<PAGE> 1





                          SECURITIES AND EXCHANGE COMMISSION
                               Washington, D. C.  20549

                                      Form 10-Q
                                 ____________________

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

                   For the quarterly period ended December 31, 1996

                                          OR

     ( )          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                        OF THE SECURITIES EXCHANGE ACT OF 1934
                   For the transition period from        to       

                            Commission file number 0-12757

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

                     TEXAS                                    75-1835108     
         (State or other jurisdiction of                   (I.R.S. Employer
         incorporation or organization)                   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

          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  the number  of shares  outstanding of  each of  the issuer's
     classes of common stock, as of the latest practicable date.

          Common Stock, $.10 Par Value         Outstanding at January 29, 1997
                (Title of Class)                         3,703,086








<PAGE> 2
                              TMBR/SHARP DRILLING, INC.
                                   FORM 10-Q REPORT

                                        INDEX



                                                                        Page No.

     Part I.  Financial Information (Unaudited)

       Item 1.  Financial Statements

                Balance Sheets, December 31, 1996 and 
                  March 31, 1996 . . . . . . . . . . . . . . . . . . . .   3

                Statements of Operations, Three Months
                  Ended December 31, 1996 and 1995 . . . . . . . . . . .   5

                Statements of Operations, Nine Months
                  Ended December 31, 1996 and 1995 . . . . . . . . . . .   7

                Statements of Stockholders'
                  Equity   . . . . . . . . . . . . . . . . . . . . . . .   9

                Statements of Cash Flows, Nine Months
                  Ended December 31, 1996 and 1995 . . . . . . . . . . .  10

                Notes to Financial Statements  . . . . . . . . . . . . .  11

       Item 2.  Management's Discussion and Analysis of Financial
                  Condition and Results of Operations  . . . . . . . . .  15


     Part II.  Other Information

       Item 1.  Legal Proceedings  . . . . . . . . . . . . . . . . . . .  16

       Item 6.  Exhibits and Reports on Form 8-K . . . . . . . . . . . .  18














                                         -2-





<PAGE> 3
     PART ONE - FINANCIAL INFORMATION (UNAUDITED)

     Item 1.  FINANCIAL STATEMENTS


                              TMBR/SHARP DRILLING, INC.
                                    BALANCE SHEETS
                   December 31, 1996 (Unaudited) and March 31, 1996
                        (In thousands, except per share data)



                                                 December 31,
                                                     1996            March 31,  
       ASSETS                                     (Unaudited)          1996     
       ------                                    -------------      -----------

     Current assets:
       Cash and cash equivalents                   $    531         $     339 
       Trade receivables,
         net of allowance for doubtful
           accounts of $1,225 at both 
           December 31, and March 31, 1996            3,537             2,942 
       Inventories                                       66                51 
       Deposits                                          73               423 
       Other                                            153               410 
                                                    --------          --------
         Total current assets                         4,360             4,165 
                                                    --------          --------

     Property and equipment, at cost:
       Drilling equipment                            41,872            39,750 
       Oil and gas properties, based on
         successful efforts accounting               11,932            10,398 
       Other property and equipment                   3,273             3,195 
                                                    --------          --------
                                                     57,077            53,343 

     Less accumulated depreciation,
       depletion and amortization                   (46,967)          (46,022)
                                                    --------          --------

         Net property and equipment                  10,110             7,321 
                                                    --------          --------

     Other assets                                       185               174 
                                                    --------          --------
         Total assets                              $ 14,655          $ 11,660 
                                                    ========          ========

     See accompanying notes to financial statements.


