<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549

                                    FORM 10-K

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

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
     ACT OF 1934
     For the fiscal year ended December 31, 1998

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

                        COMMISSION FILE NUMBER 001-13553

                              ---------------------

                       BAYARD DRILLING TECHNOLOGIES, INC.
             (Exact name of Registrant as specified in its charter)


<TABLE>
<S>                                                             <C>
                         DELAWARE                                                 73-1508021
      ---------------------------------------------                  ------------------------------------
      (State or other jurisdiction of incorporation                  (I.R.S. Employer Identification No.)
                     or organization)



          4005 NORTHWEST EXPRESSWAY, SUITE 550E                                (405) 840- 9550

              OKLAHOMA CITY, OKLAHOMA 73116                     (Registrant's telephone number including area
         (Address of Principal Executive Offices)                                   code)

Securities registered pursuant to Section 12(b) of the act:

                   Title of each class                             Name of each exchange on which registered

         COMMON STOCK, $0.01 PAR VALUE PER SHARE                            AMERICAN STOCK EXCHANGE

Securities registered pursuant to Section 12(g) of the Act:  None.
</TABLE>


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. [X] Yes [ ] No

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by using the last reported sale price of registrant's
common stock as of March 24, 1999, was $93,414,240.

The number of shares outstanding of each of the registrant's classes of common
stock, as of February 28, 1999, was: 

         18,214,765 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE.


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                                     PART I

ITEMS 1. AND 2     BUSINESS AND PROPERTIES

GENERAL

         Bayard Drilling Technologies, Inc. ("Bayard" or the "Company") is a
leading provider of contract land drilling services to major and independent oil
and gas companies. As of December 31, 1998, the Company's rig fleet consisted of
87 rigs, of which 73 were being marketed and 14 were available for refurbishment
as market conditions warrant. During the year ended December 31, 1998, the
Company experienced a utilization rate of approximately 56% for its marketed
rigs.

         The Company's fleet consists primarily of rigs capable of deep drilling
applications. Of the Company's 87 rigs, 69 are capable of drilling to depths of
15,000 feet or greater and 43 are capable of drilling to depths of 20,000 feet
or greater. In addition, 31 of Bayard's rigs are SCR equipped.

         The Company's fleet is concentrated in its three core operating regions
-- the Mid-Continent region (which includes principally Oklahoma, North Texas
and the Texas Panhandle), the Gulf Coast region of Texas, Louisiana, Mississippi
and Alabama and the South Texas region (which consists of the southern portion
of onshore Texas). Bayard added South Texas as its third core operating region
in June 1998 as a result of an acquisition in which it acquired 25 rigs (the
"TransTexas Rigs") previously operated by TransTexas Gas Corporation
("TransTexas") in the South Texas region. At December 31, 1998, the Company had
21 rigs operating in the Mid-Continent region, 13 rigs marketed in the Gulf
Coast region and 21 rigs marketed in the South Texas region.

         The Company has entered into a merger agreement with Nabors Industries,
Inc. ("Nabors") which provides that Nabors will acquire the Company through a
merger. The merger is subject to certain customary conditions, including the
approval of the merger agreement by the Company's stockholders. A special
meeting of the Company's stockholders was held on March 16, 1999 to consider and
vote upon the merger agreement. At that special meeting, stockholders
representing a majority of the outstanding shares of Bayard common stock voted
to adopt the merger agreement. The Company expects to close the merger early in
the second quarter of 1999.

         This annual report contains statements that are based on the
information currently available to, beliefs of and assumptions by the Company's
management. Such statements, reflecting the Company's current views with respect
to future events, are "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. When used in this document, words such as "anticipate," "believe,"
"expect," "plan," "intend," "estimate," "project," "will," "could," "may,"
"predict" and similar expressions are intended to identify forward-looking
statements. Future events and actual results may differ materially from the
results set forth in or implied in the forward-looking statements. Factors that
might cause such a difference include the following: fluctuations in worldwide
prices and demand for oil and gas, fluctuations in levels of oil and gas
exploration and development activities, fluctuations in the demand for contract
drilling services, the existence of competitors, technological changes and
developments in the industry, the existence of operating risks inherent in the
contract drilling industry, the existence of regulatory uncertainties, the
possibility of political instability, year 2000 issues and general economic
conditions, in addition to the other matters described elsewhere in this annual
report. The Company does not intend to update these forward-looking statements
and information. All forward-looking statements included in this annual report
are expressly qualified in their entirety by the cautionary statements in this
paragraph.

FORMATION AND OTHER TRANSACTIONS

         Bayard was formed in December 1996 through a series of formation
transactions that established Bayard as a regional competitor with ten rigs.
Since that time, Bayard has grown to operate the fifth largest land drilling
fleet in the United States. This growth is due primarily to, and Bayard's
operations have been significantly affected by, the following transactions:


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         o        Trend Acquisition. In May 1997, Bayard completed the
                  acquisition of Trend Drilling Co. ("Trend") and its 14 rigs
                  for $18 million in cash and 250,000 shares of Bayard common
                  stock.

         o        Ward Acquisition. Also in May 1997, Bayard acquired the assets
                  of Ward Drilling Company, Inc. ("Ward") including six rigs for
                  $8 million in cash, 400,000 shares of Bayard common stock and
                  warrants to purchase an additional 200,000 shares of Bayard
                  common stock.

         o        Bonray Acquisition. In October 1997, Bayard acquired Bonray
                  Drilling Corporation ("Bonray") from DLB Oil & Gas, Inc. for
                  3,015,000 shares of Bayard common stock. In the Bonray
                  acquisition, Bayard acquired 13 rigs, including seven rigs
                  with depth capacities of 15,000 feet or greater and two SCR
                  rigs.

         o        Oliver Acquisition. On January 9, 1998, Bayard purchased six
                  additional rigs from R. T. Oliver Drilling, Inc. for
                  approximately $14 million in cash.

         o        Individual Rig Acquisitions. In addition to the Trend, Ward,
                  Bonray and Oliver acquisitions, Bayard has invested $5.5
                  million to acquire six rigs in five transactions involving
                  purchases of individual rigs or rig components. These
                  transactions are referred to in this document as the
                  "individual rig acquisitions" and, together with the formation
                  transactions and the Trend, Ward, Bonray and Oliver
                  acquisitions, are referred to as the "consolidation
                  transactions." In addition, Bayard has purchased one rig for
                  approximately $54,000 and has one other rig, which may be
                  assembled from inventoried components. In August 1997, Bayard
                  sold one rig.

         o        Initial Public Offering. In November 1997, Bayard completed an
                  initial public offering of 11,040,000 shares of Bayard common
                  stock. Bayard sold 4,229,050 shares of Bayard common stock in
                  its initial public offering and received net proceeds of $89.5
                  million.

         o        Refurbishment. The consolidation transactions included a
                  number of rigs in need of refurbishment. From January 1, 1997
                  through December 31, 1998, Bayard completed refurbishment of
                  15 rigs at an average cost of approximately $2.7 million per
                  rig, including drill pipe. These rigs were placed in service
                  at various dates between January 1997 and June 1998. At
                  December 31, 1998, Bayard had 14 additional rigs in various
                  stages of refurbishment. In 1998, Bayard revised its schedule
                  for rig refurbishment as a result of changes in market
                  conditions that have caused an industry-wide decrease in rig
                  utilization. Bayard anticipates refurbishing and placing the
                  remaining 14 rigs into service as market conditions warrant.

         o        TransTexas Acquisition. In June 1998, Bayard completed the
                  acquisition of 25 drilling rigs and certain related equipment
                  and other assets from TransTexas for $75 million in cash. This
                  transaction was financed through the offering of $100 million
                  of senior notes.

         The historical financial results presented in this document include the
effects of the foregoing transactions and the operations of the related rigs
only for the periods after such transactions. In addition, the historical
financial results include periods in which a number of rigs were being
refurbished and did not contribute to revenues. Accordingly, Bayard does not
believe that the historical statements of operations presented in this document
are necessarily indicative of Bayard's future operating results, or that
comparisons of financial results between the periods presented in this document
are necessarily meaningful, particularly in light of the magnitude of Bayard's
recent acquisitions and rig refurbishment projects.


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<PAGE>   4

BUSINESS STRATEGY

         As noted above, Bayard has entered into a merger agreement with Nabors
pursuant to which Bayard would be merged with a subsidiary of Nabors. If the
merger is consummated, Bayard will become a wholly-owned subsidiary of Nabors.
Until such time as the merger is consummated, Bayard will continue to pursue its
existing business strategy as described below.

         Bayard believes that growth in earnings and cash flow can be achieved
by pursuing the following business strategy:

         OPERATING A TECHNOLOGICALLY ADVANCED RIG FLEET. Bayard has assembled
its existing rig fleet, and will pursue further acquisitions, with the goal of
operating one of the most technologically sophisticated land drilling fleets in
the United States. Many of Bayard's rigs include engines, pumps and drilling mud
systems that represent the best drilling technology available and that Bayard
believes offer greater efficiencies for customers than many of the rigs
available from its competitors. For example, by deploying its diesel electric
SCR rigs with two or three high horsepower pumps and top drive drilling systems
in challenging deep and horizontal drilling situations, Bayard believes that it
can reduce its customers' overall drilling costs, thus securing and enhancing
its relationships with some of the most active operators in the domestic market.
Bayard is committed to making the capital investments required to maintain and,
in appropriate circumstances, increase the technological sophistication and
operational efficiencies of its fleet as market conditions warrant.

         DEVELOPING DEEP DRILLING CAPABILITIES. Bayard believes there is greater
demand for rigs capable of drilling deeper, more complex wells, including 1,500
horsepower and larger rigs, and has focused, and will continue to focus, on
acquiring rigs with these capabilities. At December 31, 1998, 78% of Bayard's
rig fleet was capable of drilling to 15,000 feet or greater. Management believes
that demand and utilization rates for these types of rigs, particularly SCR
rigs, will remain higher than for rigs with lesser depth capacities because the
deep drilling rigs provide greater operational flexibility and efficiency.

         FOCUSING ON CORE MARKETS. Bayard believes that its strong asset
position and operating expertise in the Mid-Continent and Gulf Coast regions
enable it to achieve operating efficiencies and to provide premium service to
its customers in these markets. In these markets, Bayard is among the largest
drilling operators, and with the TransTexas acquisition, Bayard has positioned
itself to become one of the largest suppliers of drilling rigs in South Texas.

         DEVELOPING AND MAINTAINING RELATIONSHIPS WITH OPERATORS. In order to
maximize the utilization rate of its rig fleet and to minimize exposure to
market downturns, Bayard seeks to maintain and build relationships with
operators committed to active domestic drilling programs. Bayard's largest
customers include Apache Corporation, Chesapeake Energy Corporation
("Chesapeake"), Enron Oil and Gas Company, Marathon Oil Company, Sonat
Exploration Company ("Sonat"), TransTexas and Union Pacific Resources
Corporation. Each of these companies was among the most active onshore operators
in the United States during the last three years. Bayard has entered into an
alliance agreement with TransTexas by which Bayard will make up to 15 rigs
available to TransTexas to meet its drilling requirements, if any, in an area
that includes, among others, the South Texas and Gulf Coast regions. During the
year ended December 31, 1998, the three largest customers for Bayard's contract
drilling services were Chesapeake, Sonat and TransTexas which accounted for
approximately 16.4%, 8.5% and 7.9% of total revenues, respectively.

         ACQUIRING AND REFURBISHING ADDITIONAL RIGS AND RELATED EQUIPMENT.
Bayard intends to pursue selective acquisitions of additional rigs and related
equipment, including top drive drilling systems, subject to the limitations on
acquisitions set forth in the merger agreement. Additionally, Bayard has
experience in the acquisition of component parts from which rigs can be
assembled or refurbished and intends to continue to seek similar opportunities
for the expansion and enhancement of its rig fleet by such means. Since its
formation and through December 31, 1998, Bayard had acquired 77 land rigs, net
of sales, in 11 transactions.


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DRILLING EQUIPMENT AND SUPPLIES

         A land drilling rig consists of various components, including engines,
drawworks, a derrick or mast, substructure, pumps to circulate drilling fluid,
blowout preventers, drill pipe and related equipment. The actual drilling
capacity of a rig may be more or less than its rated drilling capacity. Numerous
factors, including the length of a rig's drill pipe and the drilling conditions
of any particular well can cause this variance. The intended well depth and the
drill site conditions determine the rig, drill pipe length and other equipment
needed to complete a well. Bayard's rigs can be relocated to areas where demand,
well specifications and day rates allow for maximization of gross operating
margins and utilization. Generally, land rigs operate with crews of five to six
persons.

         As of December 31, 1998, Bayard's fleet included 31 rigs that are
diesel electric SCR rigs and 56 that are mechanical rigs. Mechanical rigs
utilize diesel engines to produce power that is transferred to drilling
equipment, such as drawworks and pumps, by way of a compound consisting of a
series of chains, sprockets and pneumatic clutches. SCR rigs employ diesel
engines that generate alternating current electricity which is converted and
transferred into amps as alternating current or direct current electricity,
which in turn drives electric motors powering the drilling equipment.

         Bayard has focused its acquisitions on rigs with efficient and flexible
drilling mud systems as well as high horsepower drawworks and mud pumps. These
features give Bayard a competitive advantage in attracting premium jobs with
customers engaged in multi-well horizontal drilling programs. The majority of
Bayard's rigs employ diesel engines manufactured by Caterpillar, Inc. as the
rigs' main power sources. Bayard believes that such engines are lighter and more
fuel efficient than other available engines, thus saving Bayard and its
customers money in terms of lower trucking costs and reduced fuel consumption.

         In addition, Bayard has begun to equip certain of its deep drilling
rigs with top drive drilling systems. Top drives provide Bayard's customers with
greater control in transferring horsepower to the bit, precise orientation of
drilling tools while drilling complex directional wells, and reduced incidence
of stuck drill pipe in high risk areas. Moreover, top drives enable the
contractor to drill in 90 foot sections rather than conventional 45 foot
sections, a capability which reduces connection time, and are safer for rig
employees and equipment during tubular handling operations and in well control
situations. Currently, Bayard has five rigs equipped with top drives and has
purchased one additional top drive.

         Drilling rigs and related equipment deteriorate over time unless they
are operated and maintained properly. Bayard strives to keep its drilling rigs
well maintained and technologically competitive. An active maintenance program
during the life of a drilling rig permits the maintenance, replacement and
upgrading of its components on an individual basis. Over the life of a typical
drilling rig, major components, such as engines, pumps, drawworks and drill
pipe, are replaced or rebuilt on a periodic basis as required while other
components, such as the mast and substructure, can be utilized for extended
periods of time with proper maintenance.

         In connection with the TransTexas acquisition, Bayard acquired 45
trucks which have been utilized to move Bayard's drilling rigs and related
equipment. The fleet includes various types of trucks, including pole, winch,
tandem and hauling vehicles. Additionally, Bayard acquired approximately 60
lowboy and float trailers, three cranes and three forklifts.

         Except for limited periods of high utilization, the land drilling
industry has generally been characterized by an oversupply of land rigs.
Therefore, rig manufacturers have generally focused on the production of more
expensive offshore rigs and rig equipment. As a result, most rig manufacturers
are not currently building new land rigs. The limited availability of new rigs
and equipment has caused land rig owners and operators, including Bayard, to
maintain and enhance their fleets primarily through acquisitions and
refurbishments using previously manufactured rig components and equipment. As
the land drilling industry continues to refurbish rigs using existing components
and equipment, the available supply of such components and equipment continues
to deplete.


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CONTRACT DRILLING OPERATIONS

         Bayard's drilling rigs are employed under individual contracts which
extend either over a stated period of time or the time required to drill a well
or a number of wells. Drilling contracts are obtained through either a
competitive bidding process or as a result of direct negotiations with
customers. Terms of Bayard's drilling contracts vary based on factors such as
the complexity and risk of operations, on-site drilling conditions, type of
equipment used and the anticipated duration of the work to be performed.
Contracts are typically entered into on a single well basis and obligate Bayard
to pay certain operating expenses, including wages of drilling personnel,
maintenance expenses and costs for incidental rig supplies, equipment and local
office facilities. Contracts generally are subject to termination by the
customer on short notice, but are sometimes written on a firm basis for a
specified number of wells or years. Bayard has ongoing relationships with a
number of customers that often engage a specific rig for the drilling of
consecutive wells.

         At December 31, 1998, all of Bayard's working rigs were operating under
daywork contracts. At different times, Bayard and its predecessors have
performed drilling services under footage and turnkey contracts, and Bayard
expects to do so again as industry conditions dictate. Revenues from daywork
contracts accounted for approximately 95% of total drilling revenues, excluding
mobilization revenues, during the years ended December 31, 1998 and 1997 with
the remainder from footage and turnkey contracts.

         DAYWORK CONTRACTS. Under daywork contracts, Bayard provides a drilling
rig with required personnel to the operator, who supervises the drilling of the
well. Bayard is paid based on a negotiated fixed rate per day while the rig is
utilized. The rates for Bayard's services depend on market and competitive
conditions, the nature of the operations to be performed, the duration of the
work, the equipment and services to be provided, the geographic area involved
and other variables. Lower rates may be paid when the rig is in transit, or when
drilling operations are interrupted or restricted by equipment breakdowns,
actions of the customer or adverse weather conditions or other conditions beyond
the control of Bayard. In addition, daywork contracts typically provide for a
lump sum fee for the mobilization and demobilization of the drilling rig.
Daywork drilling contracts generally specify the type of equipment to be used,
the size of the hole and the depth of the well. Under a daywork drilling
contract, the customer bears a large portion of out-of-pocket costs of drilling
and Bayard generally bears no part of the usual capital risks, such as time
delays for stuck drill pipe and blowouts, associated with oil and gas
exploration.

         FOOTAGE AND TURNKEY CONTRACTS. Under footage contracts, Bayard is paid
a fixed amount for each foot drilled, regardless of the time required or the
problems encountered in drilling the well. Bayard pays more of the out-of-pocket
costs associated with footage contracts compared to daywork contracts. Under
turnkey contracts, Bayard contracts to drill a well to an agreed depth under
specified conditions for a fixed price, regardless of the time required or the
problems encountered in drilling the well. Bayard provides technical expertise
and engineering services, as well as most of the equipment required for the
well, and is compensated when the contract terms have been satisfied. Turnkey
contracts afford an opportunity to earn a higher return than would normally be
available on daywork or footage contracts if the contract can be completed
successfully without complications. However, the risks to Bayard under footage
and turnkey contracts are substantially greater than under daywork contracts
because Bayard assumes most of the risks associated with drilling operations
generally assumed by the operator in a daywork contract, including risk of
blowout, loss of hole, lost or damaged drill pipe, machinery breakdowns,
abnormal drilling conditions and risks associated with subcontractors' services,
supplies, cost escalation and personnel.

CUSTOMERS AND MARKETING

         Bayard's customers include independent oil and gas producers and major
oil companies. During the year ended December 31, 1998, Chesapeake was Bayard's
largest customer, accounting for approximately 16.4% of total revenues. As of
December 31, 1998, Chesapeake was utilizing four of Bayard's rigs; however,
there can be no assurance that Chesapeake or any of Bayard's other principal
customers will continue to employ Bayard's services or that the loss of any of
such customers or adverse developments affecting any of such customers would not
have a material adverse effect on Bayard's financial condition and results of
operations.


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         Bayard enters into informal, nonbinding commitments with many of its
customers to provide drilling rigs for future periods at agreed upon rates plus
fuel and mobilization charges, if applicable, and escalation provisions. This
practice is customary in the land drilling business during times of tightening
rig supply. Although neither Bayard nor the customer is legally required to
honor these commitments, Bayard strives to satisfy such commitments in order to
maintain good customer relations.

         Bayard's sales force consists of industry professionals with
significant land drilling sales experience who utilize industry contacts and
available public data to determine how to most appropriately market available
rigs.

INDUSTRY FACTORS

         The Company's revenues, cash flows and earnings are substantially
dependent upon, and affected by, the level of domestic oil and gas exploration
and development activity. Such activity and the resulting level of demand for
contract land drilling and related services are directly influenced by many
factors over which the Company has no control. Such factors include, among
others, the market prices of oil and gas, market expectations about future
prices, the volatility of such prices, the cost of producing and delivering oil
and gas, government regulations and trade restrictions, local and international
political and economic conditions, levels of production by, and other activities
of, the Organization of Petroleum Exporting Countries and other oil and gas
producers, the development of alternate energy sources and the long-term effects
of worldwide energy conservation measures. Substantial uncertainty exists as to
the future level of oil and gas exploration and development activity.

         Historically, the contract drilling industry has been cyclical, with
significant volatility in profitability and rig values. This industry
cyclicality has been due to changes in the level of domestic oil and gas
exploration and development activity and the available supply of drilling rigs.
The market for contract land drilling services has generally been depressed
since 1982, when oil and gas prices began to weaken following a period of
significant increase in new drilling rig capacity. Since that time and except
during occasional upturns, there have been substantially more drilling rigs
available than necessary to meet demand in most operating and geographic
segments of the domestic drilling industry, including the geographic areas in
which the Company operates.

         The Company believes that improved technologies and stable oil and gas
prices contributed to increased activity in the exploration and production
sector during much of 1997. But beginning in early 1998, domestic land drillers,
including Bayard, experienced a significant downturn in demand for their
drilling rigs. The Company believes that this downturn was attributable in large
part to sharp drops in oil prices that began in late 1997 and continued
throughout 1998. The decline in crude oil prices negatively impacted the
revenues of oil companies, who have responded by reducing exploration and
development activity. Decreased demand has adversely affected the Company by
lowering utilization of its rigs and reducing the day rates that the Company can
charge its customers.

         The Company cannot predict the future level of demand for its contract
drilling services, future conditions in the contract drilling industry or future
contract drilling rates.

COMPETITION

         The contract drilling industry is a highly competitive business
characterized by high capital and maintenance costs. As a result, even though
Bayard has the fifth largest active land drilling rig fleet in the United
States, Bayard believes that such fleet represents only a fraction of the
domestic land drilling industry. Drilling contracts are usually awarded through
a competitive bid process and, while Bayard believes that operators consider
factors such as quality of service, type and location of equipment, or the
ability to provide ancillary services, price and rig availability are the
primary factors in determining which contractor is awarded a job. Certain of
Bayard's competitors have greater financial


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and human resources than Bayard, which may enable them to better withstand
periods of low rig utilization, to compete more effectively on the basis of
price and technology, to build new rigs or acquire existing rigs and to provide
rigs more quickly than Bayard in periods of high rig utilization.

         Competition in the market for drilling rigs caused substantial
increases in the acquisition prices paid for rigs in 1997 and during the first
half of 1998. Continued competition and price escalation could adversely affect
Bayard's growth strategy if it is unable to purchase additional drilling rigs or
related equipment on favorable terms.

OPERATING HAZARDS AND INSURANCE

         Bayard's operations are subject to many hazards inherent in the land
drilling business, including, for example, blowouts, cratering, fires,
explosions, loss of well control, loss of hole, damaged or lost drill strings
and damage or loss from inclement weather. These hazards could cause personal
injury or death, serious damage to or destruction of property and equipment,
suspension of drilling operations, or substantial damage to the environment,
including damage to producing formations and surrounding areas. Generally,
Bayard seeks to obtain indemnification from its customers by contract for
certain of these risks. To the extent not transferred to customers by contract,
Bayard seeks protection against certain of these risks through insurance,
including property casualty insurance on its rigs and drilling equipment,
commercial general liability and commercial contract indemnity, commercial
umbrella and workers' compensation insurance.

         Bayard's insurance coverage for property damage to its rigs and
drilling equipment is based on Bayard's estimate of the cost of comparable used
equipment to replace the insured property. There is a deductible per occurrence
on rigs and equipment of $500,000. Bayard's third party liability insurance
coverage under the general policy is $1 million per occurrence, with a self
insured retention of $100,000 per occurrence. The commercial umbrella policy has
a self insured retention of $10,000 per occurrence with coverage of $5 million
per occurrence. Bayard believes that it is adequately insured for public
liability and property damage to others with respect to its operations. However,
such insurance may not be sufficient to protect Bayard against liability for all
consequences of well disasters, extensive fire damage or damage to the
environment.

GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS

         GENERAL. Bayard's operations are affected from time to time in varying
degrees by political developments and federal, state and local laws and
regulations. In particular, oil and gas production, operations and economics are
or have been affected by price controls, taxes and other laws relating to the
oil and gas industry, by changes in such laws and by changes in administrative
regulations. Although significant capital expenditures may be required to comply
with such laws and regulations, to date, such compliance costs have not had a
material adverse effect on the earnings or competitive position of Bayard. In
addition, Bayard's operations are vulnerable to risks arising from the numerous
laws and regulations governing the discharge of materials into the environment
or otherwise relating to environmental protection.

         ENVIRONMENTAL REGULATION. Bayard's activities are subject to existing
federal, state and local laws and regulations governing environmental quality,
pollution control and the preservation of natural resources. Such laws and
regulations concern, among other things, air emissions, the containment,
disposal and recycling of waste materials, and reporting of the storage, use or
release of certain chemicals or hazardous substances. Numerous federal and state
environmental laws regulate drilling activities and impose liability for
discharges of waste or spills, including those in coastal areas. Bayard has
conducted drilling activities in or near ecologically sensitive areas, such as
wetlands and coastal environments, which are subject to additional regulatory
requirements. State and federal legislation also provide special protections to
animal and marine life that could be affected by Bayard's activities. In
general, under various applicable environmental programs, Bayard may potentially
be subject to regulatory enforcement action in the form of injunctions, cease
and desist orders and administrative, civil and criminal penalties for
violations of environmental laws. Bayard may also be subject to liability for
natural resource damages and other civil claims arising out of a pollution
event.


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         Except for the handling of solid wastes directly generated from the
operation and maintenance of Bayard's drilling rigs, such as waste oils and wash
water, it is Bayard's practice to require its customers to contractually assume
responsibility for compliance with environmental regulations. Laws and
regulations protecting the environment have become more stringent in recent
years, and may, in certain circumstances, impose strict liability, rendering a
person liable for environmental damage without regard to negligence or fault on
the part of such person. Such laws and regulations may expose Bayard to
liability for the conduct of or conditions caused by others, or for acts of
Bayard which were in compliance with all applicable laws at the time such acts
were performed. The application of these requirements or adoption of new
requirements could have a material adverse effect on Bayard.

         Environmental regulations that affect Bayard's customers also have an
indirect impact on Bayard. Increasingly stringent environmental regulation of
the oil and gas industry has led to higher drilling costs and a more difficult
and lengthy well permitting process.

         The primary environmental statutory and regulatory programs that affect
Bayard's operations include the following:

         Oil Pollution Act and Clean Water Act. The Oil Pollution Act of 1990
amends certain provisions of the federal Water Pollution Control Act of 1972,
commonly referred to as the Clean Water Act, and other statutes as they pertain
to the prevention of and response to spills or discharges of hazardous
substances or oil into navigable waters. Under the Oil Pollution Act, a person
owning or operating a facility or equipment, including land drilling equipment,
from which there is a discharge or threat of a discharge of oil into or upon
navigable waters and adjoining shorelines is liable, regardless of fault, as a
"responsible party" for removal costs and damages. Federal law imposes strict,
joint and several liability on facility owners for containment and clean-up
costs and certain other damages, including natural resource damages, arising
from a spill.

         The United States Environmental Protection Agency is also authorized to
seek preliminary and permanent injunctive relief and, in certain cases, criminal
penalties and fines. State laws governing the control of water pollution also
provide varying civil and criminal penalties and liabilities in the case of
releases of petroleum or its derivatives into surface waters or into the ground.
If a discharge occurs at a well site at which Bayard is conducting drilling or
pressure pumping operations, Bayard may be exposed to claims that it is liable
under the Clean Water Act or similar state laws.

         Certain of Bayard's operations are also subject to EPA regulations,
including regulations that require the preparation and implementation of spill
prevention control and countermeasure plans to address the possible discharge of
oil into navigable waters. Where so required, Bayard has spill prevention
control and countermeasure plans in place.

         Superfund. The Comprehensive Environmental, Response, Compensation, and
Liability Act, as amended, known as CERCLA or the "Superfund" Law, imposes
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons with respect to the release of a "hazardous
substance" into the environment. These persons include:

         o        the current owner and operator of a facility from which
                  hazardous substances are released;

         o        owners and operators of a facility at the time any hazardous
                  substances were disposed;

         o        generators of hazardous substances who arranged for the
                  disposal or treatment at or transportation to such facility of
                  hazardous substances; and

         o        transporters of hazardous substances to disposal or treatment
                  facilities selected by them.


                                       8
<PAGE>   10


Bayard may be responsible under CERCLA for all or part of the costs to clean up
sites at which hazardous substances have been released. To date, however, Bayard
has not been named a potentially responsible party under CERCLA or any similar
state Superfund laws.

         Hazardous Waste Disposal. Bayard's operations involve the generation or
handling of materials that may be classified as hazardous waste and subject to
the federal Resource Conservation and Recovery Act and comparable state
statutes. The EPA and various state agencies have limited the disposal options
for certain hazardous and nonhazardous wastes and is considering the adoption of
stricter handling and disposal standards for nonhazardous wastes.

         As part of the Bonray acquisition, Bayard acquired an equipment yard
which may require certain expenditures or remedial actions for the removal or
cleanup of contamination. In exchange for a $1 million cash payment to Bayard at
closing, Bayard did not require DLB Oil & Gas, Inc. to indemnify Bayard with
respect to such expenditures or remedial actions. While Bayard has not
determined whether and to what extent such expenditures or remedial actions may
be necessary or advisable, based on the presently available information, Bayard
does not believe that such expenditures will exceed $1 million. Management
believes that Bayard and its operations are in material compliance with
applicable environmental laws and regulations. The Company sold this property to
an unrelated third party in March of 1999.

         HEALTH AND SAFETY MATTERS. Bayard's facilities and operations are also
governed by various other laws and regulations, including the federal
Occupational Safety and Health Act, relating to worker health and workplace
safety. As an example, the Occupational Safety and Health Administration has
issued the Hazard Communication Standard. This standard applies to all
private-sector employers, including the oil and gas exploration and producing
industry. The Hazard Communication Standard requires that employers assess their
chemical hazards, obtain and maintain certain written descriptions of these
hazards, develop a hazard communication program and train employees to work
safely with the chemicals on site. Failure to comply with the requirements of
the standard may result in administrative, civil and criminal penalties. Bayard
believes that appropriate precautions are taken to protect employees and others
from harmful exposure to materials handled and managed at its facilities and
that it operates in substantial compliance with all Occupational Safety and
Health Act regulations. While it is not anticipated that Bayard will be required
in the near future to make material expenditures by reason of such health and
safety laws and regulations, Bayard is unable to predict the ultimate cost of
compliance with these changing regulations.

