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

                                   FORM 20-F
                             ---------------------

(MARK ONE)
   [ ]      REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OR

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

                      FOR THE YEAR ENDED DECEMBER 31, 1999

                                       OR

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

                         COMMISSION FILE NUMBER 1-14634
                             ---------------------
                       SANTA FE INTERNATIONAL CORPORATION
             (Exact name of Registrant as specified in its charter)

                                 CAYMAN ISLANDS
                (Jurisdiction of incorporation or organization)

                         TWO LINCOLN CENTRE, SUITE 1100
                                5420 LBJ FREEWAY
                            DALLAS, TEXAS 75240-2648
                    (Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

<TABLE>
<CAPTION>
                TITLE OF EACH                               NAME OF EACH EXCHANGE
                    CLASS                                    ON WHICH REGISTERED
                -------------                               ---------------------
<S>                                             <C>
 Ordinary Shares, par value $0.01 per share                New York Stock Exchange
</TABLE>

Securities registered or to be registered pursuant to Section 12(g) of the Act.

                                      NONE
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.

                                      NONE
                                (Title of Class)

     Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report: 114,971,177 Ordinary Shares, par value $0.01 per share

     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 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 which financial statement item the registrant has
elected to follow.

                         Item 17 [ ]       Item 18 [X]

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                               TABLE OF CONTENTS

<TABLE>
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                                                                                    PAGE
                                                                                    ----
<S>                  <C>                                                            <C>
PART I...........................................................................     1
  Item 1.            Description of Business.....................................     1
  Item 2.            Description of Property.....................................    19
  Item 3.            Legal Proceedings...........................................    19
  Item 4.            Control of Registrant.......................................    19
  Item 5.            Nature of Trading Market....................................    20
  Item 6.            Exchange Controls and Other Limitations Affecting Security
                       Holders...................................................    20
  Item 7.            Taxation....................................................    21
  Item 8.            Selected Consolidated Financial Data........................    21
  Item 9.            Management's Discussion and Analysis of Financial Condition
                       and Results of Operations.................................    22
  Item 9a.           Quantitative and Qualitative Disclosures About Market
                       Risk......................................................    32
  Item 10.           Directors and Officers of Registrant........................    32
  Item 11.           Compensation of Directors and Officers......................    35
  Item 12.           Options to Purchase Securities from Registrant or
                       Subsidiaries..............................................    40
  Item 13.           Interest of Management in Certain Transactions..............    40
PART II..........................................................................    43
  Item 14.           Description of Securities to Be Registered..................    43
PART III.........................................................................    44
  Item 15.           Defaults Upon Senior Securities.............................    44
  Item 16.           Changes in Securities and Changes in Security for Registered
                       Securities................................................    44
PART IV..........................................................................    44
  Item 17.           Financial Statements........................................    44
  Item 18.           Financial Statements........................................    44
  Item 19.           Financial Statements and Exhibits...........................    44
</TABLE>
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FORWARD-LOOKING STATEMENTS

     This Annual Report on Form 20-F contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934, including without limitation statements
containing the words "believes," "anticipates," "expects" and words of similar
import. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, financial
condition, performance or achievements of the Company (defined below), or
industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, the following: adverse changes
in contract drilling industry conditions, oil and natural gas prices, customer
drilling budgets, competition from other drilling contractors, increase in
industry fleet capacity, the impact of present or future environmental
legislation and compliance with environmental laws, the ongoing need for capital
improvements, refurbishing and fabrication costs for drilling rigs, the
availability and replacement costs for rig related equipment, spare parts and
supplies, financing costs, changes in operating expenses, attraction and
retention of skilled employees, uncertainties arising out of the Company's
operations outside the U.S., adverse changes in applicable tax laws, adverse
changes in governmental rules and fiscal policies, civil unrest, acts of God,
acts of war, and other factors referenced in this Annual Report on Form 20-F.
Certain of these factors are discussed in more detail elsewhere in this Annual
Report on Form 20-F, including without limitation "Item 1. Description of
Business" and "Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations." Given these uncertainties, readers are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to update any such forward-looking statements
to reflect future events or developments.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

