<PAGE> 1
                                      FORM 10-K

                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D. C. 20549

       (X)         ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
                         THE SECURITIES EXCHANGE ACT OF 1934
                                    (Fee Required)

     For the fiscal year ended March 31, 1997     Commission File Number 0-12757

                                          or

       ( )        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934
                                  (No Fee Required)

                              TMBR/SHARP DRILLING, INC.
                (Exact name of registrant as specified in its charter)

                     TEXAS                              75-1835108     
           (State of Incorporation)         (I.R.S. Employer Identification No.)

                    4607 WEST INDUSTRIAL BLVD., MIDLAND, TEXAS   79703
                    (Address of principal executive offices)   (Zip Code)

               Registrant's telephone number (area code) (915) 699-5050

          Securities registered pursuant to Section 12(b) of the Act:  None

             Securities registered pursuant to Section 12(g) of the Act:

                             Common Stock, $.10 Par Value
                                   (Title of Class)

          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 amendment to this Form 10-K. (X)

          The  aggregate market value of  voting stock held  by nonaffiliates of
     the registrant at June 16, 1997 was approximately $50,937,068.

          At  June  16, 1997,  there were  4,482,386  outstanding shares  of the
     Registrant's Common Stock.

          The information required  by Items 11, 12  and 13 of Part  III of this
     Form are incorporated by reference from the registrant's Proxy Statement to
     be filed pursuant to Regulation 14A with respect to the registrant's Annual
     Meeting to be held on or about August 29, 1997.
<PAGE> 2
                              TMBR/SHARP DRILLING, INC.

                                      FORM 10-K

                                  TABLE OF CONTENTS



     Part I                                                            Page

          Item  1.  Business . . . . . . . . . . . . . . . . . . . .      3
          Item  2.  Properties . . . . . . . . . . . . . . . . . . .     16
          Item  3.  Legal Proceedings  . . . . . . . . . . . . . . .     17
          Item  4.  Submission of Matters to a Vote of
                      Security Holders . . . . . . . . . . . . . . .     18

     Part II

          Item  5.  Market for Registrant's Common Equity
                      and Related Stockholder Matters  . . . . . . .     19
          Item  6.  Selected Financial Data  . . . . . . . . . . . .     21
          Item  7.  Management's Discussion and Analysis
                      of Financial Condition and Results
                      of Operations  . . . . . . . . . . . . . . . .     22
          Item  8.  Financial Statements and Supplementary Data  . .     29
          Item  9.  Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosure . . . .     54

     Part III

          Item 10.  Directors and Executive Officers
                      of the Registrant  . . . . . . . . . . . . . .     54
          Item 11.  Executive Compensation . . . . . . . . . . . . .     55
          Item 12.  Security Ownership of Certain Beneficial
                      Owners and Management  . . . . . . . . . . . .     55
          Item 13.  Certain Relationships and Related Transactions .     55

     Part IV and signatures

          Item 14.  Exhibits, Financial Statement Schedules
                      and Reports on Form 8-K  . . . . . . . . . . .     56
          Signatures . . . . . . . . . . . . . . . . . . . . . . . .     60










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                                        PART I


     Item 1.  BUSINESS

     General

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

          The principal executive  offices of  the Company are  located at  4607
     West  Industrial Blvd., Midland, Texas,  79703 and its  telephone number is
     (915) 699-5050.

          The  Company is engaged  in two lines  of business,  which include the
     domestic  onshore  contract  drilling    of  oil  and  gas  wells, and  the
     acquisition, exploration for, development, production  and sale of oil  and
     natural gas.

          The Company  provides domestic  onshore contract drilling  services to
     major  and independent  oil  and gas  companies.   The Company  focuses its
     operations in the Permian Basin of west  Texas and eastern New Mexico.   In
     addition to its drilling rigs,  the Company provides the crews and  most of
     the ancillary  equipment used in the  operation of its drilling  rigs.  Rig
     utilization for the fiscal year ended  March 31, 1997 was approximately 52%
     compared to 45% for the year ended March 31, 1996.

          The Company owns 15 drilling rigs,  of which 1 was operating on behalf
     of the  Company for its  own account, 12 of  which were operating  for non-
     affiliated  oil producers, and 2 were "stacked" (non-operating) at June 24,
     1997.  All  of the Company's rigs are operational  and actively marketed in
     the  Permian  Basin of  west Texas  and eastern  New  Mexico.   The Company
     markets  its contract  drilling services  to both  major oil  companies and
     independent  oil producers.  The  depth capabilities of  the Company's rigs
     range from 8,500 feet to 30,000 feet.

          An onshore drilling rig consists of engines, drawworks, mast, pumps to
     circulate drilling fluids, blowout  preventers, the drillstring and related
     equipment.  The  size and type  of rig utilized  for each drilling  project
     depends  upon  the location  of  the  well, the  well  depth and  equipment
     requirements specified in the drilling contract, among other factors.

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

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          The  Company's  oil  and  gas exploration  and  production  operations
     complement its onshore drilling  operations.  These activities are  focused
     in  the  mature producing  regions  in  the Permian  Basin.    Oil and  gas
     operations comprised approximately  12% of the  Company's revenues for  the
     fiscal year  ended March 31, 1997.   The Company's proved  reserves, all of
     which  were proved developed producing, were approximately 887 MBOE and had
     a present value  of future  net revenues of  approximately $5.7 million  at
     March  31,  1997.   At  March  31, 1997,  the  Company  owned interests  in
     approximately  18,498  gross (2,483  net) acres  of  developed oil  and gas
     properties, and approximately 7,687 gross (1,066 net) acres of  undeveloped
     properties.

          The  Company  has  no   material  patents,  licenses,  franchises,  or
     concessions which it considers significant to its operations.

          The nature of the Company's business is such that it does not maintain
     or require a "backlog" of products, customer orders, or inventory.

          The Company's  operations are not subject to  renegotiation of profits
     or termination of contracts at the election of the federal government.

          The  Company has  not been  a party  to any  bankruptcy, receivership,
     reorganization, adjustment, or similar proceeding.

          Generally,  the  Company's business  activities  are  not seasonal  in
     nature.  However, weather conditions can hinder drilling activities.


     CONTRACT DRILLING OPERATIONS

     Drilling Rigs

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

          Rig No.        Depth Capacity      Type

             2*                 8,500        Weiss W-45
             3*                 8,500        Weiss W-45
             6                 12,500        National 75A
            10*                12,500        National 75A
            12                 11,500        National 50A
            14*                12,500        BDW 650
            17*                 9,500        Unit 15
            22*                13,500        Brewster N-75
            23*                13,500        National 75A
            24*                13,500        Gardner Denver 700
            27*                13,500        Gardner Denver 700
            28*                16,000        Gardner Denver 800
            29*                16,000        Gardner Denver 800
            55*                30,000        Gardner Denver DW-2100
            56*                20,000        National 110-M

          ----------------
          *In active operation at June 24, 1997.


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          Major overhauls, repairs and general maintenance for the drilling rigs
     are  primarily  conducted at  the Company's  principal support  and storage
     facilities in Midland, Texas.   The Company emphasizes the  maintenance and
     periodic improvement of its  drilling equipment and believes that  its rigs
     are generally in good condition.  See "Item 2. Properties".

     Drilling Contracts

          The  Company's  drilling   contracts  are  usually  obtained   through
     competitive bidding or as  a result of direct negotiations  with customers.
     Such  contracts  typically  obligate  the  Company   to  pay  all  expenses
     associated with drilling  an oil or gas  well, including wages of  drilling
     personnel, maintenance  expenses and  incidental purchases of  rig supplies
     and  equipment.   The  majority of  the  Company's contracts  are "footage"
     contracts with the remainder being "daywork" or "turnkey" contracts.  Under
     a footage  contract, the Company charges  an agreed price per  foot of hole
     drilled, whereas  a day-work contract permits  the Company to charge  a per
     diem fixed rate for each day  the rig is in operation.  A  turnkey contract
     specifies a total price for drilling a well plus providing  other services,
     materials  or  equipment  which are  typically  the  responsibility of  the
     operator under footage or daywork contracts.  Prices for all contracts vary
     depending on  the location, depth, duration,  complexity of the well  to be
     drilled,  operating conditions and other  factors peculiar to each proposed
     well.    Under  footage and  turnkey  contracts,  the  Company manages  the
     drilling operation and the type of equipment to be used, subject to certain
     customer specifications.   The Company also  bears the risk  and expense of
     mechanical malfunctions, equipment shortages, and other delays arising from
     problems caused in drilling a well.   Daywork contracts permit the operator
     of the  well to  manage  drilling operations  and to  specify  the type  of
     equipment to be used.  Under daywork contracts, the Company generally bears
     none of the risk  due to time delays caused  by unforeseeable circumstances
     such as stuck or broken drill pipe or blowouts.   Of the 13 rigs working at
     June 24, 1997, 7 were subject  to daywork contracts, and 6 were  subject to
     footage contracts.

          The Company's operations are  subject to many hazards, including  well
     blowouts and fires that could cause personal injury, suspension of drilling
     operations, damage to or  destruction of equipment and damage  to producing
     formations  and surrounding areas.   The Company believes  it is adequately
     insured for public liability and damage to the property of others resulting
     from its operations.  The Company is self-insured for physical damage to or
     loss of its rigs.

     Rig Utilization

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

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<PAGE> 6
     affecting  the petroleum  industry, including  oil and  gas prices  and the
     degree  of  government  regulation  of the  industry.    Contract  drilling
     revenues and  rig utilization rates for  the past five years  are set forth
     below.

                           Contract Drilling 
            Year Ended         Revenues          Number of      Percent of
             March 31,      (in thousands)       Rigs Owned     Utilization
            ----------     -----------------     ----------     -----------
               1993            $ 17,996              15(a)         56.3%
               1994              18,359              15            47.6%
               1995              18,357              15            43.5%
               1996              21,298              15            45.1%
               1997              18,483              15            51.6%

     ____________________
          (a)  Of the  total number of rigs  owned, three were owned  only for a
               portion of the fiscal year ended March 31, 1993.

     Customers

          During the  fiscal year ended  March 31, 1997,  the Company drilled  a
     total of 98 wells for approximately 24 customers.  The following table sets
     forth certain information with  respect to the principal customers  for the
     Company's contract drilling services during such period.

                                                Percent  of      Number of Wells
     Name of Customer                         Total Revenues         Drilled  
     ----------------                         --------------     ---------------
     Titan Resources I, Inc.                        18%                 12
     Enron Oil and Gas Company                      16%                 13
     Pogo Producing Company                         10%                 19

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

     Competition

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

     

                                         -6-

<PAGE> 7
     Employees

          At  June  1,  1997,   the  Company  had  42  salaried   employees  and
     approximately 286  hourly paid employees.  Employees of the Company are not
     covered by any collective  bargaining agreements and the Company  has never
     experienced a strike or work stoppage.   The Company considers its employee
     relations to be satisfactory.

     REGULATION

     Oil and Gas

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

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

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

          Sales of gas by  the Company are not regulated and  are made at market
     prices.    However,  the  Federal  Energy  Regulatory  Commission  ("FERC")
     regulates interstate  and certain  intrastate gas transportation  rates and
     service  conditions,  which affect  the marketing  of  gas produced  by the
     Company,  as well as the revenues received by the Company for sales of such
     production.    Since the  mid-1980s, FERC  has issued  a series  of orders,
     culminating  in Order  Nos. 636,636-A  and 636-B  ("Order 636"),  that have
     significantly altered the marketing  and transportation of gas.   Order 636
     mandates  a  fundamental restructuring  of  interstate  pipeline sales  and
     transportation service, including the unbundling by interstate pipelines of
     the sales,  transportation, storage and  other components of  the city-gate
     sales services such pipelines previously performed.  One of FERC's purposes
     in issuing the orders was to  increase competition within all phases of the
     gas  industry.  Order 636  and subsequent FERC  orders issued in individual

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<PAGE> 8
     pipeline restructuring proceedings  have been the  subject of appeals,  the
     results of which have  generally been supportive of the  FERC's open-access
     policy.   In 1996, the  United States Court of Appeals  for the District of
     Columbia Circuit  largely upheld Order  No. 636,  et seq.   Because further
     review  of certain of  these orders  is still  possible, and  other appeals
     remain pending,  it is  difficult  to predict  the ultimate  impact of  the
     orders on the Company and its gas marketing efforts.   Generally, Order 636
     has  eliminated   or  substantially   reduced  the   interstate  pipelines'
     traditional  role as wholesalers  of gas,  and has  substantially increased
     competition and volatility  in gas markets.   While significant  regulatory
     uncertainty remains, Order 636 may ultimately enhance the Company's ability
     to market and transport its  gas, although it may also subject  the Company
     to greater competition.

