<PAGE>
===============================================================================


                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

       Quarterly Report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934. For the quarterly period ended September 30, 2003
                                       or
       Transition Report pursuant to Section 13 or 15(d) of the Securities
       Exchange Act of 1934.

       For the transition period from _________________ to _________________


                          Commission File Number 1-8226


                                 GREY WOLF, INC.
             (Exact name of registrant as specified in its charter)


            TEXAS                                            74-2144774
  (State or jurisdiction of                               (I.R.S. Employer
incorporation or organization)                          Identification number)


    10370 RICHMOND AVENUE, SUITE 600
           HOUSTON, TEXAS                                      77042
(Address of principal executive offices)                     (Zip Code)


       Registrant's telephone number, including area code: (713) 435-6100


         Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                          Yes     [X]        No     [ ]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

                          Yes     [X]        No     [ ]

         The number of shares of the Registrant's common stock, par value $.10
per share, outstanding at November 10, 2003, was 181,283,431.


===============================================================================


                                      -1-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                          PAGE
<S>           <C>                                                                                         <C>
PART I.       Financial Information
              Item 1.      Financial Statements
                           Consolidated Balance Sheets                                                      3
                           Consolidated Statements of Operations                                            4
                           Consolidated Statements of Shareholders' Equity
                               and Comprehensive Income                                                     5
                           Consolidated Statements of Cash Flows                                            6
                           Notes to Consolidated Financial Statements                                       7
              Item 2.      Management's Discussion and Analysis of Financial
                               Condition and Results of Operations                                         15
              Item 3.      Quantitative and Qualitative Disclosure about Market Risk                       26
              Item 4.      Controls and Procedures                                                         26

PART II.      Other Information
              Item 1.      Legal Proceedings                                                               27
              Item 2       Changes in Securities and Use of Proceeds                                       27
              Item 3.      Defaults Upon Senior Securities                                                 27
              Item 4.      Submission of Matters to a Vote of Security Holders                             27
              Item 5.      Other Information                                                               27
              Item 6.      Exhibits and Reports on Form 8-K                                                28
              Signatures                                                                                   29
</TABLE>


                                      -2-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (Amounts in thousands, except share data)

<TABLE>
<CAPTION>
                                                                            September 30,         December 31,
                                                                                2003                  2002
                                                                           -------------         -------------
                                                                             (Unaudited)
<S>                                                                        <C>                   <C>
                              ASSETS
Current assets:
     Cash and cash equivalents                                             $      55,105         $     113,899
     Restricted cash                                                                 797                   784
     Accounts receivable, net of allowance of $2,500                              51,851                47,034
     Prepaids and other current assets                                             4,510                 3,447
                                                                           -------------         -------------
         Total current assets                                                    112,263               165,164
                                                                           -------------         -------------

Property and equipment:
     Land, buildings and improvements                                              5,093                 5,424
     Drilling equipment                                                          733,284               704,734
     Furniture and fixtures                                                        3,286                 3,185
                                                                           -------------         -------------
         Total property and equipment                                            741,663               713,343
     Less:  accumulated depreciation                                            (329,497)             (292,552)
                                                                           -------------         -------------
         Net property and equipment                                              412,166               420,791

Other noncurrent assets                                                            5,339                 4,668
                                                                           -------------         -------------
                                                                           $     529,768         $     590,623
                                                                           =============         =============

     LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
     Accounts payable-trade                                                $      27,507         $      19,460
     Accrued workers' compensation                                                 5,541                 4,947
     Payroll and related employee costs                                            8,032                 6,685
     Accrued interest payable                                                      4,233                11,160
     Other accrued liabilities                                                     6,513                 8,559
                                                                           -------------         -------------
         Total current liabilities                                                51,826                50,811

Senior notes                                                                      84,890               249,613
Contingent convertible debt                                                      150,000                     -
Other long-term liabilities                                                        4,529                 4,789
Deferred income taxes                                                             43,446                60,152

Commitments and contingent liabilities                                                 -                     -

Shareholders' equity:
     Series B Junior Participating Preferred stock, $1 par value;
        250,000 shares authorized; none outstanding                                    -                     -
     Common stock, $.10 par value; 300,000,000 shares
        authorized; 181,281,431 and 181,037,811 issued
        and outstanding, respectively                                             18,128                18,104
     Additional paid-in capital                                                  330,263               329,712
     Accumulated deficit                                                        (153,314)             (122,558)
                                                                           -------------         -------------
         Total shareholders' equity                                              195,077               225,258
                                                                           -------------         -------------
                                                                           $     529,768         $     590,623
                                                                           =============         =============
</TABLE>

           See accompanying notes to consolidated financial statements


                                      -3-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Amounts in thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                         Three Months Ended              Nine Months Ended
                                                           September 30,                  September 30,
                                                     ---------------------------    --------------------------
                                                          2003          2002            2003           2002
                                                     -----------     -----------    -----------    -----------
<S>                                                  <C>             <C>            <C>            <C>
Revenues:
     Contract drilling                               $    72,383     $    61,118    $   201,719    $   188,884
Costs and expenses:
     Drilling operations                                  64,517          49,801        179,371        146,167
     Depreciation                                         12,786          11,806         37,586         34,708
     General and administrative                            2,758           2,525          8,767          8,538
                                                     -----------     -----------    -----------    -----------
         Total costs and expenses                         80,061          64,132        225,724        189,413
                                                     -----------     -----------    -----------    -----------

Operating loss                                            (7,678)         (3,014)       (24,005)          (529)

Other income (expense):
     Interest income                                          96             430            812          1,334
     Gain (loss) on sale of assets                            (3)            (11)            90            117
     Interest expense                                     (3,598)         (6,039)       (24,163)       (17,987)
     Other, net                                                -               8             14            139
                                                     -----------     -----------    -----------    -----------
         Other income (expense)                           (3,505)         (5,612)       (23,247)       (16,397)
                                                     -----------     -----------    -----------    -----------

Loss before income taxes                                 (11,183)         (8,626)       (47,252)       (16,926)
Income tax benefit:
     Current                                                   -               -              -         (1,871)
     Deferred                                             (4,233)         (2,495)       (16,496)        (2,699)
                                                     -----------     -----------    -----------    -----------
         Total income tax benefit                         (4,233)         (2,495)       (16,496)        (4,570)
                                                     -----------     -----------    -----------    -----------

Net loss                                             $    (6,950)    $    (6,131)   $   (30,756)   $   (12,356)
                                                     ===========     ===========    ===========    ===========

Basic and diluted net loss per common share          $     (0.04)    $    (0.03)    $    (0.17)    $     (0.07)
                                                     ===========     ==========     ==========     ===========

Basic and diluted weighted average
     common shares outstanding                           181,235         181,011        181,186        180,905
                                                     ===========     ===========    ===========    ===========
</TABLE>


           See accompanying notes to consolidated financial statements


                                      -4-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES
    CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                               Common
                                                               Stock        Additional
                                               Common         $.10 Par       Paid-in
                                               Shares          Value         Capital           Deficit          Total
                                            -----------     -----------    -----------       -----------    -------------
<S>                                         <C>             <C>            <C>               <C>            <C>
     Balance, December 31, 2001                 180,726     $    18,073    $   328,306       $  (101,082)   $     245,297

         Exercise of stock options                  287              28            628                 -              656

         Tax benefit of stock
              option exercises                        -               -            185                 -              185

         Non-cash compensation
              expense                                 -               -            541                 -              541

         Comprehensive net loss                       -               -              -           (12,356)         (12,356)
                                            -----------     -----------    -----------       -----------    -------------
     Balance, September 30, 2002
         (Unaudited)                            181,013     $    18,101    $   329,660       $  (113,438)   $     234,323
                                            ===========     ===========    ===========       ===========    =============

     Balance, December 31, 2002                 181,038     $    18,104    $   329,712       $  (122,558)   $     225,258

         Exercise of stock options                  243              24            341                 -              365

         Tax benefit of stock
              option exercises                        -               -            210                 -              210

         Comprehensive net loss                       -               -              -           (30,756)         (30,756)
                                            -----------     -----------    -----------       -----------    -------------
     Balance, September 30, 2003
         (Unaudited)                            181,281     $    18,128    $   330,263       $  (153,314)   $     195,077
                                            ===========     ===========    ===========       ===========    =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      -5-