GENERAL

     Santa Fe International Corporation (herein referred to individually and,
where the context so requires, collectively with its subsidiaries and
predecessors as "Santa Fe" or the "Company") is a leading international offshore
and land contract driller that was incorporated in its current form under the
laws of the Cayman Islands in 1990. As of February 29, 2000, the Company owns
and operates a high quality, technologically advanced fleet of 27 marine
drilling rigs and 33 land drilling rigs. Santa Fe also provides drilling related
services to the petroleum industry worldwide, including third party rig
operations, incentive drilling and drilling engineering and project management
services. The Company is currently operating in 15 countries throughout the
world. The Company's predecessor began U.S. land drilling operations in 1947,
commenced international land operations in 1948, expanded into offshore platform
drilling in 1956 and initiated mobile offshore rig operations in 1964.

     At the core of Santa Fe's drilling rig fleet are its heavy duty harsh
environment jackup rigs (six of the 18 currently in service in the industry),
which are capable of operating in water depths of 350-400 feet. The Company's
heavy duty harsh environment jackup fleet includes a recent addition, the Galaxy
III, placed in service on December 5, 1999. Additionally, Santa Fe has three
semisubmersible rigs which are capable of operating in water depths of up to
2,400 feet; nine premium cantilever jackup rigs which are capable of operating
in water depths of 300-350 feet; eight jackup rigs which are capable of
operating in water depths of 200-250 feet, six of which are cantilevered and two
of which are specially designed to operate in shallow water; one platform rig;
and 33 land rigs, all of which are specially equipped to operate in remote
areas. One of the Company's 200-250 foot jackup rigs, Rig 134, is being upgraded
to 300-foot depth capability and was reclassified as a 300-350 foot cantilever
jackup rig effective January 1, 2000. See Note 10 of the Notes to Consolidated
Financial Statements for certain financial data pertaining to the Company's
business in various regions and the Company's various business segments.

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INDUSTRY CONDITIONS

     The contract drilling industry is and historically has been highly
volatile, competitive and cyclical, with periods of high demand and rig
utilization resulting in high rig dayrates followed by periods of low demand,
excess rig supply and depressed rig dayrates. The contract drilling business is
influenced by many factors beyond the control of the Company, including the
current and anticipated prices of oil and natural gas and drilling budgets of
oil and gas companies.

     During industry down cycles, drilling companies compete aggressively for
contracts at depressed rates and often are compelled to accept contract terms
which are less favorable than those which normally prevail, especially in areas
such as liability and indemnity provisions, rate structure, termination and term
extension options. Low rig utilization in weak markets causes drilling companies
to lay-up or "stack" idle rigs, which often results in termination of employment
of all or part of the associated rig crews.

     Beginning in late 1998 and continuing through the first quarter of 1999,
the industry witnessed a substantial decline in oil prices with resulting
adverse impact upon rig utilization and rig dayrates. The contract drilling
industry recently began to recover from the 1999 down cycle. To date, this
recovery has yielded increased offshore rig utilization and dayrates primarily
in the Gulf of Mexico. The international offshore and land rig markets
(including those in which the Company generally operates) have yet to experience
a meaningful recovery.

     Rig utilization and rig rates are, to a considerable degree, driven by
drilling budgets of oil and gas companies. With the recovery in oil and natural
gas prices, which began in the second quarter of 1999, drilling expenditures
generally have been projected to increase moderately during 2000. The Company is
unable to accurately forecast the impact, if any, of such projected increased
expenditures upon industry conditions or the Company's financial results.

     The volatile and cyclical nature of the industry may be further exacerbated
as newly built rigs enter the market and drilling companies aggressively compete
for the opportunities to contract offshore and land rigs. The extent and
duration of any future recovery will be influenced by many factors, including
future fluctuations in oil and natural gas prices and the resulting impact upon
the drilling budgets of companies engaged in exploration and production of oil
and natural gas. See "-- Business Considerations and Risk Factors -- Contract
Drilling Industry Volatility and Competition.