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

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

     Environmental

          Various federal, state  and local laws  and regulations governing  the
     discharge of materials into  the environment, or otherwise relating  to the
     protection of  the  environment, health  and safety,  affect the  Company's
     operations  and  costs.    These  laws  and  regulations  sometimes require
     governmental  authorization before  certain activities,  limit or  prohibit
     other activities because of protected  areas or species, impose substantial
     liabilities for pollution related to Company  operations or properties, and
     provide  penalties  for  noncompliance.     In  particular,  the  Company's
     exploration and  production operations,  its activities in  connection with
     storage  and transportation of oil  and other liquid  hydrocarbons, and its
     use  of   facilities  for   treating,  processing  or   otherwise  handling
     hydrocarbons and related exploration and  production wastes are subject  to
     stringent  environmental  regulation.    As with  the  industry  generally,
     compliance  with  existing   and  anticipated  regulations  increases   the
     Company's overall cost  of business.   While these  regulations affect  the
     Company's capital expenditures and earnings, the Company believes that such
     regulations  do not affect its competitive position in the industry because
     its  competitors   are  similarly  affected   by  environmental  regulatory

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<PAGE> 9
     programs.   Environmental  regulations  have historically  been subject  to
     frequent change and, therefore, the Company is unable to predict the future
     costs  or other future impacts  of environmental regulations  on its future
     operations.  A discharge  of hydrocarbons or hazardous substances  into the
     environment could subject the Company to substantial expense, including the
     cost to  comply with applicable regulations that  require a response to the
     discharge, such as containment or cleanup, claims by neighboring landowners
     or  other third  parties  for personal  injury,  property damage  or  their
     response costs and penalties assessed, or other claims sought by regulatory
     agencies for response cost or for natural resource damages.

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

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

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

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

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<PAGE> 10
     Company's financial condition or results of operations.

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

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

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



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<PAGE> 11
     OIL AND GAS OPERATIONS

          The  Company's oil  and gas  operations involve  the exploration  for,
     development and production of oil and natural gas.  During  the fiscal year
     ended March 31, 1997,  the Company's exploration efforts were  conducted in
     west Texas and eastern New Mexico.

          The Company is  actively investing in oil  and gas properties  for the
     purpose of  exploration, development and  production of  oil and gas.   The
     Company  acquires  or  participates  in  these  arrangements  as  a working
     interest owner and usually provides the contract drilling services for such
     ventures.

          Exploration for oil and natural gas requires substantial expenditures,
     especially for  exploration in more remote  areas.  As is  customary in the
     oil and gas  industry, the drilling  of oil and  gas wells is  accomplished
     through participation with other individuals, partnerships or corporations.
     One of  the parties  experienced with  operations  in the  area is  usually
     designated as  the operator  of the  property and  is  responsible for  the
     direct  supervision, administration  and accounting  for wells  drilled and
     completed  pursuant to  an operating  agreement between  the parties.   The
     Company typically serves as operator of oil and gas  prospects assembled by
     the Company and participates  as a non-operating working interest  owner in
     prospects  assembled  and generated  by third  parties.   As  operator, the
     Company  supervises the  drilling and  completion of  wells  and production
     therefrom  and the  further  development of  surrounding  properties.   The
     operator of a well has significant control over its location and the timing
     of its drilling.  In  addition, the operator of  a well receives fees  from
     other  working  interest  owners  as  reimbursement  for  the  general  and
     administrative  expenses  attendant to  the operation  of  the wells.   The
     operator will normally receive revenues and pay expenses equal to more than
     its ownership interest in the wells, and then must remit or collect all but
     its share to  or from the  other respective participants in  the well.   At
     June 1, 1997 the Company was operator of 33 wells.

     Oil and Gas Reserves

          Information  concerning the  Company's  estimated proved  oil and  gas
     reserves  is included in note  (10) to the  Company's financial statements.
     See "Item 8 - Financial Statements and Supplementary Data".

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

                                         -11-






<PAGE> 12
     estimates.   Accordingly,  reserve estimates are  often different  from the
     quantities of oil  and gas that are ultimately recovered.   The accuracy of
     such  estimates is  highly dependent  upon the  accuracy of  the underlying
     assumptions upon which they are based. 

          In  general,  the volume  of production  from  oil and  gas properties
     declines  as reserves  are  depleted.   Except  to the  extent  the Company
     acquires  properties  containing  proved reserves  or  conducts  successful
     exploration  and development activities,  or both, the  proved reserves of,
     and volumes of  production by,  the Company  will decline  as reserves  are
     produced.  The Company's future oil and gas production  is therefore highly
     dependent  upon its  level of  success in  acquiring or  finding additional
     reserves.

          The Company has no reserves outside the United States.

          No  major discovery or other  favorable or adverse  event has occurred
     since March  31, 1997 which is believed to have caused a significant change
     in the estimated proved oil and gas reserves of the Company.

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

          The Company's estimate of reserves has not been filed with or included
     in reports  to any federal  agency other  than the Securities  and Exchange
     Commission.

     Productive Wells and Acreage

          The following  tables set forth the  gross and net productive  oil and
     gas wells and developed and undeveloped acreage  in which the Company owned
     a  working  interest as  of March  31, 1997.   Excluded  from the  table is
     acreage in which the  Company's interest is  limited to royalty or  similar
     interests.
                                             
                                                      Productive Wells          
                                                Gross                  Net      
                                                -----                  ---
                                             Oil     Gas           Oil      Gas 
                                             ---     ---           ---      ---
     Texas................................... 71       9         10.334    1.335
     New Mexico.............................. 10       2          2.621     .144
                                             ---     ---         ------    -----
               Total......................... 81      11         12.955    1.479
                                             ===     ===         ======    =====
                                             
                                                        Acreage                
                                           Developed             Undeveloped   
                                           ---------             -----------
                                        Gross       Net       Gross         Net
                                        -----       ---       -----         ---
     Texas............................ 16,487      2,144      7,687        1,066
     New Mexico.......................  2,011        339        --           -- 
                                       ------      -----      -----        -----
               Total.................. 18,498      2,483      7,687        1,066
                                       ======      =====      =====        =====
                                         
                                         -12-
<PAGE> 13
          Generally,   the  terms  of  developed  oil  and  gas  leaseholds  are
     continuing and such leases  remain in force by  virtue of, and so  long as,
     production from lands under lease is  maintained.  Undeveloped oil and  gas
     leaseholds  are generally for  a primary term,  such as five  or ten years,
     subject  to maintenance with the payment of specified minimum delay rentals
     or extension by production.

          In addition to the  Company's developed and undeveloped  acreage shown
     above, on  September 5, 1995,  the Company entered  into a 10  year License
     Agreement  with the Government  of the Republic  of Palau and  the State of
     Kayangel which  will allow the Company  to explore for oil  and natural gas
     offshore.   The license covers  approximately 1.1 million  acres within the
     waters of  Palau.  Any exploration  activities in the license  area will be
     conducted  jointly with  other  third  parties  under a  carried  interest,
     farmout  or other  similar arrangements  which would  allow the  Company to
     retain  an  ownership  interest  without incurring  the  initial  costs  of
     exploration. 






























                                         -13-











<PAGE> 14
     Drilling Activity

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


                                          Years Ended March 31,
                         ------------------------------------------------------
                               1997                1996                1995     
                         --------------      --------------      --------------
     Type of Well        Gross      Net      Gross      Net      Gross      Net 
     ------------        -----      ---      -----      ---      -----      ---
     Exploratory (1)
          Oil              3        .700       7       1.340       4       .442 
          Gas              2        .433       1        .250       3       .293 
          Dry              5       1.077      11       2.067       9      1.195 

     Development (2)
          Oil              7       1.835       6        .480       6       .842 
          Gas             --        --        --         --       --        --  
          Dry              2        .625       3        .510       2       .212 

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

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

          At June 24,  1997, the Company was participating in  the drilling of 1
     gross (.06 net) exploratory well in Glasscock County, Texas.

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













                                         -14-




<PAGE> 15
          Production,  Prices and Costs.  The following table sets forth certain
     information  regarding the volumes of  the Company's net  production of oil
     and gas, the average sales prices received associated with its sales of oil
     and gas, and the average production (lifting) cost per equivalent barrel of
     oil ("EBO").

                                                Years Ended March 31,       
                                         ----------------------------------
                                         1997           1996           1995 
                                         ----           ----           ----
     Net Production
          Oil (Bbls)                    76,266         70,941         51,300
          Gas (Mcf)                    361,745        212,062        104,700

     Sales Prices
          Oil ($/Bbl)                    23.93          17.67          17.13
          Gas ($/Mcf)                     1.81           1.52           1.55

     Production (Lifting) Costs
          per EBO (1)                   $ 6.77         $ 5.20         $ 4.07

     --------------------
          (1)  An EBO is one barrel of oil equivalent using the ratio of six Mcf
     of gas to one barrel of oil.


     Title to Properties

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

     Markets and Customers

          The Company sells its oil and gas at the wellhead  on an "as-produced"
     basis and does not refine petroleum products.  Other than normal production
     facilities,  the Company  does  not own  an  interest in  any  bulk storage

                                         -15-




<PAGE> 16
     facilities or  pipelines.   As is customary  in the  industry, the  Company
     sells  its production  in  any  one  area  to  relatively  few  purchasers,
     including  transmission companies  that have  pipelines near  the Company's
     producing  wells.   Gas purchase  contracts are  generally on  a short-term
     "spot market" basis and usually contain provisions by  which the prices and
     delivery quantities for future  deliveries will be determined.   During the
     year   ended  March  31,  1997,   Amoco  Production  Company,  EOTT  Energy
     Corporation  and  Texaco Trading  and  Transportation,  Inc. accounted  for
     approximately 15%, 10% and 10%, respectively,  of the Company's oil and gas
     revenues  for such period.  The  loss of any one  of these purchasers could
     cease  or delay  the  Company's production  and  sale of  its  oil and  gas
     reserves  to  the  extent   that  alternative  purchasers  having  adequate
     gathering  facilities are not found  to replace such  purchaser's volume of
     oil or gas purchased.   However, in the event  of a loss of any  purchaser,
     the Company believes that, under present circumstances, it would be able to
     find other purchasers for its oil and gas production.

     Competition

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

          The  principal   raw  materials   and  resources  necessary   for  the
     exploration  and development of oil  and gas are  leasehold prospects under
     which oil  and gas reserves  may be  discovered, drilling rigs  and related
     equipment  to explore  for  such reserves  and  knowledgeable personnel  to
     conduct all phases of oil and gas operations.  The Company must compete for
     such  raw materials  and  resources  with  both  major  oil  companies  and
     independent  operators, and  the continued  availability,  without periodic
     interruption,  of such  materials and  resources to  the Company  cannot be
     assured.


     Item 2.  PROPERTIES

          In addition to its drilling rigs and related equipment and its oil and
     gas properties, the Company owns a 31 acre tract of  land in Midland, Texas
     on which  the Company's  executive  offices are  located and  on which  the
     principal  support  and  storage   facilities  for  its  contract  drilling

                                         -16-






<PAGE> 17
     operations are located.   Such  facilities include an  office building  and
     fabrication and  maintenance shop.  The facility allows for open storage of
     drilling equipment and drill pipe.

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

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


     Item 3.  LEGAL PROCEEDINGS

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

                                         -17-






<PAGE> 18
     part of the Guaranty Association's claims against the Company.  The Company
     has  rejected a  settlement offer made  by the Guaranty  Association for an
     amount  substantially less than the amount accrued  by the Company, and the
     Company  intends  to vigorously  defend its  position against  the Guaranty
     Association.

          Currently  the   Company  is  covered  under   a  deductible  workers'
     compensation policy  with Petrosurance Casualty Company,  an approved Texas
     workers' compensation carrier, and Clarendon National Insurance Company.

          The Company is also  a defendant in other ordinary  routine litigation
     incidental to its business.  The Company does not believe that the ultimate
     resolution  of these  other lawsuits  will have  a  material effect  on the
     Company's financial position or results of operations.


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

          There was  no meeting  of security holders  of the Company  during the
     fourth quarter of the fiscal year ended March 31, 1997, and no matters were
     submitted to a vote of security holders during such period.































                                         -18-






<PAGE> 19
                                       PART II


     Item 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS

          The Company's Common  Stock is  traded on the  NASDAQ National  Market
     System under the  symbol "TBDI".  The following table sets  forth, on a per
     share  basis for  the periods  indicated, the  range of  high and  low last
     reported sales prices  as reported by  NASDAQ.   The quotations are  inter-
     dealer prices  without retail mark-ups,  mark-downs or commissions  and may
     not represent actual transactions. 