<PAGE>

                         GREY WOLF INC, AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                     Nine Months Ended
                                                                                        September 30
                                                                           -----------------------------------
                                                                                2003                  2002
                                                                           -------------         -------------
<S>                                                                        <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                              $     (30,756)        $     (12,356)
     Adjustments to reconcile net loss to net cash
        cash provided by (used in) operating activities:
         Depreciation                                                             37,586                34,708
         Deferred income taxes                                                   (16,706)               (2,884)
         Gain on sale of assets                                                      (90)                 (117)
         Foreign exchange gain                                                       (14)                 (139)
         Provision for doubtful accounts                                               -                   700
         Non-cash compensation expense                                                 -                   541
         Accretion of debt discount                                                  278
     Tax benefit of stock option exercises                                           210                   185
     Net effect of changes in assets and liabilities
        related to operating accounts                                             (1,846)                5,446
                                                                           -------------         -------------
         Cash provided by (used in) operating activities                         (11,338)               26,084
                                                                           -------------         -------------
Cash flows from investing activities:
     Property and equipment additions                                            (29,760)              (15,395)
     Proceeds from sale of property and equipment                                    889                   223
                                                                           -------------         -------------
         Cash used in investing activities                                       (28,871)              (15,172)
                                                                           -------------         -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from long-term debt                                                146,625                     -
     Repayment of long-term debt                                                (165,000)                 (421)
     Financing costs                                                                (575)                    -
     Proceeds from exercise of stock options                                         365                   656
                                                                           -------------         -------------
         Cash provided by (used in) financing activities                         (18,585)                  235
                                                                           -------------         -------------
Net increase (decrease) in cash and cash equivalents                             (58,794)               11,147
Cash and cash equivalents, beginning of period                                   113,899                99,072
                                                                           -------------         -------------
Cash and cash equivalents, end of period                                   $      55,105         $     110,219
                                                                           =============         =============
Supplemental cash flow disclosure:
Cash paid for interest                                                     $      27,496         $      22,641
                                                                           =============         =============
Cash paid for taxes                                                        $          46         $      (1,774)
                                                                           =============         =============
</TABLE>

           See accompanying notes to consolidated financial statements


                                      -6-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



(1)      GENERAL

         Grey Wolf, Inc. (the "Company" or "Grey Wolf") is a Texas corporation
formed in 1980. Grey Wolf is a holding company with no independent assets or
operations, but through its subsidiaries is engaged in the business of providing
onshore contract drilling services to the oil and gas industry.

         The accompanying unaudited consolidated financial statements have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States of America ("U.S. GAAP") and include the accounts
of the Company and its majority-owned subsidiaries. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments, which are of a normal recurring nature, necessary to present
fairly the Company's financial position as of September 30, 2003 and the results
of operations and cash flows for the periods indicated. All significant
intercompany transactions have been eliminated. The results of operations for
the three and nine month periods ended September 30, 2003 and 2002 are not
necessarily indicative of the results for any other period or for the year as a
whole. Additionally, pursuant to the rules and regulations of the Securities and
Exchange Commission, certain information and footnote disclosures normally
included in annual financial statements in accordance with U.S. GAAP have been
omitted. Therefore, these consolidated financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002.

(2)      SIGNIFICANT ACCOUNTING POLICIES

Earnings Per Share

         Basic earnings per share ("EPS") is based on the weighted average
shares outstanding, during the applicable period, without any dilutive effects
considered. Diluted earnings per share reflects dilution from all contingently
issuable shares, including options and shares issuable upon the conversion of
the 3.75% Contingent Convertible Senior Notes. The following is a reconciliation
of basic and diluted weighted average common shares outstanding:

<TABLE>
<CAPTION>
                                                         Three Months Ended                Nine Months Ended
                                                            September 30,                   September 30,
                                                     ---------------------------      --------------------------
                                                        2003             2002           2003              2002
                                                     ---------         ---------      ---------         --------
<S>                                                  <C>               <C>            <C>               <C>
                                                                             (In thousands)
                                                                               (Unaudited)
Weighted average common shares
   outstanding - basic                                 181,235           181,011        181,186          180,905
Effect of dilutive securities:
   Options - Treasury Stock Method                           -                 -              -                -
   Contingent Convertible Senior Notes                       -                 -              -                -
                                                     ---------         ---------      ---------         --------
Weighted average common shares
   outstanding - diluted                               181,235         181,011          181,186          180,905
                                                     =========         =======        =========         ========
</TABLE>

         In 2003, the Company has excluded approximately 23.3 million shares
issuable upon conversion of the 3.75% Contingent Convertible Senior Notes as
none of the contingencies have been met (see Note 4). The Company incurred a net
loss for the three and nine month periods ended September 30, 2003 and has


                                      -7-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



excluded options to purchase 10.3 million and 10.7 million shares, respectively,
from the computation of diluted EPS as the effect would be anti-dilutive. The
Company incurred a net loss for the three and nine month periods ended September
30, 2002 and options to purchase 8.8 million and 9.0 million shares,
respectively, were not included in the computation of diluted EPS as the effect
would have been anti-dilutive.

Stock-Based Compensation

         In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure", which amends SFAS No.
123, "Accounting for Stock-Based Compensation", by providing alternative methods
of transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
provisions of SFAS No. 123 to require more prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results of
operations. The Company has adopted the more prominent disclosures required by
SFAS No. 148 as of March 31, 2003; however, as permitted under SFAS No. 123, the
Company continues to apply Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its stock option plans. These plans are more fully described in
Note 7.

         Accordingly, no compensation expense has been recognized for stock
option grants as all options granted had an exercise price equal to the market
value of the underlying common stock on the date of grant. Had compensation
expense for the stock option grants been determined on the fair value at the
grant dates consistent with the method of SFAS No. 123, the Company's net loss
and loss per share would have been adjusted to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                        Three Months Ended                  Nine Months Ended
                                                           September 30,                     September 30,
                                                   -----------------------------      ----------------------------
                                                       2003             2002              2003             2002
                                                   -----------       -----------      -----------      -----------
<S>                                                <C>               <C>              <C>               <C>
                                                               (In thousands, except per share amounts)
                                                                               (Unaudited)
Net loss, as reported                              $    (6,950)      $    (6,131)     $   (30,756)     $   (12,356)
Add:  Stock-based employee
     compensation expense included in
     reporting net loss, net of
     related tax effects                                     -                 -                -              407
Deduct:  Total stock-based employee
     compensation expense determined
     under fair value based method for
     all awards, net of related tax effects               (542)             (561)          (2,023)          (1,693)
                                                   ------------      ------------     ------------     ------------
Pro forma net loss                                 $    (7,492)      $    (6,692)     $   (32,779)     $   (13,642)
                                                   ============      ===========      ===========      ===========

Loss per share - basic and diluted
     As reported                                   $     (0.04)      $     (0.03)     $     (0.17)     $     (0.07)
     Pro Forma                                     $     (0.04)      $     (0.04)     $     (0.18)     $     (0.08)
</TABLE>


                                      -8-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



         For purposes of determining compensation expense using the provisions
of SFAS No. 123, the fair value of option grants was determined using the
Black-Scholes option-valuation model. The key input variables used in valuing
the options granted in 2003 and 2002 were: risk-free interest rate based on
five-year Treasury strips of 2.89% to 3.35% in 2003 and 2.62% in 2002; dividend
yield of zero in each year; stock price volatility of 66% to 71% in 2003 and 75%
in 2002, and expected option lives of five years for each year presented.

Recent Accounting Pronouncements

         In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which addressed financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This statement applies to all entities that
have legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development or normal use of the
asset. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The
Company adopted SFAS No. 143 on January 1, 2003. The adoption of SFAS No. 143
did not have an effect on the Company's financial condition or results of
operations for the three and nine month periods ended September 30, 2003.

         In April, 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44 and 64, Amendment to FASB Statement No. 13, and Technical
Corrections." Under the provisions of this statement, gains and losses from
extinguishment of debt generally will no longer be classified as extraordinary
items. In addition, this statement eliminates an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This statement also makes various technical
corrections, clarifies meanings, or describes their applicability under changed
conditions. The Company adopted SFAS No. 145 on January 1, 2003. The adoption of
SFAS No. 145 did not have a material effect on the Company's financial position
or results of operations for the three and nine month periods ended September
30, 2003.

         In July 2002, the FASB issued SFAS No. 146, "Accounting for Cost
Associated with Exit or Disposal Activities." SFAS No. 146 is effective for exit
or disposal activities that are initiated after December 31, 2002. The Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. SFAS No. 146 nullifies Emerging Issues
Task Force Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The adoption of SFAS No. 146 did not have
an effect on the Company's financial position or results of operations for the
three and nine month periods ended September 30, 2003.

         The FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities," in April 2003. SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 149 is effective for existing contracts and
new contracts entered into after June 30, 2003. The provisions of SFAS No. 149
did not have a material impact on the Company's consolidated financial
statements for the three months ended September 30, 2003.

         The FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," in May 2003.
SFAS No. 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities


                                      -9-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



and equity. SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003 and is otherwise effective at the beginning of the
first interim period beginning after June 15, 2003. The provisions of SFAS No.
150 did not have a material impact on the Company's consolidated financial
statements.

         The FASB issued Interpretation ("FIN") No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others," in November 2002. FIN No. 45 is applicable on a
prospective basis for initial recognition and measurement provisions to
guarantees issued after December 2002; however, disclosure requirements are
effective immediately. FIN No. 45 requires a guarantor to recognize, at the
inception of a guarantee, a liability for the fair value of the obligations
undertaken in issuing the guarantee and expands the required disclosures to be
made by the guarantor about its obligation under certain guarantees that it has
issued. The adoption of FIN No. 45 did not have a material impact on the
Company's financial position or results of operations.

Reclassification

         Certain balance sheet amounts in 2002 have been reclassified to conform
to the presentation in 2003.

(3)      ACCOUNTING FOR INCOME TAXES

         The Company records deferred taxes utilizing an asset and liability
approach. This method gives consideration to the future tax consequences
associated with differences between the financial accounting and tax basis of
assets and liabilities. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Company and its domestic subsidiaries file a consolidated
federal income tax return.

