UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2010

OR

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

For the transition period from to

Commission File Number 000-51471

BRONCO DRILLING COMPANY, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-2902156
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

16217 North May Avenue

Edmond, OK 73013

(Address of principal executive offices) (Zip Code)

(405) 242-4444

(Registrant’s telephone number, including area code)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes ¨     No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See the definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Large Accelerated Filer ¨ Accelerated Filer  x     Non-Accelerated Filer  ¨    Smaller Reporting Company  ¨    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes  ¨    No  x

As of April 30, 2010, 28,434,449 shares of common stock were outstanding.

 BRONCO DRILLING COMPANY, INC.

INDEX

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Unaudited Financial Statements	3
Bronco Drilling Company, Inc.:
	Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009	3
	Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009	4
	Consolidated Statement of Stockholders’ Equity and Comprehensive Income for the three months ended March 31,  2010	5
	Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risks	17
Item 4.	Controls and Procedures	17
PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Reserved	18
Item 5.	Other Information	18
Item 6.	Exhibits	18
Signatures		19

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Bronco Drilling Company, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share par value)
	March 31,		December 31,
	2010		2009
ASSETS	(Unaudited)
CURRENT ASSETS
Cash and cash equivalents	$	10,668	$	9,497
Receivables
Trade and other, net of allowance for doubtful accounts of
$3,840 and $3,576 in 2010 and 2009, respectively		16,078		15,306
Affiliate receivables		2,735		9,620
Unbilled receivables		762		828
Income tax receivable		9,218		3,800
Current deferred income taxes		1,301		1,360
Current maturities of note receivable from affiliate		2,035		2,000
Prepaid expenses		1,087		666
Total current assets		43,884		43,077
PROPERTY AND EQUIPMENT - AT COST
Drilling rigs and related equipment		446,507		440,760
Transportation, office and other equipment		42,013		42,354
		488,520		483,114
Less accumulated depreciation		153,735		145,918
		334,785		337,196
OTHER ASSETS
Note receivable from affiliate, less current maturities		-		517
Investment in Challenger		39,116		39,714
Investment in Bronco MX		22,025		21,407
Debt issue costs and other		3,194		3,672
		64,335		65,310
	$	443,004	$	445,583
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	7,209	$	9,756
Accrued liabilities		7,467		7,952
Current maturities of long-term debt		90		89
Total current liabilities		14,766		17,797
LONG-TERM DEBT,  less current maturities and discount		57,017		51,814
WARRANT		2,557		2,829
DEFERRED INCOME TAXES		34,590		32,872
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000
shares authorized; 27,026 and 26,713 shares
issued and outstanding at March 31, 2010 and December 31, 2009		271		270
Additional paid-in capital		307,707		307,313
Accumulated other comprehensive income		1,365		538
Retained earnings		24,731		32,150
Total stockholders' equity		334,074		340,271
	$	443,004	$	445,583
The accompanying notes are an integral part of these statements.

-3-

Bronco Drilling Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
	Three Months Ended March 31,
	2010			2009
	(Unaudited)
REVENUES
Contract drilling revenues	$	22,498		$	47,826
Well service		-			2,779
		22,498			50,605
EXPENSES
Contract drilling		18,419			29,844
Well service		180			2,315
Depreciation and amortization		9,256			12,526
General and administrative		4,735			5,188
Gain on Bronco MX transaction		(1,058	)		-
		31,532			49,873
Income (loss) from operations		(9,034	)		732
OTHER INCOME (EXPENSE)
Interest expense		(1,456	)		(2,299	)
Interest income		46			1
Equity in income (loss) of Challenger		(599	)		412
Equity in loss of Bronco MX		(209	)		-
Other		48			(566	)
Change in fair value of warrant		272			-
		(1,898	)		(2,452	)
Loss before income taxes		(10,932	)		(1,720	)
Income tax benefit		(3,513	)		(11	)
NET LOSS	$	(7,419	)	$	(1,709	)
Loss per common share-Basic	$	(0.28	)	$	(0.06	)
Loss per common share-Diluted	$	(0.28	)	$	(0.06	)
Weighted average number of shares outstanding-Basic		26,850			26,589
Weighted average number of shares outstanding-Diluted		26,850			26,589
The accompanying notes are an integral part of these statements.

-4-

Bronco Drilling Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands)
							Accumulated
					Additional		Other					Total
	Common		Common		Paid In		Comprehensive		Retained			Stockholders'
	Shares		Amount		Capital		Income		Earnings			Equity
Balance as of January 1, 2010		26,713	$	270	$	307,313	$	538	$	32,150		$	340,271
Net loss		-		-		-		-		(7,419	)		(7,419	)
Other Comprehensive Income:
Foreign currency translation adjustment		-		-		-		827		-			827
Total Comprehensive Income (Loss)													(6,592	)
Stock compensation		313		1		394		-		-			395
Balance as of March 31, 2010		27,026	$	271	$	307,707	$	1,365	$	24,731		$	334,074
The accompanying notes are an integral part of these statements.

-5-

Bronco Drilling Company, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
	Three Months Ended March 31,
	2010			2009
	(Unaudited)
Cash flows from operating activities:
Net loss	$	(7,419	)	$	(1,709	)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization		9,507			12,731
Bad debt expense		1,014			635
Loss (gain) on sale of assets		263			(166	)
Equity in loss (income) of Challenger		599			(412	)
Equity in loss of Bronco MX		209			-
Change in fair value of warrant		(272	)		-
Gain on Bronco MX transaction		(1,058	)		-
Imputed interest expense		225			-
Stock compensation		395			751
Deferred income taxes		1,777			(37	)
Changes in current assets and liabilities:
Receivables		(1,585	)		25,550
Affiliate receivables		6,885			-
Unbilled receivables		65			1,095
Prepaid expenses		(422	)		(846	)
Other assets		159			442
Accounts payable		(3,655	)		(13,948	)
Accrued expenses		(484	)		(3,894	)
Income taxes receivable		(5,418	)		26
Net cash provided by operating activities		782			20,218
Cash flows from investing activities:
Proceeds from sale of assets		3,287			489
Purchase of property and equipment		(7,876	)		(3,130	)
Net cash used in investing activities		(4,589	)		(2,641	)
Cash flows from financing activities:
Proceeds from borrowings		5,000			-
Payments of debt		(22	)		(5,025	)
Net cash provided by (used in) financing activities		4,978			(5,025	)
Net increase in cash and cash equivalents		1,171			12,552
Beginning cash and cash equivalents		9,497			26,676
Ending cash and cash equivalents	$	10,668		$	39,228
Supplementary disclosure of cash flow information:
Interest paid, net of amount capitalized	$	1,255		$	2,256
Income taxes paid		128			-
Supplementary disclosure of non-cash investing and financing:
Purchase of property and equipment in accounts payable		1,110			1,433
The accompanying notes are an integral part of these statements.

-6-

Bronco Drilling Company, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

($ Amounts in thousands, except per share amounts)

Unless the context requires otherwise, a reference in this quarterly report to “Bronco,” the “Company,” “we,” “us,” and “our” are to Bronco Drilling Company, Inc., a Delaware corporation, and its consolidated subsidiaries.

1. Organization and Summary of Significant Accounting Policies

Business and Principles of Consolidation

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

 The Company has prepared the accompanying unaudited consolidated financial statements and related notes in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions of Form 10-Q and Regulation S-X. In preparing the financial statements, the Company made various estimates and assumptions that affect the amounts of assets and liabilities the Company reports as of the dates of the balance sheets and amounts the Company reports for the periods shown in the consolidated statements of operations, stockholders’ equity and cash flows. The Company’s actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the Company’s recognition of revenues and accrued expenses, estimate of the allowance for doubtful accounts, estimate of asset impairments, estimate of deferred taxes and determination of depreciation and amortization expense.

 In management’s opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting of normal recurring accruals) necessary to present fairly the financial position of the Company as of March 31, 2010, the related results of operations for the three months ended March 31, 2010 and 2009 and the cash flows for the three months ended March 31, 2010 and 2009.  The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.  In preparing the accompanying unaudited consolidated financial statements, we have reviewed, as we have determined necessary, events that have occurred after March 31, 2010 through the filing of this Form 10-Q.

 The results of operations for the three months ended March 31, 2010 are not necessarily an indication of the results expected for the full year.

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

Property and Equipment

 Property and equipment, including renewals and betterments, are capitalized and stated at cost, while maintenance and repairs are expensed currently. Assets are depreciated on a straight-line basis. The depreciable lives of drilling and workover rigs and related equipment are three to 15 years. The depreciable life of other equipment is three years. Depreciation is not commenced until acquired rigs are placed in service. Once placed in service, depreciation continues when rigs are being repaired, refurbished or between periods of deployment. Assets not placed in service and not being depreciated were $27,148 and $26,038 as of March 31, 2010 and December 31, 2009, respectively.  Due to immateriality, gains and losses on dispositions, with the exception of the Bronco Drilling MX, S. de R.L. de C.V., or Bronco MX, transaction, described in more detail below, are included in contract drilling and well service revenues.

 The Company capitalizes interest as a component of the cost of drilling and workover rigs constructed for its own use.

 The Company evaluates for potential impairment of long-lived assets and intangible assets subject to amortization when indicators of impairment are present, as defined in ASC Topic 360, Accounting for the Impairment or Disposal of Long-Lived Assets. Circumstances that could indicate a potential impairment include significant adverse changes in industry trends, economic climate, legal factors, and an adverse action or assessment by a regulator. More specifically, significant adverse changes in industry trends include significant declines in revenue rates, utilization rates, oil and natural gas market prices and industry rig counts for drilling rigs and workover rigs. In performing an impairment evaluation, the Company estimated the future undiscounted net cash flows from the use and eventual disposition of long-lived assets and intangible assets grouped at the lowest level that cash flows can be identified.  If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the long-lived assets and intangible assets for these asset grouping levels, then the Company would recognize an impairment charge. The amount of an impairment charge would be measured as the difference between the carrying amount and the fair value of these assets. The Company did not record an impairment charge on any long-lived assets for our contract land drilling or well servicing segments for the three months ended March 31, 2010.  The assumptions used in the impairment evaluation for long-lived assets and intangible assets are inherently uncertain and require management judgment.

