UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

FOR THE TRANSITION PERIOD FROM              TO             

COMMISSION FILE NUMBER 1-7573

PARKER DRILLING COMPANY

(Exact name of registrant as specified in its charter)

1401 Enclave Parkway, Suite 600, Houston, Texas 77077

(Address of principal executive offices)                (Zip code)

Registrant’s telephone number, including area code: (281) 406-2000

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

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

None

      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 þ          No o

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).     Yes þ          No o

      The aggregate market value of our common stock held by non-affiliates on June 30, 2004 was $339.9 million. At January 31, 2005, there were 95,014,249 shares of common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

      Portions of our definitive proxy statement for the 2005 annual meeting of shareholders are incorporated by reference in Part III.

TABLE OF CONTENTS

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

      This Form 10-K contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements contained in this Form 10-K, other than statements of historical facts, are “forward-looking statements” for purposes of these provisions, including any statements regarding:

      In some cases, you can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “outlook,” “may,” “should,” “will” and “would” or similar words. Forward-looking statements are based on certain assumptions and analyses made by our management in light of their experience and perception of historical trends, current conditions, expected future developments and other factors they believe are relevant. Although our management believes that their assumptions are reasonable based on information currently available, those assumptions are subject to significant risks and uncertainties, many of which are outside of our control. The following factors, as well as any other cautionary language in this Form 10-K, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements:

      Each forward-looking statement speaks only as of the date of this Form 10-K, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should be aware that the occurrence of the events described above and elsewhere in this Form 10-K could have a material adverse effect on our business, results of operations, cash flows and financial condition.

PART I

ITEM 1.     BUSINESS

GENERAL DEVELOPMENT

      Parker Drilling Company was incorporated in the state of Oklahoma in 1954 after having been established in 1934 by its founder, Gifford C. Parker. The founder was the father of Robert L. Parker, chairman and a principal stockholder, and the grandfather of Robert L. Parker Jr., president and chief executive officer. In March 1976, the state of incorporation of the Company was changed to Delaware through the merger of the Oklahoma corporation into its wholly-owned subsidiary Parker Drilling Company, a Delaware corporation. Unless otherwise indicated, the terms “Company,” “we,” “us” and “our” refer to Parker Drilling Company together with its subsidiaries and “Parker Drilling” refers solely to the parent, Parker Drilling Company. We make available free of charge on our website at www.parkerdrilling.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file such material with, or furnish to, the Securities and Exchange Commission (“SEC”). Additionally, these reports are available on an Internet website maintained by the SEC. The address of that site is http://www.sec.gov.

Our Company

      We are a leading worldwide provider of contract drilling and drilling-related services. Since beginning operations in 1934, we have operated in 51 foreign countries and the United States, making us among the most geographically diverse drilling contractors in the world. Due to our extensive experience and expertise in drilling difficult wells and operating in remote, harsh and ecologically sensitive areas, operators look to us to provide oil and gas exploration and development drilling around the world.

      Our revenues are derived from three segments: international drilling, U.S. drilling and rental tools.

      We also manage and provide labor resources for drilling rigs owned by third parties, which are generally oil companies that prefer to own rig equipment but choose to rely upon our technical expertise or labor resources to operate rigs.

Our Rig Fleet

      The diversity of our rig fleet, both in terms of geographic location and asset class, enables us to provide a broad range of services to oil and gas operators worldwide. As of December 31, 2004, our fleet of rigs available for service consisted of:

ITEM 1.     BUSINESS (continued)

Our Rig Fleet (continued)

Our Rental Tools Business

      Quail Tools, our rental tools business based in New Iberia, Louisiana, is a provider of premium rental tools used for land and offshore oil and gas drilling and workover activities. Quail Tools offers a full line of drill pipe, drill collars, tubing, high and low-pressure blowout preventers, choke manifolds, casing scrapers, and junk and cement mills. Approximately two-thirds of Quail Tools’ equipment is utilized in offshore and coastal water operations. Founded in 1978, Quail Tools was acquired by Parker Drilling in 1996. Quail Tools’ base of operations is an 88,000 square foot facility on a 15-acre complex in New Iberia, Louisiana. Since we acquired Quail Tools, we have expanded operations with the addition of a 48,000 square foot facility on an 11-acre complex in Victoria, Texas, an 8,000 square foot facility on nearly 10-acres in Odessa, Texas and a 19,000 square foot facility on just over 6-acres in Evanston, Wyoming. Quail Tools’ principal customers are major and independent oil and gas exploration and production companies operating in the Gulf of Mexico and other major U.S. producing markets. In 2004, Quail Tools began providing rental tools internationally in Mexico and Sakhalin Island, Russia.