FACILITIES AND OTHER PROPERTY

         Bayard leases approximately 7,500 square feet of office space for its
principal executive offices in Oklahoma City, Oklahoma and leases approximately
5,000 square feet of office and warehouse space and ten acres of land in El
Reno, Oklahoma. In addition, Bayard owns approximately ten acres of land in El
Reno, Oklahoma and five acres of land in Weatherford, Oklahoma that it uses for
rig storage and maintenance. In the TransTexas acquisition, Bayard acquired
approximately 24 acres of land in Laredo, Texas with office and warehouse
facilities totaling approximately 125,000 square feet. Bayard considers all of
its facilities to be in good operating condition and adequate for their present
uses.

EMPLOYEES

         As of December 31, 1998, Bayard had approximately 550 employees, of
which approximately 100 were salaried and approximately 450 were employed on an
hourly basis. None of Bayard's employees is represented by any collective
bargaining unit. Bayard management believes that Bayard's relationship with its
employees is good.


                                       9
<PAGE>   11


ITEM 3.  LEGAL PROCEEDINGS

         A purported class action lawsuit is pending against Bayard, certain
directors and officers of Bayard, the managing underwriters of Bayard's initial
public offering, and certain current and former stockholders of Bayard, alleging
violations of federal securities laws in connection with the initial public
offering. The lawsuit, Yuan v. Bayard Drilling Technologies, Inc., et al.
("Yuan"), was filed on February 3, 1998 in the United States District Court for
the Western District of Oklahoma. The principal plaintiff in Yuan is Tom Yuan.
The defendants in this case include Bayard, Chesapeake, Energy Spectrum LLC,
James E. Brown, David E. Grose, Carl B. Anderson, III, Merrill A. Miller, Jr.,
Sidney L. Tassin, Lew O. Ward, Mike Mullen, Roy T. Oliver, Donaldson, Lufkin &
Jenrette Securities Corporation, Lehman Brothers, Inc., Prudential Securities,
Inc., Rauscher Pierce Refsnes, Inc. (a predecessor to Dain Rauscher
Incorporated) and Raymond James & Associates, Inc.

         The plaintiffs in this lawsuit purport to sue on their own behalf and
on behalf of all persons who purchased shares of Bayard common stock on or
traceable to the initial public offering. In the lawsuit, plaintiffs allege
claims against all defendants under the Securities Act of 1933. The plaintiffs
allege that the registration statement and prospectus for Bayard's initial
public offering contained materially false and misleading information and
omitted material facts. In particular, the plaintiffs allege that such
registration statement and prospectus failed to disclose financial difficulties
of Chesapeake, Bayard's largest customer, and the effects of such difficulties
on Chesapeake's ability to continue to provide Bayard with substantial drilling
contracts. The complaint further alleges that Bayard failed to disclose
pre-offering negotiations with R. T. Oliver Drilling, Inc., whom the plaintiffs
allege was a related party, for the purchase of drilling rigs. In addition, the
complaint alleges that Bayard failed to disclose that its growth strategy
required costly refurbishment of older drilling rigs that would dramatically
increase Bayard's costs, which could not be sustained by internally generated
cash flows. Plaintiffs are seeking rescission and damages.

         Two other suits, Khan v. Bayard Drilling Technologies, Inc., et al.
("Khan") and Burkett v. Bayard Drilling Technologies, Inc., et al. ("Burkett"),
which were filed in District Court in and for Oklahoma County, State of Oklahoma
on January 14, 1998 and February 2, 1998, respectively, and alleged essentially
the same claims as Yuan, were dismissed without prejudice in May 1998 on a joint
application filed by all parties. The plaintiffs in Khan and Burkett, along with
others, have been appointed as lead plaintiffs in the Yuan federal court suit,
now styled to include the other lead plaintiffs, as Yuan, et al., and an amended
consolidated complaint was filed on July 30, 1998. A motion to dismiss the
claims in this lawsuit has been filed by Bayard and the other defendants and is
currently pending before the court.

         Bayard is also involved in other litigation arising from time to time
in the ordinary course of its business, including workers' compensation claims
and disputes arising out of its drilling activities. Such disputes include two
claims filed against Bayard and Marathon Oil Company on November 13, 1998 and
February 17, 1999 in the District Court of Washita County in the State of
Oklahoma. Eldred L. and Patricia A. Schneberger and Irene F. and James H.
Howard, the plaintiffs in these lawsuits, seek remedies including an order of
abatement and actual, consequential and punitive damages for losses allegedly
incurred in connection with a drilling project that utilized one of Bayard's
rigs. These lawsuits are in preliminary stages with initial discovery
commencing, thus, the Company is unable to estimate the potential for liability
on these claims.

         Bayard believes the allegations in the lawsuits referenced above are
without merit and is defending vigorously the claims brought against it. Bayard
is unable, however, to predict the outcome of these lawsuits or the costs to be
incurred in connection with their defense and there can be no assurance that
this litigation will be resolved in Bayard's favor. An adverse result or
prolonged litigation could have a material adverse effect on Bayard's financial
position or results of operations.

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

         No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of securities holders, through solicitation of
proxies or otherwise.


                                       10
<PAGE>   12
 

                                    PART II.

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

MARKET INFORMATION

         The Company's common stock is traded on the American Stock Exchange
(the "AMEX") under the symbol "BDI."

PRICE RANGE OF COMMON STOCK

         The range of the reported per share sale prices on the AMEX for the
common stock for the period between November 4, 1997 (the first trading day
following the initial public offering of Company common stock) and December 31,
1998 was a high of $28 1/4 and a low of $3 1/16. During such period there have
been no dividends paid on the common stock. As of February 28, 1999, there were
18,214,765 shares of common stock outstanding. On March 24, 1999, the last sales
price for the common stock was $6.00 per share. The following table summarizes
the high and low sales prices per share of Company common stock as reported on
the AMEX.


<TABLE>
<CAPTION>
                                                        QUARTERLY PERIOD ENDING
                       -------------------------------------------------------------------------------------------

                       DECEMBER 31           MARCH 31             JUNE 30          SEPTEMBER 30        DECEMBER 31

                         1997(1)               1998                1998                1998               1998
                       -----------          ----------           ---------         ------------        -----------
<S>                    <C>                  <C>                  <C>               <C>                 <C>        
Price Range:

    High               $   28.2500          $  16.5000           $ 16.0000         $     8.6875        $    7.6250

    Low                $   13.5000          $  11.1250           $  8.1250         $     3.6250        $    3.0625
</TABLE>


(1)      Includes per share price information from November 4, 1997, the date of
         the Company's initial public offering of common stock, through the end
         of the fourth quarter of fiscal 1997.

HOLDERS

         As of February 28, 1999, the Company had approximately 124 record
holders of its shares of common stock, including several nominee holders for an
undetermined number of beneficial owners.

DIVIDENDS ON COMMON STOCK

         CASH DIVIDENDS. The Company declared no cash dividends in 1997 or 1998.
The Company currently intends to retain all available earnings generated by its
operations for the development and growth of its business and does not
anticipate paying any cash dividends on the common stock in the foreseeable
future. Future dividend policy will be made by the Company's Board of Directors
(the "Board") and will depend on a number of factors, including the Company's
earnings, capital requirements, financial condition and business prospects and
such other factors as the Board may deem relevant. The payment of cash dividends
on common stock is restricted under the terms of the Company's term loan
facility with The CIT Group/Equipment Financing, Inc., the revolving loan with
Fleet Capital Corporation and the senior notes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial Condition
and Liquidity."


                                       11
<PAGE>   13


         STOCKHOLDER RIGHTS AGREEMENT. On August 21, 1998, the Company
executed a stockholder rights agreement and declared a dividend of one right (a
"Right") to purchase preferred stock for each outstanding share of Bayard
common stock, to stockholders of record at the close of business on September 1,
1998. Each Right entitles the registered holder to purchase from the Company a
unit consisting of one one-hundredth of a share of Series A Junior Participating
Preferred Stock, at a purchase price of $30 per such fractional share, subject
to adjustment. On October 19, 1998, the Company amended the rights agreement.
Under the terms of the amendment, Nabors, or any of its affiliates, shall not
become an Acquiring Person (as defined in the rights agreement) unless it
becomes the beneficial owner of at least 20% of the outstanding shares of Bayard
common stock.

ITEM 6.  SELECTED HISTORICAL FINANCIAL AND OPERATING DATA

         The yearly historical financial data presented in the following table
for the five-year period ended December 31, 1998 are derived from the historical
financial statements of the Company. The data for fiscal years 1994, 1995 and
1996 relate to the operations of Anadarko Drilling Company, Bayard's
predecessor, and include, generally, the financial results of the operations of
eight rigs. The historical financial and operating data presented for 1997 and
1998 reflect the Company's acquisition of numerous rigs and related drilling
equipment. Because of these acquisitions, the data from the earlier and later
periods may not be comparable.

         The financial statements for the years ended December 31, 1994, 1995
and 1996 have been audited by Grant Thornton LLP, independent certified public
accountants, and the years ended December 31, 1997 and 1998 have been audited by
PricewaterhouseCoopers LLP. This information is not necessarily indicative of
the Company's future performance.

         The data presented below should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."


<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31
                                                 -------------------------------------------------------------
                                                   1994         1995         1996       1997 (8)        1998
                                                 ---------    ---------    ---------    ---------    ---------
<S>                                              <C>          <C>          <C>          <C>          <C>      
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
  Revenues:
    Contract drilling                            $   9,910    $   7,405    $   9,793    $  55,747    $  78,616
    Other                                               --          303           60           --          456
                                                 ---------    ---------    ---------    ---------    ---------
        Total revenues                               9,910        7,708        9,853       55,747       79,072
                                                 ---------    ---------    ---------    ---------    ---------

  Operating expense:
    Drilling                                         8,572        6,075        7,653       40,705       63,782
    Depreciation and amortization(1)                 1,557          791        1,126        7,943       14,362
    General and administrative                         786          880          658        1,868        4,312
    Other                                               --           47           46           --          467
                                                 ---------    ---------    ---------    ---------    ---------
        Total operating costs                       10,915        7,793        9,483       50,516       82,923
                                                 ---------    ---------    ---------    ---------    ---------

  Operating income (loss)                           (1,005)         (85)         370        5,231       (3,851)

  Other income and (expense):
    Interest expense and financing cost                (18)          (3)         (11)      (3,065)
                                                                                                        (6,371)
    Interest income                                     --           --           --          597        1,404
    Gain (loss) on sale of assets                      366         (131)          54          544          688
    Other income (expense)                              --           (3)          17           37            6
                                                 ---------    ---------    ---------    ---------    ---------
  Income (loss) before income taxes                   (657)        (222)         430        3,344       (8,124)
  Income tax (provision) benefit-deferred (2)           --           --         (163)      (1,428)       2,880
  Net income (loss) before extraordinary item    $    (657)   $    (222)   $     267    $   1,916    $  (5,244)
Extraordinary loss                               =========    =========    =========       (4,002)        (338)
                                                                                        ---------    ---------
Net income (loss)                                                                       $  (2,086)   $  (5,582)
                                                                                        =========    =========
Earnings (loss) per common share before 
extraordinary item (3):
    Diluted                                                                $     .05    $     .17    $    (.29)
                                                                           =========    =========    =========
Weighted average shares outstanding (3):
    Diluted                                                                    5,749       11,500       18,191
                                                                               
CASH FLOWS:
  Operating activities                           $     445    $     310    $    (462)   $  (1,308)   $  12,320
  Investing activities                                (454)      (1,710)     (10,441)     (86,470)    (141,355)
  Financing activities                                   9        1,400       15,866      132,117       82,286
</TABLE>



                                       12
<PAGE>   14

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31
                                                   -------------------------------------------------------------
                                                     1994         1995         1996         1997         1998
                                                   ---------    ---------    ---------    ---------    ---------
<S>                                                <C>          <C>          <C>          <C>          <C>      
                                                  (IN THOUSANDS, EXCEPT PER SHARE AND DRILLING RIG ACTIVITY DATA)
BALANCE SHEET DATA:
  Total assets                                     $   6,149    $   8,054    $  34,673    $ 240,488    $ 319,340
  Working capital, excluding current portion of          802           12        4,974       56,404        2,244
      long-term debt
  Total long-term debt, including current portion         --           --        7,000       33,039      117,733
  Total stockholders' equity (4)                         (54)        (276)      26,251      178,462      173,005

OTHER FINANCIAL DATA:
  EBITDA (5)                                       $     552    $     706    $   1,496    $  13,174    $  10,511
  Capital expenditures                                 1,183        2,088       10,578      135,229      143,002

DRILLING RIG ACTIVITY DATA
  (UNAUDITED):
  Total rigs at end of period                              7            8           17           63           87
  Marketed rigs at end of period                           7            8            8           49           73
  Average utilization rate of drilling
     rigs available for service (6)                       84%          86%          89%          93%          56%
  Average revenues per day (7)                     $   4,148    $   4,298    $   4,731    $   5,881    $   6,298
</TABLE>

-----------------------

(1)      Of the 73 rigs being marketed, 13 rigs acquired in the TransTexas
         acquisition (as described below) have not yet been placed into service;
         therefore these 13 rigs are not being depreciated. As these rigs are
         placed into service, the annual depreciation expense amount will be
         approximately $142,000 per rig.

(2)      Since the Company's predecessor was a nontaxable entity, income tax
         expense is presented on a pro forma basis (assuming a 38% statutory
         rate) for the year ended December 31, 1996.

(3)      For the years ended December 31, 1998 and 1997 historical weighted
         average shares outstanding were calculated in accordance with the
         provisions of Statement of Financial Accounting Standards No. 128. For
         the year ended December 31, 1996, the historical weighted average
         shares outstanding were calculated in accordance with the provisions of
         Statement of Financial Accounting Standards No. 128 (except for the 5.6
         million shares of common stock issued during the formation of the
         Company as if these formation transactions (which took place in
         December 1996) were treated outstanding since January 1, 1996).

(4)      No cash dividends were declared through December 31, 1998.  See 
         "Dividend Policy."

(5)      EBITDA represents operating income (loss) before depreciation and
         amortization. EBITDA is frequently used by securities analysts and is
         presented herein to provide additional information about the Company's
         operations. EBITDA is not a measurement presented in accordance with
         generally accepted accounting principles. EBITDA should not be
         considered in isolation or as a substitute for net income or cash flow
         data prepared in accordance with generally accepted accounting
         principles or as a measure of a company's profitability or liquidity.


                                       13
<PAGE>   15


(6)      Rig utilization rates are calculated on a weighted average basis
         assuming 365 days availability for all rigs available for service. Rigs
         acquired have been treated as added to the rig fleet as of the date of
         acquisition. Rigs under contract that generate revenues during moves
         between locations or during mobilization/demobilization are also
         considered to be utilized. Rigs that are owned but not being marketed,
         including rigs being refurbished, are not considered in determining the
         utilization rate.

(7)      Represents total contract drilling revenues (excluding mobilization,
         cost reimbursements and fuel), divided by the total number of days the
         Company's drilling rig fleet operated during the period, divided by the
         average number of rigs in operation.

(8)      Results for 1997 include the results of operations for Trend (May 1,
         1997 to December 31, 1997), Ward (May 30, 1997 to December 31, 1997)
         and Bonray (October 16, 1997 to December 31, 1997).

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

GENERAL

         The Company's operations have been significantly affected by the
consolidation transactions which have transformed the Company from a regional
competitor with ten rigs in late 1996 to its current position of operating a
land drilling fleet with a total of 87 rigs. The historical financial results
presented herein include the effects of the transactions forming the Company (16
rigs), the Trend acquisition (14 rigs), the Ward acquisition (6 rigs), the
Bonray acquisition (13 rigs), the Oliver acquisition (6 rigs), the TransTexas
acquisition (25 rigs) and the individual rig acquisitions (7 rigs), only for the
periods after such transactions. In addition, the historical financial results
include periods in which a number of rigs were being refurbished and did not
contribute to revenues. Accordingly, the Company does not believe that the
historical statements of operations presented herein are necessarily indicative
of the Company's future operating results, or that comparisons of financial
results between the periods presented herein are necessarily meaningful,
particularly in light of the magnitude of its recent acquisitions and rig
refurbishment projects.

DOMESTIC LAND DRILLING INDUSTRY OVERVIEW

         Demand for Bayard's contract land drilling services is substantially
dependent upon, and affected by, the level of domestic oil and gas exploration
and development activity. Industry sources estimate that from its peak in 1982,
the supply of domestic rigs has fallen as a result of normal attrition,
cannibalization of components to refurbish rigs, the inability of smaller
competitors to raise capital needed to upgrade and modernize rigs and the export
of rigs to international markets. As a result of these factors, the contract
land drilling industry has been cyclical with significant volatility in
profitability and rig values.

         Bayard's operating margins are influenced by contract drilling rates,
operating costs and drilling rig utilization. Although Bayard believes that
improved technologies, the long-term decline in the supply of rigs and stable
oil and gas prices contributed to increased activity in the exploration and
production sector during 1997, there has been a general decline in oil and, to a
lesser extent, gas prices during 1998 and there can be no assurance that such
decline will not continue. This decline in oil and gas prices has contributed to
a decrease in Bayard's rig utilization rates from 93% for 1997 to 56% for 1998.
There can be no assurance that oil and gas prices will not continue to decline
or that any such decline would not have a material adverse effect on Bayard's
utilization rates. In addition, ongoing movement or reactivation of land
drilling rigs, including the movement of rigs from outside the United States
into domestic markets, or new construction of drilling rigs could increase rig
supply and adversely affect contract drilling rates and utilization levels.
Bayard cannot predict the future level of demand for its contract drilling
services, future conditions in the contract drilling industry or future contract
drilling rates.


                                       14
<PAGE>   16


FINANCIAL CONDITION AND LIQUIDITY

         Since December 1996, Bayard has completed the consolidation
transactions and the TransTexas acquisition. Bayard's formation transactions
involved the issuance of an aggregate of 5,600,000 shares of Bayard common stock
in consideration for the contribution to Bayard of 16 rigs and $10 million in
cash. At the time the Company was formed, it entered into a $24 million term
loan facility with The CIT Group/Equipment Financing, Inc., principally for the
refurbishment of certain of Bayard's rigs. In May 1997, contemporaneously with
the Trend acquisition and in anticipation of the Ward acquisition, Bayard
completed a financing transaction in which it:

         o        issued to Chesapeake Energy Corporation and Energy Spectrum
                  Partners LP additional shares of Bayard common stock and two
                  series of warrants together with subordinated notes due May 1,
                  2003 for $28.5 million in cash; and

         o        increased the availability under its debt facilities from $24
                  million to $40.5 million.

         In November 1997, Bayard consummated its initial public offering, in
which Bayard registered the sale of an aggregate of 11,040,000 shares of Bayard
common stock. In the initial public offering, Bayard issued and sold 4,229,050
shares of Bayard common stock and certain stockholders of Bayard sold 6,810,950
shares of Bayard common stock. Bayard received net proceeds of $89.5 million for
the shares sold by it in the initial public offering. Through December 31, 1998,
these net proceeds had been used as follows:

         o        $50.1 million to purchase machinery and equipment;

         o        $38.6 million to repay indebtedness; and

         o        $817,125 to pay CIT in connection with the exercise of certain
                  options to purchase Bayard common stock.

         Currently, Bayard's primary bank debt facilities consist of a term loan
under an agreement with CIT and Fleet Capital Corporation, under which $15.5
million was outstanding as of December 31, 1998, and a $10 million revolving
loan facility under a revolving loan agreement with Fleet, under which Bayard
has no outstanding borrowings other than approximately $1.3 million in letters
of credit as of December 31, 1998. The term loan agreement and the revolving
loan agreement are referred to in this document collectively as the "loan
agreements." On June 26, 1998, Bayard issued $100 million of its senior notes
and used $75 million of such proceeds to fund the TransTexas acquisition.
Further information regarding the loan agreements and Bayard's senior notes is
set forth below under "Financing Activities."

         Bayard's principal requirements for capital, in addition to the funding
of ongoing contract drilling operations, have been capital expenditures,
including the refurbishment of existing rigs and acquisitions. From December
1996 through December 31, 1998, Bayard spent $20.7 million on the Trend
acquisition, $11.9 million on the Ward acquisition, $35 million on the Bonray
acquisition, $14 million on the Oliver acquisition, $5.5 million on the
individual rig acquisitions, approximately $125.0 million on refurbishments and
other related equipment purchases, including drill pipe, and $75 million on the
TransTexas acquisition. As a result, Bayard's net property and equipment
increased from $155.7 million at December 31, 1997 to $285.3 million at December
31, 1998. Bayard's principal sources of liquidity have been the issuance of
Bayard common stock, its senior notes, its subordinated notes, warrants to
purchase Bayard common stock and borrowings under the loan agreements. As of
December 31, 1998, Bayard had $100 million principal amount of its senior notes
outstanding, $15.5 million of borrowings outstanding under the term loan
agreement, no borrowings outstanding under the revolving loan agreement, other
than approximately $1.3 million in letters of credit, no outstanding
subordinated notes and $3 million of cash and cash equivalents. Bayard expects
to fund its capital requirements during the period before the expected date of
the merger through cash flow from operations, and, to the extent required,
borrowings under the loan agreements. Bayard believes that such sources of funds
will be sufficient to meet Bayard's anticipated uses through the expected date
of the merger. If the merger is not consummated or is delayed for a significant
period of time, Bayard may be required to seek additional sources of funds to
meet is capital requirements in 1999.


                                       15
<PAGE>   17


         The most significant change in Bayard's balance sheet from December 31,
1997 to December 31, 1998 was a $129.6 million increase in net property and
equipment, and the issuance of $100 million of senior notes. During this same
period, long-term debt, net of current maturities, decreased by $11.4 million
and stockholders' equity decreased by $5.5 million.

         From December 31, 1997 to December 31, 1998, Bayard's working capital
position decreased by $52.8 million to a deficit of $3.8 million. This was
primarily the result of additions to fixed assets.

         OPERATING ACTIVITIES. During the year ended December 31, 1996, Bayard
required $462,000 of cash to fund operating activities. This was the result of
$1.5 million of cash provided by operations, partially offset by changes in
working capital items that required $2 million of cash. Cash required for
changes in working capital items included the following:

         o        increase in accounts receivable of $2.1 million;

         o        increase in other assets totaling $185,000; and

         o        decrease of $383,000 in accounts payable, which were partially
                  offset by an increase of $663,000 of other current
                  liabilities.

         During the year ended December 31, 1997, net cash used in operating
activities totaled $1.3 million. Bayard generated cash from operations of $10.8
million and working capital changes used $12.1 million.

         During the year ended December 31, 1998, net cash provided from
operating activities totaled $12.3 million. Bayard generated cash from
operations of $5.6 million and working capital changes provided $6.7 million.

         INVESTING ACTIVITIES. During the year ended December 31, 1996, Bayard
invested $21.7 million in fixed assets, net of asset sales. The major components
of these expenditures were $10.4 million of cash expenditures to acquire and
refurbish five diesel electric SCR rigs and $9.8 million of Bayard common stock
issued to acquire rigs in the series of transactions which formed the Company.

         During the year ended December 31, 1997, Bayard invested $135 million
in fixed assets, including the Trend acquisition, the Ward acquisition, the
Bonray acquisition and the individual rig acquisitions. Rig refurbishments
consisted of $51.5 million, and $10.6 million was invested in drill pipe and
other drilling related equipment. The acquisitions of Trend, Ward, and Bonray
were partially funded through the issuance of Bayard common stock valued at
$42.3 million.

         During the year ended December 31, 1998, Bayard invested $143 million
in fixed assets, including $11.1 million in the Oliver acquisition, and $75
million in the TransTexas acquisition. Rig refurbishment costs totaled $51.3
million, including the Oliver acquisition costs, refurbishments of $11.8 million
on rigs currently being marketed, and $22.8 million of equipment for future
refurbishment programs. Total investment in drill pipe was $13.3 million.

         FINANCING ACTIVITIES. During the year ended December 31, 1996, Bayard
raised $15.9 million from financing activities. Bayard borrowed $7 million
during the year under the term loan as described below. Bayard also issued
3,600,000 shares of Bayard common stock for assets and cash and made debt
payments totaling $900,000 during the year.


                                       16
<PAGE>   18


         During the year ended December 31, 1997, Bayard obtained $132.1 million
from financing activities, including net borrowing under the loan agreements
totaling $25.8 million, and $107.1 million from the issuance of Bayard common
stock. The proceeds from these transactions were used to fund Bayard's working
capital requirements and capital expenditures as discussed above.

         During the year ended December 31, 1998, Bayard obtained $82.3 million
from financing activities, including $100.0 million from the issuance of senior
notes, less payments under the loan agreements totaling $15.2 million.

         In April 1998, Bayard redeemed in full the $2.52 million principal
amount of subordinated notes issued to Energy Spectrum Partners LP together with
accrued interest of $47,740. In connection with the redemption, Energy Spectrum
Partners LP waived its rights to require Bayard to redeem the subordinated notes
at 110% of par value. This redemption, coupled with the redemption of $18.0
million principal amount of Bayard's subordinated notes from Chesapeake Energy
Corporation at the time of Bayard's initial public offering, leaves no
subordinated notes outstanding.

         On June 26, 1998, Bayard issued $100 million of senior notes and used
$75 million of such proceeds to fund the TransTexas acquisition. Bayard intends
to use the remaining proceeds for general corporate purposes, possibly including
acquisitions of additional drilling rigs and related equipment and the
refurbishment of rigs. Bayard's senior notes mature on June 30, 2005. Interest
on Bayard's senior notes is payable semi-annually on June 30 and December 31 of
each year, commencing on December 31, 1998. The senior notes are not redeemable
before June 30, 2003, on or after which they will be redeemable, in whole or in
part, at the option of Bayard, at the redemption prices set forth in the
indenture relating to the senior notes, plus accrued and unpaid interest and
certain other charges, if any, thereon to the date of redemption. In addition,
at any time on or before June 30, 2001, Bayard may redeem up to 35% of the
original aggregate principal amount of its senior notes with the net proceeds of
certain qualifying equity offerings at a redemption price equal to 111% of the
principal amount of the senior notes, plus accrued and unpaid interest and
certain other charges, if any, thereon to the date of redemption, provided that
at least $65 million in aggregate principal amount of Bayard's senior notes
remains outstanding immediately after the occurrence of such redemption. Upon a
transaction resulting in a change of control, each holder of Bayard's senior
notes will have the right to require Bayard to repurchase all or any part of
such holder's senior notes at a price equal to 101% of the principal amount of
the senior notes, plus accrued and unpaid interest and certain other charges, if
any, thereon to the date of repurchase. The proposed merger with Nabors would,
if consummated, constitute a "change of control". Bayard's senior notes are
senior unsecured obligations of Bayard and rank pari passu in right of payment
with all existing and future senior indebtedness and other senior obligations of
Bayard, and senior in right of payment to all future subordinated indebtedness
of Bayard.

         Each of Bayard's wholly owned domestic subsidiaries has issued a
guarantee of Bayard's obligations under its senior notes. The guarantees are
senior unsecured obligations of each guarantor and rank pari passu in right of
payment with all other indebtedness and liabilities of such guarantor that are
not subordinated by their terms to other indebtedness of such guarantor, and
senior in right of payment to all subordinated indebtedness of such guarantor.

         Bayard had outstanding at December 31, 1998 $15.5 million of long term
debt under the term loan agreement. The term loan was incurred to finance the
purchase of certain land drilling rigs, the refurbishment of such rigs and
equipment and for working capital purposes. On May 14, 1998, in connection with
Bayard's corporate reorganization into a holding company structure:

         o        Bayard prepaid $6.2 million of the term loan, obtained a
                  release of all collateral for the term loan, except 12
                  drilling rigs and related equipment, and transferred to Bayard
                  Drilling, L.P., Bayard's wholly owned operating subsidiary,
                  substantially all of its assets, subject to such liens; and

         o        Bayard Drilling,  L.P. and Bayard Drilling,  L.L.C., another 
                  wholly owned subsidiary of Bayard, agreed to guarantee the 
                  term loan.


                                       17
<PAGE>   19


Before such prepayment and collateral release, the term loan was collateralized
by substantially all of the assets of Bayard and Trend. In connection with
Bayard's senior notes offering, the term loan was further amended to add Bonray
as a guarantor of Bayard's obligations.

         The term loan agreement requires Bayard and its subsidiaries to
maintain collateral security for the term loan based on appraised fair market
value and orderly liquidation value of Bayard's drilling rigs and associated rig
equipment equivalent to the balance of the term loan, and adhere to specified
cash flow, leverage and liquidity ratios and minimum net worth and liquidity
requirements. The term loan agreement contains restrictions on, among other
things, the ability of Bayard and its subsidiaries to pay dividends, make
investments, incur indebtedness and liens, and make capital expenditures and
requires the maintenance of liquidity of $3 million through December 31, 1998.
The term loan agreement also contains affirmative covenants typical of secured
loan arrangements with finance companies, such as requiring financial reports,
insurance maintenance, legal, environmental and permit compliance. Bayard is
prohibited from prepaying the term loan until after December 31, 1999.

         The term loan bears interest at Bayard's choice of LIBOR plus 4.25% per
annum (9.89% at December 31, 1998) or the prime rate of The Chase Manhattan Bank
plus 2.00% per annum (9.75% at December 31, 1998) and requires equal monthly
payments of principal, together with accrued interest, in amounts sufficient to
repay borrowings at maturity on March 31, 2002.

         The revolving loan agreement provides revolving credit loans, subject
to a borrowing base comprised of a portion of Bayard's accounts receivable, of
up to $10.0 million, $2.0 million of which is available for letters of credit,
for general corporate purposes. Bayard has not borrowed under the revolving loan
agreement since November 1997 but has approximately $1.3 million of letters of
credit outstanding under that agreement.

         Any borrowings under the revolving loan agreement would bear interest
based on Fleet National Bank's prime rate plus 1.5% or approximately 10.0% at
December 31, 1998. A portion of the proceeds from Bayard's initial public
offering was used to repay all outstanding amounts under the revolving loan
agreement. Bayard pays certain fees under the revolving loan agreement,
including a commitment fee equal to 0.5% of the unused portion of the maximum
commitment. Fleet's commitment to lend under the revolving loan agreement ends
in April 2000. Bayard may terminate the revolving loan agreement upon 60 days'
prior written notice to Fleet and the payment of a termination fee of 2% of the
facility.

