


**Customer**
            ****
            **Total Contract**
              **Drilling Revenue**
              **Percentage****2006**Chesapeake
                Energy Corporation
            
            7%Comstock
                Oil and Gas
            
            5%**2005**New
                Dominion, L.L.C
            
            10%Chesapeake
                Energy Corporation
            
            9%Carl
                E. Gungoll Exploration, L.L.C
            
            6%Western
                Oil and Gas Development Co
            
            6%XTO
                Energy
            
            5%**2004**Carl
                E. Gungoll Exploration, L.L.C
            
            11%Western
                Oil and Gas Development Co.
            
            9%New
                Dominion, L.L.C.
            
            9%Chesapeake
                Energy Corporation
            
            7%XTO
                Energy
            
            7%Triad
                Energy
            
            6%Ward
                Petroleum Corp.
            
            6%




We
        primarily market our drilling rigs through employee marketing representatives.
        These marketing representatives use personal contacts and industry periodicals
        and publications to determine which operators are planning to drill oil and
        natural gas wells in the near future in our market areas. Once we have been
        placed on the “bid list” for an operator, we will typically be given the
        opportunity to bid on most future wells for that operator in the areas in
        which
        we operate. Our rigs are typically contracted on a well-by-well basis.
  From
        time to
        time we also enter into informal, nonbinding commitments with our customers
        to
        provide drilling rigs for future periods at specified rates plus fuel and
        mobilization charges, if applicable, and escalation provisions. This practice
        is
        customary in the contract land drilling services business during times of
        tightening rig supply.
 
 **Competition**
  We
        encounter substantial competition from other drilling contractors. Our primary
        market area is highly fragmented and competitive. The fact that drilling
        rigs
        are mobile and can be moved from one market to another in response to market
        conditions heightens the competition in the industry.
  The
        drilling contracts we compete for are usually awarded on the basis of
        competitive bids. Our principal competitors are Nabors Industries, Inc.,
        Patterson-UTI Energy, Inc., Unit Corp. and Helmerich & Payne, Inc. We
        believe pricing and rig availability are the primary factors our potential
        customers consider in determining which drilling contractor to select. In
        addition, we believe the following factors are also important:
  •  the
        type
        and condition of each of the competing drilling rigs;
  •  the
        mobility and efficiency of the rigs;
  •  the
        quality of service and experience of the rig crews;
  •  the
        offering of ancillary services; and
  •  the
        ability to provide drilling equipment adaptable to, and personnel familiar
        with,
        new technologies and drilling techniques.
  While
          we
          must be competitive in our pricing, our competitive strategy generally
          emphasizes the quality of our equipment and the experience of our rig crews
          to
          differentiate us from our competitors. This strategy is less effective
          as lower
          demand for drilling services or an oversupply of rigs usually results in
          increased price competition and makes it more difficult for us to compete
          on the
          basis of factors other than price. In all of the markets in which we compete,
          an
          oversupply of rigs can cause greater price competition.
  Contract
          drilling companies compete primarily on a regional basis, and the intensity
          of
          competition may vary significantly from region to region at any particular
          time.
          If demand for drilling services improves in a region where we operate,
          our
          competitors might respond by moving in suitable rigs from other regions.
          An
          influx of rigs from other regions could rapidly intensify competition and
          reduce
          profitability.
  Many
          of
          our competitors have greater financial, technical and other resources than
          we
          do. Their greater capabilities in these areas may enable them to:
  •  better
          withstand industry downturns;
  •  compete
          more effectively on the basis of price and technology;
  •  better
          retain skilled rig personnel; and
  •  build
          new
          rigs or acquire and refurbish existing rigs so as to be able to place rigs
          into
          service more quickly than us in periods of high drilling demand.
  -8-
 ***Table
              of
              Contents***


Raw
        Materials
  The
        materials and supplies we use in our drilling operations include fuels to
        operate our drilling equipment, drilling mud, drill pipe, drill collars,
        drill
        bits and cement. We do not rely on a single source of supply for any of these
        items. While we are not currently experiencing any shortages, from time to
        time
        there have been shortages of drilling equipment and supplies during periods
        of
        high demand.
 
 Shortages could result in increased prices for drilling equipment or supplies
        that we may be unable to pass on to customers. In addition, during periods
        of shortages, the delivery times for equipment and supplies can be substantially
        longer. Any significant delays in our obtaining drilling equipment or supplies
        could limit drilling operations and jeopardize our relations
        with customers. In addition, shortages of drilling equipment or supplies
        could delay and adversely affect our ability to obtain new contracts for
        our rigs, which could have a material adverse effect on our financial condition
        and results of operations.
 
 O**perating
          Risks and Insurance**
 Our
          operations are subject to the many hazards inherent in the contract land
          drilling business, including the risks of:
  •  blowouts;
  •  fires
          and
          explosions;
  •  loss
          of
          well control;
  •  collapse
          of the borehole;
  • lost
          or
          stuck drill strings; and
  • damage
          or
          loss from natural disasters.
  Any
          of
          these hazards can result in substantial liabilities or losses to us from,
          among
          other things:
  •  suspension
          of drilling operations;
  •  damage
          to, or destruction of, our property and equipment and that of others;
  •  personal
          injury and loss of life;
  •  damage
          to
          producing or potentially productive oil and natural gas formations through
          which
          we drill; and
  •  environmental
          damage.
  We
          seek
          to protect ourselves from some but not all operating hazards through insurance
          coverage. However, some risks are either not insurable or insurance is
          available
          only at rates that we consider uneconomical. Those risks include pollution
          liability in excess of relatively low limits. Depending on competitive
          conditions and other factors, we attempt to obtain contractual protection
          against uninsured operating risks from our customers. However, customers
          who
          provide contractual indemnification protection may not in all cases have
          sufficient financial resources or maintain adequate insurance to support
          their
          indemnification obligations. We can offer no assurance that our insurance
          or
          indemnification arrangements will adequately protect us against liability
          or
          loss from all the hazards of our operations. The occurrence of a significant
          event that we have not fully insured or indemnified against or the failure
          of a
          customer to meet its indemnification obligations to us could materially
          and
          adversely affect our results of operations and financial condition. Furthermore,
          we may not be able to maintain adequate insurance in the future at rates
          we
          consider reasonable.
  Our
          insurance coverage includes property insurance on our rigs, drilling equipment
          and real property. Our insurance coverage for property damage to our rigs
          and to
          our drilling equipment is based on a third party estimate of the appraised
          value
          of the rigs and drilling equipment. The policy provides for a deductible
          on rigs
          of $1.0 million per occurrence. Our umbrella liability insurance coverage
          is
          $25.0 million per occurrence and in the aggregate, with a deductible of
          $10,000
          per occurrence. We believe that we are adequately insured for public liability
          and property damage to others with respect to our operations. However,
          such
          insurance may not be sufficient to protect us against liability for all
          consequences of well disasters, extensive fire damage or damage to the
          environment.
  **Employees**
  As
          of
          February 28, 2007, we had approximately 2,050 employees. Approximately 180
          of these employees are salaried administrative or supervisory employees.
          The
          rest of our employees are hourly employees who operate or maintain our
          drilling
          rigs, workover rigs and rig-hauling trucks. The number of hourly employees
          fluctuates depending on the number of drilling projects we are engaged
          in at any
          particular time. None of our employees are subject to collective bargaining
          arrangements.
  Our
          operations require the services of employees having the technical training
          and
          experience necessary to obtain the proper operational results. As a result,
          our
          operations depend, to a considerable extent, on the continuing availability
          of
          such personnel. Although we have not encountered material difficulty in
          hiring
          and retaining qualified rig crews, shortages of qualified personnel are
          occurring in our industry. If we should suffer any material loss of personnel
          to
          competitors or be unable to employ additional or replacement personnel
          with the
          requisite level of training and experience to adequately operate our equipment,
          our operations could be materially and adversely affected. While we believe
          our
          wage rates are competitive and our relationships with our employees are
          satisfactory, a significant increase in the wages paid by other employers
          could
          result in a reduction in our workforce, increases in wage rates, or both.
          The
          occurrence of either of these events for a significant period of time could
          have
          a material and adverse effect on our financial condition and results of
          operations.
 **Governmental
            Regulation**
 
 Our
            operations are subject to stringent federal, state and local laws and
            regulations governing the protection of the environment and human health
            and
            safety. Several such laws and regulations relate to the handling, storage
            and
            disposal of oilfield waste and restrict the types, quantities and concentrations
            of such regulated substances that can be released into the environment.
            Several
            such laws also require removal and remedial action and other cleanup
            under
            certain circumstances, commonly regardless of fault. Planning, implementation
            and maintenance of protective measures are required to prevent accidental
            discharges. Spills of oil, natural gas liquids, drilling fluids and other
            substances may subject us to penalties and cleanup requirements. In addition,
            our operations are often conducted in or near ecologically sensitive
            areas,
            which are subject to special protective measures and which may expose
            us to
            additional operating costs and liabilities related to restricted
            operations, for accidental discharges of oil, natural gas, drilling fluids,
            contaminated water or other substances or for noncompliance with other
            aspects
            of applicable laws and regulations. Historically, we have not been required
            to
            obtain environmental or other permits prior to drilling a well. Instead,
            the
            operator of the oil and gas property has been obligated to obtain the
            necessary
            permits at its own expense.
  -9-
 ***Table
                of
                Contents***
 
 The
        federal
        Clean Water Act, as amended by the Oil Pollution Act, the federal Clean Air
        Act,
        the Resource Conservation and Recovery Act, the Comprehensive
        Environmental Response, Compensation and Liability Act, or CERCLA, the
        Safe Drinking Water Act, the Occupational Safety and Health Act, or OSHA,
        and
        their state counterparts and similar statutes and related regulations are
        the primary vehicles for imposition of such requirements and for civil, criminal
        and administrative penalties and other sanctions for violation of their
        requirements. The OSHA hazard communication standard and related regulations,
        the Environmental Protection Agency “community right-to-know” regulations under
        Title III of the federal Superfund Amendment and Reauthorization Act and
        comparable state statutes and related requlations require us to organize
        and report information about the hazardous materials we use in our operations
        to
        employees, state and local government authorities and local citizens. In
        addition, CERCLA, also known as the “Superfund” law, and similar state statutes
        impose strict liability, without regard to fault or the legality of the original
        conduct, on certain classes of persons who are considered responsible for
        the
        release or threatened release of hazardous substances into the environment.
        These persons include the current owner or operator of a facility where a
        release has occurred, the owner or operator of a facility at the time a release
        occurred and companies that disposed of or arranged for the disposal of
        hazardous substances found at a particular site. This liability may be joint
        and
        several. Such liability, which may be imposed for the conduct of others and
        for
        conditions others have caused, includes the cost of removal and remedial
        action
        as well as damages to natural resources. Few defenses exist to the liability
        imposed by environmental laws and regulations. It is also not uncommon for
        third
        parties to file claims for personal injury and property damage caused by
        substances released into the environment.
  Environmental
        laws and regulations are complex and subject to frequent changes. Failure
        to
        comply with governmental requirements or inadequate cooperation with
        governmental authorities could subject a responsible party to administrative,
        civil or criminal action. We may also be exposed to environmental or other
        liabilities originating from businesses and assets that we acquired from
        others.
        We believe we are in substantial compliance with applicable environmental
        laws
        and regulations and, to date, such compliance has not materially affected
        our
        capital expenditures, earnings or competitive position. We do not expect
        to
        incur material capital expenditures in our next fiscal year in order to comply
        with current or reasonably anticipated environment control requirements.
        However, our compliance with amended, new or more stringent requirements,
        stricter interpretations of existing requirements or the future discovery
        of
        regulatory noncompliance or contamination may require us to make material
        expenditures or subject us to liabilities that we currently do not anticipate.
  In
        addition, our business depends on the demand for land drilling services from
        the
        oil and natural gas industry and, therefore, is affected by tax, environmental
        and other laws relating to the oil and natural gas industry generally, by
        changes in those laws and by changes in related administrative regulations.
        It
        is possible that these laws and regulations may in the future add significantly
        to our operating costs or those of our customers or otherwise directly or
        indirectly affect our operations.
  **Item 1A.
        Risk Factors**
  **Risks
        Relating to the Oil and Natural Gas Industry**
  ***We
        derive all our revenues from companies in the oil and natural gas exploration
        and production industry, a historically cyclical industry with levels of
        activity that are significantly affected by the levels and volatility of
        oil and
        natural gas prices.***
  We
        derive
        all our revenues from companies in the oil and natural gas exploration and
        production industry, a historically cyclical industry with levels of activity
        that are significantly affected by the levels and volatility of oil and natural
        gas prices. Any prolonged reduction in the overall level of exploration and
        development activities, whether resulting from changes in oil and natural
        gas
        prices or otherwise, can adversely impact us in many ways by negatively
        affecting:
  •  our
        revenues, cash flows and profitability;
  •  our
        ability to maintain or increase our borrowing capacity
  •  our
        ability to obtain additional capital to finance our business and make
        acquisitions, and the cost of that capital;
  •  our
        ability to retain skilled rig personnel whom we would need in the event of
        an
        upturn in the demand for our services; and
  •  the
        fair
        market value of our rig fleet.
  Worldwide
        political, economic and military events have contributed to oil and natural
        gas
        price volatility and are likely to continue to do so in the future. Depending
        on
        the market prices of oil and natural gas, oil and natural gas exploration
        and
        production companies may cancel or curtail their drilling programs, thereby
        reducing demand for our services. Oil and natural gas prices have been volatile
        historically and, we believe, will continue to be so in the future. Many
        factors
        beyond our control affect oil and natural gas prices, including:
 •  the
          cost
          of exploring for, producing and delivering oil and natural gas;
  •  the
          discovery rate of new oil and natural gas reserves;
  •  the
          rate
          of decline of existing and new oil and natural gas reserves;
  •  available
          pipeline and other oil and natural gas transportation capacity;
  •  the
          ability of oil and natural gas companies to raise capital;
  •  actions
          by OPEC, the Organization of Petroleum Exporting Countries;
  •  political
          instability in the Middle East and other major oil and natural gas producing
          regions;
  •  economic
          conditions in the United States and elsewhere;
  •  governmental
          regulations, both domestic and foreign;
  •  domestic
          and foreign tax policy;
  •  weather
          conditions in the United States and elsewhere;
  •  the
          pace
          adopted by foreign governments for the exploration, development and production
          of their national reserves;
  -10-
 ***Table
              of
              Contents***




•  the
      price
      of foreign imports of oil and natural gas; and




•  the
      overall supply and demand for oil and natural gas.




**Risks
      Relating to Our Business**




***Our
      acquisition strategy exposes us to various risks, including those relating
      to
      difficulties in identifying suitable acquisition opportunities and integrating
      businesses, assets and personnel, as well as difficulties in obtaining financing
      for targeted acquisitions and the potential for increased leverage or debt
      service requirements.***




As
      a
      component of our business strategy, we have pursued and intend to continue
      to
      pursue selected acquisitions of complementary assets and businesses. In May
      2002, we purchased seven drilling rigs, associated spare parts and equipment,
      drill pipe, haul trucks and vehicles. In August 2003, we acquired drilling
      rigs
      and inventoried structures and components which, with refurbishment and
      upgrades, could be used to assemble 22 drilling rigs. In July 2005, we acquired
      three additional rigs and related inventory, equipment, components and a rig
      yard. On October 3, 2005, we acquired five operating rigs, seven inventoried
      rigs and rig equipment and parts. On October 14, 2005, we acquired nine
      operating rigs, two rigs undergoing refurbishment, two inventoried rigs and
      rig
      equipment and parts. On January 18, 2006, we acquired six operating land
      drilling rigs and certain other assets, including heavy haul trucks and excess
      rig equipment. On January 9, 2007, we acquired 31 workover rigs through our
      acquisition of Eagle Well Service, Inc. Acquisitions, including those described
      above, involve numerous risks, including:




•
            unanticipated
                costs and assumption of liabilities and exposure to unforeseen liabilities
                of acquired companies, including but not limited to environmental
                liabilities;




•
            difficulty
                in integrating the operations and assets of the acquired business
                and the
                acquired personnel and distinct
                cultures;




•
            our
                ability to properly access and maintain an effective internal control
                environment over an acquired company, in order to comply with the
                recently
                adopted public reporting
                requirements;




•
            potential
                loss of key employees and customers of the acquired
                companies;




•
            risk
                of entering markets in which we have limited prior experience;
                and




•
            an
                increase in our expenses and working capital
                requirements.




The
      process of integrating an acquired business may involve unforeseen costs and
      delays or other operational, technical and financial difficulties and may
      require a disproportionate amount of management attention and financial and
      other resources. Our failure to achieve consolidation savings, to incorporate
      the acquired businesses and assets into our existing operations successfully
      or
      to minimize any unforeseen operational difficulties could have a material
      adverse effect on our financial condition and results of
      operations.




In
      addition, we may not have sufficient capital resources to complete additional
      acquisitions. Historically, we have funded the acquisition of rigs and the
      refurbishment of our rig fleet through a combination of debt and equity
      financing and cash flows from operations. We may incur substantial additional
      indebtedness to finance future acquisitions and also may issue equity, debt
      or
      convertible securities in connection with such acquisitions. Debt service
      requirements could represent a significant burden on our results of operations
      and financial condition and the issuance of additional equity or convertible
      securities could be dilutive to our existing stockholders. Furthermore, we
      may
      not be able to obtain additional financing on satisfactory terms. Even if we
      have access to the necessary capital, we may be unable to continue to identify
      additional suitable acquisition opportunities, negotiate acceptable terms or
      successfully acquire identified targets.




***Increases
      in the supply of rigs could decrease dayrates and utilization rates.***




An
      increase in the supply of land rigs, whether through new construction or
      refurbishment, could decrease dayrates and utilization rates, which would
      adversely affect our revenues and profitability. In addition, such adverse
      affect on our revenue and profitability caused by such increased competition
      and
      lower dayrates and utilization rates could be further aggravated by any downturn
      in oil and natural gas prices. There is currently evidence that there is
      moderate downward pressure on dayrates and utilization. We believe this is
      primarily due to the increase in supply of land rigs.




***A
      material reduction in the levels of exploration and development activities
      in
      Oklahoma or Texas or an increase in the number of rigs mobilized to Oklahoma
      or
      Texas could negatively impact our dayrates and utilization rates.***




We
      currently conduct a substantial portion of our operations in Oklahoma and Texas.
      A material reduction in the levels of exploration and development activities
      in
      Oklahoma or Texas due to a variety of oil and natural gas industry risks
      described above or an increase in the number of rigs mobilized to Oklahoma
      or
      Texas could negatively impact our dayrates and utilization rates, which could
      adversely affect our revenues and profitability.




***Our
      revenues and profitability could be negatively impacted if we are unable to
      successfully complete the refurbishment of our inventoried rigs on schedule
      and
      within budget and use those and the other rigs in our fleet at profitable
      levels.***




We
      have
      refurbished 22 drilling rigs from inventory during the period November 2003
      through December 2006 and we intend to refurbish additional rigs from our
      inventory from time to time as market conditions warrant. We also intend to
      deploy seven workover rigs by July 2007. Our revenues and profitability could
      be
      negatively impacted if we are unable to successfully complete the refurbishment
      of our inventoried rigs on schedule and within budget and operate those and
      the
      other rigs in our fleet at profitable levels. Refurbishment projects are subject
      to the risks of delay and cost overruns inherent in any large construction
      project, including shortages of equipment, unforeseen engineering problems,
      work
      stoppages, weather interference, unanticipated cost increases, inability to
      obtain necessary certifications and approvals and shortages of materials or
      skilled labor. Significant delays could negatively impact our anticipated
      contract commitments with respect to rigs being refurbished, while significant
      cost overruns or delays in general could adversely affect our financial
      condition and results of operations. Moreover, customer demand for newly or
      recently refurbished rigs may not be as strong as we anticipated, and our
      inability to obtain contracts on anticipated terms or at all may negatively
      impact our revenues and profitability.


***We
        have a history of losses and may experience losses in the future.***
  Although
        we reported net income of $59.8 million for the year ended December 31, 2006
        and
        net income of $5.1 million for the year ended December 31, 2005, we incurred
        net
        losses of $2.8 million, $1.6 million and $1.9 million for the years ended
        December 31, 2004, 2003 and 2002, respectively. Our profitability in the
        future will depend on many factors, but largely on utilization rates and
        dayrates for our drilling rigs. Our current utilization rates and dayrates
        may
        decline and we may experience losses in the future.
  ***We
        operate in a highly competitive, fragmented industry in which price competition
        could reduce our profitability.***
  We
        operate in a highly competitive, fragmented industry in which price competition
        could reduce our profitability. The fact that drilling rigs are mobile and
        can
        be moved from one market to another in response to market conditions heightens
        the competition in the industry.
  -11-
 ***Table
            of
            Contents***





The
      drilling contracts we compete for are usually awarded on the basis of
      competitive bids or direct negotiations with customers. We believe pricing
      and
      rig availability are the primary factors our potential customers consider in
      determining which drilling contractor to select. In addition, we believe the
      following factors are also important:




•  the
      type
      and condition of each of the competing drilling rigs;




•  the
      mobility and efficiency of the rigs;




•  the
      quality of service and experience of the rig crews;




•  the
      offering of ancillary services; and




• the
      ability to provide drilling equipment adaptable to, and personnel familiar
      with,
      new technologies and drilling techniques.




While
      we
      must be competitive in our pricing, our competitive strategy generally
      emphasizes the quality of our equipment and experience of our rig crews to
      differentiate us from our competitors. This strategy is less effective as lower
      demand for drilling services or an oversupply of rigs usually results in
      increased price competition and makes it more difficult for us to compete on
      the
      basis of factors other than price. In all of the markets in which we compete,
      an
      oversupply of rigs can cause greater price competition which can, in turn,
      reduce our profitability.




Contract
      drilling companies compete primarily on a regional basis, and the intensity
      of
      competition may vary significantly from region to region at any particular
      time.
      If demand for drilling services improves in a region where we operate, our
      competitors might respond by moving in suitable rigs from other regions. An
      influx of rigs from other regions could rapidly intensify competition and reduce
      profitability.




***We
      face competition from competitors with greater resources that may make it more
      difficult for us to compete, which can reduce our dayrates and utilization
      rates.***




Some
      of
      our competitors have greater financial, technical and other resources than
      we do
      that may make it more difficult for us to compete, which can reduce our dayrates
      and utilization rates. Their greater capabilities in these areas may enable
      them
      to:




•  better
      withstand industry downturns;




•  compete
      more effectively on the basis of price and technology;




•  retain
      skilled rig personnel; and




•  build
      new
      rigs or acquire and refurbish existing rigs so as to be able to place rigs
      into
      service more quickly than us in periods of high drilling demand.




***We
      are subject to unexpected cost overruns on our footage contracts and, to the
      extent we enter into such arrangements, turnkey contracts, which could
      negatively impact our profitability.***




For
      the
      years ended December 31, 2006 and 2005, 0% and 1%, respectively, of our
      total revenues was derived from footage contracts. Under footage contracts,
      we
      are paid a fixed amount for each foot drilled, regardless of the time required
      or the problems encountered in drilling the well. We typically pay more of
      the
      out-of-pocket costs associated with footage contracts as compared to daywork
      contracts. The risks to us on a footage contract are greater because we assume
      most of the risks associated with drilling operations generally assumed by
      the
      operator in a daywork contract, including the risk of blowout, loss of hole,
      stuck drill pipe, machinery breakdowns, abnormal drilling conditions and risks
      associated with subcontractors’ services, supplies, cost escalation and
      personnel. The occurrence of uninsured or under-insured losses or operating
      cost
      overruns on our footage jobs could have a negative impact on our profitability.
      Similar to our footage contracts, under turnkey contacts drilling companies
      assume most of the risks associated with drilling operations that the operator
      generally assumes under a daywork contract. Although we historically have not
      entered into turnkey contracts, if we were to enter into a turnkey contract
      or
      acquire such a contract in connection with future acquisitions, the occurrence
      of uninsured or under-insured losses or operating cost overruns on such a job
      could negatively impact our profitability.