                                         -3-





<PAGE> 4
                              TMBR/SHARP DRILLING, INC.
                                    BALANCE SHEETS
                   December 31, 1996 (Unaudited) and March 31, 1996
                        (In thousands, except per share data)


                                                December 31, 
                                                    1996            March 31, 
     LIABILITIES AND STOCKHOLDERS' EQUITY        (Unaudited)          1996    
     ------------------------------------       ------------       -----------

     Current liabilities:
       Trade payables                             $   2,436          $  3,336 
       Accrued workers' compensation                  1,427             1,279 
       Other                                            441               786  
                                                    --------          --------
          Total current liabilities                   4,304             5,401 
                                                    --------          --------

     Long term liabilities:
       Borrowings from bank                           4,500             1,300 

     Contingencies

     Stockholders' equity:
       Common stock, $0.10 par value
         Authorized, 50,000,000 shares;
         issued, 4,946,725 and 4,615,525
         shares at December 31 and 
         March 31, 1996, respectively                   494               461 
       Additional paid-in capital                    60,709            60,654 
       Accumulated deficit                          (55,202)          (56,006)
       Treasury stock-common, 1,268,739
         shares at December 31, and 
         March 31, 1996, at cost                       (150)             (150)
                                                    --------          --------
          Total stockholders' equity                  5,851             4,959 
                                                    --------          --------
          Total liabilities and
            stockholders' equity                  $  14,655         $  11,660 
                                                    ========          ========

     See accompanying notes to financial statements.










                                         -4-





<PAGE> 5
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
              Three months ended December 31, 1996 and 1995 (Unaudited)
                        (In thousands, except per share data)




                                                      Three months ended
                                                         December 31,
                                                 -----------------------------
                                                    1996              1995    
                                                 -----------       -----------
       Revenues:
          Contract drilling                     $     5,051       $     5,066 
          Oil and gas                                   494               305 
                                                 -----------       -----------
              Total revenues                          5,545             5,371 
                                                 -----------       -----------

       Operating costs and expenses:
          Contract drilling                           3,792             4,411 
          Oil and gas production                        136               168 
          Dry holes and abandonments                    105               131 
          Depreciation, depletion and 
            amortization                                463               373 
          General and administrative                    382               403 
                                                 -----------       -----------
              Total operating costs
                and expenses                          4,878             5,486 
                                                 -----------       -----------
              Operating income (loss)                   667              (115)
                                                 -----------       -----------

       Other income (expense):
          Interest                                      (95)              (33)
          Other, net                                      7                23 
                                                 -----------       -----------
          Total other income (expense)                  (88)              (10)
                                                 -----------       -----------
       Net income (loss) before income
          tax provision                                 579              (125)
       Provision for income taxes                       (16)               -- 
                                                 -----------       -----------

       Net income (loss)                        $       563       $      (125)
                                                 ===========       ===========

     See accompanying notes to financial statements.






                                         -5-



<PAGE> 6
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
              Three months ended December 31, 1996 and 1995 (Unaudited)
                        (In thousands, except per share data)




                                                      Three months ended 
                                                         December 31, 
                                                 -----------------------------
                                                    1996              1995
                                                 -----------       -----------

     Net income (loss) per share 
       of common stock                          $       .13       $      (.03)
                                                 ===========       ===========

     Weighted average number of 
       common shares outstanding                  4,264,311         4,095,906 
                                                 ===========       ===========

     See accompanying notes to financial statements.


































                                         -6-

<PAGE> 7
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
               Nine months ended December 31, 1996 and 1995 (Unaudited)
                        (In thousands, except per share data)


                                                       Nine months ended
                                                          December 31,
                                                 -----------------------------
                                                    1996              1995    
                                                 -----------       -----------
       Revenues:
          Contract drilling                     $    11,820       $    16,194 
          Oil and gas                                 1,439             1,096 
                                                 -----------       -----------
              Total revenues                         13,259            17,290 
                                                 -----------       -----------

       Operating costs and expenses:
          Contract drilling                           9,052            13,372 
          Oil and gas production                        589               374 
          Dry holes and abandonments                    442               422 
          Depreciation, depletion and 
            amortization                              1,071               898 
          General and administrative                  1,143             1,174 
                                                 -----------       -----------
              Total operating costs
                and expenses                         12,297            16,240 
                                                 -----------       -----------
              Operating income                          962             1,050 
                                                 -----------       -----------