         The revolving loan agreement is collateralized by certain assets of
Bayard and Trend that were transferred to Bayard Drilling, L.P. during Bayard's
corporate reorganization into a holding company structure, including accounts
receivable, certain equipment and inventory, Bayard's El Reno, Oklahoma yard and
the same 12 drilling rigs that collateralize the term loan agreement, together
with equipment and drilling contracts related to such rigs. The revolving loan
agreement is also secured by the receivables and certain other assets of Bayard,
Bayard Drilling, L.P., Bayard Drilling, L.L.C., Trend and Bonray. Until May 14,
1998, the revolving loan agreement was also collateralized by all drilling rigs
of Bayard and Trend, upon which date Fleet released all but such 12 rigs and
related assets. Bayard Drilling, L.P., Bayard Drilling, L.L.C., Trend and Bonray
have agreed to guarantee the obligations under the revolving loan agreement. The
revolving loan agreement contains customary restrictive covenants that are
substantially similar to the covenants contained in the term loan agreement.

         Bayard also has issued three amortizing term notes, referred to as the
"top drive notes," totaling approximately $2.2 million outstanding at December
31, 1998. This debt bears interest at 9.5% per annum and is collateralized by
certain top drive equipment of Bayard and letters of credit in amounts totaling
approximately $700,000. The debt represented by the top drive notes matures in
July, October and November of 2000. The note agreement relating to the top drive
notes does not contain any restrictive financial covenants but contains a cross
default to the term loan agreement and the revolving loan agreement.


                                       18
<PAGE>   20


         RECENT EVENTS. In December 1998 and January 1999, Nabors Industries,
Inc. purchased from Bayard several components of drilling equipment at fair
market value in exchange for promissory notes in the aggregate principal amount
of approximately $457,000.

RESULTS OF OPERATIONS

         Comparisons of Bayard's results of operations are set forth below for
the periods identified. As used in the following tables and the related
discussion:

         o        Rig days worked represents the number of rigs being marketed
                  by Bayard, multiplied by the number of days during which such
                  rigs are being operated, mobilized, assembled or dismantled
                  while under contract. Rig days are a common measurement of
                  both utilization rates and fleet size.

         o        Average revenues per day and per day revenues represent total
                  contract drilling revenues, including mobilization revenues
                  and reimbursement for fuel and other costs, divided by the
                  total number of rig days worked by Bayard's drilling fleet
                  marketed during the period.

         o        Drilling costs exclude depreciation and amortization and 
                  general and administrative expenses.

         o        Average costs per day represent direct operating costs divided
                  by the total number of rig days worked by Bayard's drilling
                  fleet marketed during the period.

         o        Average margin per day represents the difference between 
                  average revenues per day and average costs per day.

     Comparison of Years Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                          1997                                           1998
                         --------------------------------------  ----------------------------------------------------
                         GULF COAST    MID-CONTINENT    TOTAL    GULF COAST    MID-CONTINENT   SOUTH TEXAS    TOTAL
                         ----------    -------------  ---------  ----------    -------------   -----------  ---------
                                                  (IN THOUSANDS, EXCEPT RIG AND PER DAY DATA)
<S>                      <C>           <C>            <C>        <C>           <C>             <C>          <C>   
Rig days worked....            3,672          5,807      9,479        2,848            8,962          672    12,482
Per day amounts:
  Revenues.........           $6,426         $5,536    $ 5,881       $7,166           $5,901       $7,920    $6,298
  Costs............            5,031          3,828      4,294        5,597            4,883        6,074     5,110
  Margin...........            1,395          1,708      1,587        1,569            1,018        1,846     1,188
Drilling revenues..          $23,598        $32,149    $55,747      $20,410          $52,884    $5,322(1)   $78,616
Drilling costs.....           18,474         22,231     40,705       15,939           43,761     4,082(2)    63,782
Operating margin...            5,124          9,918     15,042        4,471            9,123        1,240    14,834
Utilization rate...              98%            89%        93%          57%              67%          17%       56%
</TABLE>

----------------

(1)      Includes trucking revenues of approximately $342,000 and other revenues
         of approximately $39,000, which are excluded in calculating per day 
         amounts.

(2)      Includes trucking costs of approximately $369,000, which are excluded 
         in calculating per day amounts.

         Drilling revenues increased approximately $22.9 million, or 41% to
$78.6 million for the year ended December 31, 1998, from $55.7 million for the
year ended December 31, 1997. This revenue increase was the result of a 3,003
day, or 32%, increase in rig days worked, and a $417, or 7%, increase in the
average revenue per day. The increase in days worked was a result of an increase
in the average number of rigs owned and available for service. As of December
31, 1998, Bayard had 73 rigs available for service. The increase in rigs
available for service was principally the result


                                       19
<PAGE>   21


of the consolidation transactions. Rig days worked consisted of 2,848 days in
the Gulf Coast region, 8,962 days in the Mid-Continent region, and 672 days in
the South Texas region. Increases in revenues per day were a result of the
increase in the day rates and the average number of land drilling rigs being
marketed by Bayard, offset by a decrease in the average utilization rate from
93% to 56%.

         Drilling costs increased by approximately $23.1 million, or 57%, to
$63.8 million for the year ended December 31, 1998, from $40.7 million for the
year ended December 31, 1997. The increase in drilling operating expenses was a
direct result of the increase in the number of rigs owned and available for
service and the corresponding 3,003 day increase in the days worked.
Additionally, the Company increased workers compensation expense to account for
adjustments in certain reserve values.

         Bayard's operating margin decreased by approximately $208,000, or 1.4%,
to $14.8 million for the year ended December 31, 1998, as compared to $15
million for the year ended December 31, 1997. The decrease in operating margin
resulted from the increase in the average revenue per day and the increase in
days worked offset by the increase in average costs per day.

         Depreciation and amortization expense increased by $6.4 million, or
81%, to $14.4 million for the year ended December 31, 1998, as compared to $7.9
million for the year ended December 31, 1997. The increase was primarily the
result of additional depreciation associated with the consolidation
transactions.

         General and administrative expense increased by $2.4 million, or 131%,
to $4.3 million for the year ended December 31, 1998, from $1.9 million for the
same period of 1997. This increase was primarily attributable to increased
payroll costs associated with new management and increased corporate staff and
increased professional fees from Bayard's acquisition activities and public
status. Included in the $4.3 million total is approximately $730,000 of merger
related costs and a $200,000 write off for certain accounts receivable.
Excluding these extraordinary costs, the percentage increase in 1998 compared to
1997 is 80%.

         Interest expense was $6.4 million for the year ended December 31, 1998
as compared to $3.1 million for the year ended December 31, 1997. This increase
was primarily attributable to Bayard's senior notes.

         Other income increased for the year ended December 31, 1998 as compared
to the year ended December 31, 1997. This increase was primarily attributable to
interest income received on funds being invested in short-term investments and
the gain recognized on the sale of assets.

         For the year ended December 31, 1998, the income tax benefit was $2.8
million resulting from the pretax loss of $8.1 million.

         For the year ended December 31, 1998, Bayard recorded an extraordinary
loss in the amount of $338,000, net of income taxes of $244,000, from the early
extinguishment of certain subordinated debt in the amount of approximately $2.5
million, and from the payment on term notes in the amount of $6.2 million using
proceeds from Bayard's initial public offering.

     Comparison of Years Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                   1996                           1997
                                               -------------   --------------------------------------------
                                               MID-CONTINENT   GULF COAST      MID-CONTINENT         TOTAL
                                               -------------   ----------      -------------        -------
                                                          (IN THOUSANDS, EXCEPT RIG AND PER DAY DATA)
<S>                                            <C>             <C>             <C>                  <C>  
Rig days worked..........................          2,029           3,672             5,807            9,479
Per day amounts:
  Revenues...............................         $4,826         $ 6,426           $ 5,536          $ 5,881
  Costs..................................          3,772           5,031             3,828            4,294
  Margin.................................          1,054           1,395             1,708            1,587
Drilling revenues........................         $9,793         $23,598           $32,149          $55,747
Drilling costs...........................          7,653          18,474            22,231           40,705
Operating margin.........................          2,140           5,124             9,918           15,042
Utilization rate.........................            89%             98%               89%              93%
</TABLE>


                                       20
<PAGE>   22


         Drilling revenues increased approximately $46.0 million, or 469%, to
$55.7 million for the year ended December 31, 1997, from $9.8 million for the
year ended December 31, 1996. This revenue increase was the result of a 7,450
day, or 367%, increase in rig days worked, and a $1,055, or 22%, increase in the
average revenue per day. The increase in days worked was a result of an increase
in the average number of rigs owned and available for service. As of December
31, 1997, Bayard had 49 rigs available for service. The increase in rigs
available for service was principally the result of the acquisitions consummated
during the year. Rig days worked consisted of 3,672 days worked in the Gulf
Coast region and 5,807 days worked in the Mid-Continent region. Increases in
revenues per day were a result of the overall increase in demand for land
drilling rigs as reflected in the utilization rate increase from 89% to 93%.

         Drilling costs increased by approximately $33.1 million, or 432%, to
$40.7 million for the year ended December 31, 1997, as compared to $7.7 million
for the year ended December 31, 1996. The increase in drilling operating
expenses was a direct result of the increase in the number of rigs owned and
available for service and the corresponding 7,450 day increase in the days
worked.

         Depreciation and amortization expense increased by $6.8 million, or
605%, to $7.9 million for the year ended December 31, 1997, as compared to $1.1
million for the year ended December 31, 1996. The increase primarily reflects
additional depreciation associated with the acquisitions consummated during the
year.

         General and administrative expense increased by $1.2 million, or 184%,
to $1.9 million for the year ended December 31, 1997, from $658,000 for the same
period of 1996. This increase was primarily attributable to increased payroll
costs associated with new management and increased corporate staff and increased
professional fees due to Bayard's acquisition activities.

         Interest expense increased to $3.1 million for the year ended December
31, 1997 from $11,000 for the year ended 1996. This expense increased because
Bayard's outstanding debt increased during 1997.

         Other income increased for the year ended December 31, 1997 as compared
to the year ended December 31, 1996. This increase was primarily attributable to
gains on the sale of assets.

INFLATION AND CHANGING PRICES

         Contract drilling revenues do not necessarily track the changes in
general inflation as they tend to respond to the level of activity on the part
of the oil and gas industry in combination with the supply of equipment and the
number of competing companies. Capital and operating costs are influenced, to a
larger extent, by specific price changes in the oil and gas industry and, to a
lesser extent, by changes in general inflation.

YEAR 2000 COMPUTER ISSUES

         Background. The Year 2000 problem, commonly referred to as the "Y2K"
problem, is the product of a longstanding practice in the computer industry that
permitted the use of only two digits, rather than four, to define yearly dates.
This abbreviation of dates makes it impossible for certain computer systems and
other equipment with embedded microchips or processors, referred to collectively
as "business systems," to distinguish between centuries for a given 


                                       21
<PAGE>   23


date. For example, a business system affected by the Y2K problem would be unable
to distinguish between 1898 and 1998: it would read both as simply "98." Not
even technology experts know with certainty what will happen on January 1, 2000
to those business systems affected by the Y2K problem. Some anticipate such
business systems to revert to "00," recognizing the date as January 1, 1900.
This could cause miscalculations which could, in turn, disrupt operations, delay
payments or, in extreme conditions, disable those business systems entirely. In
addition, the potential exists for a "cascade effect" in which the problems of
suppliers, customers and other business partners impact the performance of
companies which have already addressed their own Y2K issues. Any or all of these
events could have a material adverse effect on a company's business, financial
condition or results of operations.

         Before December 31, 1999, Bayard intends to address any Y2K issues in
its significant business systems and to develop contingency plans for Y2K
disruptions. Bayard has begun an internal Y2K review to meet these goals.
Certain employees of Bayard, assisted by professional consultants, are
conducting this assessment of Bayard's computer systems and operations
infrastructure. Bayard has not hired any new employees specifically to address
Bayard's internal Y2K issues. This assessment should help Bayard determine what
actions are necessary to minimize any business disruptions or other liabilities
related to the Y2K problem.

         Y2K Readiness Assessment. Bayard is currently assessing its Y2K
readiness through a plan designed to accomplish the following:

         o        identify and inventory Y2K problems in significant business 
                  systems;

         o        assign the highest priority to Y2K business systems identified
                  as critical for continuing operations;

         o        assess other Y2K risks;

         o        resolve and correct Y2K problems with repairs, upgrades, or 
                  replacements as necessary;

         o        test any Y2K repairs, upgrades or replacements;

         o        conduct Y2K surveys of significant customers, suppliers and 
                  other key business associates; and

         o        develop and test Y2K contingency plans.

Bayard believes that this Y2K readiness assessment will enable it, before
January 1, 2000, to replace, upgrade or modify any critical business system
affected by the Y2K problem.

         In 1997, Bayard implemented new accounting, payroll and personnel
software. As part of the software purchase agreement, the software vendors
agreed to ensure that their software would be free from Y2K problems. Certain of
these vendors are currently correcting or upgrading their software in keeping
with this pledge. Bayard replaces existing computer hardware with new technology
as needed as a part of its normal business operations. Bayard believes that the
Y2K problem will not have a material adverse effect on its existing computer
hardware; however, Bayard is currently testing its hardware to ensure such
compliance.

         As part of its readiness assessment, Bayard is performing an inventory
of each drilling rig's critical business systems. Although Bayard believes that
a majority of its rigs are Y2K-compliant, until finalization of this inventory
and assessment, Bayard will not be able reasonably to assess a likely worst case
Y2K scenario for its drilling rigs. Bayard expects to define such scenario and
establish an appropriate contingency plan following the completion of its
readiness assessment.

         Bayard's key business associates include suppliers, who provide
essential capital equipment for the drilling rigs, and customers, who provide
Bayard's source of revenue and cash flow. If Y2K problems with a supplier delay
the


                                       22
<PAGE>   24


purchase of essential equipment, Bayard's rigs could experience idle time
resulting in loss of revenue. Similarly, a customer's Y2K disruption could slow
Bayard's revenue stream, adversely impacting Bayard's cash flow, results of
operations and financial position. Bayard has sought Y2K readiness assurances
from these key business associates. These assurances are intended to aid Bayard
in determining the extent to which the failure of the key business associates to
correct their own Y2K problems could affect Bayard. While some of Bayard's key
business associates have assured Bayard that they are addressing their Y2K
problems, Bayard cannot guarantee that its key business associates will resolve
their Y2K problems in a timely manner; nor can Bayard inspect the Y2K efforts of
these key business associates or independently verify their representations. In
addition, Bayard cannot predict the effect on its business operations of the
failure of systems owned by others, of the delivery of inaccurate information
from other companies, or of the inability of others' systems to interface with
Bayard's systems. Bayard is in the process of assessing these risks; however,
Bayard cannot guarantee that another company's failure to resolve its own Y2K
problems would not materially and adversely affect Bayard.

         Costs. Bayard is funding the costs of its Y2K compliance efforts with
cash flows from operations. The ability of Bayard and certain software vendors
successfully to identify and repair or replace critical business systems
affected by the Y2K problem will greatly influence the total Y2K costs. Based
upon its assessment to date, Bayard does not expect the total Y2K costs to
differ substantially from Bayard's normal, recurring costs for systems
development, implementation and maintenance. Thus, Bayard does not expect these
costs to have a material adverse effect on Bayard's overall results of
operations or cash flows.

         Contingency Plans. Bayard does not yet have a comprehensive contingency
plan with respect to the Y2K problem. However, Bayard intends to establish such
a plan as part of its Y2K readiness assessment during 1999.

         Risks. Bayard is currently unable to predict with certainty the exact
risk which Y2K problems would pose to its operations in a reasonably likely
worst case scenario. Bayard's assessment of the impact of Y2K problems, as
discussed above, is based on Bayard management's understanding and best
estimates at the present time and could change substantially with a change in
circumstances. For example, the inability of key business associates to remedy
external Y2K problems or the failure of Bayard's software vendors to identify or
repair internal Y2K problems could adversely affect Bayard's performance. Thus,
successful avoidance of Y2K issues depends on many factors, some of which are
outside of Bayard's control and some of which are unknown at this time. Bayard
cannot assure that it will not experience any disruptions or other adverse
effects from Y2K problems despite expending reasonable efforts to avoid them.
While Bayard presently does not expect any catastrophic failures of any of its
business systems, it cannot assure that such failures will not occur. No one
should rely on statements to the contrary. These assessments are based upon
numerous assumptions as to future events and, as such, there can be no guarantee
that these estimates and predictions will prove accurate.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

         The Financial Statements of the Company required by this Item 8 are
included as part of Item 14(a)(1) hereof.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

         In preparation for the Company's initial public offering, the Board
appointed PricewaterhouseCoopers LLP as auditors for the Company's financial
statements for the six months ended June 30, 1997, and for the year ended
December 31, 1997. During the period Grant Thornton LLP was engaged by the
Company and up to and including March 7, 1997, the date of the
PricewaterhouseCoopers LLP engagement, there were no disagreements with Grant
Thornton LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure and there were no
"reportable events" as the term is defined under the Securities Act. The audit
reports previously issued by Grant Thornton LLP with respect to the Company's
financial statements did not contain an adverse opinion or a disclaimer of
opinion, nor were such reports qualified or modified as to uncertainty, audit
scope or accounting principles.


                                       23
<PAGE>   25


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth the names of the current directors and
executive officers of the Company, their ages and the positions currently held
by each such person with the Company.


<TABLE>
<CAPTION>
                  NAME                           AGE                           POSITION
         --------------------------             -----             --------------------------------------------   
         <S>                                    <C>               <C>                     
         Carl B. Anderson, III(1)                 43              Director

         James E. Brown                           46              Chairman of the Board, President, Chief
                                                                  Executive Officer

         David E. Grose                           46              Vice President and Chief Financial
                                                                  Officer

         Mark Liddell                             44              Director

         Merrill A. Miller, Jr.(2)                48              Director

         Sidney L. Tassin (1)(2)                  42              Director

         Lew O. Ward(2)                           68              Director
</TABLE>

-------------------------

(1)   Member of Compensation Committee.

(2)   Member of Audit Committee.

DIRECTORS AND EXECUTIVE OFFICERS

         The Bylaws of the Company provide that the number of directors shall be
at least three but not more than twenty-one, determined from time to time by the
Board or stockholders. The Board is elected at the annual meeting of
stockholders and each director is elected to serve until the next annual meeting
or until his successor shall be elected and qualify. The Board has established
the number of directors at six persons. Three of the Company's current directors
were elected pursuant to the terms of the Stockholders and Voting Agreement (as
hereinafter defined). See "Certain Relationships and Related Transactions -
Transactions with Management and Others."

         Carl B. Anderson, III has served as a director of the Company since its
formation in December 1996. Mr. Anderson currently serves as President of AnSon
Partners, L.L.C. ("AnSon"), the successor in interest to AnSon Partners LP
("APLP"), a diversified energy company and parent of Anadarko Drilling Company
("Anadarko"), an Oklahoma general partnership and the predecessor of the
Company. From 1994 to 1998, Mr. Anderson served as Managing General Partner and
Chief Executive Officer of APLP. From 1978 through 1994, Mr. Anderson served in
various capacities for APLP.

         James E. Brown is Chairman of the Board and has served as President and
Chief Executive Officer and as a director of the Company since its formation in
1996. From 1992 until joining the Company in 1996, Mr. Brown served as President
of Anadarko. From 1982 through 1992, Mr. Brown served as Chief Financial Officer
of AnSon Gas Corporation and its predecessor entities. From 1979 through 1982,
Mr. Brown served as Vice President, Treasurer and Controller of Blocker Energy
Corporation. Prior thereto, Mr. Brown served as an accountant in various
positions with Arthur Andersen & Co.


                                       24
<PAGE>   26


         David E. Grose has served as Vice President and Chief Financial Officer
of the Company since July 1997. Prior to joining the Company, Mr. Grose was
affiliated with Alexander Energy Corporation from its inception in March 1980,
serving from 1987 through 1996 as a director and Vice President, Treasurer and
Chief Financial Officer. In August 1996, National Energy Group acquired
Alexander Energy Corporation and Mr. Grose served as Vice President-Finance and
Treasurer through February 1997.

         Mark Liddell has served as a director of the Company since November
1997. Since 1991, Mr. Liddell has served in various capacities for DLB Oil &
Gas, Inc., a publicly traded oil and gas company, including President since
October 1994 and Vice President from 1991 to 1994. Mr. Liddell is a Director of
DLB Oil & Gas, Inc. and Davidson Oil & Gas, Inc. From 1991 to May 1995, Mr.
Liddell served as a Director of TGX Corporation, a publicly traded oil and gas
company, and from 1989 to 1990, Mr. Liddell served as a Director of Kaneb
Services, Inc., a publicly traded industrial services and pipeline
transportation company.

         Merrill A. Miller, Jr. has served as a director of the Company since
October 1997. Since February 1996, Mr. Miller has served in various capacities
for National-Oilwell, Inc., a publicly traded oil field services company,
including President of its Products & Technology Group since May 1997, Vice
President and General Manager of Drilling Systems since July 1996 and Vice
President of Marketing, Drilling Systems from February 1996 through July 1996.
Prior thereto, Mr. Miller served in various capacities for Anadarko, Bayard's
predecessor, from January 1995 through February 1996. From May 1980 through
January 1995, Mr. Miller served in various capacities with Helmerich & Payne
International Drilling Co., including Vice President of U.S. Operations.

         Sidney L. Tassin has served as a director of the Company since its
formation in 1996. Since March 1996, Mr. Tassin has been the President of Energy
Spectrum Capital LP, the general partner of Energy Spectrum Partners LP ("Energy
Spectrum"), an equity fund that invests in the energy industry. From 1980 to
1994, Mr. Tassin was associated with MESA Inc., serving in various financial
executive capacities, including Vice President-Finance from 1986 to 1988 and
President of BTC Partners Inc., a financial and strategic consultant to MESA
Inc., from 1988 to 1994.

         Lew O. Ward has served as a director of the Company since May 1997.
Since 1981, Mr. Ward has served as Chairman and Chief Executive Officer of Ward
Petroleum Corporation, an independent oil and gas company founded by Mr. Ward.
Mr. Ward has served as a Director, Area Vice President and Chairman of the
Independent Petroleum Association of America.

THE BOARD OF DIRECTORS

         BOARD COMPOSITION. The Board is currently composed of six directors.
Directors are elected for one-year terms at each annual meeting of stockholders.
Three of the Company's current directors were elected pursuant to the terms of a
stockholders' voting agreement. See "Certain Relationships and Related
Transactions - Transactions with Management and Others." Nine meetings of the
Board of Directors were held during the fiscal year ended December 31, 1998,
including three telephonic meetings and four written consents in lieu of a
meeting. On average, the Company's directors attended 96% of Board and committee
meetings held during fiscal 1998.

         BOARD COMMITTEES. The Company has established two standing committees
of the Board: a Compensation Committee and an Audit Committee. The current
members of the Compensation Committee are Carl B. Anderson, III and Sidney L.
Tassin. The Compensation Committee recommends to the Board the base salaries and
incentive bonuses for the officers of the Company and is charged with
administering the Company's stock plans. The Compensation Committee held one
meeting, conducted incident to a meeting of the full Board, during the fiscal
year ended December 31, 1998. The current members of the Audit Committee are
Merrill A. Miller, Jr., Sidney L. Tassin and Lew O. Ward. The Audit Committee
reviews the functions of the Company's management and independent auditors
pertaining to the


                                       25
<PAGE>   27


Company's financial statements and performs such other related duties and
functions as are deemed appropriate by the Audit Committee or the Board. The
Audit Committee held no meetings during the fiscal year ended December 31, 1998.
The Board does not have a standing nominating committee or other committee
performing similar functions.

         DIRECTOR COMPENSATION. Directors who are also employees of the Company
are not compensated for service on the Board or on any committee of the Board.
Non-employee directors of the Company receive an annual retainer of $10,000.
Additionally, all directors of the Company are entitled to reimbursement for
their reasonable out-of-pocket expenses in connection with their travel to and
attendance at meetings of the Board or committees thereof. In October 1997, the
Company adopted the Director Stock Plan pursuant to which each non-employee
director is entitled to receive (i) upon such director's initial election to the
Board, an option to purchase 15,000 shares of common stock and (ii) immediately
following each annual meeting at which such director is reelected to the Board,
an option to purchase 5,000 shares of common stock. Such non-employee directors
are also entitled under the Director Stock Plan to elect to receive options to
purchase common stock in lieu of their annual cash retainer and to receive
certain other stock option awards. Directors who are also employees of the
Company are not eligible to receive awards under the Director Stock Plan. See
"Executive Compensation - 1997 Non-employee Directors' Stock Option Plan."

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers and directors, and persons who own more than ten
percent of the common stock, to file reports of ownership and changes in
ownership with the Commission. Executive officers, directors and greater than
ten-percent stockholders are required by Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.

         Based on a review of the copies of such filings received by the Company
with respect to the fiscal year ended December 31, 1998 and written
representations from certain reporting persons, the Company believes that all
reporting persons complied with all Section 16(a) filing requirements in 1998.

ITEM 11. EXECUTIVE COMPENSATION

                             EXECUTIVE COMPENSATION

COMPENSATION SUMMARY

         The following table sets forth the compensation earned by the named
executive officers of the Company.


                                       26
<PAGE>   28


                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                         LONG-TERM
                                             ANNUAL COMPENSATION                       COMPENSATION
                                        -------------------------------    ------------------------------------
                                                                OTHER      RESTRICTED     SECURITIES     LTIP
NAME AND PRINCIPAL                       SALARY      BONUS      ANNUAL        STOCK       UNDERLYING    PAYOUTS
POSITION                       YEAR       ($)         ($)         ($)        AWARDS(1)      OPTIONS        ($)
----------------------------  ------    --------     ------     -------    -----------    -----------   -------
<S>                           <C>       <C>          <C>        <C>        <C>            <C>           <C>
James E. Brown                 1998     140,000          --       5,765             --        200,000        --
  President and Chief
  Executive Officer            1997     111,816      50,000       2,568        100,000        400,000        --

Edward S. Jacob, III (2)       1998     130,000          --      13,084             --        140,000        --
  Vice President-
  Operations & Marketing       1997     105,733      25,000       5,429             --        150,000        --

David E. Grose                 1998     105,000          --       7,045             --         70,000        --
   Vice President & Chief
   Financial Officer           1997          --          --          --             --             --        --
</TABLE>

-------------------

(1)      The dollar value of Mr. Brown's Restricted Stock Award is not set forth
         as the Company's common stock was not publicly traded at the time of
         grant, February 1997. Mr. Brown purchased such shares at a price of
         $2.50 per share, which shares vest at a rate of 20% per year beginning
         on December 10, 1997. No dividends will be paid on such shares of
         Restricted Stock.

(2)      Mr. Jacob's employment with the Company terminated on January 15, 1999.

         On December 10, 1996, the Company granted Mr. Brown an option (the
"1996 Brown Option") to purchase 200,000 shares of common stock at an exercise
price of $5.00 per share, becoming exercisable with respect to 20% of the
underlying shares each anniversary of the grant date. The option terminates as
to any unexercised portion on December 10, 2002. If the 1996 Brown Option was
fully exercisable and exercised on December 31, 1998, Mr. Brown would have
realized no value from the option because the closing price of a share of
Company common stock on the AMEX on that date equaled the exercise price of the
option. The Company did not grant any options to purchase common stock to any
other executive officer or other employee of the Company during the fiscal year
ended December 31, 1996. The Company has not granted any stock appreciation
rights.

         The Company adopted the Employee Stock Plan in April 1997 and made the
terms thereof applicable to the 1996 Brown Option. Through December 31, 1997 and
including the 1996 Brown Option, the Company had granted to James E. Brown,
Edward S. Jacob, III and David E. Grose options to purchase 200,000, 50,000 and
50,000 shares of common stock, respectively, at exercise prices of $5.00, $5.00
and $10.00 per share, respectively. Additionally, the Company has granted to
Messrs. Brown, Jacob and Grose, options to purchase 200,000, 100,000 and 10,000
shares of common stock, respectively, at an exercise price of $23.00 per share
(the price to the public at the time of the Company's initial public offering of
common stock on November 4, 1997). During 1998, the Company had granted options
to James E. Brown and David E. Grose to purchase 200,000 and 10,000 shares of
Company common stock, respectively, at an exercise price of $5.00. Also during
1998, the Company granted options to Edward S. Jacob, III to purchase 40,000 and
100,000 shares at exercise prices of $14.00 and $5.00, respectively. The
agreements relating to stock options granted under the Employee Stock Plan in
1997 provide for the vesting of 20% of the option shares each year beginning on
the first anniversary of the date of grant. The agreements relating to stock
options granted under the Employee Stock Plan in 1998 provide for the immediate
vesting of 20% of the option shares with an additional 20% vesting each year on
the anniversary of the grant. The option ceases to be exercisable on the
earliest of (i) the sixth anniversary of the date of grant, (ii) the date of the
employee's voluntary termination of employment with the Company or the Company's
termination of the employee's employment for Due Cause (as defined in the
employee's employment agreement) or (iii)


                                       27
<PAGE>   29
the date that is 90 days after termination of the employee's employment by means
of retirement, disability or death. In the event of a Change of Control (as
defined in the Employee Stock Plan), the committee that is charged with
administering the Employee Stock Plan (the "Committee") may accelerate the
exercisability of the options or take certain other actions provided in the
Employee Stock Plan. See "1997 Stock Option and Stock Award Plan." The options
are exercisable for cash, or in the Committee's discretion, in an acceptable
equivalent, by the assignment of shares of common stock owned by the option
holder or the surrender of another Incentive Award (as hereinafter defined).
Messrs. Brown and Grose have not exercised any of these options, and all of
their options remain outstanding as of the date of this document. Mr. Jacob
exercised options for 10,000 shares during 1998. Mr. Jacob received an
additional 6,500 shares during 1999 in conjunction with his severance in
exchange for certain waivers and in satisfaction of all obligations of the
Company to Mr. Jacob under the 1997 Stock Option and Stock Award Plan or any
other agreement. See "Jacob Agreement--Termination."

         The Company and James E. Brown are parties to a restricted stock award
agreement (the "Restricted Stock Award Agreement") pursuant to which Mr. Brown
purchased 100,000 shares of common stock at a price of $2.50 per share in
February 1997. The Restricted Stock Award Agreement provides for vesting of
these restricted shares at a rate of 20% per year beginning on December 10,
1997. Mr. Brown is required to remain continuously employed by the Company
through each vesting date for the applicable portion of the shares to vest and,
prior to vesting, the shares are not transferable. In the event of termination
of Mr. Brown's employment due to a Change of Control (as defined in the Employee
Stock Plan), all of these shares will vest immediately and all restrictions on
transfer will terminate. If Mr. Brown's employment with the Company terminates
for any other reason, all unvested restricted shares will no longer be eligible
for vesting but, under certain circumstances, will be eligible for purchase by
the Company or Mr. Brown, as applicable. If Mr. Brown resigns or is terminated
by the Company for Due Cause (as defined in the Restricted Stock Award
Agreement), the Company may purchase the unvested shares from Mr. Brown for
$2.50 per share. If the Company elects not to purchase the unvested shares from
Mr. Brown, Mr. Brown will forfeit such unvested shares to the Company without
any payment therefor. If the Company terminates Mr. Brown's employment for any
reason other than Due Cause or if Mr. Brown's employment with the Company
terminates due to the death or disability of Mr. Brown, Mr. Brown may keep the
unvested shares by paying the Company an additional $5.00 per share. If Mr.
Brown elects not to make such additional payment, the Company may purchase the
unvested shares from Mr. Brown for $2.50 per share or allow Mr. Brown to keep
the unvested shares.