                                                        Price      
                                                   --------------     
                                                   High       Low  
                                                   ----       ---
                Fiscal 1996
                       First Quarter              $ 7 3/4    $ 6 1/2
                       Second Quarter              10 1/2      9 1/4
                       Third Quarter                9 1/4      8     
                       Fourth Quarter               8 1/4      6 3/4

                Fiscal 1997
                       First Quarter                8 1/4      6 3/4
                       Second Quarter              12          7    
                       Third Quarter               12          8    
                       Fourth Quarter              13 7/8     10 3/4 

          The  transfer agent for the  Company's Common Stock  is American Stock
     Transfer & Trust Company, New York, New York.

          On February 13, 1997,  the Company privately placed 725,000  shares of
     its Common  Stock to eleven accredited  investors, at a per  share price of
     $11.00.   Rauscher Pierce  Refsnes, Inc. ("Rauscher")  served as  placement
     agent for the  offering.   The net proceeds  from the  sale of the  shares,
     approximately  $7.47 million,  were  used to  repay  all of  the  Company's
     outstanding bank debt (approximately $4.5 million) and  for general working
     capital  purposes.    As  consideration  for  serving  as  placement agent,
     Rauscher  received a 5%  cash commission (an aggregate  of $398,750), and a
     non-accountable expense allowance of  $25,000.  The Company also  issued to
     Rauscher, for nominal consideration, a five-year  stock purchase warrant to
     purchase 36,250 shares of the Company's  Common Stock at an exercise  price
     of  $13.20 per  share.   The Common  Stock  was sold  in reliance  upon the
     exemption from registration  under Section  4(2) of the  Securities Act  of
     1933, as amended (the "Act"), and Rule 506 of Regulation D under the Act.

          On June 16, 1997, the outstanding shares of the Company's Common Stock
     were held of record by approximately 3,422 stockholders.





                                         -19-




<PAGE> 20

          The  Company has  never declared  or paid  any  cash dividends  on its
     Common Stock  and has no  present intention  to pay cash  dividends in  the
     future.   The Company presently intends to  retain all earnings to fund its
     operations  and future growth.   Under  the terms  of the  Company's Credit
     Facility with  its bank lender, the Company  is prohibited from paying cash
     dividends to the holders of Common Stock without the written consent of the
     bank.    See Item  7, "Management's  Discussion  and Analysis  of Financial
     Condition and Results of Operations - Liquidity and Capital Resources".











































                                         -20-






<PAGE> 21
     Item 6.  SELECTED FINANCIAL DATA

                 The following table sets forth certain selected financial data 
                 for the Company's operations for each of the five years 
                 ended March  31, 1997.   The data  set forth  in this table  
                 should be read in conjunction with "Management's Discussion and
                 Analysis of Financial Condition and Results of Operations", 
                 and the Company's Financial Statements and related notes  
                 included elsewhere herein.
<TABLE>
<CAPTION>
                                                                              Years ended March 31,
                                                         ----------------------------------------------------------------------- 
                                                         1997              1996            1995           1994              1993
                                                         ----              ----            ----           ----              ----
                                                                         (In thousands, except per share amounts)
         <S>                                          <C>              <C>              <C>              <C>              <C>
         INCOME STATEMENT DATA                             
         Operating revenues:
           Contract drilling                          $ 18,483         $ 21,298         $ 18,357         $ 18,359         $ 17,996
           Oil and gas                                   2,491            1,683            1,042              621              557
                                                        ------           ------           ------           ------           ------

              Total operating revenues                  20,974           22,981           19,399           18,980           18,553
              
         Operating costs and expenses:                                     
           Contract drilling                            14,190           17,252           14,630           14,989           15,570
           Oil and gas production                          924              554              350              318              221
           Dry holes and abandonments                      558              945              629              656              236
           Depreciation, depletion
             and amortization                            1,784              907              876              746              702
           General and administrative                    1,560            1,599            1,553            1,339            1,401
           Writedown of oil and
             gas properties (a)                            171            2,624             --                --               --
                                                        ------           ------           ------           ------           ------  
              Total operating costs                                  
                and expenses                            19,187           23,881           18,038           18,048           18,130 
                                                        ------           ------           ------           ------           ------
              Operating income (loss)                    1,787             (900)           1,361              932              423 

         Other income (expenses):                                
           Interest                                       (278)             (139)           (154)             (89)            (424)
           Other                                            52               117             359              258            5,118 
                                                        ------            ------          ------           ------           ------
              Total other income (expense)                (226)              (22)            205              169            4,694
                                                        ------            ------          ------           ------           ------

         Net income(loss) before income
           tax provision                                 1,561              (922)          1,566            1,101            5,117
         Provision for income taxes                        (16)              (30)            (30)             (62)            (149)
                                                        ------            ------          ------           ------           ------
         Net income (loss) before                                
           extraordinary items                        $  1,545          $   (952)       $  1,536         $  1,039         $  4,968
                                                        ======            ======          ======           ======           ======

                                                                     -21-



<PAGE> 22

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

         Weighted average number of
           common shares outstanding                     4,106             4,075           4,032            4,603            4,554
                                                         =====             =====           =====            =====            =====


         BALANCE SHEET DATA                          
           Cash and cash equivalents                  $  1,048         $    339         $  1,590         $  1,039         $    424
           Total assets                                 19,761           11,660           10,040            7,648            7,932 
           Total debt                                      --             1,300              --                74               16 
           Stockholders' equity                         14,372            4,959            5,775            4,133            3,081 
</TABLE>
         ____________________

              (a)  During fiscal years ended March 31, 1997 and 1996, the 
                   Company recognized a non-cash charge of approximately 
                   $171,000 and $2,624,000, respectively, due to a writedown 
                   of the carrying value of its oil and gas properties.  In
                   1996, this charge was a result of the adoption of Statement 
                   of Financial Accounting Standards No. 121 ("SFAS 121")
                   "Accounting for the Impairment of Long-Lived Assets and for 
                   Long-Lived Assets to Be Disposed Of".   SFAS 121 requires 
                   the Company to assess the need for an impairment of 
                   capitalized costs of oil and gas properties on a property-
                   by-property basis in contrast to the Company's prior policy 
                   of evaluating the undiscounted future net revenues of its 
                   oil and gas properties in total.   According to SFAS  121, 
                   if an impairment is indicated based on undiscounted future  
                   cash flows, then it is recognized to the extent that net  
                   capitalized costs exceed discounted future cash flows. 











                                                                     -2-

  










<PAGE> 23
     Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
              RESULTS OF OPERATIONS

        This Form 10-K  Annual Report and documents incorporated by reference in
     this Form  10-K Annual Report include certain statements that may be deemed
     to be "forward-looking statements" within the meaning of Section 27A of the
     Securities  Act and Section 21E of the  Securities Exchange Act of 1934, as
     amended (the "Exchange  Act").   All statements, other  than statements  of
     historical facts, included  in this Annual Report that  address activities,
     events  or  developments that  the  Company  estimates, intends,  projects,
     expects, believes or anticipates will or may occur in the future, including
     such  matters  as  market   conditions,  future  capital,  development  and
     exploration  expenditures  (including  the   amount  and  nature  thereof),
     drilling  rig  utilization rates,  drilling  of  wells, reserve  estimates,
     business strategies and  other plans  and objectives of  management of  the
     Company for future operations  and activities, expansion and growth  of the
     Company's operations and other such matters are forward-looking statements.
     These statements are based on certain  assumptions and analyses made by the
     Company in light of its experience and its perception of historical trends,
     current  conditions,  expected  future  developments  and  other  facts  it
     believes are appropriate in the circumstances.  Such statements are subject
     to a number  of assumptions,  risks and uncertainties,  including the  risk
     factors  discussed above,  general  economic and  business conditions,  the
     business  opportunities  (or lack  thereof) that  may  be presented  to and
     pursued by  the Company, changes  in law or regulations  and other factors,
     many of which are beyond the control  of the Company.  Such statements  are
     not guarantees of future performance and actual results or developments may
     differ materially from those projected in the forward-looking statements.  

     Overview

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

        Contract Drilling Operations

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

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




                                         -23-

<PAGE> 24
        The  following table  sets  forth certain  information  relating to  the
     Company's contract drilling operations:

                                                   Year Ended March 31,
                                                   --------------------
                                                 1997       1996      1995
                                                 ----       ----      ----
                                                 (In thousands, except %'s)

          Contract drilling revenues           $18,483    $21,298    $18,357
          Contract drilling expenses            14,190     17,252     14,630

          Contract drilling expenses as
            a percent of drilling revenues        76.8%      81.0%      79.7%

          Rig utilization                         51.6%      45.1%      43.5%
                                             
        Oil and Gas Operations  

        The Company's oil and gas  producing activities are accounted  for using
     the  successful  efforts  method  of accounting.    Accordingly,  the costs
     incurred  to  acquire oil  and gas  properties  (proved and  unproved), all
     development costs and successful exploratory costs are capitalized, whereas
     the costs of unsuccessful  exploratory wells are expensed.   Geological and
     geophysical costs, including  seismic costs,  are charged  to expense  when
     incurred.  In cases  where the Company provides contract  drilling services
     related to  oil and gas properties  in which it has  an ownership interest,
     the Company's proportionate share  of costs related to these  properties is
     capitalized as stated above, net of the Company's working interest share of
     profits  from  the  related  drilling  contracts.    Capitalized  costs  of
     undeveloped properties, which are not depleted until proved reserves can be
     associated  with the  properties,  are periodically  reviewed for  possible
     impairment.   Such  unevaluated costs  totaled approximately  $196,000, and
     $1,100,000 as of March 31, 1997 and March 31, 1996, respectively.

        During 1997,  1996 and 1995, depletion, depreciation and amortization of
     capitalized oil and  gas property  costs was provided  using the  units-of-
     production method based on estimated proved or proved developed oil and gas
     reserves, as applicable, of the respective property units.

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

                                                 Year Ended March 31,
                                                 --------------------
                                              1997       1996       1995
                                              ----       ----       ----
                                                    (In thousands)

          Oil and gas revenues               $2,491     $1,683     $1,042
          Production expenses                   924        554        350
          Dry holes and abandonments            558        945        629
          Depreciation, Depletion and
            Amortization                        802        468        400
          Writedown of properties               171      2,624         --
                                             
        The contract  drilling industry remains  highly competitive.   Recently,

                                         -24-
<PAGE> 25

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

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

     RESULTS OF OPERATIONS

     Comparison of Year ended March 31, 1997 to Year ended March 31, 1996

        Contract drilling revenues for the  year ended March 31,  1997 decreased
     by approximately  13% from the  year ended  March 31, 1996.   However,  the
     Company experienced an increase  in the average price received  for footage
     and  daywork contracts, respectively, when compared to the year ended March
     31, 1996.   Even though the Company  experienced these increases in  rates,
     total  drilling revenues for the year decreased  by 13%.  This decrease can
     be attributed to a reduction in the number of turnkey  wells drilled by the
     Company.   During the year  ended March  31, 1996, the  Company drilled  12
     turnkey wells, while no  turnkey wells were drilled  by the Company  during
     the year ended March 31, 1997.

        Rig  utilization rates  were  approximately 52%  and  45% for  the years
     ended March  31, 1997 and  1996, respectively.   Rig utilization rates  and
     contract drilling revenues for the year ended March 31, 1997 were adversely
     affected by  extremely low  utilization in  the first  three months  of the
     fiscal year.   The utilization rate for the first  quarter was 34% compared
     to  70% for the fourth quarter of fiscal year ended March 31, 1997.  During
     the  first quarter  of the  year,  drilling prices  were depressed  and the
     Company chose to underutilize its drilling equipment rather then subjecting
     such  equipment  to  additional  wear and  tear  at  unacceptable operating
     margins.  From July, 1996 through  March 31, 1997, the Company experienced,
     and is continuing to experience,  a substantial increase in demand for  its
     contract drilling  services.   Rig utilization  in the  Company's operating
     market  is difficult  to  project because  contract  drilling is  a  highly
     competitive  industry.   In addition,  the number  of rigs,  industry wide,
     actually available for work cannot be accurately determined.

        Contract drilling  expenses as a  percent of contract drilling  revenues
     were approximately 77% and 81% for the years ended March 31, 1997 and 1996,
     respectively.   This  decrease can  be attributed  to  the increase  in the
     average price received for drilling contracts.

        Oil and gas revenues increased by approximately 48% for  the fiscal year
     ended  March  31,  1997.   Accordingly,  oil  and  gas production  expenses
     increased approximately 67% for the same period.

        Depreciation, depletion and amortization expense has  also increased due

                                         -25-
<PAGE> 26

     to the  addition of drill pipe  and an increase in the  number of producing
     wells in which the Company has an ownership interest.

        Interest expense increased  approximately 100% for the  year ended March
     31, 1997 due to borrowings  under the Company's credit facilities  with its
     bank  lender during  this period.   See  "Liquidity and  Capital Resources"
     below.