       Other income (expense):
          Interest                                     (236)              (99)
          Gain on sales of assets                        65                24 
          Other, net                                     29                71 
                                                 -----------       -----------
          Total other income (expense)                 (142)               (4)
                                                 -----------       -----------
       Net income before income
          tax provision                                 820             1,046 
       Provision for income taxes                       (16)              (30)
                                                 -----------       -----------

       Net income                               $       804       $     1,016 
                                                 ===========       ===========

     See accompanying notes to financial statements.









                                         -7-

<PAGE> 8
                              TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF OPERATIONS
               Nine months ended December 31, 1996 and 1995 (Unaudited)
                        (In thousands, except per share data)




                                                       Nine months ended 
                                                          December 31, 
                                                 -----------------------------
                                                    1996              1995
                                                 -----------       -----------

     Net income per share 
       of common stock                          $       .19       $       .25 
                                                 ===========       ===========

     Weighted average number of 
       common shares outstanding                  4,181,834         4,083,980 
                                                 ===========       ===========

     See accompanying notes to financial statements.


































                                         -8-

<PAGE> 9



                              TMBR/SHARP DRILLING, INC.

                          STATEMENTS OF STOCKHOLDERS EQUITY

                 Nine Months Ended December 31, 1996 (Unaudited) and

                              Year Ended March 31, 1996

                                   (In thousands)


<TABLE>
<CAPTION>
                                                                                   Treasury Stock                 
                                                                                   -------------- 
                                       Common Stock     Additional                  Common Stock        Total
                                      --------------     Paid-In     Accumulated   --------------    Stockholders'
                                      Shares  Amount     Capital       Deficit     Shares  Amount       Equity
                                      ------  ------     -------     -----------   ------  ------    ------------
                 <S>                  <C>     <C>       <C>           <C>           <C>    <C>         <C>
                 Balance, 
                   March 31, 1996     4,616   $ 461     $ 60,654      $(56,006)     1,269  $(150)      $ 4,959

                 Exercise of
                   stock options        331      33           55            --         --     --            88 

                 Net income              --      --           --           804         --     --           804 
                                      -----    -----     --------      --------    -------  -----       -------

                 Balance, 
                   December 31,  
                     1996             4,947   $ 494     $ 60,709      $(55,202)     1,269  $(150)      $ 5,851
                                      =====    =====     ========      ========    =======  =====       =======
</TABLE>
          See accompanying notes to financial statements.


















                                         -9-


<PAGE> 10
                               TMBR/SHARP DRILLING, INC.
                               STATEMENTS OF CASH FLOWS
           For the nine months ended December 31, 1996 and 1995 (Unaudited)
                                    (In thousands)

                                                  Nine months ended December 31,
                                                  ------------------------------
                                                    1996                 1995
                                                  ---------            ---------
    Cash flows from operating activities:
      Net income                                  $    804             $  1,016 
      Adjustments to reconcile net income
      to net cash provided by
          operating activities:
           Depreciation, depletion and
            amortization                             1,071                  898 
           Dry holes and abandonments                  442                  422 
           Gain on sales of assets                     (65)                 (24)
           Changes in assets and liabilities:
            Trade receivables                         (595)              (1,007)
            Deposits                                   350                   91 
            Inventories and other assets               231                   64 
            Trade payables                            (900)               1,597 
            Accrued interest and other liabilities    (197)                 (56)
                                                   --------             --------
             Total adjustments                         337                1,985 
                                                   --------             --------
             Net cash provided by
              operating activities                   1,141                3,001 

    Cash flows from investing activities:
      Additions to property and equipment           (4,339)              (4,695)
      Proceeds from sales of property and
        equipment                                      102                   26 
                                                   --------             --------
             Net cash required by
              investing activities                  (4,237)              (4,669)