         Under the terms of the merger agreement with Nabors, all outstanding
Bayard stock options will be converted into Nabors stock options. The converted
stock options will have the same vesting schedule and period of exercise as
applied to the Bayard stock options granted before the date of the merger
agreement, except that any converted option held by an employee of Bayard will
be fully vested if the employee is terminated without cause within one year
after the merger.


OPTION GRANTS IN 1998

         The following table sets forth information concerning stock options
granted during the fiscal year ended December 31, 1998 under the Employee Stock
Plan.

                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
                                INDIVIDUAL GRANTS


<TABLE>
<CAPTION>
                          NUMBER OF SHARES      % OF TOTAL OPTIONS                                   PRESENT
                         UNDERLYING OPTIONS     GRANTED EMPLOYEES      EXERCISE       EXPIRATION     VALUE OF
        NAME                  GRANTED                IN 1998          PRICE($/SH)        DATE        OPTION(1)
-----------------------  -------------------    -------------------   -----------     ----------     ---------  
<S>                      <C>                    <C>                  <C>              <C>            <C>      
James E. Brown                 200,000                 50.89%          $ 5.00           8/4/03        $ 315,380

Edward S. Jacob, III            40,000                 10.18%          $14.00          3/10/04         236,536 
(2)                                                                                           
                               100,000                 25.45%          $ 5.00           8/4/03         157,690

David E. Grose                  10,000                  2.54%          $ 5.00           8/4/03          15,769
</TABLE>




                                       28
<PAGE>   30
----------------

(1)      The present value of each option granted is estimated using the
         Black-Scholes model. This model includes, among others, a variable of
         stock volatility. As the Company has not established a significant
         trading history, the volatility used in the model for options granted
         in 1998, 1997 and 1996 was 38.88%, 42.49% and 40.00%, respectively.
         Dividend yield was estimated to remain at zero with a weighted average
         risk free interest rate of 5.83%. As there is no prior experience
         available to use in estimating an expected life for the options, an
         average of the time between the vesting and expiration dates of the
         options was used in determining the expected lives of the options
         ranging from 5 to 6 years.

OPTIONS EXERCISED IN 1998

         The following table sets forth certain information with respect to
exercises by the named executive officers of the Company of stock options during
fiscal year 1998 and the value of all unexercised employee stock options as of
December 31, 1998 held by the named executive officers.

          AGGREGATED OPTION EXERCISE IN 1998 AND YEAR END OPTION VALUES


<TABLE>
<CAPTION>
                                                NUMBER OF SHARES UNDERLYING             VALUE OF UNEXERCISED
                                                    UNEXERCISED OPTIONS               IN-THE-MONEY OPTIONS(3)
                                               ------------------------------      ------------------------------
                         SHARES ACQUIRED
         NAME            ON EXERCISE(1)        EXERCISABLE      UNEXERCISABLE      EXERCISABLE      UNEXERCISABLE
---------------------    --------------        -----------      -------------      -----------      -------------
<S>                      <C>                   <C>              <C>                <C>              <C>    
James E. Brown(2)              ---               160,000           440,000             ---               ---

Edward S. Jacob, III         10,000               40,000           240,000             ---               ---

David E. Grose                 ---                14,000            56,000             ---               ---
</TABLE>

-----------------

(1)      Messrs. Brown and Grose did not exercise options during the fiscal year
         ended December 31, 1998.

(2)      A "lock-up" agreement signed in connection with the Company's initial
         public offering precluded Mr. Brown from exercising any of his options
         before May of 1998.

(3)      No unexercised options were  "in-the-money,"  based upon the $5.00 per
         share closing price of the Company's common stock on the American Stock
         Exchange on December 31, 1998.

                              EMPLOYMENT AGREEMENTS

         The Company entered into employment agreements with James E. Brown,
Edward S. Jacob, III and David E. Grose. The aggregate of the annual base
salaries for all three executive officers (taken as a group) was $375,000 for
the fiscal year ended December 31, 1998.

THE BROWN AGREEMENT

         GENERAL PROVISIONS. Pursuant to an employment agreement dated December
10, 1996 (the "Brown Agreement"), James E. Brown is employed as President of the
Company and, if elected by the Board, the Chairman of the Board. The Brown
Agreement provides that Mr. Brown will receive an annual salary of not less than
$120,000, subject to annual adjustment in the sole discretion of the Board based
upon the performance and accomplishments of Mr. Brown. Currently, Mr. Brown's
annual salary is $140,000. If the Company's earnings before deducting interest,
taxes and depreciation during any full quarterly period equal or exceed the
greater of (i) $1.5 million or (ii) 5% of the sum of the Company's stockholders'
equity and long-term debt (averaged on a daily basis throughout such quarterly


                                       29
<PAGE>   31


period), then Mr. Brown will be eligible to receive a quarterly bonus of
$12,500. The Brown Agreement also provides for the grant of non-transferable
options to purchase 200,000 shares of common stock at an exercise price of $5
per share, which options are subject to vesting and other restrictions provided
in an option agreement. Pursuant to the Brown Agreement, Mr. Brown purchased
100,000 shares of restricted common stock which are subject to vesting in equal
amounts annually over a five year period and other restrictions provided in the
agreement, including Mr. Brown's continued employment with the Company and Mr.
Brown's right, under certain circumstances, to purchase unvested shares for
$2.50 per share. See "Executive Compensation." Mr. Brown is also entitled to
reimbursement of reasonable business expenses incurred by him in the performance
of his duties, as well as certain fringe benefits.

         TERM. The initial term of the Brown Agreement expired on November 30,
1998. The Brown Agreement, however, is subject to extension by mutual consent of
Mr. Brown and the Company. As of the date of this document, Mr. Brown continues
to serve as an executive officer of the Company and his salary and benefits
continue to accrue as provided under the Brown Agreement.

         TERMINATION. The Brown Agreement provides that Mr. Brown will not take
certain actions in competition with the Company for a period of two years in the
states of Oklahoma, Texas, New Mexico, Louisiana or any other state in which the
Company then owns, leases or operates its assets in the event that he terminates
his employment voluntarily or the Company terminates his employment for due
cause. If, in the event of a Change of Control (as defined in the Brown
Agreement), Mr. Brown is terminated without due cause or Mr. Brown voluntarily
elects to terminate his employment for any reason, then Mr. Brown will be
entitled to continue to receive his base salary and other employee benefits
through the remaining term of the Brown Agreement and to receive a cash payment
in an amount equal to any earned but unpaid quarterly bonus for the previous
quarter.

JACOB AGREEMENT

         GENERAL PROVISIONS. The Company entered into an employment agreement
dated as of January 1, 1997 with Edward S. Jacob, III (the "Jacob Agreement").
Pursuant to the Jacob Agreements, Mr. Jacob was employed by the Company as
Executive Vice President -- Operations & Marketing. The Jacob Agreement provided
that Mr. Jacob would receive an annual salary of not less than $105,000 in 1997
and $115,000 in 1998, subject to annual adjustment in the sole discretion of the
Board based upon performance and accomplishments of Mr. Jacob. Mr. Jacob's
annual salary for the fiscal year ended December 31, 1998 was $130,000. If the
Company's earnings before deducting interest, taxes and depreciation during any
full quarterly period equal or exceed the greater of (i) $1.5 million or (ii) 5%
of the sum of the Company's stockholders' equity and long-term debt (averaged on
a daily basis throughout such quarterly period), then Mr. Jacob was eligible to
receive a quarterly bonus of $5,000. The Jacob Agreement also provided for the
grant of non-transferable options to purchase 50,000 shares of common stock to
Mr. Jacob at an exercise price of $5 per share. Such options were granted to Mr.
Jacob on January 1, 1997 and were subject to vesting and other restrictions.
Such options generally become exercisable in equal annual amounts over five
years. Mr. Jacob was entitled to reimbursement of reasonable business expenses
incurred by him in the performance of his duties, as well as certain fringe
benefits. The Jacob Agreement also provided for payment to Mr. Jacob of a
relocation allowance of $50,000, which was paid by the Company in January 1997.

         TERM. The initial term of the Jacob Agreement expired on December 31,
1998, and the Jacob Agreement was not renewed. Mr. Jacob, however, continued to
serve as an executive officer of the Company until January 15, 1999. During this
period, the salary and benefits provided to Mr. Jacob under the Jacob Agreement
continued to accrue.

         TERMINATION. On January 15, 1999, Mr. Jacob and the Company executed an
Agreement and General Release (the "Severance Agreement"). In exchange for
certain waivers, releases and promises made by Mr. Jacob in the Severance
Agreement, the Company agreed to accelerate the exercise schedule of stock
options previously granted to Mr. Jacob. The exercise of these options on a
"net" basis at a price agreed by the Company and Mr. Jacob resulted in the
issuance of 6,500 shares of Company common stock to Mr. Jacob. Under the terms
of the Severance Agreement, the exercise and delivery of these shares satisfied
in full all obligations of the Company to Mr. Jacob arising from the award of
rights, warrants or options by the Company to Mr. Jacob under the Company's 1997
Stock Option and Stock Award Plan or any other agreement.


                                       30
<PAGE>   32


GROSE AGREEMENT

         GENERAL PROVISIONS. The Company has entered into an employment
agreement dated as of July 16, 1997 with David E. Grose (the "Grose Agreement").
Pursuant to the Grose Agreement, Mr. Grose is employed as Vice President and
Chief Financial Officer of the Company. The Grose Agreement provides that Mr.
Grose will receive an annual salary of not less than $105,000, subject to annual
adjustment in the sole discretion of the Board based upon performance and
accomplishments of Mr. Grose. Currently, Mr. Grose's salary is $105,000. If the
Company's earnings before deducting interest, taxes and depreciation during any
full quarterly period equal or exceed the greater of (i) $1.5 million or (ii) 5%
of the sum of the Company's stockholders' equity and long-term debt (averaged on
a daily basis throughout such quarterly period), then Mr. Grose will be eligible
to receive a quarterly bonus of $5,000. The Grose Agreement also provides for
the grant of non-transferable options to purchase 50,000 shares of common stock
to Mr. Grose at an exercise price of $10 per share. Such options were granted to
Mr. Grose on July 16, 1997 and are subject to vesting and other restrictions.
Such options generally become exercisable in equal annual amounts over five
years. Mr. Grose is entitled to reimbursement of reasonable business expenses
incurred by him in the performance of his duties, as well as certain fringe
benefits.

         TERM. The initial term of the Grose Agreement expires on June 30, 1999.

         TERMINATION. The Grose Agreement provides that if Mr. Grose terminates
his employment voluntarily or if the Company terminates his employment for due
cause, for a period of two years thereafter, Mr. Grose will not take certain
actions in competition with the Company in the states of Oklahoma, Texas, New
Mexico, Louisiana or any other state in which the Company then owns, leases or
operates its assets. If, in the event of a Change of Control (as defined in the
Grose Agreement), Mr. Grose is terminated without due cause or he voluntarily
elects to terminate his employment for any reason, then Mr. Grose will be
entitled to continue to receive his base salary and other employee benefits
through the remaining term of the Grose Agreement and to receive a cash payment
in an amount equal to any earned but unpaid quarterly bonus for the previous
quarter.

                     1997 STOCK OPTION AND STOCK AWARD PLAN

         The description set forth below represents a summary of the principal
terms and conditions of the Bayard Drilling Technologies, Inc. 1997 Stock Option
and Stock Award Plan (the "Employee Stock Plan") and does not purport to be
complete. Such description is qualified in its entirety by reference to the
Employee Stock Plan.

GENERAL

         PURPOSE. The Company adopted the Employee Stock Plan for the purposes
of strengthening the ability of the Company and its subsidiaries to attract,
motivate and retain employees of superior capability and encouraging valued
employees to have a proprietary interest in the Company. To accomplish these
purposes, the Employee Stock Plan provides terms upon which certain eligible
employees of the Company and its subsidiaries may be granted stock options,
stock appreciation rights ("SARs"), restricted stock, performance units,
performance shares or phantom stock rights (collectively, "Incentive Awards").

         ADMINISTRATION. The Employee Stock Plan is administered by a committee
consisting of two or more non-employee members of the Board elected to the
Committee by a majority of the Board. Presently, the members of the committee
are Carl B. Anderson, III and Sidney L. Tassin. Subject to the terms of the
Employee Stock Plan, the committee has the ability to (i) determine, among other
things, which full-time employees (by individual or by class) are eligible to
receive Incentive Awards and the time or times at which Incentive Awards are
granted, (ii) determine the number of shares of common stock, options, SARs,
restricted stock awards, performance units or shares or phantom


                                       31
<PAGE>   33


stock rights that will be subject to each Incentive Award and the terms and
provisions of each Incentive Award, (iii) interpret the Employee Stock Plan and
agreements thereunder, (iv) prescribe, amend and rescind any rules relating to
the Employee Stock Plan and (v) make all other determinations necessary for
Employee Stock Plan administration.

         SHARES SUBJECT TO EMPLOYEE STOCK PLAN. As of January 1, 1999, an
aggregate of 1,818,394 shares of common stock (subject to certain adjustments)
may be issued, transferred or exercised pursuant to Incentive Awards under the
Employee Stock Plan. If the total number of issued and outstanding shares of
common stock increases, (other than any increase due to issuances of common
stock in connection with Incentive Awards under the Employee Stock Plan), then
the number of shares reserved under the Employee Stock Plan will be increased
one time per year, each January 1 during the existence of the plan such that the
number of shares reserved and available for issuance under the Employee Stock
Plan will equal 10% of the total number of shares of issued and outstanding
common stock. Notwithstanding the foregoing, only a total of 400,000 shares of
common stock reserved under the Employee Stock Plan may be issued, transferred
or exercised pursuant to incentive stock options that comply with the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), under the Employee Stock Plan, and the number of shares eligible
for such treatment as incentive stock options shall not be subject to annual
adjustment. At the discretion of the Board or the committee, the shares of
common stock delivered under the Employee Stock Plan may be made available from
(i) authorized but unissued shares, (ii) treasury shares or (iii) previously
issued but reacquired shares (or through a combination thereof).

         ELIGIBILITY AND PARTICIPATION. The Employee Stock Plan authorizes the
committee to designate, by individual or class, those persons who are eligible
to receive Incentive Awards under the Plan ("Participants"). Participants must
be employed on a full-time basis by the Company or its subsidiaries. Members of
the Board who are not officers or employees of the Company may not be
Participants.

INCENTIVE AWARDS

         Except to the extent that the committee, in a written agreement
evidencing an Incentive Award (an "Incentive Award Agreement") or the Employee
Stock Plan, provides otherwise, Incentive Awards vest and become exercisable in
equal amounts on the first, second, third, fourth and fifth anniversaries of
their grant. For purposes of all Incentive Awards under the Employee Stock Plan,
the term "fair market value" means the closing price per share of such common
stock on the principal stock exchange or quotation system on which the common
stock is traded or listed on the date of grant or other specified measuring
date, or, if there shall have been no such price so reported or listed on that
date, on the last preceding date on which a price was so reported or listed. If
common stock is not publicly traded, then "fair market value" shall mean the
value of a share of common stock, as determined by the committee, in the
committee's sole and absolute discretion, at least annually. The committee may
utilize the services of an independent third party in determining the fair
market value of the common stock for this purpose. The types of Incentive Awards
that may be made under the Employee Stock Plan are as follows:

         OPTIONS. Options are rights to purchase a specified number of shares of
common stock at a specified price. An option granted pursuant to the Employee
Stock Plan may consist of either an incentive stock option or a non-qualified
stock option that does not comply with the requirements of section 422 of the
Code. Incentive stock options may not be granted to any employee who owns or
would own immediately after the grant of such incentive stock option, directly
or indirectly, stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company (unless at the time of such grant, the
incentive stock option price is at least 110% of fair market value and such
option is not exercisable after the expiration of five years from the date of
grant). The exercise price for an incentive stock option must be at least equal
to fair market value of the common stock on the date of grant and the term of
such option cannot be greater than 10 years. The exercise price for a
non-qualified stock option must be equal to at least the greater of (i) the par
value of the common stock or (ii) 50% of the fair market value of the common
stock on the date of grant. The exercise price of an option is payable in cash
or an equivalent acceptable to the committee. At the discretion of the
committee, the exercise price for an option may be paid in common stock valued
at fair market value on the exercise date, another Incentive Award valued at
fair market value, or a combination thereof equal in value to the exercise
price. Subject to the foregoing, the exercise price and other terms and
conditions relating to each option are determined by the committee at the time
of grant.


                                       32
<PAGE>   34


         STOCK APPRECIATION RIGHTS. SARs are rights to receive a payment, in
cash or common stock, equal to the excess of the fair market value of a
specified number of shares of common stock on the date of exercise over a
specified strike price. The committee may grant SARs in connection with an
option (either at the time of grant or at any time during the term of the
option) or without relation to an option. For SARs related to options, the
applicable strike price is the exercise price of the related stock option and
for SARs granted without relationship to an option, the applicable strike price
is the fair market value of a share of common stock on the date of grant of the
SAR. Options related to SARs cease to be exercisable when the SAR is exercised.
Subject to certain exceptions, an SAR granted in connection with an option is
exercisable at such time or times and only to the extent that the related option
is exercisable, and may not be disposed by the holder except to the extent that
such related option may be disposed. The committee may provide at the date of
grant of an SAR for a limit on the amount payable upon exercise of the SAR. Any
such limitation must be noted in the agreement evidencing the holder's SAR.

         RESTRICTED STOCK AWARDS. The committee may grant shares of restricted
stock pursuant to the Employee Stock Plan. Shares of restricted stock may not be
disposed of until the restrictions are removed or expire, and the committee may
impose other conditions on such shares as it may deem advisable. The
restrictions upon restricted stock awards lapse as determined by the committee,
subject to certain other lapse provisions. Shares of restricted stock may remain
subject to certain restrictions as set forth in the restricted stock agreement.
Each restricted stock award may have a different restriction period, in the
discretion of the committee. The committee may, in its discretion, prospectively
change the restriction period applicable to a particular restricted stock award.
Subject to certain provisions, the committee may, in its discretion, determine
what rights, if any, a grantee of a restricted stock award will have with
respect to such stock, including the right to vote the shares and receive all
dividends and other distributions paid or made with respect thereto.

         PERFORMANCE AWARDS. Performance awards, in the form of performance
units or performance shares, may be granted under the Employee Stock Plan
subject to the attainment of one or more performance goals. Performance goals
may relate to any financial, production, sales or cost performance objectives
determined by the committee at the beginning of a designated period. If minimum
performance is achieved or exceeded, the value of a performance award will be
based on the degree to which actual performance exceeds the preestablished
minimum performance standards. The committee may, at any time, modify the
performance measures previously established for a performance award as it
considers appropriate and equitable. Payments with respect to performance awards
are made in cash or common stock valued at fair market value as of the close of
the applicable performance period (or a combination of both) in the discretion
of the committee following the close of the applicable performance period.

         PHANTOM STOCK RIGHTS. Phantom stock rights entitle a holder, upon
conversion, to receive payment of cash or in shares of common stock valued at
fair market value on the date of conversion of the phantom stock right (or both)
in the discretion of the committee. Upon conversion of a phantom stock right,
the Participant shall be entitled to receive payment of an amount determined by
multiplying (i) the fair market value of a share of common stock on the date of
conversion, by (ii) the number of shares of common stock as to which such
phantom stock right has been converted. Any payment of shares of common stock
upon conversion of a phantom stock right may be made in shares of restricted
stock.

ADDITIONAL PROVISIONS OF THE EMPLOYEE STOCK PLAN

         EXPIRATION OF INCENTIVE AWARDS AND EFFECTS OF EMPLOYMENT SEPARATION.
Except to the extent that the committee provides otherwise in an Incentive Award
Agreement, Incentive Awards (whether or not vested) expire immediately or are
forfeited by the recipient upon termination of such recipient's employment with
the Company or any subsidiary employing such recipient for any reason other than
death, disability or retirement. Most, if not all, of the Incentive Award
Agreements provide that vested Incentive Awards are not forfeited if the
recipient is terminated for


                                       33
<PAGE>   35


reasons other than Due Cause (as defined in the Incentive Award Agreement). Upon
death, retirement, or disability resulting in the cessation of an employee's
employment with the Company or its subsidiaries, any unexercised options or SARs
or outstanding phantom stock rights terminate on the date that is 90 days
following the date of death, retirement or disability (unless it expires by its
terms on an earlier date). In the event of death, disability or retirement, or
other reasons that the committee deems appropriate, the performance awards will
continue after the date of the applicable event for such period of time as
determined by the committee, subject to the terms of the Incentive Award
Agreement or any other applicable agreement, but only to the extent exercisable
on the date of the applicable event.

         If a holder of a restricted stock award ceases to be an employee
because of retirement, death, permanent and total disability, or because of
other reasons as the committee deems appropriate, the committee may determine
that restrictions on all or some portion of the restricted stock award subject
to restrictions at the time of such employment termination will be deemed to
have lapsed. If an eligible employee who has purchased restricted stock under
the Employee Stock Plan terminates employment with the Company for any reason,
then all shares of restricted stock that have not previously vested will be
repurchased by the Company at the cost paid by such employee. In addition, upon
an eligible employee's termination of employment with the Company and all of its
subsidiaries for any reason (including by reason of death or disability), the
Company has the right to purchase from such employee all shares of common stock
awarded under the Employee Stock Plan on the terms and conditions set forth in
the applicable Incentive Award.

         ADJUSTMENT PROVISIONS. The Employee Stock Plan provides that upon the
dissolution or liquidation of the Company, certain types of reorganizations,
mergers or consolidations, the sale of all or substantially all of the assets of
the Company, or a "change of control" (as defined in the Employee Stock Plan),
the committee may determine (without stockholder approval), subject to the terms
of any applicable agreement evidencing an Incentive Award, that (i) all or some
Incentive Awards then outstanding under the Employee Stock Plan will be fully
vested and exercisable or convertible, as applicable, (ii) some or all
restrictions on restricted stock lapse immediately, or (iii) there will be a
substitution of new Incentive Awards by such successor employer corporation or a
parent or subsidiary company therefor, with appropriate adjustments as to the
number and kind of shares or units subject to such awards and prices. In
addition, in the event of a "change of control," the committee may take certain
actions, without stockholder approval, including but not limited to (i)
acceleration of the exercise dates of any outstanding SARs or options or
immediate vesting, (ii) acceleration of the restriction (lapse of forfeiture
provision) period of any restricted stock award, (iii) grants of SARs to holders
of outstanding options, (iv) payment of cash to holders of options in exchange
for the cancellation of their outstanding options, (v) payment for outstanding
Performance Awards, (vi) acceleration of the conversion dates of outstanding
phantom stock rights, (vii) grants of new Incentive Awards or (viii) other
adjustments or amendments to outstanding Incentive Awards.

         TRANSFER OF INCENTIVE AWARDS. No Incentive Award and no right under the
Employee Stock Plan, contingent or otherwise, may be assigned, transferred or
otherwise disposed by a recipient other than pursuant to a court order, by will
or beneficiary designation, or pursuant to the laws of descent and distribution.
Upon an employee's death, the Company has the right to purchase all or some of
the common stock that such employee obtained pursuant to an Incentive Award at
its fair market value within nine months of the employee's death.

         AMENDMENT AND TERMINATION OF THE EMPLOYEE STOCK PLAN. Subject to
stockholder approval where expressly required by law, the Board may amend,
suspend or terminate the Employee Stock Plan at any time. No amendment, unless
approved by the holders of a majority of the outstanding shares of voting stock
of the Company may (i) change the class of persons eligible to receive Incentive
Awards, (ii) materially increase the benefits accruing to Participants, (iii)
increase by more than 10% the number of shares of common stock subject to the
Employee Stock Plan (except for certain adjustments required by the Employee
Stock Plan) or (iv) transfer the administration of the Employee Stock Plan to
any person who is not a non-employee director. Except as otherwise provided in
the Employee Stock Plan, the committee may not, without the applicable
Participant's consent, modify the terms and conditions of such Participant's
Incentive Award. No amendment, suspension, or termination of the Employee Stock
Plan may, without the applicable Participant's consent, alter, terminate or
impair any right or obligation under any Incentive Award previously granted
under the Employee Stock Plan. Unless previously terminated, the Employee Stock
Plan will terminate and no more 


                                       34
<PAGE>   36


Incentive Awards may be granted after the tenth anniversary of the adoption of
the Employee Stock Plan by the Board. The Employee Stock Plan will continue in
effect with respect to Incentive Awards granted before termination of the
Employee Stock Plan and until such Incentive Awards have been settled,
terminated or forfeited.

                 1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN

         The description set forth below represents a summary of the principal
terms and conditions of the Bayard Drilling Technologies, Inc. 1997 Non-Employee
Director Stock Option Plan (the "Director Stock Plan") and does not purport to
be complete. Such description is qualified in its entirety by reference to the
Director Stock Plan.

GENERAL

         PURPOSE. The Company adopted the Director Stock Plan for the purposes
of strengthening the ability of the Company to attract and retain experienced
and knowledgeable independent individuals to act as non-employee directors of
the Company and encouraging such directors to have a proprietary interest in the
Company. To accomplish these purposes, the Director Stock Plan provides terms
upon which members of the Board who are not employees of the Company or any of
its subsidiaries ("non-employee directors") will be granted non-qualified
Options.

         Administration. The Director Stock Plan is administered by a committee
(the "Director Plan Committee") consisting of two or more non-employee directors
elected to the Director Plan Committee by a majority of the Board. Currently,
the members of the Director Plan Committee are Carl B. Anderson, III and Sidney
L. Tassin. Subject to the terms of the Director Stock Plan, the Director Plan
Committee has the ability to (i) determine the terms and provisions of the
agreements under which options are granted under the Director Stock Plan, (ii)
to interpret the Director Stock Plan and the agreements thereunder, (iii) to
prescribe, amend and rescind any rules relating to the Director Stock Plan and
(iv) to make all other determinations necessary for the administration of the
Director Stock Plan. The Director Plan Committee does not have discretion or
authority to disregard or change any of the terms and conditions under which
options are granted to non-employee directors.

         SHARES SUBJECT TO DIRECTOR STOCK PLAN. As of January 1, 1999, an
aggregate of 218,207 shares of common stock are authorized to issued,
transferred or exercised pursuant to options under the Director Stock Plan.
Because the total number of issued and outstanding shares of common stock (other
than any increase due to issuances of common stock in connection with awards of
options under the Director Stock Plan) increased after the consummation of the
initial public offering, the number of authorized shares automatically increases
one time per year, commencing January 1, 1998 and occurring each January 1
thereafter during the existence of the Director Stock Plan, by a sufficient
number of shares of common stock such that the number of authorized shares
reserved and available for issuance under the plan shall equal 1.2% of the total
number of shares of issued and outstanding common stock. At the discretion of
the Board or the Director Plan Committee, the shares of common stock delivered
under the Director Stock Plan may be made available from (i) authorized but
unissued shares, (ii) treasury shares or (iii) previously issued but reacquired
shares (or through a combination thereof).

         ELIGIBILITY AND PARTICIPATION. Each non-employee director is
automatically eligible to participate in the Director Stock Plan unless he does
not retain the annual retainer to which he is entitled for service on the Board.
No non-employee director may be issued an option to acquire more than 15,000
shares of common stock in any plan year.

OPTIONS

         AUTOMATIC INITIAL AND ANNUAL AWARDS OF OPTIONS. Upon the consummation
of the Company's initial public offering on November 4, 1997, each person who
was then a non-employee director received, and thereafter on the date at which a
person first becomes a non-employee director, such non-employee director will
receive, an initial award in the form of a one-time grant of an option to
acquire 15,000 shares of common stock each, which became exercisable on or after


                                       35
<PAGE>   37


November 4, 1998, except for the initial award granted to Mark Liddell, which
became exercisable on or after November 24, 1998. In each year succeeding the
year in which a non-employee director receives an initial award, the
non-employee director, if reelected to the Board, will be granted an annual
award in the form of an additional option to acquire 5,000 shares of common
stock. Annual awards will be made as of the date of the Company's regular annual
meeting of stockholders and will be immediately exercisable. No option granted
as an initial award or annual award will be exercisable after the tenth
anniversary of the date of grant.

         RETAINER OPTIONS. Under the Director Stock Plan, a non-employee
director may elect to receive, in lieu of any or all of the annual cash retainer
he would otherwise receive in cash during the succeeding plan year (currently
$10,000 annually), options for the purchase of a number of shares equal to the
amount of the annual retainer so forgone divided by the fair market value of the
common stock on the date of grant.

         EXERCISE PRICE. Each option granted pursuant to the Director Stock Plan
will be exercisable at a per share price equal to the fair market value of a
share of common stock as of the date of grant. Such price may be paid in cash
or, in the discretion of the Director Plan Committee, by assigning to the
Company shares equal in value to the exercise price.

         TERMINATION. Except to the extent the Director Plan Committee provides
otherwise in the agreement evidencing an option under the Director Stock Plan,
all options granted under the Director Stock Plan that are held by a
non-employee director will expire and be forfeited upon the date of resignation
or removal from the Board of such non-employee director, unless such resignation
or removal results from the death or permanent and total disability of the
director, or resignation upon the attainment of 65 years. Upon such death,
disability or resignation at age 65, such options will remain exercisable and
effective for six months following the date of the event causing the
non-employee director to cease membership on the Board.

         EFFECT OF CORPORATE CHANGES. In the event of certain significant
corporate changes, including (i) dissolution or liquidation of the Company, (ii)
a reorganization, merger or consolidation (other than for purposes of
reincorporation in a different state) in which the Company is not the survivor,
(iii) the sale of all or substantially all of the assets of the Company, or (iv)
a Change of Control (as defined in the Director Stock Plan), subject to the
terms of any applicable agreement, the Director Plan Committee may, in its
discretion, without obtaining stockholder approval, take any one or more of the
following actions: (a) determine that all or some options then outstanding will
be fully vested and exercisable, (b) substitute new options by a successor
employer with appropriate adjustments as to the number and kind of shares
subject to such awards and prices or (c) cancel such options and pay the
non-employee directors or their beneficiaries the difference between the
exercise price and the fair market value of the shares subject to the options as
of the date of such corporate change.

           COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

         The Compensation Committee is composed of Carl B. Anderson, III and
Sidney L. Tassin, neither of whom are employees or current or former officers of
the Company. See "Board of Directors - Board Committees." Mr. Anderson and Mr.
Tassin each had direct or indirect interests in certain transactions described
in "Certain Relationships and Related Transactions."

                                PERFORMANCE GRAPH

         The following graph compares the cumulative total stockholder return on
common stock, including reinvestment of dividends, since November 4, 1997 with
the cumulative total return of the Standard & Poor's 500 Stock Index and the
American Stock Exchange Market Index assuming an investment of $100 on November
4, 1997.

         THE FOLLOWING GRAPH IS PRESENTED IN ACCORDANCE WITH SEC REQUIREMENTS.
STOCKHOLDERS ARE CAUTIONED AGAINST DRAWING ANY CONCLUSIONS FROM THE DATA
CONTAINED THEREIN, AS PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE
PERFORMANCE. THIS GRAPH IN NO WAY REFLECTS THE COMPANY'S FORECAST OF FUTURE
FINANCIAL PERFORMANCE.


                                       36
<PAGE>   38


                     CUMULATIVE TOTAL RETURN ON COMMON STOCK


 
                     COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
                   AMONG BAYARD DRILLING TECHNOLOGIES, INC.,
                     NASDAQ MARKET INDEX AND SIC CODE INDEX
 
<TABLE>
<CAPTION>
                                                       BAYARD
                                                      DRILLING
               MEASUREMENT PERIOD                  TECHNOLOGIES,        SIC CODE            AMEX
             (FISCAL YEAR COVERED)                      INC.             INDEX          MARKET INDEX
             ---------------------                 -------------        --------        ------------
<S>                                                <C>                  <C>             <C>
                    11/4/97                              100               100               100
                   12/31/97                            59.14             81.10            101.63
                   12/31/98                            18.20             32.92            100.25
</TABLE>
 
                   ASSUMES $100 INVESTED ON NOVEMBER 4, 1997
                          ASSUMES DIVIDEND REINVESTED
                      FISCAL YEAR ENDING DECEMBER 31, 1998


                   COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
  BAYARD DRILLING TECHNOLOGIES, INC., AMEX MARKET INDEX AND SIC CODE INDEX (1)


<TABLE>
<CAPTION>
                                                  NOVEMBER 4, 1997       DECEMBER 31, 1998
                                                  ----------------       -----------------
<S>                                               <C>                    <C>  
         Bayard Drilling Technologies, Inc.             100.00                  18.20

         SIC Code Index                                 100.00                  32.92

         AMEX Market Index                              100.00                 100.25
</TABLE>

-------------------


(1)      Assumes $100 invested on November 4, 1997 with the dividend reinvested.
         Comparison as of fiscal year ended December 31, 1998.

                  THE 1998 BOARD COMPENSATION COMMITTEE REPORT
                            ON EXECUTIVE COMPENSATION

COMPENSATION PHILOSOPHY REGARDING EXECUTIVE OFFICERS

         The Compensation Committee, which is comprised entirely of non-employee
directors, is responsible for the establishment and administration of the
compensation programs for the Company's executive officers, including the Chief
Executive Officer. The Compensation Committee met once in 1998, incident to a
meeting of the entire Board of Directors, to address items related to the
compensation and benefits of the Company's executive officers.

         The fundamental philosophy of the Company's compensation program is to
offer compensation opportunities for all employees which are based on the
individual's contribution and personal performance. Consideration is also given
to a person's potential for future responsibility and promotion.

         In designing and administering the individual elements of the executive
compensation program, the Compensation Committee strives to balance short and
long-term incentive objectives and employ prudent judgment in establishing
performance criteria, evaluating performance and determining actual incentive
payments. Essentially, the executive compensation program of the Company has
been designed to:

         o        support a pay for performance policy that differentiates in
                  compensation amounts based on corporate performance;

         o        motivate key executive officers to achieve strategic business
                  initiatives and reward them for their achievement;

         o        provide compensation opportunities which are comparable to
                  those offered by other leading companies in the contract
                  drilling industry, thus allowing the Company to compete for
                  and retain talented executives who are critical to the
                  Company's long-term success; and

         o        align the interest of executives with the long-term interest
                  of stockholders through award opportunities that can result in
                  bonuses and ownership of common stock.


                                       37
<PAGE>   39


RELATIONSHIP OF PERFORMANCE UNDER THE COMPENSATION PROGRAM

         The compensation program supports the Company's internal culture and
human resource values which are to foster career opportunities and develop the
best people at all levels and to encourage and reward actions which put the
interests of the Company as a whole ahead of functional specialties and
individual considerations.

         During 1998, the compensation program for all senior executives was
comprised of three elements:

         o        base salary and benefits typically offered to executives by 
                  comparable corporations;

         o        stock option grants to tie the executive's financial future to
                  that of the Company in a form which reflects a long-term
                  ownership interest in the Company; and

         o        an executive bonus plan to reward executives promptly and
                  significantly for achievement of annual corporate goals.

Throughout 1998, each of the Company's executive officers received the base
salary and benefits provided in their respective employment agreements. The
executive officers were also awarded options to purchase Company common stock at
exercise prices approximating the then current sales price of Company common
stock. The financial performance of the Company during 1998 did not warrant the
payment of bonuses to the Company's executive officers.

                                                 1998 Compensation Committee
                                                 Carl B. Anderson, III
                                                 Sidney L. Tassin

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL STOCKHOLDERS

         The following table sets forth certain information regarding the
beneficial ownership of Company common stock as of February 28, 1999. This table
discloses the stock ownership of:

         o        each person known by the Company to own more than 5% of the
                  outstanding shares of Company common stock;

         o        each of the Company's directors;

         o        the Chief Executive Officer of the Company and each of the two
                  other persons who served as executive officers of the Company
                  during 1998; and

         o        all executive officers and directors as a group.

All persons listed have an address in care of the Company's principal executive
offices and have sole voting and investment power with respect to their shares
unless otherwise indicated.

         The information contained in this table with respect to beneficial
ownership reflects "beneficial ownership" as defined in Rule 13d-3 under the
Securities Exchange Act of 1934. In computing the number of shares beneficially
owned by a person and the percentage ownership of that person, shares of Company
common stock subject to options or warrants held by that person that are
exercisable on February 28, 1999 or become exercisable within 60 days following
February 28, 1999 are deemed outstanding. However, such shares are not deemed
outstanding for the purpose of computing the percentage ownership of any other
person. All information with respect to the beneficial ownership of any
stockholder has been furnished by such stockholder and, unless otherwise
indicated, each stockholder has sole

                                       38
<PAGE>   40


voting and investment power with respect to the shares listed as beneficially
owned by such stockholder, subject to community property laws where applicable.
Percentage of ownership is based on 18,214,765 shares of Company common stock
outstanding as of February 28, 1999.


<TABLE>
<CAPTION>
                                                                                        COMPANY COMMON STOCK
                                                                                         BENEFICIALLY OWNED
                                                                               ----------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER                                                    NUMBER         PERCENTAGE
<S>                                                                            <C>                     <C>  
Nabors Industries, Inc......................................................           2,645,725(1)           14.5%
    515 West Greens Road, Suite 1200
    Houston, TX  77067
Carl B. Anderson, III.......................................................           1,293,167(2)(3)         7.1
    c/o AnSon Partners L.L.C.
    4005 Northwest Expressway, Suite 400E
    Oklahoma City, Oklahoma 73116
Energy Spectrum LLC.........................................................           1,100,000(4)            6.0
    5956 Sherry Lane, Suite 600
    Dallas, Texas 75225
James E. Brown..............................................................             446,000(5)            2.4
David E. Grose, III.........................................................              14,000(6)              *
Edward S. Jacob, III........................................................               6,500(7)              *
Mark Liddell................................................................               5,167(3)              *
    6307 Waterford Boulevard, Suite 100
    Oklahoma City, Oklahoma 73118
Merrill A. Miller, Jr.......................................................               5,167(3)              *
    c/o National-Oilwell, Inc.
    5555 San Felipe
    Houston, Texas 77056
Sidney L. Tassin............................................................           1,105,167(3)(8)         6.1
    c/o Energy Spectrum Partners LP
    5956 Sherry Lane, Suite 600
    Dallas, Texas 75225
Lew O. Ward.................................................................             428,292(3)(9)         2.3
    c/o Ward Petroleum Corporation
    502 South Fillmore Road
    Enid, Oklahoma 73703
All directors and executive officers as a group (8 persons).................           3,133,460(10)          16.8
</TABLE>

-------------

  *  Less than one percent.


(1)      Represents shares of Company common stock held of record or
         beneficially by James E. Brown, Carl B. Anderson, III, AnSon Partners
         L.L.C., Energy Spectrum Partners LP, and Wil-Cas Investments, L.P. (the
         "Consenting Stockholders"). As a condition and an inducement to Nabors
         Industries, Inc. entering into the merger agreement, the Consenting
         Stockholders, who are directors of the Company or entities affiliated
         with directors, entered into stockholder agreements with Nabors. The
         stockholder agreements were approved by the Board and require the
         Consenting Stockholders to vote all of their shares of Company common
         stock for the adoption of the merger agreement and against any
         competing acquisition transaction.


                                       39
<PAGE>   41


(2)      Includes:

         (a)      1,018,000 shares of Company common stock held of record by 
                  AnSon, of which Mr. Anderson is managing general partner;

         (b)      170,000 shares of Company common stock held of record by James
                  E. Brown that are subject to voting rights retained by Mr.
                  Anderson under an irrevocable proxy; and

         (c)      100,000 shares of Company common stock held of record and 
                  beneficially by Mr. Anderson.

(3)      Includes 5,167 shares of Company common stock subject to options
         granted under the Director Stock Plan that were exercisable on, or
         become exercisable within, 60 days after February 28, 1999. Excludes
         14,833 shares of Company common stock that may be acquired upon
         exercise of options granted under the Director Stock Plan, none of
         which will become exercisable within 60 days after February 28, 1999.

(4)      Represents 988,000 shares of Company common stock held of record by
         Energy Spectrum, of which Energy Spectrum Capital LP is the sole
         general partner, plus 112,000 shares of Company common stock that may
         be acquired within 60 days of February 28, 1999 upon the exercise of
         outstanding Series B Warrants. Energy Spectrum LLC is the sole general
         partner of Energy Spectrum Capital LP and possesses sole voting and
         investment power with respect to such shares. Sidney L. Tassin, as
         President and a member of Energy Spectrum LLC, may be deemed to have
         beneficial ownership of these shares. Mr. Tassin disclaims beneficial
         ownership of such shares.

(5)      Includes:

         (a)      100,000 shares of Company common stock held by Mr. Brown which
                  vest pro rata over five years starting on December 10, 1997
                  and are subject to certain restrictions on resale and
                  provisions for the repurchase by Company at a specified price
                  and upon certain conditions, including termination of
                  employment with Company;

         (b)      170,000 shares of Company common stock for which an 
                  irrevocable voting proxy has been granted to Carl B. Anderson,
                  III; and

         (c)      160,000 shares of Company common stock subject to options
                  granted under the Employee Stock Plan that were exercisable
                  on, or become exercisable within, 60 days after February 28,
                  1999.

         Excludes options to purchase an aggregate of 440,000 shares of Company
         common stock held by Mr. Brown which were granted under the Employee
         Stock Plan, subject to vesting and other conditions contained in stock
         option agreements, none of which options are exercisable within 60 days
         after February 28, 1999.

(6)      Includes 14,000 shares of Company common stock subject to options
         granted under the Employee Stock Plan that are currently exercisable.
         Excludes options to purchase an aggregate of 56,000 shares of Company
         common stock held by Mr. Grose which were granted under the Employee
         Stock Plan, subject to vesting and other conditions contained in stock
         option agreements, none of which options are exercisable within 60 days
         after February 28, 1999.

(7)      Mr. Jacob's employment with the Company terminated during January of
         1999. Mr. Jacob received 6,500 shares of Company common stock through
         the net exercise of certain accelerated options in exchange for the
         waivers in the Severance Agreement. The exercise and delivery of these
         shares satisfied in full all obligations of the Company to Mr. Jacob
         arising from the award of rights, warrants or options by the Company to
         Mr. Jacob under the Company's 1997 Stock Option and Stock Award Plan
         and any other agreement.

(8)      Represents shares of Company common stock held of record by Energy
         Spectrum Partners LP and beneficially by Energy Spectrum LLC. Mr.
         Tassin, a director of the Company, is the President of Energy Spectrum
         LLC, which is the ultimate general partner of Energy Spectrum Partners
         LP. Mr. Tassin disclaims beneficial ownership of such shares. See note
         (4) above.


                                       40
<PAGE>   42


(9)      Includes:

         (a)      253,725 shares of Company common stock held of record by
                  Wil-Cas Investments, L.P., a family limited partnership
                  controlled by Ward Petroleum and family trusts for the benefit
                  of Mr. Ward's children, William C. Ward and Casidy Ward, of
                  which they act as trustees; and

         (b)      169,400 shares of Company common stock that may be acquired 
                  within 60 days of February 28, 1999 upon the exercise of 
                  outstanding warrants held by Wil-Cas Investments, L.P.

(10)     Includes:

         (a)      112,000 shares of Company common stock that may be acquired by
                  Energy Spectrum Partners LP within 60 days of February 28,
                  1999 upon the exercise of outstanding Series B Warrants;

         (b)      170,000 shares of Company common stock held by Mr. Brown that
                  are subject to voting rights  retained by Mr. Anderson;

         (c)      100,000 restricted shares of Company common stock held by 
                  Mr. Brown;

         (d)      174,000 shares of Company common stock subject to options
                  granted to executive officers of the Company under the
                  Employee Stock Plan that are currently exercisable or become
                  exercisable within 60 days after February 28, 1999;

         (e)      25,835 shares of Company common stock subject to options
                  granted to directors of the Company under the Director Stock
                  Plan that are currently exercisable or become exercisable
                  within 60 days after February 28, 1999; and

         (f)      169,400 shares of Company common stock that may be acquired by
                  Will-Cas within days of February 28, 1999 upon the exercise of
                  outstanding warrants.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

                                    GENERALLY

         The following discussion identifies certain of the Company's
relationships and related transactions since the beginning of the last fiscal
year as well as those that are currently proposed in which any director or
executive officer of the Company, any nominee for election as director of the
Company, any person known to the Company to own of record or beneficially over
5% of the common stock of the Company, or any member of the immediate family of
any such persons had, or has, a direct or indirect material interest.
Transactions involving any former directors of the Company that occurred during
the last fiscal year are also included.

         Energy Spectrum and AnSon are each record or beneficial owners of over
5% of the common stock of the Company. Prior to the initial public offering,
Chesapeake and the Oliver Companies were record or beneficial owners of over 5%
of the common stock. Three of the Company's former directors, Aubrey K.
McClendon, Tom L. Ward and Marcus C. Rowland, are stockholders, executive
officers and/or directors of Chesapeake. One of the Company's directors, Sidney
L. Tassin, and one of the Company's former directors, James W. Spann, are
executive officers and partners of the ultimate general partner of Energy
Spectrum. Roy T. Oliver, a former director of the Company, is a director,
executive officer and significant stockholder of certain of the Oliver
Companies. Mike Mullen is a director, executive officer and significant
stockholder of certain of the Oliver Companies. Prior to the Ward acquisition,
Lew O. Ward, a director of the Company, was a director, executive officer and
significant stockholder of Ward. Carl B. Anderson, III, a director of the
Company, and Robert E. Bell, a former director of the Company, are directors,
executive officers and holders of substantial ownership interests in AnSon (of
which Anadarko was a subsidiary). James E. Brown is a director and executive
officer of the Company and, prior to the formation of the Company, was a
director and executive officer of Anadarko. Edward S. Jacob, III and David E.
Grose were each executive officers of the Company during 1998. Each of such
persons and entities has or had a direct or indirect material interest in one or
more of the arrangements and transactions described below.


                                       41
<PAGE>   43


                     TRANSACTIONS WITH MANAGEMENT AND OTHERS

REGISTRATION RIGHTS AGREEMENTS

         The following summary of the principal provisions of the Company's
registration rights agreements does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all of the provisions of the
Registration Rights Agreement and the DLB Registration Rights Agreement.

         REGISTRATION RIGHTS AGREEMENT. The Company and certain of its
investors, including certain directors, officers and significant stockholders,
are party to a Registration Rights Agreement (the "Registration Rights
Agreement") covering shares of common stock, including the shares of common
stock issuable upon the exercise of options, warrants and other Company
securities (collectively, "Common Stock Equivalents"), owned by such investors
(the "Registrable Securities"). The Registration Rights Agreement applies to
Registrable Securities owned by Energy Spectrum, AnSon, the Oliver Companies and
certain of their affiliates, Ward and certain of its transferees, Carl B.
Anderson, III, James E. Brown, Edward S. Jacob, III, David E. Grose and certain
other persons. As of February 28, 1999, 4,067,725 outstanding shares of common
stock and 1,087,000 Common Stock Equivalents (510,833 of which remain subject to
further vesting pursuant to the Employee Stock Plan) were subject to the
Registration Rights Agreement.

         The Registration Rights Agreement provides, among other things, that,
at any time after 180 days following the Company's initial public offering
(subject to customary "black-out" periods) certain holders of Registrable
Securities with a minimum aggregate share value of at least $20 million may
require the Company to effect the registration under the Securities Act of the
Registrable Securities owned by such holders, subject to certain limitations.
The Registration Rights Agreement also provides certain "piggyback" registration
rights to the holders of Registrable Securities whenever the Company proposes to
register an offering of any of its capital stock under the Securities Act,
subject to certain exceptions, including pro rata reduction if, in the
reasonable opinion of the managing underwriter of the offering, such a reduction
is necessary to prevent an adverse effect on the marketability or offering price
of all the securities proposed to be offered in such offering.

         The Registration Rights Agreement contains customary provisions
regarding the payment of expenses by the Company and regarding mutual
indemnification agreements between the Company and the holders of Registrable
Securities for certain securities law violations.

         DLB REGISTRATION RIGHTS AGREEMENT. In connection with the acquisition
by the Company of Bonray Drilling Corporation on October 16, 1997, the Company
entered into a registration rights agreement (the "DLB Registration Rights
Agreement") for the benefit of DLB Oil & Gas, Inc. and its financial advisor
with respect to such transaction. The DLB Registration Rights Agreement covers
3,015,000 shares of common stock issued in the Bonray acquisition. The DLB
Registration Rights Agreement provides, among other things, that, at any time
(subject to customary "black-out" periods following 120 days after the Company's
initial public offering) DLB Oil & Gas, Inc. may request the Company to register
the distribution (the "DLB Distribution") by DLB of 2,955,000 shares of common
stock to the shareholders of DLB.

         The DLB Registration Rights Agreement requires the Company to pay
expenses associated with the DLB Distribution. In addition, the DLB Registration
Rights Agreement contains customary provisions regarding mutual indemnification
agreements between the Company and the holders of registrable securities for
certain securities law violations.

         Pursuant to the DLB Registration Rights Agreement, on December 31,
1997, the Company filed with the Securities and Exchange Commission (the
"Commission") its Registration Statement on Form S-1 (Registration No.
333-43535) relating to the registration of the DLB Distribution. On March 30,
1998, such Registration Statement was declared effective by the Commission.


                                       42
<PAGE>   44


STOCKHOLDERS AND VOTING AGREEMENT

         The following summary of the material provisions of the Stockholders
and Voting Agreement does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of such
agreement.

         GENERALLY. The Company is party to a Stockholders and Voting Agreement
(the "Stockholders and Voting Agreement") among DLB Oil & Gas, Inc., Energy
Spectrum, APLP and Carl B. Anderson, III that provides for certain agreements
regarding the corporate governance of the Company, transfer restrictions on
shares of Company common stock and Common Stock Equivalents, and other customary
terms and conditions. Immediately following the consummation of the DLB
Distribution, DLB Oil & Gas, Inc. ceased to be a party to the Stockholders and
Voting Agreement, and Mark Liddell, Mike Liddell and Charles E. Davidson (the
"DLB Group") became parties to the Stockholders and Voting Agreement. As of
February 28, 1999, the parties to the Stockholders Voting Agreement beneficially
own approximately 2,440,349 shares of common stock, representing 13.4% of the
outstanding shares of common stock. The Stockholders and Voting Agreement will
terminate on November 4, 2007.

         BOARD REPRESENTATION. The Stockholders and Voting Agreement provides
that the Board shall not consist of more than ten members. In addition, the
Stockholders and Voting Agreement provides that, certain stockholders who are
party thereto have the right to designate a specified number of persons to be
nominated for election as directors. Each of Energy Spectrum, Anadarko and the
DLB Group (to the extent the DLB Group elects to be bound thereby) have the
right to designate one nominee for director as follows: (i) Energy Spectrum has
the right to designate one nominee for director as long as it owns at least (a)
5% of the outstanding Company common stock, (b) 50% in principal amount of the
Company's subordinated notes or (c) 600,000 shares of Company common stock, (ii)
Anadarko has the right to designate one nominee for director as long as it owns
at least (a) 5% of the outstanding Company common stock or (b) 600,000 shares of
Company common stock, and (iii) the DLB Group has the right to designate one
nominee for director as long as the DLB Group owns at least 5% of the
outstanding Company common stock. The parties bound by the Stockholders and
Voting Agreement are obligated to vote all of their voting securities (including
certain Common Stock Equivalents) of the Company for these designees.

         CERTAIN TRANSFER RESTRICTIONS. In accordance with the Stockholders and
Voting Agreement and in connection with the Company's initial public offering,
the parties to the Stockholders and Voting Agreement agreed to a "lock-up"
period of up to 180 days from the date of the offering, during which such
stockholders would not transfer (other than pursuant to the DLB Distribution)
any common stock of the Company or Common Stock Equivalents without the prior
written consent of the Board, with any members of the Board designated by such
stockholder abstaining. These stockholders agreed that any such stockholder
holding 5% or more of the common stock of the Company (on a fully diluted basis)
could not, subject to certain exceptions, transfer 5% or more of the common
stock of the Company (on a fully diluted basis) unless such stockholder has
received the prior written consent of the Board, with any member of the Board
designated by such stockholder abstaining. These transfer restrictions expired
by their own terms on May 6, 1998.

CERTAIN ARRANGEMENTS RELATED TO THE CONSOLIDATION TRANSACTIONS

         THE FORMATION TRANSACTIONS. The Company was formed in December 1996
through a series of affiliated entity transactions in which the Company became
the successor to Anadarko, the contract drilling subsidiary of privately held
APLP. In connection with the formation of the Company, (i) APLP contributed ten
drilling rigs, including two rigs requiring refurbishment, for 2,000,000 shares
of common stock, (ii) the Oliver Companies exchanged six drilling rigs requiring
refurbishment for 1,600,000 shares of common stock, (iii) Energy Spectrum
acquired 2,000,000 shares of common stock for $10 million, and (iv) Chesapeake
Energy Corporation entered into drilling contracts (the "Chesapeake Drilling
Agreements") with two-year terms for six of the Company's rigs in consideration
for an option (the "Chesapeake

                                       43
<PAGE>   45


Option") to purchase shares of common stock ((i) through (iv) together, the
"Formation Transactions"). The ten rigs acquired from APLP were valued at an
aggregate of $10.8 million, the six rigs acquired from the Oliver Companies were
valued at an aggregate of $9.5 million and the six Chesapeake Drilling
Agreements were valued at an aggregate of $1.1 million. The valuations of the
rigs acquired in the Formation Transactions from APLP and the Oliver Companies,
the values placed upon the Chesapeake Drilling Agreements and the consideration
to be received by each such founder were determined and established through
negotiations among representatives of APLP and Anadarko (including Carl B.
Anderson, III), Energy Spectrum (including Sidney L. Tassin, who was a director
of the Company prior to the Company's initial public offering), the Oliver
Companies (including Roy T. Oliver and Mike Mullen, who were directors of the
Company prior to the Company's initial public offering) and Chesapeake
(including Aubrey McClendon, who was a director of the Company prior to the
Company's initial public offering), taking into account the then existing market
values of available rigs, the anticipated costs to complete the necessary
refurbishment of the contributed rigs and the expected values of revenues to be
received by the Company from the Chesapeake Drilling Agreements.

         Three of the rigs acquired by the Company from APLP were acquired by
APLP within the two years prior to their contribution to the Company. APLP
acquired one rig in each of August, September and October 1996 for $1.3 million,
$922,000 and $450,000, respectively. At the time of their contribution to the
Company, such rigs were valued on the books of the Company at $2.7 million. Four
of the rigs acquired by the Company from the Oliver Companies were acquired by
the contributing founder within the two years prior to their contribution to the
Company at an aggregate cost of $2.6 million. At the time of their contribution
to the Company, such rigs were valued on the books of the Company at $4.4
million.

         THE WARD ACQUISITION. On May 31, 1997, the Company completed the
acquisition of Ward Drilling Company, Inc. Through the Ward acquisition, the
Company acquired all of the issued and outstanding common units of a subsidiary
of Ward that held six drilling rigs. In exchange, Ward received $8 million in
cash, 400,000 shares of Company common stock and a warrant (the "Ward Warrant")
to purchase up to 200,000 shares of Company common stock at an exercise price of
$10 per share. The Ward Warrant is exercisable at any time on or before the
later of (i) May 30, 2000 or (ii) one year after the completion of an initial
public offering of the common stock (which was satisfied by the Company's
initial public offering), but no later than June 1, 2003.

         In connection with the Ward acquisition, the Company entered into an
agreement (the "Ward Transportation Agreement") with Geronimo Trucking Company
("Geronimo"), a company owned and controlled by Lew O. Ward, a director of the
Company. The Ward Transportation Agreement provides that the Company will have a
preferential right to engage Geronimo's trucking services for covered
transportation needs and that Geronimo will make its trucking services available
to the Company at rates that are competitive in the area. The Ward
Transportation Agreement also provides Geronimo with the preferential right to
perform trucking services contracted for by the Company for the movement of the
rigs acquired by the Company in the Ward acquisition. The Company is obligated
to allow Geronimo to bid on any covered rig movement required by the Company and
to allow Geronimo the opportunity to match or better any bid received from a
third party. Unless earlier terminated by the parties, the Ward Transportation
Agreement is effective through May 2000. For the year ended December 31, 1998,
the Company paid an aggregate of $916,000 under the Ward Transportation
Agreement.

         THE BONRAY ACQUISITION. In October 1997, the Company acquired all of
the issued and outstanding capital stock of Bonray from DLB Oil & Gas, Inc. in
consideration for the issuance of 3,015,000 shares of common stock. In
connection with the Bonray acquisition, DLB Oil & Gas, Inc. obtained certain
rights to require the Company to effect the registration under the Securities
Act of the shares of common stock acquired by DLB in the Bonray acquisition. See
"Registration Rights Agreements." Additionally, DLB Oil & Gas, Inc. was an
original party to the Stockholders and Voting Agreement which entitled it to
designate one Board nominee as long as it owned at least 5% of the common stock
of the Company. Upon the consummation of the DLB Distribution on April 28, 1998,
DLB Oil & Gas, Inc. ceased to be a party to the Stockholders and Voting
Agreement, and the members of the DLB Group became parties to the Stockholders
and Voting Agreement in its stead. Such members of the DLB Group, rather than
DLB Oil & Gas, Inc., are now entitled to designate one Board nominee as long as
the DLB Group owns at least 5% of the common stock of the Company. See
"Stockholders and Voting Agreement."


                                       44
<PAGE>   46


         INDIVIDUAL RIG ACQUISITIONS. In May 1997, the Company purchased from R.
T. Oliver Drilling, Inc. two drilling rigs for an aggregate purchase price
consisting of $3.3 million in cash and warrants (the "Oliver Warrants") for the
purchase of an aggregate of 100,000 shares of common stock at an exercise price
of $8 per share. One of the Oliver Warrants was issued to RR&T, Inc., an
affiliate entity of Roy T. Oliver, and the other was issued to Mike Mullen, who
was a director of the Company prior to the Company's initial public offering.
Each of the Oliver Warrants expires on May 1, 2000 and is separately exercisable
for 50,000 shares of common stock.

AGREEMENTS RELATING TO THE PROPOSED MERGER WITH NABORS INDUSTRIES, INC.

         The following summary of terms of the agreements entered into by the
Company relating to the proposed Merger with Nabors Industries, Inc. ("Nabors")
does not purport to be complete. This discussion is qualified in its entirety by
reference to the Agreement and Plan of Merger, dated as of October 19, 1998 and
amended on January 15, 1999 and February 12, 1999, entered into by and between
the Company, Nabors and Nabors Acquisition Corp. VII ("Acquisition Sub"), by
reference to the Stock Option Agreement ("Stock Option Agreement"), dated as of
October 19, 1998, entered into by and between the Company and Nabors and by
reference to the individual Stockholder Agreements, dated as of October 19, 1998
(the "Stockholder Agreements"), entered into by and between the Consenting
Stockholders and Nabors.

         MERGER AGREEMENT. On October 19, 1998, the Company entered into a
merger agreement with Nabors Industries and Acquisition Sub, a wholly owned
subsidiary of Nabors. The merger agreement provides for the merger of
Acquisition Sub with and into the Company (the "Merger"), with the Company
surviving as a wholly owned subsidiary of Nabors. The parties subsequently
amended the merger agreement on January 15, 1999 and February 12, 1999. As
amended, the merger agreement provides for the Company's stockholders to receive
0.3375 shares of Nabors common stock and $0.30 cash in exchange for each share
of Company common stock. If the Merger is consummated, the holders of Company
common stock will receive approximately 6,140,456 shares of Nabors common stock
and $5.458 million in cash. The Merger received antitrust clearance from the
U.S. Federal Trade Commission on February 18, 1999. A special meeting of Company
stockholders was held on March 16, 1999 to vote upon the adoption of the merger
agreement, as amended. At the special meeting, stockholders representing a
majority of the outstanding shares of Company common stock voted to adopt the
merger agreement. The Company expects to close the merger early in the second 
quarter of 1999.

         STOCK OPTION AGREEMENT. In conjunction with the merger agreement, the
Company and Nabors entered into the Stock Option Agreement, granting Nabors an
option (the "Option") to purchase up to 3,620,595 shares, but no more than 19.9%
of the outstanding shares, of the Company's common stock at a price of $5.50 per
share. If the Company issues any additional shares after the date of the Stock
Option Agreement, then the number of shares issuable upon exercise of the option
will be adjusted to reflect 19.9% of the outstanding shares of Company common
stock. Nabors is entitled to exercise all or any part of the option, at any one
time, if the merger agreement is terminated under certain circumstances. Upon
the exercise of the option, Nabors must pay to the Company an amount in cash
equal to the product of $5.50 and the number of shares of Company common stock
to be purchased by Nabors. The Stock Option Agreement does not contain a "put"
or "cashless exercise" feature that would permit Nabors to realize the economic
benefit of the option without payment of the exercise price to the Company. The
Stock Option Agreement also grants certain registration rights to Nabors with
respect to any shares of Company common stock acquired upon exercise of the
option. In addition, the Stock Option Agreement imposes certain restrictions on
the transfer of those shares. These restrictions prohibit any transfer of the
shares by Nabors, except in an underwritten public offering or to any person who
would not, to the knowledge of Nabors after reasonable inquiry, hold more than
4.9% of the total voting power of Company stock after giving effect to such
transfer. The option will expire on the earliest of the time of the Merger, the
date the merger agreement terminates, 180 days after the merger agreement
terminates or one year after the merger agreement terminates, depending on the
circumstances surrounding the termination.