***Our
        operations involve operating hazards, which if not insured or indemnified
        against, could adversely affect our results of operations and financial
        condition.***
  Our
        operations are subject to the many hazards inherent in the contract land
        drilling business, including the risks of:
  • blowouts;
  •  fires
        and
        explosions;
  •  loss
        of
        well control;
  •  collapse
        of the borehole;
  •  lost
        or
        stuck drill strings; and
  •  damage
        or
        loss from natural disasters.
  Any
        of
        these hazards can result in substantial liabilities or losses to us from,
        among
        other things:
  •  suspension
        of drilling operations;
  •  damage
        to, or destruction of, our property and equipment and that of others;
  •  personal
        injury and loss of life;
 
 •damage
        to
        producing or potentially productive oil and natural gas formations through
        which
        we drill; and
 
 •environmental
        damage.
 -12-
 ***Table
            of
            Contents***
 
 We
        seek
        to protect ourselves from some but not all operating hazards through insurance
        coverage. However, some risks are either not insurable or insurance is available
        only at rates that we consider uneconomical. Those risks include pollution
        liability in excess of relatively low limits. Depending on competitive
        conditions and other factors, we attempt to obtain contractual protection
        against uninsured operating risks from our customers. However, customers
        who
        provide contractual indemnification protection may not in all cases maintain
        adequate insurance to support their indemnification obligations. Our insurance
        or indemnification arrangements may not adequately protect us against liability
        or loss from all the hazards of our operations. The occurrence of a significant
        event that we have not fully insured or indemnified against or the failure
        of a
        customer to meet its indemnification obligations to us could materially and
        adversely affect our results of operations and financial condition. Furthermore,
        we may be unable to maintain adequate insurance in the future at rates we
        consider reasonable.
  ***We
          face increased exposure to operating difficulties because we primarily
          focus on
          drilling for natural gas.***
 
 A
          majority of
          our drilling contracts are with exploration and production companies in
          search
          of natural gas. Drilling on land for natural gas generally occurs at deeper
          drilling depths than drilling for oil. Although deep-depth drilling exposes
          us
          to risks similar to risks encountered in shallow-depth drilling, the magnitude
          of the risk for deep-depth drilling is greater because of the higher costs
          and
          greater complexities involved in drilling deep wells. We generally enter
          into
          International Association of Drilling Contractors contracts that contain
          “daywork” indemnification language that transfers responsibility for down hole
          exposures such as blowout and fire to the operator, leaving us responsible
          only
          for damage to our rig and our personnel. If we do not adequately insure
          the risk
          from blowouts or if our contractual indemnification rights are insufficient
          or
          unfulfilled, our profitability and other results of operation and our financial
          condition could be adversely affected in the event we encounter blowouts
          or
          other significant operating difficulties while drilling at deeper depths.
          If our
          primary focus shifts from drilling for customers in search of natural gas
          to
          drilling for customers in search of oil, a portion of our rig fleet could
          be
          disadvantaged in competing for new oil drilling projects as compared to
          competitors that primarily use shallower drilling depth rigs when drilling
          in
          search of oil.
  ***Our
          operations are subject to various laws and governmental regulations that
          could
          restrict our future operations and increase our operating costs.***
  Many
          aspects of our operations are subject to various federal, state and local
          laws
          and governmental regulations, including laws and regulations governing:
  • environmental
          quality;
  • pollution
          control;
  •  remediation
          of contamination;
  •  preservation
          of natural resources; and
  •  worker
          safety.
  Our
          operations are subject to stringent federal, state and local laws and
          regulations governing the protection of the environment and human health
          and
          safety. Several such laws and regulations relate to the handling, storage
          and
          disposal of oilfield waste and restrict the types, quantities and concentrations
          of such regulated substances that can be released into the environment.
          Several
          such laws also require removal and remedial action and other cleanup under
          certain circumstances, commonly regardless of fault. Planning, implementation
          and maintenance of protective measures are required to prevent accidental
          discharges. Spills of oil, natural gas liquids, drilling fluids and other
          substances may subject us to penalties and cleanup requirements. In addition,
          our operations are often conducted in or near ecologically sensitive areas,
          which are subject to special protective measures and that may expose us
          to
          additional operating costs and liabilities for accidental discharges of
          oil,
          natural gas, drilling fluids, contaminated water or other substances or
          for
          noncompliance with other aspects of applicable laws and regulations.
          Historically, we have not been required to obtain environmental or other
          permits
          prior to drilling a well. Instead, the operator of the oil and gas property
          has
          been obligated to obtain the necessary permits at its own expense.
  The
          federal Clean Water Act, as amended by the Oil Pollution Act, the federal
          Clean
          Air Act, the federal Resource Conservation and Recovery Act, CERCLA, the
          Safe
          Drinking Water Act, OSHA and their state counterparts and similar statutes
          are
          the primary vehicles for imposition of such requirements and for civil,
          criminal
          and administrative penalties and other sanctions for violation of their
          requirements. The OSHA hazard communication and related regulations standard,
          the Environmental Protection Agency “community right-to-know” regulations under
          Title III of the federal Superfund Amendment and Reauthorization Act and
          comparable state statutes and related regulations require us to organize
          and
          report information about the hazardous materials we use in our operations
          to
          employees, state and local government authorities and local citizens. In
          addition, CERCLA, also known as the “Superfund” law, and similar state statutes
          impose strict liability, without regard to fault or the legality of the
          original
          conduct, on certain classes of persons who are considered responsible for
          the
          release or threatened release of hazardous substances into the environment.
          These persons include the current owner or operator of a facility where
          a
          release has occurred, the owner or operator of a facility at the time a
          release
          occurred, and companies that disposed of or arranged for the disposal of
          hazardous substances found at a particular site. This liability may be
          joint and
          several. Such liability, which may be imposed for the conduct of others
          and for
          conditions others have caused, includes the cost of removal and remedial
          action
          as well as damages to natural resources. Few defenses exist to the liability
          imposed by environmental laws and regulations. It is also not uncommon
          for third
          parties to file claims for personal injury and property damage caused by
          substances released into the environment.
  Environmental
            laws and regulations are complex and subject to frequent changes. Failure
            to
            comply with governmental requirements or inadequate cooperation with
            governmental authorities could subject a responsible party to administrative,
            civil or criminal action. We may also be exposed to environmental or
            other
            liabilities originating from businesses and assets that we acquired from
            others.
            We believe we are in substantial compliance with applicable environmental
            laws
            and regulations and, to date, such compliance has not materially affected
            our
            capital expenditures, earnings or competitive position. We do not expect
            to
            incur material capital expenditures in our next fiscal year in order
            to comply
            with current or reasonably anticipated environment control requirements.
            However, our compliance with amended, new or more stringent requirements,
            stricter interpretations of existing requirements or the future discovery
            of
            regulatory noncompliance or contamination may require us to make material
            expenditures or subject us to liabilities that we currently do not anticipate.
  In
            addition, our business depends on the demand for land drilling services
            from the
            oil and natural gas industry and, therefore, is affected by tax, environmental
            and other laws relating to the oil and natural gas industry generally,
            by
            changes in those laws and by changes in related administrative regulations.
            It
            is possible that these laws and regulations may in the future add significantly
            to our operating costs or those of our customers or otherwise directly
            or
            indirectly affect our operations.
  ***We
            rely on a few key employees whose absence or loss could disrupt our operations
            resulting in a loss of revenues.***
 
 Many
            key
            responsibilities within our business have been assigned to a small number
            of
            employees. The loss of their services, particularly the loss of Frank
            Harrison,
            our Chief Executive Officer and President or Zachary Graves, our Chief
            Financial
            Officer could disrupt our operations resulting in a loss of revenues.
            Although
            we have employment contracts with a small number of our employees, as
            a
            practical matter such employment agreements will not assure the retention
            of
            those employees. In addition, we do not maintain “key person” life insurance
            policies on any of our employees. As a result, we are not insured against
            any
            losses resulting from the death of our key employees.
  ***We
              may be unable to attract and retain qualified, skilled employees necessary
              to
              operate our business.***
  Our
              success depends in large part on our ability to attract and retain
              skilled and
              qualified personnel. Our inability to hire, train and retain a sufficient
              number
              of qualified employees could impair our ability to manage and maintain
              our
              business. We re quire
              skilled employees who can perform physically demanding work. Shortages
              of
              qualified personnel are occurring in our industry. As a result of the
              volatility
              of the oil and natural gas industry and the demanding nature of the
              work,
              potential employees may choose to pursue employment in fields that
              offer a more
              desirable work environment at wage rates that are competitive with
              ours.
 -13-
 ***Table
                of
                Contents***
  If
            we should suffer any material loss of
            personnel to competitors or be unable to employ additional or replacement
            personnel with the requisite level of training and experience to adequately
            operate our equipment, our operations could be materially and adversely
            affected
            with a reduced pool of workers, it is possible that we will have to raise
            wage
            rates to attract workers from other fields and to retain our current
            employees.
            If we are not able to increase our service rates to our customers to
            compensate
            for wage-rate increases, our profitability and other results of operations
            may
            be adversely affected.
 ***Shortages
                in equipment and supplies could limit our drilling operations and
                jeopardize our
                relations with customers.***
  The
                materials and supplies we use in our drilling operations include
                fuels to
                operate our drilling equipment, drilling mud, drill pipe, drill collars,
                drill
                bits and cement. Shortages in equipment supplies could limit our
                drilling
                operations and jeopardize our relations with customers. We do not
                rely on a
                single source of supply for any of these items. From time to time
                there have
                been shortages of drilling equipment and supplies during periods
                of high demand
                which we believe could reoccur. Shortages could result in increased
                prices for
                drilling equipment or supplies that we may be unable to pass on to
                customers. In
                addition, during periods of shortages, the delivery times for equipment
                and
                supplies can be substantially longer. Any significant delays in our
                obtaining
                drilling equipment or supplies could limit drilling operations and
                jeopardize
                our relations with customers. In addition, shortages of drilling
                equipment or
                supplies could delay and adversely affect our ability to obtain new
                contracts
                for our rigs, which could negatively impact our revenues and profitability.
  **Risks
                Related to Our Common Stock**
  ***Our
                largest stockholder controls a significant percentage of our common
                stock, and
                its interests may conflict with those of our other stockholders.***
  Wexford
                Capital, LLC, through its affiliate Bronco Drilling Holdings, L.L.C.,
                beneficially owns approximately 13.6% of our
                common stock as of February 27, 2007 .
                As a
                result, Wexford can exercise influence over matters requiring stockholder
                approval, including the election of directors, changes to our charter
                documents
                and significant corporate transactions. The interests of Wexford
                with respect to
                matters potentially or actually involving or affecting us, such as
                future
                acquisitions, financing and other corporate opportunities and attempts
                to
                acquire us, may conflict with the interests of our other stockholders.
                Wexford’s
                continued concentrated ownership may have the effect of delaying
                or preventing a
                change of control of us, including transactions in which stockholders
                might
                otherwise receive a premium for their shares over then current market
                prices.
  ***We
                have incurred and will continue to incur increased costs as a result
                of being a
                public company.***
  As
                a
                result of becoming a public company in August 2005, we have incurred
                and will
                continue to incur significant legal, accounting and other expenses
                that we did
                not incur as a private company. We have incurred and will continue
                to incur
                costs associated with our public company reporting requirements and
                costs
                associated with recently adopted corporate governance requirements,
                including
                requirements under the Sarbanes-Oxley Act of 2002, as well as new
                rules
                implemented by the SEC and the NASD. These rules and regulations
                would increase
                our legal and financial compliance costs and would make some activities
                more
                time-consuming and costly. These new rules and regulations could
                make it more
                difficult and more expensive for us to obtain director and officer
                liability
                insurance and we may be required to accept reduced policy limits
                and coverage or
                incur substantially higher costs to obtain the same or similar coverage.
                As a
                result, it would be more difficult for us to attract and retain qualified
                individuals to serve on our board of directors or as executive officers.
  ***If
                the price of our common stock fluctuates significantly, your investment
                could
                lose value.***
 Prior
                to
                our initial public offering in August 2005, there had been no public
                market for
                our common stock. Although our common stock is now quoted on The
                Nasdaq Global Market, we cannot assure you that an active public market
                will continue to exist for our common stock or that our common stock
                will
                continue to trade in the public market at or above the public offering
                price. In
                addition, the stock market is subject to significant price and volume
                fluctuations, and the price of our common stock could fluctuate widely
                in
                response to several factors, including:
  •  our
                quarterly operating results;
  •  changes
                in our earnings estimates;
  •  additions
                or departures of key personnel;
  •  changes
                in the business, earnings estimates or market perceptions of our
                competitors;
  •  changes
                in general market or economic conditions; and
  •  announcements
                of legislative or regulatory change.
  The
                stock
                market has experienced extreme price and volume fluctuations in recent
                years
                that have significantly affected the quoted prices of the securities
                of many
                companies, including companies in our industry. The changes often
                appear to
                occur without regard to specific operating performance. The price
                of our common
                stock could fluctuate based upon factors that have little or nothing
                to do with
                our company and these fluctuations could materially reduce our stock
                price.


***The
      market price of our common stock could decline following sales of substantial
      amounts of our common stock in the public markets.***




If
      a
      large number of shares of our common stock are sold in the open market, the
      trading price of our common stock could decrease. As of December 31, 2006,
      we had an aggregate of 72,562,061 shares of our common stock authorized but
      unissued and not reserved for specific purposes. In general, we may issue all
      of
      these shares without any approval by our stockholders. We may pursue
      acquisitions and may issue shares of our common stock in connection with these
      acquisitions.




Bronco
      Drilling Holdings, L.L.C., an entity controlled by Wexford, owned
      approximately 13.6% of our
      common stock as of February 27, 2007. We have entered into a registration
      rights agreement with Bronco Drilling Holdings under which Bronco Drilling
      Holdings has three demand registration rights, as well as “piggyback”
registration rights. Such sales by Bronco Drilling Holdings, sales by other
      security holders or the perception that such sales might occur could have a
      material adverse effect on the price of our common stock or could impair our
      ability to obtain capital through an offering of equity securities.




***We
      may issue preferred stock whose terms could adversely affect the voting power
      or
      value of our common stock.***




Our
      certificate of incorporation authorizes us to issue, without the approval of
      our
      stockholders, one or more classes or series of preferred stock having such
      designations, preferences, limitations and relative rights, including
      preferences over our common stock respecting dividends and distributions, as
      our
      board of directors may determine. The
      terms
      of one or more classes or series of preferred stock could adversely impact
      the
      voting power or value of our common stock. For example, we might grant holders
      of preferred stock the right to elect some number of our directors in all events
      or on the happening of specified events or the right to veto specified
      transactions. Similarly, the repurchase or redemption rights or liquidation
      preferences we might assign to holders of preferred stock could affect the
      residual value of the common stock


-14-
 ***Table
          of
          Contents***




***Provisions
      in our organizational documents could delay or prevent a change in control
      of
      our company, even if that change would be beneficial to our stockholders.***




The
      existence of some provisions in our organizational documents could delay or
      prevent a change in control of our company, even if that change would be
      beneficial to our stockholders. Our certificate of incorporation and bylaws
      contain provisions that may make acquiring control of our company difficult,
      including:




•  provisions
      regulating the ability of our stockholders to nominate directors for election
      or
      to bring matters for action at annual meetings of our stockholders;




•  limitations
      on the ability of our stockholders to call a special meeting and act by written
      consent;




•  the
      authorization given to our board of directors to issue and set the terms of
      preferred stock; and




•  limitations
      on the ability of our stockholders from removing our directors without cause.




***We
      do not intend to pay cash dividends on our common stock in the foreseeable
      future, and therefore only appreciation of the price of our common stock will
      provide a return to our stockholders.***




We
      currently anticipate that we will retain all future earnings, if any, to finance
      the growth and development of our business. We do not intend to pay cash
      dividends in the foreseeable future. Any payment of cash dividends will depend
      upon our financial condition, capital requirements, earnings and other factors
      deemed relevant by our board of directors. In addition, the terms of our credit
      facilities prohibit us from paying dividends and making other distributions.
      As
      a result, only appreciation of the price of our common stock, which may not
      occur, will provide a return to our stockholders.




**Item 1B.
      Unresolved Staff Comments**




None.




**Item 2.
      Property**




Our
      corporate headquarters is located at 16217 North May Avenue, Edmond, Oklahoma
      in
      an office building the Company purchased on January 2, 2007. The approximately
      18,100 square foot building was purchased for a total purchase price of $3.0
      million, less an amount equal to one-half of the principal reduction on the
      seller’s loan secured by the property between the effective date of the purchase
      agreement and the closing. The Company paid $1.4 million in cash and assumed
      existing debt of approximately $1.6 million. Prior to closing, the Company
      subleased a total of 9,050 square feet of the building from its tenants until
      the closing date for a monthly rental of $8,341.




We
      own or
      lease from unaffiliated third parties the following properties:




•  a
      13 acre
      yard used for equipment storage and the refurbishment of our inventoried rigs
      in
      Duncan, Oklahoma;




•  a
      15 acre
      yard, which includes an operations office, rig and equipment storage and a
      repair facility in Oklahoma City, Oklahoma;




•  Two
      16
      acre yards used for equipment storage and the refurbishment of our inventoried
      rigs in Oklahoma City, Oklahoma;




•  a
      10 acre
      yard used to dispatch trucks in Davis, Oklahoma;




•  a
      10 acre
      yard used to dispatch trucks in Seminole, Oklahoma;




•  a
      5 acre
      yard used to dispatch trucks in Woodward, Oklahoma;




•  a
      13 acre
      yard which includes a machine shop used for drilling rig refurbishment, repair
      and maintenance in Oklahoma City, Oklahoma;




•  an
      8 acre
      yard used for equipment storage and the refurbishment of our inventoried rigs
      in
      Woodward, Oklahoma;




•  a 
4
        acre yard which includes a machine shop used for drilling rig refurbishment,
        repair and maintenance in El Reno, Oklahoma;




•  a 
4
      acre yard which includes a repair shop used for well service equipment storage
      and workover rig repair in Liberal, Kansas;




•a 
3
      acre yard which includes a repair shop used for well service equipment storage
      and workover rig repair in Raton, New Mexico;




•a 
4
      acre yard which includes a repair shop used for well service equipment storage
      and workover rig repair in Guymon, Oklahoma;




•  a  10
      acre yard which includes a repair shop used for well service equipment storage
      and workover rig repair in Snyder, Texas, and




•a  1
      acre yard which includes a repair shop used for well service equipment storage
      and workover rig repair in Ulysses, Kansas.




**Item 3.
      Legal Proceedings**




We
      are
      plaintiffs in a lawsuit involving Atoka Operating, Inc., the defendant,
      originally filed by us on September 7, 2004 in the 15th Judicial District
      Court, Grayson County, Texas. This is a breach of contract suit or,
      alternatively, a suit on a sworn account wherein we sued the defendant for
      $942,000 as a result of the defendant’s refusal to make payment pursuant to the
      terms of a drilling contract. The defendant filed a counterclaim on
      October 11, 2004 for damages in excess of $2.8 million, alleging breach of
      contract, negligence, gross negligence and breach of warranties. There is no
      trial setting for this matter at this time. We are vigorously prosecuting our
      claims and defending against the counterclaims in this matter and will continue
      to file appropriate responses, motions and documents as necessary. It is not
      possible to predict the outcome of this matter.




Due
      to
      the nature of our business, we are, from time to time, involved in routine
      litigation or subject to disputes or claims related to our business activities,
      including workers’ compensation claims and employment related disputes. In the
      opinion of our management, with the exception of the matter discussed in the
      prior paragraph, none of the pending litigation, disputes or claims against
      us,
      if decided adversely, will have a material adverse effect on our financial
      condition or results of operations.


-15-
 ***Table
          of
          Contents***




**Item 4.
      Submission of Matters to a Vote of Security Holders**




We
      did
      not submit any matter to a vote of our stockholders during the fourth quarter
      of
      2006.





**PART
      II**




**Item 5.****Market
      For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
      of Equity Securities.**




Market
      Information




Our
      common
      stock has been quoted on The Nasdaq Global Market (formally The Nasdaq National
      Market) under the symbol “BRNC” since August 16, 2005. The following table
      sets forth for the indicated periods the high and low sale prices of our common
      stock as quoted on The Nasdaq Global Market.


**High**
              
              **Low****Year
                  Ending December 31, 2005:**Third
                  Quarter (since August 16, 2005)
              
              $
              30.00
              
              $
              18.00Fourth
                  Quarter
              
              $
              29.10
              
              $
              20.97**Year
                  Ending December 31, 2006:**First
                  Quarter
              
              $
              32.00
              
              $
              22.50Second
                  Quarter
              
              $
              29.57
              
              $
              17.50Third
                  Quarter
              
              $
              21.41
              
              $
              16.01Fourth
                  Quarter
              
              $
              19.69
              
              $
              15.25**Year
                  Ending December 31, 2007:**First
                  Quarter (through February 28, 2007)
              
              $
              16.49
              
              $
              13.61


On
        February 28, 2007, the last reported sale price of our common stock on The
        Nasdaq Global Market was $15.02 and
        we
        had approximately 11,000 beneficial
        holders of our common stock.


**Dividend
          Policy**
  We
          have
          never declared or paid dividends on our company stock, and we currently
          anticipate that we will retain all future earnings, if any, to finance
          the
          growth and development of our business. We do not intend to pay cash dividends
          in the foreseeable future. Any payment of cash dividends will depend upon
          our
          financial condition, capital requirements, earnings and other factors deemed
          relevant by our board of directors. In addition, the terms of our credit
          facility prohibit us from paying dividends and making other distributions.
  **Equity
          Compensation Plan Information**
  The
          following table provides information as of December 31, 2006 with
          respect to shares of our common stock that may be issued under our equity
          compensation plan as of December 31, 2006:
 **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
                  
                  
                  832
                  
                  $
                  20.39
                  
                  
                  1,601Equity
                      compensation plans not approved by security holder
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —832
                  
                  $
                  20.39
                  
                  
                  1,601
 -16-
 ***Table
              of
              Contents***
 **Item 6.
          Selected Financial Data.**
  The
          following table sets forth our selected historical financial data as of
          and for
          each of the years indicated. We derived the selected historical financial
          data
          as of and for each of the years ended 2006, 2005, 2004, 2003 and 2002 from
          our
          historical audited consolidated financial statements. You should review
          this
          information together with “Management’s Discussion and Analysis of Financial
          Condition and Results of Operations” and consolidated historical financial
          statements and related notes included elsewhere in this Form 10-K.
 -17-
 ***Table
              of
              Contents***
 **Years
                      Ended December 31,****(in
                      thousands, except per share amounts)****2006**
                  
                  **2005**
                  
                  **2004**
                  
                  **2003**
                  
                  **2002****Consolidated
                      Statements of Operations Information:**Contract
                      drilling revenues
                  
                  $
                  285,828
                  
                  $
                  77,885
                  
                  $
                  21,873
                  
                  $
                  12,533
                  
                  $
                  3,115Costs
                      and expenses:Contract
                      drilling
                  
                  
                  139,607
                  
                  
                  44,695
                  
                  
                  18,670
                  
                  
                  10,537
                  
                  
                  3,239Depreciation
                      and amortization
                  
                  
                  30,335
                  
                  
                  9,143
                  
                  
                  3,695
                  
                  
                  1,985
                  
                  
                  1,122General
                      and administrative
                  
                  
                  15,709
                  
                  
                  9,395
                  
                  
                  1,714
                  
                  
                  1,226
                  
                  
                  676Total
                      operating costs and expenses
                  
                  
                  185,651
                  
                  
                  63,233
                  
                  
                  24,079
                  
                  
                  13,748
                  
                  
                  5,037Income
                      (loss) from operations
                  
                  
                  100,177
                  
                  
                  14,652
                  
                  
                  (2,206
                  )
                  
                  (1,215
                  )
                  
                  (1,922
                  )Other
                      income (expense):Interest
                      expense
                  
                  
                  (1,736
                  )
                  
                  (1,415
                  )
                  
                  (285
                  )
                  
                  (21
                  )
                  
                  -Loss
                      from early extinguishment of debt
                  
                  
                  (1,000
                  )
                  
                  (2,062
                  )
                  
                  -
                  
                  
                  -
                  
                  
                  -Interest
                      income
                  
                  
                  164
                  
                  
                  432
                  
                  
                  10
                  
                  
                  3
                  
                  
                  5Other
                      income
                  
                  
                  284
                  
                  
                  53
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -Total
                      other income (expense)
                  
                  
                  (2,288
                  )
                  
                  (2,992
                  )
                  
                  (275
                  )
                  
                  (18
                  )
                  
                  5Income
                      (loss) before income taxes
                  
                  
                  97,889
                  
                  
                  11,660
                  
                  
                  (2,481
                  )
                  
                  (1,233
                  )
                  
                  (1,917
                  )Income
                      tax expense
                  
                  
                  38,056
                  
                  
                  6,529
                  
                  
                  285
                  
                  
                  317
                  
                  
                  -Net
                      income (loss)
                  
                  $
                  59,833
                  
                  $
                  5,131
                  
                  $
                  (2,766
                  )
                  $
                  (1,550
                  )
                  $
                  (1,917
                  )Income
                      per common share-Basic
                  
                  $
                  2.43
                  
                  $
                  0.32Income
                      per common share-Diluted
                  
                  $
                  2.43
                  
                  $
                  0.31Weighted
                      average number of shares outstanding-Basic
                  
                  
                  24,585
                  
                  
                  16,259Weighted
                      average number of shares outstanding-Diluted
                  
                  
                  24,623
                  
                  
                  16,306**Pro
                      Forma C Corporation Data (Unaudited): (1)**Historical
                      income (loss)before
                      income taxes
                  
                  
                  