Our Market Areas

      Our core drilling operations are subject to different market factors and industry trends depending on the location. International markets differ from the U.S. market in terms of competition, nature of customers, equipment and experience requirements. The contract drilling industry is a competitive and cyclical business characterized by high capital requirements and difficulty in finding and retaining qualified field personnel. However, participants in this industry typically generate substantial cash flows and economic returns during cyclical peaks.

      International Markets. The majority of the international drilling markets in which we operate have one or more of the following characteristics: (i) a small number of competitors; (ii) customers who typically are major, large independent or national oil companies and integrated service providers; (iii) drilling programs in remote locations with little infrastructure and/or harsh environments requiring specialized drilling equipment with a large inventory of spare parts and other ancillary equipment; and (iv) difficult (i.e., high pressure, deep, hazardous or geologically challenging) wells requiring specialized drilling equipment and considerable experience to drill. Due to the long lead time in the development and implementation of international drilling projects, international markets are attractive to us because they usually allow us to secure longer-term contracts and higher dayrates when compared with drilling operations in the U.S. Gulf of Mexico.

      U.S. Gulf of Mexico. The drilling industry in the U.S. Gulf of Mexico is highly cyclical and is typically driven by general economic activity and changes in actual or anticipated oil and gas prices.

ITEM 1.     BUSINESS (continued)

Our Market Areas (continued)

Utilization and dayrates typically move in conjunction with oil and gas prices. The increase in gas prices since 2003 has resulted in increased exploration and development drilling activity in the U.S. Gulf of Mexico. In addition, the United States government has provided incentives for operators to develop deeper gas reserves. We believe that these incentives will continue to benefit our barge rigs that are capable of drilling deep gas wells, as well as our rental tools business.

Our Strategy

      Our strategy is to maintain our position as a leading worldwide provider of contract drilling, drilling-related services and rental tools and to position our company operationally and financially for long-term and consistent profitability. Key elements in implementing our strategy include:

      Significantly Reducing Our Debt and Enhancing Our Liquidity. One of our primary goals has been to reduce debt from the $589.9 million outstanding at December 31, 2002 by approximately $200 million. Since establishing this goal, we have reduced total long-term debt by $134.0 million to $455.9 million as of March 1, 2005. We accomplished this reduction by utilizing proceeds from the sale of assets, insurance proceeds received for damaged rigs and cash generated from operations. We intend to continue our debt reduction program in 2005 through proceeds from the sale of additional assets and cash generated from operations.

      Increasing the Utilization of Our Barge and Land Rigs. One of our strategic objectives is the increased utilization of our barge and land rigs. Rig utilization has already increased from 40 percent in 2003 to 74 percent as of March 1, 2005 due partly to improved market conditions, restructuring of our various operating regions, including revisions to our compensation structure to provide incentives directly related to profitability.

      Controlling Our Costs and Minimizing Our Capital Expenditures. We continue to be vigilant in our efforts to conserve cash by controlling general and administrative expenses and limiting capital expenditures. We will continue to make adjustments as appropriate for our level of operations. Our capital expenditure program calls for limiting expenditures to scheduled ongoing maintenance projects, expenditures required under our preventive maintenance program and for capital projects that we believe have the potential to yield an attractive rate of return and support our goal of increased utilization. Our capital expenditures were $47.3 million and $35.0 million in 2004 and 2003, respectively, and are budgeted for approximately $60.0 million in 2005.