Income Taxes

 Pursuant to ASC Topic 740, Income Taxes, the Company follows the asset and liability method of accounting for income taxes, under which the Company recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities were measured using enacted tax rates expected to apply to taxable income in the years in which the Company expects to recover or settle those temporary differences.  A statutory Federal tax rate of 35% and effective state tax rate of 3.7% (net of Federal income tax effects) were used for the enacted tax rates for all periods.  The Company’s effective income tax rate during the three months ended March 31, 2010 is higher than what would be expected if the federal statutory rate were applied to income before income taxes primarily because of certain stock compensation expenses recorded for financial reporting purposes that are not deductible for tax purposes.

Comprehensive Income (Loss)

 Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income.  Other comprehensive income includes the translation adjustments of the financial statements of Bronco MX at December 31, 2009.  The following table sets forth the components of comprehensive income (loss):

	Three Months Ended March 31,
	2010			2009
Net loss	$	(7,419	)	$	(1,709	)
Other comprehensive income - translation adjustment		827			-
Comprehensive loss	$	(6,592	)	$	(1,709	)

Equity Method Investments

 Investee companies that are not consolidated, but over which the Company exercises significant influence, are accounted for under the equity method of accounting. Whether or not the Company exercises significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Statements of Operations; however, the Company’s share of the earnings or losses of the Investee company is reflected in the caption “Equity in income (loss) of Challenger” and “Equity in income (loss) of Bronco MX” in the Consolidated Statements of Operations. The Company’s carrying value in an equity method Investee company is reflected in the caption “Investment in Challenger” and “Investment in Bronco MX” in the Company’s Consolidated Balance Sheets.

Recent Accounting Pronouncements

 In January 2010, the FASB issued a new accounting standard which requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by ASC 820, Fair Value Measurements.  Also required will be a reconciliation of purchases, sales, issuance, and settlements of financial instruments valued with a Level 3 method, which is used to price the hardest to value instruments.  Entities will have to provide fair value measurement disclosures for each class of financial assets and liabilities.  The guidance will be effective for fiscal years beginning after December 15, 2010.  The Company is currently evaluating the impact, if any, the adoption will have on our consolidated financial statements.

-7-

 In December 2009, the FASB issued a new accounting standard which updates the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this Update also require additional disclosures about an reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements.  This new standard is effective at the start of a reporting entity’s first fiscal year beginning after January 1, 2010.  The adoption of this standard did not impact our consolidated financial statements.

 In June 2009, the FASB issued a new accounting standard that amends the accounting and disclosure requirements for the consolidation of variable interest entities. This new standard removes the previously existing exception from applying consolidation guidance to qualifying special-purpose entities and requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. Before this new standard, generally accepted accounting principles required reconsideration of whether an enterprise is the primary beneficiary of a variable interest entity only when specific events occurred. This new standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. This new standard became effective for us on January 1, 2010. The adoption of this standard did not impact our consolidated financial statements.

2. Equity Method Investments

 On January 4, 2008, we acquired a 25% equity interest in Challenger Limited, or Challenger, in exchange for six drilling rigs and cash.  The Company also sold to Challenger four drilling rigs and ancillary equipment.  The Company recorded equity in income (loss) of investment of $(599) and $412 for the three months ended March 31, 2010 and 2009, respectively, related to its equity investment in Challenger.  Challenger is an international provider of contract land drilling and workover services to oil and natural gas companies with its principal operations in Libya.

 The Company entered into a term note with Challenger related to the sale of four drilling rigs and ancillary equipment.  The term note bears interest at 8.5%.  Interest and principal payments of $529 on the note are due quarterly until maturity at February 2, 2011.  The note receivable is collateralized by the assets sold to Challenger.  The note receivable from Challenger at March 31, 2010 was $2,035, all of which was classified as current.  The note receivable from Challenger at December 31, 2009 was $2,517.

 On February 20, 2008, the Company entered into a Management Services Agreement and Master Services Agreement with Challenger.  The Company agreed to make available to Challenger certain employees of the Company for the purpose of providing land drilling services, certain business consulting services and managerial support to Challenger.  The Company invoices Challenger monthly for the services provided.  The Company had accounts receivable from Challenger of $2,196 and $2,499 at March 31, 2010 and December 31, 2009, respectively, related to these services provided.

 At March 31, 2010, the book value of the Company’s ordinary share investment in Challenger was $39,116.  The Company’s 25% interest of the net assets of Challenger was estimated to be $35,611.  The basis difference between the Company’s ordinary equity investment in Challenger and the Company’s 25% interest of the net assets of Challenger primarily consists of certain property, plant and equipment and accumulated depreciation in the amount of $3,626 and $121, respectively, at March 31, 2010.  These amounts are being amortized against the Company’s 25% interest of Challenger’s net income over the estimated useful lives of 15 years for the property, plant and equipment.  Amortization recorded during the three months ended March 31, 2010 and March 31, 2009 was $61 and $322, respectively.

 Summarized financial information of Challenger is presented below:

	Three Months Ended March 31,
	2010			2009
Condensed statement of operations:
Revenues	$	9,875		$	19,850
Gross margin	$	2,030		$	9,515
Net Income (loss)	$	(2,153	)	$	2,937
	March 31,			December 31,
		2010			2009
Condensed balance sheet:
Current assets	$	56,010		$	59,971
Noncurrent assets		128,829			130,667
Total assets	$	184,839		$	190,638
Current liabilities	$	21,675		$	25,511
Noncurrent liabilities		20,722			20,531
Equity		142,442			144,596
Total liabilities and equity	$	184,839		$	190,638

 In September, 2009, Carso Infraestructura y Construcción, S.A.B. de C.V., or CICSA, purchased from us 60% of the outstanding membership interests of Bronco MX.  The Company owns the remaining 40% of the outstanding membership interests of Bronco MX.  Immediately prior to the sale of the membership interests in Bronco MX to CICSA, the Company contributed six drilling rigs (Nos. 4, 43, 53, 58, 60 and 72), and the future net profit from rig leases relating to three additional drilling rigs (Nos. 55, 76 and 78), which the Company contributed to Bronco MX upon the expiration of the leases relating to such rigs. The general specifications of the contributed rigs are as follows:

Rig	Design	Approximate Drilling Depth (ft)	Type	Horsepower
43	Gardner Denver 800	15,000	Mechanical	1,000
4	Skytop Brewster N46	14,000	Mechanical	950
53	Skytop Brewster N42	12,000	Mechanical	850
55	Oilwell 660	12,000	Mechanical	1,000
58	National N55	12,000	Mechanical	800
60	Skytop Brewster N46	14,000	Mechanical	850
72	Skytop Brewster N42	10,000	Mechanical	750
76	National N55	12,000	Mechanical	700
78	Seaco 1200	12,000	Mechanical	1,200

 The Company received $31,735 from CICSA in exchange for the 60% membership interest in Bronco MX, which included reimbursement for 60% of value added taxes previously paid by, or on behalf of, Bronco MX as a result of the importation to Mexico of the six drilling rigs that were contributed by the Company to Bronco MX.  Upon completion of the transaction, the Company treated Bronco MX as a deconsolidated subsidiary in order to compute a loss in accordance with ASC Topic 810, Consolidation, due to the Company not retaining a controlling financial interest in Bronco MX subsequent to the sale.  The Company recorded a net loss of $23,964 for the nine months ended September 30, 2009 relating to the transactions.  The loss was computed based on the proceeds received from CICSA of $31,735 and the value of the Company’s 40% retained interest in Bronco MX of $21,495 less the book value of the net assets of Bronco MX, including rigs contributed to Bronco MX, of $77,194.  The Company recorded a positive adjustment to the loss during the first quarter of 2010 of $1,058 due to post closing adjustments.  Fair value of the Company’s 40% investment in Bronco MX was estimated using a combination of income, or discounted cash flows approach, the market approach, which utilizes pricing of third-party transactions of comparable businesses or assets and the cost approach which considers replacement cost as the primary indicator of value. The analysis resulted in a fair value of $21,495 related to the Company’s 40% retained interest in Bronco MX.  At March 31, 2010, the book value of the Company’s ordinary share investment in Bronco MX was $22,025.  The Company recorded equity in loss of investment of $209 for the three months ended March 31, 2010 related to its equity investment in Bronco MX.  The Company’s investment in Bronco MX was increased by $827 as a result of a currency translation gain for the three months ended March 31, 2010.  The Company is in the process of gathering additional information in order to finalize the accounting related to these transactions.

 Bronco MX is jointly managed, with CICSA having three representatives on its board of managers and the Company having two representatives on its board of managers.  The Company and CICSA, and their respective affiliates, have agreed to conduct all future land drilling and workover rig services, rental, construction, refurbishment, transportation, trucking and mobilization in Mexico and Latin America exclusively through Bronco MX, subject to Bronco MX’s ability to perform.

-8-

 According to a Schedule 13D/A filed with the SEC on March 8, 2010 by Carlos Slim Helú, certain members of his family and affiliated entities (collectively, the “Slim Affiliates”), these individuals and entities collectively own approximately 19.99% of our common stock. CICSA is also a Slim Affiliate.