        Net  working capital was  $2.6 million at March  31, 1997  compared to a
     negative  $1.2 million at March 31, 1996.   The increase in working capital
     can  be attributed  to an  increase in  accounts receivable, a  decrease in
     accounts payable and an increase in cash and cash equivalents.


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

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

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

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

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

     Income Taxes

        At March 31, 1997, the  Company had approximately $71,683,000  of unused
     net  operating loss ("NOL") carryforwards for tax purposes.  Realization of
     the benefits of these carryforwards is dependent upon the Company's ability
     to generate taxable earnings in future periods.  If these carryforwards are
     not utilized, they will  begin to expire in 1998.  The Company's ability to

                                         -26-
<PAGE> 27

     utilize  its NOL carryforwards may  be substantially limited  in the future
     under the Internal Revenue  Code of 1986, as amended (the  "Code").  If the
     Company experiences an ownership change under applicable  provisions of the
     Code,  the carryforward  would be  limited to  an annual  amount calculated
     based on  specified interest rates and  other variables.   The Company does
     not believe an ownership change has occurred to date.

        The effective  tax rates  for the years  ended March  31, 1997 and  1996
     differ from the statutory tax  rate of 34% primarily due to  utilization of
     NOLs.  Tax expense is generally limited to alternative minimum tax.

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

     Liquidity and Capital Resources

        In January, 1996,  the Company entered  into a  loan agreement with  its
     bank  lender  providing  for  a  revolving  credit  facility  (the  "Credit
     Facility") maturing on January 15, 1998.  The aggregate principal amount of
     the  Company's borrowings outstanding at  any one time  under the revolving
     facility  are limited  to the lesser  of $3.0  million or  one-third of the
     borrowing  base  amount  then in  effect.   The  borrowing  base  amount is
     redetermined by the bank monthly.   The Credit Facility was  established to
     finance  the Company's purchases of drill pipe  and oil and gas exploration
     activities.   Interest  only is  payable monthly  and the  entire principal
     amount  is due and payable on January  15, 1998.  The Credit Facility bears
     interest at the bank's base rate and is secured by substantially all of the
     Company's  accounts receivable,  drilling rigs  and related equipment.   At
     March  31, 1997,  there  were  no  amounts  outstanding  under  the  Credit
     Facility.  

        In August,  1996, the Company entered into  a second loan agreement with
     its bank  lender.  This second  loan agreement provides for  a $2.0 million
     revolving  line of credit (the  "Line of Credit")  secured by substantially
     all of the Company's producing oil and gas properties.   The Line of Credit
     was established to finance the Company's oil and gas exploration activities
     and for general  corporate purposes.  The Line of  Credit bears interest at
     the  bank's base rate  and interest only  is payable monthly.   The Line of
     Credit matures  on February 15,  1998, at which  time the principal  amount
     then outstanding is  due and payable, plus any accrued and unpaid interest.
     At March 31, 1997, no amounts were outstanding under the Line of Credit.  

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

                                         -27-
<PAGE> 28
     Facility and Line of Credit in the future.
     
        The Company  intends to  meet its  fiscal 1998  cash flow  requirements,
     including amounts, if any,  that may be required to be  paid by the Company
     as a  result of the  claims asserted  against the Company  as described  in
     "Item  3 - Legal Proceedings",  through cash flow  provided from operations
     and, if needed, additional borrowings under the Credit Facility and Line of
     Credit.  As  described in "Item  3 - Legal  Proceedings", the Company  is a
     defendant in  a lawsuit  filed against  it by  Texas Property  and Casualty
     Insurance Guaranty Association which has resulted in the  Company's accrual
     of  approximately  $854,000 for  a contingent  liability.   If  the Company
     ultimately incurs any liability as a result of a final, adverse judgment or
     if the Company pays any amount  in settlement of the lawsuit, the Company's
     liquidity could be adversely affected to  the extent of the amount actually
     paid  in  settlement of  the  lawsuit or  in satisfaction  of  any judgment
     against the  Company.  However,  in either event, the  Company believes its
     capital sources  are more than adequate to fund any such liability and that
     any adverse  effects on the Company's  liquidity would not  be material and
     would  not result  in  any material  constraints  on the  Company's  future
     operations.

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

                                                        Year Ended March 31,    
                                                        --------------------
                                                      1997       1996      1995
                                                      ----       ----      ----
     Oil and gas exploration and development.....    $3,424     $5,553    $2,980
     Drill pipe and related equipment............     2,940      1,452       459
     Other.......................................       390         11        56
                                                      -----      -----     -----
          Total..................................    $6,754     $7,016    $3,495
                                                      =====      =====     =====

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

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




                                         -28-


<PAGE> 29
     Trends and Prices

        Although the  domestic onshore contract  drilling business is  currently
     experiencing  increased  demand for  drilling  services,  primarily due  to
     stronger  oil and  gas prices  and technological  advances, the  market for
     onshore contract drilling services has generally been depressed since 1982,
     when oil and gas prices began to weaken.  The Company cannot predict either
     the future  level of demand  for its  contract drilling services  or future
     conditions in the contract drilling industry.

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

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





























                                         
     
                                         -29-
<PAGE> 30

       
     Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                                                                       Page

          Report of Independent Public Accountants                      30

          Balance Sheets, March 31, 1997 and 1996                       31

          Statements of Operations, Years ended
            March 31, 1997, 1996 and 1995                               33

          Statements of Stockholders' Equity,
            Years ended March 31, 1997, 1996 and 1995                   34

          Statements of Cash Flows,
            Years ended March 31, 1997, 1996 and 1995                   35

          Notes to Financial Statements                                 36


































         
                                         -30-
                       


<PAGE> 31
                       REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


     To the Board of Directors and Stockholders of TMBR/Sharp Drilling, Inc.:

        We have audited the accompanying balance  sheets of TMBR/Sharp Drilling,
     Inc. (a Texas corporation)  as of March 31, 1997 and  1996, and the related
     statements of operations, stockholders'  equity and cash flows for  each of
     the  three  years in  the period  ended March  31,  1997.   These financial
     statements and the schedule referred to below are the responsibility of the
     Company's management.  Our responsibility is to express an opinion on these
     financial statements and schedule based on our audits.

        We conducted our audits in  accordance with generally accepted  auditing
     standards.  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  financial statements  referred  to above  present
     fairly,  in  all material  respects, the  financial position  of TMBR/Sharp
     Drilling, Inc.  as of March  31, 1997  and 1996, and  the results of  their
     operations and their cash flows  for each of the three years in  the period
     ended  March 31,  1997, in  conformity with  generally  accepted accounting
     principles.

        As explained  in Note 1  to the financial  statements, effective January
     1, 1996,  the Company changed  its method of  accounting for impairment  of
     long-lived assets.

        Our audits were made for  the purpose of forming an opinion on the basic
     financial statements taken as a whole.  The schedule listed in the index at
     Item 14(a)2 is presented for purposes of complying with the Securities  and
     Exchange Commission's  rules and  is  not a  part  of the  basic  financial
     statements.   This schedule has  been subjected to  the auditing procedures
     applied  in the  audits  of the  basic financial  statements,  and, in  our
     opinion, fairly states in all material respects the financial data required
     to be set forth therein in relation to the basic financial statements taken
     as a whole.
       





                                               ARTHUR ANDERSEN LLP              

     Dallas, Texas,
       May 23, 1997




                                         -31-

<PAGE> 32
                              TMBR/SHARP DRILLING, INC.

                                    Balance Sheets

                               March 31, 1997 and 1996

                        (In thousands, except per share data)




      ASSETS                                               1997          1996 
      ------                                               ----          ---- 

    Current assets:
      Cash and cash equivalents                        $   1,048     $     339
      Marketable securities                                   87            --
      Trade receivables,
        net of allowance for doubtful
          accounts of $1,135 in 1997
          and $1,225 in 1996.                              6,218         2,942
      Inventories                                             74            51
      Deposits                                                73           423
      Other                                                  560           410
                                                          ------        ------
         Total current assets                              8,060         4,165
                                                          ------        ------


    Property and equipment, at cost:
      Drilling equipment                                  42,690        39,750
      Oil and gas properties, based on
        successful efforts accounting                     13,102        10,398
      Other property and equipment                         3,584         3,195
                                                          ------        ------
                                                          59,376        53,343
      Less accumulated depreciation,
        depletion and amortization                       (47,851)      (46,022)
                                                          ------        ------
         Net property and equipment                       11,525         7,321
                                                          ------        ------

    Other assets                                             176           174
                                                          ------        ------

              Total assets                             $  19,761     $  11,660
                                                          ======        ======


    See accompanying notes to financial statements.







                                         -32-

<PAGE> 33
                              TMBR/SHARP DRILLING, INC.

                                    Balance Sheets

                               March 31, 1997 and 1996

                        (In thousands, except per share data)



      LIABILITIES AND STOCKHOLDERS' EQUITY                 1997             1996
      ------------------------------------                 ----             ----

    Current liabilities:
      Trade payables                                    $  2,739       $   3,336
      Accrued workers' compensation                        1,245           1,279
      Other                                                1,405             786
                                                          ------          ------
         Total current liabilities                         5,389           5,401
                                                          ------          ------
    Long term liabilities:
      Borrowings from bank                                    --           1,300
                                                          ------          ------
         Total liabilities                                 5,389           6,701
                                                          ------          ------
    Contingencies

    Stockholders' equity:
      Common stock, $0.10 par value.
        Authorized, 50,000,000 shares;
        issued, 5,696,825 shares at
        March 31, 1997 and 4,615,525 at
        March 31, 1996.                                     570             461 
      Additional paid-in capital                         68,413          60,654 
      Accumulated deficit                               (54,461)        (56,006)
      Treasury stock-common, 1,268,739 shares
        at March 31, 1997 and 1996, at cost.               (150)           (150)
                                                         ------          ------ 
         Total stockholders' equity                      14,372           4,959 
                                                         ------          ------ 

           Total liabilities and 
             stockholders' equity                     $  19,761       $  11,660 
                                                         ======          ====== 

    See accompanying notes to financial statements.










                                             
                                         -33-

<PAGE> 34
                              TMBR/SHARP DRILLING, INC.

                               Statements of Operations

                      Years Ended March 31, 1997, 1996 and 1995

                        (In thousands, except per share data)


                                                1997         1996        1995  
                                                ----         ----        ----  
    Revenues:
      Contract drilling                     $  18,483    $  21,298   $  18,357 
      Oil and gas                               2,491        1,683       1,042 
                                               ------       ------      ------ 
              Total revenues                   20,974       22,981      19,399 
                                               ------       ------      ------ 
    Operating costs and expenses:
      Contract drilling                        14,190       17,252      14,630 
      Oil and gas production                      924          554         350 
      Dry holes and abandonments                  558          945         629 
      Depreciation, depletion and
        amortization                            1,784          907         876 
      Writedown of oil and gas
        properties                                171        2,624          -- 
      General and administrative                1,560        1,599       1,553 
                                               ------       ------      ------ 
              Total operating costs
                and expenses                   19,187       23,881      18,038 
                                               ------       ------      ------ 
              Operating income (loss)           1,787         (900)      1,361 
                                               ------       ------      ------ 
    Other income (expense):
      Interest                                   (278)        (139)       (154)
      Gain on sales of assets                      65           26         100 
      Other, net                                  (13)          91         259 
                                               ------       ------      ------ 
              Total other income
                (expense), net                   (226)         (22)        205 
                                               ------       ------      ------ 
    Net income (loss) before
      income tax provision                      1,561         (922)      1,566 
    Provision for income taxes                    (16)         (30)        (30)
                                               ------       ------      ------ 
    Net income (loss)                       $   1,545    $    (952)  $   1,536 
                                               ======       ======      ====== 
    Net income (loss) per 
      common share                          $    0.38    $   (0.23)  $    0.38 
                                             =========    =========   =========
    Weighted average number of
      common shares outstanding              4,105,882    4,074,567   4,032,195
                                             =========    =========   =========

    See accompanying notes to financial statements.


                                          
                                         -34-

<PAGE> 35




                                   TMBR/SHARP DRILLING, INC.