                                       45
<PAGE>   47


         THE STOCKHOLDER AGREEMENTS. As a condition and an inducement to Nabors
entering into the merger agreement, the Consenting Stockholders have each
entered into separate Stockholder Agreements with Nabors. These stockholders
hold 2,645,725 shares of Bayard common stock as of February 28, 1999, which
represent approximately 14.5% of the outstanding shares of such class. See
"Principal Stockholders." The Stockholder Agreements require these stockholders
to vote all of their shares in favor of the Merger, the merger agreement and the
transactions contemplated by the merger agreement. In addition, these
stockholders are required to vote against any action or agreement that would
result in a breach in any material respect of any covenant, representation or
warranty or any other material obligation or agreement of the Company under the
merger agreement. These stockholders are further required to vote against any
company acquisition transaction and against any proposal regarding any change in
a majority of the Board, the present capitalization of the Company, any
amendment of the Company's Certificate of Incorporation or Bylaws, or any other
material change in the Company's corporate structure or business, to the extent
that any such proposal is intended to, or could reasonably be expected to,
impede, interfere with, delay, postpone or materially adversely affect the
Merger or the transactions contemplated by the merger agreement or the
Stockholder Agreements or could implement or lead to any company acquisition
transaction. The Consenting Stockholders have also irrevocably appointed Nabors
as their proxy to demand a special meeting of the Company's stockholders to
consider any action related to the merger agreement or the Merger, and to vote
their shares with respect to any matters described above. The Stockholder
Agreements provide that they will terminate at the time of the Merger, if the
merger agreement is terminated in accordance with its terms or if there is an
amendment to the merger agreement which is materially adverse to the Consenting
Stockholders.

THE MAY FINANCING

         GENERALLY. On May 1, 1997, the Company completed a financing
transaction (the "May Financing") in which the Company issued shares of Company
common stock, subordinated notes and warrants to purchase Company common stock
to certain significant stockholders in exchange for an aggregate of $28.5
million in cash, as described below. The following summary of terms of the May
Financing does not purport to be complete and is qualified in its entirety by
reference to the Securities Purchase Agreement, dated as of April 30, 1997 (the
"May Securities Purchase Agreement"), and the subordinated notes and Series A
Warrants and Series B Warrants which were issued pursuant thereto.

         COMMON STOCK AND SUBORDINATED NOTES. In the May Financing, the Company
issued 1,000,000 shares of Company common stock to Chesapeake in consideration
for $7 million in cash and 140,000 shares of Company common stock to Energy
Spectrum in consideration for $980,000 in cash. Additionally, the Company issued
the subordinated notes due May 1, 2003 in the original principal amounts of $18
million and $2.52 million to Chesapeake and Energy Spectrum, respectively. The
Company's subordinated notes bore interest at the Company's option at either (i)
11% per annum, payable in cash, or (ii) 12.875% per annum, payable in the form
of additional subordinated notes, which interest is payable quarterly in
arrears. On each quarterly interest payment date, the Company could make an
election as to the interest rate to be applied for the previous quarter. The
subordinated notes were redeemable, solely at the option of the Company, in
whole or in part, at any time at varying redemption prices. The Company was
required to offer to redeem the subordinated notes upon the occurrence of
certain events constituting a "Change of Control" (as defined in the
subordinated notes) at a redemption price equal to 100% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
redemption. The subordinated notes were convertible into common stock of the
Company at the option of the Company, in whole or in part, in conjunction with a
"Convertible Event" (as defined in the subordinated notes), which includes
certain underwritten public offerings (including the Company's initial public
offering), mergers, consolidations and other business combination transactions.
The subordinated notes were general unsecured subordinated obligations of the
Company that were subordinated in right of payment to all existing and future
senior indebtedness of the Company, pari passu with all existing and future
subordinated indebtedness of the Company and senior in right of payment to all
future junior subordinated indebtedness of the Company.

         REDEMPTION OF THE SUBORDINATED NOTES. Upon consummation of the
Company's initial public offering, the Company redeemed in full the $18 million
principal amount of subordinated notes issued to Chesapeake in consideration for
the payment by the Company to Chesapeake of $18.2 million in cash, based on the
price to the public in the 


                                       46
<PAGE>   48


Company's initial public offering. In May 1997, the Company paid Chesapeake a
commitment fee of $250,000 in connection with the funding of the Company common
stock and subordinated notes in the May Financing. In April 1998, the Company
redeemed in full the $2.52 million principal amount of subordinated notes issued
to Energy Spectrum and accrued interest of $47,740. In connection therewith,
Energy Spectrum waived its right to require the Company to redeem the
subordinated notes at 110% of par value.

         WARRANTS. In the May Financing, the Company also issued certain Series
A Warrants and Series B Warrants to purchase Company common stock (collectively,
the "Warrants"). The Warrants are exercisable on or prior to May 1, 2003 at a
price of $0.01 per share in the case of the Series A Warrants and $7.50 per
share in the case of the Series B Warrants. In the May Financing, Chesapeake was
issued Series A Warrants and Series B Warrants representing the right to
purchase 700,000 shares and 800,000 shares of Company common stock,
respectively, and Energy Spectrum was issued Series A Warrants and Series B
Warrants representing the right to purchase 98,000 shares and 112,000 shares of
Company common stock, respectively. The Warrants expire on May 1, 2003 and are
exercisable (i) at any time with a cash payment or (ii) pursuant to a cashless
exercise at any time after the completion of a "Qualified IPO" (as defined in
the Warrants), which includes certain underwritten public offerings (including
the Company's initial public offering), mergers, consolidations and other
business combination transactions. The exercise prices, as well as the number
and kind of shares issuable under the Warrants, are subject to adjustment upon
the happening of certain events described in the Warrants, including, the
payment of in-kind dividends or distributions and the subdivision,
reclassification or recapitalization of the common stock of the Company, whether
in connection with a consolidation or merger or otherwise. Chesapeake
relinquished its Series A Warrants and Series B Warrants as part of a series of
transactions with the Company in August of 1997. Energy Spectrum exercised in
full its Series A Warrants on July 31, 1997, but on the date hereof, Energy
Spectrum still holds all of the Series B Warrants issued to it in the May
Financing.

                         CERTAIN BUSINESS RELATIONSHIPS

FEES PAID TO ENERGY SPECTRUM ADVISORS

         In January 1998, the Company engaged Energy Spectrum Advisors Inc. to
provide financial advisory and investment banking services in connection with a
possible restructuring or refinancing of the Company's existing funded debt. As
compensation for such services, the Company agreed to pay Energy Spectrum
Advisors Inc. an initial fee of $50,000 and an additional fee of $25,000 per
month through the term of the engagement. The engagement letter expired on May
31, 1998 but was extended to June 30, 1998. The Company paid a total of $175,000
in fees to Energy Spectrum Advisors Inc. in connection with this arrangement.
Energy Spectrum Advisors Inc. is an affiliate of Energy Spectrum, which is the
beneficial owner of approximately 6% of the Company common stock. Sidney L.
Tassin, a director of the Company designated to serve on the Board by Energy
Spectrum pursuant to the Stockholders and Voting Agreement, owns a minority
equity interest in Energy Spectrum Advisors Inc.

ANSON TRUCKING SERVICES

         The Company has engaged affiliates of AnSon for the provision of
trucking services related to the movement of the Company's rigs on numerous
occasions. For the year ended December 31, 1998, the Company paid such
affiliates of AnSon approximately $39,000 in consideration for such trucking
services.

GERONIMO TRUCKING SERVICES

         The Company has engaged Geronimo Trucking Company, an affiliate of
Board member Lew O. Ward, to provide trucking services related to the movement
of the Company's rigs on numerous occasions. During 1998, the Company paid
Geronimo Trucking approximately $916,000 in consideration for such trucking
services.


                                       47
<PAGE>   49
                                     PART IV

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

     (a)(1) FINANCIAL STATEMENTS:

<PAGE>   50

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                       PAGE
<S>                                                                                    <C>
CONSOLIDATED FINANCIAL STATEMENTS OF BAYARD DRILLING TECHNOLOGIES, INC.

  Report of Independent Accountants...................................................  F-2
  Report of Independent Certified Public Accountants..................................  F-3
  Balance Sheets as of December 31, 1997 and 1998.....................................  F-4
  Statements of Operations for the years ended December 31, 1996, 1997 and 1998.......  F-5
  Statements of Equity for the years ended December 31, 1996, 1997 and 1998...........  F-6
  Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998.......  F-7
  Notes to Financial Statements ......................................................  F-9
</TABLE>


                                      F-1
<PAGE>   51



REPORT OF INDEPENDENT ACCOUNTANTS


Board of Directors and Stockholders
Bayard Drilling Technologies, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Bayard
Drilling Technologies, Inc. at December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles. These consolidated financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.



                                         PRICEWATERHOUSECOOPERS LLP

Oklahoma City, Oklahoma
February 26, 1999, except 
for Note B for which the 
date is March 17, 1999



                                     F-2
<PAGE>   52


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Bayard Drilling Technologies, Inc.


We have audited the accompanying statements of operations, equity (deficit), and
cash flows of Bayard Drilling Technologies, Inc. (Note A), for the year ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Bayard
Drilling Technologies, Inc., for the year ended December 31, 1996, in conformity
with generally accepted accounting principles.

GRANT THORNTON LLP



Oklahoma City, Oklahoma
January 20, 1997



                                     F-3
<PAGE>   53



                       BAYARD DRILLING TECHNOLOGIES, INC.

                           CONSOLIDATED BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>
                                                                                        DECEMBER 31
                                                                                  ----------------------

                                          ASSETS                                    1997          1998
<S>                                                                               <C>          <C>      
CURRENT ASSETS:
  Cash ........................................................................   $  49,302    $   2,553
  Restricted investments ......................................................         880          525
  Accounts receivable .........................................................      19,491       12,654
  Accounts receivable - affiliate .............................................          --          146
  Prepaid expenses and other current assets ...................................         538        1,313
          Total current assets ................................................      70,211       17,191

Property, plant and equipment, net ............................................     155,673      285,316

Goodwill, net of accumulated amortization of $375 and $1,247, respectively ....      12,704       11,832


Other assets ..................................................................       1,900        5,001
          Total assets ........................................................   $ 240,488    $ 319,340
                                                                                  =========    =========

                                  LIABILITIES AND EQUITY

CURRENT LIABILITIES:
  Accounts payable ............................................................   $   8,246    $   9,685
  Accounts  payable - affiliate ...............................................         494           98
  Accrued liabilities .........................................................       5,067        5,164
  Current portion of long-term debt ...........................................       7,450        6,050
          Total current liabilities ...........................................      21,257       20,997

Deferred income tax liabilities ...............................................      13,554       10,448

Other long-term liabilities ...................................................       2,055        3,207

Long-term debt, less current maturities .......................................      23,069       11,683

Subordinated notes, net of debt discount of $429 at December 31, 1997 .........       2,091           --

Notes payable, 11% Senior Notes due 2005 ......................................          --      100,000

Commitments and Contingencies - Note H, I, L & M

STOCKHOLDERS' EQUITY:
  Preferred stock, $0.01 par value, 20,000,000 shares
     authorized; none issued or outstanding ...................................          --           --
  Common stock, $0.01 par value, 100,000,000 shares
     authorized; 18,183,945 and 18,199,765 shares issued and
     outstanding at December 31, 1997 and 1998, respectively ..................         182          182
  Additional paid-in capital (net of deferred compensation of $258
     and $206 at December 31, 1997 and 1998, respectively) ....................     180,400      180,525
  Retained earnings (accumulated deficit) .....................................      (2,120)      (7,702)
          Total equity ........................................................     178,462      173,005
          Total liabilities and equity ........................................   $ 240,488    $ 319,340
                                                                                  =========    =========
</TABLE>

         The accompanying notes are an integral part of these financial
statements.



                                     F-4
<PAGE>   54



                       BAYARD DRILLING TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                            YEAR ENDED DECEMBER 31
                                                                                        --------------------------------
                                                                                         1996        1997        1998
<S>                                                                                     <C>         <C>         <C>     
REVENUES:
  Drilling ......................................................................       $  8,995    $ 39,165    $ 78,616
  Drilling -- affiliate .........................................................            798      16,582          --
  Other .........................................................................             60          --         456
                                                                                        --------    --------    --------
     Total revenues .............................................................          9,853      55,747      79,072
                                                                                        --------    --------    --------
COSTS AND EXPENSES:
  Drilling ......................................................................          7,653      40,705      63,782
  General and administrative ....................................................            658       1,868       4,312
  Depreciation and amortization .................................................          1,126       7,943      14,362
  Other .........................................................................             46          --         467
                                                                                        --------    --------    --------
     Total costs and expenses ...................................................          9,483      50,516      82,923
                                                                                        --------    --------    --------
     Operating income (loss) ....................................................            370       5,231      (3,851)
                                                                                        --------    --------    --------

OTHER INCOME (EXPENSE):
  Interest expense ..............................................................            (11)     (3,065)     (6,371)
  Interest income ...............................................................             --         597       1,404
  Gain on sale of assets ........................................................             54         544         688
  Other .........................................................................             17          37           6
                                                                                        --------    --------    --------
     Total other income (expense) ...............................................             60      (1,887)     (4,273)
                                                                                        --------    --------    --------

Earnings (loss) before income taxes .............................................            430       3,344      (8,124)
Income tax (provision) benefit -- deferred ......................................            (17)     (1,428)      2,880
                                                                                        --------    --------    --------
Net income (loss) before extraordinary item .....................................            413       1,916      (5,244)
Extraordinary loss, net of income tax of $1.3 million and $244, respectively ....             --      (4,002)       (338)
                                                                                        --------    --------    --------
Net income (loss)                                                                       $    413    $ (2,086)   $ (5,582)
                                                                                        ========    ========    ========

EARNINGS (LOSS) PER SHARE:
 Basic:
   Before extraordinary item ....................................................                   $    .21    $   (.29)
                                                                                                    ========    ========
   Extraordinary item ...........................................................                   $   (.44)   $   (.02)
                                                                                                    ========    ========
   Net loss .....................................................................                   $   (.23)   $   (.31)
                                                                                                    ========    ========
 Diluted:
   Before extraordinary item ....................................................                   $    .17    $   (.29)
                                                                                                    ========    ========
   Extraordinary item ...........................................................                   $   (.35)   $   (.02)
                                                                                                    ========    ========
   Net loss .....................................................................                   $   (.18)   $   (.31)
                                                                                                    ========    ========

PRO FORMA INFORMATION:
  Additional income tax expense .................................................            146
                                                                                        --------
  Pro forma net earnings (loss) .................................................       $    267
                                                                                        ========
  Pro forma earnings (loss) per share, basic and diluted ........................       $    .05
                                                                                        ========

Weighted average common shares outstanding, basic ...............................          5,600       9,064      18,191
                                                                                        ========    ========    ========
Weighted average common shares outstanding, diluted .............................          5,749      11,500      18,191
                                                                                        ========    ========    ========
</TABLE>

         The accompanying notes are an integral part of these financial
statements.



                                     F-5
<PAGE>   55



                       BAYARD DRILLING TECHNOLOGIES, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                     STOCKHOLDERS' EQUITY
                                                                    -------------------------------------------------------
                                                         PARTNERS             ADDITIONAL               RETAINED
                                                          CAPITAL    COMMON    PAID-IN     DEFERRED    EARNINGS
                                                         (DEFICIT)   STOCK     CAPITAL   COMPENSATION  (DEFICIT)    TOTAL
                                                         ---------  -------- ----------- ------------  ---------  ---------
<S>                                                      <C>        <C>      <C>         <C>           <C>        <C>
Balance at December 31, 1995 .........................        (276)       --          --           --         --         --
  Net earnings through date of corporate
    capitalization ...................................         447        --          --           --         --         --
  Net increase in equity arising from affiliate        
     transactions ....................................       5,285        --          --           --         --         --
  Issuance of stock in corporate capitalization ......      (5,456)       20       5,436           --         --      5,456
  Sale of stock ......................................          --        20       9,980           --         --     10,000
  Issuance of stock options and warrants for drilling  
     agreements and debt .............................          --        --       1,319           --         --      1,319
  Issuance of stock and options for property and
     equipment .......................................          --        16       9,494           --         --      9,510
  Net loss from date of corporate capitalization to 
     December 31,  1996 ..............................          --        --          --           --        (34)       (34)
                                                         ---------  -------- ----------- ------------  ---------  ---------
Balance at December 31, 1996 .........................          --        56      26,229           --        (34)    26,251
  Net loss ...........................................          --        --          --           --     (2,086)    (2,086)
  Issuance of stock options to employees .............          --        --          60          (53)        --          7
  Sale of stock ......................................          --        89     107,020           --         --    107,109
  Issuance of stock options and warrants .............          --        --       5,068           --         --      5,068
  Executive compensation agreements ..................          --        --         250         (205)        --         45
  Issuance of stock for acquisitions .................          --        37      42,031           --         --     42,068
                                                         ---------  -------- ----------- ------------  ---------  ---------
Balance at December 31, 1997 .........................          --       182     180,658         (258)    (2,120)   178,462
  Net loss ...........................................          --        --          --           --     (5,582)    (5,582)
  Issuance of stock options to employees .............          --        --          73           --         --         73
  Issuance of stock options and warrants .............          --        --          --           --         --         --
  Executive compensation agreements ..................          --        --          --           52         --         52
                                                         ---------  -------- ----------- ------------  ---------  ---------
Balance at December 31, 1998 .........................   $      --  $    182 $   180,731 $       (206) $  (7,702) $ 173,005
                                                         =========  ======== =========== ============  =========  =========
</TABLE>

         The accompanying notes are an integral part of these financial
statements.


                                     F-6
<PAGE>   56



                       BAYARD DRILLING TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                                YEAR ENDED DECEMBER 31
                                                                                         -----------------------------------
                                                                                           1996         1997         1998
<S>                                                                                      <C>          <C>          <C>       
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss) ............................................................       $     413    $  (2,086)   $  (5,582)
  Adjustments to reconcile net earnings (loss) to net cash
    (used in) provided by operating activities:
    Depreciation and amortization ................................................           1,126        7,943       14,362
    Gain on sale of assets .......................................................             (54)        (544)        (688)
    Extraordinary loss ...........................................................              --        4,002          338
    Compensation expense .........................................................              --           52           52
    Deferred income taxes ........................................................              17        1,428       (2,880)
    Change in assets and liabilities, net of effects of 
      Affiliate transactions:
      Decrease (increase) in accounts receivable .................................          (2,059)     (18,407)       6,691
      Increase in prepaid expenses ...............................................              --         (537)        (775)
      Decrease (increase) in other assets ........................................            (185)         513       (1,490)
      Increase in accrued liabilities ............................................             251        4,814           97
      Increase in other liabilities ..............................................              --           --        1,152
      Increase (decrease) in accounts payable ....................................            (383)       1,432        1,439
      Increase (decrease) in payable to affiliate ................................             412           82         (396)
                                                                                         ---------    ---------    ---------
         Net cash (used in) provided by operating activities .....................             462)      (1,308)      12,320
                                                                                         ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Acquisition of property and equipment ..........................................         (10,578)     (60,924)    (143,002)
  Acquisition of businesses ......................................................              --      (26,056)          --
  Proceeds from sale of assets ...................................................             137        1,390        1,292
  (Purchase) proceeds of investments .............................................              --         (880)         355
                                                                                         ---------    ---------    ---------
         Net cash used in investing activities ...................................         (10,441)     (86,470)    (141,355)
                                                                                         ---------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments made to affiliates ....................................................         (19,719)          --           --
  Advances received from affiliates ..............................................          18,791           --           --
  Proceeds from borrowings .......................................................           7,000       49,780           --
  Proceeds from exercise of stock options ........................................              --           --           73
  Proceeds from issuance of stock ................................................          10,000      107,109           --
  Proceeds from issuance of senior notes .........................................              --           --      100,000
  Payment of debt issuance costs .................................................            (206)        (761)      (2,550)
  Payments on long-term debt .....................................................              --      (24,011)     (15,237)
  Payments under line of credit ..................................................              --       (8,701)          --
  Borrowings under line of credit ................................................              --        8,701           --
                                                                                         ---------    ---------    ---------
         Net cash provided by financing activities ...............................          15,866      132,117       82,286
                                                                                         ---------    ---------    ---------

Net change in cash ...............................................................           4,963       44,339      (46,749)
Cash at beginning of period ......................................................              --        4,963       49,302
                                                                                         ---------    ---------    ---------
Cash at end of period ............................................................       $   4,963    $  49,302    $   2,553
                                                                                         =========    =========    =========

Cash paid during the period for interest .........................................       $      --    $   2,854    $   8,246
Cash paid during the period for income taxes .....................................       $      --    $      --    $      --
                                                                                         =========    =========    =========
</TABLE>

         Continued


                                     F-7
<PAGE>   57
                       BAYARD DRILLING TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)


Supplemental noncash activity:

         During 1996 the Company acquired property and equipment totaling $9,841
through the issuance of stock and options and assumed a net deferred income tax
liability of $331. The Company acquired property and equipment through trade
payables and payables to affiliate totaling $1,390. The Company transferred
property and equipment totaling $29, net of accumulated depreciation of $1,254,
to an affiliate which has been reflected as a decrease in payables to
affiliates. The Company issued stock options and warrants in exchange for
certain drilling agreements and debt. The stock options were valued at $1,100
and the warrants associated with the debt were valued at $219.

         Additionally in 1996, the Company transferred the following assets and
liabilities to affiliates, which resulted in a net increase in equity at the
time of corporate capitalization, effective December 1, 1996.

<TABLE>
<S>                                                                  <C>     
Accounts receivable ..............................................   $  2,667
Other assets .....................................................         17
Cash .............................................................      9,252
Accounts payable and accrued liabilities .........................     (1,799)
Payable to affiliates.............................................    (15,422)
                                                                     --------
                                                                     $ (5,285)
                                                                     ========
</TABLE>

         During 1997 the Company acquired property and equipment through the
issuance of stock and options for $41,510 and through the issuance of trade
payables of $6,405. See - Note "C" for further detail on such activity.

         The accompanying notes are an integral part of these financial
statements.


                                     F-8
<PAGE>   58



                       BAYARD DRILLING TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- NATURE OF OPERATIONS

         Bayard Drilling Technologies, Inc. together with its predecessor, (the
"Company"), a Delaware corporation, is the successor to the drilling operations
of Anadarko Drilling Company ("Anadarko"), which began drilling operations in
1980. The Company provides land-based contract drilling services to major and
independent oil and gas companies in the Mid-Continent and Gulf Coast regions of
the United States.

         Beginning in October 1996, AnSon Partners Limited Partnership ("APLP")
initiated a series of transactions among its wholly owned affiliates, Anadarko,
a partnership, and Bayard Drilling Company ("BDC"), an Oklahoma corporation, and
the Company. These series of transactions resulted in the corporate
capitalization of the Company in December 1996 with net assets, primarily
drilling rigs, previously owned by Anadarko. Such transactions were accounted
for as a reorganization of entities under common control.

NOTE B -- PROPOSED MERGER AGREEMENT AND RELATED MATTERS

         Nabors Industries, Inc. and Bayard Drilling Technologies, Inc. have
entered into a definitive merger agreement pursuant to which the Company will
merge with a wholly owned, newly created, special purpose subsidiary of Nabors,
with the Company surviving as a wholly owned subsidiary of Nabors. If the merger
is consummated, each share of Bayard common stock will be converted into the
right to receive, .3375 shares of Nabors common stock and $.30 in cash. The
transaction consists of approximately $90 million in equity and $120 million in
debt, which will remain the obligation of the Company after the merger. The
merger will be accounted for under the purchase method and is expected to close
in early April 1999. A special meeting of the Company's stockholders was held on
March 16, 1999 to consider and vote upon the merger agreement. At that special
meeting, stockholders representing a majority of the outstanding shares of
Bayard common stock voted to adopt the merger agreement. After the merger, the
former stockholders of Bayard will own approximately 5.7% of the outstanding
shares of Nabors common stock. Nabors common stock trades on the American Stock
Exchange under the symbol "NBR."

         Bayard expects that funds provided by operations before the 
consummation date of the merger and to the extent required, borrowings under
loan agreements, will be sufficient to meet its obligations as well as
operating costs and expenses. If the merger is not consummated or is delayed
for a significant period of time, the Company may be required to implement a
plan to seek additional capital from private sources as well as disposing of
certain of its assets in order to continue its operations.

NOTE C -- SUMMARY OF ACCOUNTING POLICIES

         The summary of significant accounting policies applied in the
preparation of the accompanying financial statements follows.

1.  Basis of Presentation and Consolidation

         The financial statements and information for periods prior to December
1. 1996 represent those of the predecessor. The consolidated financial
statements for periods after December 31, 1996 include the accounts of the
Company and its wholly owned subsidiaries, Trend Drilling Company ("Trend"), WD
Equipment, L.L.C. and Bonray Drilling Corporation ("Bonray"). All significant
intercompany accounts and transactions have been eliminated.

2.  Cash

         The Company considers all cash and investments with an original
maturity of 90 days or less to be cash equivalents. The Company maintains its
cash in a bank deposit account, which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts. At December
31, 1998, the Company had cash and cash equivalents in or at three financial
institutions, where the balance exceeded federally insured limits. Management
periodically assesses the financial condition of the financial institutions and
believes that any possible credit risk is minimal.

3.  Restricted Investments



                                     F-9
<PAGE>   59


                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

         Restricted investments consist of certificates of deposits pledged to
state insurance departments and insurance companies to support payment of
workers compensation claims.

4.  Concentration of Credit Risk

         The primary market for the Company's services are independent oil and
gas companies whose level of activities are related to, among other things, oil
and gas prices. The Company performs ongoing credit evaluations of its customers
and provides for potential credit losses when necessary. No allowance was
required at December 31, 1998, 1997 or 1996. At December 31, 1998 approximately
49% of the Company's trade receivables and over 47% of total revenues were
derived from the Company's five largest customers in terms of total revenues.

5.  Property and Equipment

         Property and equipment are stated at cost, reduced by provisions to
recognize economic impairment in value when management determines that such
impairment has occurred. Drilling equipment is depreciated using the declining
balance method (which approximates straight line) over the estimated useful
lives from five to fifteen years. Other property and equipment are depreciated
on the same basis over estimated useful lives from three to ten years.
Refurbishments and upgrades of drilling equipment are capitalized if such
expenditures are significant and extend the lives of the equipment. Equipment
held for upgrades and refurbishments will be depreciated when placed into
service. Maintenance and repairs are expensed as incurred. When assets are 
sold, retired or disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and the gain or loss is recognized.

         The Company capitalizes interest on construction costs for rig
refurbishments during the period in which those costs are incurred. The Company
incurred interest costs of approximately $3.6 million and $8.3 million, during
1997 and 1998, respectively, of which approximately $565,000 and $2.0 million
was capitalized in property and equipment for rig construction. No interest
costs were capitalized in 1996.

6.  Revenue Recognition

         Revenues generated from the Company's dayrate drilling contracts are
recognized as services are performed and revenues generated from the Company's
footage drilling contracts are recognized as a percentage of completion. For all
drilling contracts under which the Company bears the risk of completion (such as
turnkey contracts) revenues and expenses are recognized using the completed
contracts method. When estimates of projected revenues and expenses indicate a
loss, the total estimated loss is accrued.

7.  Net Earnings (Loss) Per Share

         Earnings per share are computed based on the weighted average number of
basic and diluted shares outstanding during the period pursuant to SFAS No. 128.
SFAS No. 128 simplifies the standards for computing earnings per share by
replacing the presentation of primary earnings per share with a presentation of
basic earnings per share and by simplifying the calculation of diluted earnings
per share. A reconciliation of the numerator and denominator used in the
calculation of earnings per share is as follows:

                      FOR THE YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                                             PER 
                                                             INCOME          SHARES         SHARE
                                                          (numerator)    (denominator)      AMOUNT
                                                          -----------    -------------      ------
                                                           (in thousands, except per share data)
<S>                                                       <C>            <C>                <C>    
Income (loss) before extraordinary item                   $    (5,244)   

Basic earnings (loss) per share                                (5,244)          18,191      $ (.29)
                                                          -----------    -------------      ------

Effect of dilutive securities:
Warrants and options                                                                --
                                                                         -------------
Diluted earnings (loss) per share                         $    (5,244)          18,191        (.29)
                                                          ===========    =============      ======
</TABLE>




                                     F-10
<PAGE>   60

                      FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                                             PER 
                                                             INCOME          SHARES         SHARE
                                                          (numerator)    (denominator)      AMOUNT
                                                          -----------    -------------      ------
                                                           (in thousands, except per share data)
<S>                                                       <C>            <C>                <C>    

Income before extraordinary item                          $     1,916
                                                          -----------
Basic earnings per share                                        1,916            9,064         .21
                                                          -----------                       ------

Effect of dilutive securities:
Warrants and options                                                             2,436
                                                                         -------------
Diluted earnings per share                                $     1,916           11,500      $  .17
                                                          ===========    =============      ======
</TABLE>


         Pro forma net earnings (loss) per share are presented to reflect the
provision for income taxes for periods Anadarko was a partnership.

         At December 31, 1997, options to purchase 397,000 shares of common
stock at $23 per share were not included in the computation of diluted earnings
per share because the options' exercise price was greater than the average
market price of the common shares. At December 31, 1998, options to purchase
1,283,600 shares of common stock at a weighted average exercise price of $12.27
per share and 412,000 warrants at a weighted average exercise price of $8.83
were not included in the computation of diluted earnings per share because the
options' and warrants' exercise price was greater than the average market price
of the common shares. The options, which expire on March 10, 2004, and the
warrants, which expire on June 01, 2003, were still outstanding at December 31,
1998.

8.  Income Taxes

         Historical income taxes were not provided in the financial statements
for earnings attributable to Anadarko since the partners would pay income taxes
or receive as a deduction their distributive share of Anadarko's taxable income
or loss. The proforma income tax expense for 1996 was calculated using an
effective tax rate of 38%.