                  
                  $
                  11,660
                  
                  $
                  (2,481
                  )
                  $
                  (1,233
                  )
                  $
                  (1,917
                  )Pro
                      forma provision (benefit) for incometaxes
                  
                  
                  
                  
                  
                  4,396
                  
                  
                  (935
                  )
                  
                  (465
                  )
                  
                  (723
                  )Pro
                      forma income (loss)
                  
                  
                  
                  
                  $
                  7,264
                  
                  $
                  (1,546
                  )
                  $
                  (768
                  )
                  $
                  (1,194
                  )Pro
                      forma income (loss) per common share basic and diluted
                  
                  
                  
                  
                  $
                  0.45
                  
                  $
                  (0.12
                  )
                  $
                  (0.06
                  )
                  $
                  (0.09
                  )Weighted
                      average pro forma shares outstanding-Basic
                  
                  
                  
                  
                  
                  16,259
                  
                  
                  13,360
                  
                  
                  13,360
                  
                  
                  13,360Weighted
                      average pro forma shares outstanding-Diluted
                  
                  
                  
                  
                  
                  16,306
                  
                  
                  13,360
                  
                  
                  13,360
                  
                  
                  13,360**Other
                      Financial Data (Unaudited):**Calculation
                      of EBITDA (2):Net
                      income (loss)
                  
                  $
                  59,833
                  
                  $
                  5,131
                  
                  $
                  (2,766
                  )
                  $
                  (1,550
                  )
                  $
                  (1,917
                  )Interest
                      expense
                  
                  
                  1,736
                  
                  
                  1,415
                  
                  
                  285
                  
                  
                  21
                  
                  
                  -Income
                      tax expense
                  
                  
                  38,056
                  
                  
                  6,529
                  
                  
                  285
                  
                  
                  317
                  
                  
                  -Depreciation
                      and amortization
                  
                  
                  30,335
                  
                  
                  9,143
                  
                  
                  3,695
                  
                  
                  1,985
                  
                  
                  1,122EBITDA
                      (2)
                  
                  $
                  129,960
                  
                  $
                  22,218
                  
                  $
                  1,499
                  
                  $
                  773
                  
                  $
                  (795
                  )**Consolidated
                      Cash Flow Information:**Net
                      cash provided (used) by:Operating
                      activities
                  
                  $
                  93,053
                  
                  $
                  3,318
                  
                  $
                  2,364
                  
                  $
                  (1,914
                  )
                  $
                  (890
                  )Investing
                      activities (3)
                  
                  
                  (143,199
                  )
                  
                  (190,326
                  )
                  
                  (19,511
                  )
                  
                  (4,846
                  )
                  
                  (12,879
                  )Financing
                      activities
                  
                  
                  43,715
                  
                  
                  202,908
                  
                  
                  16,623
                  
                  
                  7,798
                  
                  
                  14,103
 -18-
 ***Table
                of
                Contents***
  **As
                        of December 31,****2006**
                    
                    **2005**
                    
                    **2004**
                    
                    **2003**
                    
                    **2002****Consolidated
                        Balance Sheet Information:**Total
                        current assets
                    
                    $
                    73,372
                    
                    $
                    53,953
                    
                    $
                    8,118
                    
                    $
                    5,682
                    
                    $
                    1,495Total
                        assets
                    
                    
                    482,488
                    
                    
                    330,520
                    
                    
                    90,143
                    
                    
                    71,920
                    
                    
                    15,629Total
                        debt
                    
                    
                    64,727
                    
                    
                    51,825
                    
                    
                    18,100
                    
                    
                    4,300
                    
                    
                    -Total
                        liabilities
                    
                    
                    142,503
                    
                    
                    91,184
                    
                    
                    39,340
                    
                    
                    21,218
                    
                    
                    620Total
                        stockholders'/members' equity
                    
                    
                    339,985
                    
                    
                    239,336
                    
                    
                    50,803
                    
                    
                    50,702
                    
                    
                    15,009
  Prior
            to
            the completion of our initial public offering in August 2005, we merged
            with
            Bronco Drilling Company, L.L.C., our predecessor company. Bronco Drilling
            Company, L.L.C. was a limited liability
 company
            treated as a  partnership for
            federal income tax purposes. As a result, essentially all of its taxable
            earnings and losses were passed through to its members, and it did not
            pay
            federal income
 taxes
            at the entity level. Historical income taxes consist mainly
            of
            deferred income taxes on a taxable subsidiary, Elk Hill Drilling, Inc.
            Since we
            are a C corporation, for comparative purposes we have
 included
            a pro forma provision (benefit) for income taxes assuming we had been
            taxed as a C corporation in all periods prior to the merger.
 (2) EBITDA
            is a non-GAAP
            financial measure equal to net income (loss), the most directly comparable
            Generally Accepted Accounting Principles ("GAAP") financial measure,
            plus
            interest expense,
 income
            tax expense and depreciation
            and amortization. We have presented EBITDA because we use EBITDA as an
            integral part of our internal reporting to measure our performance and
            to
            evaluate
 the performance
            of our senior management.
            We consider
            EBITDA to be an important indicator of the operational strength of our
            business.
            EBITDA eliminates the uneven effect of considerable
 amounts of
            non-cash depreciation and amortization. A limitation of this measure, however,
            is that it does not reflect the periodic costs of certain capitalized
            tangible
            and intangible assets used in
 generating revenues
            in our business. Management evaluates the costs of such tangible and
            intangible
            assets and
            the
            impact of related impairments through other financial measures, such
            as capital
 expenditures, investment
            spending and return on capital. Therefore, we believe that EBITDA provides
            useful information to our investors regarding
            our performance and overall results of
 operations. EBITDA is not i ntended
            to be a performance measure that should be regarded as an alternative
            to, or
            more meaningful than, either net income as an indicator of operating
            performance
 or to cash flows from operating activities
            as a measure of liquidity. In addition, EBITDA is not intended to represent
            funds available for dividends, reinvestment or other discretionary uses,
            and
 should not be
            considered in isolation or as
            a
            substitute for measures of performance prepared in accordance with GAAP.
            The
            EBITDA measure presented in this Form 10-K may not be comparable
 to similarly titled measures presented by other companies,
            and may not be identical to corresponding measures used in our various
            agreements.
 
 (3)  In
            August
            2003, we acquired 22 drilling rigs and drilling rig structures and components
            for an aggregate of $49.0 million. These transactions were funded directly
            by
            our equity holders. Accordingly,
 they have been accounted for
            as
            acquisitions by our equity holders followed by their contribution to
            us of the
            acquired assets. As a result, net cash used in investing activities for
            2003
            does not
 include the
            $33.5
            million cash portion of the acquisition cost.
 -19-
 ***Table
                of
                Contents***
  **Item 7.
            Management’s Discussion and Analysis of Financial
            Condition and Results of Operation.**
  *The
            following discussion and analysis should be read in conjunction with
            the
“Selected Historical Financial Data” and the consolidated financial statements
            and related notes included elsewhere in this Form 10-K. This discussion
            contains
            forward-looking statements reflecting our current expectations and estimates
            and
            assumptions concerning events and financial trends that may affect our
            future
            operating results or financial position. Actual results and the timing
            of events
            may differ materially from those contained in these forward-looking statements
            due to a number of factors, including those discussed in the sections
            entitled
“Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements”
appearing elsewhere in this Form 10-K.*
  **Overview**
  We
            earn
            our contract drilling revenues by drilling oil and natural gas wells
            for our
            customers. We obtain our contracts for drilling oil and natural gas wells
            either
            through competitive bidding or through direct negotiations with customers.
            Our
            drilling contracts generally provide for compensation on either a daywork
            or
            footage basis. We have not historically entered into turnkey contracts
            and do
            not intend to enter into any turnkey contracts, subject to changes in
            market
            conditions, although it is possible that we may acquire such contracts
            in
            connection with future acquisitions. Contract terms we offer generally
            depend on
            the complexity and risk of operations, the on-site drilling conditions,
            the type
            of equipment used and the anticipated duration of the work to be performed.
            Although, we currently have 20 of our rigs operating under agreements
            with
            initial terms ranging from one to two years, our contracts generally
            provide for
            the drilling of a single well and typically permit the customer to terminate
            on
            short notice.
  A
            significant performance measurement in our industry is operating rig
            utilization. We compute operating rig utilization rates by dividing revenue
            days
            by total available days during a period. Total available days are the
            number of
            calendar days during the period that we have owned the operating rig.
            Revenue
            days for each operating rig are days when the rig is earning revenues
            under a
            contract, i.e. when the rig begins moving to the drilling location until
            the rig
            was released from the contract. On daywork contracts, during the mobilization
            period we typically receive a fixed amount of revenue based on the mobilization
            rate stated in the contract. We begin earning our contracted daywork
            rate 
and mobilization revenue when we begin drilling the well. Occasionally,
            in
            periods of increased demand, we will receive a percentage of the contracted
            dayrate during the mobilization period. We account for these revenues
            as
            mobilization fees.
  For
            the years
            ended December 31, 2006, 2005 and 2004, our rig utilization rates, revenue
            days and average number of operating rigs were as follows:
  **Year
                        Ended December 31,****2006**
                    
                    **2005**
                    
                    **2004**Utilization rates
                    93%
                    
                    95%
                    
                    81%Revenue
                        days
                    15,202
                    
                    5,781
                    
                    2,733Average
                        number of operating rigs
                    45
                    
                    17
                    
                    9
 The
              annual increases in the number of revenue days in each of 2006, 2005
              and 2004
              are attributable to the increases in the size of our operating rig
              fleet.
  We
              devote
              substantial resources to maintaining, upgrading and expanding our rig
              fleet. We
              substantially completed the refurbishment of 12 rigs in 2006, six rigs in
              2005 and plan on refurbishing three inventoried rigs during 2007.
  **Market
              Conditions in Our Industry**
  The
              United States contract land drilling services industry is highly cyclical.
              Volatility in oil and natural gas prices can produce wide swings in
              the levels
              of overall drilling activity in the markets we serve and affect the
              demand for
              our drilling services and the dayrates we can charge for our rigs.
              The
              availability of financing sources, past trends in oil and natural gas
              prices and
              the outlook for future oil and natural gas prices strongly influence
              the number
              of wells oil and natural gas exploration and production companies decide
              to
              drill.
  The
              following table depicts the prices for near month delivery contracts
              for crude
              oil and natural gas as traded on the NYMEX, as well as the most recent
              Baker
              Hughes domestic land rig count, on the dates indicated:
 **At
                          December 31,****2006**
                      
                      **2005**
                      
                      **2004**Crude
                          oil (Bbl).
                      $61.05
                      
                      $61.04
                      
                      $43.45Natural
                          gas (MMbtu)
                      $6.30
                      
                      $11.23
                      
                      $6.15U.S.
                          land rig count
                      1,626
                      
                      1,391
                      
                      1,138


On
      February 28, 2007, the closing prices for near month delivery contracts for
      crude oil and natural gas as traded on the NYMEX were $61.79 per
      barrel and $7.30 per
      MMbtu, respectively. The Baker Hughes domestic land rig count as of February
      23,
      2007 was 1,637 .
      Baker
      Hughes is a large oil field services firm that has issued the rotary rig counts
      as a service to the petroleum industry since 1944.




We
      believe capital spent on incremental natural gas production will be driven
      by an
      increase in hydrocarbon demand as well as changes in supply of natural gas.
      The
      Energy Information Administration estimated that U.S. consumption of natural
      gas
      exceeded domestic production by 16% in 2005 and forecasts that U.S. consumption
      of natural gas will exceed U.S. domestic production by 24% in 2010. In addition,
      a study published by the National Petroleum Council in September 2003 concluded
      from drilling and production data over the preceding ten years that average
      “initial production rates from new wells have been sustained through the use
      of
      advanced technology; however, production declines from these initial rates
      have
      increased significantly; and recoverable volumes from new wells drilled in
      mature producing basins have declined over time.” The report went on to state
      that “without the benefit of new drilling, indigenous supplies have reached a
      point at which U.S. production declines by 25% to 30% each year” and predicted
      that in ten years eighty percent of gas production “will be from wells yet to be
      drilled.” We believe all of these factors tend to support a higher natural gas
      price environment, which should create strong incentives for oil and natural
      gas
      exploration and production companies to increase drilling activity in the U.S.
      Consequently, these factors may result in higher rig dayrates and rig
      utilization.




**Critical
      Accounting Policies and Estimates**




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




***Revenue
      and Cost Recognition*** —We
      earn
      our revenues by drilling oil and natural gas wells for our customers under
      daywork or footage contracts, which usually provide for the drilling of a single
      well. We recognize revenues on daywork contracts for the days completed based
      on
      the dayrate each contract specifies. Mobilization revenues and costs are
      deferred and recognized over the drilling days of the related drilling contract.
      Individual contracts are usually completed in less than 120 days. We follow
      the
      percentage-of-completion method of accounting for footage contract drilling
      arrangements. Under this method, drilling revenues and costs related to a well
      in progress are recognized proportionately over the time it takes to drill
      the
      well.


-20-
 ***Table
          of Contents***
  Percentage
        of completion is determined based upon the amount of expenses incurred through
        the measurement date as compared to total estimated expenses to be incurred
        drilling the well. Mobilization costs are not included in costs incurred
        for
        percentage-of-completion calculations. Mobilization costs on footage contracts
        and daywork contracts are deferred and recognized over the days of actual
        drilling. Under the percentage-of-completion method, management estimates
        are
        relied upon in the determination of the total estimated expenses to be incurred
        drilling the well. When estimates of revenues and expenses indicate a loss
        on a
        contract, the total estimated loss is accrued.


Our
        management has determined that it is appropriate to use the
        percentage-of-completion method to recognize revenue on our footage contracts,
        which is the predominant practice in the industry. Although our footage
        contracts do not have express terms that provide us with rights to receive
        payment for the work that we perform prior to drilling wells to the agreed
        upon
        depth, we use this method because, as provided in applicable accounting
        literature, we believe we achieve a continuous sale for our work-in-progress
        and
        we believe, under applicable state law, we ultimately could recover the fair
        value of our work-in-progress even in the event we were unable to drill to
        the
        agreed upon depth in breach of the applicable contract. However, ultimate
        recovery of that value, in the event we were unable to drill to the agreed
        upon
        depth in breach of the contract, would be subject to negotiations with the
        customer and the possibility of litigation.
  We
        are
        entitled to receive payment under footage contracts when we deliver to our
        customer a well completed to the depth specified in the contract, unless
        the
        customer authorizes us to drill to a shallower depth. Since inception, we
        have
        completed all our footage contracts. Although our initial cost estimates
        for
        footage contracts do not include cost estimates for risks such as stuck drill
        pipe or loss of circulation, we believe that our experienced management team,
        our knowledge of geologic formations in our areas of operations, the condition
        of our drilling equipment and our experienced crews enable us to make reasonably
        dependable cost estimates and complete contracts according to our drilling
        plan.
        While we do bear the risk of loss for cost overruns and other events that
        are
        not specifically provided for in our initial cost estimates, our pricing
        of
        footage contracts takes such risks into consideration. When we encounter,
        during
        the course of our drilling operations, conditions unforeseen in the preparation
        of our original cost estimate, we immediately adjust our cost estimate for
        the
        additional costs to complete the contracts. If we anticipate a loss on a
        contract in progress at the end of a reporting period due to a change in
        our
        cost estimate, we immediately accrue the entire amount of the estimated loss,
        including all costs that are included in our revised estimated cost to complete
        that contract, in our consolidated statement of operations for that reporting
        period. During 2005, we experienced no losses on the five footage contracts
        we
        completed. During 2006, we did not experience a loss on the one footage contract
        we completed. We are more likely to encounter losses on footage contracts
        in
        years in which revenue rates are lower for all types of contracts.
  Revenues
        and costs during a reporting period could be affected by contracts in progress
        at the end of a reporting period that have not been completed before our
        financial statements for that period are released. We had no footage contracts
        in progress at December 31, 2006 or December 31, 2005. At
        December 31, 2006 and 2005, our contract drilling in progress totaled $2.0
        million and $1.2 million, respectively, all of which relates to the revenue
        recognized but not yet billed or costs deferred on daywork contracts in
        progress.
  We
        accrue
        estimated contract costs on footage contracts for each day of work completed
        based on our estimate of the total costs to complete the contract divided
        by our
        estimate of the number of days to complete the contract. Contract costs include
        labor, materials, supplies, repairs and maintenance and operating overhead
        allocations. In addition, the occurrence of uninsured or under-insured losses
        or
        operating cost overruns on our footage contracts could have a material adverse
        effect on our financial position and results of operations. Therefore, our
        actual results could differ significantly if our cost estimates are later
        revised from our original estimates for contracts in progress at the end
        of a
        reporting period that were not completed prior to the release of our financial
        statements.
 ***Accounts
          Receivable*** —We
          evaluate the creditworthiness of our customers based on their financial
          information, if available, information obtained from major industry suppliers,
          current prices of oil and natural gas and any past experience we have with
          the
          customer. Consequently, an adverse change in those factors could affect
          our
          estimate of our allowance for doubtful accounts. In some instances, we
          require
          new customers to establish escrow accounts or make prepayments. We typically
          invoice our customers at 30-day intervals during the performance of daywork
          contracts and upon completion of the daywork contract. Footage contracts
          are
          invoiced upon completion of the contract. Our typical contract provides
          for
          payment of invoices in 10 to 30 days. We generally do not extend payment
          terms
          beyond 30 days and have not extended payment terms beyond 60 days for any
          of our
          contracts in the last three years. Our allowance for doubtful accounts
          was
          $400,000 and $330,000 at December 31, 2006 and December 31, 2005,
          respectively. Any allowance established is subject to judgment and estimates
          made by management. We determine our allowance by considering a number
          of
          factors, including the length of time trade accounts receivable are past
          due,
          our previous loss history, our customer’s current ability to pay its obligation
          to us and the condition of the general economy and the industry as a whole.
          We
          write off specific accounts receivable when they become uncollectible and
          payments subsequently received on such receivables reduce the allowance
          for
          doubtful accounts.


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




***Asset
      Impairment and Depreciation*** —We
      review long-lived assets to be held and used for impairment whenever events
      or
      changes in circumstances indicate that the carrying amount of the assets may
      not
      be recoverable. We also evaluate the carrying value of goodwill during the
      fourth quarter of each year and between annual evaluations if events occur
      or
      circumstances change that would more likely than not reduce the fair value
      below
      its carrying amount. Factors that we consider important and could trigger an
      impairment review would be our customers’ financial condition and any
      significant negative industry or economic trends. More specifically, among
      other
      things, we consider our contract revenue rates, our rig utilization rates,
      cash
      flows from our drilling rigs, current oil and natural gas prices, industry
      analysts’ outlook for the industry and their view of our customers’ access to
      debt or equity and the trends in the price of used drilling equipment observed
      by our management. If a review of our drilling rigs, intangible assets and
      goodwill indicate that our carrying value exceeds the estimated undiscounted
      future cash flows, we are required under applicable accounting standards to
      write down the drilling equipment, intangible assets and goodwill to its fair
      market value. A one percent write-down in the cost of our drilling equipment,
      intangible assets, and goodwill, at December 31, 2006, would have resulted
      in a
      corresponding decrease in our net income of approximately $2.5 million.




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




We
      capitalize interest cost as a component of drilling rigs refurbished for our
      own
      use. During the years ended December 31, 2006 and 2005, we capitalized
      approximately $3.6 million and $1.2 million, respectively.




***Stock
      Based Compensation---*** We
      have
      adopted SFAS No. 123(R), “ *Share-Based
      Payment* ”
upon
      granting our first stock options on August 16, 2005. SFAS No. 123(R)
      requires a public entity to measure the costs of employee services received
      in
      exchange for an award of equity or liability instruments based on the grant-date
      fair value of the award. That cost will be recognized over the periods during
      which an employee is required to provide service in exchange for the award.
      Stock compensation expense was $2.8 million and $589,000 for 2006 and
      2005, respectively.




The
        fair
        value of each option award is estimated on the date of grant using a Black
        Scholes valuation model that uses various assumptions related to
        volatility, expected life, forfeitures, exercise patterns, risk free rates
        and
        expected dividends. Expected volatilities are based on the historical volatility
        of a selected peer and other factors. The majority of our options are held
        by employees that make up one group with similar expected exercise behavior
        for
        valuation purposes. The expected term of options granted is estimated based
        on
        an average of the vesting period and the contractual period. The risk-free
        rate
        for periods within the contractual life of the option is based on the U.S.
        Treasury yield curve in effect at the time of the grant.
  We have
        not declared dividends since we became a public company and do not intend
        to do
        so in the foreseeable future, and thus did not use a dividend yield. Expected
        life has been determined using the permitted short cut method. In each case,
        the
        actual value that will be realized, if any, will depend on the future
        performance of the common stock and overall stock market conditions. There
        is no
        assurance that the value an optionee actually realizes will be at or near
        the
        value estimated using the Black-Scholes model.


Under our
        2005 Stock Incentive Plan, employee stock options become exercisable in equal
        monthly installments over a three-year period, and all options generally
        expire
        ten years after the date of grant. The 2005 Plan provides that all options
        must
        have an exercise price not less than the fair market value of our common
        stock on the date of the grant.




-21-
 ***Table
          of
          Contents***




***Deferred
      Income Taxes*** —We
      provide deferred income taxes for the basis difference in our property and
      equipment, stock compensation expense and other items between financial
      reporting and tax reporting purposes. For property and equipment, basis
      differences arise from differences in depreciation periods and methods and
      the
      value of assets acquired in a business acquisition where we acquire the stock
      in
      an entity rather than just its assets. For financial reporting purposes, we
      depreciate the various components of our drilling rigs and refurbishments over
      fifteen years, while federal income tax rules require that we depreciate
      drilling rigs and refurbishments over five years. Therefore, in the first five
      years of our ownership of a drilling rig, our tax depreciation exceeds our
      financial reporting depreciation, resulting in our providing deferred taxes on
      this depreciation difference. After five years, financial reporting depreciation
      exceeds tax depreciation, and the deferred tax liability begins to reverse.




***Other
      Accounting Estimates*** —Our
      other accrued expenses as of December 31, 2006 and December 31, 2005
      included accruals of approximately $1.9 million and $16,000, respectively,
      for
      costs under our workers’ compensation insurance. We have a deductible of $1
      million per covered accident under our workers’ compensation insurance. Our
      insurance policy requires us to maintain a letter of credit to cover payments
      by
      us of that deductible. As of December 31, 2006, we had a $2.6 million
      letter of credit. We accrue for these costs as claims are incurred based on
      cost
      estimates established for each claim by the insurance companies providing the
      administrative services for processing the claims, including an estimate for
      incurred but not reported claims, estimates for claims paid directly by us,
      our
      estimate of the administrative costs associated with these claims and our
      historical experience with these types of claims. ****We
      also have a self-insurance program for major medical hospitalization and dental
      coverage for employees and their dependents. The Company recognizes both
      reported and incurred, but not reported costs related to the self-insurance
      portion of our health insurance. Since the accrual is based on estimates of
      expenses for claims, the ultimate amounts paid may differ from accrued
      amounts.




**Year
      in Review Highlights**




The
      following are recent highlights that have impacted our results of operations
      for
      the year ended December 31, 2006:




•  On
      January 13, 2006, we entered into a $150.0 million revolving credit
      facility with Fortis Capital Corp., as administrative agent, lead arranger
      and
      sole bookrunner, and a syndicate of lenders, which include The Royal
      Bank of Scotland plc, The CIT Group/Business Credit, Inc., Calyon Corporate
      and Investment Bank, Merrill Lynch Capital, Comerica Bank and Caterpillar
      Financial Services Corporation. The revolving credit facility matures on
      January 13, 2009.




•  On
      January 18, 2006, we completed the acquisition of six land drilling rigs
      and certain other assets, including heavy haul trucks and excess rig equipment
      and inventory, from Big A Drilling.




•  On
      March 29, 2006, we closed a public offering of a total of 3,450,000 shares
      of our common stock at a price of $22.75 per share. In the offering, a total
      of
      1,700,000 shares were sold by us and 1,750,000 shares were sold by Bronco
      Drilling Holdings, L.L.C., an entity controlled by Wexford. We received net
      proceeds of approximately $36.2 million from the offering, after underwriting
      discounts and commissions and before offering expenses.