      Pursuing Strategic Growth Opportunities. We continue to pursue selective strategic growth opportunities in our drilling and rental tools operations that will not only provide an attractive rate of return but will also promote consistent profitability.

Our Competitive Strengths

      Our competitive strengths have historically contributed to our operating performance and we believe the following strengths should enable us to capitalize on future opportunities:

      Geographically Diverse Operations and Assets. We currently operate in 15 countries and have operated in 51 foreign countries and the United States since our founding in 1934, making us among the most geographically diverse drilling contractors in the world. Our international drilling revenues constituted approximately 59 percent of our total revenues in the twelve months ended December 31, 2004. Our core international land drilling operations focus primarily on the CIS, where we have eight land rigs, the Asia Pacific region, where we have 10 land rigs, including seven helicopter transportable rigs, and Mexico, where we have recently moved seven land rigs. Our international offshore drilling operations focus on the Caspian Sea, where we own and operate the world’s largest arctic-class barge rig, Mexico, where we

ITEM 1.     BUSINESS (continued)

Our Competitive Strengths (continued)

recently initiated barge operations with one barge rig, and Nigeria, where we have two barge rigs. We also have 19 drilling and workover barges in the transition zones of the U.S. Gulf of Mexico.

      Significant Experience in Our Core International Markets. Our reputation and experience have led operators to look to us as a pioneer for the exploration of oil and gas in new frontiers around the world as well as to manage environmentally and operationally challenging and multi-rig projects. We have been one of the pioneers in arctic drilling services and have considerable experience with the technology required to drill in these ecologically sensitive areas. Although originally developed for the North Slope of Alaska, this technological expertise in arctic drilling is an asset to us in marketing our services to operators in international markets with similar environmental considerations, such as the Caspian Sea, Western Siberia and Sakhalin Island. Our expertise in drilling deep, difficult wells, in addition to our arctic experience, helped us become the first western drilling contractor to enter Russia, in 1991, and Kazakhstan, which is now one of our most active markets, in 1993. We were the first western contract driller to enter China, in 1980, and we continue to provide drilling services to the Asia Pacific market. In 2004, we began operating eight rigs in Mexico, which we believe will be an important market for the foreseeable future.

      Outstanding Safety Record. We have an outstanding safety record in the operation of our barge and land rigs. Our safety record, as evidenced by our low total recordable incidence rate, has been better than the industry average in each of the last eight years. This has contributed to our success in obtaining drilling contracts, as well as contracts to manage and provide labor resources to drilling rigs owned by third parties.

      Rental Tools Business. Quail Tools, our rental tools business headquartered in New Iberia, Louisiana, is a provider of premium rental tools used for land and offshore oil and gas drilling and workover activities. Quail Tools’ principal customers include both major and independent oil and gas exploration and production companies. Quail Tools has facilities in New Iberia, Louisiana; Victoria, Texas; Odessa, Texas and Evanston, Wyoming. Quail Tools generated gross margins of approximately 58 percent in 2004 and 2003.

      Strong Market Position in the Transition Zones of the U.S. Gulf of Mexico. We are one of only two drilling companies with a significant presence in the transition zones of the U.S. Gulf of Mexico. This area historically has been the world’s largest market for shallow-water barge drilling, and in recent months barge utilization and dayrates have been increasing due to strong natural gas prices. We currently have 19 drilling and workover barges, including the recent addition of barge rig 72 from Nigeria, and are positioned to take advantage of recent drilling opportunities in this market.

      Strong and Experienced Senior Management Team. Our management team has extensive experience in the contract drilling industry. Our chairman, Robert L. Parker, joined Parker Drilling in 1948 and served as our chief executive officer from 1969 to 1991. Robert L. Parker Jr. joined Parker Drilling in 1973 and has served as our president and chief executive officer since 1991. Under the leadership of Mr. Parker and Mr. Parker Jr., we have developed a reputation as a leading worldwide provider of contract drilling services. James W. Whalen joined Parker Drilling in October 2002 as senior vice president and chief financial officer. Prior to joining Parker Drilling, Mr. Whalen served as chief commercial officer for Coral Energy and as chief financial officer for Tejas Gas Corporation. He has also held several executive positions at Coastal Corporation including senior vice president, finance. Mr. Whalen has considerable experience with mergers, acquisitions, and divestitures in the oil and gas industry. David C. Mannon recently joined our senior management team as senior vice president and chief operating officer. Mr. Mannon has served in various managerial positions, culminating with his appointment as president and chief executive officer for Triton Engineering Services Company, a subsidiary of Noble Corporation. He brings a broad range of over 24 years of experience to our drilling operations which will enhance our ability to achieve our goals of increased utilization and profitable growth.