(4)      LONG-TERM DEBT

Long-term debt consists of the following (amounts in thousands):

<TABLE>
<CAPTION>
                                                                 September 30,         December 31,
                                                                     2003                  2002
                                                                -------------         -------------
<S>                                                             <C>                   <C>
                                                                  (Unaudited)

         8 7/8% Senior Notes due July 2007                      $      84,890         $     249,613
         3.75% Contingent Convertible
            Senior Notes due May 2023                                 150,000                     -
                                                                -------------         -------------
                                                                      234,890               249,613

         Less current maturities                                            -                     -
                                                                -------------         -------------
         Long-term debt                                         $     234,890         $     249,613
                                                                =============         =============
</TABLE>

3.75% Contingent Convertible Senior Notes due May 2023

         On May 7, 2003, the Company issued $150.0 million aggregate principal
amount of 3.75% Contingent Convertible Senior Notes due 2023 (the "3.75% Notes")
in a private offering that yielded net proceeds of $146.6 million. The 3.75%
Notes bear interest at 3.75% per annum and mature on May 7, 2023. The 3.75%
Notes are convertible, upon the occurrence of certain events, at a conversion
price of


                                      -10-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



         $6.45 per share, which is equal to a conversion rate of approximately
155.0388 shares per $1,000 principal amount of the 3.75% Notes, subject to
adjustment. The Company will pay contingent interest at a rate equal to 0.5% per
annum during any six-month period, with the initial six-month period commencing
May 7, 2008, if the average trading price of the 3.75% Notes per $1,000
principal amount for the five day trading period ending on the third day
immediately preceding the first day of the applicable six-month period equals
$1,200 or more. The 3.75% Notes are general unsecured senior obligations of the
Company and are fully and unconditionally guaranteed, on a joint and several
basis, by all domestic wholly-owned subsidiaries of the Company. Non-guarantor
subsidiaries are immaterial. The 3.75% Notes and the guarantees rank equally
with the Company's 8 7/8% Senior Notes due July 2007 (the "8 7/8% Notes"). Fees
and expenses of $3.9 million incurred at the time of issuance are being
amortized through May 2013, the first date the holders may require the Company
to repurchase the 3.75% Notes.

         The Company may redeem some or all of the 3.75% Notes at any time on or
after May 14, 2008, at a redemption price shown below, payable in cash, plus
accrued but unpaid interest, including contingent interest, if any, to the date
of redemption:
                                                                   Redemption
                           Period                                     Price
                           ------                                  -----------

         May 14, 2008 through May 6, 2009.........................    101.88%
         May 7, 2009 through May 6, 2010..........................    101.50%
         May 7, 2010 through May 6, 2011..........................    101.13%
         May 7, 2011 through May 6, 2012..........................    100.75%
         May 7, 2012 through May 6, 2013..........................    100.38%
         May 7, 2013 and thereafter...............................    100.00%


         Holders may require the Company to repurchase all or a portion of the
3.75% Notes on May 7, 2013 or May 7, 2018, and upon a change of control, as
defined in the indenture governing the 3.75% Notes, at 100% of the principal
amount of the 3.75% Notes, plus accrued but unpaid interest, including
contingent interest, if any, to the date of repurchase, payable in cash.

         The 3.75% Notes are convertible, at the holders' option, prior to the
maturity date into shares of our common stock under the following circumstances:

         o    during any calendar quarter commencing after June 30, 2003, if the
              closing sale price per share of the Company's common stock over a
              specified number of trading days during the previous quarter is
              more than 110% of the conversion price per share ($7.10 per share)
              on the last trading day of the quarter;
         o    if the Company has called the 3.75% Notes for redemption;
         o    during any period after June 30, 2003, that the credit ratings
              assigned to the 3.75% Notes by both Moody's Investors Service and
              Standard & Poor's Ratings Group are reduced below B1 and B+,
              respectively, or if after June 30, 2003 neither rating agency is
              rating the 3.75% Notes;
         o    during the five trading day period immediately following any nine
              consecutive trading day period in which the average trading price
              per $1,000 principal amount of the 3.75% Notes for each day of
              such period was less than 95% of the product of the closing sale
              price per share of the Company's common stock on that day
              multiplied by the number of shares of common stock issuable upon
              conversion of $1,000 principal amount of the 3.75% Notes; or upon
              the occurrence of specified corporate transactions, including a
              change of control.


                                      -11-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



         The 3.75% Notes were not convertible during the quarter ended September
30, 2003. At November 10, 2003, the credit ratings assigned to the 3.75% Notes
by Moody's Investor Service and Standard & Poor's Ratings Group were B1 and BB-,
respectively.

8 7/8% Senior Notes due July 2007

         At September 30, 2003, the Company had $85.0 million in principal
amount of 8 7/8% Notes outstanding. The 8 7/8% Notes bear interest at 8 7/8% per
annum and mature on July 1, 2007. On July 1, 2003, the $146.6 million of net
proceeds from the issuance of the 3.75% Notes plus $30.6 million of available
cash were used to redeem $165.0 million aggregate principal amount of 8 7/8%
Notes previously outstanding at 102.9580%, plus accrued interest.

         The 8 7/8% Notes are general unsecured senior obligations of the
Company and are fully and unconditionally guaranteed, on a joint and several
basis, by all domestic wholly-owned subsidiaries of the Company. Non-guarantor
subsidiaries are immaterial. The redemption premium of $4.9 million was included
in interest expense in the second quarter of 2003. Amortization of the
previously deferred financing costs associated with the partial redemption of
the 8 7/8% Notes on July 1, 2003 was accelerated and approximately $2.5 million
in additional interest expense was recognized in the quarter ended June 30,
2003. All other fees and expenses incurred at the time of issuance are being
amortized and discounts are being accreted over the life of the 8 7/8% Notes.

         The Company has the option to redeem the 8 7/8% Notes in whole or in
part during the twelve month periods beginning July 1, 2003 at 102.9580%,
beginning July 1, 2004 at 101.4792% and beginning July 1, 2005 and thereafter at
100.0000% together with any interest accrued and unpaid to the redemption date.
Upon a change of control as defined in the indentures, each holder of the 8 7/8%
Notes will have the right to require the Company to repurchase all or any part
of such holder's 8 7/8% Notes at a purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest to the date of
purchase. We may also, from time to time, seek to retire the 8 7/8% Notes
through redemption, open market purchases and privately negotiated transactions.
Any difference between the redemption price and the face value of the 8 7/8%
Notes will be recorded as interest expense.

CIT Facility

         The Company has a $75.0 million credit facility with the CIT
Group/Business Credit, Inc. (the "CIT Facility") which expires during January
2006. The CIT Facility provides the Company with the ability to borrow up to the
lesser of $75.0 million or 50% of the orderly liquidation value (as defined in
the agreement) of certain drilling rig equipment located in the 48 contiguous
states of the United States of America. The CIT Facility is a revolving facility
with automatic renewals after expiration unless terminated by the lender on any
subsequent anniversary date and then only upon 60 days prior notice. Periodic
interest payments are due at a floating rate based upon the Company's debt
service coverage ratio within a range of either LIBOR plus 1.75% to 3.50% or
prime plus 0.25% to 1.50%. The CIT Facility provides up to $20.0 million
available for letters of credit. The Company is required to pay a commitment fee
of 0.375% per annum on the unused portion of the CIT Facility and letters of
credit accrue a fee of 1.25% per annum.

         The CIT Facility contains certain affirmative and negative covenants
and the Company is in compliance with these covenants. Substantially all of the
Company's assets, including its drilling equipment, are pledged as collateral
under the CIT Facility which is also secured by the Company's guarantees and
certain of the Company's wholly-owned subsidiaries guarantees. The Company,
however,


                                      -12-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



retains the option, subject to a minimum appraisal value, under the CIT Facility
to extract $75.0 million of the equipment out of the collateral pool in
connection with the sale or exchange of such collateral or relocation of
equipment outside the contiguous 48 states of the United States of America.

         The Company currently has no outstanding balance under the CIT Facility
and had $16.4 million of undrawn standby letters of credit at November 10, 2003.
These standby letters of credit are for the benefit of various insurance
companies as collateral for premiums and retained losses which may become
payable under the terms of the underlying insurance contracts and for other
purposes. Outstanding letters of credit reduce the amount available for
borrowing under the CIT facility.

         The Company had non-cash activities for the nine months ended September
30, 2002 related to vehicle additions under capital leases. The non-cash amount
excluded from cash used in investing activities and cash provided by financing
activities was $189,000 for the nine months ended September 30, 2002.

(5)      SEGMENT INFORMATION

         The Company manages its business as one reportable segment. Although
the Company provides contract drilling services in several markets domestically,
these operations have been aggregated into one reportable segment based on the
similarity of economic characteristics among all markets, including the nature
of the services provided and the type of customers of such services.

(6)      CONTINGENCIES

         The Company is involved in litigation incidental to the conduct of its
business, none of which management believes is, individually or in the
aggregate, material to the Company's consolidated financial condition or results
of operations.

(7)      STOCK OPTION PLANS AND SEVERANCE

         The 2003 Incentive Plan (the "2003 Plan") was approved by shareholders
in May 2003. The 2003 Plan authorizes the grant of the following equity-based
awards:

         o    incentive stock options;
         o    non-statutory stock options;
         o    restricted shares; and
         o    other stock-based and cash awards.