 Summarized financial information of Bronco MX is presented below:

	Three Months Ended
	March 31, 2010
Condensed statement of operations:
Revenues	$	6,514
Gross margin	$	(485	)
Net Income (loss)	$	(521	)
	March 31,			December 31,
		2010			2009
Condensed balance sheet:
Current assets	$	8,804		$	8,931
Noncurrent assets		63,452			57,746
Total assets	$	72,256		$	66,677
Current liabilities	$	3,873		$	13,162
Noncurrent liabilities		13,399			-
Equity		54,984			53,515
Total liabilities and equity	$	72,256		$	66,677

3. Long-term Debt and Warrant

 Long-term debt consists of the following:

	March 31,		December 31,
	2010		2009
Revolving credit facility with Banco Inbursa S.A., collateralized by the Company's
assets, and matures on September 17, 2014.  Loans under the revolving credit
facility bear interest at variable rates as defined in the credit agreement. (1)		55,770		50,545
Note payable to Ameritas Life Insurance Corp., collateralized by a building, payable in principal and interest installments of $14, interest on the note is 6.0%, maturity date of January 1, 2021. (2)		1,337		1,358
	$	57,107	$	51,903
Less current installments		90		89
		57,017		51,814

(1) On September 18, 2009, the Company entered into a new senior secured revolving credit facility with Banco Inbursa S.A., or Banco Inbursa, as lender and as the issuing bank.  The Company utilized (i) borrowings under the credit facility, (ii) proceeds from the sale of the membership interests of Bronco MX and (iii) cash-on-hand to repay all amounts outstanding under the Company’s prior revolving credit agreement with Fortis Bank SA/NV, New York Branch, which was replaced by this credit facility.   The credit facility provides for revolving advances of up to $75,000 and matures on September 17, 2014.  The borrowing base under the credit facility has been initially set at $75,000, subject to borrowing base limitations.  Our availability under the credit facility is reduced by outstanding letters of credit which were approximately $11.5 million at March 31, 2010.  Outstanding borrowings under the credit facility bear interest at the Eurodollar rate plus 5.80% per annum, subject to adjustment under certain circumstances.  The effective interest rate was 6.50% at March 31, 2010.  The Company incurred $2,232 in debt issue costs related to this credit facility.   The Company pays a quarterly commitment fee of 0.5% per annum on the unused portion of the credit facility and a fee of 1.50% for each letter of credit issued under the facility. In addition, an upfront fee equal to 1.50% of the aggregate commitments under the credit facility was paid by the Company at closing. The Company’s domestic subsidiaries have guaranteed the loans and other obligations under the credit facility. The obligations under the credit facility and the related guarantees are secured by a first priority security interest in substantially all of the assets of the Company and its domestic subsidiaries, including the equity interests of the Company’s direct and indirect subsidiaries. Commitment fees expense for the three months ended March 31, 2010 was $10.   The credit facility contains customary representations and warranties and various affirmative and negative covenants, including, but not limited to, covenants that restrict the Company’s ability to make capital expenditures, incur indebtedness, incur liens, dispose of property, repay debt, pay dividends, repurchase shares and make certain acquisitions, and a financial covenant requiring that the Company maintain a ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation and amortization as defined in the credit agreement for any four consecutive fiscal quarters of not more than 3.5 to 1.0.  On February 9, 2010, the Company received a waiver from Banco Inbursa for the ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation and amortization through the second quarter of 2010.  A violation of these covenants or any other covenant in the credit facility could result in a default under the credit facility which would permit the lender to restrict the Company’s ability to access the credit facility and require the immediate repayment of any outstanding advances under the credit facility.  In conjunction with its entry into the credit facility, the Company entered into a Warrant Agreement with Banco Inbursa and, pursuant thereto, issued a three-year warrant (the “Warrant”) to Banco Inbursa evidencing the right to purchase up to 5,440,770 shares of the Company’s common stock, $0.01 par value per share (the “Common Stock”) subject to the terms and conditions set forth in the Warrant, including the limitations on exercise set forth below, at an exercise price of $6.50 per share of Common Stock from the date of issuance of the Warrant (the “Issue Date”) through the first anniversary of the Issue Date, $7.00 per share following the first anniversary of the Issue Date through the second anniversary of the Issue Date, and $7.50 per share following the second anniversary of the Issue Date through the third anniversary of the Issue Date. Banco Inbursa subsequently transferred the Warrant to CICSA. In accordance with accounting standards, the proceeds from the revolving credit facility were allocated to the credit facility and Warrant based on their respective fair values.  Based on this allocation, $50,321 and $4,679 of the net proceeds were allocated to the credit facility and Warrant, respectively.  The Warrant has been classified as a liability on the consolidated balance sheet due to the Company’s obligation to pay the seller of the Warrant a make-whole payment, in cash, under certain circumstances.  The fair value of the Warrant was determined using a pricing model based on a version of the Black Scholes model, which is adjusted to account for the dilution resulting from the additional shares issued for the Warrant.  The valuation was determined by computing the value of the Warrant if exercised in Year 1 – 3 with the values weighted by the probability that the warrant would actually be exercised in that year.  Some of the assumptions used in the model were a volatility of 45% and a risk free interest rate that ranged from 0.41% to 1.57%. The resulting discount to the revolving credit facility is amortized to interest expense over the term of the revolving credit facility such that, in the absence of any conversions, the carrying value of the revolving credit facility at maturity would be equal to $55,000.  Accordingly, the Company will recognize annual interest expense on the debt at an effective interest rate of Eurodollar rate plus 6.25%.  Imputed interest expense recognized for the three months ended March 31, 2010 was $225.

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In accordance with accounting standards, the Company revalued the Warrant as of March 31, 2010 and recorded the change in the fair value of the Warrant on the consolidated statement of operations.  The fair value of the Warrant was determined using a pricing model based on a version of the Black Scholes model, which is adjusted to account for the dilution resulting from the additional shares issued for the Warrant.  The valuation was determined by computing the value of the Warrant if exercised in Year 1 – 3 with the values weighted by the probability that the Warrant would actually be exercised in that year.  Some of the assumptions used in the model were a volatility of 50% and a risk free interest rate that ranged from 0.22% to 1.29%.  The fair value of the warrant was $2,557 at March 31, 2010.  The Company recorded a change in the fair value of the Warrant on the consolidated statement of operations in the amount of $272 for the three months ended March 31, 2010.   

2) On January 2, 2007, the Company assumed a term loan agreement with Ameritas Life Insurance Corp. related to the acquisition of a building.  The loan provides for term installments in an aggregate not to exceed $1,590.

 Long-term debt maturing each year subsequent to March 31, 2010 is as follows:

2011	$	90
2012		96
2013		102
2014		108
2015		55,885
2016 and thereafter		826
	$	57,107

4. Workers’ Compensation and Health Insurance

 The Company is insured under a large deductible workers’ compensation insurance policy. The policy generally provides for a $1,000 deductible per covered accident. The Company maintains letters of credit in the aggregate amount of $11,560 for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which may become payable under the terms of the underlying insurance contracts.  The letters of credit are typically renewed annually.  No amounts have been drawn under the letters of credit. Accrued expenses at March 31, 2010 and December 31, 2009 included approximately $3,046 and $2,458, respectively, for estimated incurred but not reported costs and premium accruals related to our workers’ compensation insurance.

 On November 1, 2005, the Company initiated a self-insurance program for major medical, hospitalization and dental coverage for employees and their dependents, which is partially funded by payroll deductions. The Company provided for both reported and incurred but not reported medical costs in the accompanying consolidated balance sheets. We have a maximum liability of $100 per employee/dependent per year. Amounts in excess of the stated maximum are covered under a separate policy provided by an insurance company. Accrued expenses at March 31, 2010 and December 31, 2009 included approximately $740 and $784, respectively, for our estimate of incurred but not reported costs related to the self-insurance portion of our health insurance.

5. Transactions with Affiliates

 During 2009, the Company had six operating leases with affiliated entities.  As of January 9, 2010, these entities are no longer affiliated entities.  Related rent expense was approximately $143 for the three months ended March 31, 2009.

 The Company had receivables from affiliates of $2,735 and $9,620 at March 31, 2010 and December 31, 2009, respectively.

 Additional information about our transactions with affiliates is included in Note 2, Equity Method Investments.

6. Commitments and Contingencies

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

7. Business Segments

 The Company’s reportable business segments are contract land drilling and well servicing.  The contract land drilling segment utilizes a fleet of land drilling rigs to provide contract drilling services to oil and natural gas exploration and production companies.  During the three months ended March 31, 2010, our drilling rigs operated in Oklahoma, Texas, Utah, North Dakota, Louisiana, Pennsylvania, and West Virginia.  The well servicing segment encompasses a full range of services performed with a mobile well servicing rig, including the installation and removal of downhole equipment and elimination of obstructions in the well bore to facilitate the flow of oil and gas.  During the second quarter of 2009, the Company temporarily suspended its well servicing operations.  The Company intends to restructure this business unit in anticipation of more favorable market conditions.  The accounting policies of the segments are the same as those described in the summary of significant accounting policies.  The Company’s reportable segments are strategic business units that offer different products and services.

 The following table sets forth certain financial information with respect to the Company’s reportable segments:

	Contract land drilling			Well servicing			Total
Three Months Ended March 31, 2010
Operating revenues	$	22,498		$	-		$	22,498
Direct operating costs		(18,419	)		(180	)		(18,599	)
Segment profits	$	4,079		$	(180	)	$	3,899
Depreciation and amortization	$	7,799		$	1,457		$	9,256
Capital expenditures	$	7,876		$	-		$	7,876
Identifiable assets	$	395,273		$	47,731		$	443,004
Three Months Ended March 31, 2009
Operating revenues	$	47,826		$	2,779		$	50,605
Direct operating costs		(29,844	)		(2,315	)		(32,159	)
Segment profits	$	17,982		$	464		$	18,446
Depreciation and amortization	$	10,842		$	1,684		$	12,526
Capital expenditures	$	2,908		$	222		$	3,130
Identifiable assets	$	532,318		$	57,355		$	589,673

 The following table reconciles the segment profits above to the operating income as reported in the consolidated statements of operations:

	Three Months Ended			Three Months Ended
	March 31, 2010			March 31, 2009
Segment profits	$	3,899		$	18,446
General and administrative expenses		(4,735	)		(5,188	)
Depreciation and amortization		(9,256	)		(12,526	)
Gain on Bronco MX transaction		1,058			-
Operating income (loss)	$	(9,034	)	$	732

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8. Net Income Per Common Share

 The following table presents a reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) and diluted EPS comparisons as required by ASC Topic 260:

	Three Months Ended
	March 31,
	2010			2009
Basic:
Net loss	$	(7,419	)	$	(1,709	)
Weighted average shares		26,850			26,589
Loss per share	$	(0.28	)	$	(0.06	)
Diluted:
Net loss	$	(7,419	)	$	(1,709	)
Weighted average shares:
Outstanding (thousands)		26,850			26,589
Restricted Stock and Options (thousands)		-			-
		26,850			26,589
Loss per share	$	(0.28	)	$	(0.06	)

 The weighted average number of diluted shares excludes 55,873 and 19,857 shares for the three months ended March 31, 2010 and 2009, respectively, subject to restricted stock awards due to their antidilutive effects.