ITEM 1.     BUSINESS (continued)

DRILLING OPERATIONS

CIS

      Eight of our land rigs are currently located in the oil and gas producing regions of the CIS. We were the first western drilling contractor to enter this market in 1991, and it continues to be a major area of operations. We currently have five rigs located in Kazakhstan (two operate under the AralParker joint venture), one rig in Russia and two rigs in Turkmenistan. We are currently negotiating to move a third rig to Turkmenistan, which is currently located in Russia. Drilling operations under this new contract are expected to commence in the third quarter of 2005.

Asia Pacific/Africa

      As of December 31, 2004, we have 10 land rigs located in the Asia Pacific region and two land rigs in Africa. Included are seven helicopter transportable rigs which facilitate exploration in areas of difficult access, such as the mountainside and jungle terrains of Indonesia and Papua New Guinea. We are currently negotiating to sell one of the land rigs in Africa and during the second quarter of 2005 we expect this transaction to close.

International Barge Drilling

      Our international barge drilling operations are located in the transition zones of Nigeria and Mexico, and the shallow water of the Caspian Sea. Barge rigs are utilized in these areas because of their ability to carry drilling equipment on board and navigate in shallow waters where conventional jackup rigs are unable to operate.

      Since 1996, we have been a major provider of barge rigs in Nigeria and currently have two of the six rigs in this market. In 2003, Nigeria experienced significant community unrest which resulted in two of our four barge rigs being evacuated. As a result of the community unrest, barge rig 74 received substantial damage and was removed from our marketable rig count and one other barge rig was moved to the U.S. Gulf of Mexico. We also own and operate the world’s largest arctic-class barge rig in the Caspian Sea. This barge rig completed its initial four-year contract in November 2003 and was stacked until late December 2004 when it began drilling under a new two-well contract with options for an additional four wells. In May 2004, barge rig 53 was transferred from the U.S. Gulf of Mexico region to Mexico to begin operating under a two-year contract with Petroleos Mexicanos S.A. (“Pemex”).

U.S. Barge Drilling and Workover

      The U.S. market for our barge drilling rigs is the transition zones of the U.S. Gulf of Mexico, primarily in Louisiana and, to a lesser extent, Alabama, Mississippi and Texas. This area historically has been the world’s largest market for shallow-water barge drilling. With 19 drilling and workover barges, we are one of two companies with a significant presence in this market. We recently moved barge rig 72 from Nigeria to the U.S. Gulf of Mexico to take advantage of this active market. We have also recently upgraded barge rig 76 to provide ultra-deep drilling services to our customers, for which we are primarily receiving a significantly enhanced dayrate.

Project Management

      We are active in managing and providing labor resources for drilling rigs owned by third parties. In Russia, we mobilized a new rig to Sakhalin Island which we designed, constructed and sold to Exxon Neftegas Limited (“ENL”). Drilling operations under a five-year operations and maintenance contract with this customer began in June 2003. We also recently signed a second operations and maintenance contract with ENL to provide labor services on their offshore platform off the coast of Sakhalin Island, which is expected to begin drilling during the third quarter of 2005. As of December 31, 2004, we were

ITEM 1.     BUSINESS (continued)

Project Management (continued)

actively managing third party-owned drilling rigs in Russia, Kazakhstan, Papua New Guinea, Kuwait and China.

Competition

      The contract drilling industry is a competitive, cyclical business characterized by high capital requirements and challenges in securing and retaining qualified field personnel.