BUSINESS STRATEGY

     The Company's business strategy is to provide premium quality,
cost-effective services to its customers in order to maximize the utilization of
its rig fleet at attractive dayrates, with the goal of enhancing shareholder
value and establishing long term relationships with its customers. The Company's
understanding of its customers' future needs guides strategic decisions
regarding investment in equipment, selection of geographic markets and
development of Company skills. The following are the principal components of the
Company's business strategy:

  Modern Rig Fleet

     The Company continually invests in its drilling fleet through the
acquisition and construction of new rigs and the upgrading, modernization and
enhancement of existing rigs to increase drilling productivity and prolong rig
life. Santa Fe rigorously evaluates each of its investments based on expected
long term return on capital and profitability. Between 1988 and 1993 the Company
made significant counter-cyclical investments in six new jackup rigs, including
four heavy duty harsh environment jackup rigs and two 300 foot cantilever jackup
rigs. During the period 1996 through 1998, the Company expanded its land rig
fleet through the addition of six specialized, highly mobile rigs, two medium
duty 2,000 horsepower and four heavy duty 3,000 horsepower rigs, each of which
are equipped with top drives. The Company also recently placed two newly
constructed heavy duty harsh environment jackups in service, the Galaxy II on
November 9, 1998, and the Galaxy III on December 5, 1999. An additional 3,000
horsepower high specification land rig was placed in service by the Company in
the Middle East on June 22, 1999. Over the past several years, the Company's rig

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fleet upgrade, modernization and enhancement program has included installation
of top drive systems, improvements in mud processing and liquid storage
capacity, jackup leg extensions, cantilever and skid-off capability. See "Item
9. Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

  International Focus

     The Company operates outside the U.S., with its entire rig fleet currently
deployed in seven major market areas around the world. The Company first
operated in each of these markets more than 29 years ago. Santa Fe believes the
operational expertise, international workforce and business relationships it has
established through its longstanding presence in its major international markets
provide a competitive advantage in securing work on attractive terms. The
Company favors markets where there is an opportunity to establish a significant
presence and benefit from efficiencies associated with market concentration, but
also seeks selected opportunities in niche and emerging markets.

     The Company believes that international offshore and land rig markets
generally require more specialized equipment and value-added technical expertise
than the U.S. market, providing Santa Fe with greater opportunities to secure
attractive contracts. Furthermore, the Company believes international markets
for drilling services are less volatile than the Gulf of Mexico offshore market,
thus offering increased relative stability of its operations. The Company's
international focus enables it to minimize the level of worldwide taxation on
its revenues, income and assets through various tax-efficient business
structures.

     The Company seeks international contracts payable in local currency in
amounts approximately equal to the Company's estimated operating costs payable
in local currency and in dollars for the balance of the contract. Accordingly,
the Company has not historically entered into financial hedging arrangements to
manage risks relating to fluctuations in currency exchange rates. However, the
Company may enter into such contracts in the future in the event that the
Company assumes significant foreign currency risks.

  Contracting Philosophy

     The Company endeavors to maintain a balanced mix of long and short term
contracts with the objective of optimizing its overall rig utilization and
operating margins.

  High Quality Multinational Workforce

     The Company distinguishes itself with its high quality, well-trained and
cost-effective rig crew and supervisory workforce. The breadth and depth of the
Company's workforce enable it to efficiently staff its own rigs and profitably
provide labor and management services for the operation and maintenance of third
party rigs. The Company's rig crew and supervisory personnel are drawn largely
from the countries in which the Company has longstanding operations. The quality
of Santa Fe's workforce and training program is reflected in its safety
performance record, which has consistently exceeded the industry norm over the
past decade as compiled by the International Association of Drilling
Contractors.

  Specialized Drilling Services

     The Company provides drilling services requiring special expertise and
technical innovation, such as high pressure high temperature drilling, under
balance drilling and jackup rig skid-off drilling. The Company's ability to
deliver such services is enhanced by the operational expertise and efficiencies
it has developed from its long term presence in selected markets. By taking
advantage of innovative contracting opportunities, including incentive
contracts, the Company strives to enhance the profitability of its drilling
services.