         The Company uses the liability method of accounting for deferred income
taxes under SFAS No. 109, whereby deferred tax assets and liabilities are
recognized based upon differences between the financial statement and tax bases
of assets and liabilities using presently enacted tax rates. If it is more
likely than not some portion or all of a deferred tax asset will not be
realized, a valuation allowance is recognized.

9.  Goodwill and Other Assets

         Goodwill related to the acquisition of Trend and Bonray is being
amortized over fifteen years. Amortization expense of goodwill of $375,062 and
$871,968 has been recognized as of December 31,1997 and 1998, respectively.

         Other assets consist of (i) organizational costs incurred for the
organization of Bayard and (ii) debt issuance costs incurred on the term loan.
Amortization expense for organization costs is recognized over five years and
debt issuance costs over the life of the loan, which approximates five years,
both on a straight-line basis. Amortization expense of $650,000, $1.4 million
and $63,000 has been recognized for the years ended December 31, 1998, 1997 and
1996, respectively.


                                     F-11
<PAGE>   61


                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


         On an ongoing basis, management reviews the valuation and amortization
of goodwill and other intangibles to determine possible impairment. The
recoverability of these assets is assessed by determining whether the carrying
value can be recovered from undiscounted future cash flows.



10.  Use of Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain 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; accordingly actual results could differ from those estimates.

         The Company has significant estimates for workers compensation
liability due to the retention of $500,000 per occurrence. At December 31, 1998
and 1997 estimates for this retention were $2.9 million and $1.7 million,
respectively.

11. Fair Value of Financial Instruments

         The Company's financial instruments consist of cash and investments
which approximate fair value because of the short maturity of those instruments,
a payable to an affiliate which approximates fair value due to the demand nature
of this obligation, a floating rate term loan which approximates fair value
because the interest rate adjusts to the market rate, and notes payable which
approximate fair value because the interest rates on these notes reflects the
borrowing terms currently available to the Company.

12.  Stock Based Compensation

         The Company applies APB Opinion 25 in accounting for its stock option
plans. Under this standard, compensation expense is only recognized for grants
of options, which include an exercise price less than the market price of the
stock on the date of grant. Accordingly, based on the Company's grants for 1996
and for the years ended December 31, 1997 and 1998, the Company recognized $0,
approximately $310,000 and $0 of deferred compensation and $0, approximately
$52,000 and $52,000 of compensation expense, respectively resulting in net
deferred compensation at December 31, 1997 and 1998 of $258,000 and $206,000,
respectively. For grants of options which include an exercise price equal to or
greater than the market price of the stock on the date of grant, the Company has
disclosed the pro forma effects of recording compensation based on fair value in
Note O to the financial statements as allowed by Financial Accounting Standard
No. 123 "Accounting for Stock-Based Compensation."

13. Organization Costs

         In April 1998, the AICPA Accounting Standards Executive Committee
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 provides guidance on accounting for start-up
costs and organization costs. It requires costs associated with start-up
activities and organization costs be expensed as incurred. SOP 98-5 is effective
for fiscal years beginning after December 15, 1998, with the initial application
of this SOP being reported as a cumulative effect of accounting change. Upon
adoption of SOP 98-5, the Company will recognize approximately $596,000 as a
cumulative effective of accounting change, net of tax of $365,000 at 38%.

NOTE D -- ACQUISITIONS

         On May 1, 1997, the Company completed the acquisition of the common
stock of Trend ("Trend Acquisition") for $18 million in cash and 250,000 shares
of common stock which equates to $10.64 per share based on the appraisals of the
fair market value of the property and equipment acquired of $21,532,000. The
Company incurred costs of approximately $307,000 in connection with this
acquisition.


                                     F-12
<PAGE>   62


                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


         The Trend Acquisition was accounted for as a purchase. The following is
an analysis of the allocation of the purchase price:

<TABLE>
<CAPTION>
                                                                       (in thousands)
<S>                                                                    <C>      
Current assets..................................................         $   2,734
Property and equipment..........................................            21,532
Goodwill .......................................................             6,330
Current liabilities ............................................            (2,265)
Long-term liabilities ..........................................            (1,340)
Deferred income tax liability ..................................            (6,330)
                                                                         ---------
Purchase price .................................................         $  20,661
                                                                         =========
</TABLE>

         On May 30, 1997, the Company acquired WD Equipment, L.L.C. (which owned
six drilling rigs, but had no operations) from Ward Drilling Company, Inc.
("Ward Acquisition") for approximately $8 million in cash and 400,000 shares of
common stock which equates to $8.95 per share based on the appraisal of the fair
market value of the assets acquired of $11,931,000. The Company also issued
warrants to purchase 200,000 shares of common stock at $10.00 per share. The
warrants had an estimated fair market value of $294,000 at the agreement closing
date and were recorded as an increase in property and equipment and additional
paid in capital.

         On October 16, 1997, the Company completed the acquisition of Bonray
("Bonray Acquisition"), subject to certain working capital adjustments, for
3,015,000 shares of common stock, which equates to $11.86 per share based on the
appraisals of the fair market value of the property and equipment acquired of
$34,976,000.

         The Bonray Acquisition was accounted for as a purchase. The following
is an analysis of the allocation of the purchase price:

<TABLE>
<CAPTION>
                                                                            (in thousands)
<S>                                                                         <C>      
Current assets..............................................................   $  4,020
Property and equipment......................................................     34,976
Goodwill ...................................................................      6,750
Current liabilities ........................................................     (3,162)
Long-term liabilities ......................................................        (74)
Deferred income tax liability ..............................................     (6,750)
                                                                               -------- 
Purchase price .............................................................   $ 35,760
                                                                               ========
</TABLE>

         The following is the unaudited pro forma results of operations as if
Trend, Ward and Bonray had been acquired January 1, 1996 and January 1, 1997,
respectively:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31
                                                                    --------------------------
                                                                       1996             1997
                                                                          (in thousands)
<S>                                                                 <C>               <C>     
          Revenues.............................................     $  47,952         $ 80,670
                                                                    =========         ========
          Net income (loss)....................................     $  (1,848)        $    256
                                                                    =========         ========
          Net income (loss) per common share, basic............     $    (.33)        $    .03
                                                                    =========         ========
          Net income (loss) per common share, diluted..........     $    (.32)        $    .02
                                                                    =========         ========
</TABLE>


         On June 26, 1998, the Company completed the acquisition of 25 drilling
rigs and certain related equipment and other assets from TransTexas Gas
Corporation ("TransTexas") for $75 million in cash ("the TransTexas
Acquisition"). The purchase was accomplished through the issuance of $100
million of the Company's 11% Senior Notes due 2005 (the "Senior Notes
Offering"). The Company received net proceeds of approximately $97 million, and
used the additional proceeds for general corporate purposes, including capital
expenditures for acquisitions of


                                     F-13
<PAGE>   63


                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


additional drilling rigs and related equipment and the refurbishment of rigs.
All of the acquired rigs are mechanical rigs capable of drilling to depths of
12,000 feet or greater, with twelve of the rigs capable of drilling to depths of
20,000 feet or greater. Four of the drilling rigs are awaiting refurbishment. In
addition, the Company and TransTexas have entered into an Alliance Agreement
that provides that for a period of 30 months, if TransTexas engages in any land
drilling activities in Alabama, Louisiana, Mississippi, Oklahoma, New Mexico or
Texas, TransTexas will engage the Company to provide up to 15 of the Company's
rigs for wells on which TransTexas serves as operator.

NOTE E -- PROPERTY AND EQUIPMENT

         Major classes of property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                             DECEMBER 31
                                                                    --------------------------
                                                                       1997             1998
                                                                          (in thousands)
<S>                                                                 <C>               <C>     
Drilling rigs and components.................................       $ 173,674        $ 310,361
Automobiles, trucks, and trailers............................           2,041            4,916
Buildings and property.......................................             461            2,061
Furniture, fixtures, and other...............................             532              751
                                                                    ---------        ---------
                                                                      176,708          318,089
Less accumulated depreciation ...............................          21,035           32,773
                                                                    ---------        ---------
                                                                    $ 155,673        $ 285,316
                                                                    =========        =========
</TABLE>

NOTE F -- CHANGE IN ESTIMATED LIVES

         Effective January 1, 1996, the Company changed the estimated remaining
lives of certain drilling component equipment from 84 months to 120 months and
changed the estimated remaining life of drill collars and pipe from 36 months to
60 months. After review and study by the Company, the useful lives of drilling
rigs acquired after January 1, 1996 were changed from 84 months to 144 months.
These changes were made to more closely approximate the remaining useful lives
of such assets. The effect of these changes was to increase the historical net
earnings by approximately $405,000 and to increase pro forma net earnings by
approximately $251,000, net of pro forma income taxes of $154,000, or $.02 per
share for the year ended December 31, 1996.

         Effective July 1, 1997, the Company changed the estimated remaining
lives of its drilling rigs and other related drilling equipment to 180 months
from remaining lives of 144 months. These changes were made to more closely
approximate the remaining useful lives of such assets. The effect of these
changes was to increase earnings for the year ended December 31, 1997 by
approximately $505,000, net of income taxes of $310,000, or $.04 per share, on a
diluted basis.

NOTE G -- INCOME TAXES

         On October 28, 1996, Anadarko conveyed its operating assets to its
wholly owned subsidiary, BDC, which caused a change in tax status of the
drilling operations from a partnership to a taxable corporation. A deferred tax
asset was recognized for the temporary differences, which existed at the date of
conveyance together with a related valuation allowance. At December 31, 1998,
the Company has net operating loss carry forwards of approximately $54.9
million, of which $418,000, $11.6 million and $42.9 million will expire in 2011,
2012 and 2013, respectively, if unused.

         Income tax expense (benefit) for the years ended December 31, is
summarized as follows:


<TABLE>
<CAPTION>
                                                     1996       1997       1998
                                                    ------     ------    -------
                                                           (in thousands)
<S>                                                 <C>        <C>       <C>    
Current.........................................    $   --     $   --    $    --
Deferred........................................        17      1,428     (2,880)
                                                    ------     ------    -------
                                                    $   17     $1,428    $(2,880)
                                                    ======     ======    =======
</TABLE>


         Components of net deferred income tax liabilities at December 31, are
as follows:



                                     F-14
<PAGE>   64


                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


<TABLE>
<CAPTION>
                                                              1997          1998
                                                            ---------     ---------
                                                                (in thousands)
<S>                                                         <C>           <C>      
Deferred tax assets (liabilities)
  Operating loss carryforwards..........................    $     760     $  20,867
  Property and equipment ...............................      (14,314)      (31,315)
                                                            ---------     ---------
     Net deferred tax liabilities.......................    $ (13,554)    $ (10,448)
                                                            =========     =========
</TABLE>

         The Company's actual income tax expense, before extraordinary item,
differed from the federal statutory expense (based on a federal statutory rate
of 34%) for the years ended December 31, as follows:


<TABLE>
<CAPTION>
                                                                         1996       1997       1998
                                                                       -------    -------    --------
                                                                                (in thousands)
<S>                                                                    <C>        <C>        <C>      
Income tax expense (benefit) at federal statutory rate .............   $   146    $ 1,069    $ (2,782)
State income taxes .................................................        --        201        (522)
Amortization of goodwill ...........................................        --        142         331
Other items ........................................................                   16          93
Exclusion of partnership income taxes ..............................      (129)        --          --
                                                                       =======    =======    ========
                                                                       $    17    $ 1,428    $ (2,880)
                                                                       =======    =======    ========
</TABLE>

         The Company's valuation allowance on tax assets was established October
28, 1996 due to a change in taxable status and decreased $1,818,000 during the
period from October 28, 1996 to December 31, 1996. The Company was not a taxable
entity in 1995. Effective December 1, 1996, the Company acquired assets with
deferred tax liabilities of approximately $2 million in which the purchase price
allocation resulted in the reduction of the Company's tax asset valuation
allowance of approximately $1,724,000. In 1997 the Company acquired assets with
deferred tax liabilities of approximately $13,080,000, which eliminated the
Company's tax asset valuation allowance.

NOTE H -- LONG-TERM DEBT AND SUBORDINATED NOTES

         Long-term debt at December 31, 1996 consisted of borrowings under loan
agreements (the "Loan Agreements") which provide for a term loan (the "Term
Loan") and a revolving loan (the "Revolving Loan"). In May 1997, the Company
amended and increased the availability under the Loan Agreements. The Term Loan
provided the Company up to $30.5 million for the purchase of additional land
drilling rigs, the refurbishment of such rigs and equipment and for working
capital purposes. The Revolving Loan provided revolving credit loans, subject to
a borrowing base comprised of a portion of the Company's accounts receivable, of
up to $10 million ($2 million of which is available for the issuance of letters
of credit) for general corporate purposes. The Company has not borrowed under
the Revolving Loan Agreement since November 1997 but has approximately $1.3
million of letters of credit outstanding thereunder. Amounts outstanding under
the Revolving Loan (none at December 31, 1997 or 1998) bear interest based on
Fleet National Bank's prime rate plus 1.5% (approximately 10% and 9.25% at
December 31, 1997 and 1998, respectively) and mature in April 2000. A portion of
the proceeds from the Initial Public Offering was used to repay all outstanding
amounts under the Revolving Loan Agreement. The Company periodically pays
certain fees under the Revolving Loan Agreement, including a commitment fee
equal to 0.5% of the unused portion of the maximum commitment. Fleet's
commitment to lend under the Revolving Loan Agreement ends in April 2000. The
Company may terminate the Revolving Loan Agreement upon 60 days' prior written
notice to Fleet and the payment of a termination fee of 2% of the facility, if
terminated prior to May 1, 1999, and 1% of the facility, if terminated on or
after May 1, 1999.

         The Revolving Loan Agreement is collateralized by certain assets of
Bayard and Trend that were transferred to Bayard Drilling pursuant to the
Company's corporate reorganization into a holding company structure. These
assets include accounts receivable, certain equipment and inventory, the
Company's El Reno, Oklahoma yard and the same 12 drilling rigs that
collateralize the Term Loan Agreement, together with equipment and drilling
contracts related to such rigs. The Revolving Loan Agreement is also
collateralized by the receivables and certain other assets of Bayard, Bayard
Drilling, Bayard LLC, Trend and Bonray. Until May 14, 1998, the Revolving Loan
Agreement was also collateralized by all drilling rigs of Bayard and Trend, upon
which date Fleet released all but such 12 rigs and related assets. Bayard
Drilling, Bayard LLC, Trend and Bonray have agreed to guarantee the



                                     F-15
<PAGE>   65


                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


obligations under the Revolving Loan Agreement. The Revolving Loan Agreement
contains customary restrictive covenants that are substantially similar to the
covenants contained in the Term Loan Agreement.

         Amounts outstanding under the Term Loan of approximately $27.1 million
and $15.5 million at December 31, 1997 and 1998, respectively, bore interest, at
the election of the Company, at floating rates equal to Chase Manhattan Bank's
prime rate plus 2.0% (approximately 10% and 9.75% at December 31, 1997 and 1998,
respectively) or LIBOR plus 4.25% (approximately 10% and 9.89% at December 31,
1997 and 1998, respectively). The Term Loan requires equal monthly payments of
principal, together with accrued interest, in amounts sufficient to repay
borrowings at maturity on March 31, 2002. The Loan Agreements were
collateralized by substantially all of the assets of the Company, including
drilling rigs, equipment and drilling contracts, and contained customary
restrictive covenants (including covenants restricting the ability of the
Company to pay dividends or encumber assets) and an affirmative covenant to
maintain Total Available Liquidity (as defined in the Loan Agreements) of at
least $4.5 million through December 31, 1997 and $3 million through December 31,
1998. Pursuant to the Loan Agreements, the Company must maintain certain
financial ratios, including a Cash Flow Coverage ratio (as defined in the Loan
Agreements) of at least 1.25 to 1 until December 1997, 1.5 to 1 in 1998 and 1.75
to 1 thereafter, and a ratio of Total Liabilities (as defined in the Loan
Agreements) to Tangible Net Worth no greater than 1.25 to 1 in 1997 and 1 to 1
in 1998. Under the Loan Agreements the Company was obligated to pay certain
fees, including an annual commitment fee in an amount equal to 0.5% of the
unused portion of the commitment.

         The Company incurred the Term Loan to finance the purchase of certain
land drilling rigs and equipment and to provide working capital. On May 14,
1998, in connection with the Company's corporate reorganization into a holding
company structure, (i) the Company prepaid $6.2 million of the Term Loan,
obtained a release of all collateral for the Term Loan, except 12 drilling rigs
and related equipment, and transferred to Bayard Drilling, L.P., the Company's
wholly owned operating subsidiary ("Bayard Drilling"), substantially all of its
assets, subject to such liens, and (ii) Bayard Drilling and Bayard Drilling,
L.L.C., another wholly owned subsidiary of the Company ("Bayard L.L.C."), agreed
to guarantee the Term Loan. Prior to such prepayment and collateral release, the
Term Loan was secured by substantially all of the assets of Bayard and Trend. In
connection with the Senior Notes Offering, the Term Loan was further amended to
add Bonray as a guarantor of the Company's obligations.

         The Term Loan Agreement requires the Company and its subsidiaries to
maintain collateral security with a value based on the appraised fair market
value and orderly liquidation value of the Company's drilling rigs and
associated rig equipment, equivalent to the outstanding balance of the Term
Loan. The Company must also adhere to specified cash flow, leverage and
liquidity ratios and minimum net worth and liquidity requirements. For example,
the Term Loan Agreement restricts the ability of the Company and its
subsidiaries to pay dividends, make investments and capital expenditures and
incur indebtedness and liens. The Term Loan Agreement also required the
maintenance of liquidity of $3 million through December 31, 1998. The Term Loan
Agreement also contains affirmative covenants typical of secured loan
arrangements with finance companies, such as requiring financial reports,
insurance maintenance, legal, environmental and permit compliance.

         Each of the Company's wholly owned domestic subsidiaries (each, a
"Guarantor") has issued a guarantee (a "Guarantee") of the Company's obligations
under the Notes. The Guarantees are senior unsecured obligations of each
respective Guarantor and rank pari passu in right of payment with all other
indebtedness and liabilities of such Guarantor that are not subordinated by
their terms to other indebtedness of such Guarantor and are senior in right of
payment to all subordinated indebtedness of such Guarantor.

         Additionally, the Company issued Subordinated Notes due May 1, 2003 in
the original principal amounts of $18 million and $2.52 million (the
"Subordinated Notes") to Chesapeake Energy Corporation ("Chesapeake") and Energy
Spectrum Partners LP ("Energy Spectrum"), respectively. The Subordinated Notes
bore interest at either (i) 11% per annum, payable in cash or (ii) 12.875% per
annum, payable in the form of additional Subordinated Notes, which interest is
payable quarterly in arrears. As a result of the debt discount on Energy
Spectrum's Subordinated Notes, the effective interest rate approximated 14%. On
each quarterly interest payment date, the Company may make an election as to the
interest rate to be applied for the previous quarter. The Subordinated Notes are
redeemable, solely at the option of the Company, in whole or in part, at any
time after May 31, 1998 at varying redemption prices. The Company must offer to
redeem the Subordinated Notes upon the occurrence of certain events constituting
a "Change of Control" (as defined in the Subordinated Notes) at a redemption
price equal to



                                     F-16
<PAGE>   66
                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


100% of the principal amount thereof, together with accrued and unpaid interest,
if any, to the date of redemption. The Subordinated Notes are convertible into
Common Stock at the option of the Company, in whole or in part, in conjunction
with a "Convertible Event" (as defined in the Subordinated Notes), which
includes certain underwritten public offerings (including the Initial Public
Offering), mergers, consolidations and other business combination transactions.
The Subordinated Notes are general unsecured subordinated obligations of the
Company that are subordinated in rights of payment to all existing and future
senior indebtedness of the Company, pari passu with all existing and future
subordinated indebtedness of the Company and senior in right of payment to all
future junior subordinated indebtedness of the Company. At December 31, 1997 the
amount of Subordinated Notes outstanding was approximately $2.5 million as the
$18 million Subordinated Note to Chesapeake was extinguished in November 1997
with proceeds from the Initial Public Offering. See Note "K" for further
discussion on the discount that was recorded related to this subordinate debt.
In April 1998, the Company redeemed in full the $2.5 million principal amount of
subordinated notes issued to Energy Spectrum Partners LP together with accrued
interest of $47,740.

         On June 26, 1998, the Company issued $100 million of Senior Notes and
used $75 million of such proceeds to fund the TransTexas Acquisition. The
Company used the remaining proceeds for general corporate purposes, including
acquisitions of additional drilling rigs and related equipment and the
refurbishment of rigs. The Senior Notes mature on June 30, 2005. Interest on the
Senior Notes is payable semi-annually on June 30 and December 31 of each year,
commencing on December 31, 1998. The Senior Notes are not redeemable prior to
June 30, 2003, on or after which the Senior Notes will be redeemable, in whole
or in part, at the option of the Company, at the redemption prices set forth in
the Indenture relating to the Senior Notes (the "Indenture"), plus accrued and
unpaid interest and certain other charges, if any, thereon to the date of
redemption. In addition, at any time on or before June 30, 2001, the Company may
redeem up to 35% of the original aggregate principal amount of the Senior Notes
with the net proceeds of certain qualifying equity offerings at a redemption
price equal to 111% of the principal amount thereof, plus accrued and unpaid
interest and certain other charges, if any, thereon to the date of redemption,
provided that at least $65 million in aggregate principal amount of Senior Notes
remains outstanding immediately after the occurrence of such redemption. Upon a
transaction resulting in a change of control, each holder of the Senior Notes
will have the right to require the Company to repurchase all or any part of such
holder's Senior Notes at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest and certain other charges, if any, thereon to
the date of repurchase. The Senior Notes are senior unsecured obligations of the
Company and rank pari passu in right of payment with all existing and future
senior indebtedness and other senior obligations of the Company, and senior in
right of payment to all future subordinated indebtedness of the Company.

         The Company also has issued three amortizing term notes (the "Top Drive
Notes") totaling approximately $2.2 million outstanding at December 31, 1998.
This debt bears interest at 9.5% per annum and is collateralized by certain
equipment (top drives) of the Company and letters of credit in amounts totaling
approximately $700,000. The debt represented by the Top Drive Notes matures in
July, October and November of 2000. The note agreement relating to the Top Drive
Notes does not contain any restrictive financial covenants but contains a cross
default to the Term Loan Agreement and the Revolving Loan Agreement.

         The Company recorded an extraordinary loss of $4.0 million (net of
income tax effect of $1.3 million) in the fourth quarter of 1997 relating to the
early extinguishment of certain subordinate debt in the amount of approximately
$2.1 million and other payments in the amount of approximately $3.2 million by
utilizing proceeds from the Company's Initial Public Offering completed in
November 1997. For the year ended December 31, 1998, the Company recorded an
extraordinary loss in the amount of $338,000, net of income taxes of
approximately $244,000 from the early extinguishment of certain subordinate debt
in the amount of approximately $2.5 million, and from the payment on term notes
in the amount of $6.2 million using proceeds from the Company's initial public
offering.

         At December 31, 1998, the aggregate yearly maturities of long-term
obligations are as follows:

<TABLE>
<S>                                                                                        <C>
              YEAR ENDING DECEMBER 31
                                 1999..............................................        $   6,050,000
                                 2000..............................................            5,723,000
                                 2001..............................................            4,767,000
                                 2002..............................................            1,193,000
                                 2003..............................................                    0
                                 Thereafter .......................................          100,000,000
                                                                                           -------------
                                                                                           $ 117,733,000
                                                                                           =============
</TABLE>


                                     F-17
<PAGE>   67
NOTE I -- RELATED PARTY TRANSACTIONS

         Before the corporate capitalization, Anson Gas Corporation, a wholly
owned affiliate of APLP, served as the managing general partner responsible for
all management and operational functions of the Company and charged the Company
for such expenses. The Company expensed approximately $198,000 for such services
received in 1996.

         Prior to December 31, 1996, the Company and its affiliates made
advances to each other from time to time, which generally had no specific
repayment terms.

         In December 1996, Anadarko granted the Company a transferable option,
exercisable at any time prior to June 30, 1998, to either purchase from Anadarko
a storage yard located in Weatherford, Oklahoma (the "Weatherford Storage Yard")
for a price of $1,000 in cash or lease from Anadarko, for any period specified
by the Company through a date not later than December 31, 1999, the Weatherford
Storage Yard for a lease price of $100 per year. In August 1997, the Company
acquired from Anadarko approximately 5 acres of land also in Weatherford,
Oklahoma, in consideration for the relinquishment by the Company of the option
to acquire or lease the Weatherford Storage Yard.

         In January 1998, the Company engaged Energy Spectrum Advisors Inc. to
provide financial advisory and investment banking services in connection with a
possible restructuring or refinancing of the Company's existing funded debt. As
compensation for such services, the Company agreed to pay Energy Spectrum
Advisors Inc. an initial fee of $50,000 and an additional fee of $25,000 per
month through the term of the engagement. The engagement letter expired on May
31, 1998 but was extended to June 30, 1998. The Company paid a total of $175,000
in fees to Energy Spectrum Advisors Inc. in connection with this arrangement. In
May 1997, the Company paid Energy Spectrum a fee in the amount of $220,000 for
financial advisory and other services rendered to the Company in connection with
the completion of the Trend Acquisition, including the evaluation and
negotiation of the Trend Acquisition and for assistance in the arrangement of
alternative financing sources and structuring, negotiating and closing the
amended financing arrangements with CIT and Fleet. The Company also reimbursed
Energy Spectrum for expenses incurred in connection with the rendering of such
services during 1997 and 1998.

         The Company purchased drilling equipment and supplies from an affiliate
totaling $2,862,000 in 1996. The Company also transferred drilling equipment to
an affiliate at the Company's basis totaling $29,000, net of accumulated
depreciation, which resulted in a decrease in payable to affiliate. The Company
has in the past purchased rigs and related equipment from U.S. Rig & Equipment,
Inc., an affiliate of Roy T. Oliver, who served as a director of the Company
until his resignation on August 13, 1997. During 1997, the Company purchased
approximately $5.0 million from U.S. Rig & Equipment, Inc. Additionally, in
August 1997, the Company sold one of its rigs to an affiliate of Mr. Oliver for
$500,000. Additionally, in November 1997, the Company agreed to acquire six rigs
and related drilling equipment for $14 million.. One of these rigs was
refurbished and placed into service during 1998. The remaining five rigs will
require additional refurbishment prior to being placed into service. In
connection therewith, the Company made a cash down payment of $3.5 million and
closed the transaction in January 1998.

         The Company has engaged affiliates of APLP and other related affiliates
for trucking services related to the movement of the Company's rigs on numerous
occasions. During 1997 and 1998, the Company utilized these affiliates in
consideration for such trucking services of approximately $1.7 million and
$39,000, respectively.

         Since December 13, 1996, APLP has made available to the Company certain
of APLP's employees, office space and administrative equipment, such as computer
and telephone systems. In consideration for such assistance, the Company has
reimbursed APLP approximately $236,000 as of December 31, 1997.



                                     F-18
<PAGE>   68


                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


         The Company has engaged Geronimo Trucking Company, an affiliate of
Board member Lew O. Ward, to provide trucking services related to the movement
of the Company's rigs on numerous occasions. During 1997 and 1998, the Company
paid Geronimo approximately $338,000 and $916,000, respectively.

         Interest expense incurred during 1997 included approximately $680,000
to current or former affiliates.

NOTE J -- SIGNIFICANT CUSTOMERS

         The Company's customers include independent oil and gas producers and
major oil companies. During the year ended December 31, 1998, the three largest
customers for the Company's contract drilling services were Chesapeake, Sonat
and TransTexas, which accounted for approximately 16%, 9% and 8% of total
revenues, respectively. For the year ended December 31, 1998, less than 1% of
revenues were generated from current affiliated customers. During the year ended
December 31, 1997, the three largest customers for the Company's contract
drilling services were Chesapeake, Union Pacific Resources Corporation and
Sonat, which accounted for approximately 32%, 12% and 8% of total revenues,
respectively. During the year ended December 31, 1997, approximately 30% of
revenues were generated from current or former affiliated customers. Except for
six rigs under long term contracts with Chesapeake, dayrates billed to
affiliated customers in 1997 approximated those billed to nonaffiliated
customers. During 1996, sales to two customers were, respectively, 75%
(inclusive of $798,000 attributable to Chesapeake, which became an affiliate in
December 1996) and 18% of drilling revenues.

NOTE K -- STOCKHOLDER'S EQUITY AND OPTIONS

         In December 1996, the Company issued 2,000,000 shares of Common Stock
to Anadarko for the operating assets of BDC, Anadarko's subsidiary. Further, the
Company issued 2,000,000 shares of Common Stock to Energy Spectrum for $10
million cash. The Company also acquired six drilling rigs and related equipment
by the issuance of 1,600,000 shares of Common Stock and put options on the
Company's common stock. The drilling rigs were recorded in accordance with
appraisals of the estimated fair value of the assets acquired ($9.5 million) and
the net deferred income tax liability assumed. The estimated fair value of the
put options are recorded as additional contributed capital to the Company.

         The Company executed in December 1996 certain drilling agreements to
supply six drilling rigs to Chesapeake at rates equal to defined comparable
market rates but not less than $5,000 per day per rig. The Company granted the
operator an option to purchase 2,000,000 shares of Common Stock at $6 per share,
subject to performance of the operator under the drilling agreement. The
estimated fair value of the options of $1,100,000 was recorded as additional
paid-in capital and a deferred charge to be amortized over a twelve month period
consistent with the annual negotiations of contract terms. At December 31, 1997,
the deferred charge was fully amortized, and the Company and Chesapeake were
unable to agree on an appropriate rate adjustment related to these drilling
agreements, therefore the Company exercised its option to terminate the
Chesapeake Drilling Agreements

         On December 10, 1996, the Company granted the issuer of the Term Loan
(Note "H") warrants to immediately purchase up to 290,000 shares of the
Company's Common Stock at $8 per share or up to 300,000 shares at $8 per share
when total outstanding Common Stock exceeds 6,000,000 shares. The warrants
expire at the earlier of December 13, 2001 or eighteen months after completion
of an initial public stock offering by the Company. The warrant holder can also
elect to receive in stock the excess of the stock market value over the warrant
exercise price. These warrants have an estimated fair value of $219,000, which
has been recorded as debt issue costs and is being amortized over the term of
the loan.

         In February 1997, the Company sold 100,000 shares of Common Stock at
$2.50 per share to the President of the Company. These shares are subject to the
terms of a Restricted Stock Award Agreement. Deferred compensation in the amount
of $250,000 was recorded related to this stock grant as the purchase price was
below the fair market value of the Company's Common Stock at the date of grant.
See - Note "O".

         The Company purchased during May 1997, two drilling rigs from U.S. Rig
& Equipment, Inc. for cash and granted options to purchase 100,000 shares of
Common Stock at $8 per share.