9.  Fair Value Measurements

 As defined in ASC 820, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (referred to as an "exit price"). Authoritative guidance on fair value measurements and disclosures clarifies that a fair value measurement for a liability should reflect the entity's non-performance risk. In addition, a fair value hierarchy is established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted market prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources.

Fair Value on Recurring Basis

 The Company issued a Warrant in conjunction with its revolving credit facility with Banco Inbursa, which Banco Inbursa subsequently transferred to CICSA.  In accordance with accounting standards, the Company revalued the Warrant as of March 31, 2010 and recorded the change in the fair value of the Warrant on the consolidated statement of operations.  The fair value of the Warrant was determined using level 3 inputs.  The Company used a pricing model based on a version of the Black Scholes model, which is adjusted to account for the dilution resulting from the additional shares issued for the Warrant.  The valuation was determined by computing the value of the Warrant if exercised in Year 1 – 3 with the values weighted by the probability that the Warrant would actually be exercised in that year.  Some of the assumptions used in the model were a volatility of 50% and a risk free interest rate that ranged from 0.22% to 1.29%.  The fair value of the Warrant was $2,557 at March 31, 2010.  The Company recorded a change in the fair value of the Warrant on the consolidated statement of operations in the amount of $272 for the three months ended March 31, 2010.

 The fair values of our cash equivalents, trade receivables and trade payables approximated their carrying values due to the short-term nature of these instruments.

10. Restricted Stock

 The Company’s board of directors and a majority of our stockholders approved our 2006 Stock Incentive Plan, which the Company refers to as the 2006 Plan, effective April 20, 2006.  The purpose of the 2006 Plan is to provide a means by which eligible recipients of awards may be given an opportunity to benefit from increases in value of our common stock through the granting of one or more of the following awards: (1) incentive stock options, (2) nonstatutory stock options, (3) restricted awards, (4) performance awards and (5) stock appreciation rights.

 The purpose of the plan is to enable the Company, and any of its affiliates, to attract and retain the services of the types of employees, consultants and directors who will contribute to our long range success and to provide incentives that are linked directly to increases in share value that will inure to the benefit of our stockholders.

 Eligible award recipients are employees, consultants and directors of the Company and its affiliates. Incentive stock options may be granted only to our employees. Awards other than incentive stock options may be granted to employees, consultants and directors. The shares that may be issued pursuant to awards consist of our authorized but unissued common stock, and the maximum aggregate amount of such common stock that may be issued upon exercise of all awards under the plan, including incentive stock options, may not exceed 2,500,000 shares, subject to adjustment to reflect certain corporate transactions or changes in our capital structure.

 Under all restricted stock awards to date, nonvested shares are subject to forfeiture for failure to fulfill service conditions.  Restricted stock awards consist of our common stock that vest over a two or three year period.  Total shares available for future stock option grants and restricted stock grants to employees and directors under existing plans were 1,296,878 as of March 31, 2010.  Restricted stock awards are valued at the grant date market value of the underlying common stock and are being amortized to operations over the respective vesting period.  Compensation expense for the three months ended March 31, 2010 and 2009 was $395 and $751, respectively.  Restricted stock activity for the three months ended March 31, 2010 was as follows:

				Weighted Average
				Grant Date
	Shares			Fair Value
Outstanding at December 31, 2009		504,598		$	7.67
Granted		-			-
Vested		(319,103	)		7.71
Forfeited/expired		-			-
Outstanding at March 31, 2010		185,495		$	5.28

 There was $816,189 of total unrecognized compensation cost related to nonvested restricted stock awards to be recognized over a weighted-average period of 0.55 years as of March 31, 2010.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 The following discussion and analysis should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on March 15, 2010 and with the unaudited consolidated financial statements and related notes thereto presented in this Quarterly Report on Form 10-Q.

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Disclosure Regarding Forward-Looking Statements

 Our disclosure and analysis in this Form 10-Q may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the Private Securities Litigation Reform Act of 1995, that are subject to risks and uncertainties. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. All statements other than statements of historical facts included in this Form 10-Q that address activities, events or developments that we expect, believe or anticipate will or may occur in the future are forward-looking statements.

 These forward-looking statements are largely based on our expectations and beliefs concerning future events, which reflect estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control.

 Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Form 10-Q are not guarantees of future performance, and we cannot assure any reader that those statements will be realized or the forward-looking events and circumstances will occur. Actual results may differ materially from those anticipated or implied in the forward-looking statements due to the factors listed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections of this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K. All forward-looking statements speak only as of the date of this Form 10-Q. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Overview

 We provide contract land drilling and workover services to independent oil and gas exploration and production companies throughout the United States. We commenced operations in 2001 with the purchase of one stacked 650-horsepower drilling rig that we refurbished and deployed. We subsequently made selective acquisitions of both operational and inventoried drilling rigs, as well as ancillary equipment. Our management team has significant experience not only with acquiring rigs, but also with refurbishing and deploying inventoried rigs. We have successfully refurbished and brought into operation 25 inventoried drilling rigs during the period from November 2003 through March 2010. In addition, we have a 41,000 square foot machine shop in Oklahoma City, which allows us to refurbish and repair our rigs and equipment in-house. This facility, which complements our two drilling rig refurbishment yards, significantly reduces our reliance on outside machine shops and the attendant risk of third-party delays in our rig refurbishment program.   As of April 30, 2010, we also owned a fleet of 60 trucks used to transport our rigs.

 We have a 40% equity investment in Bronco MX, a company organized under the laws of Mexico.  Bronco MX provides contract land drilling services and leases land drilling rigs to oil and natural gas companies in Mexico.  We also have a 25% equity investment in Challenger, a company organized under the laws of the Isle of Man.  Challenger is an international provider of contract land drilling and workover services to oil and natural gas companies with its principal operations in Libya.

Operating Segments

 We currently conduct our operations through two operating segments: contract land drilling and well servicing.  The following is a description of these two operating segments.  Financial information about our operating segments is included in Note 7, Business Segments, of the Notes to Consolidated Financial Statements.

 Contract Land Drilling – Our contract land drilling segment provides contract land drilling services.  As of April 30, 2010, we owned a fleet of 37 marketed land drilling rigs.  We currently operate our drilling rigs in North Dakota, Pennsylvania, West Virginia, New York, Oklahoma, Louisiana, Utah, and Texas.  A majority of the wells we drill for our customers are drilled in unconventional basins also known as resource plays.  These plays are generally characterized by complex geologic formations that often require higher horsepower, premium rigs and experienced crews to reach targeted depths.  Our current fleet of 37 marketed drilling rigs range from 950 to 2,000 horsepower.  Accordingly, such rigs can, or in the case of inventoried rigs upon refurbishment, will be able to, reach the depths required and have the capability of drilling horizontal and directional wells, which are increasing as a percentage of total wells drilled in North America.  We believe our premium rig fleet, inventory and experienced crews position us to benefit from the natural gas drilling activity in our core operating areas.

 We obtain our contracts for drilling oil and natural gas wells either through competitive bidding or through direct negotiations with customers. We typically enter into drilling contracts that provide for compensation on a daywork basis. Occasionally, we enter into drilling contracts that provide for compensation on a footage basis.  We have not historically entered into turnkey contracts; however, we may decide to enter into such contracts in the future.  It is also possible that we may acquire such contracts in connection with future acquisitions. Contract terms we offer generally depend on the complexity and risk of operations, the on-site drilling conditions, the type of equipment used and the anticipated duration of the work to be performed. Although, we currently have 15 of our drilling rigs operating under term contracts, our contracts generally provide for the drilling of a single well and typically permit the customer to terminate on short notice.

 A significant performance measurement that we use to evaluate this segment is operating rig utilization. We compute operating drilling rig utilization rates by dividing revenue days by total available days during a period. Total available days are the number of calendar days during the period that we have owned the operating rig. Revenue days for each operating rig are days when the rig is earning revenues under a contract, i.e. when the rig begins moving to the drilling location until the rig is released from the contract. On daywork contracts, during the mobilization period we typically receive a fixed amount of revenue based on the mobilization rate stated in the contract. We begin earning our contracted daywork rate and mobilization revenue when we begin drilling the well. Occasionally, in periods of increased demand, we will receive a percentage of the contracted dayrate during the mobilization period. We account for these revenues as mobilization fees.

 For the three months ended March 31, 2010 and 2009 and years ended December 31, 2009, 2008 and 2007, our rig utilization rates, revenue days and average number of marketed rigs were as follows:

	Three Months Ended
	March 31,						Years Ended December 31,
	2010			2009			2009			2008			2007
Average number of marketed rigs		37			45			44			44			51
Revenue days		1,428			2,362			5,699			12,712			14,245
Utilization Rates		43	%		58	%		36	%		79	%		76	%

 The decrease in the number of revenue days for the three month-period ended March 31, 2010 as compared to the same period in 2009 is primarily attributable to the sharp decrease in oil and natural gas prices beginning in the third quarter of 2008 through 2009 as well as the inability of most customers to obtain financing related to their drilling programs.  Additionally, the average number of rigs decreased due to the contribution of 9 rigs to Bronco MX in the third quarter of 2009.