    Cash flows from financing activities:
      Repayments of capital lease                       --                  (92)
      Issuance of common stock                          88                  130 
      Loans from bank                                3,200                  500 
      Repayments of leasehold borrowings                --                 (386)
                                                   --------             --------
             Net cash provided by
              financing activities                   3,288                  152 
                                                   --------             --------
             Net increase (decrease) in cash
              and cash equivalents                     192               (1,516)

    Cash and cash equivalents at beginning
      of period                                        339                1,590 
                                                   --------             --------
    Cash and cash equivalents at end of period     $   531              $    74 
                                                   ========             ========

    See accompanying notes to financial statements.

                                         -10-
<PAGE> 11




                              TMBR/SHARP DRILLING, INC.
                            NOTES TO FINANCIAL STATEMENTS



       The amounts  presented in the  balance sheet  as of March  31, 1996  were
     derived from  the Company's  audited financial  statements included in  its
     Form  10-K Report  filed  for the  year  then ended.    The notes  to  such
     statements are incorporated herein by reference.
      

     (1) Management's Representation

       In  the  opinion  of  management, the  accompanying  unaudited  financial
     statements contain all adjustments (all of  which are of a normal recurring
     nature)  necessary to present fairly the Company's financial position as of
     December 31,  1996 and March  31, 1996, the  results of operations  for the
     three and nine months ended December 31, 1996 and 1995, and  the cash flows
     for the nine month period ended December 31, 1996 and 1995.

       While the Company believes that the disclosures presented are adequate to
     make the information not  misleading, it is suggested that  these condensed
     financial  statements be read in conjunction  with the financial statements
     and the related notes in  the Company's Annual Report on Form 10-K  for the
     fiscal year ended March 31, 1996.


     (2) Summary of Significant Accounting Policies

     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.   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

                                         -11-

<PAGE> 12



     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. 

       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.

       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.

     Net Income Per Common Share

       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  anti-dilutive for purposes of calculating
     the  net loss per  share and dilutive  for purposes of  calculating the net
     income per share.
      

     (3)  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 matures January
     15,  1998 at  which time  the  then outstanding  principal and  all of  the
     accrued and unpaid interest is due and payable.  At December 31,  1996, the
     Company  had borrowed $3,000,000 under the facility.  Prior to November 13,
     1996, the Company  was in violation of  certain financial covenants  of the
     loan  agreement.  On  November 13, 1996,  Norwest agreed to  amend the loan
     agreement and, as a result, the Company  is in compliance with all the debt
     covenants.

       On  August 15,  1996, the Company  and Norwest entered  into another loan
     agreement  which provides for a $2,000,000 revolving line of credit secured
     by the Company's oil and  gas producing properties.  At December  31, 1996,
     the Company had borrowed $1,500,000 under this line of credit.  The line of
     credit  bears interest at the Norwest  Bank Minnesota, National Association
     base rate and the interest is payable  monthly.  The line of credit matures
     on February 15, 1998.

                                         -12-


<PAGE> 13


     (4)  Stockholders' Equity
      
       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 84,250 of  the options being exercisable  at December 31, 1996.
     No additional shares are available for grant as the Plan expired by its own
     terms  in  August  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 December 31,
            1996                         465,000        $7.75      $3,603,750
                                         =======         ====       =========

       All of the nonqualified  stock options granted on September  3, 1996 will
     be earned and exercisable on May 1, 1997.                                  

                                         -13-



<PAGE> 14



     (5)  Employee Benefits

       Effective  May 1, 1995, the Company  established the TMBR/Sharp Drilling,
     Inc.  Employee Retirement  Plan  which is  a  401(K) profit  sharing  plan.
     Company  contributions are discretionary and have been currently set at 25%
     for each dollar contributed by each eligible employee, limited, however, to
     a maximum of 5% of the employee's compensation.