**Recent
        Developments**
  On
        January 2,
        2007, we purchased an approximately 18,100 square foot building located in
        Oklahoma City, Oklahoma for a total purchase price of $3.0 million, less
        an
        amount equal to one-half of the principal reduction on the seller’s loan secured
        by the property between the effective date of the purchase agreement and
        the
        closing. We paid $1.4 million in cash and assumed existing debt
        of approximately $1.6 million. Prior to closing, we subleased a total of
        9,050 square feet of the building from its tenants until the closing date
        for a
        monthly rental of $8,341.
  On
        January 9,
        2007, we completed the acquisition of 31 workover rigs, 24 of which were
        operating, from Eagle Well Services, Inc. and related subsidiaries for $2.5
        million in cash, 1,070,390 shares of our common stock, and the assumption
        of
        debt of $5.5 million, liabilities of $2.6 million and additional deferred
        income
        taxes of $7.2 million. We intend to deploy the remaining seven rigs periodically
        over the coming months with the expectation that all 31 will be in service
        by
        the end of the second quarter of 2007.
 **Results
            of Operations**
  ***Year
          Ended December 31, 2006 Compared to Year Ended December 31, 2005***
  *Contract
          Drilling Revenue.* For the
          year ended December 31, 2006, we reported contract drilling revenues of
          approximately $285.8 million, a 267% increase from revenues of $77.9 million
          for
          2005. The increase is primarily due to increases in dayrates, revenue days
          and
          average number of rigs working for the year ended December 31, 2006 as
          compared to 2005. Average dayrates for our drilling services increased
          $3,932,
          or 29%, to $17,385 for the year ended December 31, 2006 from $13,453 in
          2005. Revenue days increased 163% to 15,202 days for the year ended
          December 31, 2006 from 5,781 days during 2005. Our average number of
          operating rigs increased to 45 from 17, or 165%, for the year ended
          December 31, 2006 as compared to 2005. The increase in the number of
          revenue days for the year ended December 31, 2006 as compared to 2005 is
          attributable to the increase in the size of our operating rig fleet. These
          increases were partially offset by a slight decrease in utilization to
          93% from
          95% for the year ended December 31, 2006 as compared to 2005.
  *Contract
          Drilling Expense.* Contract
          drilling expense increased $94.9 million to $139.6 million for the year
          ended
          December 31, 2006 from $44.7 million in 2005. This 212% increase is
          primarily due to the increases in revenue days and average number of operating
          rigs in our fleet for the year ended December 31, 2006 as compared to 2005.
          As a percentage of contract drilling revenue, drilling expense decreased
          to 49%
          for the year ended December 31, 2006 from 57% in 2005.due to primarily an
          escalation in dayrates.
  *Depreciation
          and Amortization Expense.* Depreciation and amortization expense increased $21.2 million to $30.3
          million
          for the year ended December 31, 2006 from $9.1 million in 2005. The
          increase is primarily due to the 60% increase in fixed assets, including
          the
          substantial completion of 12 additional rigs from our inventory during
          2006, the Big A acquisition and a full year of depreciation and amortization
          expense associated with the Strata, Eagle, and Thomas
          acquisition.
 *General
            and Administrative Expense.* General
            and administrative expense increased $6.3 million, or 67%, to $15.7 million
            for
            the year ended December 31, 2006 from $9.4 million in 2005. This primarily
            resulted from a $2.2 million increase in stock compensation expense,
            a $1.6
            million increase in yard expense, an increase of $565,000 in severance
            expense,
            an increase of $493,000 in professional fees, an increase in franchise
            taxes of
            $349,000, a $286,000 increase in rent expense and an increase in filing
            fees of
            $148,000. These increases were partially offset by a decrease in payroll
            costs
            of $620,000 and a decrease in administrative reimbursement costs of $245,000.
            The decrease in payroll costs to $5.2 million for the year ended
            December 31, 2006 from $5.8 million in 2005 is primarily due to payments
            made in 2005 by Bronco Drilling Holdings, L.L.C. to our former President
            and
            Chief Operating Officer, Steve Hale, following successful completion
            of our
            initial public offering. Although we did not make the payment, we were
            required
            to account for these payments as a capital contribution to us in the
            amount of
            $4.0 million and compensation expense of $4.0 million. The remaining
            increase in
            payroll costs is due to our increased employee count and related wage
            increases
            during 2005. The decrease in administrative reimbursement to $54,000
            for the
            year ended December 31, 2006 from $299,000 in 2005 is due to the
            termination of our administrative services agreement with Gulfport Energy
            Corporation, or Gulfport, effective April 1, 2006. The increase in severance
            expense to $565,000 for the year ended December 31, 2006 from $0 for
            the year
            ended December 31, 2005 is due to payments made to our former Chief
            Operating Officer, Karl Benzer, upon termination of his employment in
            2006. The
            increase in professional fees to $1.1 million for the year ended
            December 31, 2006 from $619,000 in 2005 is due to an increase in accounting
            and legal expense.
  *Interest
            Expense.* Interest
            expense increased $300,000 to $1.7 million for the year ended December 31,
            2006 from $1.4 million in 2005. The
            increase is due to an increase in the average debt outstanding for the
            year,
            partially offset by the capitalization of interest expense related to
            our rig
            refurbishment program. We capitalized $3.6 million of interest for the
            year
            ended December 31, 2006 as compared to $1.2 million for the same period
            in 2005
            as part of our rig refurbishment program.
  *Income
            Tax Expense* .
            We
            recorded an income tax expense of $38.1 million for the year ended
            December 31, 2006. This compares to an income tax expense of $6.5 million
            in 2005. This increase is primarily due to an increase in pre-tax income
            of
            $86.2 million to $97.9 million for the year ended December 31, 2006 from
            $11.7
            million in 2005, an increase in our effective tax rate and our conversion
            from a
            limited liability company to a taxable entity in August 2005 in connection
            with
            our initial public offering.
 -22-
 ***Table
                of
                Contents***
  ***Year
            Ended December 31, 2005 Compared to Year Ended December 31, 2004***
  *Contract
            Drilling Revenue.* For the
            year ended December 31, 2005, we reported contract drilling revenues of
            approximately $77.9 million, a 256% increase from revenues of $21.9 million
            for
            2004. The increase is primarily due to increases in dayrates, revenue
            days,
            utilization and average number of rigs working for the year ended
            December 31, 2005 as compared to 2004. Average dayrates for our drilling
            services increased $5,534, or 70%, to $13,453 for the year ended
            December 31, 2005 from $7,919 in 2004. Revenue days increased 112% to 5,781
            days for the year ended December 31, 2005 from 2,733 days during 2004. Our
            utilization increased to 95% from 81%, and our average number of operating
            rigs
            increased to 17 from nine, or 89%, for the year ended December 31, 2005 as
            compared to 2004. The increase in the number of revenue days for the
            year ended
            December 31, 2005 as compared to 2004 is attributable to the increase in
            the size of our operating rig fleet and improvements in our rig utilization
            rate
            due to improved market conditions.
  *Contract
            Drilling Expense.* Contract
            drilling expense increased $26.0 million to $44.7 million for the year
            ended
            December 31, 2005 from $18.7 million in 2004. This 143% increase is
            primarily due to the increases in revenue days, average number of operating
            rigs
            in our fleet and in rig utilization for the year ended December 31, 2005 as
            compared to 2004. As a percentage of contract drilling revenue, drilling
            expense
            decreased to 57% for the year ended December 31, 2005 from 85% in 2004 for
            the reasons discussed above.
  *Depreciation
            and Amortization Expense.* Depreciation and amortization expense increased $5.4 million to $9.1
            million for
            year ended December 31, 2005 from $3.7 million in 2004. The increase is
            primarily due to the 203% increase in fixed assets, including the refurbishment
            of seven additional rigs from our inventory, the Strata and Hays acquisitions,
            incremental increases in ancillary equipment as compared to 2004 and,
            to a
            lesser extent, amortization of intangible assets from our acquisitions.
 *General
              and Administrative Expense.* General
              and administrative expense increased $7.7 million, or 453%, to $9.4
              million for
              the year ended December 31, 2005 from $1.7 million in 2004. This primarily
              resulted from a $5.1 million increase in payroll costs, a $184,000
              increase in
              administrative reimbursement, an increase of $52,000 in bad debt expense,
              an
              increase of $589,000 in stock compensation expense and lease expense
              and
              professional fee increases of $271,000 and $540,000, respectively.
              The increase
              in payroll costs to $5.8 million for the year ended December 31, 2005 from
              $672,000 in 2004 is primarily due to payments made by Bronco Drilling
              Holdings,
              L.L.C. to our former President and Chief Operating Officer, Steve Hale,
              following successful completion of our initial public offering. Although
              we did
              not make the payment, we are required to account for these payments
              as a capital
              contribution to us in the amount of $4.0 million and compensation expense
              of
              $4.0 million. The remaining increase in payroll costs is due to our
              increased
              employee count and related wage increases during 2005. The increase
              in
              administrative reimbursement to $299,000 for the year ended December 31,
              2005 from $115,000 in 2004 is due to the new administrative services
              agreement
              entered into with Gulfport and the increased level of services provided
              thereunder. The increase in lease expense to $358,000 for the year
              ended
              December 31, 2005 from $87,000 in 2004 is primarily due to the lease of
              additional yards that were part of the Elk Hill acquisition. The increase
              in
              professional fees to $620,000 for the year ended December 31, 2005 from
              $80,000 in 2004 is due to an increase in audit and legal expense. The
              remaining
              increase in compensation expense is due to our increased employee count
              resulting from both organic growth and the Strata, Hays, Eagle and
              Thomas
              acquisitions, as well as selected wage increases.
  *Interest
              Expense.* Interest
              expense increased $1.1 million to $1.4 million for the year ended
              December 31, 2005 from $285,000 in 2004. The increase is due to an increase
              in average debt outstanding. We capitalized $1.2 million of interest
              for the
              year ended December 31, 2005 as compared to $470,000 in 2004 as part of our
              rig refurbishment program. We also incurred $2.1 million in expense
              related to
              the early extinguishment of debt associated with the payoff of our
              credit
              facility with General Electric Capital Corporation, or GECC, and our
              loan with
              Theta Investors, L.L.C.
  *Income
              Tax Expense* .
              We
              recorded an income tax expense of $6.5 million for the year ended
              December 31, 2005. This compares to an income tax expense of $285,000 in
              2004. This increase is due mainly to our conversion from a limited
              liability
              company to a taxable entity in August 2005 in connection with our initial
              public
              offering, which resulted in a liability and expense of approximately
              $4.4
              million at the time of the initial public offering. This is partially
              offset by
              the net operating loss that we recognized in the third quarter related
              to
              several non-recurring items which include the $4.0 million payment
              made to our
              former President and Chief Operating Officer and the $2.1 million loss
              on the
              early extinguishment of debt.
  **Liquidity
                and Capital Resources**
 ***Operating
        Activities*** **.** Net cash
        provided by operating activities was $93.1 million in 2006, $3.3 million
        in
        2005 and $2.4 million in 2004. The increase of $89.8 million from 2005 to
        2006 and $900,000 from 2004 to 2005 was primarily due to increased cash receipts
        from customers, partially offset by higher cash payments to employees and
        suppliers.
  ***Investing
        Activities*** **.** We use a
        significant portion of our cash flows from operations and financing activities
        for acquisitions and for the refurbishment of our rigs. We used cash for
        investing activities of $143.2 million for 2006 as compared to approximately
        $190.3 million for 2005, and $19.5 million for 2004. In 2006, approximately
        $17.0 million was used for acquisitions made during 2006 and related transaction
        costs, $130.0 million was used to refurbish drilling rigs and $416,000 was
        placed in a restricted account as security for a letter of credit issued
        to our
        workers’ compensation insurance carrier, which amounts were partially offset by
        $4.8 million from the sale of assets. In 2005, approximately $135.2 million
        was
        used for acquisitions made during 2005 and related transaction costs,
        $53.6 million was used to refurbish drilling rigs and $1.5 million was
        placed in a restricted account as security for a letter of credit issued
        to our
        workers’ compensation insurance carrier. In 2004, we refurbished four drilling
        rigs at an aggregate cost of approximately $19.5 million.
  ***Financing
        Activities*** **.** Our cash
        flows provided by financing activities were $43.7 million for 2006 as compared
        to $202.9 million for 2005, and $16.6 million for 2004. Our net cash provided
        by
        financing activities for 2006 related to net proceeds of approximately $36.2
        million from our public offering, borrowings of $44.0 million under our credit
        agreement with Fortis, partially offset by principal payments on borrowings
        of
        $34.9 million to Fortis. Our net cash provided by financing activities for
        2005
        related to net proceeds of approximately $176.0 million from our initial
        and
        follow-on public offerings, borrowings of $43.0 million under our credit
        agreement with Merrill Lynch, borrowings of $68.0 million from Solitair LLC,
        Theta Investors LLC and Alpha Investors LLC, entities controlled by Wexford
        Capital LLC, or Wexford, borrowings of $7.5 million from GECC, and borrowings
        of
        $1.2 million from International Bank of Commerce, partially offset by principal
        payments on borrowings of $23.8 million to GECC, $68.0 million to Solitair
        LLC
        and Alpha Investors LLC, and capital contributions of $1.5 million from entities
        controlled by Wexford. For 2004, our net cash provided by financing activities
        related to $15.0 million borrowed under our credit facility with GECC borrowings
        of $500,000 from International Bank of Commerce, principal payments of $1.7
        million to GECC, and capital contributions of $2.9 million from entities
        controlled by Wexford.
  ***Sources
        of Liquidity*** **.** Our
        primary sources of liquidity are cash from operations and debt and equity
        financing.
  *Debt
        Financing* .
        On
        December 26, 2003, we entered into a credit facility with GECC which
        provided for term loan advances of up to $12.0 million. At September 24,
        2004 and April 22, 2005, we amended our credit facility with GECC to
        increase the maximum amount of the terms loans to $18.0 million and then
        to
        $25.5 million, respectively. Borrowings under this facility bore interest
        at a
        rate equal to LIBOR plus 5.0% and were secured by substantially all of our
        property and assets, including our drilling rigs and associated equipment,
        and
        ownership interests in our subsidiaries, but excluding cash and accounts
        receivable. Draws on the facility were required to be in $2.5 million increments
        each with a five-year term. Payments of principal and accrued but unpaid
        interest were due on the first day of each month. This credit facility, which
        was to mature on October 1, 2010, was repaid in full on August 29,
        2005 with a portion of the proceeds from our initial public offering and
        the
        credit facility was terminated.
  On
        July 1, 2004, we entered into a revolving line of credit with International
        Bank of Commerce with a borrowing base of the lesser of $2.0 million or 80%
        of
        current receivables. Borrowings under this line bore interest at a rate equal
        to
        the greater of 4.0% or JPMorgan Chase prime (effective rate of 7.25% at
        December 31, 2005). Accrued but unpaid interest was payable monthly. On
        January 1, 2005, we amended our line of credit with International Bank of
        Commerce to increase the borrowing base to the lesser of $3.0 million or
        80% of
        current receivables. The line of credit had a maturity date of November 1,
        2006. It was repaid in full in January 2006 with a portion of the proceeds
        from
        our new revolving credit facility and then terminated.
  On
        February 15, 2005, we entered into a $5.0 million revolving credit facility
        with Solitair LLC, an entity controlled by Wexford. Borrowings under this
        facility bore interest at a rate equal to LIBOR plus 5.0%. Payment of principal
        and accrued but unpaid interest were due on the maturity date of the credit
        facility which was the later of (1) six months after the actual maturity
        date of our credit facility with GECC and (2) December 1, 2010. We
        repaid this facility in full on August 22, 2005 with a portion of the
        proceeds from our initial public offering and the facility was terminated.
 -23-
 ***Table
            of
            Contents***
  In
        July
        2005, we acquired all of the membership interests in Strata Drilling, L.L.C.
        and
        Strata Property, L.L.C. and a related rig yard for an aggregate of $20.0
        million, of which $13.0 million was paid in cash and $7.0 million paid in
        the
        form of promissory notes issued to the sellers. We funded the cash portion
        of
        the purchase price with a $13.0 million loan from Alpha Investors LLC, an
        entity
        controlled by Wexford. The outstanding principal balance of the loan plus
        accrued but unpaid interest was due in full upon the earlier to occur of
        the
        completion of our initial public offering and the maturity of the loan on
        July 1, 2006. We repaid this loan in full on August 22, 2005 with a
        portion of the proceeds from our initial public offering. Borrowings under
        our
        loan with Alpha bore interest at a rate equal to LIBOR plus 5% until
        September 30, 2005, and thereafter were to bear interest at a rate equal to
        LIBOR plus 7.5%. The $7.0 million original aggregate principal balance of
        the
        promissory notes issued to the sellers was automatically reduced by the amount
        of any costs and expenses we paid in connection with the refurbishment of
        one of
        the rigs we acquired from the sellers. The amount due on these notes, net
        of
        costs and expenses paid by us, was $4.5 million at December 31, 2005. The
        outstanding balance of the loan was paid in full on January 5, 2006 upon
        completion of the refurbishment of this rig.
  On
        September 19, 2005, we entered into a term loan and security agreement with
        Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services,
        Inc. The term loan provided for a term installment loan in an aggregate amount
        not to exceed $50.0 million and provided for a commitment by Merrill Lynch
        to
        advance funds from time to time until December 31, 2005. The outstanding
        balance under the term loan could not exceed 60% of the net orderly liquidation
        value of our operating land drilling rigs. On September 19, 2005, we
        borrowed $43.0 million under the term loan. A portion of these borrowings,
        together with proceeds from our initial public offering, were used to fund
        the
        Eagle acquisition. The term loan bore interest on the outstanding principal
        balance at a variable per annum rate equal to LIBOR plus 271 basis points
        (7.1%
        at December 31, 2005). For the period from September 19, 2005 to
        January 1, 2006, interest only was payable monthly on the outstanding
        principal balance. Commencing February 1, 2006, the outstanding principal
        and interest on the term loan were payable in sixty consecutive monthly
        installments, each in an amount equal to one sixtieth of the outstanding
        principal balance on January 1, 2006 plus accrued interest on the
        outstanding principal balance. The maturity date was January 1, 2011. Our
        obligations under the term loan were secured by a first lien and security
        interest on substantially all of our assets and were guaranteed by each of
        our
        principal subsidiaries. The term loan included usual and customary negative
        covenants and events of default for loan agreements of this type. The term
        loan
        also required us to meet certain financial covenants, including maintaining
        a
        minimum Fixed Charge Coverage Ratio and a maximum Total Debt to EBITDA Ratio.
        This term loan was repaid in full in January 2006 with a portion of the proceeds
        from our new revolving credit facility and the term loan was terminated.
  On
        October 14, 2005, we entered into a loan agreement with Theta Investors,
        LLC, an entity controlled by Wexford, for purposes of funding a portion of
        the
        purchase price for the Thomas acquisition. The Theta loan provided maximum
        aggregate borrowings of up to $60.0 million, which borrowings bore interest
        at a
        rate equal to LIBOR plus 400 basis points until December 15, 2005 and,
        thereafter, at a rate equal to LIBOR plus 600 basis points. Payment of principal
        and accrued but unpaid interest was due on October 15, 2006. Our
        obligations under the Theta loan were guaranteed by each of our principal
        subsidiaries. We borrowed $50.0 million under this loan on October 14,
        2005. We repaid this facility in full on November 3, 2005 with a portion of
        the proceeds from our follow-on public offering, which closed November 2,
        2005.
  On
        January 13,
        2006, we entered into a $150.0 million revolving credit facility with Fortis
        Capital Corp., as administrative agent, lead arranger and sole bookrunner,
        and a
        syndicate of lenders, which include The Royal Bank of Scotland plc, The CIT
        Group/Business Credit, Inc., Calyon Corporate and Investment Bank, Merrill
        Lynch
        Capital, Comerica Bank and Caterpillar Financial Services Corporation. The
        revolving credit facility matures on January 13, 2009. The initial
        aggregate revolving commitment of $150.0 million is automatically and
        permanently reduced by $10.0 million at the end of each fiscal quarter starting
        September 30, 2006. Loans under the revolving credit facility bear interest
        at
        LIBOR plus a margin that can range from 2.0% to 3.0% or, at our option, the
        prime rate plus a margin that can range from 1.0% to 2.0%, depending on the
        ratio of our outstanding senior debt to “Adjusted EBITDA” as defined in the
        credit agreement. Our borrowings under this revolving credit facility were
        use
        to fund a portion of the Big A Drilling acquisition and to repay in full
        all
        outstanding borrowings under our term loan with Merrill Lynch Capital and
        our
        revolving line of credit with International Bank of Commerce.
  The
        revolving credit facility also provides for a quarterly commitment fee of
        0.5% per annum of the unused portion of the revolving credit facility, and
        fees for each letter of credit issued under the facility. Our subsidiaries
        have
        guaranteed the loans and other obligations under the revolving credit facility.
        The obligations under the revolving credit facility and the related guarantees
        are secured by a first priority security interest in substantially all of
        our
        assets, as well as the shares of capital stock of our direct and indirect
        subsidiaries.
  The
        revolving credit facility contains customary covenants for facilities of
        such
        type, including among other things covenants that restrict our ability to
        make
        capital expenditures, incur indebtedness, incur liens, dispose of property,
        repay debt, pay dividends, repurchase shares and make certain acquisitions.
        The
        financial covenants are a minimum fixed charge coverage ratio of 1.75 to
        1.00
        and a maximum total leverage ratio of 2.00 to 1.00. The revolving credit
        facility provides for mandatory prepayments under certain circumstances as
        more
        fully discussed in the revolving credit facility. The revolving credit facility
        contains various events of default, including failure to pay principal and
        interest when due, breach of covenants, materially incorrect representations,
        default under certain other agreements, bankruptcy or insolvency, the occurrence
        of specified ERISA events, entry of enforceable judgments against us in excess
        of $3.0 million not stayed, and the occurrence of a change of control. If
        an
        event of default occurs, all commitments under the revolving credit facility
        may
        be terminated and all of our obligations under the revolving credit facility
        could be accelerated by the lenders, causing all loans outstanding (including
        accrued interest and fees payable thereunder) to be declared immediately
        due and
        payable.
  We
        are
        party to term installment loans for an aggregate principal amount of
        approximately $4.5 million. These term loans are payable in 96 monthly
        installments, mature in 2013 and 2014 and have a weighted average annual
        interest rate of 6.94%. The proceeds from these term loans were used to purchase
        cranes.
  *Issuances
        of Equity.* Our
        equity holders contributed capital in the amount of $1.5 million during 2005.
  In
        August
        2005, we completed our initial public offering of a total of 5,865,000 shares
        of
        common stock at a price of $17.00 per share. In the offering, a total of
        5,715,000 shares were sold by us and 150,000 shares were sold by Wexford.
        We
        received net proceeds of approximately $89.0 million. We used a portion of
        these
        proceeds to repay in full our loans from Alpha and Solitair and all borrowings
        under our credit facility with GECC.




Under
      the
      terms of an agreement between Bronco Drilling Holdings, L.L.C. and Steven C.
      Hale, our former President and Chief Operating Officer, following successful
      completion of our initial public offering Mr. Hale was entitled to receive
      the sum of $2.0 million and shares of our common stock having a market value
      of
      $2.0 million based on the initial public offering price. These payments were
      made by Bronco Drilling Holdings and not by us. We accounted for these payments
      as a capital contribution to us in the amount of $4.0 million and compensation
      expense in the amount of $4.0 million during the third quarter of 2005, the
      period in which such obligations were incurred.




On
      November 2, 2005, we received net proceeds of $87.5 million from a
      follow-on public offering of 4,025,000 shares of our common stock at a price
      of
      $23.00 per share. We repaid the Theta facility in full on November 3, 2005
      with a portion of the proceeds from that offering.




In
      connection with our acquisitions of Hays Trucking, Inc., Big A Drilling, and
      Eagle Well Services, Inc. we issued 65,368, 72,571, and 1,070,390 shares of
      our
      common stock, respectively. See “—Capital Expenditures” below.




I n
      March
      2006, we closed a public offering of 3,450,000 shares of our common stock at
      a
      price of $22.75 per share. In the offering, a total of 1,700,000 shares were
      sold by us and 1,750,000 shares were sold by the selling stockholder. The
      offering resulted in net proceeds to us of approximately $36.2 million,
      excluding offering expenses of $577,000. We did not receive any proceeds from
      the sale of shares by the selling stockholder.




*Capital
      Expenditures.* **** In
      August
      2003, our founders purchased all of the outstanding stock of Elk Hill Drilling,
      Inc. and certain drilling rig structures and components from an affiliate of
      Elk
      Hill, U.S. Rig & Equipment, for $33.5 million in cash plus the
      assumption of $15.5 million of deferred tax liabilities and contributed the
      assets and liabilities to us. In these transactions, we acquired drilling rigs
      and inventoried structures and components which, with refurbishment and
      upgrades, could be used to assemble 22 drilling rigs. At the date of its
      acquisition, Elk Hill had no customers, employees, operations or operational
      drilling rigs. For accounting purposes, the Elk Hill and U.S. Rig and Equipment
      acquisitions were treated as acquisitions by our members and then contributions
      to us. In November 2003, we completed the refurbishment of a 1,400-horsepower
      electric drilling rig, which we designated as Rig No. 16. We incurred
      approximately $2.2 million in refurbishment costs for this rig before it was
      mobilized to Southern Oklahoma in November 2003. Acquisitions and refurbishment
      expenditures in 2003 were funded through capital contributions from our equity
      holders.


