General

We are in the business of refurbishing drilling rigs and deploying them for use by oil and natural gas producers. Currently, we provide contract land drilling services to an oil and gas company in New Mexico. We are building our fleet of land rigs, and have (i) one rig completely refurbished and deployed to provide drillings services for Chesapeake Energy (“Chesapeake”) pursuant to a daywork contract, (ii) a second rig recently acquired and ready to be deployed in March 2007 to provide drilling services for Ridgeway Arizona Oil Corp. (“Ridgeway”) pursuant to a daywork contract, (iii) a third rig in which we are in the process of purchasing component parts/refurbishing/assembling for anticipated deployment in a few months, and (iv) miscellaneous component parts for future rigs we plan to acquire additional components for, refurbish, assemble and deploy. In addition to providing drilling services, we intend to provide the crews and equipment used in the operation of these drilling rigs. We believe that there is a scarcity of land drilling rigs currently available for use, and that our ability to refurbish drilling rigs will allow us to meet market demand before new drilling rigs are built and enter the market.

Organizational History

We were organized May 1987 under the name Process Technology, Inc. (“Process”) and did not conduct any significant business operations for the five years prior to May 2006. In June 2006, we entered the oil and gas industry through the acquisition of all of the capital stock of   Forster Tool & Supply, Inc., a Nevada corporation (“Forster Tool”), in exchange for 40,055,463 shares of our stock, which represented approximately 95% of Process’ issued and outstanding shares of common stock at the time of the closing (“the Reorganization”). In connection with the Reorganization, we changed our name to Forster Drilling Corporation. Forster Tool was organized in March 2005 and has operated in the oil and gas industry , primarily remanufacturing and refurbishing drilling rigs and drilling rig parts, since its inception. As a result of the Reorganization, Forster Tool became our wholly owned subsidiary and our financial statements became those of Forster Tool. In June 2006, we organized two additional wholly-owned subsidiaries: (i) Forster Drilling Inc., a Texas corporation, to conduct our U.S. land based contract drilling activities and (ii) Forster Exploration & Production, Inc., a Nevada corporation, to conduct our U.S. based exploration and production activities. Any and all reference to “Forster”, the “Company,” “we,” “our” or “us” means Forster Drilling Corporation collectively with each of the three subsidiaries.

Business Strategy

Our business strategy is focused on the re-manufacturing of drilling rigs. Re-manufacturing includes the refurbishment and renovating of used drilling parts and the assembly of the parts to complete a drilling rig. We are marketing our drilling services to oil and natural gas exploration and production companies operating in New Mexico and Texas. We believe that there exists a current demand for land drilling rigs. Our goal is to provide our refurbished drilling rigs to the market before newly manufactured rigs reach the market. We believe that manufacturing capacity for drilling rigs is currently low which has led to a current backlog of newly manufactured rigs. We also believe the high demand for and the low supply of drilling rigs presents a business opportunity for those companies who can move drilling rigs quickly into the market.

We believe the current land drilling industry is experiencing growth. Land drilling companies are putting land drilling rigs into active drilling service to meet the demands of oil and natural gas prospects. In addition, we believe natural gas production and exploration companies are in need of contract drilling services to exploit higher current natural gas prices. We believe natural gas prices have been on the rise due to (i) diminishing returns from current natural gas fields and (ii) increasing demand to generate electricity in the United States. We anticipate that a steady increase in natural gas prices may in turn increase the amount of drilling activity conducted by natural gas exploration and production companies. This demand can be met onshore by land drilling companies who provide the equipment and crews to drill the wells for the exploration and production industry.

Market Conditions In Our Industry

The U.S. contract land drilling industry is cyclical. Volatility in oil and natural gas prices can produce significant changes in the overall level of drilling activity in the markets we hope to serve, affecting the demand for our future drilling services and the dayrates we hope to charge. The availability of financing, prevailing oil and natural gas prices, and the outlook for future oil and natural gas prices strongly influence the drilling capital expenditures of oil and natural gas producers.

 

On June 5, 2006, the spot price for West Texas Intermediate crude oil was $72.