      In the U.S. Gulf of Mexico barge drilling market, we compete with one major contractor. In international land markets, we compete with a number of international drilling contractors as well as smaller local contractors. However, due to the high capital costs of operating in international land markets as compared to the U.S. land market, the high cost of mobilizing land rigs from one country to another, and the technical expertise required, there are usually fewer competitors in international land markets than in domestic markets. In international land and offshore markets, our experience in operating in challenging environments and our customer alliances have both been factors in securing contracts for remote drilling projects. We believe that the market for drilling contracts, both land and offshore, will continue to be highly competitive for the foreseeable future. Certain competitors may have greater financial resources than we do, which may better enable them to withstand industry downturns, compete more effectively on the basis of price, build new rigs or acquire existing rigs.

      Our management believes that Quail Tools is one of the leading rental tools companies in the offshore Gulf of Mexico and other major U.S. producing markets. Nonetheless, some of Quail Tools’ competitors are substantially larger and have greater financial resources than Quail Tools.

Customers

      We believe that we have developed a reputation for providing efficient, safe, environmentally conscious and innovative drilling services. An increasing trend indicates that a number of our customers have been seeking to establish exploration or development drilling programs based on partnering relationships or alliances with a limited number of preferred drilling contractors. Such relationships or alliances can result in longer-term work and higher efficiencies that increase profitability for drilling contractors at a lower overall well cost for oil and gas operators. We are currently a preferred contractor for operators in certain U.S. and international locations which our management believes is a result of our quality of equipment, personnel, safety program, service and experience.

      Our drilling and rental tools customer base consists of major, independent and national-owned oil and gas companies and integrated service providers. In 2004, Tengizchevroil (“TCO”), a consortium led by ChevronTexaco accounted for approximately 13 percent of our total revenues, including discontinued operations. Our ten most significant customers collectively accounted for approximately 57 percent of our total revenues in 2004, including discontinued operations.

Contracts

      Most drilling contracts are awarded based on competitive bidding. The rates specified in drilling contracts are generally on a dayrate basis, and vary depending upon the type of rig employed, equipment and services supplied, geographic location, term of the contract, competitive conditions and other variables. Our contracts generally provide for a basic dayrate during drilling operations, with lower rates or no payment for periods of equipment breakdown, adverse weather or other conditions, which may be beyond our reasonable control. When a rig mobilizes to or demobilizes from an operating area, a contract may provide for different dayrates, specified fixed payments or no payment during the mobilization or demobilization. Contracts to employ our drilling rigs have a term based on a specified period of time or the time required to drill a specified well or number of wells. The contract term in some instances may be

ITEM 1.     BUSINESS (continued)

Contracts (continued)

extended by the customer exercising options for the drilling of additional wells or for an additional term, or by exercising a right of first refusal. Most drilling contracts permit the customer to terminate the contract at the customer’s option without paying a termination fee. Due to various reasons, including a change in market conditions, our customers may seek renegotiation of drilling contracts to reduce their obligations or may seek to suspend or terminate their contracts. Some contracts may be terminated by the customer under various circumstances such as the loss or destruction of the drilling unit or the suspension of drilling operations for a specified period of time as a result of a breakdown of major equipment.

      We generally receive a lump sum fee to move our equipment to the drilling site, which in most cases approximates the cost incurred by us. U.S. contracts are generally for one to three wells with options to drill additional wells, while international contracts are more likely to be for multi-well, longer-term programs.

      Rental tools contracts are typically on a dayrate basis with rates based on type of equipment, investment and competition.

Insurance and Indemnification

      In our drilling contracts, we generally seek to obtain indemnification from our customers for some of the risks related to our drilling services. To the extent that we are unable to transfer such risks to customers by contract or indemnification agreements, we generally seek protection through insurance. To address the hazards inherent in our business, we maintain insurance coverage that includes physical damage coverage, third party general liability coverage, employer’s liability, environmental and pollution coverage and other coverage. We believe that our insurance coverage is customary for the industry and adequate for our business. However, there are risks that such insurance will not adequately protect us against or not be available to cover all the liability from all of the consequences and hazards we may encounter in our drilling operations.