  Deepwater Evaluation

     In addition to its principal business strategy components, the Company has
maintained an active program of monitoring and evaluating customer and
competitor plans and activities in exploring for oil or natural gas in
increasingly deeper water depths. Drilling technology has developed in recent
years that permits offshore

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drilling in water depths up to 10,000 feet. Industry experience in building new
rigs for use in deepwater and ultra deepwater operations has demonstrated that
the capital cost and construction risks are extremely high, often resulting in
marginal economic returns to the rig owner. Under appropriate circumstances, the
Company may expand the scope of its operations by entering the deepwater market,
but currently has no definitive plans to do so.

BUSINESS CONSIDERATIONS AND RISK FACTORS

  Contract Drilling Industry Volatility and Competition

     The contract drilling industry is and historically has been highly
volatile, competitive and cyclical, with periods of high demand and rig
utilization with resulting high rig dayrates followed by periods of low demand,
excess rig supply and depressed rig dayrates. The contract drilling business is
influenced by many factors beyond the control of the Company, including the
worldwide demand for, and the current and anticipated prices of, oil and natural
gas, the level of exploration and production drilling expenditures by oil and
gas companies, the ability of the Organization of Petroleum Exporting Countries
("OPEC") to influence oil production levels and pricing, the level of production
of non-OPEC countries, the policies of various governments regarding exploration
and development of their oil and natural gas resources and the availability of
drilling rigs.

     Oil and natural gas prices fluctuate in response to relatively minor
changes in the supply of and demand for oil and natural gas, market uncertainty
and a variety of additional factors. It is impossible to predict future oil and
natural gas price movements with any certainty. Such fluctuations impact
drilling budgets of companies engaged in exploration and development of oil and
natural gas. Drilling expenditure budget fluctuations have a direct impact upon
the demand and dayrates for drilling rigs.

     Beginning in late 1998 and continuing through the first quarter of 1999,
oil prices declined substantially resulting in a significant decline in
worldwide land and offshore drilling utilization and dayrates. During this
period, the Company experienced declining rig utilization and generally lower
average dayrates. Although the Company believes the industry is currently
recovering from these conditions, intense competition among drilling contractors
is likely to continue for new contract opportunities. The Company has recently
experienced intense competition from new entrants into certain of the land rig
markets in which the Company operates, primarily Egypt and Qatar.

     In the drilling industry, contracts generally are awarded on a competitive
bid basis wherein price often is the determining factor in the selection of a
drilling contractor. A customer selecting a rig may consider other factors such
as a contractor's safety record, productivity and specialized skills and
capabilities and condition of equipment. During industry down cycles, drilling
companies may compete more aggressively for contracts and often are compelled to
accept contract terms which are less favorable than those which normally
prevail, especially in areas such as liability and indemnity provisions, rate
structure, termination and term extension options. The Company believes that
competition for drilling contracts will continue to be intense for the
foreseeable future.

     Additional rig construction, movement or reactivation could further depress
rig dayrates and adversely affect utilization of the Company's rigs. In
addition, labor availability and cost and vendor prices and delivery fluctuate
in response to overall drilling industry conditions.

  Industry Consolidation

     During the depressed oil price cycle of late 1998 and early 1999, the oil
and gas industry continued its trend toward consolidation, with the announcement
or completion of several merger and acquisition transactions. Although oil
prices rebounded from the lows of the first quarter of 1999, oil and gas
industry capital spending levels for exploration and production projects have
and may continue to be less robust than might have otherwise been experienced
without industry consolidation. As oil and gas companies continue to address the
impact of consolidation, their requirements for drilling rigs and services may
be adversely affected.

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     In addition to consolidation within the oil and gas industry, the contract
drilling industry continued to experience merger and acquisition activity.
Further drilling industry consolidation could adversely impact the Company's
results of operations through lowered operating margins, increased competition
from larger industry members or a variety of other factors that cannot as yet be
identified or quantified.