         The 2003 Plan replaced the Company's 1996 Employee Stock Option Plan
(the "1996 Plan"); provided, however that outstanding options previously granted
shall continue to be exercisable subject to the terms and conditions of such
grants. The 1996 Plan allowed for grants of non-statutory options to purchase
common stock, but no further grants of common stock will be made under the 1996
Plan. The 2003 Plan reserves a maximum of 17.0 million shares of the Company's
common stock underlying all equity-based awards, but is reduced by the shares of
common stock subject to previous grants under the 1996 Plan. At September 30,
2003, there were 6.4 million shares of common stock available for grant under
the 2003 Plan until March 2013. The Company also has outstanding options to
purchase 2.0 million shares under stock option agreements between the Company
and its chief executive officer and directors. These stock option agreements are
outside of any of the Company's employee stock option plans.


                                      -13-

<PAGE>

                        GREY WOLF, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)



         The exercise price of stock options approximates the fair market value
of the stock at the time the option is granted. A portion of the outstanding
options became exercisable upon issuance and the remaining become exercisable in
varying increments over three to five-year periods. The options expire on the
tenth anniversary of the date of grant.

         On November 13, 2001, the Company amended all outstanding stock option
agreements issued under the 1996 Employee Stock Option Plan and certain stock
option agreements issued to executive officers and directors. Based upon the
occurrence of certain events ("triggering events"), the amendments provide for
accelerated vesting of options and extension of the period in which a current
employee option holder has to exercise his options. The provisions of the
amendments provide for accelerated vesting of options after termination of
employment of a current option holder within one year of a change of control of
the Company (as defined in the amendments). Triggering events that cause an
extension of the exercise period, but not longer than the remaining original
exercise period, include termination of employment as a result of any reason not
defined as termination for cause, voluntary resignation, or retirement in the
amendments.

         In accordance with APB No. 25, the amendments to the stock option
agreements create a new measurement date of November 13, 2001. APB No. 25
requires the Company to determine the intrinsic value of the options at the
measurement date and recognize non-cash compensation expense upon the occurrence
of a triggering event. The amount of compensation expense that would be
recognized upon the occurrence of a triggering event is the difference between
the fair market value of the Company's stock on the measurement date and the
original exercise price of the options.

         During the three months ended March 31, 2002, a triggering event
occurred when an officer's employment terminated. As a result, the Company
recognized approximately $515,000 of non-cash compensation expense along with
approximately $330,000 of severance cost. These amounts have been included in
general and administrative expenses on the consolidated statement of operations.

(8)      CONCENTRATIONS

         Substantially all of the Company's contract drilling activities are
conducted with independent and major oil and gas companies in the United States.
Historically, the Company has not required collateral or other security to
support the related receivables from such customers. However, the Company has
required certain customers to deposit funds in escrow prior to the commencement
of drilling. Actions typically taken by the Company in the event of nonpayment
include filing a lien on the customer's producing property and filing suit
against the customer.

         The Company had one customer which represented approximately 12% of
revenue in the third quarter of 2003; however, there were no customers with
revenue greater than 10% for the nine month period ended September 30, 2003. For
the three months period ended September 30, 2002, the Company had two customers
which represented approximately 11% and 10% of total revenue. For the nine
months ended September 30, 2002, the Company had one customer which represented
approximately 11% of total revenue.


                                      -14-

<PAGE>

                         GREY WOLF INC. AND SUBSIDIARIES
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS



         The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto of Grey Wolf, Inc. included
elsewhere herein and with our audited consolidated financial statements and
accompanying notes included in our Annual Report on Form 10-K for the year ended
December 31, 2002.

GENERAL

         We are a leading provider of contract land drilling services in the
United States with a fleet of rigs, of which 80 rigs are currently marketed. Our
customers include independent producers and major oil and gas companies. We
conduct all of our operations through our subsidiaries in the Ark-La-Tex, Gulf
Coast, Mississippi/Alabama, South Texas, West Texas and Rocky Mountain regions.

         We make available free of charge through our website our annual reports
on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
all amendments to those reports as soon as reasonably practicable after such
material is electronically filed with the Securities and Exchange Commission.
Information on our website is not a part of this report. Our website address is
www.gwdrilling.com.

Rig Activity

         The land rig count has increased approximately 33% from an average of
725 for December 2002 to an average of 967 for September 2003. While our rig
count has also increased, it has not increased proportionately. This is due to a
general lack of deep drilling in this cycle leaving high horsepower premium rigs
idle or under utilized. This especially impacts Grey Wolf as the bias of our rig
fleet is towards deep gas drilling.

         Subsequent to September 30, 2003, we have averaged 64 rigs working,
which is approximately 19% greater than the average during the fourth quarter of
2002.

         The table below shows the average number of our rigs working during the
periods indicated:

<TABLE>
<CAPTION>
                  2001                                       2002                                    2003
---------------------------------------     -----------------------------------       ------------------------------
                                   Full                                    Full                               Q-4
  Q-1      Q-2      Q-3     Q-4    Year     Q-1     Q-2     Q-3    Q-4     Year       Q-1     Q-2     Q-3    to date
  ---      ---      ---     ---    ----     ---     ---     ---    ---     ----       ---     ---     ---    -------
<S>        <C>      <C>     <C>    <C>      <C>     <C>     <C>    <C>     <C>        <C>     <C>     <C>    <C>
   88       92       91      68     85       56      54      55     54      55         59      60      62       64
</TABLE>

Drilling Contract Bid Rates

         Dayrates are generally driven by the trends in utilization. As
utilization declined, our daywork bid rates declined to a range of between
$7,000 and $8,500 per rig day during the fourth quarter of 2002. Those bid rates
continued into the first quarter of 2003. However, with the increased
utilization, we have also seen an increase in leading edge bid rates. Our
leading edge bid rates are currently between $7,750 and $9,500 per rig day. All
leading edge bid rates exclude fuel and top drives.

         In addition to our fleet of drilling rigs, we currently own 15 top
drives for which our current bid rates range from $1,250 to $2,000 per day. Bid
rates for our top drives are in addition to the above stated bid rates for our
rigs.


                                      -15-

<PAGE>

Turnkey and Footage Contract Activity

         Turnkey and footage work continues to be an important part of our
business strategy. Our engineering and operating expertise allow us to provide
this service to our customers and has historically provided higher operating
margins than would otherwise have been obtainable under daywork contracts.
During the third quarter of 2003, our turnkey and footage operating margin
(revenues less drilling operations expenses) was $6,541 per rig day compared to
a daywork operating margin of $498 per rig day.

         The operating margins generated on turnkey and footage contracts vary
widely based upon a number of factors, including the location of the contracted
work as well as the depth and level of complexity of the wells drilled. The
demand for drilling services under turnkey and footage contracts has
historically been greater during periods of overall lower demand. While demand
has been somewhat higher as evidenced by the increase in rig count, the demand
for turnkey services has not declined. This is due in large part to current
daywork rates which have remained relatively stable despite the increase in rig
count.

         During the third quarter of 2003, turnkey and footage work represented
69% of our operating margin and 15% of total days worked compared to 21% of our
operating margin and 11% of total days worked in the third quarter of 2002. We
expect to average between 7 to 10 rigs working under turnkey and footage
contracts during the fourth quarter of 2003; however, there can be no assurance
that we will be able to maintain the current level of activity or operating
margins derived from turnkey and footage contracts.

Critical Accounting Policies

         Our consolidated financial statements and accompanying notes have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements require
our management to make subjective estimates, judgments and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
However, these estimates, judgments and assumptions concern matters that are
inherently uncertain. Accordingly, actual amounts and results could differ from
these estimates made by management. The accounting policies that we believe are
critical are property and equipment depreciation, impairment of long-lived
assets, revenue recognition, insurance accruals, and income taxes.

         Property and Equipment Depreciation. Property and equipment are stated
at cost with depreciation calculated using the straight-line method over the
estimated useful lives of the assets. We expense our maintenance and repair
costs as incurred. We estimate the useful lives of our assets are between three
and fifteen years.

         Impairment of Long-Lived Assets. We assess the impairment of our
long-lived assets whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. Such indicators include changes in our
business plans, a change in the physical condition of a long-lived asset or the
extent or manner in which it is being used, or a severe or sustained downturn in
the oil and gas industry. If a review of our long-lived assets indicates that
the carrying value of certain of these assets is more than the estimated
undiscounted cash flows, a write-down of the assets to their estimated fair
market value must be made. The estimated fair market value is the amount at
which an asset could be bought or sold in an arms-length transaction. Quoted
market prices in active markets are the best estimate of fair market value,
however, quoted market prices will generally not be available. As a result, fair
value must be determined based upon other valuation techniques. This could
include appraisals or present value calculations. The calculation of
undiscounted future net cash flows and fair market value is based on estimates
and projections.


                                      -16-

<PAGE>

         Revenue Recognition. Revenue from daywork and footage drilling
contracts is recognized when earned as services are performed under the
provisions of the contract. Revenue from turnkey drilling contracts is
recognized using the percentage-of-completion method based upon costs incurred
to date and estimated total contract costs. Provision for anticipated losses, if
any, on uncompleted contracts is made at the time our estimated costs exceed the
contract revenue.