 Well Servicing – Our well servicing segment is capable of providing a broad range of services to oil and natural gas exploration and production companies, including well maintenance, well workover, new well completion and plugging and abandonment.  We are able to provide maintenance-related services as part of the normal, periodic upkeep of producing oil and gas wells. Workover and completion services typically generate more revenue per hour than maintenance work due to the use of auxiliary equipment, but demand for workover and completion services tends to be cyclical and highly correlated to the overall activity level in the industry.

 The Company earns well servicing revenue based on purchase orders, contracts or other persuasive evidence of an arrangement with the customer, such as a master service agreement, that include fixed or determinable prices.  We generally charge our customers an hourly rate for these services, which varies based on a number of considerations including market conditions in each region, the type of rig and ancillary equipment required, and the necessary personnel.

 Our well servicing rig fleet has increased from a weighted average number of 24 rigs in the first quarter of 2007 to 61 in the first quarter of 2010 due to newbuild purchases.  We gauge activity levels in our well servicing rig operations based on rig utilization rate.  We compute operating workover rig utilization rates by dividing revenue hours by total available hours during a period. Total available hours are the number of hours during the period that we have owned the operating workover rig based on a 50-hour work week per rig.

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 For the three months ended March 31, 2010 and 2009 and years ended December 31, 2009, 2008 and 2007, our workover rig utilization rates, revenue hours and average number of operating workover rigs were as follows:

	Three Months Ended
	March 31,						Years Ended December 31,
	2010			2009			2009			2008			2007
Average number of operating workover rigs		-			52			52			52			33
Revenue hours		-			8,012			11,386			91,591			63,746
Utilization Rates		0	%		24	%		17	%		68	%		78	%

 In June of 2009 management made the decision to temporarily suspended operations in the well servicing segment.  Market conditions had sharply deteriorated due to the rapid decrease in oil and natural gas prices which began in the third quarter of 2008, as well as the inability of most customers to obtain financing related to their drilling and workover programs.  Currently, Bronco senior management is rebuilding the management team within Bronco Energy Services. Several candidates have been identified to lead this division going forward. The plan for potential redeployment includes new geographic markets, a greater focus on completion services as well as the exploration of potential expansion into international markets where we feel we have a competitive advantage.

Market Conditions in Our Industry

 The United States contract land drilling and well servicing industry is highly cyclical. Volatility in oil and natural gas prices can produce wide swings in the levels of overall drilling and well servicing activity in the markets we serve and affect the demand for our drilling and workover services and the revenue rates we can charge for our drilling and workover rigs. The availability of financing sources, past trends in oil and natural gas prices and the outlook for future oil and natural gas prices strongly influence the capital expenditure budgets of exploration and production companies.

 Our business environment has been adversely affected by the decline in oil and natural gas prices and the deteriorating global economic environment beginning in the third quarter of 2008.  As part of this deterioration, there has been significant uncertainty in the capital markets and access to financing has been reduced.  As a result of these conditions, our customers have curtailed their exploration budgets, which resulted in a significant decrease in demand for our services, a reduction in revenue rates and utilization.  During the first three months of 2010 and 2009, the Company recorded $0 and $3.1 million, respectively, of contract drilling revenue related to terminated contracts.  Due to the current economic environment, certain customers may not be able to pay suppliers, including us, if they are not able to access capital to fund their business operations.

 On April 30, 2010, the closing prices for near month delivery contracts for crude oil and natural gas as traded on the NYMEX were $86.15 per barrel and $3.92 per MMbtu, respectively.  The Baker Hughes domestic land rig drilling rig count as of April 30, 2010 was 1,431.  Baker Hughes is a large oil field services firm that has issued the rotary rig counts as a service to the petroleum industry since 1944.

 The following table depicts the prices for near month delivery contracts for crude oil and natural gas as traded on the NYMEX, as well as the most recent Baker Hughes domestic land rig count, on the dates indicated:

	At March 31,		At December 31,
	2010		2009		2008		2007
Crude oil (Bbl)	$	83.76	$	79.36	$	44.60	$	95.98
Natural gas (Mmbtu)	$	3.87	$	5.57	$	5.62	$	7.48
U.S. Land Rig Count		1,391		1,150		1,653		1,719

 Increased expenditures for exploration and production activities generally lead to increased demand for our services. Until mid-2008, rising oil and natural gas prices and the corresponding increase in onshore oil and and natural gas exploration and production spending led to expanded drilling and well service activity as reflected by the increases in the U.S. land rig counts and U.S. workover rig counts over the previous several years.  Falling commodity prices and the oversupply of rigs, similar to what we have experienced since the beginning of the third quarter of 2008, generally leads to lower demand for our services.

 The decline in oil and natural gas prices and the deteriorating global economic environment resulted in reductions in our rig utilization and revenue rates in 2009.  Our near-term strategy is to maintain a strong balance sheet and ample liquidity.  Budgeted capital expenditures for 2010 and actual expenditures in 2009 represent a reduction from average historical levels and consist of routine capital expenditures necessary to maintain our equipment in safe and efficient working order and discretionary capital expenditures for new equipment or upgrades of existing equipment in order to make our rigs marketable to customers in areas identified as strategically important by management.  Management benchmarks each discretionary capital project against internal required rates of return on capital and/or strategic objectives.

Critical Accounting Policies and Estimates

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

 Revenue and Cost Recognition— Our contract land drilling segment earns revenues by drilling oil and natural gas wells for our customers typically under daywork contracts, which usually provide for the drilling of a single well. We occasionnaly enter into footage contracts, which also usually provide for the drilling of a single well. We recognize revenues on daywork contracts for the days completed based on the dayrate each contract specifies. Mobilization revenues and costs are deferred and recognized over the drilling days of the related drilling contract. Individual contracts are usually completed in less than 120 days. We follow the percentage-of-completion method of accounting for footage contract drilling arrangements. Under this method, drilling revenues and costs related to a well in progress are recognized proportionately over the time it takes to drill the well. Percentage of completion is determined based upon the amount of expenses incurred through the measurement date as compared to total estimated expenses to be incurred drilling the well. Mobilization costs are not included in costs incurred for percentage-of-completion calculations. Mobilization costs on footage contracts and daywork contracts are deferred and recognized over the days of actual drilling. Under the percentage-of-completion method, management estimates are relied upon in the determination of the total estimated expenses to be incurred drilling the well. When estimates of revenues and expenses indicate a loss on a contract, the total estimated loss is accrued.

 Our management has determined that it is appropriate to use the percentage-of-completion method to recognize revenue on our footage contracts, which is the predominant practice in the industry. Although our footage contracts do not have express terms that provide us with rights to receive payment for the work that we perform prior to drilling wells to the agreed upon depth, we use this method because, as provided in applicable accounting literature, we believe we achieve a continuous sale for our work-in-progress and we believe, under applicable state law, we ultimately could recover the fair value of our work-in-progress even in the event we were unable to drill to the agreed upon depth in breach of the applicable contract. However, ultimate recovery of that value, in the event we were unable to drill to the agreed upon depth in breach of the contract, would be subject to negotiations with the customer and the possibility of litigation.

 We are entitled to receive payment under footage contracts when we deliver to our customer a well completed to the depth specified in the contract, unless the customer authorizes us to drill to a shallower depth. Since inception, we have completed all our footage contracts. Although our initial cost estimates for footage contracts do not include cost estimates for risks such as stuck drill pipe or loss of circulation, we believe that our experienced management team, our knowledge of geologic formations in our areas of operations, the condition of our drilling equipment and our experienced crews enable us to make reasonably dependable cost estimates and complete contracts according to our drilling plan. While we do bear the risk of loss for cost overruns and other events that are not specifically provided for in our initial cost estimates, our pricing of footage contracts takes such risks into consideration. When we encounter, during the course of our drilling operations, conditions unforeseen in the preparation of our original cost estimate, we immediately adjust our cost estimate for the additional costs to complete the contracts. If we anticipate a loss on a contract in progress at the end of a reporting period due to a change in our cost estimate, we immediately accrue the entire amount of the estimated loss, including all costs that are included in our revised estimated cost to complete that contract, in our consolidated statement of operations for that reporting period. We had no footage contracts in progress at March 31, 2010 or December 31, 2009.  When we enter into footage contracts, we are more likely to encounter losses on them in years in which revenue rates are lower for all types of contracts.

 Revenues and costs during a reporting period could be affected by contracts in progress at the end of a reporting period that have not been completed before our financial statements for that period are released. At March 31, 2010 and December 31, 2009, our unbilled receivables totaled $762,000 and $828,000, respectively, all of which relates to the revenue recognized but not yet billed or costs deferred on daywork contracts in progress.

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 We accrue estimated contract costs on footage contracts for each day of work completed based on our estimate of the total costs to complete the contract divided by our estimate of the number of days to complete the contract. Contract costs include labor, materials, supplies, repairs and maintenance and operating overhead allocations. In addition, the occurrence of uninsured or under-insured losses or operating cost overruns on our footage contracts could have a material adverse effect on our financial position and results of operations. Therefore, our actual results could differ significantly if our cost estimates are later revised from our original estimates for contracts in progress at the end of a reporting period that were not completed prior to the release of our financial statements.

 Accounts Receivable—We evaluate the creditworthiness of our customers based on their financial information, if available, information obtained from major industry suppliers, current prices of oil and natural gas and any past experience we have with the customer. Consequently, an adverse change in those factors could affect our estimate of our allowance for doubtful accounts. In some instances, we require new customers to establish escrow accounts or make prepayments. We typically invoice our customers at 15-day intervals during the performance of daywork contracts and upon completion of the daywork contract. Footage contracts are invoiced upon completion of the contract. Our typical contract provides for payment of invoices in 30 days. We generally do not extend payment terms beyond 30 days. We are currently involved in legal actions to collect various overdue accounts receivable.  Our allowance for doubtful accounts was $3.8 million and $3.6 million at March 31, 2010 and December 31, 2009, respectively. Any allowance established is subject to judgment and estimates made by management. We determine our allowance by considering a number of factors, including the length of time trade accounts receivable are past due, our previous loss history, our customer’s current ability to pay its obligation to us and the condition of the general economy and the industry as a whole. We write off specific accounts receivable when they become uncollectible and payments subsequently received on such receivables reduce the allowance for doubtful accounts.