                               Statements of Stockholders' Equity 

                           Years Ended March 31, 1997, 1996 and 1995

                                          (In thousands)

<TABLE>
<CAPTION>


                                         Common Stock     Additional                 Treasury Stock        Total
                                         ------------      Paid-In     Accumulated   ---------------   Stockholders'
                                        Shares   Amount    Capital       Deficit     Shares   Amount      Equity
                                        ------   ------   ----------   -----------   ------   ------   -------------

                 <S>                    <C>      <C>       <C>          <C>           <C>     <C>         <C>
                 Balance, March 31,
                   1994                  4,226   $ 423     $ 60,450      $(56,590)    1,270   $(150)      $ 4,133

                 Exercise of Stock
                   Options                 168      16           90           --         --      --           106

                 Net Income                --       --          --          1,536        --      --         1,536
                                         -----    -----     --------      --------    -----    -----       -------

                 Balance, March 31,
                   1995                  4,394   $ 439     $ 60,540      $(55,054)    1,270   $(150)      $ 5,775

                 Exercise of Stock
                   Options                 222      22          114           --         --      --           136

                 Net Loss                  --       --          --           (952)       --      --          (952)
                                         -----    -----     --------      --------    -----    -----       -------
                 Balance, March 31,
                   1996                  4,616   $ 461     $ 60,654      $(56,006)    1,270   $(150)      $ 4,959

                 Issuance of 
                   Common Stock            750      76        7,704           --         --      --         7,780

                 Exercise of Stock 
                   Options                 331      33           55           --         --      --            88

                 Net Income                 --      --           --         1,545        --      --         1,545
                                         -----    -----     --------      --------    -----    -----       -------
                 Balance, March 31,
                   1997                  5,697   $ 570     $ 68,413      $(54,461)    1,270   $(150)      $14,372
                                         =====    =====     ========      ========    =====    =====       =======

                 See accompanying notes to financial statements.

                                         -35-


<PAGE> 36
                              TMBR/SHARP DRILLING, INC.
                              Statements of Cash Flows
                      Years Ended March 31, 1997, 1996 and 1995
                                   (In thousands)

                                                   1997       1996       1995   
                                                   ----       ----       ----   
   Cash flows from operating activities:
     Net income (loss)                          $   1,545  $    (952) $   1,536 
     Adjustments to reconcile net 
       income (loss) to net cash provided
       by operating activities:
         Depreciation, depletion and amortization   1,784        907        876 
         Dry holes and abandonments                   558        945        629 
         Gain on sales of assets                      (65)       (26)      (100)
         Writedown of properties                      171      2,624         -- 
         Changes in assets and liabilities:
           Trade receivables                       (3,276)      (374)        45 
           Deposits                                   350         90        273 
           Inventories and other assets              (262)       (65)      (175)
           Trade payables                            (597)     1,497        555 
           Accrued payables and other
             current liabilities                      585        117       (102)
                                                  --------   --------   --------
             Total adjustments                       (752)     5,715      2,001 
                                                  --------   --------   --------
             Net cash provided
               by operating activities                793      4,763      3,537 
                                                  --------   --------   --------
   Cash flows from investing activities:
     Additions to property and equipment           (6,754)    (7,016)    (3,495)
     Proceeds from sales of property  
       and equipment                                  102         44        106 
                                                  --------   --------   --------
             Net cash required
               by investing activities             (6,652)    (6,972)    (3,389)
                                                  --------   --------   --------
   Cash flows from financing activities:
     Repayments of capital lease                       --        (92)       (89)
     Proceeds from issuance of common stock         7,780         --         -- 
     Proceeds from exercise of stock options           88        136        106 
     Proceeds from bank loan                        3,200      1,300         -- 
     Repayments of bank loan                       (4,500)        --         -- 
     Leasehold borrowings and repayments 
       of leasehold borrowings                         --       (386)       386 
                                                  --------   --------   --------
             Net cash provided by
               financing activities                 6,568        958        403 
                                                  --------   --------   --------
             Net increase (decrease) in
               cash and cash equivalents              709     (1,251)       551 

   Cash and cash equivalents at beginning
     of year                                          339      1,590      1,039 
                                                  --------   --------   --------
   Cash and cash equivalents at end of year     $   1,048  $     339  $   1,590 
                                                  ========   ========   ========
   See accompanying notes to financial statements.
                                         -36-
<PAGE> 37



                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements




     (1)  Organization, Nature of Business and Summary of Significant Accounting
          Policies

     Nature of Operations

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

          The Company's  principal businesses are the  domestic onshore contract
     drilling  of oil  and  gas wells  for  major and  independent  oil and  gas
     producers,  and, to a lesser  extent, the exploration  for, development and
     production of  oil and natural gas.   The Company's drilling activities are
     primarily  conducted in  the Permian  Basin of west  Texas and  eastern New
     Mexico.

     Cash and Cash Equivalents

          For  purposes of the statements  of cash flows,  the Company considers
     highly liquid debt  instruments which  have an original  maturity of  three
     months or  less to be cash equivalents.  Cash payments for interest expense
     were  approximately $278,000  in 1997,  $139,000 in  1996, and  $154,000 in
     1995.  Cash  payments for taxes due totaled $0,  $23,000 and $13,000 during
     1997, 1996 and 1995, respectively.

     Marketable Securities

          During  1997,  the  Company   adopted  the  accounting  procedures  as
     established by the  SFAS No.  115, "Accounting for  Certain Investments  in
     Debt  and Equity Securities."   Under SFAS No.  115, marketable securities,
     such  as those owned by  the Company, are  classified as available-for-sale
     securities and are to  be reported at market  value, with unrealized  gains
     and losses, net of income  taxes, excluded from earnings and reported  as a
     separate  component of  stockholders' equity.   The  market value  of these
     securities  at March  31,  1997  was  not  materially  different  from  the
     historical cost, and  therefore, no  unrealized gains or  losses have  been
     recorded.







                                         -37-


<PAGE> 38

                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements



     Inventories

          Inventories  consist primarily  of  casing and  tubing.   The  Company
     values  its inventories at the  lower of cost  or estimated net recoverable
     value using the specific identification method.

     Property and Equipment

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

          Oil  and gas properties are accounted for using the successful efforts
     method  of accounting.  Accordingly, the costs incurred to acquire property
     (proved  and unproved),  all development  costs and  successful exploratory
     costs are capitalized, whereas the costs  of unsuccessful exploratory wells
     are  expensed.  Geological and geophysical  costs, including seismic costs,
     are charged  to expense when incurred.  In cases where the Company provides
     contract drilling  services related to oil  and gas properties in  which it
     has  an ownership  interest,  the Company's  proportionate  share of  costs
     related  to these  properties is capitalized  as stated  above, net  of the
     Company's  working  interest share  of  profits from  the  related drilling
     contracts.   Capitalized costs  of undeveloped  properties,  which are  not
     depleted until proved reserves  can be associated with the  properties, are
     periodically  reviewed for  possible  impairment.   Such unevaluated  costs
     totaled  approximately $196,000  and $1,100,000  as of  March 31,  1997 and
     1996, respectively.

          Depletion, depreciation  and amortization  of capitalized oil  and gas
     property  costs is provided  using the units-of-production  method based on
     estimated proved or proved  developed oil and gas reserves,  as applicable,
     of the respective property units.









                                         -38-




<PAGE> 39
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements




          Prior to 1996, the Company provided impairments for significant proved
     oil  and gas properties  to the extent that  net capitalized costs exceeded
     aggregated  undiscounted future net cash  flows.  During  1996, the Company
     adopted Statement of  Financial Accounting Standards No. 121  ("SFAS 121"),
     "Accounting  for the  Impairment of  Long-Lived Assets  and  for Long-Lived
     Assets to Be  Disposed Of".   SFAS 121 requires  the Company to  assess the
     need for an impairment of capitalized costs  of oil and gas properties on a
     property-by-property basis.   According to  SFAS 121, if  an impairment  is
     indicated  based on  undiscounted expected  future cash  flows, then  it is
     recognized  to the  extent  that net  capitalized  costs exceed  discounted
     future cash  flows.   In  connection with  the adoption  of  SFAS 121,  the
     Company  provided an  impairment  of $2,624,000  in  1996.   An  additional
     impairment  of $171,000  was recorded  in 1997.   Management's  estimate of
     future cash flows is based on their estimate of reserves and prices.  It is
     reasonably possible that a change in reserve or price estimates could occur
     in the near  term and adversely impact management's estimate of future cash
     flows and consequently the carrying value of properties.

          Major  renewals and  betterments  are capitalized  in the  appropriate
     property accounts while  the cost of repairs and  maintenance is charged to
     operating  expense in  the period incurred.   For assets  sold or otherwise
     retired,  the cost and related accumulated depreciation amounts are removed
     from the accounts and any resulting gain or loss is recognized.

     Drilling Revenues and Costs

          Drilling revenues from footage and daywork contracts are recognized as

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

     Risks and Uncertainties

          The preparation  of financial statements in  conformity with generally
     accepted accounting  principles requires  management to make  estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of contingent  assets  and  liabilities  at  the  date  of  the
     financial  statements and  the reported  amounts of  revenues and  expenses
     during  the reporting  period.   Actual  results  could differ  from  those
     estimates.  Significant estimates with regard to these financial statements
     include the estimate of proved oil and gas reserve volumes and the related
     present value

                                         -39-



<PAGE> 40
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



     of estimated future net revenues therefrom  (see Note 9), and the valuation
     allowance for deferred taxes (see Note 5).

     Net Income (Loss) Per Share of Common Stock

          Net income (loss)  per share of common stock is  based on the weighted
     average number of common shares outstanding during each period.  All common
     stock equivalents  are considered dilutive for purposes  of calculating the
     net  income per  share  and are  considered  antidilutive for  purposes  of
     calculating the net loss per share.

     Stock Based Employee Compensation

          In  October  1995, the  Financial  Accounting  Standards Board  issued
     Statement  of   Financial  Accounting   Standards  No.  123   ("SFAS  123")
     "Accounting for Stock-Based Compensation," which establishes accounting and
     reporting standards for various  stock based compensation plans.   SFAS 123
     encourages the adoption  of a  fair value  based method  of accounting  for
     employee stock options, but permits continued application of the accounting
     method prescribed by Accounting  Principles Board Opinion No.  25 ("Opinion
     25"), "Accounting  for Stock Issued to Employees."  The Company has elected
     to continue to  apply the provisions of  Opinion 25.  Under Opinion  25, if
     the exercise price  of the Company's stock options equals  the market value
     of the  underlying stock on the  date of grant, no  compensation expense is
     recognized.    SFAS  123  requires  disclosure  of  pro  forma  information
     regarding net income and earnings per share as if the Company had accounted
     for  its  employee stock  options  under  the  fair  value  method  of  the
     statement.  See Note 3 "Stockholders' Equity."


     (2)  Debt

          Line of Credit

          On  January 16, 1996,  the Company entered into  a loan agreement with
     Norwest  Bank Texas, Midland, N.A. (Norwest) that provides for a $3,000,000
     revolving line of credit secured by the Company's drilling rigs and related
     equipment, accounts receivable and inventory.  Borrowings under the line of
     credit bear  interest at the  Norwest Bank Minnesota,  National Association
     base rate  and the interest is payable monthly.  The loan agreement matures
     January 15,  1998 at which time  the then outstanding principal  and all of
     the accrued and unpaid interest is due and payable.



                                         -40-






<PAGE> 41
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



          In August, 1996, the Company entered into a second loan agreement with
     Norwest.  The  second loan  agreement provides for  a $2,000,000  revolving
     line of credit secured by substantially all of  the Company's producing oil
     and gas properties.   Borrowings under the line of  credit bear interest at
     the Norwest  base rate and the  interest is payable  monthly.  The  line of
     credit matures on  February 15, 1998, at  which time, the  principal amount
     then outstanding is due and payable,  plus any accrued and unpaid interest.
     The borrowings under 
     both loan agreements were paid in full in February, 1997.

          Leasehold Purchase Obligation

          On  December 9,  1994,  the Company  entered  into an  agreement  with
     Paladin  Exploration Co., Inc. ("Paladin")  to acquire certain  oil and gas
     leases.  The  Company agreed to  reimburse Paladin an  aggregate amount  of
     approximately  $629,000 (including imputed interest  at a rate  of 9.5% per
     annum) for  leasehold  acquisition, legal  and  seismic costs  incurred  by
     Paladin associated with the acquisition of such leases.  At March 31, 1996,
     the obligation outstanding to Paladin had been satisfied.


     (3)  Stockholders' Equity

          (a)  Common Stock

          On  February 13,  1997,  the Company  closed  a private  placement  of
     725,000 shares of  common stock at  a price of $11.00  per share.   The net
     proceeds from the placement were approximately $7.4 million.