         Insurance Accruals. We maintain insurance coverage related to workers'
compensation and general liability claims up to $1.0 million per occurrence with
an aggregate of $2.0 million under general liability. These policies include
deductibles of $350,000 per occurrence for workers' compensation coverage and
$250,000 per occurrence for general liability coverage. In addition, we are
self-insured for our employee health plan but purchase stop-loss coverage in
order to limit our exposure to a maximum of $175,000 per occurrence under the
plan. If losses should exceed the workers' compensation and general liability
policy amounts, we have excess liability coverage up to a maximum of $75.0
million with deductibles per occurrence of either $25,000 or $50,000. The
provision for losses incurred within the deductible and stop-loss amounts
involves estimates by management that are based upon our historical claims
experience.

         Income Taxes. Our deferred tax assets consist primarily of net
operating loss carryforwards ("NOL's") which expire from 2010 to 2022. Deferred
tax assets must be assessed based upon the likelihood of recoverability from
future taxable income and to the extent that recovery is not likely, a valuation
allowance is established. At September 30, 2003, we did not have a valuation
allowance as we believe that it is more likely than not that we will be able to
generate future taxable income sufficient to recover our deferred tax assets.
Our business, however, is extremely cyclical and is highly sensitive to changes
in oil and natural gas prices and there can be no assurances that future
economic or financial developments will not impact our ability to recover our
deferred tax assets.

         In addition, we have $24.4 million in permanent differences which
relate to differences between the financial accounting and tax basis of acquired
assets. The permanent difference will be reduced as these assets are depreciated
for financial accounting purposes on a straight-line basis over their remaining
useful lives of approximately 10 years. As the amortization of these permanent
differences is a fixed amount, our book effective tax rate varies widely based
upon the current and projected levels of income or loss.

Financial Outlook and Strategy

         We believe the outlook for the future of natural gas exploration and
production remains positive. Natural gas prices remain at attractive levels, in
our opinion, and our customers are benefiting from these prices. On November 10,
2003, the twelve-month strips for natural gas and oil are at $4.73 per mmbtu and
$28.84 per barrel, respectively.

         The refinancing of a portion of our debt in the second quarter will
result in an approximate $9.5 million reduction in annual interest expense and
extends the maturity on a portion of our debt from 2007 to 2023, subject to call
in 2013 and 2018.

         Capital expenditures for the first nine months of 2003 were $29.8
million and capital expenditures for all of 2003 are projected to be between
$33.0 million to $35.0 million. We currently have 22 cold-stacked rigs, which
can be reactivated, as demand dictates, for an estimated $2.5 million to $3.0
million in the aggregate. This would increase our marketed rig count to 102
rigs. In addition, we have 15 inventory rigs that are available for
refurbishment and reactivation should the demand arise. These rigs could be
returned to service for an average estimated cost of approximately $5.0 million
per rig.

         Based on currently anticipated levels of activity and dayrates, we
expect to generate an operating margin of approximately $10.5 million, or $1,700
per rig day for the fourth quarter of 2003. Net loss per


                                      -17-

<PAGE>

share for the fourth quarter of 2003 is expected to be approximately $.03 on a
diluted basis, projecting an annual tax benefit rate of approximately 35%. We
expect depreciation expense of approximately $12.9 million and interest expense
of approximately $3.6 million in the fourth quarter of 2003.

FINANCIAL CONDITION AND LIQUIDITY

         The following table summarizes our financial position as of September
30, 2003 and December 31, 2002.

<TABLE>
<CAPTION>
                                                    September 30, 2003                December 31, 2002
                                                 ------------------------         --------------------------
                                                         (Unaudited)
                                                                     (Dollars in thousands)
                                                    Amount             %             Amount               %
                                                 -------------       ----         -------------         ----
<S>                                              <C>                 <C>          <C>                  <C>
         Working capital                         $      60,437         13         $     114,353           21
         Property and equipment, net                   412,166         86               420,791           78
         Other noncurrent assets                         5,339          1                 4,668            1
                                                 -------------       ----         -------------         ----
                  Total                          $     477,942        100         $     539,812          100
                                                 =============       ====         =============         ====

         Long-term debt                          $     234,890         49         $     249,613           46
         Other long-term liabilities                    47,975         10                64,941           12
Shareholders' equity                                   195,077         41               225,258           42
                                                 -------------       ----         -------------         ----
                  Total                          $     477,942        100         $     539,812          100
                                                 =============       ====         =============         ====
</TABLE>

         The significant changes in our financial position from December 31,
2002 to September 30, 2003 are a decrease in working capital of $53.9 million, a
decrease in other long-term liabilities of $17.0 million, and a decrease in
shareholders' equity of $30.2 million. The decrease in working capital is a
result of the issuance of the 3.75% Contingent Convertible Senior Notes due 2023
(the "3.75% Notes") and partial redemption of the 8 7/8% Senior Notes due 2007
(the "8 7/8% Notes"), the net loss for the period and capital expenditures. The
decrease in shareholder's equity and other long-term liabilities is due almost
entirely to the net loss for the period of $30.8 million and the related
deferred tax benefit of $16.5 million.

Issuance of 3.75% Notes and Partial Redemption of 8 7/8% Notes

         On May 7, 2003, we issued $150.0 million aggregate principal amount of
3.75% Notes. The net proceeds of $146.6 million from the sale of the 3.75% Notes
and $30.6 million of our available cash, a total of $177.2 million was used to
redeem $165.0 million aggregate principal amount of the 8 7/8% Notes, plus
accrued interest. The partial redemption of the 8 7/8% Notes was made on July 1,
2003 at a redemption premium of 102.9580%. This redemption premium of $4.9
million was included in interest expense in the second quarter of 2003.
Amortization of the previously deferred financing costs associated with the
notes was accelerated and approximately $2.5 million of additional interest
expense was recognized in the quarter ended June 30, 2003.

         After the partial redemption of the 8 7/8% Notes, we owe $85.0 million
in aggregate principal amount of the 8 7/8% Notes and $150.0 million of
aggregate principal amount of the 3.75% Notes, for a total aggregate principal
amount of $235.0 million for both classes of senior notes. Our annual interest
expense will be reduced by approximately $9.5 million as a result of the
refinancing, including approximately $9.0 million of cash savings.

         Semi-annual interest payments of $3.8 million will be made on the
8 7/8% Notes on January 1 and July 1 of each year and semi-annual interest
payments of $2.8 million will be made on the 3.75% Notes on May 7 and November 7
of each year through the dates of maturity. To the extent we are unable to
generate cash flow sufficient to pay debt service and meet our other cash needs,
including capital


                                      -18-

<PAGE>

expenditures, we would be required to use our cash on hand. At November 10,
2003, our cash and cash equivalents balance was approximately $52.7 million.

         The net effect on working capital of this refinancing was a reduction
of $23.8 million consisting of $15.0 million net reduction in debt outstanding,
$4.9 million in a redemption premium paid on the 8 7/8% Notes and $3.9 million
in financing cost related to the issuance of the 3.75% Notes.

         Capital expenditures of $29.8 million during the period also
contributed to the decrease in working capital. Capital expenditures included
the cash purchase of two diesel electric Silicon Controlled Rectifier ("SCR")
rigs for $9.0 million.

3.75% Notes

         The 3.75% Notes bear interest at 3.75% per annum and mature on May 7,
2023. The 3.75% Notes are convertible, upon the occurrence of certain events, at
a conversion price of $6.45 per share, which is equal to a conversion rate of
approximately 155.0388 shares per $1,000 principal amount of 3.75% Notes,
subject to adjustment. We will pay contingent interest at a rate equal to 0.5%
per annum during any six-month period, with the initial six-month period
commencing May 7, 2008, if the average trading price of the 3.75% Notes per
$1,000 principal amount for the five day trading period ending on the third day
immediately preceding the first day of the applicable six-month period equals
$1,200 or more. The 3.75% Notes are general unsecured senior obligations and are
fully and unconditionally guaranteed, on a joint and several basis, by all of
our domestic wholly-owned subsidiaries. Non-guarantor subsidiaries are
immaterial. The 3.75% Notes and the guarantees rank equally with our 8 7/8%
Notes. Fees and expenses of approximately $3.9 million incurred at the time of
issuance are being amortized through May 2013, the first date the holders may
require us to repurchase the 3.75% Notes.

         We may redeem some or all of the 3.75% Notes at any time on or after
May 14, 2008, at a redemption price shown below, payable in cash, plus accrued
but unpaid interest, including contingent interest, if any, to the date of
redemption:

                                                                  Redemption
                           Period                                   Price
                           ------                               -------------
         May 14, 2008 through May 6, 2009.......................    101.88%
         May 7, 2009 through May 6, 2010........................    101.50%
         May 7, 2010 through May 6, 2011........................    101.13%
         May 7, 2011 through May 6, 2012........................    100.75%
         May 7, 2012 through May 6, 2013........................    100.38%
         May 7, 2013 and thereafter.............................    100.00%


         Holders may require us to repurchase all or a portion of their 3.75%
Notes on May 7, 2013 or May 7, 2018, and upon a change of control, as defined in
the indenture governing the 3.75% Notes, at 100% of the principal amount of the
3.75% Notes, plus accrued but unpaid interest, including contingent interest, if
any, to the date of repurchase, payable in cash.