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

 Asset Impairment and Depreciation—We evaluate for potential impairment of long-lived assets and intangible assets subject to amortization when indicators of impairment are present, as defined in ASC Topic 360, Accounting for the Impairment or Disposal of Long-Lived Assets. Circumstances that could indicate a potential impairment include significant adverse changes in industry trends, economic climate, legal factors, and an adverse action or assessment by a regulator. More specifically, significant adverse changes in industry trends include significant declines in revenue rates, utilization rates, oil and natural gas market prices and industry rig counts for drilling rigs and workover rigs. In performing an impairment evaluation, we estimate the future undiscounted net cash flows from the use and eventual disposition of long-lived assets and intangible assets grouped at the lowest level that cash flows can be identified.  If the sum of the estimated future undiscounted net cash flows is less than the carrying amount of the long-lived assets and intangible assets for these asset grouping levels, then we would recognize an impairment charge. The amount of an impairment charge would be measured as the difference between the carrying amount and the fair value of these assets. We did not record an impairment charge on any long-lived assets for our contract land drilling or well servicing segments for the three months ended March 31, 2010.  The assumptions used in the impairment evaluation for long-lived assets and intangible assets are inherently uncertain and require management judgment.

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

 We capitalize interest cost as a component of drilling and workover rigs refurbished for our own use. During the three months ended March 31, 2010 and 2009, we did not capitalize any interest.

 Stock Based Compensation—We have adopted ASC Topic 718, Stock Compensation, upon granting our first stock options on August 16, 2005.  ASC Topic 718 requires a public entity to measure the costs of employee services received in exchange for an award of equity or liability instruments based on the grant-date fair value of the award. That cost will be recognized over the periods during which an employee is required to provide service in exchange for the award.  Stock compensation expense was $395,000 and $751,000 for the three months ended March 31, 2010 and 2009, respectively.

 Deferred Income Taxes—We provide deferred income taxes for the basis difference in our property and equipment, stock compensation expense and other items between financial reporting and tax reporting purposes. For property and equipment, basis differences arise from differences in depreciation periods and methods and the value of assets acquired in a business acquisition where we acquire the stock in an entity rather than just its assets. For financial reporting purposes, we depreciate the various components of our drilling rigs and refurbishments over fifteen years, while federal income tax rules require that we depreciate drilling rigs and refurbishments over five years. Therefore, in the first five years of our ownership of a drilling rig, our tax depreciation exceeds our financial reporting depreciation, resulting in our providing deferred taxes on this depreciation difference. After five years, financial reporting depreciation exceeds tax depreciation, and the deferred tax liability begins to reverse. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 Equity Method Investments—Investee companies that are not consolidated, but over which we exercise significant influence, are accounted for under the equity method of accounting. Whether or not we exercise significant influence with respect to an Investee depends on an evaluation of several factors including, among others, representation on the Investee company’s board of directors and ownership level, which is generally a 20% to 50% interest in the voting securities of the Investee company. Under the equity method of accounting, an Investee company’s accounts are not reflected within our Consolidated Balance Sheets and Statements of Operations; however, our share of the earnings or losses of the Investee company is reflected in the captions “Equity in income (loss) of Bronco MX” and “Equity in income (loss) of Challenger” in the Consolidated Statements of Operations. Our carrying value in an equity method Investee company is reflected in the captions “Investment in Bronco MX” and “Investment in Challenger” in our Consolidated Balance Sheets.

 Other Accounting Estimates—Our other accrued expenses as of March 31, 2010 and December 31, 2009 included accruals of approximately $3.0 million and $2.5 million, respectively, for costs under our workers’ compensation insurance. We have a deductible of $1.0 million per covered accident under our workers’ compensation insurance. We maintain letters of credit in the aggregate amount of $11.6 million for the benefit of various insurance companies as collateral for retrospective premiums and retained losses which may become payable under the terms of the underlying insurance contracts.  The letters of credit are typically renewed annually.  No amounts have been drawn under the letters of credit. We accrue for these costs as claims are incurred based on cost estimates established for each claim by the insurance companies providing the administrative services for processing the claims, including an estimate for incurred but not reported claims, estimates for claims paid directly by us, our estimate of the administrative costs associated with these claims and our historical experience with these types of claims.  We also have a self-insurance program for major medical, hospitalization and dental coverage for employees and their dependents.  We recognize both reported and incurred but not reported costs related to the self-insurance portion of our health insurance.  Since the accrual is based on estimates of expenses for claims, the ultimate amount paid may differ from accrued amounts.

 Recent Accounting Pronouncements—

 In January 2010, the FASB issued a new accounting standard which requires reporting entities to provide information about movements of assets among Levels 1 and 2 of the three-tier fair value hierarchy established by ASC 820, Fair Value Measurements.  Also required will be a reconciliation of purchases, sales, issuance, and settlements of financial instruments valued with a Level 3 method, which is used to price the hardest to value instruments.  Entities will have to provide fair value measurement disclosures for each class of financial assets and liabilities.  The guidance will be effective for fiscal years beginning after December 15, 2010.  We are currently evaluating the impact, if any, the adoption will have on our consolidated financial statements.

 In December 2009, the FASB issued a new accounting standard which updates the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity with an approach focused on identifying which reporting entity has the power to direct the activities of a variable interest entity that most significantly impact the entity’s economic performance and (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. An approach that is expected to be primarily qualitative will be more effective for identifying which reporting entity has a controlling financial interest in a variable interest entity. The amendments in this Update also require additional disclosures about an reporting entity’s involvement in variable interest entities, which will enhance the information provided to users of financial statements.  This new standard is effective at the start of a reporting entity’s first fiscal year beginning after January 1, 2010.  The adoption of this standard did not impact our consolidated financial statements.

 In June 2009, the FASB issued a new accounting standard that amends the accounting and disclosure requirements for the consolidation of variable interest entities. This new standard removes the previously existing exception from applying consolidation guidance to qualifying special-purpose entities and requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. Before this new standard, generally accepted accounting principles required reconsideration of whether an enterprise is the primary beneficiary of a variable interest entity only when specific events occurred. This new standard is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. This new standard became effective for us on January 1, 2010. The adoption of this standard did not impact our consolidated financial statements.

Off Balance Sheet Arrangements

 We do not have any off balance sheet arrangements.

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Recent Highlights

Well Servicing Segment

 In June of 2009 management made the decision to temporarily suspend operations in the well servicing segment.  As previously discussed, market conditions had sharply deteriorated.  The dramatic decline in activity was evident as revenue hours decreased 87% from a peak of 25,533 hours in the third quarter of 2008 to 3,374 hours in the second quarter of 2009. This represents a utilization rate of 75% and 10% for the respective quarters.  The decrease in activity was coupled with similar erosions in pricing and margin.  As such, the segment was unable to generate adequate rates of return on capital in the near future.  Because the core drilling business is very capital intensive and was at the same time experiencing a similar slowdown, management felt it prudent to temporarily suspend operations in the well service segment.  We intend to strategically refocus this business segment and deploy assets in the future with a more efficient operational and cost structure.  Currently, Bronco senior management is rebuilding the management team within Bronco Energy Services.  Several candidates have been identified to lead this division going forward. The plan for potential redeployment includes new geographic markets, a greater focus on completion services as well as the exploration of potential expansion into international markets where we feel we have a competitive advantage.

Bronco MX Joint Venture

 In September of 2009, CICSA purchased 60% of the outstanding membership interests of Bronco MX from us.  The Company owns the remaining 40% of the outstanding membership interests of Bronco MX.  Immediately prior to the sale of the membership interests in Bronco MX to CICSA, the Company contributed six drilling rigs (Nos. 4, 43, 53, 58, 60 and 72), and the future net profit from rig leases relating to three additional drilling rigs (Nos. 55, 76 and 78), which the Company contributed to Bronco MX upon the expiration of the leases relating to such rigs.

 The Company received $31.7 million from CICSA in exchange for the 60% membership interest in Bronco MX.  CICSA also reimbursed the Company for 60% of the value added taxes previously paid by, or on behalf of, Bronco MX as a result of the importation of six drilling rigs that were contributed by the Company to Bronco MX to Mexico. 

 Bronco MX is jointly managed, with CICSA having three representatives on its board of managers and the Company having two representatives on its board of managers.  The Company and CICSA, and their respective affiliates, agreed to conduct all future land drilling and workover rig services, rental, construction, refurbishment, transportation, trucking and mobilization in Mexico and Latin America exclusively through Bronco MX, subject to Bronco MX’s ability to perform.

Senior Secured Revolving Credit Facility with Banco Inbursa

 On September 18, 2009, the Company entered into a new senior secured revolving credit facility with Banco Inbursa, as lender and as the issuing bank.  The Company utilized (i) borrowings under this credit facility, (ii) proceeds from the sale of the membership interests of Bronco MX and (iii) cash-on-hand to repay all amounts outstanding under the Company’s prior revolving credit agreement with Fortis Bank SA/NV, New York Branch, which has been replaced by this credit facility. 

 The credit facility provides for revolving advances of up to $75.0 million and matures on September 17, 2014.  The borrowing base under the credit facility has been initially set at $75.0 million, subject to borrowing base limitations.  Outstanding borrowings under the credit facility bear interest at the Eurodollar rate plus 5.80% per annum, subject to adjustment under certain circumstances.