  Operational Risks, Insurance and Indemnification

     Oil and natural gas drilling operations are subject to many risks,
including blowouts, cratering, oil or natural gas well fires, explosions, oil
spills and other disasters, each of which could result in substantial losses to
the Company due to injury or loss of life and damage to or destruction of rigs,
oil and natural gas wells, reservoirs, production facilities or other
properties. In addition, the Company's offshore and marine equipment is subject
to hazards peculiar to marine operations, such as sinking, capsizing, grounding,
collision, damage from heavy weather or hurricanes and jackup rig leg "punch
through" at the sea bed resulting in leg and/or hull damage. Loss of or serious
damage to certain of the Company's equipment, even if adequately covered by
insurance, might materially reduce the Company's revenues and operating profit
for an extended period of time.

     The Company evaluates its exposure to certain risks when participating in
any project and, to the extent permitted by market conditions, contracts with
its customers or joint venture partners to provide the Company with
indemnification or other protection against certain risks, including those not
generally covered by insurance and losses in excess of applicable insurance
limits. There can be no assurance that the Company can obtain effective
indemnification in its contracts, that the level of indemnification that can be
obtained will be meaningful, that such indemnification agreements will be
enforceable or that the customer will be financially able to comply with its
indemnity obligations. See "-- Risks, Insurance and Indemnification" for a
discussion of the Company's insurance coverage.

  Governmental Regulation

     Many aspects of the Company's operations are affected periodically by
political developments and by both domestic and foreign governmental
regulations, including those relating to the construction, equipment and
operation of drilling rigs, drilling practices and methods and levels of
taxation, as well as additional hazards and uncertainties, such as the risk of
expropriation, foreign exchange restrictions, fluctuations in currency exchange
rates, foreign and domestic monetary, economic and trade policies, and
environmental regulation. The energy service industry is dependent on demand for
its services from the oil and gas industry and, accordingly, is affected by
changing taxes, price controls and other laws relating to the energy business
generally. Governments may, from time to time, suspend or curtail drilling
operations or leasing activities when such operations are considered to be
detrimental to the environment or to jeopardize public safety. Many
jurisdictions have at various times imposed limitations on the production of oil
and natural gas by restricting the rate of flow for oil and natural gas wells
below their natural capacity. There can be no assurance that present or future
regulation will not adversely affect the operations of the Company.

     As of February 29, 2000, all of the Company's rigs were located outside the
U.S. and its territorial waters. The Company's worldwide operations are also
subject to a variety of laws and regulations designed to improve safety in the
businesses in which the Company operates. International conventions, including
Safety of Life at Sea (SOLAS), the Convention For Prevention of Oil Pollution by
Ships at Sea (MARPOL) and the Code for Construction of Mobile Offshore Drilling
Units (MODU CODE), generally are applicable to the Company's offshore
operations. The Company's operations in the U.K. sector of the North Sea are
also subject to strict regulatory requirements, including the Mineral Workings
Act (MWA) 1971 and the Health and Safety at Work Act (HASAWA) 1974.
Historically, the Company has made significant capital expenditures and incurred
additional expenses to ensure that its marine rigs comply with applicable local
and international health and safety regulations. Future efforts by the Company
to comply with these regulations and standards may increase the Company's costs
and may affect the demand for the Company's services by influencing energy
prices or limiting the areas in which drilling may be performed.

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  Taxation Risks

     As a Cayman Islands company primarily doing business outside the U.S., the
Company is taxed at rates substantially lower than if it were engaged in a U.S.
trade or business. Although almost all of its operations are outside the U.S.,
the Company has an office in Texas from which a number of senior management
personnel generally oversee, supervise and control the policies of the Company.
The Company reports only income attributable to the functions performed in the
U.S. as income effectively connected with a U.S. business. If income earned from
its worldwide operations were deemed by the Internal Revenue Service to be
effectively connected with a U.S. business, the Company could be subjected to
U.S. income tax on such effectively connected income, and its operating results
could be materially adversely affected. The Company's international focus
enables it to reduce the level of worldwide taxation on its revenues, income and
assets through various tax-efficient business structures. The Company could
suffer substantial additional tax expense in the event any of its existing
business structures were successfully challenged or in the event of an adverse
change in the treaties, laws, rules or regulations (or the interpretation
thereof) upon which the Company has relied in relation to its business
strategies and structures. See "Item 7. Taxation," "Item 9. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 5 of the Notes to Consolidated Financial Statements. In addition, demand
for services in the drilling industry is dependent on the oil and gas
exploration industry and accordingly is affected by changes in tax and other
laws relating to the energy business generally.