     (6)  Contingencies

       On March  19, 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 in 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 amount of $646,476.   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
     SFIC and its receiver, 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,  largely as a result  of the difficulty of  verifying
     the  insurance   carrier's  estimated   claims  and  adjustments   and  the
     unavailability  of SFIC  personnel.   However, an  accrual was made  in the
     Company's financial statements for the amount in question.

       In  a related development, on November  3, 1995, the Company was notified
     that a lawsuit had been filed in Travis County, Texas styled Texas Property
     and Casualty  Insurance Guaranty Association vs.  TMBR/Sharp Drilling, Inc.
     (Cause No. 95-12318).   The Texas Property and Casualty  Insurance Guaranty
     Association  ("Guaranty Association")  seeks  a recovery  of past  workers'
     compensation  claims advanced  by the  Guaranty Association related  to the
     Company's workers compensation  insurance program with SFIC.   The Guaranty
     Association is seeking to recover a total of $803,057.11.

       The  Company disagrees with the  claims made by  the Guaranty Association
     and intends to vigorously defend its position  against the Receiver of SFIC
     and  the Texas  Guaranty  Association.   The Company  believes that  if the
     Guaranty Association's  claim  is ultimately  determined  to be  valid  and
     enforceable,  then the  Receiver's  claim  against  the Company  is  either
     without merit or  that its claim would be offset against  the claims of the
     Guaranty Association.   For these reasons, the Company has  not accrued the
     Guaranty Association's claim in its financial statements.




                                         -14-




<PAGE> 15

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

       In addition  to historical information, this  discussion contains certain
     forward-looking statements  that involve risks and  uncertainties about the
     business,  long-term  strategy,  financial  condition  and  future  of  the
     Company.   Factors  that may  affect  future results  are  included in  the
     discussion below and  in Part I, Items 1  and 2 of the Company's  Form 10-K
     for the year ended March 31, 1996.  Actual results  could differ materially
     from those forward-looking statements.

     Results of Operations

       Contract drilling revenues were  approximately $5,051,000 and $11,820,000
     for  the three and nine  months ended December 31, 1996.   When compared to
     the  same  periods  in the  prior  year,  contract  drilling revenues  were
     relatively  flat for  the three  month period ended  December 31,  1996 and
     decreased 27% for the nine months ended December 31, 1996.  Rig utilization
     rates were  58% and 45%  for the three  and nine months  ended December 31,
     1996 compared to 42% and 45% in the same periods in 1995.   Rig utilization
     rates and contract drilling revenues for the nine months ended December 31,
     1996  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 58% for the third quarter of this fiscal  year.  During
     the first  quarter  of the period,  drilling prices  were depressed and the
     Company chose to underutilize its drilling equipment rather than subjecting
     such  equipment  to  additional  wear and  tear at  unacceptable  operating
     margins. From July 1996 through December 1996, 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 com-
     petitive industry. In addition, the number of rigs, industry wide, actually
     available for work cannot be accurately determined.  

       Contract drilling expenses as percent  of contract drilling revenues  was
     75% for  the three months ended  December 31, 1996 compared to  87% for the
     same  period in  the prior  year.   This decrease  can be  attributed to  a
     substantial increase  in rates  the Company  charges for  contract drilling
     services.

       Oil and gas revenues increased by approximately 62% and 31% for the three
     and nine months  ended December 31,  1996 compared to  the same periods  in
     1995.   Accordingly, oil and gas  production expenses increased 57% for the
     nine months  ended December 31, 1996 when compared to the nine months ended
     December 31, 1995.

       Depreciation, depletion  and amortization expense has  also increased due
     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 has increased by 138% for the nine months ended December

                                         -15-





<PAGE> 16
     31, 1996 due to the borrowings under the Company's loan agreements with its
     bank lender.

       Net working  capital was $56,000 at December 31, 1996 compared to a neg-
     ative  $1,236,000 at March  31, 1996.  This increase can be attributed to
     an increase in accounts receivable and a decrease in trade payables.