Warrant Issuance

 In conjunction with its entry into the credit facility, the Company entered into a Warrant Agreement with Banco Inbursa and, pursuant thereto, issued a three-year warrant (the "Warrant") to Banco Inbursa evidencing the right to purchase up to 5,440,770 shares of the Company’s common stock, $0.01 par value per share (the "Common Stock") subject to the terms and conditions set forth in the Warrant, including the limitations on exercise set forth below, at an exercise price of $6.50 per share of Common Stock from the date of issuance of the Warrant (the "Issue Date") through the first anniversary of the Issue Date, $7.00 per share following the first anniversary of the Issue Date through the second anniversary of the Issue Date, and $7.50 per share following the second anniversary of the Issue Date through the third anniversary of the Issue Date. The Warrant may be exercised by the payment of the exercise price in cash or through a cashless exercise whereby the Company withholds shares issuable under the Warrant having a value equal to the aggregate exercise price. Banco Inbursa subsequently transferred the Warrant to CICSA.

 The descriptions of the credit facility set forth herein are a summary, is not complete and are qualified in their entirety by reference to the full text of such agreements, which is filed as exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 23, 2009.

Global Financial Markets

 Events, both within the United States and the world, have brought about significant and immediate changes in the global financial markets which in turn have affected the United States economy, our industry and us.  In the United States, these events and others have had a significant impact on the prices for oil and natural gas as reflected in the following table:

	Natural Gas Price
	per Mcf				Oil Price per Bbl
Quarter	High		Low		High		Low
2010:
Second	$	4.28	$	3.91	$	86.79	$	81.45
First	$	6.01	$	3.84	$	83.76	$	71.19
2009:
Fourth	$	5.99	$	4.25	$	81.37	$	69.57
Third	$	4.88	$	2.51	$	74.37	$	59.52
Second	$	4.45	$	3.25	$	72.68	$	45.88
First	$	6.07	$	3.63	$	54.34	$	33.98
2008:
Fourth	$	7.73	$	5.29	$	98.53	$	33.87
Third	$	13.58	$	7.22	$	145.29	$	95.71
Second	$	13.35	$	9.32	$	140.21	$	100.98
First	$	10.23	$	7.62	$	110.33	$	86.99

 As noted in the table, oil and natural gas prices declined significantly in late calendar 2008 and there was a deteriorating national and global economic environment.  During 2009, the economic recession, including the decline in oil and natural gas prices and deterioration in the credit markets, had a significant effect on customer spending and drilling activity.  When drilling activity and spending decline for any sustained period of time our dayrates and utilization rates also tend to decline.  In addition, lower commodity prices for any sustained period of time could impact the liquidity condition of some of our customers, which, in turn, might limit their ability to meet their financial obligations to us.

 The impact on our business and financial results as a consequence of the volatility in oil and natural gas prices and the global economic crisis is uncertain in the long term, but in the short term, it has had a number of consequences for us, including the following:

·   In December 2008, we incurred goodwill impairment of our contract land drilling and well servicing segments of $24.3 million due to the fair value of the segments being less than their carrying value;

·   In June 2009, we temporarily suspended operations in our well servicing segment;

·   In September 2009, we incurred an impairment charge to our investment in Challenger of $21.2 million due to the fair value of the investment being less than its carrying value;

 Results of Operations

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009

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 Contract Drilling Revenue. For the three months ended March 31, 2010, we reported contract drilling revenues of $22.5 million, a 53% decrease from revenues of $47.8 million for the same period in 2009. The decrease is primarily due to a decrease in average dayrates and total revenue days for the three months ended March 31, 2010 as compared to the same period in 2009. Average dayrates for our drilling services decreased $759, or 5%, to $15,949 for the three months ended March 31, 2010 from $16,708 in the same period in 2009. Revenue days decreased 40% to 1,428 days for the three months ended March 31, 2010 from 2,362 days during the same period in 2009. The decrease in the number of revenue days for the three months ended March 31, 2010 as compared to the same period in 2009 is primarily due to a decrease in the utilization rate for the same period.  Utilization decreased to 43% for the three months ended March 31, 2010 from 58% for the same period in 2009.  The 26% decrease in utilization was primarily due to decrease in demand for our services related to a decline in drilling activity as a result of lower oil and natural gas prices and a more competitive market resulting from an increase in the supply of drilling rigs.  During the first quarter of 2009, the Company recorded $3.1 million of contract drilling revenue related to terminated contracts.

 Well Service Revenue.  For the three months ended March 31, 2010, we did not report any well service revenue compared to revenues of $2.8 million for the same period in 2009.  We temporarily suspended operations of our workover segment in June of 2009.

 Equity in Income (Loss) of Challenger.  Equity in loss of Challenger was $599,000 for the three months ended March 31, 2010 related to our investment in Challenger compared to equity in income of $412,000 for the three months ended March 31, 2009.  The equity in income (loss) of Challenger represents our 25% share of Challenger’s income (loss).  For the three months ended March 31, 2010, Challenger had operating revenues of $9.9 million and operating costs of $7.8 million compared to $19.8 million and $10.3 million for the three months ended March 31, 2009.

 Equity in Income (Loss) of Bronco MX.  Equity in loss of Bronco MX was $209,000 for the three months ended March 31, 2010 related to our investment in Bronco MX.  The equity in loss of Bronco MX represents our 25% share of Bronco MX’s loss.  For the three months ended March 31, 2010, Bronco MX had operating revenues of $6.5 million and operating costs of $7.0 million.

 Contract Drilling Expense. Direct rig cost decreased $11.4 million to $18.4 million for the three months ended March 31, 2010 from $29.8 million for the same period in 2009. This 38% decrease is primarily due to the decrease in revenue days for the three months ended March 31, 2010 as compared to the same period in 2009.  As a percentage of contract drilling revenue, drilling expense increased to 82% for the three-month period ended March 31, 2010 from 62% for the same period in 2009 due primarily to fixed costs on idle rigs.

 Well Service Expense. Well service expense decreased $2.1 million to $180,000 for the three months ended March 31, 2010 from $2.3 million for the same period in 2009.  We temporarily suspended operations of our workover segment in June of 2009.

 Depreciation and Amortization Expense. Depreciation expense decreased $3.2 million to $9.3 million for the three months ended March 31, 2010 from $12.5 million for the same period in 2009. The decrease is primarily due to the contribution of nine drilling rigs to Bronco MX in the third quarter of 2009.

 General and Administrative Expense. General and administrative expense decreased $453,000 million to $4.7 million for the three months ended March 31, 2010 from $5.2 million for the same period in 2009. The decrease is the result of a decrease in payroll and related costs of $549,000 and a decrease in stock compensation expense of $357,000.  The decrease in payroll and related costs is due to the overall decrease in activity for the company.  The decrease in stock compensation expense is primarily due to stock grants with higher grant date fair values becoming fully amortized.

 Interest Expense. Interest expense decreased $843,000 to $1.5 million for the three months ended March 31, 2010 from $2.3 million for the same period in 2009. The decrease is due to a decrease in the average outstanding balance under our revolving credit facilities.

 Income Tax Expense. We recorded an income tax benefit of $3.5 million for the three months ended March 31, 2010. This compares to an income tax benefit of $11,000 for the three months ended March 31, 2009.  This increase is primarily due to a $9.2 million increase in the pre-tax loss to a pre-tax loss of $10.9 million for the three months ended March 31, 2010 from a pre-tax loss of $1.7 million for the three months ended March 31, 2009.  The Company’s effective income tax rate is higher than what would be expected if the federal statutory rate were applied to income before income taxes primarily because of certain stock compensation expenses recorded for financial reporting purposes that are not deductible for tax purposes.

Liquidity and Capital Resources

 Operating Activities. Net cash provided by operating activities was $782,000 for the three months ended March 31, 2010 as compared to $20.2 million in 2009. The decrease of $19.4 million from 2009 to 2010 was primarily due to a decrease in cash receipts from customers and higher cash payments to suppliers.

 Investing Activities. We use a significant portion of our cash flows from operations and financing activities for acquisitions and the refurbishment of our rigs. Cash used by investing activities was $4.6 million for the three months ended March 31, 2010 as compared to $2.6 million for the same period in 2009.   For the three months ended March 31, 2010, we used $7.9 million to purchase fixed assets.  This amount was offset by $3.3 million of proceeds received from the sale of assets.  For the three months ended March 31, 2009, we used $3.1 million to purchase fixed assets.  This amount was partially offset by $489,000 of proceeds received from the sale of assets.

 Financing Activities. Our cash flows provided by financing activities was $5.0 million for the three months ended March 31, 2010 as compared to $5.0 million used by financing activities for the same period in 2009.  For the three months ended March 31, 2010 our net cash provided by financing activities related to borrowings of $5.0 million under our credit facility with Banco Inbursa.    For the three months ended March 31, 2009, our net cash used in financing activities related to principal payments of $5.0 million to various lenders.

 Sources of Liquidity. Our primary sources of liquidity are cash from operations and debt and equity financing.

 Debt Financing.  On September 18, 2009, we entered into a new senior secured revolving credit facility with Banco Inbursa, as lender and as the issuing bank.  We utilized (i) borrowings under the credit facility, (ii) proceeds from the sale of the membership interests of Bronco MX, and (iii) cash-on-hand to repay all amounts outstanding under our prior revolving credit agreement with Fortis Bank SA/NV, which has been replaced by the credit facility.

 The credit facility provides for revolving advances of up to $75.0 million and matures on September 17, 2014.  The borrowing base under the credit facility has been initially set at $75.0 million, subject to borrowing base limitations.  Outstanding borrowings under the credit facility bear interest at the Eurodollar rate plus 5.80% per annum, subject to adjustment under certain circumstances.

 We pay a quarterly commitment fee of 0.5% per annum on the unused portion of the credit facility and a fee of 1.50% for each letter of credit issued under the facility. In addition, an upfront fee equal to 1.50% of the aggregate commitments under the credit facility was paid by us at closing. Our domestic subsidiaries have guaranteed the loans and other obligations under the credit facility. The obligations under the credit facility and the related guarantees are secured by a first priority security interest in substantially all of our assets and our domestic subsidiaries, including the equity interests of our direct and indirect subsidiaries.