  Environmental and Regulatory Risks

     The Company's worldwide operations are subject to numerous environmental
laws and regulations that relate directly or indirectly to its operations,
including certain regulations controlling the discharge of materials into the
environment, requiring removal and clean-up under certain circumstances, or
otherwise relating to the protection of the environment. For example, the
Company may be liable for damages and costs incurred in connection with oil
spills for which it is held responsible. Laws and regulations protecting the
environment have become increasingly stringent in recent years and may in
certain circumstances impose "strict liability" and render a company liable for
environmental damage without regard to negligence or fault on the part of such
company. Such laws and regulations may expose the Company to liability for the
conduct of or conditions caused by others, or for acts of the Company that were
in compliance with all applicable laws at the time such acts were performed. The
Company believes its operations are in compliance in all material respects with
all such laws and regulations. The application of these requirements or the
adoption of new requirements could have a material adverse effect on the
Company. See "-- Governmental Regulation" for a discussion of the Company's
regulatory operating requirements.

     Governments may, from time to time, suspend or curtail drilling operations
or leasing activities when such operations are considered to be detrimental to
the environment or to jeopardize public safety. Many jurisdictions have at
various times imposed limitations on the production of oil and natural gas by
restricting the rate of flow for oil and natural gas wells below their natural
capacity. There can be no assurance that present or future regulation will not
adversely affect the operations of the Company.

     The Company may be required to make significant capital expenditures in the
future to comply with laws and regulations that become applicable to the Company
and such compliance could materially adversely affect the earnings or
competitive position of the Company. It is possible that such regulations may in
the future add significantly to the cost of operating drilling equipment or may
significantly limit drilling activity. See "-- Governmental Regulation" and
"Item 3. Legal Proceedings."

  Contract Termination and Performance Risks

     The Company's contracts with its customers often are cancelable upon
specified notice at the option of the customer, and some, but not all, contracts
provide for the customer to pay a specified early termination payment in the
event of such cancellation. Such termination payments may not be sufficient to
fully compensate the Company for the loss of the contract. Early termination of
a contract may result in a rig being idle for an extended period of time.
Contracts customarily provide for either automatic termination or

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termination at the option of the customer in the event of total loss of the
drilling rig or if drilling operations are suspended for extended periods of
time by reason of force majeure or excessive rig downtime for repairs, or upon
other specified conditions. In periods of rapid market downturn, the Company's
customers may not honor the terms of existing contracts and may terminate
contracts or prevail upon the Company to renegotiate contract rates and terms to
conform with depressed market conditions. During the depressed market conditions
experienced in 1999, several of the Company's contracts were renegotiated,
resulting in reduced rig utilization and revenues.

     The Company selectively engages in drilling services pursuant to turnkey
drilling contracts under which the Company agrees to drill a well for a customer
to a specified depth, and to provide the associated services and well
consumables for a fixed price. Generally, the Company is not entitled to payment
unless the well is successfully drilled to the specified depth, and
profitability of the contract depends upon an ability to keep expenses within
the estimates used by the Company in determining the contract price. Drilling a
well under a turnkey contract therefore typically requires a cash commitment by
the Company in excess of that required under a conventional dayrate contract and
exposes the Company to risks of potential financial losses. These losses could
be substantially greater than those that would ordinarily exist under a
conventional dayrate contract and may include losses resulting from delays in
drilling progress or loss of a well or portion thereof. Although the Company
carefully evaluates the associated risks, the financial results of a turnkey
contract depend upon the performance of the drilling unit, drilling conditions
and other factors, some of which are beyond the control of the Company.
Additionally, the Company undertakes certain risks when entering into footage
and other incentive contracts, alliances and drilling project management
contracts where a portion of the remuneration is dependent upon achieving
specified performance goals. A failure to meet the performance criteria may
result in lower revenue to the Company and, in certain circumstances, also may
cause the Company to incur a monetary penalty, often in the form of reduced or
suspended remuneration. See "-- Contracts."