-24-
 ***Table
          of
          Contents***


During
        2004 we completed the refurbishment of four rigs ranging from 1,000 to 2,000
        horsepower. We incurred aggregate refurbishment costs of $13.0 million, ranging
        from $2.3 million to $4.8 million per rig, which were funded with borrowings
        under our GECC credit facility.




During
      2005, we completed the refurbishment of six rigs, ranging from 950 to 2,500
      horsepower. We incurred aggregate refurbishment costs of $34.3 million, ranging
      from $4.5 million to $6.6 million per rig, which were funded with borrowings
      under our various credit facilities and proceeds from our initial public
      offering.




During
      2006, we substantially completed the refurbishment of 12 rigs ranging from
      450
      to 1,500 horsepower. We incurred refurbishment costs of $67.7 million, ranging
      from $544,000 to $7.9 million per rig, which were funded with borrowings under
      our various credit facilities, public offerings, and cash flows from
      operations.




In
      January 2006, the refurbishment of a 1,000-horsepower mechanical rig was
      completed pursuant to a $7.0 million seller’s note incurred in the Strata
      acquisition. We designated this Rig No. 43 and repaid the note with
      proceeds from our November 2005 follow-on offering.




On
      January 18, 2006, we purchased six operating rigs and certain other assets,
      including heavy haul trucks and excess rig equipment and inventory, from Big
      A
      Drilling, L.C. The purchase price for the assets consisted of $16.3 million
      paid
      in cash and 72,571 shares of our common stock.




In
      October 2006, we purchased a 1,000-horsepower electric drilling rig, which
      we
      designated Rig No. 37. We paid approximately $7.4 million for this rig.




We
      intend
      to refurbish three inventoried rigs during 2007 at estimated costs (including
      drill pipe) ranging from $7.1 million to $8.5 million per rig. The actual cost
      of refurbishing our rigs will depend upon such factors as the availability
      of
      equipment, unforeseen engineering problems, work stoppages, weather
      interference, unanticipated cost increases, inability to obtain necessary
      certifications and approvals, shortages of skilled labor and the specific
      customer requirements.




On
      January 2, 2007, we purchased an approximately 18,100 square foot building
      located in Edmond, Oklahoma for cash of $1.4 million and the assumption of
      existing debt of approximately $1.6 million, less one-half of the principal
      reduction on the sellers’ loan secured by the property between the effective
      date and closing. Prior to closing on the building we subleased a total of
      9,050
      square feet of the building from its current tenants for a monthly rental of
      $8,341.




On
      January 9, 2007, we completed the acquisition of 31 workover rigs, 24 of which
      were operating, from Eagle Well Services, Inc. and related subsidiaries for
      $2.5
      million in cash, 1,070,390 shares of our common stock and the assumption of
      debt
      of $5.5 million, liabilities of $2.6 million and additional deferred income
      taxes of $7.2 million. We intend to deploy the remaining
      seven rigsperiodically over the coming months with the expectation that all
      31 will be in service by the end of the second quarter of 2007.




We
      believe that cash flow from our operations and borrowings under our revolving
      credit facility will be sufficient to fund our operations for at least the
      next
      twelve months. However, additional capital may be required for future rig
      acquisitions. While we would expect to fund such acquisitions with additional
      borrowings and the issuance of debt and equity securities, we cannot assure
      you
      that such funding will be available or, if available, that it will be on terms
      acceptable to us.




**Contractual
        and Commercial Commitments**
  The
        following table summarizes our contractual obligations and commercial
        commitments at December 31, 2006 (in thousands):
 **Payments
                      Due by Period****Contractual
                      Obligations**
                  
                  
                  
                  **Total**
                  
                  **Less
                      than 1**
                  
                  **1-3
                      years**
                  
                  **4-5
                      years**
                  
                  **More
                      than 5****year**
                  
                  
                  
                  
                  
                  **years**Short
                      and long-term debt
                  
                  
                  
                  
                  $
                  64,727
                  
                  $
                  636
                  
                  $
                  61,955
                  
                  $
                  631
                  
                  $
                  1,505Operating
                      lease obligations
                  
                  
                  
                  
                  
                  2,292
                  
                  
                  450
                  
                  
                  906
                  
                  
                  414
                  
                  
                  522**Total**
                  
                  
                  
                  
                  $
                  67,019
                  
                  $
                  1,086
                  
                  $
                  62,861
                  
                  $
                  1,045
                  
                  $
                  2,027




**Off
      Balance Sheet Arrangements**


We
        do not
        have any off balance sheet arrangements.
  **Recent
        Accounting Pronouncements**
  In
        June
        2006, the Financial Accounting Standards Board (“FASB”) issued FASB
        Interpretation No. 48 (“FIN 48”), “Accounting For Uncertainty in Income Taxes.”
This Interpretation clarifies the accounting for uncertainty in income taxes
        recognized in an enterprise’s financial statements in accordance with SFAS No.
        109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition
        threshold and measurement attribute for the financial statement recognition
        and
        measurement of a tax position taken or expected to be taken in a tax return.
        This Interpretation also provides guidance on derecognition, classification,
        interest and penalties, accounting in interim periods, disclosure, and
        transition. This Interpretation is effective for fiscal years beginning after
        December 15, 2006. We have substantially completed our evaluation of the
        impact of FIN 48 will have on our financial statements when adopted. We
        currently do not expect the adoption of FIN 48 to have a significant
        effect on our financial statements or our ability to comply with
        our current debt covenants.
  In
        September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value
        Measurements.” This Statement defines fair value, establishes a framework for
        measuring fair value in generally accepted accounting principles (“GAAP”), and
        expands disclosures about fair value measurements. This Statement applies
        under
        other accounting pronouncements that require or permit fair value measurements,
        the FASB having previously concluded in those accounting pronouncements that
        fair value is the relevant measurement attribute. Accordingly, this Statement
        does not require any new fair value measurements. However, for some entities,
        the application of this Statement will change current practice. This Statement
        is effective for fiscal years beginning after November 15, 2007. The Company
        does not expect the adoption of SFAS 157 to have a material impact on its
        financial position or results of operation and financial condition.
  **Item 7A.
        Quantitative and Qualitative Disclosures About
        Market Risk.**
  We
        are
        subject to market risk exposure related to changes in interest rates on our
        outstanding floating rate debt. Borrowings under our new revolving credit
        facility bear interest at a floating rate equal to LIBOR plus a margin that
        can
        range from 2.0% to 3.0% or, at our option, the prime rate plus a margin that
        can
        range from 1.0% to 2.0%, depending on the ratio of our outstanding senior
        debt
        to adjusted EBITDA. An increase or decrease of 1% in the interest rate would
        have a corresponding decrease or increase in our net income (loss) of
        approximately $392,000 annually, based on the $63.0 million outstanding in
        the
        aggregate under our credit facility as of February 28, 2007.
  **Item 8.
        Financial Statements and Supplementary Data.**
  Our
        Financial Statements begin on page 31 of this Form 10-K, Index to
        Consolidated Financial Statements, and are incorporated herein by this
        reference.
 -25-
 ***Table
            of
            Contents***
  **Item 9.
        Changes in and Disagreements With Accountants on
        Accounting and Financial Disclosure.**
 
 None.
  **Item 9A.
        Controls and Procedures.**
  *Evaluation
        of Disclosure
        Control and Procedures* .
 
 As
        of the end
        of the period covered by this Annual Report on Form 10−K, our management, under
        the supervision and with the participation of our Chief Executive Officer
        and
        Chief Financial Officer, evaluated the effectiveness of the design and operation
        of our disclosure controls and procedures (as defined in Rules 13a−15(e) or
        15d−15(e) under the Securities Exchange Act of 1934, as amended) as of December
        31, 2006. Based on that evaluation, our Chief Executive Officer and Chief
        Financial Officer concluded that as of December 31, 2006 our disclosure controls
        and procedures are effective.
 
 Disclosure
        controls and procedures are controls and procedures designed to ensure that
        information required to be disclosed in our reports filed or submitted
        under the Securities Exchange Act of 1934 is recorded, processed, summarized
        and
        reported within the time periods specified in the SEC's rules and forms and
        include controls and procedures designed to
        ensure
        that information is accumulated and communicated to our management, and made
        known to our Chief Executive Officer and Chief Financial Officer, particularly
        during the period when this Annual Report on Form 10−K was prepared, as
        appropriate to allow timely decision regarding the required
        disclosure.




*Management's
      Report of Internal Control over Financial Reporting.*


Our
        management is responsible for establishing and maintaining adequate internal
        control over financial reporting as defined in Rules 13a−15(f) and 15d−15(f)
        under the Securities Exchange Act of 1934. Our internal control over
        financial reporting is designed to provide reasonable assurance regarding
        the
        reliability of financial reporting and the preparation of financial statements
        for external purposes in accordance with generally accepted accounting
        principles ("GAAP"). Our internal control over financial reporting
        includes those policies and procedures that:
 
 *(i)*  pertain
        to the maintenance of records that, in reasonable detail, accurately and
        fairly
        reflect the transactions and dispositions of the assets of our
        company;
 
 *(ii)*  provide
        reasonable assurance that transactions are recorded as necessary to permit
        preparation of financial statements in accordance with GAAP, and that receipts
        and expenditures are being made only in accordance with authorizations of
        management and our Board of Directors and
 
 *(iii)*  provide
        reasonable assurance regarding prevention or timely detection of unauthorized
        acquisition, use or disposition of our assets that could have a
        material effect on the financial statements.
 
 Because
        of its inherent limitations, internal control over financial reporting may
        not
        prevent or detect misstatements. Also, projections of any evaluation of
        effectiveness to future periods are subject to the risk that controls may
        become
        inadequate because of changes in conditions or that the degree of compliance
        with the policies or procedures may deteriorate. Management,
        with the participation of our Chief Executive Officer and Chief Financial
        Officer, conducted its evaluation of the effectiveness of internal control
        over
        financial reporting based on the framework in *Internal Control—Integrated
        Framework* issued by the Committee of Sponsoring Organizations of the
        Treadway Commission. This evaluation included review of the documentation
        of
        controls, evaluation of the design effectiveness of controls, testing of
        the
        operating effectiveness of controls and a conclusion on this evaluation.
        Although there are inherent limitations in the effectiveness of any system
        of
        internal controls over financial reporting, based on our evaluation,
        management has concluded that our internal control over financial reporting
        was
        effective as of December 31, 2006.
 The
          independent registered public accounting firm that audited the Company's
          financial statements, Grant Thornton LLP, has issued an attestation report
          on
          the effectiveness of the Company's internal control over financial reporting
          and
          on management's assessment of the Company's internal control over financial
          reporting.
  *Changes
          in Internal Controls Over
          Financial Reporting -*
 There
          were no changes
          in internal control over financial reporting during the fourth quarter
          that have
          materially affected, or are reasonably likely to materially affect, our
          internal control over financial reporting.
 -26-
 ***Table
              of
              Contents***
 **Report
              of Independent Registered Public Accounting Firm**
 
 
 Board
              of
              Directors
 Bronco
              Drilling Company, Inc.
  We
              have
              audited management's assessment, included in the accompanying Management's
              Report on Internal Control over Financial Reporting, appearing under
              item 9A,
              that Bronco Drilling Company, Inc. and Subsidiaries (the “Company”) maintained
              effective internal control over financial reporting as of December
              31, 2006,
              based on criteria established in *Internal Control - Integrated Framework*issued by the Committee of Sponsoring Organizations of the
              Treadway
              Commission ("COSO"). The Company’s management is responsible for maintaining
              effective internal control over financial reporting and for its assessment
              of
              the effectiveness of internal control over financial reporting. Our
              responsibility is to express an opinion on management's assessment
              and an
              opinion on the effectiveness of the Company's internal control over
              financial
              reporting based on our audit.
  We
              conducted our audit in accordance with the standards of the Public
              Company
              Accounting Oversight Board (United States). Those standards require
              that we plan
              and perform the audit to obtain reasonable assurance about whether
              effective
              internal control over financial reporting was maintained in all material
              respects. Our audit included obtaining an understanding of internal
              control over
              financial reporting, evaluating management's assessment, testing and
              evaluating
              the design and operating effectiveness of internal control, and performing
              such
              other procedures as we considered necessary in the circumstances. We
              believe
              that our audit provides a reasonable basis for our opinions.
  A
              company's internal control over financial reporting is a process designed
              to
              provide reasonable assurance regarding the reliability of financial
              reporting
              and the preparation of financial statements for external purposes in
              accordance
              with generally accepted accounting principles. A company's internal
              control over
              financial reporting includes those policies and procedures that (1)
              pertain to
              the maintenance of records that, in reasonable detail, accurately and
              fairly
              reflect the transactions and dispositions of the assets of the company;
              (2)
              provide reasonable assurance that transactions are recorded as necessary
              to
              permit preparation of financial statements in accordance with generally
              accepted
              accounting principles, and that receipts and expenditures of the company
              are
              being made only in accordance with authorizations of management and
              directors of
              the company; and (3) provide reasonable assurance regarding prevention
              or timely
              detection of unauthorized acquisition, use or disposition of the company's
              assets that could have a material effect on the financial statements.
  Because
              of its inherent limitations, internal control over financial reporting
              may not
              prevent or detect misstatements. Also, projections of any evaluation
              of
              effectiveness to future periods are subject to the risk that controls
              may become
              inadequate because of changes in conditions, or that the degree of
              compliance
              with the policies or procedures may deteriorate.
  In
              our
              opinion, management's assessment that the Company maintained effective
              internal
              control over financial reporting as of December 31, 2006, is fairly
              stated, in
              all material respects, based on criteria established in *Internal Control -
              Integrated Framework* issued by COSO. Also in our opinion, the Company
              maintained, in all material respects, effective internal control over
              financial
              reporting as of December 31, 2006, based on criteria established in
*Internal
              Control - Integrated Framework* issued by COSO.
  We
              have
              also audited, in accordance with the standards of the Public Company
              Accounting
              Oversight Board (United States), the consolidated balance sheets of
              the Company
              as of December 31, 2006 and 2005, and the related consolidated statements
              of
              operations, members’/stockholders’equity and cash flows for each of the three
              years in the period ended December 31, 2006 and our report dated February
              28,
              2007 expressed an unqualified opinion on those financial statements.
 
 /s/
                      GRANT THORNTON LLPOklahoma
                      City, OklahomaFebruary
                      28, 2007
 
 -27-
 ***Table
                of
                Contents***
 **Item 9B.
              Other Information.**
  None.
 **PART
                III**
  **Item 10.
            Directors and Executive Officersand Corporate
            Governance.**
  The
          information relating to this Item 10 is incorporated by reference to the
          Proxy Statement for our 2007 Annual Meeting of Stockholders, which will
          be filed
          with the Securities and Exchange Commission no later than 120 days after
          December 31, 2006.
  **Item 11.
          Executive Compensation.**
  The
          information relating to this Item 11 is incorporated by reference to the
          Proxy Statement for our 2007 Annual Meeting of Stockholders, which will
          be filed
          with the Securities and Exchange Commission no later than 120 days after
          December 31, 2006.
 
 **Item
          12. Security Ownership of Certain Beneficial Owners and
          Management and Related Stockholder Matters.**
  The
          information relating to this Item 12 is incorporated by reference to the
          Proxy Statement for our 2007 Annual Meeting of Stockholders, which will
          be filed
          with the Securities and Exchange Commission no later than 120 days after
          December 31, 2006.
  **Item
          13. Certain Relationships and Related Transactions, and
          Director Independence.**
  **Administrative
          Services Agreement and Lease of Space**
  Effective
          April 1, 2005, the Company entered into an administrative services
          agreement with its affiliate Gulfport Energy Corporation (“Gulfport”). Under
          this agreement, Gulfport agreed to provide certain services to the Company,
          including accounting, human resources, legal and technical support services.
          In
          return for the services, the Company agreed to pay Gulfport an annual fee
          of
          approximately $414,000 payable in equal monthly installments during the
          term of
          this agreement. In addition, the Company leased approximately 1,200 square
          feet
          of office space from Gulfport for the Company’s headquarters for an annual rent
          of $20,880 payable in equal monthly installments. The services the Company
          received under the administrative services agreement and the fees for such
          services could be amended by mutual agreement of the parties. In January
          2006,
          the Company reduced the level of administrative services being provided
          by
          Gulfport and increased its office space to approximately 2,500 square feet.
          As a
          result, the Company’s annual fee for administrative services was reduced to
          approximately $150,000 and its annual rental was increased to approximately
          $44,000. The administrative services agreement had a three-year term, and
          upon
          expiration of that term the agreement would continue on a month-to-month
          basis
          until cancelled by either party with at least 30 days prior written notice.
          The
          administrative services agreement was terminable (1) by the Company at any
          time with at least 30 days prior written notice to Gulfport and (2) by
          either party if the other party is in material breach of the agreement
          and such
          breach had not been cured within 30 days of receipt of written notice of
          such
          breach. The Company terminated the administrative services agreement effective
          April 1, 2006. The Company paid Gulfport approximately $96,000, $353,000,
          and
          $115,000 in consideration for these services during 2006, 2005, and 2004,
          respectively. At December 31, 2006 and December 31, 2005, approximately
          $0 and
          $47,000, respectively, was owed to Gulfport and included in accounts payable.
          Prior to entry into this administrative services agreement, we reimbursed
          Gulfport for its dedicated employee time, office space and general and
          administrative costs based upon the pro rata share of time its employees
          spent
          performing services for the Company.
 **Credit
            Facilities**
  On
            July
            1, 2004, we entered into a revolving line of credit with International
            Bank of
            Commerce with a borrowing base of the lesser of $2.0 million or 80% of
            current
            receivables. Borrowings under this line bore interest at a rate equal
            to the
            greater of 4% or JPMorgan Chase prime. Accrued but unpaid interest was
            payable
            monthly. On January 1, 2005, we amended our line of credit with International
            Bank of Commerce to increase the borrowing base to the lesser of $3.0
            million or
            80% of current receivables. Our performance obligations under this credit
            facility were guaranteed by Wexford Partners VI, L.P., a fund controlled
            by
            Wexford, and Taurus Investors, LLC a member of our predecessor company
            that is
            also controlled by Wexford. The line of credit had a maturity date of
            November
            1, 2006. It was repaid in full in January 2006 with a portion of the
            proceeds
            from our new revolving facility and then terminated.
  On
            February 15, 2005, we entered into a $5.0 million revolving credit facility
            with Solitair LLC, an entity controlled by Wexford. Borrowings under
            this
            facility bore interest at a rate equal to LIBOR plus 5.0%. Payments of
            principal
            and accrued but unpaid interest were due on the maturity date of the
            credit
            facility which was the later of (1) six months after the actual maturity
            date of our credit facility with GECC and (2) December 1, 2010. We
            repaid this facility in full on August 22, 2005 with a portion of the
            proceeds from our initial public offering and the facility was terminated.
  In
            July
            2005, we acquired all of the membership interests in Strata Drilling,
            L.L.C. and
            Strata Property, L.L.C. and a related rig yard for an aggregate of $20.0
            million, of which $13.0 million was paid in cash and $7.0 million paid
            in the
            form of promissory notes issued to the sellers. We funded the cash portion
            of
            the purchase price with a $13.0 million loan from Alpha Investors LLC,
            an entity
            controlled by Wexford. The outstanding principal balance of the loan
            plus
            accrued but unpaid interest was due in full upon the earlier to occur
            of the
            completion of our initial public offering and the maturity of the loan
            on
            July 1, 2006. We repaid this loan in full on August 22, 2005 with a
            portion of the proceeds from our initial public offering. Borrowings
            under our
            loan with Alpha bore interest at a rate equal to LIBOR plus 5% until
            September 30, 2005, and thereafter were to bear interest at a rate equal to
            LIBOR plus 7.5%. The $7.0 million original aggregate principal balance
            of the
            promissory notes issued to the sellers was automatically reduced by the
            amount
            of any costs and expenses we paid in connection with the refurbishment
            of one of
            the rigs we acquired from the sellers. The amount due on these notes,
            net of
            costs and expenses paid by us, was $4.5 million at December 31, 2005. The
            outstanding balance of the loan was paid in full on January 5, 2006 upon
            completion of the refurbishment of this rig.
  On
            October 14, 2005, we entered into a loan agreement with Theta Investors,
            LLC, an entity controlled by Wexford, for purposes of funding a portion
            of the
            purchase price for the Thomas acquisition. The Theta loan provided maximum
            aggregate borrowings of up to $60.0 million, which borrowings bore interest
            at a
            rate equal to LIBOR plus 400 basis points until December 15, 2005 and,
            thereafter, at a rate equal to LIBOR plus 600 basis points. Payment of
            principal
            and accrued but unpaid interest was due on October 15, 2006. Our
            obligations under the Theta loan were guaranteed by each of our principal
            subsidiaries. We borrowed $50.0 million under this loan on October 14,
            2005. We repaid this facility in full on November 3, 2005 with a portion of
            the proceeds from our follow-on public offering, which closed November 2,
            2005.


**Drilling
        Services**
 During
          2006, 2005, and 2004 we received $9.2 million, $2.5 million, and $0,
          respectively, for drilling services rendered to Windsor Energy Group, LLC,
          an
          affiliate of Wexford. On January 26, 2006, we entered into a term contract
          with Windsor, in which we agreed to provide Windsor a drilling rig for
          a period
          of two years. Under the terms of this contract, Windsor agreed to pay us
          a day
          work rate of $21,000 for the first twelve months of the contract term and
          a day
          work rate of $23,000 for the subsequent twelve months of the contract term.
          On
          July 20, 2005, we entered into a term contract with Windsor, in which we
          agreed
          to provide Windsor a drilling rig for a period of seventeen months. Under
          the
          terms of this contract, Windsor agreed to pay us a day work rate of $16,000
          for
          the first five months of the contract term and a day work rate of $17,000
          for
          the subsequent twelve months of the contract term. During 2006 we received
          $835,000 for drilling services rendered to Diamondback Energy Services,
          LLC, an
          entity controlled by Wexford.
 -28-
 ***Table
              of
              Contents***
 **Consulting
            Agreement with Michael O. Thompson**
  Effective
            February 28, 2006, Michael O. Thompson resigned from his positions as
            a member
            of our board of directors. In connection with his resignation, we entered
            into a
            consulting agreement with Mr. Thompson under which Mr. Thompson has agreed
            to
            provide us with consulting services for a period of approximately 30
            months.
            Although Mr. Thompson will not receive any additional compensation for
            providing
            these services to us, the stock options granted to him under our 2005
            Stock
            Incentive Plan will continue to vest in accordance with their
            terms.
  **Item 14.
            Principal
            Accounting Fees and Services**
  The
          information relating to this Item 14 is incorporated by reference to the
          Proxy Statement for our 2007 Annual Meeting of Stockholders, which will
          be filed
          with the Securities and Exchange Commission no later than 120 days after
          December 31, 2006.


-29-
 ***Table
          of
          Contents***




**PART
      IV**




**Item 15.
      Exhibits, Financial Statement Schedules.**




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


1.  *Financial
      Statements*


See
      Index
      to Consolidated Financial Statements on page 31 of this Form 10-K.


2.  *Financial
      Statement Schedules*


Schedule
      II


3.  *Exhibits* :




The
      following exhibits are filed as part of this report or, where indicated, were
      previously filed and are hereby incorporate by reference.




**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 Services 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).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
                Asset
                    Purchase Agreement, effective as of December 16, 2005, by and
                    between the
                    Company and Big A Drilling, L.C. (incorporated by reference to
                    Exhibit 10.2 to the Current Report on Form 8-K, File
                    No. 000-51571, filed by the Company with the SEC on January 20,
                    2006).10.2
                Credit
                    Agreement, dated January 13, 2006, by and between the Company
                    and Fortis
                    Capital Corp. (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 January 20, 2006).+10.3
                Consulting
                    Agreement, dated February 28, 2006, by and between the Company
                    and Michael
                    O. Thompson (incorporated by reference to Exhibit 10.18 to the
                    Company’s
                    Annual Report on Form 10-K, File No. 000-51471, filed by the
                    Company with
                    the SEC on March 7, 2006).10.4
                Daywork
                    Drilling Contract, dated as of January 26, 2006, by and between
                    Windsor
                    Energy Resources, Inc. and the Company (incorporated by reference
                    to
                    Exhibit 10.20 to Amendment No. 2 to the Registration Statement
                    on Form
                    S-1, filed by the Company with the SEC on ).+10.5
                Bronco
                    Drilling Company, Inc. 2006 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, 2006).+10.6
                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, 2006).+10.7
                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, 2006).+10.8
                Employment
                    Agreement, dated effective as of August 8, 2006, by and between
                    the
                    Company and D. Frank Harrison
                    (incorporated
                      by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form
                      10-Q, filed by the Company with the Sec on August 10,
                      2006).+10.9
                Employment
                    Agreement, dated effective as of August 8, 2006, by and between
                    the
                    Company and Zachary M. Graves
                    (incorporated
                      by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form
                      10-Q, filed by the Company with the Sec on August 10,
                      2006).+10.10
                Employment
                    Agreement, dated effective as of August 8, 2006, by and between
                    the
                    Company and Mark Dubberstein
                    (incorporated
                      by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form
                      10-Q, filed by the Company with the Sec on August 10,
                      2006).+10.11
                Separation
                    Agreement, dated effective as of August 26, 2006, by and between
                    the
                    Company and Karl W. Benzer
                    (incorporated
                      by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form
                      10-Q, filed by the Company with the SEC on November 2,
                      2006).*21.1
                List
                    of the Company’s Subsidiaries.*23.1
                Consent
                    of Grant Thornton 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.*31.2
                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*32.1
                Certification
                    of Chief Executive Officer of Bronco Drilling Company, Inc. pursuant
                    to
                    Rule 13a-14(b) promulgated under the Securities Exchange Act
                    of 1934, as
                    amended, and Section 1350 of Chapter 63 of Title 18 of the United
                    States
                    Code.*32.2
                Certification
                    of Chief Financial Officer of Bronco Drilling Company, Inc. pursuant
                    to
                    Rule 13a-14(b) promulgated under the Securities Exchange Act
                    of 1934, as
                    amended, and Section 1350 of Chapter 63 of Title 18 of the United
                    States
                    Code.