         The 3.75% Notes are convertible, at the holders' option, prior to the
maturity date into shares of our common stock in the following circumstances:

         o    during any calendar quarter commencing after June 30, 2003, if the
              closing sale price per share of our common stock over a specified
              number of trading days during the previous quarter is more than
              110% of the conversion price per share ($7.10 per share) on the
              last trading day of the quarter;
         o    if we have called the 3.75% Notes for redemption;


                                      -19-

<PAGE>

         o    during any period after June 30, 2003, that the credit ratings
              assigned to the 3.75% Notes by both Moody's Investors Service and
              Standard & Poor's Ratings Group are reduced below B1 and B+,
              respectively, or if after June 30, 2003 neither rating agency is
              rating the 3.75% Notes;
         o    during the five trading day period immediately following any nine
              consecutive trading day period in which the average trading price
              per $1,000 principal amount of the 3.75% Notes for each day of
              such period was less than 95% of the product of the closing sale
              price per share of our common stock on that day multiplied by the
              number of shares of common stock issuable upon conversion of
              $1,000 principal amount of the 3.75% Notes; or
         o    upon the occurrence of specified corporate transactions, including
              a change of control.

         The 3.75% Notes were not convertible during the quarter ended September
30, 2003 and were not convertible as of the date of this report. At November 10,
2003, the credit ratings assigned to the 3.75% Notes by Moody's Investor Service
and Standard & Poor's Ratings Group were B1 and BB-, respectively.

         The indenture to the 3.75% Notes do not contain any restriction on the
payment of dividends, the incurrence of indebtedness or the repurchase of our
securities, and does not contain any financial covenants.

8 7/8% Notes

         On September 30, 2003, we had $85.0 million in principal amount of
8 7/8% Notes outstanding. The 8 7/8% Notes, issued in June 1997 and May 1998,
bear interest at 8 7/8% per annum with original maturities on July 1, 2007. The
8 7/8% Notes are general unsecured senior obligations and are fully and
unconditionally guaranteed, on a joint and several basis, by all of our domestic
wholly-owned subsidiaries. Non-guarantor subsidiaries are immaterial. Fees and
expenses incurred at the time of issuance related to the principal amount
outstanding are being amortized and discounts are being accreted over the life
of the 8 7/8% Notes.

         We have the option to redeem the 8 7/8% Notes in whole or in part
during the twelve months beginning July 1, 2003 at 102.9580%, beginning July 1,
2004 at 101.4792% and beginning July 1, 2005 and thereafter at 100.0000%
together with any interest accrued and unpaid to the redemption date. Upon a
change of control as defined in the indentures governing the 8 7/8% Notes, each
holder of the 8 7/8% Notes will have the right to require us to repurchase all
or any part of such holder's 8 7/8% Notes at a purchase price equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid interest to the
date of purchase. We may also, from time-to-time, seek to retire the 8 7/8%
Notes through redemptions, open market purchases and privately-negotiated
transactions. Any difference between the redemption price and the face value of
the 8 7/8% Notes will be recorded as interest expense.

         The indentures for the 8 7/8% Notes permit us and our subsidiaries to
incur additional indebtedness, including senior indebtedness of up to $100.0
million aggregate principal amount which may be secured by liens on all of our
assets and the assets of our subsidiaries, subject to certain limitations. The
indentures contain other covenants limiting our ability and our subsidiaries'
ability to, among other things, pay dividends or make certain other restricted
payments, make certain investments, incur additional indebtedness, permit liens,
incur dividend and other payment restrictions affecting subsidiaries, enter into
consolidation, merger, conveyance, lease or transfer transactions, make asset
sales, enter into transactions with affiliates or engage in unrelated lines of
business. These covenants are subject to certain exceptions and qualifications.
The indentures consider non-compliance with the limitations events of default.
In addition to non-payment of interest and principal amounts on the 8 7/8%
Notes, the indentures also consider default with respect to other indebtedness
in excess of $10.0 million an event of default. In the event of a default, the
principal and interest could be accelerated upon written notice by 25% or more
of the holders of our 8 7/8% Notes. We are in compliance with these covenants.


                                      -20-

<PAGE>

CIT Facility

         We have a $75.0 million credit facility with the CIT Group/Business
Credit, Inc. (the "CIT Facility") which expires during January 2006. The CIT
Facility provides us with the ability to borrow up to the lesser of $75.0
million or 50% of the orderly liquidation value (as defined in the agreement) of
certain drilling rig equipment located in the 48 contiguous states of the United
States of America. The CIT Facility is a revolving facility with automatic
renewals after expiration unless terminated by the lender on any subsequent
anniversary date and then only upon 60 days prior notice. Periodic interest
payments are due at a floating rate based upon our debt service coverage ratio
within a range of either LIBOR plus 1.75% to 3.50% or prime plus 0.25% to 1.50%.
The CIT Facility provides up to $20.0 million available for letters of credit.
We are required to pay a commitment fee of 0.375% per annum on the unused
portion of the CIT Facility and letters of credit accrue a fee of 1.25% per
annum.

         The CIT Facility contains certain affirmative and negative covenants
and we are in compliance with these covenants. Substantially all of our assets,
including our drilling equipment, are pledged as collateral under the CIT
Facility which is also secured by our guarantees and certain of our wholly-owned
subsidiaries' guarantees. However, we retain the option, subject to a minimum
appraisal value, under the CIT Facility to extract $75.0 million of the
equipment out of the collateral pool in connection with the sale or exchange of
such collateral or relocation of equipment outside the contiguous 48 states of
the United States of America. We currently have no outstanding balance under the
CIT Facility and had $16.4 million of undrawn letters of credit at November 10,
2003. These standby letters of credit are for the benefit of various insurance
companies as collateral for premiums and retained losses which may become
payable under the terms of the underlying insurance contracts and for other
purposes. Outstanding letters of credit reduce the amount available for
borrowing under the CIT facility.

         Among the various covenants that we must satisfy under the CIT Facility
are the following two covenants which apply whenever our liquidity, defined as
the sum of cash, cash equivalents and availability under the CIT Facility, falls
below $25.0 million.

         o    1 to 1 EBITDA coverage of debt service, tested monthly on a
              trailing 12 month basis; and
         o    minimum tangible net worth (all as defined in the CIT Facility) at
              the end of each quarter will be at least the prior year tangible
              net worth less $30.0 million adjusted for quarterly tests.

         Additionally, if the total amount outstanding under the CIT Facility
(including outstanding letters of credit) exceeds 50% of the orderly liquidation
value of our domestic rigs, we are required to make a prepayment in the amount
of the excess. Also, if the average rig utilization rate falls below 45% for two
consecutive months, the lender will have the option to request one additional
appraisal per year to aid in determining the current orderly liquidation value
of the drilling equipment. Average rig utilization is defined as the total
number of rigs owned which are operating under drilling contracts in the 48
contiguous states of the United States of America divided by the total number of
rigs owned, excluding rigs not capable of working without substantial capital
investment. Events of default under the CIT Facility include, in addition to
non-payment of amounts due, misrepresentations and breach of loan covenants and
certain other events including:

         o    default with respect to other indebtedness in excess of $350,000;
         o    judgments in excess of $350,000; or
         o    a change in control which means that we cease to own 100% of our
              two principal subsidiaries, some person or group has either
              acquired beneficial ownership of 30% or more of the Company or
              obtained the power to elect a majority of our board of directors,
              or our board of directors ceases to consist of a majority of
              "continuing directors" (as defined by the CIT Facility).


                                      -21-

<PAGE>

Certain Contractual Commitments

         The following table summarizes certain of our contractual cash
obligations and related payments due by period at September 30, 2003 (unaudited)
(amounts in thousands):

<TABLE>
<CAPTION>
                                                             Payments Due by Period (1)
                                      -----------------------------------------------------------------------------
                                                       Less than            1-3             4-5           After 5
Contractual Obligation                   Total            1 year           years           years           years
----------------------                -----------      -----------      -----------   ------------      -----------
<S>                                   <C>              <C>              <C>           <C>               <C>
3.75% Notes(2)
     Principal                        $   150,000      $         -      $         -   $          -      $   150,000
     Interest                             112,500            5,625           11,250         11,250           84,375
8 7/8% Notes (2)
     Principal                             85,000                -                -         85,000                -
     Interest                              30,176            7,544           15,088          7,544                -
Operating leases                            1,084              697              372             14                1
                                      -----------      -----------      -----------   ------------      -----------
Total contractual
   cash obligations                   $   378,760      $    13,866      $    26,710   $    103,808      $   234,376
                                      ===========      ===========      ===========   ============      ===========
</TABLE>
--------------------
(1)      This assumes no conversion, acceleration of maturity dates due to
         redemption, breach of, or default under, the terms of the applicable
         contractual obligation.


(2)      See "8 7/8% Notes" and "3.75% Notes", above, for information relating
         to covenants, the breach of which could cause a default under, and
         acceleration of the maturity date. Also see "3.75% Notes" for
         information related to the holders' conversion rights.