Employees

      The following table sets forth the composition of our employees.

Environmental Considerations

      Our operations are subject to numerous federal, state, local and foreign laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Numerous governmental agencies, such as the U.S. Environmental Protection Agency (“EPA”), issue regulations to implement and enforce such laws, which often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties or may result in injunctive relief for failure to comply. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit construction or

ITEM 1.     BUSINESS (continued)

Environmental Considerations (continued)

drilling activities on certain lands lying within wilderness, wetlands, ecologically sensitive and other protected areas, require remedial action to prevent pollution from former operations, and impose substantial liabilities for pollution resulting from our operations. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly compliance could adversely affect our operations and financial position, as well as those of similarly situated entities operating in the Gulf Coast market. While our management believes that we are in substantial compliance with current applicable environmental laws and regulations, there is no assurance that compliance can be maintained in the future.

      The drilling of oil and gas wells is subject to various federal, state, local and foreign laws, rules and regulations. As an owner or operator of both onshore and offshore facilities, including mobile offshore drilling rigs in or near waters of the United States, we may be liable for the costs of removal and damages arising out of a pollution incident to the extent set forth in the Federal Water Pollution Control Act, as amended by the Oil Pollution Act of 1990 (“OPA”), the Outer Continental Shelf Lands Act (“OCSLA”), the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), and the Resource Conservation and Recovery Act (“RCRA”), each as may be amended from time to time. In addition, we may also be subject to applicable state law and other civil claims arising out of any such incident.

      The OPA and regulations promulgated pursuant thereto impose a variety of regulations on “responsible parties” related to the prevention of oil spills and liability for damages resulting from such spills. A “responsible party” includes the owner or operator of a vessel, pipeline or onshore facility, or the lessee or permittee of the area in which an offshore facility is located. The OPA assigns liability of oil removal costs and a variety of public and private damages to each responsible party.

      The liability for a mobile offshore drilling rig is determined by whether the unit is functioning as a vessel or is in place and functioning as an offshore facility. If operating as a vessel, liability limits of $600 per gross ton or $0.5 million, whichever is greater, apply. If functioning as an offshore facility, the mobile offshore drilling rig is considered a “tank vessel” for spills of oil on or above the water surface, with liability limits of $1,200 per gross ton or $10.0 million, whichever is greater. To the extent damages and removal costs exceed this amount, the mobile offshore drilling rig will be treated as an offshore facility and the offshore lessee will be responsible up to higher liability limits for all removal costs plus $75.0 million. The party must reimburse all removal costs actually incurred by a governmental entity for actual or threatened oil discharges associated with any Outer Continental Shelf facilities, without regard to the limits described above. A party also cannot take advantage of liability limits if the spill was caused by gross negligence or willful misconduct or resulted from violation of a federal safety, construction or operating regulation. If the party fails to report a spill or to cooperate fully in the cleanup, liability limits likewise do not apply.

      Few defenses exist to the liability imposed by the OPA. The OPA also imposes ongoing requirements on a responsible party, including proof of financial responsibility for offshore facilities and vessels in excess of 300 gross tons (to cover at least some costs in a potential spill) and preparation of an oil spill contingency plan for offshore facilities and vessels. The OPA requires owners and operators of offshore facilities that have a worst case oil spill potential of more than 1,000 barrels to demonstrate financial responsibility in amounts ranging from $10.0 million in specified state waters to $35.0 million in federal Outer Continental Shelf waters, with higher amounts, up to $150.0 million, in certain limited circumstances where the U.S. Minerals Management Service believes such a level is justified by the risks posed by the quantity or quality of oil that is handled by the facility. For “tank vessels,” as our offshore drilling rigs are typically classified, the OPA requires owners and operators to demonstrate financial responsibility in the amount of their largest vessel’s liability limit, as those limits are described in the

ITEM 1.     BUSINESS (continued)

Environmental Considerations (continued)

preceding paragraph. A failure to comply with ongoing requirements or inadequate cooperation in a spill may even subject a responsible party to civil or criminal enforcement actions.