+  Management
      contract, compensatory plan or arrangement.


*  Filed
      herewith.  -30-
 ***Table
            of
            Contents***


**INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS**
  **BRONCO
        DRILLING COMPANY, INC. AND SUBSIDIARIES**
 **Page****Bronco
                      Drilling Company, Inc. and Subsidiaries**Report
                      of Independent Registered Public Accounting Firm
                  32Consolidated
                      Balance Sheets as of December 31, 2006 and 2005
                  33Consolidated
                      Statements of Operations for the years ended December 31, 2006, 2005
                      and 2004
                  34Consolidated
                      Statements of Members’/Stockholders’ Equity for the years ended
                      December 31, 2004, 2005 and 2006
                  35Consolidated
                      Statements of Cash Flows for the years ended December 31, 2006, 2005
                      and 2004
                  36Notes
                      to Consolidated Financial Statements
                  37
  -31-
 ***Table
            of
            Contents***
 **Report
            of Independent Registered Public Accounting Firm**
 
 
 Board
            of
            Directors
 Bronco
            Drilling Company, Inc.
 
 We
            have
            audited the accompanying consolidated balance sheets of Bronco Drilling
            Company,
            Inc. and Subsidiaries (the “Company”) as of December 31, 2006 and 2005, and the
            related consolidated statements of operations, members’/stockholders’equity and
            cash flows for each of the three years in the period ended December 31,
            2006.
            These financial statements are the responsibility of the Company’s management.
            Our responsibility is to express an opinion on these financial statements
            based
            on our audits.
 
 We
            conducted our audits in accordance with the standards of the Public Company
            Accounting Oversight Board (United States).  Those standards require that
            we plan and perform the audit to obtain reasonable assurance about whether
            the
            financial statements are free of material misstatement.  An audit includes
            examining, on a test basis, evidence supporting the amounts and disclosures
            in
            the financial statements.  An audit also includes assessing the accounting
            principles used and significant estimates made by management, as well
            as
            evaluating the overall financial statement presentation.  We believe that
            our audits provide a reasonable basis for our opinion.
 
 In
            our
            opinion, the consolidated financial statements referred to above present
            fairly,
            in all material respects, the financial position of Bronco Drilling Company,
            Inc. and Subsidiaries as of December 31, 2006 and 2005, and the results
            of their
            operations and their cash flows for each of the three years in the period
            ended
            December 31, 2006, in conformity with accounting principles generally
            accepted
            in the United States of America.
 
 We
            have
            also audited, in accordance with the standards of the Public Company
            Accounting
            Oversight Board (United States), the effectiveness of the Company’s internal
            control over financial reporting as of December 31, 2006, based on the
            criteria
            established in *Internal
            Control - Integrated Framework* issued
            by the Committee of Sponsoring Organizations of the Treadway Commission
            (COSO)
            and our report dated February 28, 2007 expressed an unqualified opinion
            on
            management’s assessment of the effectiveness of the Company’s internal control
            over financial reporting and an unqualified opinion on the effectiveness
            of the
            Company’s internal control over financial reporting.
 /s/
                      GRANT THORNTON LLPOklahoma
                      City, OklahomaFebruary
                      28, 2007
  -32-
 ***Table
              of
              Contents***
 **Bronco
                          Drilling Company, Inc. and
                          Subsidiaries****CONSOLIDATED
                          BALANCE SHEETS**
                      ******(Amounts
                          in thousands except share par value)****December
                          31,****2006**
                      
                      **2005****ASSETS**CURRENT
                          ASSETSCash
                          and cash equivalents
                      
                      $
                      10,608
                      
                      $
                      17,039ReceivablesTrade,
                          net of allowance for doubtful accounts of$400
                          and $330 in 2006 and 2005, respectively
                      
                      
                      60,282
                      
                      
                      35,078Contract
                          drilling in progress
                      
                      
                      1,989
                      
                      
                      1,226Current
                          deferred income taxes
                      
                      
                      155
                      
                      
                      125Prepaid
                          expenses
                      
                      
                      338
                      
                      
                      485Total
                          current assets
                      
                      
                      73,372
                      
                      
                      53,953PROPERTY
                          AND EQUIPMENT - AT COSTDrilling
                          rigs and related equipment
                      
                      
                      396,499
                      
                      
                      252,709Transportation,
                          office and other equipment
                      
                      
                      29,928
                      
                      
                      14,149426,427
                      
                      
                      266,858Less
                          accumulated depreciation
                      
                      
                      44,505
                      
                      
                      15,965381,922
                      
                      
                      250,893OTHER
                          ASSETSGoodwill
                      
                      
                      21,280
                      
                      
                      20,774Restricted
                          cash and deposit
                      
                      
                      2,600
                      
                      
                      2,184Intangibles,
                          net, and other
                      
                      
                      3,314
                      
                      
                      2,71627,194
                      
                      
                      25,674$
                      482,488
                      
                      $
                      330,520**LIABILITIES
                          AND STOCKHOLDERS' EQUITY**CURRENT
                          LIABILITIESAccounts
                          payable
                      
                      $
                      19,677
                      
                      $
                      10,847Accrued
                          liabilitiesPayroll
                          related
                      
                      
                      7,587
                      
                      
                      2,737Deferred
                          revenue and other
                      
                      
                      4,180
                      
                      
                      3,062Income
                          tax payable
                      
                      
                      3,724
                      
                      
                      1,372Note
                          payable
                      
                      
                      -
                      
                      
                      7,503Current
                          maturities of long-term debt
                      
                      
                      636
                      
                      
                      8,012Total
                          current liabilities
                      
                      
                      35,804
                      
                      
                      33,533LONG-TERM
                          DEBT, less current maturities
                      
                      
                      64,091
                      
                      
                      36,310DEFERRED
                          INCOME TAXES
                      
                      
                      42,608
                      
                      
                      21,341COMMITMENTS
                          AND CONTINGENCIES (Note 8)STOCKHOLDERS'
                          EQUITYCommon
                          stock, $.01 par value, 100,000shares
                          authorized; 24,938 shares and 23,165issued
                          and outstanding at December 31, 2006 and 2005
                      
                      
                      250
                      
                      
                      232Additional
                          paid-in capital
                      
                      
                      279,355
                      
                      
                      238,557Retained
                          earnings
                      
                      
                      60,380
                      
                      
                      547Total
                          stockholders' equity
                      
                      
                      339,985
                      
                      
                      239,336$
                      482,488
                      
                      $
                      330,520The
                          accompanying notes are an integral part of these
                          statements.
 -33-
 ***Table
                  of
                  Contents***
 **Bronco
                    Drilling Company, Inc. and Subsidiaries****CONSOLIDATED
                    STATEMENTS OF OPERATIONS****(Amounts
                    in thousands, except per share amounts)**
                ****
                ****
                ********
                ****
                ****
                ****
                ****
                ****
                ********
                **Years
                    Ended December 31,****2006**
                
                **2005**
                
                **2004**REVENUESContract
                    drilling revenues, including 4%, 3% and 0%
                
                $
                285,828
                
                $
                77,885
                
                $
                21,873to
                    related partiesEXPENSESContract
                    drilling
                
                
                139,607
                
                
                44,695
                
                
                18,670Depreciation
                    and amortization
                
                
                30,335
                
                
                9,143
                
                
                3,695General
                    and administrative
                
                
                15,709
                
                
                9,395
                
                
                1,714185,651
                
                
                63,233
                
                
                24,079Income
                    (loss) from operations
                
                
                100,177
                
                
                14,652
                
                
                (2,206
                )OTHER
                    INCOME (EXPENSE)Interest
                    expense
                
                
                (1,736
                )
                
                (1,415
                )
                
                (285
                )Loss
                    from early extinguishment of debt
                
                
                (1,000
                )
                
                (2,062
                )
                
                -Interest
                    income
                
                
                164
                
                
                432
                
                
                10Other
                
                
                284
                
                
                53
                
                
                -(2,288
                )
                
                (2,992
                )
                
                (275
                )Income
                    (loss) before income taxes
                
                
                97,889
                
                
                11,660
                
                
                (2,481
                )Income
                    tax expense
                
                
                38,056
                
                
                6,529
                
                
                285NET
                    INCOME (LOSS)
                
                $
                59,833
                
                $
                5,131
                
                $
                (2,766
                )Income
                    per common share-Basic
                
                $
                2.43
                
                $
                0.32Income
                    per common share-Diluted
                
                $
                2.43
                
                $
                0.31Weighted
                    average number of shares outstanding-Basic
                
                
                24,585
                
                
                16,259Weighted
                    average number of shares outstanding-Diluted
                
                
                24,623
                
                
                16,306PRO
                    FORMA INFORMATION (unaudited):Historical
                    income (loss) before income taxes
                
                
                
                
                $
                11,660
                
                $
                (2,481
                )Pro
                    forma provision (benefit) for income taxes
                
                
                
                
                
                4,396
                
                
                (935
                )Pro
                    forma income (loss)
                
                
                
                
                $
                7,264
                
                $
                (1,546
                )Pro
                    forma income (loss) per common share-Basic and Diluted
                
                
                
                
                $
                0.45
                
                $
                (0.12
                )Weighted
                    average number of shares outstanding-Basic
                
                
                
                
                
                16,259
                
                
                13,360Weighted
                    average number of shares outstanding-Diluted
                
                
                
                
                
                16,306
                
                
                13,360The
                    accompanying notes are an integral part of these
                    statements.
 -34-
 ***Table
            of
            Contents***


**Bronco
                Drilling Company Inc. and
                Subsidiaries****CONSOLIDATED
                STATEMENT OF MEMBERS'/STOCKHOLDERS' EQUITY****(Amounts
                in thousands)****Additional**
            
            
            
            **Total****Members'**
            
            **Common**
            
            **Common**
            
            **Paid
                In**
            
            **Retained**
            
            **Stockholders'****Equity**
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **Earnings**
            
            **Equity**Balance
                as of December 31, 2003
            
            $
            50,702
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $Net
                loss
            
            
            (2,766
            )
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**Capital
                Contributions
            
            
            2,867
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**
            
            
            **-**Balance
                as of December 31, 2004
            
            
            50,803
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                income through August 15, 2005
            
            
            4,584
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Conversion
                to a Delaware corporation
            
            
            (55,387
            )
            
            13,360
            
            
            134
            
            
            55,254
            
            
            -
            
            
            55,388Issuance
                of common stock in initial public offering;net
                of related expenses of $1,354
            
            
            -
            
            
            5,715
            
            
            57
            
            
            88,944
            
            
            -
            
            
            89,001Stock
                issued in acquisition
            
            
            -
            
            
            65
            
            
            1
            
            
            1,274
            
            
            -
            
            
            1,275Issuance
                of common stock in follow-on offering;net
                of related expenses of $462
            
            
            -
            
            
            4,025
            
            
            40
            
            
            86,981
            
            
            -
            
            
            87,021Net
                income, August 16, 2005 through December 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            547
            
            
            547Stock
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            589
            
            
            -
            
            
            589Capital
                contributions
            
            
            -
            
            
            -
            
            
            -
            
            
            5,515
            
            
            -
            
            
            5,515Balance
                as of December 31, 2005
            
            
            -
            
            
            23,165
            
            
            232
            
            
            238,557
            
            
            547
            
            
            239,336Stock
                issued in acquisition
            
            
            -
            
            
            73
            
            
            1
            
            
            1,815
            
            
            -
            
            
            1,816Issuance
                of common stock in follow-on offering;net
                of related expenses of $577
            
            
            -
            
            
            1,700
            
            
            17
            
            
            36,212
            
            
            -
            
            
            36,229Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            59,833
            
            
            59,833Stock
                compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            2,771
            
            
            -
            
            
            2,771Balance
                as of December 31, 2006
            
            $
            -
            
            
            24,938
            
            $
            250
            
            $
            279,355
            
            $
            60,380
            
            $
            339,985The
                accompanying notes are an integral part of these
                statements.







-35-
 ***Table
          of
          Contents***


**Bronco
                  Drilling Company, Inc. and Subsidiaries****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(Amounts
                  in thousands)****Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**Cash
                  flows from operating activities:Net
                  income (loss)
              
              $
              59,833
              
              $
              5,131
              
              $
              (2,766
              )Adjustments
                  to reconcile net income (loss) to net cashprovided
                  by operating activities:Depreciation
                  and amortization
              
              
              30,901
              
              
              9,193
              
              
              3,738Bad
                  debt expense
              
              
              70
              
              
              184
              
              
              146Non-cash
                  compensation expense
              
              
              -
              
              
              4,000
              
              
              -Gain
                  on sale of assets
              
              
              (2,379
              )
              
              -
              
              
              -Write
                  off of debt issue costs
              
              
              267
              
              
              799
              
              
              -Stock
                  compensation
              
              
              2,771
              
              
              589
              
              
              -Provision
                  for deferred income taxes
              
              
              21,237
              
              
              5,157
              
              
              285Changes
                  in current assets and liabilities:Receivables
              
              
              (25,274
              )
              
              (28,721
              )
              
              (3,425
              )Contract
                  drilling in progress
              
              
              (763
              )
              
              177
              
              
              -Prepaid
                  expenses
              
              
              147
              
              
              (445
              )
              
              319Other
                  assets
              
              
              232
              
              
              (485
              )
              
              30Accounts
                  payable
              
              
              (2,309
              )
              
              1,827
              
              
              2,850Accrued
                  expenses
              
              
              5,968
              
              
              4,540
              
              
              1,187Income
                  taxes payable
              
              
              2,352
              
              
              1,372
              
              
              -Net
                  cash provided by operating activities
              
              
              93,053
              
              
              3,318
              
              
              2,364Cash
                  flows from investing activities:Restricted
                  cash account
              
              
              (416
              )
              
              (1,515
              )
              
              -Business
                  acquisitions
              
              
              (17,046
              )
              
              (135,213
              )
              
              -Proceeds
                  from the sale of assets
              
              
              4,761
              
              
              -
              
              
              -Purchase
                  of property and equipment
              
              
              (130,498
              )
              
              (53,598
              )
              
              (19,511
              )Net
                  cash used in investing activities
              
              
              (143,199
              )
              
              (190,326
              )
              
              (19,511
              )Cash
                  flows from financing activities:Proceeds
                  from borrowings ($68,000 from affiliates in 2005)
              
              
              44,000
              
              
              119,950
              
              
              15,500Payments
                  of debt ($68,000 to affiliates in 2005)
              
              
              (34,867
              )
              
              (93,706
              )
              
              (1,700
              )Debt
                  issue costs
              
              
              (1,647
              )
              
              (873
              )
              
              (44
              )Capital
                  contributions
              
              
              -
              
              
              1,515
              
              
              2,867Proceeds
                  from sale of common stock, netof
                  offering costs of $577
              
              
              36,229
              
              
              176,022
              
              
              -Net
                  cash provided by financing activities
              
              
              43,715
              
              
              202,908
              
              
              16,623Net
                  increase (decrease) in cash and cash equivalents
              
              
              (6,431
              )
              
              15,900
              
              
              (524
              )Beginning
                  cash and cash equivalents
              
              
              17,039
              
              
              1,139
              
              
              1,663Ending
                  cash and cash equivalents
              
              $
              10,608
              
              $
              17,039
              
              $
              1,139Supplementary
                  disclosure of cash flow informationInterest
                  paid, net of amount capitalized
              
              $
              1,771
              
              $
              1,324
              
              $
              241Income
                taxes paid
              
              
              14,467
              
              
              -
              
              
              -Supplementary
                  disclosure of non-cash investing and financing:Liabilities
                  assumed in acquisition/contribution
              
              $
              -
              
              $
              1,775
              
              $
              -Common
                  stock issued for acquisition
              
              
              1,816
              
              
              1,275
              
              
              -Note
                  assumed in acquisition
              
              
              -
              
              
              7,000
              
              
              -Notes
                  issued for acquisition of property and equipment
              
              
              3,769
              
              
              -
              
              
              -In
                kind contribution by founder
              
              
              -
              
              
              4,000
              
              
              -The
                  accompanying notes are an integral part of these
                  statements.


-36-
 ***Table
          of
          Contents***


**Bronco
      Drilling Company, Inc. and Subsidiaries**




**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**($
      Amounts in thousands, except per share amounts)**




**1.
      Organization and Summary of Significant Accounting Policies**




*Business
      and Principles of Consolidation*




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




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




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




*Cash
      and Cash Equivalents*




The
      Company considers all highly liquid debt instruments purchased with a maturity
      of three months or less when acquired and money market mutual funds to be cash
      equivalents.




The
      Company maintains its cash and cash equivalents in accounts and instruments
      that
      may not be federally insured. The Company has not experienced any losses in
      such
      accounts and believes it is not exposed to any significant credit risks on
      cash
      and cash equivalents.




*Revenue
      Recognition*




The
      Company earns contract drilling revenue under daywork and footage contracts.





Revenues
      on daywork contracts are recognized based on the days completed at the dayrate
      each contract specifies. Mobilization revenues and costs for daywork contracts
      are deferred and recognized over the days of actual drilling.




The
      Company follows the percentage-of-completion method of accounting for footage
      contract drilling arrangements. Under this method, drilling revenues and costs
      related to a well in progress are recognized proportionately over the time
      it
      takes to drill the well. Percentage-of-completion is determined based upon
      the
      amount of expenses incurred through the measurement date as compared to total
      estimated expenses to be incurred drilling the well. Mobilization costs are
      not
      included in costs incurred for percentage-of-completion calculations.
      Mobilization costs on footage contracts are deferred and recognized over the
      days of actual drilling. Under the percentage-of-completion method, management
      estimates are relied upon in the determination of the total estimated expenses
      to be incurred drilling the well. When estimates of revenues and expenses
      indicate a loss on a contract, the total estimated loss is accrued.




The
      receivables from contract drilling in progress represents revenues in excess
      of
      amounts billed on contracts in progress.




Revenue
      arising from claims for amounts billed in excess of the contract price or for
      amounts not included in the original contract are recognized when billed less
      any allowance for uncollectibility. Revenue from such claims is only recognized
      if it is probable that the claim will result in additional revenue, the costs
      for the additional services have been incurred, management believes there is
      a
      legal basis for the claim and the amount can be reliably estimated. Revenue
      from
      such claims are recorded only to the extent that contract costs relating to
      the
      claim have been incurred. Historically, we have not billed any customers for
      amounts not included in the original contract.




*Accounts
      Receivable*




The
      Company records trade accounts receivable at the amount invoiced to customers.
      Substantially all of the Company’s accounts receivable are due from companies in
      the oil and gas industry. Credit is extended based on evaluation of a customer’s
      financial condition and, generally, collateral is not required. Accounts
      receivable are due within 30 days and are stated at amounts due from customers,
      net of an allowance for doubtful accounts when the Company believes collection
      is doubtful. Accounts outstanding longer than the contractual payment terms
      are
      considered past due. The Company determines its allowance by considering a
      number of factors, including the length of time trade accounts receivable are
      past due, the Company’s previous loss history, the customer’s current ability to
      pay its obligation to the Company and the condition of the general economy
      and
      the industry as a whole. The Company writes off specific accounts receivable
      when they become uncollectible and payments subsequently received on such
      receivables reduce the allowance for doubtful accounts. At December 31,
      2006 and 2005, our allowance for doubtful accounts was $400 and $330,
      respectively.




*Prepaid
      Expenses*




Prepaid
      expenses include items such as insurance and fees. The Company routinely
      expenses these items in the normal course of business over the periods these
      expenses benefit.




*Property
      and Equipment*




Property
      and equipment, including renewals and betterments, are capitalized and stated
      at
      cost, while maintenance and repairs are expensed currently. Assets are
      depreciated on a straight-line basis. The depreciable lives of drilling rigs
      and
      related equipment are three to 15 years. The depreciable life of other equipment
      is three years. Depreciation is not commenced until acquired rigs are placed
      in
      service. Once placed in service, depreciation continues when rigs are being
      repaired, refurbished or between periods of deployment. Assets not placed in
      service and not being depreciated were $57,247 and $62,275 as of
      December 31, 2006 and 2005, respectively. Gains and losses on dispositions
      are included in operating revenues.




The
      Company capitalizes interest as a component of the cost of drilling rigs
      constructed for its own use. For the years ended December 31, 2006, 2005,
      and 2004 the Company capitalized $3,590, $1,207, and $407 respectively, of
      interest costs incurred during the construction periods of certain drilling
      rigs.




The
      Company reviews long-lived assets to be held and used for impairment whenever
      events or changes in circumstances indicate that the carrying amount of the
      assets may not be recoverable. If the sum of the undiscounted expected future
      cash flows is less than the carrying amount of the assets, the Company
      recognizes an impairment loss based upon fair value of the asset.




-37-
 ***Table
          of
          Contents***




*Goodwill*




The
      Company evaluates the carrying value of goodwill during the fourth quarter
      of
      each year and between annual evaluations if events occur or circumstances change
      that would more likely than not reduce the fair value below its carrying amount.
      Such circumstances could include, but are not limited to: (1) a significant
      adverse change in legal factors or in business climate, (2) unanticipated
      competition, or (3) an adverse action or assessment by a regulator. When
      evaluating whether goodwill is impaired, the Company compares its fair value
      to
      its carrying amount, including goodwill. Fair value is estimated using a
      combination of income, or discounted cash flows approach and the market
      approach, which utilizes comparable companies’ data. If the carrying amount
      exceeds its fair value, then the amount of the impairment loss must be measured.
      The impairment loss would be calculated by comparing the implied fair value
      of
      reporting unit goodwill to its carrying amount. In calculating the implied
      fair
      value of goodwill, the fair value of the Company is allocated to all of its
      other assets and liabilities based on their fair values. The excess of the
      fair
      value of the Company over the amount assigned to its other assets and
      liabilities is the implied fair value of goodwill. An impairment loss would
      be
      recognized when the carrying amount of goodwill exceeds its implied fair value.
      No impairment of goodwill has been required during impairment evaluations.
      Goodwill recognized during 2006 and 2005 through acquisitions was $380 and
      $20,774, respectively.




*Intangibles,
      Net and Other*




Intangibles,
      restricted cash and other assets consist of intangibles related to acquisitions,
      net of amortization, cash deposits related to the deductibles on our workers
      compensation insurance policies and debt issue costs, net of amortization.
      The
      Company follows Statement of Financial Accounting Standards (“SFAS”)
      No. 142, “ *Goodwill
      and Other Intangibles* ”
to
      account for amortizable intangibles. Intangible assets that are acquired either
      individually or with a group of other assets are recognized based on its fair
      value and amortized over its useful life. The Company’s amortizable intangibles
      consist entirely of customer lists and relationships obtained through
      acquisitions. Customer lists and relationships are amortized over their
      estimated benefit period of four years. Depreciation expense includes
      amortization of intangibles of $672 and $87 for the years ended
      December 31, 2006 and 2005, respectively. Total cost and accumulated
      amortization of intangibles at December 31, 2006 and 2005 was $2,619 and $759
      and $2,106 and $87, respectively.