         Our CIT Facility provides up to $20.0 million for the issuance of
letters of credit. If letters of credit which we cause to be issued are drawn
upon by the holders of those letters of credit, then we will become obligated to
repay those amounts along with any accrued interest and fees. Letters of credit
issued reduce the amount available for borrowing under the CIT Facility and, as
a result, we had borrowing capacity of $64.1 million at September 30, 2003. The
following table illustrates the undrawn outstanding standby letters of credit at
September 30, 2003 and the potential maturities if drawn upon by the holders
(unaudited) (amounts in thousands):

<TABLE>
<CAPTION>
                                                             Payments Due by Period (1)
                                      -----------------------------------------------------------------------------
        Potential                        Total         Less than            1-3              4-5          Over 5
Contractual Obligation                 Committed       1 year              years            years          years
----------------------                ----------       -----------      -----------     ----------      -----------
<S>                                   <C>              <C>              <C>             <C>             <C>
Standby letters of credit             $    10,945      $         -      $    10,945     $        -      $         -
                                      -----------      -----------      -----------     ----------      -----------
Total                                 $    10,945      $         -      $    10,945     $        -      $         -
                                      ===========      ===========      ===========     ==========      ===========
</TABLE>
--------------------
         (1) Assumes no acceleration of maturity date due to breach of, or
default under, the potential contractual obligation.


                                      -22-

<PAGE>

Cash Flow

         The net cash provided by or used in our operating, investing and
financing activities is summarized below:

<TABLE>
<CAPTION>
                                                                          Nine Months Ended
                                                                             September 30,
                                                                     ------------------------------
                                                                         2003              2002
                                                                     -------------    -------------
<S>                                                                  <C>              <C>
                                                                              (In thousands)
                                                                               (Unaudited)
         Net cash provided by (used in):
              Operating activities                                   $     (11,338)   $      26,084
              Investing activities                                         (28,871)         (15,172)
              Financing activities                                         (18,585)             235
                                                                     -------------    -------------
         Net increase (decrease) in cash                             $     (58,794)   $      11,147
                                                                     =============    =============
</TABLE>

         Our cash flows from operating activities are affected by a number of
factors including the number of rigs under contract, whether the contracts are
daywork, footage, or turnkey, and the rate received for these services. Our cash
flow used in operating activities during the first nine months of 2003 was $11.3
million and generated from operating activities during the first nine months of
2002 was $26.1 million. The decrease in cash flows from operating activities is
principally due to a 52% decrease in the average per rig day operating margins
between the two periods.

         Cash flow used in investing activities for the nine months ended
September 30, 2003 primarily consisted of $29.8 million of capital expenditures
which included the cash purchase of two diesel electric SCR rigs for $9.0
million. Cash flow used in investing activities for the nine month period ended
September 30, 2002 primarily consisted of $15.4 million of capital expenditures.

         Cash flow used in financing activities for the nine months ended
September 30, 2003 consisted of $165.0 million for the partial redemption of the
8 7/8% Notes on July 1, 2003 offset by net proceeds of $146.6 million from the
issuance of $150.0 million of 3.75% Notes on May 7, 2003. Cash flow provided by
financing activities for the nine months ended September 30, 2002 consisted of
$656,000 from stock option exercises partially offset by $421,000 repayment of
capital lease obligations.

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.

Other

         We have not paid any cash dividends on our common stock and do not
anticipate paying dividends on the common stock at any time in the foreseeable
future. Furthermore, the CIT Facility prohibits the payment of cash dividends
without the consent of the participating lenders.

RESULTS OF OPERATIONS

         Our drilling contracts generally provide compensation on either a
daywork, turnkey or footage basis. However, successfully completed turnkey and
footage contracts generally result in higher revenues per rig day worked than
under daywork contracts. Operating margins per rig day worked on successful
turnkey and footage jobs are also generally greater than under daywork
contracts, although we are typically required to bear additional operating costs
(such as drill bits) that would typically be paid by the


                                      -23-

<PAGE>

customer under daywork contracts. Contract drilling revenues, drilling operating
expenses and operating margins or losses on turnkey and footage contacts are
affected by a number of variables, which include the depth of the well,
geological complexities and the actual difficulties encountered in drilling the
well.

Comparison of the Three Months Ended September 30, 2003 and 2002

         The following table highlights rig days worked, contract drilling
revenue and drilling operating expenses for our daywork and turnkey operations
for the three months ended September 30, 2003 and 2002.

<TABLE>
<CAPTION>
                                              Three Months Ended                       Three Months Ended
                                              September 30, 2003                       September 30, 2002
                                    -----------------------------------       -------------------------------------
                                      Daywork     Turnkey                      Daywork        Turnkey
                                    Operations   Operations(2)   Total        Operations   Operations(2)   Total
                                    ----------   -------------  -------       ----------   ------------- ----------
<S>                                 <C>          <C>            <C>           <C>          <C>           <C>
                                              (Dollars in thousands, except averages per rig day worked)
                                                                      (Unaudited)

Rig days worked                        4,828           835        5,663            4,520          566         5,086

Contract drilling revenue           $ 44,562     $  27,821    $  72,383       $   47,474     $ 13,644    $   61,118
Drilling operating
     expenses (1)                     42,157        22,359       64,517           38,526       11,275        49,801
                                    --------     ---------    ---------       ----------     --------    ----------
Operating margin                    $  2,404     $   5,462    $   7,866       $    8,948     $  2,369    $   11,317
                                    ========     =========    =========       ==========     ========    ==========

Average per rig day worked
   Contract drilling revenue        $  9,230     $  33,320    $  12,782       $   10,503     $ 24,123    $   12,018
   Drilling operating
     expenses (1)                      8,732        26,779       11,393            8,523       19,934         9,793
                                    --------     ---------    ---------       ----------     --------    ----------
   Operating margin                 $    498     $   6,541    $   1,389       $    1,980     $  4,189    $    2,225
                                    ========     =========    =========       ==========     ========    ==========
</TABLE>
--------------------
(1)      Drilling operating expenses do not include depreciation and general and
         administrative expenses.
(2)      Turnkey operations include the results from turnkey and footage
         contracts.

         Total contract drilling revenue increased approximately $11.3 million,
or 18%, to $72.4 million for the three months ended September 30, 2003, from
$61.1 million for the three months ended September 30, 2002. This increase is
due to an 11% increase in rig days worked and a higher turnkey average contract
drilling revenue per day. Turnkey average contract drilling revenue per rig day
increased by $9,197 due to differences in the complexity of the wells drilled
while daywork average contract drilling revenue per rig day declined by $1,273
due to the expiration of term contracts prior to the third quarter of 2003 that
were replaced with spot market contracts at lower rates.

         Total drilling operating expenses increased by approximately $14.7
million, or 30%, to $64.5 million for the three months ended September 30, 2003,
as compared to $49.8 million for the three months ended September 30, 2002. The
increase is primarily a result of the increased level of activity and higher
turnkey average drilling operating expenses per day. Operating expenses from
turnkey operations on a per rig day basis increased principally due to the
differences in the complexity of the turnkey wells drilled during the third
quarter of 2003 when compared to the same period of 2002.

         Depreciation expense increased by $980,000, or 8%, to $12.8 million for
the three months ended September 30, 2003, compared to $11.8 million for the
three months ended September 30, 2002. During the fourth quarter of 2002, we
made the decision not to return five rigs to service and reclassified the
component parts of these rigs to spare equipment shortening the depreciable
lives of this equipment. In addition, depreciation expense is higher due to
capital expenditures during the first nine months of 2003.


                                      -24-

<PAGE>

         Interest income decreased by $334,000, or 78%, to $96,000 for the three
months ended September 30, 2003 from $430,000 for the same period in 2002. The
decrease is due to both a decline in the average cash balances as well as a
decline in interest rates in 2003.

         Interest expense decreased by $2.4 million, or 40%, to $3.6 million for
the three months ended September 30, 2003 from $6.0 million for the same period
in 2002. Interest expense in 2003 is lower due to the partial redemption of our
8 7/8% Notes on July 1, 2003 and the issuance of $150.0 million aggregate
principal amount of the 3.75% Notes on May 7, 2003.

         Our income tax benefit increased by $1.7 million to $4.2 million for
the three months ended September 30, 2003 from $2.5 million for the same period
in 2002. The increase is due to the level of losses. The change in our effective
tax rate for the period is a result of the depreciation of permanent differences
between financial accounting and tax basis of acquired assets that are included
in earnings for the period. As the amortization of these permanent differences
is a fixed amount, our book effective tax rate varies widely based upon the
current and projected levels of income or loss.

Comparison of the Nine Months Ended September 30, 2003 and 2002

         The following tables highlight rig days worked, contract drilling
revenue and drilling operating expenses for our daywork and turnkey operations
for the nine months ended September 30, 2003 and 2002.

<TABLE>
<CAPTION>
                                              Nine Months Ended                        Nine Months Ended
                                              September 30, 2003                       September 30, 2002
                                    -----------------------------------       -------------------------------------
                                      Daywork     Turnkey                      Daywork        Turnkey
                                    Operations   Operations(2)    Total        Operations   Operations(2)   Total
                                    ----------   -------------  --------       ----------   ------------- ---------
<S>                                 <C>          <C>            <C>           <C>          <C>           <C>
                                              (Dollars in thousands, except averages per rig day worked)
                                                                      (Unaudited)

Rig days worked                        14,078        2,324        16,402           13,838       1,240        15,078

Contract drilling revenue          $  131,030    $  70,689    $  201,719       $  153,530    $ 35,354    $  188,884
Drilling operating
     expenses (1)                     120,205       59,166       179,371          117,744      28,423       146,167
                                   ----------    ---------    ----------       ----------    --------    ----------
Operating margin                   $   10,825    $  11,523    $   22,348       $   35,786    $  6,931    $   42,717
                                   ==========    =========    ==========       ==========    ========    ==========

Average per rig day worked
   Contract drilling revenue       $    9,307    $  30,417    $   12,298       $   11,095    $ 28,504    $   12,527
   Drilling operating
     expenses (1)                       8,538       25,460        10,935            8,509      22,917         9,694
                                   ----------    ---------    ----------       ----------    --------    ----------
   Operating margin                $      769    $   4,957    $    1,363       $    2,586    $  5,587    $    2,833
                                   ==========    =========    ==========       ==========    ========    ==========
</TABLE>

(1)      Drilling operating expenses do not include depreciation and general and
         administrative expenses.
(2)      Turnkey operations include the results from turnkey and footage
         contracts.