     Liquidity and Capital Resources

       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.  Interest only is payable monthly.  The loans mature January 15,
     1998, at which time, the then outstanding principal and accrued interest is
     due and payable.  At December 31, 1996, the Company had borrowed $3,000,000
     under  the  facility.   Prior  to November  13,  1996, the  Company  was in
     violation  of  certain  financial covenants  of  the  loan  agreement.   On
     November  13, 1996, Norwest  agreed to amend  the loan agreement  and, as a
     result, the Company is in compliance with all the debt covenants.

       On  August 15,  1996, the Company  and Norwest entered  into another loan
     agreement  which provides for a $2,000,000 revolving line of credit secured
     by the Company's  oil and gas producing properties.   At December 31, 1996,
     the Company had borrowed $1,500,000 under this line of credit.  The line of
     credit bears  interest at the Norwest Bank  Minnesota, National Association
     base  rate and the interest is payable monthly.  The line of credit matures
     on  February  15, 1998.    The  Company  intends  to  meet  its  cash  flow
     requirements for fiscal 1997 through cash flow provided from operations and
     if needed, additional borrowings. 

       The  contract drilling  industry remains  highly competitive.   Recently,
     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.   Cash flow provided by
     operating activities was approximately $1,141,000 for the nine months ended
     December 31, 1996 compared to $3,001,000 for the same period in 1995.


     PART TWO - OTHER INFORMATION

     Item 1.  Legal Proceedings

       On March  19, 1992, the Company  was notified by the  Texas Department of

                                         -16-





<PAGE> 17
     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 in 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 amount of $646,476.   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
     SFIC and its receiver, 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,  largely as a result  of the difficulty of  verifying
     the  insurance   carrier's  estimated   claims  and  adjustments   and  the
     unavailability  of SFIC  personnel.  However,  an accrual  was made  in the
     Company's financial statements for the amount in question.

       In a related  development, on November 3, 1995, the  Company was notified
     that a lawsuit had been filed in Travis County, Texas styled Texas Property
     and Casualty  Insurance Guaranty Association vs.  TMBR/Sharp Drilling, Inc.
     (Cause No. 95-12318).   The Texas Property and Casualty  Insurance Guaranty
     Association  ("Guaranty Association")  seeks  a recovery  of past  workers'
     compensation claims  advanced by  the Guaranty  Association related to  the
     Company's workers compensation  insurance program with SFIC.   The Guaranty
     Association is seeking to recover a total of $803,057.11.

       The  Company disagrees with the  claims made by  the Guaranty Association
     and intends to  vigorously defend its position against the Receiver of SFIC
     and  the Texas  Guaranty Association.   The  Company believes  that if  the
     Guaranty  Association's claim  is  ultimately determined  to  be valid  and
     enforceable,  then  the Receiver's  claim  against  the  Company is  either
     without merit or  that its claim would be offset against  the claims of the
     Guaranty Association.  For these  reasons, the Company has not  accrued the
     Guaranty Association's claim in its financial statements.

















                                         -17-





<PAGE> 18
     Item 6.  Exhibits and reports on Form 8-K.

          (a)  Exhibits:

               27 - Financial Data Schedule

          (b)  Reports on Form 8-K:

               No  reports on  Form  8-K were  filed  during the  quarter  ended
               December 31, 1996.










































                                         -18-






<PAGE> 19
                                      SIGNATURES




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



                                           TMBR/SHARP DRILLING, INC.            




     January 31, 1997                 By:  /s/  Patricia R. Elledge             
     ----------------                      -------------------------   
          Date                                  Patricia R. Elledge             
                                                Controller/Treasurer            

                                           (Ms. Elledge is the Chief Financial  
                                           Officer and has been duly authorized 
                                           to sign on behalf of the Registrant) 





























                                         -19-





<PAGE> 20
                                    Exhibit Index





     Exhibit
     Number              Description
     -------             -----------

       27           Financial Data Schedule 










































                                         -20-