Estimated
        amortization expense for each year subsequent to December 31, 2006 is as
        follows:
 2007
                  $6552008
                  6552009
                  5232010
                  272011
                  —
 Legal
              fees
              and other debt issue costs incurred in obtaining financing are amortized
              over
              the term of the debt using a method which approximates the effective
              interest
              method. Gross debt issue costs were $1,589 and $268 at December 31, 2006
              and 2005, respectively. Amortization expense related to debt issue
              costs was
              $377, $53, and $43 for years ended December 31, 2006, 2005 and 2004,
              respectively, and is included in interest expense in the consolidated
              statements
              of operations. Accumulated amortization related to loan fees was $508
              and $14 as
              of December 31, 2006 and 2005 respectively. On January 13, 2006, the
              Company paid off its term note with Merrill Lynch Capital. The Company
              incurred
              a prepayment penalty of $497 and wrote-off debt issue costs of $503,
              which is
              included in loss from early extinguishment of debt on the consolidated
              statement
              of operations for the year ended December 31, 2006.On August 29, 2005, the
              Company paid off its term note with General Electric Capital Corporation.
              The
              Company incurred a prepayment penalty of $644 and wrote-off debt issue
              costs of
              $349, which is included in loss from early extinguishment of debt on
              the
              consolidated statement of operations for the year ended December 31, 2005.
              On November 2, 2005, the Company paid off its term note with Theta
              Investors, LLC, formerly Alpha Investors LLC, an entity controlled
              by Wexford
              Capital, LLC (“Wexford”), the Company’s principal stockholder. The Company
              wrote-off debt issue costs of $1,075, which is included in loss from
              early
              extinguishment of debt on the consolidated statement of operations
              for the year
              ended December 31, 2005
  *Restricted
              Cash and Deposit*
  At
              December 31, 2006 and 2005, the Company had a deposit of $2,600 and
              restricted cash of $2,184, respectively, at an insurance company and
              a bank
              collateralizing letters of credit with the Company’s workers’ compensation
              insurers.
  *Income
              Taxes*
  Pursuant
              to Statement of Financial Accounting Standards (“SFAS”) No. 109,
“ *Accounting
              for Income Taxes* ,”
the
              Company follows the asset and liability method of accounting for income
              taxes,
              under which the Company recognizes deferred tax assets and liabilities
              for the
              future tax consequences attributable to differences between the financial
              statement carrying amounts of existing assets and liabilities and their
              respective tax bases. Deferred tax assets and liabilities were measured
              using
              enacted tax rates expected to apply to taxable income in the years
              in which the
              Company expects to recover or settle those temporary differences. A
              statutory
              Federal tax rate of 35% (34% in 2005 and 2004) and effective state tax
              rate of 3.7% (net of Federal income tax effects) were used for the
              enacted tax
              rates for all periods.
  As
              changes in tax laws or rates are enacted, deferred income tax assets
              and
              liabilities are adjusted through the provision for income taxes. Deferred
              tax
              assets are reduced by a valuation allowance if, based on available
              evidence, it
              is more likely than not that some portion or all of the deferred tax
              assets will
              not be realized. The classification of current and noncurrent deferred
              tax
              assets and liabilities is based primarily on the classification of
              the assets
              and liabilities generating the difference
  *Pro
              Forma Income Taxes (unaudited)*
  Our
              predecessor, a limited liability company, was classified as a partnership
              for
              income tax purposes. Accordingly, income taxes on net earnings were
              payable by
              the members and are not reflected in historical financial statements,
              prior to
              our initial public offering (“IPO”) on August 15, 2005 except for tax expense
              (benefit) associated with a taxable subsidiary. Pro forma adjustments
              are
              reflected to provide for income taxes in accordance with SFAS No. 109. For
              unaudited pro forma income tax calculations, deferred tax assets and
              liabilities
              were recognized for the future tax consequences attributable to differences
              between the assets and liabilities and were measured using enacted
              tax rates
              expected to apply to taxable income in the years in which the Company
              expects to
              recover or settle those temporary differences. A statutory Federal
              tax rate of
              34% and effective state tax rate of 3.7% (net of Federal income tax
              effects)
              were used for the pro forma enacted tax rate for all periods. The pro
              forma tax
              effects are based upon currently available information and assume the
              Company
              had been a taxable entity in the periods presented. Management believes
              that
              these assumptions provide a reasonable basis for presenting the pro
              forma tax
              effects.
  *Net
              income (Loss) Per Common Share*
  The
              Company computes and presents net income (loss) per common share in
              accordance
              with SFAS No. 128 “ *Earnings
              per Share* .”
This
              standard requires dual presentation of basic and diluted net income
              (loss) per
              share on the face of the Company’s statement of operations. Basic net income
              (loss) per common share is computed by dividing net income or loss
              attributable
              to common stock by the weighted average number of common shares outstanding
              for
              the period. Diluted net income (loss) per common share reflects the
              potential
              dilution that could occur if options or other contracts to issue common
              stock
              were exercised or converted into common stock.
  *Pro
              Forma Income (Loss) Per Share (unaudited)*
  Pro
              forma
              income (loss) per basic and diluted common share is computed based
              on weighted
              average pro forma number of basic and diluted shares assumed to be
              outstanding
              during the periods prior to our IPO on August 15, 2005.
 -38-
 ***Table
                  of
                  Contents***
  *Stock-based
              Compensation*
  The
              Company has adopted SFAS No. 123(R), “ *Share-Based
              Payment* ”
upon
              granting its first stock options on August 16, 2005. SFAS No. 123(R)
              requires a public entity to measure the costs of employee services
              received in
              exchange for an award of equity or liability instruments based on the
              grant-date
              fair value of the award. That cost will be recognized over the periods
              during
              which an employee is required to provide service in exchange for the
              award.
  *Recent
              Accounting Pronouncements*
  In
              June
              2006, the Financial Accounting Standards Board (“FASB”) issued FASB
              Interpretation No. 48 (“FIN 48”), “Accounting For Uncertainty in Income Taxes.”
This Interpretation clarifies the accounting for uncertainty in income
              taxes
              recognized in an enterprise’s financial statements in accordance with SFAS No.
              109, “Accounting for Income Taxes.” This Interpretation prescribes a recognition
              threshold and measurement attribute for the financial statement recognition
              and
              measurement of a tax position taken or expected to be taken in a tax
              return.
              This Interpretation also provides guidance on derecognition, classification,
              interest and penalties, accounting in interim periods, disclosure,
              and
              transition. This Interpretation is effective for fiscal years beginning
              after
              December 15, 2006. The
              Company has substantially completed its evaluation of the impact FIN
              48 will
              have on its financial statements when adopted January 1, 2007. The
              Company
              currently does not believe that the adoption of FIN 48 will have a
              significant
              effect on our financial statements or its ability to comply with its
              current
              debt covenants.
  In
              September 2006, the FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value
              Measurements.” This Statement defines fair value, establishes a framework for
              measuring fair value in generally accepted accounting principles (“GAAP”), and
              expands disclosures about fair value measurements. This Statement applies
              under
              other accounting pronouncements that require or permit fair value measurements,
              the FASB having previously concluded in those accounting pronouncements
              that
              fair value is the relevant measurement attribute. Accordingly, this
              Statement
              does not require any new fair value measurements. However, for some
              entities,
              the application of this Statement will change current practice. This
              Statement
              is effective for fiscal years beginning after November 15, 2007. The
              Company
              does not expect the adoption of SFAS 157 to have a material impact
              on its
              financial position or results of operation and financial condition.
  In
              September
              2006, the SEC released Staff Accounting Bulletin 108, "Considering
              the Effects
              of Prior Year Misstatements when Quantifying Misstatements in Current
              Year
              Financial Statements ("SAB 108"), provides guidance on how the effects
              of the
              carryover on reversal of prior year misstatements should be considered
              in
              quantifying a current year misstatement. In some situations, companies
              will be
              required to record errors that occurred in prior years even though
              those errors
              were immaterial for each year in which they arose. Companies may choose
              to
              either restate all previously presented financial statements or record
              the
              cumulative effect of such errors as an adjustment to retained earnings
              at the
              beginning of the period in which SAB 108 is applied. SAB 108 is effective
              for
              fiscal years ending after November 15, 2006, and was adopted by the
              Company on
              December 31, 2006. The adoption of SAB 108 did not have a material
              impact on the Company’s financial statements.
  **2.
              Acquisitions**
  In
              July
              2005, the Company acquired all the membership interests in Strata Drilling,
              L.L.C. and Strata Property, L.L.C. (collectively “Strata”) and a related rig
              yard. Included in these acquisitions were two operating rigs, one rig
              that was
              being refurbished, related structures, equipment and components and
              a 16 acre
              yard in Oklahoma City, Oklahoma used for equipment storage and refurbishment
              of
              inventoried rigs. The aggregate purchase price was $20,000, of which
              $13,000 was
              paid in cash and $7,000 was paid in the form of promissory notes issued
              to the
              sellers. The Company funded the cash portion of the purchase price
              with a
              $13,000 loan from Theta Investors, LLC, formerly Alpha Investors LLC,
              an entity
              controlled by Wexford. The outstanding principal balance of the Alpha
              loan was
              paid in full on August 22, 2005 with proceeds from our initial public
              offering. This purchase was accounted for as an acquisition of a business,
              and
              the results of operations of the acquired business have been included
              in our
              statement of operations since the date of acquisition. We allocated
              the purchase
              price to property and equipment and related assets based on their relative
              fair
              values at the date of acquisition.
  The
              $7,000 original aggregate outstanding principal balance of the promissory
              notes
              issued to the sellers was automatically reduced by the amount of any
              costs and
              expenses the Company paid in connection with the refurbishment of one
              of the
              rigs it acquired from the sellers. The Company granted the sellers
              a security
              interest in this rig to secure its obligations under the notes. The
              outstanding
              principal balance on these notes did not bear any interest other than
              default
              interest in the event of a default. In January 2006, the rig was completed
              to
              the satisfaction of the Company and title passed at such point. Upon
              acceptance
              of the rig the note was paid in full (see Note 3).
  In
              September 2005, the Company acquired all the outstanding common stock
              of Hays
              Trucking, Inc. for $3,000 in cash, which includes the repayment of
              $1,900 of
              debt owed by Hays Trucking, and the issuance of 65,368 shares of common
              stock
              with a fair value of $1,274 based on the closing stock price at date
              of
              acquisition. In this acquisition, the Company acquired 18 trucks used
              to
              mobilize rigs to contracted drilling locations as well as other ancillary
              equipment. Approximately $286 of the purchase price was allocated to
              customer
              lists and is included in intangibles on the balance sheets at December
              31, 2006
              and December 31, 2005. Customer lists are being amortized over an expected
              life of four years.
  In
              October 2005, the Company purchased 12 land drilling rigs from Eagle
              Drilling,
              L.L.C., and two of its affiliates (“Eagle”). This acquisition involved five
              operating rigs, seven inventoried rigs and rig equipment and parts
              for a
              purchase price of approximately $50,528. The purchase price of $50,528,
              which
              includes approximately $528 of related transaction costs, was funded
              with a
              $7,517 from cash on hand and a $43,000 loan from Merrill Lynch Business
              Financial Services, Inc., as lender (see Note 4). The purchase price
              has been
              allocated to property and equipment totaling $33,838, goodwill of $16,037
              and
              customer lists and relationships of $653. Customer lists are being
              amortized
              over an expected life of four years. The entire amount allocated to
              goodwill is
              considered deductible for tax purposes.
  In
              October 2005, the Company purchased 13 land drilling rigs from Thomas
              Drilling
              Company (“Thomas”). This acquisition involved nine operating rigs, two rigs
              being refurbished, two inventoried rigs and rig equipment and parts
              for a
              purchase price of approximately $70,737, which includes approximately
              $2,737 of
              related transaction costs. The purchase price was partially funded
              through a
              $50,000 loan from Theta Investors LLC, an entity controlled by Wexford.
              This
              loan was repaid in full on November 3, 2005 with a portion of the proceeds
              from the Company’s follow-on common stock offering which closed on
              November 2, 2005. The purchase price has been allocated to property and
              equipment totaling $64,708, goodwill of $4,863 and customer lists of
              $1,166.
              Customer lists are being amortized over an expected life of four years.
              The
              entire amount allocated to goodwill is considered deductible for tax
              purposes.
  On
              January 18, 2006, the Company completed the acquisition of six land
              drilling rigs and certain other assets, including heavy haul trucks
              and excess
              rig equipment and inventory, from Big A Drilling, L.L.C. (“Big A”). The results
              of Big A’s operations have been included in the consolidated financial
              statements since that date. The purchase price for the assets consisted
              of
              $16,028 in cash and 72,571 shares of our common stock with a fair market
              value
              of $1,816. At closing, the Company also entered into a lease agreement
              with an
              affiliate of Big A under which it leased a rig refurbishment yard located
              in
              Woodward, Oklahoma. The lease had an initial term of six months, and
              the Company
              has the option to extend the initial term for a period of three years
              following
              the expiration of the initial term. The Company intends to exercise
              the option
              to purchase the leased premises in 2007 for $200. The purchase price
              has been
              allocated to property and equipment totaling $17,077, goodwill of $380
              and
              customer lists of $387. Customer lists are being amortized over an
              expected life
              of four years. The entire amount allocated to goodwill is considered
              deductible
              for tax purposes.
 -39-
 ***Table
                  of
                  Contents***




The
      following table summarizes the allocation of purchase price to the Company’s
      significant acquisitions:


**Year
                                    Ended December 31,****2005**
                                
                                **2006**Assets
                                  Acquired:
                                
                                **Strata**
                                
                                **Eagle**
                                
                                **Thomas**
                                
                                **Total**
                                
                                **Big
                                    A**Drilling
                                    equipment
                                
                                $
                                11,840
                                
                                $
                                33,838
                                
                                $
                                64,288
                                
                                $
                                109,966
                                
                                $
                                16,724Rig
                                    under construction
                                
                                
                                7,000
                                
                                
                                -
                                
                                
                                -
                                
                                
                                7,000
                                
                                
                                -Yard
                                    Equipment
                                
                                
                                170
                                
                                
                                -
                                
                                
                                -
                                
                                
                                170
                                
                                
                                -Vehicles
                                
                                
                                18
                                
                                
                                -
                                
                                
                                420
                                
                                
                                438
                                
                                
                                353Buildings
                                
                                
                                729
                                
                                
                                -
                                
                                
                                -
                                
                                
                                729
                                
                                
                                -Land
                                
                                
                                243
                                
                                
                                -
                                
                                
                                -
                                
                                
                                243
                                
                                
                                -Customer
                                    Lists
                                
                                
                                -
                                
                                
                                653
                                
                                
                                1,166
                                
                                
                                1,819
                                
                                
                                387Goodwill
                                
                                
                                -
                                
                                
                                16,037
                                
                                
                                4,863
                                
                                
                                20,900
                                
                                
                                380$
                                20,000
                                
                                $
                                50,528
                                
                                $
                                70,737
                                
                                $
                                141,265
                                
                                $
                                17,844
 The
        following pro forma information gives effect to the Strata, Eagle, Thomas,
        and
        Big A acquisitions as though they were effective at the beginning of 2005.
        Pro
        forma adjustments primarily relate to additional depreciation, amortization
        and
        interest costs. The information reflects the Company’s historical data and
        historical data from the acquired business for the periods indicated. The
        pro
        forma data may not be indicative of the results the Company would have achieved
        had it completed the acquisition at the beginning of each year presented,
        or
        that it may achieve in the future. The pro forma financial information should
        be
        read in conjunction with the accompanying historical financial statements.
        Pro
        forma income per basic and diluted common share is computed based on the
        weighted average pro forma number of basic and diluted shares assumed to
        be
        outstanding during the period. Pro forma per share information is presented
        for
        the year ended December 31, 2005 on the basis of 16,259,000 and 16,306,000
        weighted average shares issued basic and diluted, and 72,571 shares issued
        in
        the Big A acquisition. Pro forma per share information is presented for the
        year
        ended December 31, 2004 on the basis of 13,360,000 weighted average shares
        issued basic and diluted. Dilutive pro forma effect is given to shares which
        are
        issuable upon the exercise of outstanding options under the Company’s employee
        stock option plan.
 **Combined
                        Pro Forma****(Unaudited)****Year
                        Ended December 31,****2005**
                    
                    **2004**Total
                        revenues
                    
                    $
                    156,090
                    
                    $
                    47,960Net
                        income
                    
                    $
                    12,193
                    
                    
                    ($6,021
                    )Net
                        income per common share:Basic
                    
                    $
                    0.75
                    
                    
                    ($0.45
                    )Diluted
                    
                    $
                    0.75
                    
                    
                    ($0.45
                    )
 **3.
          Notes Payable**
  Notes
          payable at December 31, 2005 consisted of advances under a $3,000 revolving
          line of credit with a bank (“Bank Note Payable”) and $7,000 original aggregate
          principal amount of notes payable to the sellers in the Strata acquisition
          (“Strata Note”). The Bank Note Payable bore interest based on JPMorgan Chase
          prime. Interest on the Bank Note Payable is due monthly with outstanding
          principal due November 1, 2006 and is collateralized by the Company’s
          accounts receivable. The Bank Note Payable was paid in full in January
          2006.
  The
          $7,000 original aggregate principal balance of the Strata Note issued to
          the
          sellers was automatically reduced by the amount of any costs and expenses
          the
          Company paid in connection with the refurbishment of one of the rigs it
          acquired
          from the sellers. Payment of the outstanding balance of the Strata Note
          was due
          and payable upon satisfactory completion of the refurbishment of this rig.
          The
          Company granted the sellers a security interest in this rig to secure its
          obligations under the Strata Note. The outstanding aggregate principal
          balance
          on the Strata Note did not bear any interest other than default interest
          in the
          event of a default. The amount due on the Strata Note, net of costs and
          expenses
          of $2,497 paid by the Company, was $4,503 at December 31, 2005. The Strata
          Note was paid in full in January 2006 (See Note 2).
 -40-
 ***Table
              of
              Contents***
  **4.
          Long-term Debt**
  Long-term
          debt consists of the following:
 **December
                      31,**
                  
                  **December
                      31,****2006**
                  
                  **2005**Note
                      payable to Merrill Lynch Capital, collateralized by the Company's
                      assets,payable
                      in sixty monthly installments equal to one sixtieth of the
                      outstandingprincipal
                      on January 1, 2006 plus interest at a floating rate equal to
                      LIBORplus
                      2.71%. Paid off on January 13, 2006
                      (1)..............................................................................................................................................................
                  
                  $
                  -
                  
                  $
                  43,000Notes
                      payable to De Lage Landen Financial Services, collateralized
                      by
                      cranes,payable
                      in ninety-six monthly principal and interest installments of
                      $61Interest
                      on the notes ranges from 6.74% - 7.07%, with various due dates
                      (2)......................................................................................................
                  
                  
                  4,167
                  
                  
                  1,322Revolving
                      credit facility with Fortis Capital, collateralized by the
                      Company's
                      assets,and
                      matures on January 13, 2009. Loans under the revolving credit
                      facilitybear
                      interest at variable rates as defined in the credit agreement.
                      (3).....................................................................................................................
                  
                  
                  60,000
                  
                  
                  -Notes
                      payable to Ford Motor Credit, collateralized by trucks,payable
                      in principal and interest installments of $4Interest
                      on the notes is 7.99%-8.99% with various due dates.
                      (4)...........................................................................................................................
                  
                  
                  167
                  
                  
                  -Note
                      payable to John Deere Construction and Forestry Company, collaterized
                      by
                      forklifts, in thirty-six monthly installments of $11, due December
                      1, 2009
                      (5)........................................................................................................................................................................................................................................
                  
                  
                  393
                  
                  
                  -64,727
                  
                  
                  44,322Less
                      current installments
                  
                  
                  636
                  
                  
                  8,012$
                  64,091
                  
                  $
                  36,310
 (1)
                  On
                      September 19, 2005, the Company entered into a Term Loan and Security
                      Agreement with Merrill Lynch Capital, a division of Merrill
                      Lynch Business
                      Financial Services, Inc., as lender (“Merrill Lynch” or the “lender”). The
                      term loan provided for a term installment loan in an aggregate
                      amount not
                      to exceed $50,000 and provided for a commitment by Merrill
                      Lynch to
                      advance funds from time to time until December 31, 2005. The
                      outstanding balance under the term loan could not exceed 60%
                      of the net
                      orderly liquidation value of the Company’s operating land drilling rigs.
                      Proceeds of the term loan were to be used to replenish working
                      capital for
                      general business purposes, finance improvements to and the
                      refurbishment
                      of land drilling rigs, and to acquire additional land drilling
                      rigs. In
                      January 2006, all borrowings were repaid in full and the term
                      loan and
                      security agreements were terminated at such time. The Company
                      incurred a
                      $1,000 loss from early extinguishment of debt at the time of
                      retirement..(2)
                  On
                      December 7, 2005, January 4, 2006 and June 12, 2006, the Company
                      entered into Term Loan and Security Agreements with De Lage
                      Landen
                      Financial Services, Inc. The loans provide for term installments
                      loans in
                      an aggregate amount not to exceed $4,512. The proceeds of the
                      term loans
                      were used to purchase four cranes.(3)
                  On
                      January 13, 2006, the Company entered into a $150,000 revolving
                      credit facility with Fortis Capital Corp., as administrative
                      agent, lead
                      arranger and sole bookrunner, and a syndicate of lenders, which
                      included
                      The Royal Bank of Scotland plc, The CIT Group/Business Credit,
                      Inc.,
                      Calyon Corporate and Investment Bank, Merrill Lynch Capital,
                      Comerica Bank
                      and Caterpillar Financial Services Corporation. The revolving
                      credit
                      facility matures on January 13, 2009.The
                      initial aggregate revolving commitment of $150,000 is automatically
                      and
                      permanently reduced by $10.0 million at the end of each fiscal
                      quarter
                      starting September 30, 2006. The aggregate revolving commitment
                      was
                      $130,000 at December 31, 2006.Loans
                      under the revolving credit facility bear interest at LIBOR
                      plus a margin
                      that can range from 2.0% to 3.0% or, at our option, the prime
                      rate plus a
                      margin that can range from 1.0% to 2.0%, depending on the ratio
                      of the
                      Company’s outstanding senior debt to “Adjusted EBITDA” as defined in the
                      agreement. The Company pays a commitment fee on the average
                      daily amount
                      by which the revolving commitment exceeds the sum of the aggregate
                      principal amount of outstanding revolving advances and the
                      letter of
                      credit exposure at a rate of 0.50%. Commitment fees paid during
                      2006 were
                      $445. The Company’s obligations under the revolving credit facility are
                      collateralized by substantially all of the Company’s assets. The Company’s
                      initial borrowings under this revolving credit facility were
                      used to fund
                      a portion of the Big A acquisition, and to repay in full borrowings
                      under
                      the Company’s term loan with Merrill Lynch Capital and our revolving line
                      of credit with International Bank of Commerce.The
                      revolving credit facility contains customary covenants for
                      facilities of
                      this type, including among other things, covenants that restrict
                      the
                      Company’s ability to make capital expenditures, incur indebtedness,
                      incur
                      liens, dispose of property, repay debt, pay dividends, repurchase
                      shares
                      and make certain acquisitions. The financial covenants are
                      a minimum fixed
                      charge coverage ratio of 1.75 to 1.00 and a maximum total leverage
                      ratio
                      of 2.00 to 1.00. The Company was in compliance with all covenants
                      at
                      December 31, 2006.(4)
                  On
                      various dates during 2006, the Company entered into term loan
                      agreements
                      with Ford Credit. The loans provide for term installments in
                      an aggregate
                      not to exceed $174. The proceeds of the term loans were used
                      to purchase
                      eight trucks.(5)
                  On
                      November 21, 2006, the Company entered into term loan agreements
                      with John
                      Deere Credit. The loans provide for term installments in an
                      aggregate not
                      to exceed $403. The proceeds of the term loans were used to
                      purchase two
                      forklifts.




Long-term
      debt maturing each year subsequent to December 31, 2006 is as
      follows:


2007
                
                $
                6362008
                
                
                6722009
                
                
                60,6922010
                
                
                5912011
                
                
                6312012
                    and thereafter
                
                
                1,505$
                64,727
 -41-
 ***Table
            of
            Contents***
  **5.
        Income Taxes**


Income
        tax expense consists of the following:
 **Years
                    Ended December 31,****2006**
                
                **2005**
                
                **2004**Current:State
                
                $
                2,456
                
                $
                205
                
                $
                -Federal
                
                
                14,363
                
                
                1,167
                
                
                -Deferred:State
                
                
                2,023
                
                
                510
                
                
                28Federal
                
                
                19,214
                
                
                4,647
                
                
                257Income
                    tax expense
                
                $
                38,056
                
                $
                6,529
                
                $
                285
 Deferred
          income tax assets and liabilities are as follows:
 **Years
                        Ended December 31,****2006**
                    
                    **2005**Deferred
                        tax assets:Stock
                        option expense
                    
                    $
                    1,299
                    
                    $
                    222Other
                    
                    
                    155
                    
                    
                    125Total
                        deferred tax assets
                    
                    
                    1,454
                    
                    
                    347Deferred
                        tax liabilities:Property
                        and equipment, principally dueto
                        differences in depreciation
                    
                    
                    42,901
                    
                    
                    21,563Other
                    
                    
                    1,006
                    
                    
                    -Total
                        deferred tax liabilities
                    
                    
                    43,907
                    
                    
                    21,563Net
                        deferred tax liabilities
                    
                    $
                    42,453
                    
                    $
                    21,216





For
      the year ended
      December 31, 2006, the Company's effective tax rate increased approximately
      1.0%
      from that of the prior years due to an increase in taxable income. This change
      caused an increase of the deferred tax asset and deferred tax liability amounts
      of approximately $38 and $1,135, respectively.