      In addition, the OCSLA authorizes regulations relating to safety and environmental protection applicable to lessees and permittees operating on the Outer Continental Shelf. Specific design and operational standards may apply to Outer Continental Shelf vessels, rigs, platforms, vehicles and structures. Violations of environmentally related lease conditions or regulations issued pursuant to the OCSLA can result in substantial civil and criminal penalties as well as potential court injunctions curtailing operations and the cancellation of leases. Such enforcement liabilities can result from either governmental or citizen prosecution.

      All of our operating U.S. barge drilling rigs have zero-discharge capabilities as required by law. In addition, in recognition of environmental concerns regarding dredging of inland waters and permitting requirements, we conduct negligible dredging operations, with approximately two-thirds of our offshore drilling contracts involving directional drilling, which minimizes the need for dredging. However, the existence of such laws and regulations has had and will continue to have a restrictive effect on us and our customers.

      CERCLA (also known as “Superfund”) and comparable state laws impose liability without regard to fault or the legality of the original conduct, on certain classes of persons who are considered to be responsible for the release of a “hazardous substance” into the environment. While CERCLA exempts crude oil from the definition of hazardous substances for purposes of the statute, our operations may involve the use or handling of other materials that may be classified as hazardous substances. CERCLA assigns strict liability to each responsible party for all response and remediation costs, as well as natural resource damages. Few defenses exist to the liability imposed by CERCLA. We have received an information request under CERCLA designating a subsidiary of Parker Drilling as a potentially responsible party with respect to a Superfund site in Freeport, Texas. We are currently evaluating our relationship to the site and have not yet estimated the amount or impact on our operations, financial position or cash flows of any costs related to the site.

      RCRA generally does not regulate most wastes generated by the exploration and production of oil and gas. RCRA specifically excludes from the definition of hazardous waste “drilling fluids, produced waters, and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal energy.” However, these wastes may be regulated by EPA or state agencies as solid waste. Moreover, ordinary industrial wastes, such as paint wastes, waste solvents, laboratory wastes, and waste oils, may be regulated as hazardous waste. Although the costs of managing solid and hazardous wastes may be significant, we do not expect to experience more burdensome costs than similarly situated companies involved in drilling operations in the Gulf Coast market.

      The drilling industry is dependent on the demand for services from the oil and gas exploration and development industry, and accordingly, is affected by changes in laws relating to the energy business. Our business is affected generally by political developments and by federal, state, local and foreign regulations that may relate directly to the oil and gas industry. The adoption of laws and regulations, both U.S. and foreign, that curtail exploration and development drilling for oil and gas for economic, environmental and other policy reasons may adversely affect our operations by limiting available drilling opportunities.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND GEOGRAPHIC AREAS

      We operate in three segments, U.S. drilling operations, international drilling operations and rental tools. Information about our business segments and operations by geographic areas for the years ended December 31, 2004, 2003 and 2002 is set forth in Note 11 in the notes to the consolidated financial statements.

      We lease office space in Houston for our corporate headquarters. Additionally, we own and lease office space and operating facilities in various locations, but only to the extent necessary for administrative and operational support functions. We own a ten-story building in Tulsa, Oklahoma, our previous corporate headquarters, which is vacant and classified in assets held for sale. Our bank accounts, accounts receivable, rig materials and supplies, rental tools equipment of Quail Tools, L.P., and the stock of substantially all of our domestic subsidiaries are pledged as collateral to the banks under the 2004 Credit Agreement described in the “Liquidity and Capital Resources” section.

Land Rigs

      The following table shows, as of December 31, 2004, the locations and drilling depth ratings of our 34 land rigs available for service. Twenty-two of these rigs were under contract and the remainder were available for contract as of December 31, 2004.

Barge Rigs

      The following table shows our four international deep drilling barges as of December 31, 2004. All of these rigs were under contract at December 31, 2004.

Barge Rigs (continued)

     The following table shows our 19 deep, intermediate, and workover and shallow drilling barge rigs located in the U.S. Gulf of Mexico. Fifteen of these barge rigs were under contract and the remainder were available for contract as of December 31, 2004.