 The credit facility contains customary representations and warranties and various affirmative and negative covenants, including, but not limited to, covenants that restrict our ability to make capital expenditures, incur indebtedness, incur liens, dispose of property, repay debt, pay dividends, repurchase shares and make certain acquisitions, and a financial covenant requiring that we maintain a ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation and amortization for any four consecutive fiscal quarters of not more than 3.5 to 1.0.  On February 9, 2010, the Company received a waiver from Banco Inbursa for the ratio of consolidated debt to consolidated earnings before interest, taxes, depreciation and amortization through the second quarter of 2010.  A violation of these covenants or any other covenant in the credit facility could result in a default under the credit facility which would permit the lender to restrict our ability to access the credit facility and require the immediate repayment of any outstanding advances under the credit facility. The credit facility also provides for mandatory prepayments in certain circumstances.

 In conjunction with our entry into the credit facility, we entered into a Warrant Agreement, pursuant to which we, issued a three-year warrant (the “Warrant”) to Banco Inbursa evidencing the right to purchase up to 5,440,770 shares of our common stock, $0.01 par value per share (the “Common Stock”), subject to the terms and conditions set forth in the Warrant, including the limitations on exercise set forth below, at an exercise price of $6.50 per share of Common Stock from the date of issuance of the Warrant (the "Issue Date") through the first anniversary of the Issue Date, $7.00 per share following the first anniversary of the Issue Date through the second anniversary of the Issue Date, and $7.50 per share following the second anniversary of the Issue Date through the third anniversary of the Issue Date. The Warrant may be exercised by the payment of the exercise price in cash or through a cashless exercise whereby we withhold shares issuable under the Warrant having a value equal to the aggregate exercise price. Banco Inbursa subsequently transferred the Warrant to CICSA.

 In accordance with accounting standards, the proceeds from the revolving credit facility were allocated to the credit facility and Warrant based on their respective fair values.  Based on this allocation, $50.3 million and $4.7 million of the net proceeds were allocated to the credit facility and Warrant, respectively.  The Warrant has been classified as a liability on the consolidated balance sheet due to our obligation to pay the seller of the Warrant a make-whole payment, in cash, under certain circumstances.  The fair value of the Warrant was determined using a pricing model based on a version of the Black Scholes model, which is adjusted to account for the dilution resulting from the additional shares issued for the Warrant.  The valuation was determined by computing the value of the Warrant if exercised in Year 1 – 3 with the values weighted by the probability that the Warrant would actually be exercised in that year.  Some of the assumptions used in the model were a volatility of 45% and a risk free interest rate that ranged from 0.41% to 1.57%.

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 The resulting discount to the revolving credit facility will be amortized to interest expense over the term of the revolving credit facility such that, in the absence of any conversions, the carrying value of the revolving credit facility at maturity would be equal to $55.0 million.  Accordingly, we will recognize annual interest expense on the debt at an effective interest rate of Eurodollar rate plus 6.25%.

 In accordance with accounting standards, we revalued the Warrant as of March 31, 2010 and recorded the change in the fair value of the Warrant on the consolidated statement of operations.  The fair value of the Warrant was determined using a pricing model based on a version of the Black Scholes model, which is adjusted to account for the dilution resulting from the additional shares issued for the Warrant.  The valuation was determined by computing the value of the Warrant if exercised in Year 1 – 3 with the values weighted by the probability that the warrant would actually be exercised in that year.  Some of the assumptions used in the model were a volatility of 45% and a risk free interest rate that ranged from 0.22% to 1.29%.  The fair value of the Warrant was $2.6 million at March 31, 2010.  We recorded a change in the fair value of the Warrant on the consolidated statement of operations in the amount of $272,000 for the three months ended March 31, 2010.

 The description of the credit facility set forth herein is a summary, is not complete and is qualified in its entirety by reference to the full text of such agreement, which was filed as exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 23, 2009.

 We are party to a term loan agreement with Ameritas Life Insurance Corp. for an aggregate principal amount of approximately $1.6 million related to the acquisition of a building. This term loan is payable in 166 monthly installments, matures in 2021 and has an interest rate of 6%.

 Working Capital.  Our working capital was $29.1 million at March 31, 2010 compared to $25.3 million at December 31, 2009.  Our current ratio, which we calculate by dividing our current assets by our current liabilities, was 3.0 at March 31, 2010 compared to 2.4 at December 31, 2009.

 We believe that the liquidity shown on our balance sheet as of March 31, 2010, which includes approximately $29.1 million in working capital (including $10.7 million in cash) and availability under our $75.0 million credit facility of $3.4 million at March 31, 2010 (net of outstanding letters of credit of $11.6 million), together with cash expected to be generated from operations, provides us with sufficient ability to fund our operations for at least the next twelve months.  However, additional capital may be required for future rig acquisitions.  While we would expect to fund such acquisitions with additional borrowings and the issuance of debt and equity securities, we cannot assure you that such funding will be available or, if available, that it will be on terms acceptable to us.  The changes in the components of our working capital were as follows (amounts in thousands):

	March 31,		December 31,
	2010		2009		Change
Cash and cash equivalents	$	10,668	$	9,497	$	1,171
Trade and other receivables		16,078		15,306		772
Affiliate receivables		2,735		9,620		(6,885	)
Unbilled receivables		762		828		(66	)
Income tax receivable		9,218		3,800		5,418
Current deferred income taxes		1,301		1,360		(59	)
Current maturities of note receivable		2,035		2,000		35
Prepaid expenses		1,087		666		421
Current assets		43,884		43,077		807
Current debt		90		89		1
Accounts payable		7,209		9,756		(2,547	)
Accrued liabilities and deferred revenues		7,467		7,952		(485	)
Current liabilities		14,766		17,797		(3,031	)
Working capital	$	29,118	$	25,280	$	3,838

 The decrease in affiliate receivables was due to a payment received from Bronco MX in January in the amount of $6.9 million related to labor services provided Bronco MX and reimbursement of various capital expenditures and operating expenses.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

 We are subject to market risk exposure related to changes in interest rates on our outstanding floating rate debt. Borrowings under our revolving credit facility bear interest at a floating rate equal to LIBOR plus a margin of 5.80%. An increase or decrease of 1% in the interest rate would have a corresponding decrease or increase in our net income (loss) of approximately $368,000 annually, based on the $60.0 million outstanding in the aggregate under our credit facility as of March 31, 2010.

Item 4. Controls and Procedures

 Evaluation of Disclosure Control and Procedures.

 As of the end of the period covered by this Quarterly Report on Form 10−Q, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a−15(e) or 15d−15(e) under the Securities Exchange Act of 1934, as amended). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2010 our disclosure controls and procedures are effective.

 Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms; and include controls and procedures designed to ensure that information is accumulated and communicated to our management, and made known to our Chief Executive Officer and Chief Financial Officer, particularly during the period when this Quarterly Report on Form 10−Q was prepared, as appropriate to allow timely decision regarding the required disclosure.

 Changes in Internal Control over Financial Reporting.

 There were no changes in our internal control over financial reporting that occurred during the first quarter of 2010 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

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

Item 1A. Risk Factors

 There have been no material changes to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2009 filed with the SEC on March 15, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 None.

Item 3. Defaults Upon Senior Securities

 None.

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Item 4. Reserved

Item 5. Other Information

 None.

Item 6. Exhibits

Exhibits:

Exhibit No.	Description
2.1	Merger Agreement, dated as of August 11, 2005, by and among Bronco Drilling Holdings, L.L.C, Bronco Drilling Company, L.L.C. and Bronco Drilling Company, Inc. (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form S-1, File No. 333-128861, filed by the Company with the SEC on October 6, 2005).
3.1	Amended and Restated Certificate of Incorporation of the Company, dated August 11, 2005 (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form S-1, File No. 333-128861, filed by the Company with the SEC on October 6, 2005).
3.2	Bylaws of the Company (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Registration Statement on Form S-1, File No. 333-125405, filed by the Company with the SEC on July 14, 2005).
4.1	Form of Common Stock certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 2 to the Registration Statement on Form S-1, File No. 333-125405, filed by the Company with the SEC on August 2, 2005).
+10.1	Amended and Restated Employment Agreement, dated January 6, 2010, by and between the Company and Matthew S. Porter  (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 000-51571, filed by the Company with the SEC on April 21, 2010).
+10.2	Amended and Restated Employment Agreement, dated April 19, 2010, by and between the Company and Frank Harrison (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 000-51571, filed by the Company with the SEC on April 21, 2010).
10.3	Waiver Letter, dated February 9, 2010, by and between Bronco Drilling Company, Inc. and Banco Inbursa S.A., Institución de Banca Múltiple, Grupo Financiero Inbursa (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, File No. 000-51471, filed by the Company with the SEC on February 16, 2010).
*31.1	Certification of Chief Executive Officer of Bronco Drilling Company, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
*31.2	Certification of Chief Financial Officer of Bronco Drilling Company, Inc. pursuant to Rule 13a-14(a) promulgated under the Securities Exchange Act of 1934, as amended.
*32.1	Certification of Chief Executive Officer of Bronco Drilling Company, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
*32.2	Certification of Chief Financial Officer of Bronco Drilling Company, Inc. pursuant to Rule 13a-14(b) promulgated under the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of Title 18 of the United States Code.
*	Filed herewith.
+	Management contract, compensatory plan or arrangement

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SIGNATURE

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

Dated: May 7, 2010	BRONCO DRILLING COMPANY, INC.
	By:	/s/ Matthew S. Porter
		Matthew S. Porter
		Chief Financial Officer
		(Principal Accounting and Financial Officer)
Dated: May 7, 2010	By:	/s/ D. Frank Harrison
		D. Frank Harrison
		Chief Executive Officer
		(Authorized Officer and Principal Executive Officer)