                                     F-19
<PAGE>   69


                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


         In connection with the issuance of Subordinated Notes executed in May
1997, the Company issued 1,140,000 shares of Common Stock at $7 per share.
Additionally, the Company issued two series of detachable Warrants, designated
as Series A Warrants and Series B Warrants. The Series A Warrants were
exercisable at a price of $.01 per share and the Series B Warrants are
exercisable at $7.50 per share. Both Series of Warrants expire 72 months from
issuance. The Company issued Series A Warrants and Series B Warrants
representing the right to purchase 798,000 shares and 912,000 shares of Common
Stock, respectively. The fair market value of these warrants at the agreement
closing date was $6 million, $4,024,000 of which was attributable to the
Subordinated Notes. The warrant value applicable to the Subordinated Notes was
allocated between the Subordinated Notes and warrants and recorded as a discount
to the Subordinated Notes and additional paid in capital. The remaining discount
to be amortized at December 31, 1997 was approximately $429,000. The
amortization of this discount has been included in interest expense for 1997 and
the first quarter of 1998, with the remaining discount included in the
extraordinary loss recorded in 1998 .

         In June 1997, the Company granted options to employees to purchase
59,600 shares of Common Stock at $8 per share. Deferred compensation in the
amount of $59,600 was recorded related to these stock options as the exercise
price was below the fair market value of the Company's Common Stock at the date
of grant. See - Note "O". In November 1997, the Company granted options to
employees and executive officers to purchase 397,000 shares of Common Stock at
$23 per share. During 1996 and 1997, the Company issued stock options to James
E. Brown, Edward S. Jacob and David E. Grose, each executive officers. These
options issued pursuant to the 1997 Stock Option and Stock Award Plan, permit
the purchase of 200,000, 50,000 and 50,000 shares of Common Stock, respectively,
at an exercise price of $5, $5 and $10 per share, respectively. Messrs. Brown
and Grose have not exercised any of these options, and all of their options
remain outstanding at the date of this document. Mr. Jacob exercised options for
10,000 shares during 1998. Mr. Jacob received an additional 6,500 shares during
1999 in conjunciton with his severance in exchange for certain waivers and
satisfaction of all obligations of the Company to Mr. Jacob under the 1997 Stock
Option and Stock Award Plan or any other agreement. .

         On July 31, 1997, Energy Spectrum exercised in full its Series A
Warrants, at a price of $0.01 per share, for 98,000 shares of Common Stock.

         At the August 19, 1997 Board of Directors meeting, the number of
authorized shares of Common Stock was increased from 10,000,000 to 100,000,000
and the number of authorized shares of preferred stock was increased from
2,000,000 to 20,000,000. Additionally, a two-for-one stock split effected as a
stock dividend on August 22, 1997 was approved. All stock option data, per share
earnings and references to common stock have been restated to give effect to the
stock split.

         In October 1997, the Company consummated the Chesapeake Transactions,
resulting in the cancellation of the Chesapeake Option, the payment to the
Company of $9 million in cash by Chesapeake, the redemption of the $18 million
principal amount of Subordinated Notes held by Chesapeake for an aggregate cash
payment by the Company of $18.2 million and the issuance of 3,194,000 shares of
Common Stock to Chesapeake.

         In April 1998, the Company redeemed in full the $2.52 million principal
amount of Subordinated Notes issued to Energy Spectrum together with accrued
interest of $47,740. In connection therewith, Energy Spectrum waived its rights
to require the Company to redeem the Subordinated Notes at 110% of par value.
This redemption coupled with the redemption of $18 million principal amount of
Subordinated Notes from Chesapeake at the time of the Initial Public Offering,
leaves no Subordinated Notes outstanding.

         During 1998, the Company granted options to employees to purchase
15,000 shares of Common Stock at a weighted average exercise price of $12.23 per
share and granted options to executive officers to purchase 353,000 shares of
Common Stock at a weighted average exercise price of $6.02 per share. None of
such options had been exercised, and all of such options remained outstanding at
December 31, 1998.

NOTE L -- COMMITMENTS AND CONTINGENCIES

         The Company has entered into two-year employment agreements with three
executive officers, of which two have expired by their own term, which provide
for the payment of the remaining term of each agreement upon a 



                                     F-20
<PAGE>   70


                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


change of control. As of December 31, 1998, benefits under such agreements,
assuming a change of control, would aggregate approximately $52,500.

         As of December 31, 1998, the Company had no construction commitments
for rig refurbishment.

NOTE M -- LITIGATION

         A purported class action lawsuit is pending against the Company,
certain directors and officers of the Company, the managing underwriters of the
Initial Public Offering, and certain current and former stockholders of the
Company, alleging violations of federal securities laws in connection with the
Initial Public Offering. The lawsuit, Yuan v. Bayard Drilling Technologies,
Inc., et al. ("Yuan"), was filed on February 3, 1998 in the United States
District Court for the Western District of Oklahoma. The principal plaintiff in
Yuan is Tom Yuan. The defendants in this case include Bayard, Chesapeake, Energy
Spectrum LLC, James E. Brown, David E. Grose, Carl B. Anderson, III, Merrill A.
Miller, Jr., Sidney L. Tassin, Lew O. Ward, Mike Mullen, Roy T. Oliver,
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers, Inc.,
Prudential Securities, Inc., Rauscher Pierce Refsnes, Inc. (a predecessor to
Dain Rauscher Incorporated) and Raymond James & Associates, Inc.

         The plaintiffs in this lawsuit purport to sue on their own behalf and
on behalf of all persons who purchased shares of Bayard Common Stock on or
traceable to the Initial Public Offering. In the lawsuit, plaintiffs allege
claims against all defendants under the Securities Act. The plaintiffs allege
that the registration statement and prospectus for the Initial Public Offering
contained materially false and misleading information and omitted to disclose
material facts. In particular, the plaintiffs allege that such registration
statement and prospectus failed to disclose financial difficulties of
Chesapeake, the Company's largest customer, and the effects of such difficulties
on Chesapeake's ability to continue to provide the Company with substantial
drilling contracts. The complaint further allege that the Company failed to
disclose pre-offering negotiations with R. T. Oliver Drilling, Inc., whom the
plaintiffs allege was a related party, for the purchase of drilling rigs. In
addition, the complaint allege that the Company failed to disclose that its
growth strategy required costly refurbishment of older drilling rigs that would
dramatically increase the Company's costs, which could not be sustained by
internally generated cash flow. Plaintiffs are seeking rescission and damages.

         Two other suits, Khan v. Bayard Drilling Technologies, Inc., et al.
("Khan") and Burkett v. Bayard Drilling Technologies, Inc., et al. ("Burkett"),
which were filed in District Court in and for Oklahoma County, State of Oklahoma
on January 14, 1998 and February 2, 1998, respectively, and alleged essentially
the same claims as Yuan, were dismissed without prejudice in May 1998 on a joint
application filed by all parties. The plaintiffs in Khan and Burkett, along with
others, have been appointed as lead plaintiffs in the Yuan federal court suit,
now styled to include the other lead plaintiffs, as Yuan, et al., and an amended
consolidated complaint was filed on July 30, 1998. A motion to dismiss the
claims in this lawsuit has been filed by Bayard and the other defendants and is
currently pending before the court.

         Bayard is also involved in litigation arising from time to time in the
ordinary course of its business, including workers' compensation claims and
disputes arising out of its drilling activities. Such disputes include two
claims filed against Bayard and Marathon Oil Company on November 13, 1998 and
February 17, 1999 in the District Court of Washita County in the State of
Oklahoma. Eldred L. and Patricia A. Schneberger and Irene F. and James H.
Howard, the plaintiffs in these lawsuits, seek remedies including an order of
abatement and actual, consequential and punitive damages for losses allegedly
incurred in connection with a drilling project that utilized one of Bayard's
rigs. These lawsuits are in preliminary stages with initial discovery
commencing, thus the Company is unable to estimate the potential for liability
on these claims.

         The Company believes the allegations in the lawsuits referenced above
are without merit and is defending vigorously the claims brought against it. The
Company is unable, however, to predict the outcome of these lawsuits or the
costs to be incurred in connection with their defense and there can be no
assurance that this litigation will be resolved in the Company's favor. An
adverse result or prolonged litigation could have a material adverse effect on
the Company's financial position or results of operations.



                                     F-21
<PAGE>   71


                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE N -- EMPLOYEE BENEFIT PLAN

         The Company has a profit sharing plan for certain eligible employees
who have attained the age of 21 and completed at least one year of service.
Participants may contribute up to 20% of compensation for any plan year. The
Company's discretionary contribution is based on the participants total years of
service. The Company has made contributions of approximately $504,635 through
December 31, 1998.

NOTE O -- BENEFIT AND COMPENSATION PLAN

         In April 1997, the Board of Directors approved the adoption of an
Employee Stock Plan ("the Plan") whereby 1,600,000 shares of Common Stock are
authorized for issuance under the Plan to officers and employees. The Plan
permits the issuance of qualified or nonqualified stock options, as well as
granting of certain other awards, including shares of restricted stock. Options
granted become vested at the rate of 20% per year one year after being granted,
with the options expiring six years from the original grant date. The exercise
price for options granted through December 31, 1998 was based on the Company's
estimate of the fair market value on the date of the grant. Through December 31,
1998, 1,283,600 options and 100,000 shares of restricted stock (denoted below)
were issued under the Plan, 289,020 of which were exercisable at December 31,
1998, at a weighted average exercise price of $15.41.

Activity pertaining to the Plan is as follows:

<TABLE>
<CAPTION>
                                                                    WEIGHTED
                                                    NUMBER OF       AVERAGE
                                                      SHARES     EXERCISE PRICE
                                                   -----------   --------------
<S>                                                <C>           <C>   
Outstanding at
  December 10, 1996............................             --            --
     Granted...................................        200,000        $ 5.00
     Exercised.................................             --            --
                                                   -----------
Outstanding at
  January 1, 1997..............................        200,000        $ 5.00
     Granted...................................        644,600        $19.17
     Forfeited.................................          2,500        $23.00
     Exercised ................................             --            --
                                                   -----------
Outstanding at
  January 1, 1998..............................        842,100        $15.75
     Granted...................................        463,500        $ 6.29
     Forfeited.................................         12,000        $23.00
     Exercised ................................         10,000        $ 5.00
                                                   -----------
  December 31, 1998............................      1,283,600        $12.27
</TABLE>

The fair value of each stock option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                        ASSUMPTION               1998               1997                1996
                                        ----------               ----               ----                ----
                          <S>                                  <C>                <C>                 <C> 
                                    Expected Term:               5.00               6.00                6.00
                              Expected Volatility:             38.88%             42.49%              40.00%
                          Expected Dividend Yield:                 0%                 0%                  0%
                          Risk-Free Interest Rate:              5.49%              6.01%               6.00%
</TABLE>

The following table summarizes information about stock options outstanding at
December 31, 1998:

<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING                                    OPTIONS EXERCISABLE
                              -------------------                                    -------------------
                           NUMBER           WGTD. AVG.                           NUMBER
      RANGE OF           OUTSTANDING        REMAINING         WGTD. AVG.       EXERCISABLE       WGTD. AVG.
  EXERCISE PRICES        AT 12/31/98       CONTR. LIFE      EXERCISE PRICE     AT 12/31/98     EXERCISE PRICE
  ---------------        -----------       -----------      --------------     -----------     --------------
<S>                      <C>               <C>              <C>                <C>             <C>  
   $2.50 to $4.99           100,000            4.00             $2.50            40,000            $2.50
  $5.00 to $10.00           742,100            4.88             $5.50            111,720           $5.76
  $10.01 to $23.00          541,500            5.64             $21.54           177,300           $21.48
  ----------------       -----------           ----             ------           -------           ------
  $5.00 to $23.00         1,383,600            4.84             $11.56           329,020           $14.52
</TABLE>



                                     F-22
<PAGE>   72


                       BAYARD DRILLING TECHNOLOGIES, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


         The Company applies APB Opinion 25 in accounting for the Plan. APB No.
25 requires that expense be recorded for any difference between the option price
and market value on the measurement date. Accordingly, because the exercise
price of all options equaled or exceeded the market price at date of grant, no
compensation cost has been recognized in 1998, 1997 or 1996. Had compensation
been determined on the basis of fair value pursuant to FASB Statement No. 123,
net income (loss) and earnings per share would have been reduced as follows:

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31
                                                                                 -----------
                                                                 1996               1997            1998
                                                                ------            --------         -------
<S>                                                             <C>               <C>              <C>      
Net income (loss):                                                  (in thousands, except per share data)
    As reported                                                 $  267            $ (2,086)        $ (5,582)
    Pro forma (net of effective tax of 38%)                        261              (2,677)          (5,692)
Earnings per share, basic and fully diluted:                       
    As reported, basic                                             .05                (.23)            (.31)
    Pro forma, basic                                               .05                (.30)            (.31)
    As reported, diluted                                           .05                (.18)            (.31)
    Pro forma, diluted                                             .05                (.23)            (.31)
</TABLE>

NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED)

         Summarized unaudited quarterly financial data for fiscal 1998 are as
follows ($ in thousands except per share data):

<TABLE>
<CAPTION>
                                                                                 QUARTERS ENDED
                                                                                 --------------
                                                  MARCH 31          JUNE 30        SEPTEMBER 30     DECEMBER 31
                                                  --------          -------        ------------    ------------
                                                    1998              1998             1998              1998
                                                    ----              ----             ----              ----
<S>                                               <C>               <C>              <C>              <C>     
Net sales........................................ $ 23,962          $20,215          $ 20,625         $ 14,270
Gross profit (loss) (a)..........................    5,986            4,262             3,733           (3,470)
Net income (loss) before extraordinary   
    item.........................................    1,757              739            (1,453)          (6,287)
Net income (loss) per share:
    Basis........................................      .10              .04              (.08)            (.35)
    Diluted......................................      .10              .04              (.08)            (.35)
</TABLE>

(a) Total revenue excluding interest and other income, less total costs and
expenses excluding depreciation and amortization expense.



                                     F-23
<PAGE>   73


(b) Reports on Form 8-K

         On October 21, 1998, the Company filed a Current Report on Form 8-K,
         dated October 19, 1998, reporting under Item 5 (other events) that the
         Company had entered into an agreement contemplating a merger whereby
         the Company would become a wholly owned subsidiary of Nabors
         Industries, Inc.


                                       48
<PAGE>   74


                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Oklahoma City, State of
Oklahoma, on March 30, 1999.

                                    BAYARD DRILLING TECHNOLOGIES, INC.


                                       By: /s/ JAMES E. BROWN
                                          -------------------------------------
                                             James E. Brown
                                             Chairman of the Board, President
                                             and Chief Executive Officer

         KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned directors
and officers of Bayard Drilling Technologies, Inc., a Delaware corporation,
which is filing an Annual Report on Form 10-K (the "Form 10-K") with the
Securities and Exchange Commission under the provisions of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), hereby constitutes and
appoints James E. Brown and David E. Grose, and each of them, his true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, and in any and all
capacities, to sign and file any and all amendments to this Form 10-K, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, it being understood that said
attorneys-in-fact and agents, and each of them, shall have full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person and that each of the undersigned hereby ratifies and
confirms all that said attorneys-in-fact as agents or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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


<TABLE>
<CAPTION>
SIGNATURE                       TITLE                                                DATE
<S>                             <C>                                                  <C>
/s/ JAMES E. BROWN              Chairman of the Board, President and Chief           March 30, 1999
---------------------           Executive Officer (Principal Executive
James E. Brown                  Officer)                              
                                



/s/ DAVID E. GROSE              Vice President and Chief Financial Officer           March 30, 1999
---------------------           (Principal Financial and Accounting Officer)
David E. Grose                  



/s/ CARL B. ANDERSON, III       Director                                             March 30, 1999
-------------------------
Carl B. Anderson, III



/s/ MARK LIDDELL                Director                                             March 30, 1999
---------------------
Mark Liddell


/s/ MERRILL A. MILLER, JR.      Director                                             March 30, 1999
--------------------------
Merrill A. Miller, Jr.



/s/ SIDNEY L. TASSIN            Director                                             March 30, 1999
---------------------
Sidney L. Tassin



/s/ LEW O. WARD                 Director                                             March 30, 1999
---------------------
Lew O. Ward
</TABLE>

                                       49
<PAGE>   75
                                INDEX TO EXHIBITS



          EXHIBIT
          NUMBER       DESCRIPTION
          -------      -----------
            2.1   --   Agreement and Plan of Merger, dated as of October 19,
                       1998, among Nabors Industries, Inc., Nabors Acquisition
                       Corp. VII and Bayard Drilling Technologies, Inc.
                       (incorporated by reference to Exhibit 2.1 of the
                       Company's Current Report on Form 8-K (File No. 1-3553)
                       filed with the Securities and Exchange Commission on
                       October 21, 1998).

            2.2   --   Amendment No. 1, dated as of January 15, 1999, to 
                       Agreement and Plan of Merger among Nabors Industries,
                       Inc., Nabors Acquisition Corp. VII and Bayard Drilling
                       Technologies, Inc. (incorporated by reference to Exhibit
                       2.2 to the Registration Statement on form S-4 of Nabors
                       Industries, Inc. (Registration No. 333-72397) dated
                       February 16, 1999).

            2.3   --   Amendment No. 2, dated as of February 12, 1999, to
                       Agreement and Plan of Merger among Nabors Industries,
                       Inc., Nabors Acquisition Corp. VII and Bayard Drilling
                       Technologies, Inc.(incorporated by reference to Exhibit
                       2.3 to the Registration Statement on form S-4 of Nabors
                       Industries, Inc. (Registration No. 333-72397) dated
                       February 16, 1999).

            3.1   --   Restated Certificate of Incorporation of the Company
                       (incorporated by reference to Exhibit 3.1 to the
                       Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).

            3.2   --   Amended and Restated Bylaws of the Company, as adopted 
                       August 19, 1997 (incorporated by reference to Exhibit 3.2
                       to the Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).

            4.1   --   Rights Agreement dated as of August 21, 1998 between
                       Bayard Drilling Technologies, Inc. and Norwest Bank
                       Minnesota, N.A., as Rights Agent, which includes as
                       Exhibit A the form of Certificate of Designations of
                       Series A Junior Participating Preferred Stock, as Exhibit
                       B the form of Rights Certificate and as Exhibit C the
                       Summary of Rights to Purchase Preferred Stock
                       (incorporated by reference to Exhibit 4.1 of the
                       Company's Current Report on Form 8-K (File No. 1-3553)
                       filed with the Securities and Exchange Commission on
                       August 24, 1998).

            4.2   --   First Amendment, dated as of October 19, 1998, to
                       Rights Agreement, dated as of August 21, 1998, between
                       Bayard Drilling Technologies, Inc. and Norwest Bank
                       Minnesota, N.A. (incorporated by reference to Exhibit 4.1
                       of the Company's Current Report on Form 8-K (File No.
                       1-3553) filed with the Securities and Exchange Commission
                       on October 21, 1998).

            9.1   --   Second Amended and Restated Stockholders and Voting 
                       Agreement, dated as of October 16, 1997, by and among the
                       Company and the several stockholders that are signatories
                       thereto (incorporated by reference to Exhibit 9.1 to the
                       Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).

            9.2   --   First Amendment to Second Amended and Restated
                       Stockholders and Voting Agreement, dated as of November
                       3, 1997, by and among the Company and the several
                       stockholders that are signatories hereto (incorporated by
                       reference to Exhibit 9.2 to the Company's Registration
                       Statement on Form S-1 dated December 31, 1997,
                       Registration No. 333-43535).

           10.1   --   1997 Stock Option and Stock Award Plan of the Company 
                       (incorporated by reference to Exhibit 10.1 to the
                       Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).

           10.2   --   Forms of Non-Qualified Stock Option Agreements under
                       the 1997 Stock Option and Stock Award Plan (incorporated
                       by reference to Exhibit 10.2 to the Company's
                       Registration Statement on Form S-1 dated November 4,
                       1997, Registration No. 333-34451).

           10.3   --   Master Agreement, dated as of November 26, 1996, by and
                       among the Company and the stockholders of the Company
                       that are signatories thereto (incorporated by reference
                       to Exhibit 10.5 to the Company's Registration Statement
                       on Form S-1 dated November 4, 1997, Registration No.
                       333-34451).



<PAGE>   76


           10.4   --   Securities Purchase Agreement, dated as of April 30,
                       1997, by and among the Company, Energy Spectrum Partners
                       LP and Chesapeake Energy Corporation (the "May Securities
                       Purchase Agreement") (incorporated by reference to
                       Exhibit 10.10 to the Company's Registration Statement on
                       Form S-1 dated November 4, 1997, Registration No.
                       333-34451).

           10.5   --   Form of Subordinated Note of the Company issued
                       pursuant to the May Securities Purchase Agreement
                       (incorporated by reference to Exhibit 10.11 to the
                       Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).

           10.6   --   Form of Series B Warrant to Purchase Common Stock of
                       the Company issued pursuant to the May Securities
                       Purchase Agreement (incorporated by reference to Exhibit
                       10.13 to the Company's Registration Statement on Form S-1
                       dated November 4, 1997, Registration No. 333-34451).

           10.7   --   Ward Drilling Company, Inc. Warrant to Purchase Common
                       Stock of the Company, dated May 30, 1997 (incorporated by
                       reference to Exhibit 10.14 to the Company's Registration
                       Statement on Form S-1 dated November 4, 1997,
                       Registration No. 333-34451).

           10.8   --   Preferential Right to Transport Agreement, dated as of
                       May 30, 1997, by and between the Company and Geronimo
                       Trucking Company (incorporated by reference to Exhibit
                       10.15 to the Company's Registration Statement on Form S-1
                       dated November 4, 1997, Registration No.
                       333-34451).

           10.9   --   RR&T, Inc. Warrant to Purchase Common Stock of the
                       Company, dated May 1, 1997 (incorporated by reference to
                       Exhibit 10.16 to the Company's Registration Statement on
                       Form S-1 dated November 4, 1997, Registration No.
                       333-34451).

          10.10   --   Mike Mullen Warrant to Purchase Common Stock of the
                       Company, dated May 1, 1997 (incorporated by reference to
                       Exhibit 10.17 to the Company's Registration Statement on
                       Form S-1 dated November 4, 1997, Registration No.
                       333-34451).

          10.11   --   Loan and Security Agreement, dated as of May 1, 1997 by
                       and among Fleet Capital Corporation, the Company and
                       Trend Drilling Co. (incorporated by reference to Exhibit
                       10.9 to the Company's Registration Statement on Form S-1
                       dated November 4, 1997, Registration No.
                       333-34451).

          10.12   --   Amended and Restated Loan Agreement, dated as of May 1,
                       1997, by and among The CIT Group/Equipment Financing,
                       Inc. and Fleet Capital Corporation, as Lenders, and the
                       Company and Trend Drilling Co., as Borrowers
                       (incorporated by reference to Exhibit 10.20 to the
                       Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No.
                       333-34451).

          10.13   --   Employment Agreement, dated as of December 10, 1996, by
                       and between the Company and James E. Brown (incorporated
                       by reference to Exhibit 10.21 to the Company's
                       Registration Statement on Form S-1 dated November 4,
                       1997, Registration No. 333-34451).

          10.14   --   Restricted Stock Award Agreement, dated as of December
                       10, 1996, by and between the Company and James E. Brown
                       (incorporated by reference to Exhibit 10.22 to the
                       Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).

          10.15   --   Employment Agreement, dated as of January 1, 1997, by and
                       between the Company and Ed Jacob (incorporated by
                       reference to Exhibit 10.23 to the Company's Registration
                       Statement on Form S-1 dated November 4, 1997,
                       Registration No. 333-34451).

          10.16   --   Employment Agreement, dated as of July 16, 1997, by and
                       between the Company and David E. Grose (incorporated by
                       reference to Exhibit 10.24 to the Company's Registration
                       Statement on Form S-1 dated November 4, 1997,
                       Registration No. 333-34451).

          10.17   --   Letter Agreement, dated as of August 20, 1997, by and
                       between the Company and Chesapeake Energy Corporation
                       (incorporated by reference to Exhibit 10.25 to the
                       Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).

          10.18   --   Form of Indemnification Agreement entered into by the 
                       Company and each of the directors and certain officers of
                       the Company in connection with the Initial Public
                       Offering (incorporated by reference to Exhibit 10.26 to
                       the Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).


<PAGE>   77


          10.19   --   Agreement and Plan of Merger, dated as of October 9, 
                       1997, by and among DLB Oil & Gas, Inc., the Company,
                       Bonray Acquisition Corp. and Bonray Drilling Corporation
                       (incorporated by reference to Exhibit 10.27 to the
                       Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).

          10.20   --   1997 Non-Employee Directors' Stock Option Plan of the 
                       Company (incorporated by reference to Exhibit 10.28 to
                       the Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).

          10.21   --   Form of Nonqualified Option Agreement under the 1997
                       Non-Employee Directors' Option Plan of the Company
                       (incorporated by reference to Exhibit 10.29 to the
                       Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).

          10.22   --   Registration Rights Agreement, dated as of October 16,
                       1997, by and among the Company, DLB Oil & Gas, Inc. and
                       Donaldson, Lufkin & Jenrette Securities Corporation
                       (incorporated by reference to Exhibit 10.30 to the
                       Company's Registration Statement on Form S-1 dated
                       November 4, 1997, Registration No. 333-34451).

          10.23   --   Letter Agreement, dated as of October 3, 1997, by and
                       between the Company and The CIT Group/Equipment
                       Financing, Inc. (incorporated by reference to Exhibit
                       10.31 to the Company's Registration Statement on Form S-1
                       dated November 4, 1997, Registration No. 333-34451).

          10.24   --   Second Amended and Restated Registration Rights
                       Agreement, dated as of October 30, 1997, by and among the
                       Company and the stockholders of the Company that are
                       signatories thereto (incorporated by reference to Exhibit
                       10.32 to the Company's Registration Statement on Form S-1
                       dated November 4, 1997, Registration No. 333-34451).

          10.25   --   Stock Transfer Restriction Agreement, dated as of
                       November 3, 1997, by and between the Company and
                       Donaldson, Lufkin & Jenrette Securities Corporation
                       (incorporated by reference to Exhibit 10.27 to the
                       Company's Registration Statement on Form S-1 dated
                       December 31, 1997, Registration No. 333-43535).

          10.26   --   Asset Purchase Agreement, dated as of November 25,
                       1997, by and between the Company and R.T. Oliver
                       Drilling, Inc (incorporated by reference to Exhibit 10.28
                       to the Company's Registration Statement on Form S-1 dated
                       December 31, 1997, Registration No. 333-43535).

          10.27   --   Asset Purchase Agreement, dated as of May 26, 1998, by
                       and among Bayard Drilling, L.P., Bayard Drilling
                       Technologies, Inc. and TransTexas Gas Corporation
                       (incorporated by reference to Exhibit 10.29 to the
                       Company's Current Report on Form 8-K filed on June 2,
                       1998).

          10.28   --   Drilling Alliance Agreement, dated as of June 26, 1998,
                       by and between Bayard Drilling, L.P. and TransTexas Gas
                       Corporation (incorporated by reference to Exhibit 10.30
                       to the Company's Current Report on Form 8-K filed on July
                       9, 1998).

          10.29   --   Purchase Agreement, dated as of June 19, 1998, by and 
                       among the Company, Bayard Drilling, L.L.C., Bayard
                       Drilling, L.P., Bonray Drilling Corporation, Trend
                       Drilling Co., Donaldson, Lufkin & Jenrette Securities
                       Corporation, BT Alex Brown, Dain Rauscher Wessels and
                       Lehman Brothers Inc. (incorporated by reference to
                       Exhibit 10.31 to the Company's Registration Statement on
                       Form S-4 (Registration No. 333-59623)).

          10.30   --   Waiver of Certain Rights Under Second Amended and 
                       Restated Stockholders and Voting Agreement dated June 2,
                       1998, by Charles E. Davidson, Mark Liddell and Mike
                       Liddell (incorporated by reference to Exhibit 10.32 to
                       the Company's Registration Statement on Form S-4
                       (Registration No. 333-59623)).

          10.31   --   Stock Option Agreement, dated as of October 19, 1998,
                       between Nabors Industries, Inc. and Bayard Drilling
                       Technologies, Inc. (incorporated by reference to Exhibit
                       10.1 of the Company's Current Report on Form 8-K (File
                       No. 1-3553) filed with the Securities and Exchange
                       Commission on October 21, 1998).

           16.1   --   Letter re: Change in certifying Accountant (incorporated
                       by reference to Exhibit 16.1 of the Company's Annual
                       Report on Form 10-K (File No. 1-3553) filed with the
                       Securities and Exchange Commission on March 31, 1998).



<PAGE>   78


           21.1   --   Subsidiaries of the Company (incorporated by reference
                       to Exhibit 21.1 to the Company's Registration Statement
                       on Form S-4 dated , July 22, 1998, Registration No.
                       333-59623).

           24.1   --   Powers of Attorney (included in the signature page
                       hereof).

           27.1   --   Financial Data Schedule*

           99.1   --   Stockholder Agreement, dated as of October 19, 1998,
                       between Nabors Industries, Inc. and James E. Brown
                       (incorporated by reference to Exhibit 99.1 of the
                       Company's Current Report on Form 8-K (File No. 1-3553)
                       filed with the Securities and Exchange Commission on
                       October 21, 1998).

           99.2   --   Stockholder Agreement, dated as of October 19, 1998,
                       between Nabors Industries, Inc. and Carl B. Anderson, III
                       (incorporated by reference to Exhibit 99.2 of the
                       Company's Current Report on Form 8-K (File No. 1-3553)
                       filed with the Securities and Exchange Commission on
                       October 21, 1998).

           99.3   --   Stockholder Agreement, dated as of October 19, 1998,
                       between Nabors Industries, Inc. and AnSon Partners,
                       L.L.C. as successor in interest to AnSon Partners LP
                       (incorporated by reference to Exhibit 10.4 to the
                       Registration Statement on form S-4 of Nabors Industries,
                       Inc. (Registration No. 333-72397) dated February 16,
                       1999).

           99.4   --   Stockholder Agreement, dated as of October 19, 1998, 
                       between Nabors Industries, Inc. and Energy Spectrum
                       Partners, L.P. (incorporated by reference to Exhibit 99.4
                       of the Company's Current Report on Form 8-K (File No.
                       1-3553) filed with the Securities and Exchange Commission
                       on October 21, 1998).

           99.5   --   Stockholder Agreement, dated as of October 19, 1998,
                       between Nabors Industries, Inc. and Wil-Cas Investments,
                       L.P. (incorporated by reference to Exhibit 99.5 of the
                       Company's Current Report on Form 8-K (File No. 1-3553)
                       filed with the Securities and Exchange Commission on
                       October 21, 1998).

---------

* Filed herewith.