          (b) Stock Option Plans

     1984 Stock Option Plan

          In August of 1984, the Company adopted the 1984 Stock Option Plan (the
     "Plan") which initially authorized 375,000  shares of the Company's  common
     stock to be issued as either incentive stock  options or nonqualified stock
     options.  This  Plan was amended in August 1986  to increase the authorized
     shares to 475,000 shares of  the Company's common stock.  In  January 1988,
     the  Plan was amended to reduce the  option price on certain options issued
     prior to March 31, 1986, to reflect  the then current fair market value  of
     the Company's  common stock.  The Plan provides that options may be granted
     to key employees  or directors for various  terms at a price  not less than
     the fair market  value of the shares on the date  of the grant.  Options to
     purchase 106,000 shares of common stock are currently outstanding under the
     Plan, with 82,250 of the options  being exercisable at March 31, 1997.   No
     additional shares are available for grant as the Plan expired by its own
     terms in August

                                         -41-



<PAGE> 42
                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements



     1994.  The options  that were granted prior to the  expiration of the Plan,
     and which are outstanding, remain subject to the terms of the Plan.

     1994 Stock Option Plan

          In July 1994,  the Company  adopted its  1994 Stock  Option Plan  (the
     "1994  Plan") which  authorized  the grant  of  options to  purchase up  to
     750,000 shares of the Company's common  stock.  These options may be issued
     as either  incentive or nonqualified stock options.  The 1994 Plan provides
     that options may be granted to key employees or directors for various terms
     at a price not less than the fair market value of the shares on the date of
     grant.  The 1994 Plan was ratified and approved by  the stockholders at the
     Company's annual meeting of stockholders held on August 30, 1994.

          On  September  3,  1996,  the   Company  granted  465,000  shares   of
     nonqualified  stock options  to key  employees under  the 1994  Plan.   The
     following  sets forth  certain  information  concerning these  nonqualified
     options.

                                           Number          Option Price
                                             of         ---------------------
                                           Shares       Per Share       Total
                                           ------       ---------------------
          Outstanding March 31, 1996          --          --             --

          Granted                        465,000       $7.75         $3,603,750
                                         -------        ----          ---------
          Outstanding March 31, 1997     465,000       $7.75         $3,603,750
                                         =======        ====          =========

          All of  the nonqualifed stock options granted on September 3, 1996 are
     earned and exercisable as of May 1, 1997.

          In addition to the aforementioned options, during fiscal year 1989, an
     additional  500,000 shares  of nonqualified  stock options were  granted to
     another director who is also an officer.  These options were granted at  an
     exercise  price of $0.25 per share (estimated  fair market value at date of
     grant).    On April  4,  1990,  the Board  of  Directors  also approved  an
     additional  500,000 shares of nonqualified stock options granted to another
     director at  an exercise price  of $0.25 per  share (estimated  fair market
     value at date of grant).  



                                         -42-






<PAGE> 42
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



          The  following  sets  forth   certain  information  concerning   these
     nonqualified options:

                                                              Option Price
                                       Number                 ------------
                                      of Shares        Per Share        Total
                                      ---------        ---------        -----
        Outstanding March 31, 1995      862,000         $0.25         $215,500
             Exercised                 (164,000)         0.25          (41,000)
                                      ---------                        -------
        Outstanding March 31, 1996      698,000         $0.25         $174,500
             Exercised                 (329,200)         0.25          (82,300)
                                      ---------                        -------
        Outstanding March 31, 1997      368,800         $0.25         $ 92,200
                                      =========                        =======

          All nonqualified options outstanding were earned and exercisable as of
     March 31, 1997.

          Pro forma information regarding  net income and earnings per  share is
     required  by  SFAS 123,  and  has been  determined  as if  the  Company had
     accounted  for its  employee stock options  under the fair  value method of
     that statement.   The fair value of  each option grant is estimated  on the
     date of  the grant using  the Black-Scholes  option pricing model  with the
     following weighted-average assumptions  used for grants in  fiscal 1997: no
     dividend yield, expected volatility of 68.32% and a risk free interest rate
     of 6.7%.

             Year of     Option     Exercise     Expected     Fair
              Grant      Shares      Price         Life       Value
             -------     ------     --------     --------     -----
              1997       465,000     $7.75         5.0        $4.87














                                         -43-





<PAGE> 44
                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements




          For purposes of pro forma disclosures, the estimated fair value of the
     options  is amortized  to expense over  the options'  vesting period.   The
     Company's pro forma information follows:

                                                       1997
                                                -------------------            
                                             As Reported     Pro Forma
                                             -----------     ---------
                                      (In thousands, except per share amounts)

          Net income (loss) from
            continuing operations              $1,545          $(436)

          Net income (loss) from
            continuing operations 
              per share                        $0.38           $(0.10)   

          The effects  of applying SFAS 123 in this pro forma disclosure are not
     indicative of future amounts, as SFAS 123 does not apply to awards prior to
     1995 and additional awards are anticipated in future years.

     (4)  Effects of Future Adoption of Accounting Standards

          In  February 1997,  the  Financial Accounting  Standards Board  issued
     Statement of Financial Accounting Standards No. 128 ("SFAS 128")  "Earnings
     Per  Share" superseding  Accounting Principles  Board Opinion No.  15 ("APB
     15") "Earnings Per Share."  SFAS  128 simplifies earnings per share ("EPS")
     calculations by replacing previously reported primary EPS with what will be
     called  basic  EPS  which  is  calculated  by  dividing  reported  earnings
     available   to  common   shareholders  by   the  weighted   average  shares
     outstanding.    No dilution  for  potentially dilutive  securities  will be
     included  in basic  EPS.   Previously reported  fully diluted  EPS  will be
     called diluted EPS which will 
     include potentially  dilutive securities.  The requirements  under SFAS 128
     will  not be incorporated into the Company's financial statements until the
     fiscal year  ending March  31, 1998.    Presented below  are the  pro-forma
     effects 







                                         -44-





<PAGE> 45
                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements




     of SFAS 128 on the Company's EPS disclosures for the years ending March 31,
     1997, 1996 and 1995:

                                         1997          1996          1995
                                         ----          ----          ----  

        Primary EPS as reported         $ 0.38        $(0.23)       $ 0.38

        Effect of SFAS 128                0.05          0.00          0.11
                                          ----          ----          ----
        Pro-forma basic EPS             $ 0.43        $(0.23)       $ 0.49
                                          ====          ====          ====

        Fully diluted EPS as
          reported                      $ 0.38        $(0.23)       $ 0.38

        Effect of SFAS 128                0.00          0.00          0.00
                                          ----          ----          ----
        Pro-forma diluted EPS           $ 0.38        $(0.23)       $ 0.38
                                          ====          ====          ====      
                             

     (5)  Income Taxes

          At  March 31, 1997, the  Company had approximately  $71,683,000 of net
     operating loss carryforwards for tax purposes.  Realization of the benefits
     of  these carryforwards is dependent upon the Company's ability to generate
     taxable  earnings  in  future periods.    If  these  carryforwards are  not
     utilized,  they will  begin  to expire  in 1998.  The Company's  ability to
     utilize its net  operating loss carryforwards may be  substantially limited
     in the future under Section 382 of the Internal Revenue Code (IRC).  If the
     Company encounters a  change of control as defined in  IRC Section 382, the
     carryforward  would  be limited  to an  annual  amount calculated  based on
     market  value.   The  Company  does not  believe  a change  of  control, as
     defined, has occurred to date.









                                         -45-





<PAGE> 46
                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements




          The Company utilizes  an asset  and liability  approach for  financial
     accounting  and  reporting  for income  taxes.    The  major components  of
     deferred tax assets and liabilities follows:

                                             March 31, 1997    March 31, 1996
                                             --------------    --------------
          Deferred Tax Assets (Liabilities)
            Federal NOL Carryforwards         $ 24,372,057      $ 24,279,040
            Allowance for Bad Debts                385,803           416,403
            Book over tax depreciation
              and amortization                     112,171           815,254
            Accrued Workers Compensation           423,170           434,884
            Other accrued expenses                  40,689            (5,616)
                                                ----------        ----------
              Total deferred tax assets         25,333,890        25,939,965
              Valuation allowance              (25,333,890)      (25,939,965)
                                                ----------        ----------
                Net deferred tax asset        $     --          $     --
                                                ==========        ==========

          The  Company has provided a valuation allowance for the entire balance
     of deferred tax assets at March 31, 1997 and  March 31, 1996, as it is more
     likely than not that the deferred tax asset will not be realized.

          The  effective tax rates for the years  ended March 31, 1997, 1996 and
     1995 differ from the statutory tax rate of 34% primarily due to utilization
     of net operating  loss carryforwards.  Tax expense is  generally limited to
     alternative minimum tax.
















                                         -46-





<PAGE> 47
                              TMBR/SHARP DRILLING, INC.



                            Notes to Financial Statements




          The following table sets  forth a reconciliation of the  tax provision
     using  statutory  rates  to  the  actual  tax  provision  provided  in  the
     statements of operations:

                                            1997       1996        1995
                                            ----       ----        ----

          Tax provision (benefit)
            utilizing statutory rates      $ 525      $(313)      $ 532

          Utilization of NOL                (509)       343        (502)
                                             ---        ---         ---
          Tax provision                    $  16      $  30       $  30
                                             ===        ===         ===


     (6)  Related Parties

          During  1997, 1996 and 1995,  the Company sold  $190,000, $791,000 and
     $1,731,000 and purchased $119,000,  $427,000 and $357,000, respectively, of
     goods and  services from  entities affiliated with  individuals serving  as
     officers and/or  directors of the Company.   These purchases and  sales are
     transacted  using  market  rates.    These  transactions  are  included  in
     "contract  drilling  revenue" and  "contract  drilling  expense" or  "other
     income or expense" in the accompanying statements of operations.

          The related  party transactions  discussed in the  preceding paragraph
     are noninterest-bearing and are settled in the normal course of business.
















                                         -47-





<PAGE> 48
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


     (7)  Business Segments and Significant Customers

          The Company  is engaged in contract drilling of oil and gas wells and,
     to a lesser extent, in oil and gas production.   Information concerning the
     Company's business segments follows:

                                               Years Ended March 31,
                                     ----------------------------------------
                                        1997           1996           1995
                                     ----------     ----------     ----------
                                                  (In thousands)
     Revenues:
       Contract drilling             $  18,483      $  21,298      $  18,357 
       Oil and gas                       2,491          1,683          1,042 
                                       --------       --------       --------
                                     $  20,974      $  22,981      $  19,399 
                                       ========       ========       ========
     Net income (loss) (a):
       Contract drilling             $   1,937      $   2,245      $   2,182 
       Oil and gas                        (114)        (3,058)          (492)
                                       --------       --------       --------
                                         1,823           (813)         1,690 
       Corporate expenses (b)             (278)          (139)          (154)
                                       --------       --------       --------
                                     $   1,545      $    (952)     $   1,536 
                                       ========       ========       ========
     Identifiable assets:
       Contract drilling             $  11,711      $   6,415      $   5,117 
       Oil and gas                       6,179          4,322          2,808 
                                       --------       --------       --------
                                        17,890         10,737          7,925 
       Corporate assets (c)              1,871            923          2,115
                                       --------       --------       --------
                                     $  19,761      $  11,660      $  10,040 
                                       ========       ========       ========
     Depreciation, depletion and
      amortization:
       Contract drilling             $     982      $     439      $     476 
       Oil and gas                         802            468            400 
                                       --------       --------       --------
                                     $   1,784      $     907      $     876 
                                       ========       ========       ========
     Capital expenditures:
       Contract drilling             $   3,330      $   1,463      $     515 
       Oil and gas                       3,424          5,553          2,980 
                                       --------       --------       --------
                                     $   6,754      $   7,016      $   3,495 
                                       ========       ========       ========



                                         -48-

<PAGE> 49



                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


          (a)  General and administrative costs and other income are allocated
               between segments based on identifiable assets.

          (b)  Corporate expenses consist of interest expense.

          (c)  Corporate assets are those assets which are not specifically
               identifiable with a segment and consist primarily of cash and
               cash equivalents, short-term investments and prepaid expenses.

          For the years ended March  31, 1997, 1996 and 1995, contract  drilling
     revenues earned from individual customers constituting 10% or more of total
     contract drilling revenues were:

          (a)  four customers in 1997 individually represented approximately
               21%, 18%, 12% and 10% of drilling revenues,

          (b)  three customers in 1996 individually represented approximately
               19%, 18% and 14% of drilling revenues,

          (c)  three customers in 1995 individually represented approximately 
               24%, 17% and 14% of drilling revenues.