         Total contract drilling revenue increased approximately $12.8 million,
or 7% to $201.7 million for the nine months ended September 30, 2003, from
$188.9 million for the nine months ended September 30, 2002. This increase is
due to an increase in rig days worked of 1,324 days, 1,084 of which were from
turnkey operations. While the contract drilling revenue per day remained
relatively unchanged, turnkey contract drilling revenue increased by $1,913 per
day due to differences in the complexity of the wells drilled while daywork
contract drilling revenue declined by $1,788 per day due to the expiration of
term contracts prior to the third quarter of 2003 that were replaced with spot
market contracts at lower rates.


                                      -25-

<PAGE>

         Total drilling operating expenses increased by approximately $33.2
million, or 23% to $179.4 million for the nine months ended September 30, 2003,
as compared to $146.2 million for the nine months ended September 30, 2002. The
increase is primarily due to the increased level of activity and an increase in
per rig day drilling operating expenses. The increase in per rig day drilling
operating expenses comes almost entirely from turnkey and is consistent with the
increase in revenue discussed above. Daywork drilling operating expenses
remained unchanged.

         Depreciation expense increased by $2.9 million, or 8%, to $37.6 million
for the nine months ended September 30, 2003 compared to $34.7 million for the
nine months ended September 30, 2002. During the fourth quarter of 2002, we made
the decision not to return five rigs to service and reclassified the component
parts of these rigs to spare equipment shortening the depreciable lives of this
equipment. In addition, depreciation expense is higher due to capital
expenditures during the first nine months of 2003.

         General and administrative expenses remained relatively unchanged
comparing the nine-month periods ended September 30, 2003 and 2002. Items
affecting general and administrative expenses include $350,000 in compensation
expense in 2003 related to the hiring of our Executive Vice President and Chief
Operating Officer. Severance costs of $330,000 and non-cash compensation expense
of $515,000 related to stock options were recorded as a result of the
termination of employment of an executive officer in 2002.

         Interest income decreased by $522,000, or 39% to $812,000 for the nine
months ended September 30, 2003, from $1.3 million for the same period of 2002
due primarily to lower interest rates. This decline was partially offset by
additional interest earned from May 7, 2003 to June 30, 2003 on the net proceeds
of $146.6 million received from the issuance of our 3.75% Notes. These funds
were used to redeem $165.0 million aggregate principal amount of our 8 7/8%
Notes on July 1, 2003.

         Interest expense increased by $6.2 million, or 34%, to $24.2 million
for the nine months ended September 30, 2003 from $18.0 million for the same
period in 2002. Interest expense in 2003 includes approximately $8.5 million of
costs associated with the partial redemption of our 8 7/8% Notes on July 1, 2003
and interest on the $150.0 million aggregate principal amount of 3.75% Notes
issued on May 7, 2003. These costs include a $4.9 million redemption premium for
the 8 7/8% Notes, $2.5 million in accelerated amortization of a pro-rata portion
of the previously deferred financing costs on the 8 7/8% Notes, and interest on
the 3.75% Notes from May 7, 2003 to June 30, 2003.

         Our income tax benefit increased by $11.9 million to $16.5 million for
the nine months ended September 30, 2003 from $4.6 million for the same period
in 2002. The increase is due to the level of losses. The change in our effective
tax rate for the period is a result of the depreciation of permanent differences
between financial accounting and tax basis of acquired assets that are included
in earnings for the period. As the amortization of these permanent differences
is a fixed amount, our book effective tax rate varies widely based upon the
current and projected levels of income or loss.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         Interest Rate Risk. We are subject to market risk exposure related to
changes in interest rates on the CIT Facility. Interest on borrowings under the
CIT Facility accrues at a variable rate, using either the prime rate plus 0.25%
to 1.50% or LIBOR plus 1.75% to 3.50%, depending upon our debt service coverage
ratio for the trailing 12 month period. We currently have no outstanding balance
under the CIT Facility and as such have no exposure under this facility at this
time to a change in interest rates.


                                      -26-

<PAGE>

ITEM 4.    CONTROLS AND PROCEDURES

         As of September 30, 2003, we carried out an evaluation, under the
supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to
Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective. Disclosure controls and procedures are controls and
procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.

         There have been no significant changes in our internal control over
financial reporting that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

         We are involved in litigation incidental to the conduct of our
business, none of which management believes is, individually or in the
aggregate, material to our consolidated financial condition or results of
operations. See Note 6 - Contingencies in Notes to Consolidated Financial
Statements.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

         None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

         None

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

         None.

ITEM 5.  OTHER INFORMATION

         This Quarterly Report on Form 10-Q contains "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements other than statements of historical facts included in this report are
forward-looking statements, including statements regarding the following:

         o    business strategy;
         o    demand for our services;
         o    2003 rig activity and financial results;
         o    rigs expected to be engaged in turnkey and footage operations;
         o    reactivation and cost of reactivation of non-marketed rigs;
         o    projected dayrates and operating margins;
         o    projected operating margin per rig day;
         o    projected annual tax benefit rate;
         o    wage rates and retention of employees;
         o    sufficiency of our capital resources and liquidity; and
         o    depreciation, interest expense and capital expenditures in 2003.


                                      -27-

<PAGE>

         Although we believe the expectations and beliefs reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations include:

         o    fluctuations in prices and demand for oil and natural gas;
         o    fluctuations in levels of oil and natural gas exploration and
              development activities;
         o    fluctuations in demand for contract land drilling services;
         o    the existence and competitive responses of our competitors;
         o    attempts by our customers to terminate, renegotiate, or fail to
              honor term drilling contracts;
         o    uninsured or underinsured casualty losses;
         o    technological changes and developments in the industry;
         o    the existence of operating risks inherent in the contract land
              drilling industry;
         o    U.S. and global economic conditions;
         o    the availability and terms of insurance coverage;
         o    the ability to attract and retain qualified personnel;
         o    unforeseen operating costs such as cost for environmental
              remediation and turnkey cost overruns; and
         o    weather conditions.


         Our forward-looking statements speak only as of the date specified in
such statements or, if no date is stated, as of the date of this report. Grey
Wolf, Inc. expressly disclaims any obligation or undertaking to release publicly
any updates or revisions to any forward-looking statement contained in this
report to reflect any change in our expectations or with regard to any change in
events, conditions or circumstances on which our forward-looking statements are
based. Please refer to our Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on July 14, 2003 for additional information
concerning risk factors that could cause actual results to differ from the
forward-looking statements.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         31.1     Certification of Chief Executive Officer pursuant to Rule
                  13a-14(a)

         31.2     Certification of Chief Financial Officer pursuant to Rule
                  13a-14(a)

         32.1     Certification  pursuant to 18 U.S.C.  Section 1350 as adopted
                  pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002 of
                  Thomas P. Richards,  Chairman,  President and Chief Executive
                  Officer and David W. Wehlmann, Executive Vice President and
                  Chief Financial Officer.

(b)      Reports on Form 8-K

         1.    We filed a Report on Form 8-K under Item 5 with the Securities
               and Exchange Commission on July 23, 2003 with regard to our press
               release announcing updated earnings guidance for the second
               quarter of 2003.

         2.    We furnished a Report on Form 8-K under Item 12 with the
               Securities and Exchange Commission on July 30, 2003 with regard
               to our press release, pursuant to Rule 135c under the Securities
               Act of 1933, announcing operating results for the quarter ended
               June 30, 2002.

         3.    We furnished a Report on Form 8-K under Item 12 with the
               Securities and Exchange Commission on October 22, 2003 with
               regard to our press release announcing operating results for the
               quarter ended September 30, 2003.


                                      -28-

<PAGE>

                                   SIGNATURES

         PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.

                                          GREY WOLF, INC.


Date:  November 12, 2003                  By:  /s/ David W. Wehlmann
                                               --------------------------------
                                               David W. Wehlmann
                                               Executive Vice President and
                                               Chief Financial Officer



Date:  November 12, 2003                  By:  /s/ Merrie S. Costley
                                               --------------------------------
                                               Merrie S. Costley
                                               Vice President and Controller


                                      -29-

<PAGE>

                                INDEX TO EXHIBIT


EXHIBIT NUMBER          DESCRIPTION
--------------          -----------

    31.1                Certification of Chief Executive Officer pursuant to
                        Rule 13a-14(a)

    31.2                Certification of Chief Financial Officer pursuant to
                        Rule 13a-14(a)

    32.1                Certification  pursuant to 18 U.S.C.  Section 1350 as
                        adopted pursuant to Section 906 of the  Sarbanes-Oxley
                        Act of 2002 of Thomas P. Richards, Chairman, President
                        and Chief Executive Officer and David W. Wehlmann,
                        Executive Vice President and Chief Financial Officer.