Upon
      the
      conversion from a limited liability company to a taxable corporation in
      conjunction with its initial public offering, the Company incurred a one-time
      charge to operations in the third quarter of 2005 of approximately $4,412 to
      record deferred taxes upon change in tax status.




In
      assessing its ability to realize deferred tax assets, the Company considers
      whether it is more likely than not that some portion or all of the deferred
      tax
      assets will not be realized. Its ultimate realization of deferred tax assets
      depends on the generation of future taxable income during the periods in which
      those temporary differences become deductible. The Company considers the
      scheduled reversal of deferred tax liabilities and projected future taxable
      income in making this assessment. The Company believes it is more likely than
      not that it will realize the benefits of these deductible differences.




The
      provision for income taxes on continuing operations differs from the amounts
      computed by applying the federal income tax rate of 35% (34% for 2005 and
      2004) to net income. The differences are summarized as follows:




**Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**Expected
                  tax expense (benefit)
              
              $
              34,261
              
              $
              3,964
              
              $
              (843
              )State
                  income taxes
              
              
              3,622
              
              
              431
              
              
              (149
              )Tax
                  basis adjustment to 35% for prior year deferred tax components
              
              
              562
              
              
              -
              
              
              -Conversion
                  to a taxable corporation
              
              
              -
              
              
              4,412
              
              
              -(Income)
                  loss attributable to nontaxable entity
              
              
              -
              
              
              (2,200
              )
              
              1,294Tax
                  exempt interest
              
              
              -
              
              
              (78
              )
              
              -Domestic
                  production activities
              
              
              (467
              )
              
              -
              
              
              -Nondeductible
                  meals and entertainment
              
              
              47
              
              
              -
              
              
              -Other
              
              
              31
              
              
              -
              
              
              (17
              )$
              38,056
              
              $
              6,529
              
              $
              285
  **6.
        Workers’ Compensation and Health Insurance**




The
      Company is insured under a large deductible workers’ compensation insurance
      policy. The policy generally provides for a $1,000 deductible per covered
      accident. Due to the size of the deductible, the policy requires the Company
      to
      maintain a letter of credit with a bank. At December 31, 2006 and 2005, the
      Company had deposits of $2,600 and $2,184, respectively, with an insurance
      company and a bank collateralizing the letter of credits. The deposits are
      reflected in restricted cash and other. Accrued expenses at December 31, 2006
      and 2005 included approximately $1,869 and $16, respectively, for estimated
      incurred but not reported costs and premium accruals related to our workers’
compensation insurance.




On
      November 1, 2005, the Company initiated a self-insurance program for major
      medical, hospitalization and dental coverage for employees and their dependents,
      which is partially funded by payroll deductions. The Company provided for both
      reported and incurred but not reported medical costs in the accompanying
      consolidated balance sheets. We have a maximum liability of $50 per
      employee/dependent per year. Amounts in excess of the stated maximum are covered
      under a separate policy provided by an insurance company. Accrued expenses
      at
      December 31, 2006 and 2005 included approximately $404 and $170,
      respectively, for our estimate of incurred but not reported costs related to
      the
      self-insurance portion of our health insurance.


-42-
 ***Table
          of
          Contents***




**7.
      Transactions with Affiliates**




Effective
      April 1, 2005, the Company entered into an administrative services
      agreement with its affiliate Gulfport Energy Corporation (“Gulfport”). Under
      this agreement, Gulfport agreed to provide certain services to the Company,
      including accounting, human resources, legal and technical support services.
      In
      return for the services, the Company agreed to pay Gulfport an annual fee of
      approximately $414 payable in equal monthly installments during the term of
      this
      agreement. In addition, the Company leased approximately 1,200 square feet
      of
      office space from Gulfport for the Company’s headquarters for an annual rent of
      $21 payable in equal monthly installments. The services the Company received
      under the administrative services agreement and the fees for such services
      could
      be amended by mutual agreement of the parties. In January 2006, the Company
      reduced the level of administrative services being provided by Gulfport and
      increased its office space to approximately 2,500 square feet. As a result,
      the
      Company’s annual fee for administrative services was reduced to approximately
      $150 and its annual rental was increased to approximately $44. The
      administrative services agreement had a three-year term, and upon expiration
      of
      that term the agreement would continue on a month-to-month basis until cancelled
      by either party with at least 30 days prior written notice. The administrative
      services agreement was terminable (1) by the Company at any time with at
      least 30 days prior written notice to Gulfport and (2) by either party if
      the other party is in material breach of the agreement and such breach had
      not
      been cured within 30 days of receipt of written notice of such breach. The
      Company terminated the administrative services agreement effective April 1,
      2006. The Company paid Gulfport approximately $96, $353, and $115 in
      consideration for these services during 2006, 2005, and 2004, respectively.
      At
      December 31, 2006 and December 31, 2005, approximately $0 and $47, respectively,
      was owed to Gulfport and included in accounts payable. Prior to entry into
      this
      administrative services agreement, we reimbursed Gulfport for its dedicated
      employee time, office space and general and administrative costs based upon
      the
      pro rata share of time its employees spent performing services for the Company.




Additionally,
      the Company provided contract drilling services totaling $10,025, $2,527, and
      $0
      to affiliated entities for the years ended December 31, 2006, 2005 and
      2004. The Company had receivables from affiliates of $1,016 and $1,106 at
      December 31, 2006 and 2005, respectively. Certain borrowings for acquisitions
      (see Note 2) were from affiliates.




**8.
      Commitments and Contingencies**




The
      Company leases six service locations under noncancellable operating leases
      that have various expirations from 2008 to 2015. Related rent expense was $643,
      $358, and $177 for the years ended December 31, 2006, 2005 and 2004,
      respectively.


Aggregate
          future minimum lease payments under the noncancellable operating leases
          for
          years subsequent to December 31, 2006 are as follows:
  2007
                $
                4502008
                
                3852009
                
                2742010
                
                2472011
                
                2042012
                    and thereafter
                
                732$
                2,292


The
      Company currently has a lawsuit pending in which the Company sued the defendant,
      an oil and gas operating company, for approximately $942 as a result of the
      defendant’s refusal to make payment pursuant to the terms of its drilling
      contract. The defendant has countersued for damages in excess of $2,800,
      alleging breach of contract, negligence, gross negligence and breach of
      warranties. An agreed Third Amended Scheduling Order was entered by the Court
      ordering discovery completed on or before March 16, 2007 and jury trial on
      April
      23, 2007. It is not possible to predict the outcome of this matter. An allowance
      of $146 has been provided for a portion of the amounts receivable under the
      drilling contract. No amounts have been accrued for damages sought in the
      counterclaim. Legal fees associated with the lawsuit have been expensed during
      the period incurred. Should the amounts ultimately not be collected or if any
      amounts are due under the counterclaims then additional expenses will be
      recorded.




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




**9.
      Business Segments and Concentrations**




Substantially
      all of the Company’s operations relate to contract drilling of oil and gas
      wells. Accordingly, we classify all our operations in a single segment.




For
      the
      year ended 2006, revenue from no one customer exceeded 10% of total revenue,
      for
      2005 revenue from one customer was approximately 10% of total revenue, and
      for
      2004 one customer accounted for 11% of total revenue At December 31, 2006,
      four
      customers accounted for approximately 10%, 7%, 6%, and 6% of accounts
      receivable. At December 31, 2005, three customers accounted for
      approximately 8%, 7%, and 7% of accounts receivable.




**10.
      Net Income Per Common Share**




The
      following table presents a reconciliation of the numerators and denominators
      of
      the basic and diluted earnings per share (“EPS”) and diluted EPS comparisons as
      required by SFAS No. 128:




-43-
 ***Table
            of
            Contents***
  **Year
                        Ended****December
                        31,****2006**
                    
                    **2005**Basic:Net
                        income
                    
                    $
                    59,833
                    
                    $
                    5,131Weighted
                        average shares
                    
                    
                    24,585
                    
                    
                    16,259Earnings
                        per share
                    
                    $
                    2.43
                    
                    $
                    0.32Diluted:Net
                        income
                    
                    $
                    59,833
                    
                    $
                    5,131Weighted
                        average shares:Outstanding
                        (thousands)
                    
                    
                    24,585
                    
                    
                    16,259Options
                        (thousands)
                    
                    
                    38
                    
                    
                    4724,623
                    
                    
                    16,306Income
                        per share
                    
                    $
                    2.43
                    
                    $
                    0.31
 The
        weighted average
        number of diluted shares excludes 78,218 shares for the year ended December
        31,
        2006 for options due to their antidilutive effects.
  **11.
        Equity Transactions**
  In
        January 2005, the Company received a capital contribution of $1,515 from
        Wexford. This contribution was used to fund the letter of credit required
        for
        the Company’s workers’ compensation policy.
  In
        August
        2005, the Company completed its initial public offering in which the Company
        sold 5,715,000 shares of common stock at an offering price of $17.00 per
        share,
        resulting in net proceeds to the Company of approximately $89,000, excluding
        offering expenses of $1,354. The Company used approximately $40,500 of these
        proceeds to repay in full its loans from Alpha Investors, LLC and Solitair
        LLC,
        entities controlled by Wexford, and all borrowings under the credit facility
        with GECC.
  Under
        the
        terms of an agreement between Bronco Drilling Holdings, L.L.C., the Company’s
        then sole stockholder, and Steven C. Hale, the Company’s former President and
        Chief Operating Officer, following successful completion of the initial public
        offering Mr. Hale was entitled to receive the sum of $2,000 and shares of
        common stock having a market value of $2,000 based on the initial public
        offering price. These payments were made by Bronco Drilling Holdings and
        not by
        the Company. The Company accounted for the payments as a capital contribution
        in
        the amount of $4,000 and compensation expense in the amount of $4,000 during
        the
        third quarter of 2005, the period in which the obligations were incurred.
  Effective
        September 1, 2005, the Company issued 65,368 shares of common stock to the
        shareholders of Hays Trucking, Inc. in connection with our acquisition of
        Hays
        Trucking, Inc. (See Note 2).
  In
        November 2005, the Company closed a follow-on public offering of a total
        of
        4,025,000 shares of common stock at a price of $23.00 per share resulting
        in net
        proceeds to the Company of approximately $87,000, excluding offering expenses
        of
        $462. The offering included a total of 525,000 shares purchased pursuant
        to the
        underwriters’ overallotment option, which was exercised in full on
        October 31, 2005.
  Effective
        January 18, 2006, the Company issued 72,571 shares of common stock to the
        equity
        owners of Big A in connection with the Company’s acquisition of the assets of
        Big A. (See Note 2)
 
 In
        March
        2006, the Company closed a public offering of 3,450,000 shares of our common
        stock at a price of $22.75 per share. In the offering, a total of 1,700,000
        shares were sold by the Company and 1,750,000 shares were sold by the selling
        stockholder. The offering resulted in net proceeds to the Company of
        approximately $36,229, excluding offering expenses of $577. The Company did
        not
        receive any proceeds from the sale of shares by the selling stockholder.
  **12.
        Stock Options and Stock Option Plan**
  The
        Company’s 2005 Stock Incentive Plan was adopted on July 20, 2005 and
        amended on November 16, 2005 (the “2005 Plan”) which is described below. The
        compensation cost that has been charged against income before taxes was $2,771
        and $589 for the years ended December 31, 2006 and December 31, 2005,
        respectively. These options are reported as equity instruments and their
        fair
        value is amortized to expense using the straight line method over the vesting
        period. The shares of stock issued once the options are exercised will be
        from
        authorized but unissued common stock.
 
 The
        Company receives a tax deduction for certain stock option exercises during
        the
        period the options are exercised, generally for the excess of the price at
        which
        the options are sold over the exercise price of the options. There have
        been no stock options exercised under the 2005 Plan.
  The
        purpose of the 2005 Plan is to enable the Company, and any of its affiliates,
        to
        attract and retain the services of the types of employees, consultants and
        directors who will contribute to its long-range success and to provide
        incentives which are linked directly to increases in share value which will
        inure to the benefit of the Company’s stockholders. The 2005 Plan provides a
        means by which eligible recipients of awards may be given an opportunity
        to
        benefit from increases in value of the Company’s common stock through the
        granting of incentive stock options and nonstatutory stock options. Eligible
        award recipients under the 2005 Plan were employees, consultants and directors
        of the Company and its affiliates. 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 will be 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 the Company’s
        capital structure.
  The
        fair
        value of each option award is estimated on the date of grant using a Black
        Scholes valuation model that uses the assumptions noted in the following
        table.
        Expected volatilities are based on the historical volatility of a selected
        peer.
        The majority of the Company’s options are held by employees that make up one
        group with similar expected exercise behavior for valuation purposes. The
        expected term of options granted is estimated based on an average of the
        vesting
        period and the contractual period. The risk-free rate for periods within
        the
        contractual life of the option is based on the U.S. Treasury yield curve
        in
        effect at the time of the grant.
  -44-
 ***Table
            of
            Contents***
  Under
        the
        2005 Stock Incentive Plan, employee stock options become exercisable in equal
        monthly installments over a three-year period, and all options generally
        expire
        ten years after the date of grant. The 2005 Plan provides that all options
        must
        have an exercise price not less than the fair market value of the Company’s
        common stock on the date of the grant. The following table provides information
        relating to outstanding stock options at December 31, 2006:
 **December
                    31,**
                
                **December
                    31,****2006**
                
                **2005**Expected
                    volatility
                
                
                48
                %
                
                49
                %Expected
                    life in years
                
                
                5.77
                
                
                5.77Weighted
                    average risk free interest rate
                
                
                4.65
                %
                
                4.33
                %


The
        Company has not declared dividends since it became a public company and does
        not
        intend to do so in the foreseeable future, and thus did not use a dividend
        yield. Expected life has been determined using the permitted short cut method.
        In each case, the actual value that will be realized, if any, will depend
        on the
        future performance of the common stock and overall stock market conditions.
        There is no assurance that the value an optionee actually realizes will be
        at or
        near the value estimated using the Black-Scholes model. The following table
        provides information relating to activity in the 2005 Plan during 2005 and
        2006:
 **Weighted**
                
                **Weighted****Average**
                
                **Average
                    Remaining**
                
                **Aggregate****Exercise
                    Price**
                
                **Contractual**
                
                **Intrinsic****Shares**
                
                **per
                    Share**
                
                **Life**
                
                **Value**(thousands)Options
                    outstanding at December 31, 2004
                
                **-**
                
                **-**Granted
                
                
                574
                
                $
                18.08Exercised
                
                
                **-**
                
                
                **-**Forfeited/expired
                
                
                **-**
                
                
                **-**Options
                    outstanding at December 31, 2005
                
                
                574
                
                
                18.08
                
                
                9.66
                
                $
                2,845Granted
                
                
                446
                
                
                23.37Exercised
                
                
                -
                
                
                -Forfeited/expired
                
                
                188
                
                
                20.38Options
                    outstanding at December 31, 2006
                
                
                832
                
                $
                20.39
                
                
                8.91
                
                $
                (2,632
                )Options
                    fully vested and exercisable at December 31, 2006
                
                
                319
                
                $
                19.79
                
                
                8.84
                
                $
                (829
                )




**Grant
                  Date**
              
              **Grant
                  Date****Shares**
              
              **Fair
                  Value**
              
              **Fair
                  Value**(thousands)Options
                  nonvested at December 31, 2004
              
              -
              
              -
              
              -Granted
              
              
              574
              
              $
              9.98
              
              $
              5,735Vested
              
              
              63
              
              
              9.44
              
              
              595Forfeited/expired
              
              
              -
              
              
              -
              
              
              -Options
                  nonvested at December 31, 2005
              
              
              511
              
              
              10.05
              
              
              5,140Granted
              
              
              446
              
              
              11.93
              
              
              5,313Vested
              
              
              256
              
              
              10.90
              
              
              2,785Forfeited/expired
              
              
              188
              
              
              10.45
              
              
              1,968Options
                  nonvested at December 31, 2006
              
              
              513
              
              $
              11.11
              
              $
              5,700


As
        of
        December 31, 2006, there was $5,700 of total unrecognized compensation cost
        related to nonvested share-based compensation arrangements granted under
        the
        2005 Plan. That cost is expected to be recognized over a weighted-average
        period
        of 1.84 years.
  The
        Company’s board of directors and a majority of the Company’s stockholders
        approved the Company’s 2006 Stock Incentive Plan (the “2006 Plan”) effective
        April 20, 2006. No further awards will be made under the 2005 Plan. The purpose
        of the 2006 Plan provides
        a means by which eligible recipients of awards may be given an opportunity
        to
        benefit from increases in value of the Company’s 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 maximum aggregate amount of the Company’s
        common stock which may be issued upon exercise of all awards under the 2006
        Plan, may not exceed 2,500,000 shares, less 1,000,000 shares underlying options
        granted to employees under the 2005 Plan prior to the adoption of the 2006
        Plan.
  During
        the year ended December 31, 2006, 66,667 shares of restricted stock were
        granted
        under the Company’s 2006 plan with a market price of $20.25 on the date of the
        grant. The restrictions will lapse with respect to these shares in approximately
        6 equal bi-annual installments beginning on the date of grant. The shares
        were
        recorded at the market value on the date of issuance and are being amortized
        to
        operations over the respective vesting period. Compensation expense for the
        year
        ended December 31, 2006, related to these shares of restricted stock was
        $150.
        At December 31, 2006, the weighted-average grant date fair value and
        weighted-average contractual life for outstanding shares of restricted stock
        was
        $20.25 and 2.67 years, respectively for these 66,667 shares. There was
        $1,200 of total unrecognized compensation cost related to nonvested restricted
        stock awards to be recognized over a weighted-average period of 2.67 years
        as of December 31, 2006.
  **13.
        Fair Value of Financial Instruments**
  *Cash
        and cash equivalents, trade receivables and payables and short-term debt:*
  The
        carrying amounts of our cash and cash equivalents, trade receivables, payables
        and short-term debt approximate their fair values due to the short-term nature
        of these instruments.
 -45-
 ***Table
            of
            Contents***
  *Long-term
        debt*
  The
        carrying amount of our long-term debt approximates its fair value, as supported
        by the recent issuance of the debt and because the rates and terms currently
        available to us approximate the rates and terms of the existing debt.
  **14.
        Employee Benefit Plans**
  The
        Company implemented a new 401(k) retirement plan for its eligible employees
        during 2006. Under the plan, the Company matches 100% of employees’
contributions up to 5% of eligible compensation. Employee and employer
        contributions vest immediately. The Company’s contributions for the years ended
        December 31, 2006 and 2005 were $698 and $58, respectively.
 
 **15.
        Quarterly Results of Operations (unaudited)**
  The
        following table summarizes quarterly financial data for our years ended
        December 31, 2006 and 2005;
 **First**
                
                **Second**
                
                **Third**
                
                **Fourth****Quarter**
                
                **Quarter**
                
                **Quarter**
                
                **Quarter****2006**Revenues
                
                $
                56,387
                
                $
                67,151
                
                $
                79,814
                
                $
                82,476Income
                    from operations
                
                
                19,252
                
                
                23,598
                
                
                28,403
                
                
                28,924Income
                    tax expense
                
                
                6,915
                
                
                8,747
                
                
                10,527
                
                
                11,867Net
                    income
                
                
                11,347
                
                
                14,729
                
                
                17,405
                
                
                16,352Income
                    per share:Basic
                
                
                0.48
                
                
                0.59
                
                
                0.70
                
                
                0.66Diluted
                
                
                0.48
                
                
                0.59
                
                
                0.70
                
                
                0.66**2005**Revenues
                
                $
                8,617
                
                $
                11,652
                
                $
                18,640
                
                $
                38,976Income
                    (loss) from operations
                
                
                770
                
                
                2,655
                
                
                (17
                )
                
                11,244Income
                    tax expense (benefit)
                
                
                (115
                )
                
                (116
                )
                
                3,919
                
                
                2,841Net
                    income (loss)
                
                
                831
                
                
                2,528
                
                
                (5,074
                )
                
                6,846Income
                    (loss) per share:Basic
                    and diluted
                
                
                -
                
                
                -
                
                
                (0.31
                )
                
                0.31Proforma
                    income per share:Basic
                    and diluted
                
                
                0.04
                
                
                0.12
                
                
                -
                
                
                -
 Pro
            forma
            earnings (loss) per share are presented for all periods prior to our
            IPO based
            on the number of shares issued to our founders at our IPO.
  **16.
            Valuation and Qualifying Accounts**
  The
            Company’s valuation and qualifying accounts for the years ended
            December 31, 2006, 2005 and 2004 are as follows:


**Valuation
                  and Qualifying Accounts****Balance**
              
              **Charged****at**
              
              **to
                  Costs**
              
              **Deductions**
              
              **Balance****Beginning**
              
              **and**
              
              **from**
              
              **at****of
                  Year**
              
              **Expenses**
              
              **Accounts**
              
              **Year
                  End**Year
                  ended December 31, 2004Allowance
                  for doubtful receivables
              
              $
              -
              
              $
              146
              
              $
              -
              
              $
              146Year
                  ended December 31, 2005Allowance
                  for doubtful receivables
              
              $
              146
              
              $
              184
              
              $
              -
              
              $
              330Year
                  ended December 31, 2006Allowance
                  for doubtful receivables
              
              $
              330
              
              $
              70
              
              $
              -
              
              $
              400
 **17.
          Subsequent Events (Unaudited)**
  On
          January 2, 2007, the Company purchased an approximately 18,100 square foot
          building located in Edmond, Oklahoma for a total purchase price of $3.0
          million,
          less an amount equal to one-half of the principal reduction on the seller’s loan
          secured by the property between the effective date of the purchase agreement
          and
          the closing. The Company paid $1.4 million in cash and assumed existing
          debt of
          $1.6 million. Prior to closing, the Company subleased a total of 9,050
          square
          feet of the building from its tenants until the closing date for a monthly
          rental of $8,341.
  On
          January 9,
          2007, the Company completed the acquisition of 31 workover rigs, 24 of
          which were in service at the time of acquisition, from Eagle Well Services,
          Inc.
          and related subsidiaries for $2.5 million in cash, 1,070,390 shares of
          our
          common stock, and the assumption of debt of $5.5 million, liabilities of
          $2.6
          million and additional deferred income taxes of $7.2 million. The Company
          intends to deploy the remaining seven rigs periodically over the coming
          months
          with all 31 expected to be active by the end of the second quarter of 2007.
 -46-
 ***Table
              of
              Contents***
 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 Annual Report
            on
            Form 10-K to be signed on its behalf by the undersigned, thereunto duly
            authorized.
  BRONCODRILLINGCOMPANY,
                      INC.Date:
                      March 8, 2007
                  By:
                  /S/    D.
                      FRANKHARRISON**D.
                      Frank Harrison**
                    **Chief
                      Executive Officer and President**
  **Power
            of Attorney**
  Each
            of
            the persons whose signature appears below hereby constitutes and appoints
            D.
            Frank Harrison, Larry Bartlett, Zachary
            M. Graves and Mark Dubberstein, and each of them, his true and lawful
            attorneys-in-fact and agents, with full power of substitution and
            resubstitution, from such person and in each person’s name, place and stead, in
            any and all capacities, to sign the Form 10-K filed herewith and any
            and all
            amendments to said Form 10-K, with all exhibits thereto and all documents
            in
            connection therewith, with the SEC, granting unto said attorneys-in-fact
            and
            agents, and each of them, full power and authority to do and perform
            each and
            every act and thing requisite and necessary to be done as fully to all
            said
            attorneys-in-fact and agents, or any of them, may lawfully do or cause
            to be
            done by virtue thereof.
  Pursuant
            to the requirements of the Securities and Exchange Act of 1934, this
            report has
            been signed below by the following persons on behalf of Bronco Drilling
            Company,
            Inc. and in the capacities and on the dates indicated.
  **Name**
                  **Title**
                  **Date**/S/    D.
                      FRANKHARRISON
                    
                    **D.
                      Frank Harrison**
                  Chief
                      Executive, President and Director
                    
                    (Principal
                      Executive Officer)
                  March
                      8, 2007/S/    ZACHARYM.
                      GRAVES
                    
                    **Zachary
                      M. Graves**
                  Chief
                      Financial Officer
                    
                    (Principal
                      Financial and
                    
                    Principal
                      Accounting Officer)
                  March
                      8, 2007/S/    MIKELIDDELL
                    
                    **Mike
                      Liddell**
                  Chairman
                      of the Board and Director
                  March
                      8, 2007/S/    DAVIDL.
                      HOUSTON
                    
                    **David
                      L. Houston**
                  Director
                  March
                      8, 2007/S/    GARY
                      HILL
                    
                    **Gary
                      Hill**
                  Director
                  March
                      8, 2007/S/    WILLIAMR.
                      SNIPES
                    
                    **William
                      R. Snipes**
                  Director
                  March
                      8, 2007