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

     (8)  Contingencies

          In March,  1992, the Company was  notified by the  Texas Department of
     Insurance  that  the  Company's   former  workers'  compensation  insurance
     carriers,  Sir  Lloyd's  Insurance  Company  and  its  affiliate,  Standard
     Financial Indemnity Corporation ("SFIC"),  had been placed into liquidation
     by order of the 201st District Court of Travis County, Texas, on  March 12,
     1992 in  Cause no. 92-12765, The  State of Texas vs.  Sir Lloyd's Insurance
     Company  and Sir  Insurance Agency,  Inc., and  in Cause No.  91-12766, The
     State of Texas vs. Standard Financial Indemnity Corporation.  Approximately
     two months before being  ordered into liquidation, SFIC requested  that the
     Company pay policy premiums in the approximate amount of $646,000.  On July
     22,  1993  the  special   deputy  receiver  of  SFIC  billed   the  Company
     approximately $1,061,000  for  retrospective  premiums,  but  adjusted  the
     amount to $854,153 on January 12,  1994.  Although the Company disputes the
     amount claimed by the receiver for SFIC, the Company is presently unable to
     determine  whether and to what extent such  amount is, in fact, an accurate
     estimate of amounts owed to SFIC, if any.  However, an accrual was  made in
     the Company's financial statements for 

                                         -49-



<PAGE> 50
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements




     the amount in  question.  In a  related development, on  June 5, 1995,  the
     Company  received a letter from  the Texas Property  and Casualty Insurance
     Guaranty Association  ("Guaranty Association")  requesting  payment in  the
     approximate amount of $729,000 for claims that the Guaranty Association has
     paid on behalf of SFIC.  The Guaranty Association does not believe that the
     policies written by SFIC  involved a transfer of insurance risk as required
     by the  Texas  Insurance Code  and  is asserting  that  it is  entitled  to
     reimbursement  for all monies  paid to claimants under  these policies.  In
     November,  1995,  the Guaranty  Association  filed  a lawsuit  against  the
     Company  in  Travis  County,  Texas,  styled  Texas Property  and  Casualty
     Insurance Guaranty Association vs. TMBR/Sharp Drilling, Inc., Cause No. 95-
     12318.   The  Guaranty  Association is  seeking  to recover  past  workers'
     compensation claims  in the  amount of  approximately $803,000,  which have
     been  advanced  by the  Guaranty  Association under  the  Company's workers
     compensation insurance program with SFIC.  In May, 1996, and pursuant to an
     order of the Travis County  District Court, the claims of the  receiver for
     SFIC  were assigned  to and  became a  part of  the  Guaranty Association's
     claims against  the Company.  The  Company has rejected a  settlement offer
     made by the Guaranty Association for an amount less than the amount accrued
     by the Company  and the Company  intends to vigorously defend  its position
     against the Guaranty Association.

          The Company provides for  its workers' compensation claims  based upon
     the most recent information available from its insurance carrier concerning
     claims  and estimated  costs.   However,  in future  years the  Company may
     receive retroactive adjustments, both favorable and unfavorable, related to
     estimates of claim  costs for previous years, which may  be material to the
     Company's results of operations.  No provision  for retroactive adjustments
     to claim costs is recorded until the Company receives notification from its
     insurance  carrier because this  amount, if any, cannot  be estimated.  The
     Company is generally responsible  for the first $10,000 ($100,000  prior to
     November 1993) in claim costs for each workers' compensation injury.

          The Company is a defendant in various lawsuits generally incidental to
     its business.  The Company does not believe that the ultimate resolution of
     such litigation will have  a significant effect on the  Company's financial
     position or results of operations.







                                         -50-






<PAGE> 51
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements



     (9)  Supplemental Information Related to Oil and Gas Activities

          The  Company's  capitalized  cost of  oil  and  gas  properties is  as
     follows:

                                                             March 31,
                                                             ---------
                                                          1997        1996
                                                          ----        ----
                                                           (In thousands)

               Oil and gas properties                   $13,102     $10,398

               Accumulated depreciation,
                 depletion and amortization              (6,923)     (6,076)
                                                         -------     -------
                                                        $ 6,179     $ 4,322
                                                         =======     =======

          The  Company's  costs  incurred  related  to  oil   and  gas  property
     acquisition, exploration and development activities are as follows:

                                                   Years Ended March 31,
                                                   ---------------------
                                               1997        1996        1995
                                               ----        ----        ----
                                                      (In thousands)

               Property acquisition costs    $   194     $   970     $ 1,309

               Exploration costs                 920       3,969       1,035

               Development costs               2,310         614         636
                                              -------     -------     -------
                                             $ 3,424     $ 5,553     $ 2,980
                                              =======     =======     =======









                                         -51-






<PAGE> 52
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


          The  Company's  results of  operations  from  oil  and  gas  producing
     activities are as follows:

                                                   Years Ended March 31,
                                                   ---------------------
                                               1997        1996        1995
                                               ----        ----        ----
                                                      (In thousands)
          Revenues                           $ 2,491     $ 1,683     $ 1,042

          Production costs                       924         554         350

          Dry holes and abandonments             558         945         629

          Depreciation, depletion and
            amortization and valuation
            provisions                           973       3,092         400

          Income tax provision                   --          --          --
                                              -------      -------     -------
          Results of operations from
            producing activities
            (excluding corporate
            overhead and interest costs)     $    36      $(2,908)    $  (337)
                                              =======      =======     =======

     (10)  Unaudited supplemental oil and gas reserve information

          The reserve information presented below are only estimates.  There are
     numerous uncertainties inherent in estimating quantities of proved reserves
     and  in projecting  future rates  of production  and timing  of development
     expenditures,  including many  factors beyond  the control of  the Company.
     Reserve  engineering  is a  subjective  process  of estimating  underground
     accumulations of  crude oil and natural  gas that cannot be  measured in an
     exact manner, and the accuracy of any reserve estimate is a function of the
     quality  of available data and of engineering and geological interpretation
     and judgment.  The quantities of oil and gas that are ultimately recovered,
     production and operating costs, the amount and timing of future development
     expenditures and  future  oil and  gas  prices may  all  differ from  those
     assumed in such estimates.






                                         -52-






<PAGE> 53
                              TMBR/SHARP DRILLING, INC.


                            Notes to Financial Statements


          The  following sets  forth proved  oil and gas  reserves at  March 31,
     1997, 1996 and 1995:

</TABLE>
<TABLE>
<CAPTION>

                                                   1997                     1996                       1995                    
                                            ---------------------    ---------------------     ---------------------
                                               Oil         Gas          Oil         Gas           Oil         Gas 
                                              MBbls        MMcf        MBbls        MMcf         MBbls        MMcf   
                                            -------     ---------    -------     ---------     -------     ---------
         <S>                                <C>         <C>          <C>         <C>           <C>         <C>
         Proved Reserves:

           Beginning of Year                 368.6      2,815.6       275.6       1,129.4       120.4         313.5 
           
           Revisions of previous                               
             estimates                       103.5       (120.3)      (26.9)        250.9       129.1         626.4

           Improved recovery                   3.7         (5.6)       --            --          --            --
           
           Purchases of minerals in                                  
             place and extensions             85.0         85.7       190.8       1,647.4        77.4         294.2

           Sales of minerals in place         --           --          --            --          --            --
           
           Production                        (76.2)      (361.7)      (70.9)       (212.1)      (51.3)       (104.7) 
                                             -----      -------       -----       -------       -----       -------
           End of year                       484.6      2,413.7       368.6       2,815.6       275.6       1,129.4
                                             =====      =======       =====       =======       =====       =======
                                             

         Proved Developed Resources:

           Beginning of year                 368.6      2,815.6       275.6       1,129.4       120.4         313.5
                                             -----      -------       -----       -------       -----       -------
           End of year                       484.6      2,413.7       368.6       2,815.6       275.6       1,129.4
                                             =====      =======       =====       =======       =====       =======

</TABLE> 









                                         -53-




<PAGE> 54
                              TMBR/SHARP DRILLING, INC.

                            Notes to Financial Statements


                                                         March 31,
                                                  -----------------------
                                                    1997           1996
                                                    ----           ----

          Standardized Measure

            Future cash inflows                   $12,848        $10,369

            Future production and 
              development costs                    (4,201)        (3,089)
                                                   -------        -------
            Future net cash flows                   8,647          7,280

            10% discount factor                    (2,982)        (2,326)
                                                   -------        -------
            Discounted future net cash flows        5,665          4,954

            Discounted income taxes                   --             --
                                                   -------        -------
            Standardized Measure                  $ 5,665        $ 4,954
                                                   =======        =======


                                          1997        1996         1995
                                          ----        ----         ----

          Standardized measure,
            beginning of year           $ 4,954     $ 2,879      $   971

          Revisions
               Prices and costs             813         235          676 
               Accretion of discount        495         288           97
                                         -------     -------     --------
          Net revisions                   1,308         523          773 

          Discoveries and additions         970       2,681        1,764
          Production                     (1,567)     (1,129)        (629)
                                         -------     -------      -------
          Standardized measure,
            end of year                 $ 5,665     $ 4,954      $ 2,879
                                         =======     =======      =======





                                         -54-






<PAGE> 55
     Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND FINANCIAL DISCLOSURE

          None.
                                       PART III

     Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The directors  and officers of  the Company  at June 24,  1997 are  as
     follows:

                                                                        Director
                                                                      or Officer
          Name                Age         Position with Company          since

     Thomas C. Brown           70    Chairman of the Board of Directors
                                       and Chief Executive Officer        1982

     Joe G. Roper              68    Director and President               1982

     Donald L. Evans (1)       50    Director                             1982

     David N. Fitzgerald (1)   74    Director                             1984

     Don H. Lawson             58    Vice President - Operations          1992

     Patricia R. Elledge       39    Controller/Treasurer                 1994

     James M. Alsup            60    Secretary                            1982


     --------------------------
     (1)  Member of Compensation and Audit Committees


          Directors   of  the  Company   serve  until  the   annual  meeting  of
     stockholders to  be held  in August,  1997, and  until their  successors in
     office  are elected and  qualified.  Each officer  is appointed annually by
     the Company's Board  of Directors to  serve at the  Board's discretion  and
     until his successor in office is elected and qualified.

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

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

                                         -55-






<PAGE> 56
          Mr.  Evans has  been a  Director  of the  Company since  the Company's
     formation in 1982.  He served  as President of the Company from  1982 until
     1990 when Mr. Roper  was elected to the office of President.   Mr. Evans is
     currently  the Chairman  of  the Board  of  Directors and  Chief  Executive
     Officer of  Tom Brown,  Inc., positions  he has held  since 1990  and 1985,
     respectively.

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

          Mr.  Lawson has been employed by the  Company since 1967.  He has been
     the Vice President - Operations of the Company since 1992.
          
          Ms.  Elledge was  employed  by the  Company  from September,  1989  to
     December, 1993  when she resigned to relocate.  Ms. Elledge returned to the
     employ  of  the Company  in  September,  1994 in  her  current capacity  as
     Controller - Treasurer.

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

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


     Item 11.  EXECUTIVE COMPENSATION

          The  discussion  under  "Executive  Compensation"   in  the  Company's
     definitive proxy statement for  the 1997 annual meeting of  stockholders is
     incorporated herein by reference. 

     Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The  discussion  under "Principal  Shareholders"  and the  information
     appearing under "Election of  Directors" in the Company's  definitive proxy
     statement  for the  1997  annual meeting  of  stockholders is  incorporated
     herein by reference.

     Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The discussion under  "Executive Compensation -  Certain Transactions"
     in the Company's definitive  proxy statement for the 1997 annual meeting of
     stockholders is incorporated herein by reference.




                                         -56-






<PAGE> 57
                                       PART IV

     Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

                                                                        Page
                                                                        ----
       (a)1.   See Index  to Financial Statements at Item 8              29

       (a)2.   Financial Statement Schedules
                 Years ended March 31, 1997, 1996 and 1995

               Schedule  II - Valuation and Qualifying Accounts  . . . . 59

                    All  other  schedules   are  omitted  as  the
                    required information is  inapplicable or  the
                    information  is  presented  in the  Financial
                    Statements or related notes.

       (a)3.   Exhibits:

            Exhibit  3.1 - Articles of Incorporation of the Company, as amended.
              (Incorporated by  reference to Exhibit 3.1  in Registrant's Annual
              Report on Form 10-K dated June 28, 1991)

            Exhibit 3.2 - Bylaws of the Registrant, as amended.  (Incorporated
              by  reference to Exhibit 3.2 in Registrant's Annual Report on Form
              10-K dated June 27, 1994)

              Executive Compensation Plans and Arrangements
              (Exhibits  10.1  through and  including  Exhibit  10.11 constitute
              executive compensation plans and arrangements of the Registrant)

            Exhibit 10.1 - Incentive Stock Option Plan. (Incorporated by 
              reference to  Exhibit 10.3 in  Registrant's Registration Statement
              on Form 10 as amended, effective October 9, 1984)

            Exhibit  10.2 -  Nonqualified  Stock Option  Agreement dated  August
              29,   1990,  between   Thomas   C.  Brown   and  the   Registrant.
              (Incorporated by reference to Exhibit 10.15 in Registrant's Annual
              Report on form 10-K dated June 25, 1993)

            Exhibit  10.3 -  Nonqualified  Stock Option  Agreement dated  August
              30,  1988, between Joe G. Roper and the Registrant.  (Incorporated
              by  reference to  Exhibit 10.17  in Registrant's Annual  Report on
              Form 10-K dated June 25, 1993)




                                         -57-









<PAGE> 58
            Exhibit 10.4 - Incentive Stock Option Agreement dated November 16,
              1993  between Joe G. Roper  and the Registrant.   (Incorporated by
              reference to  Exhibit 10.5 in  Registrant's Annual Report  on Form
              10-K dated June 27, 1994)

            Exhibit 10.5 -  Nonqualified Stock Option Agreement dated  August 8,
              1984, as amended  January 15,  1988 and August  29, 1991,  between
              Donald L. Evans and the Registrant.  (Incorporated by reference to
              Exhibit  10.18 in Registrant's  Annual Report  on Form  10-K dated
              June 25, 1993)

            Exhibit  10.6 -  Incentive Stock  Option Agreement  dated August  8,
              1984,  as amended, January 15,  1988 and August  29, 1991, between
              Donald L. Evans and the Registrant.  (Incorporated by reference to
              Exhibit 10.19  in Registrant's  Annual Report on  Form 10-K  dated
              June 25, 1993)

            Exhibit  10.7 - Incentive  Stock Option Agreement  dated December 4,
              1992   between   Patricia   R.   Elledge   and   the   Registrant.
              (Incorporated by reference to Exhibit 10.20 in Registrant's Annual
              Report on Form 10-K dated June 25, 1993)

            Exhibit 10.8  - Incentive Stock  Option Agreement dated  December 4,
              1992 between Don H.  Lawson and the Registrant.   (Incorporated by
              reference  to Exhibit 10.21 in  Registrant's Annual Report on Form
              10-K dated June 25, 1993)

            Exhibit 10.9 - Incentive Stock Option Agreement dated November 16, 
              1993 between Don H.  Lawson and the Registrant.   (Incorporated by
              reference to Exhibit  10.10 in Registrant's Annual  Report on Form
              10-K dated June 27, 1994)

            Exhibit 10.10 - 1994 Stock Option Plan.  (Incorporated by reference
              to  Exhibit 10.10 in Registrant's Annual Report on Form 10-K dated
              June 28, 1995)

            Exhibit 10.11 - TMBR/Sharp Drilling, Inc. Employee Retirement Plan.
              (Incorporated by reference to Exhibit 10.11 in Registrant's Annual
              Report on Form 10-K dated June 28, 1995)

            Exhibit 10.12 - Asset Purchase Agreement dated June 22, 1992 between
              the Registrant and State Farm Mutual Automobile Insurance Company.
              (Incorporated by reference to Exhibit 10.14 in Registrant's Annual
              Report on Form 10-K dated June 22, 1992)

            Exhibit 10.13 - Stock Option Cancellation Agreement dated December
              31, 1993 between the Registrant and State Farm Mutual Automobile
              Insurance Company.  (Incorporated by reference  to Exhibit 10.1 in
              Registrant's Current Report on Form 8-K dated January 6, 1994)





                                         -58-




<PAGE> 59
            Exhibit  10.14 -  Loan Agreement dated January 16, 1996, between
              Norwest Bank Texas, Midland, N.A. and the Registrant.  
              (Incorporated by reference to Exhibit 10.1 in Registrant's 
              Quarterly Report on Form 10-Q dated February 12, 1996)

            Exhibit  10.15 -  Form  of Stock Purchase Agreement, dated as of 
              February 13, 1997, between the Registrant and the selling  
              stockholders named therein  (Incorporated by reference  to 
              Exhibit 10.1 in the Registrant's Registration Statement on 
              Form S-3, No. 333-23391)

           *Exhibit 23.1 - Consent of Arthur Andersen LLP

           *Exhibit 23.2 - Consent of Joe C. Neal & Associates

           *Exhibit 27 - Financial Data Schedule

     ----------------------------------
     *Filed herewith

     (b)   No reports on Form 8-K  were filed during the  last quarter of fiscal
     1997.






























                                         -59-






<PAGE> 60
                                                                     Schedule II
                                                                     -----------



                              TMBR/SHARP DRILLING, INC.

                          Valuation and Qualifying Accounts

                      Years ended March 31, 1997, 1996 and 1995

                                    (In thousands)



                                                        Recoveries
                              Balance at   Additions    or other     Balance
                              beginning    charged to   reserve      at end
         Description          of year      operations   reductions   of year
     ---------------------    ----------   ----------   ----------   -------

     Allowance for
       doubtful accounts:

               1997            $ 1,225      $   --        $    90    $ 1,135

               1996            $ 1,225      $   --        $    --    $ 1,225

               1995            $ 1,265      $   --        $    40    $ 1,225

























                                         -60-




<PAGE> 61
                                      SIGNATURES



          Pursuant to the requirements of Section 13 or 15(d) of the  Securities
     Exchange Act  of 1934, the  Registrant has  duly caused this  report to  be
     signed on its behalf by the undersigned, thereunto duly authorized.

                                             TMBR/SHARP DRILLING, INC.          




     June 27, 1997                           By /s/ Thomas C. Brown             
                                                -------------------------
                                                Thomas C. Brown, Chairman       
                                                of the Board of Directors       



          Pursuant to the requirements  of the Securities Exchange Act  of 1934,
     this report has been signed below by the following persons on behalf of the
     Registrant and in the capacities on the dates indicated.



     June 27, 1997                               /s/ Thomas C. Brown            
                                                --------------------------------
                                                Thomas C. Brown, Chairman       
                                                of the Board of Directors       
                                                (Principal Executive Officer)   


     June 27, 1997                               /s/ Joe G. Roper               
                                                 -------------------------------
                                                Joe G. Roper, President and     
                                                Director                        


     June 27, 1997                               /s/ Patricia R. Elledge        
                                                 -------------------------------
                                                Patricia R. Elledge, Controller/
                                                Treasurer (Principal Financial  
                                                Officer)                        


     June 27, 1997                               /s/ David N. Fitzgerald        
                                                 -------------------------------
                                                David N. Fitzgerald, Director   



     June 27, 1997                               /s/ Donald L. Evans            
                                                 -------------------------------
                                                Donald L. Evans, Director       


                                         
                                         -61-
<PAGE> 62


                                  INDEX TO EXHIBITS




                                   Description                     Page No.
                                   -----------                     --------  

     Exhibit 3.1    Articles of Incorporation of the Company, as
                    amended.    (Incorporated  by   reference  to
                    Exhibit 3.1 in  Registrant's Annual Report on
                    Form 10-K dated June 28, 1991)

     Exhibit 3.2    Bylaws of the Company, as amended.  (Incor-
                    porated  by  reference  to  Exhibit   3.2  in
                    Registrant's Annual Report on Form 10-K dated
                    June 27, 1994)

                    Executive Compensation Plans and Arrangements
                    (Exhibits 10.1 through and  including Exhibit
                    10.11 constitute executive compensation plans
                    and arrangements of the Registrant)

     Exhibit 10.1   Incentive Stock Option Plan (Incorporated by
                    reference  to  Exhibit  10.3 in  Registrant's
                    Registration   Statement   on  Form   10,  as
                    amended, effective October 9, 1984)

     Exhibit 10.2   Nonqualified Stock Option Agreement dated
                    August 29, 1990, between  Thomas C. Brown and
                    the Registrant.   (Incorporated by  reference
                    to  Exhibit  10.15  in   Registrant's  Annual
                    Report on Form 10-K dated June 25, 1993)

     Exhibit 10.3   Nonqualified Stock Option Agreement dated 
                    August 30, 1988, between Joe G. Roper and the
                    Registrant.    (Incorporated by  reference to
                    Exhibit 10.17 in  Registrant's Annual  Report
                    on Form 10-K dated June 25, 1993)

     Exhibit 10.4   Incentive Stock Option Agreement dated 
                    November 16,  1993 between  Joe G.  Roper and
                    the Registrant.   (Incorporated by  reference
                    to Exhibit 10.5 in Registrant's Annual Report
                    on Form 10-K dated June 27, 1994)

     Exhibit 10.5   Nonqualified Stock Option Agreement dated
                    August 8, 1984, as amended, January  15, 1988
                    and August 29, 1991,  between Donald L. Evans
                    and   the   Registrant.     (Incorporated  by
                    reference  to  Exhibit 10.18  in Registrant's
                    Annual Report  on Form  10-K  dated June  25,
                    1993)


                                         -62-

<PAGE> 63


     Exhibit 10.6   Incentive Stock Option Agreement dated
                    August  8, 1984, as amended, January 15, 1988
                    and August 29, 1991, between  Donald L. Evans
                    and   the   Registrant.     (Incorporated  by
                    reference  to  Exhibit 10.19  in Registrant's
                    Annual  Report on  Form 10-K  dated June  25,
                    1993)

     Exhibit 10.7   Incentive Stock Option Agreement dated
                    December 4, 1992  between Patricia R. Elledge
                    and   the   Registrant.     (Incorporated  by
                    reference  to  Exhibit 10.20  in Registrant's
                    Annual  Report on  Form 10-K  dated June  25,
                    1993)

     Exhibit 10.8   Incentive Stock Option Agreement dated
                    December 4, 1992  between Don  H. Lawson  and
                    the Registrant.   (Incorporated by  reference
                    to  Exhibit  10.21  in   Registrant's  Annual
                    Report on Form 10-K dated June 25, 1993)

     Exhibit 10.9   Incentive Stock Option Agreement dated
                    November 16, 1993  between Don H.  Lawson and
                    the Registrant.   (Incorporated by  reference
                    to  Exhibit  10.10  in   Registrant's  Annual
                    Report on Form 10-K dated June 27, 1994)

     Exhibit 10.10  1994 Stock Option Plan.  (Incorporated by
                    reference  to  Exhibit 10.10  in Registrant's
                    Annual Report  on Form  10-K  dated June  28,
                    1995)

     Exhibit 10.11  TMBR/Sharp Drilling, Inc. Employee Retirement
                    Plan.  (Incorporated  by reference to Exhibit
                    10.11  in Registrant's Annual  Report on Form
                    10-K dated June 28, 1995)

     Exhibit 10.12  Asset Purchase Agreement dated June 22, 1992
                    between  the Registrant and State Farm Mutual
                    Automobile Insurance  Company.  (Incorporated
                    by reference to Exhibit 10.14 in Registrant's
                    Annual  Report on  Form  10-K dated  June 22,
                    1992)

     Exhibit 10.13  Stock Option Cancellation Agreement dated
                    December 31, 1993  between the Registrant and
                    State   Farm   Mutual  Automobile   Insurance
                    Company.    (Incorporated  by   reference  to
                    Exhibit 10.1 in  Registrant's Current  Report
                    on Form 8-K dated January 6, 1994)




                                         -63-


<PAGE> 64

     Exhibit 10.14  Loan Agreement dated January 16, 1996, between
                    Norwest Bank  Texas,  Midland, N.A.  and  the
                    Registrant.    (Incorporated by  reference to
                    Exhibit 10.1 in Registrant's Quarterly Report
                    on Form 10-Q dated February 12, 1996)

     Exhibit 10.15  Form of Stock Purchase Agreement, dated as of
                    February 13, 1997, between the Registrant and
                    the   selling   stockholders  named   therein
                    (Incorporated by reference to Exhibit 10.1 in
                    the  Registrant's  Registration Statement  on
                    Form S-3, No. 333-23391)

     *Exhibit 23.1  Consent of Arthur Andersen LLP                      64

     *Exhibit 23.2  Consent of Joe C. Neal & Associates                 65

     *Exhibit 27    Financial Data Schedule                             66

     --------------------
          *Filed herewith

































                                         -64-



<PAGE> 65
                                                                    Exhibit 23.1


                      CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS



          As  independent   public  accountants,   we  hereby  consent   to  the
     incorporation  by reference of  our report included in  this Form 10-K into
     the  Company's  previously  filed   Registration  Statements  on  Form  S-8
     (registration no. 33-46699 and  no. 33-89878) and the Company's  previously
     filed registration statement on Form S-3, No. 333-23391.




                                            /s/  ARTHUR ANDERSEN LLP            

     Dallas, Texas,
       May 23, 1997



































                                         -65-



<PAGE> 66
                                                                    Exhibit 23.2


                      CONSENT OF INDEPENDENT PETROLEUM ENGINEERS



                    As independent petroleum engineers, we hereby consent to the
     incorporation  by reference of  our report included in  this Form 10-K into
     the  Company's  previously  filed   Registration  Statements  on  Form  S-8
     (registration no.  33-46699 and no. 33-898878) and the Company's previously
     filed registration statement on Form S-3, No. 333-23391.





                                                   /s/  JOE C. NEAL & ASSOCIATES


     Midland, Texas
       June 24, 1997

































                                         -66-