  Dependence on Workforce

     The Company's high quality, well-trained and cost-effective rig crew and
supervisory workforce contribute significantly to its ability to deliver premium
quality services. If the Company were unable to retain its current workforce or
to hire comparable personnel, it could have a material adverse effect on the
success of the Company. The Company does not maintain key-person insurance for
any of its senior management personnel.

  Uncertainties and Risks of Non-U.S. Operations

     Operations outside the U.S. account for substantially all of the Company's
consolidated revenues. The Company's non-U.S. operations are subject to certain
political, economic and other uncertainties not generally encountered in the
U.S., including hazards incident to war and civil disturbances (or other hazards
that may limit or disrupt markets) and the general hazards associated with the
assertion of national sovereignty over certain areas in which operations are
conducted. These risks are mitigated by the Company's ability to relocate its
rigs. The Company's operations outside the U.S. are also subject to foreign
customs and business practices, to changes in political conditions, such as
confiscatory taxation, unreasonable regulation, unrealistic pricing or royalty
terms, export sales restrictions, embargoes and expropriation or nationalization
with or without compensation. Additional risks include fluctuating currency
values and hard currency shortages, the possibility of realizing economic
currency exchange losses when transactions are completed in currencies other
than dollars and risks to the Company's ability to freely repatriate its
earnings under existing exchange control laws. Additionally, export restrictions
or trade sanctions imposed by the U.S. Government under the Export
Administration Act, the Trading With the Enemy Act or similar legislation or
regulation may impede the Company's ability, or the ability of its customers, to
operate or continue to operate in certain countries. No prediction can be made
as to what governmental regulations may be enacted in the future that could
adversely affect the international drilling industry.

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  Control by Holdings and Potential Conflicts of Interest

     As of February 29, 2000, SFIC Holdings (Cayman), Inc. ("Holdings"), a
wholly owned subsidiary of Kuwait Petroleum Corporation ("KPC"), beneficially
owned approximately 64.8% of the outstanding ordinary shares, par value $0.01
per share, of the Company ("Ordinary Shares"). KPC is wholly owned by the
Government of Kuwait. Accordingly, KPC through Holdings is able to effectively
control the election of the Board of Directors of the Company and effectively
control the outcome of the vote on certain matters submitted to a vote of the
Company's shareholders. The Company, Holdings and KPC have entered into
agreements with respect to the approval by Holdings of certain future corporate
actions by the Company, the management and allocation of certain liabilities
relating to former non-drilling activities of the Company, registration rights
for the Ordinary Shares owned by Holdings, and various other matters. See "Item
10. Directors and Officers of the Registrant" and "Item 13. Interest of
Management in Certain Transactions."

DRILLING RIG FLEET AND DRILLING RELATED SERVICES

  Marine Rigs

     A marine rig consists of a suite of drilling equipment mounted on a hull or
offshore platform. The drilling equipment is generally comprised of a derrick or
mast, hoisting equipment, a rotary system, well control equipment, systems for
storing, treating and pumping drilling fluids, and a power plant. The
specifications of this drilling equipment will determine the drilling
capabilities of the rig. Offshore rigs also generally include living quarters,
cranes, heliports, and storage areas for drill pipe and drill collars and other
materials. The design of the rig and its hull determines the marine areas in
which it can operate. The Company's marine fleet consists of 23 jackup rigs,
three semisubmersible rigs, and one platform rig. The Company's marine rigs
generally are documented as vessels and are registered outside the U.S.

     Jackup Rigs. The Company classifies its jackup rigs in three categories:
heavy duty harsh environment rigs, 300-350 foot premium cantilever rigs, and
200-250 foot rigs. A jackup is a mobile rig that jacks down its legs to stand on
the sea floor with its hull elevated above the water surface during drilling
operations. For transportation between locations, the legs are raised and the
hull is floated. The legs are raised and lowered by multiple jacking units
attached to the legs. The water depth limit for each rig is a function of
several factors, including leg length, sea floor conditions and the anticipated
wind, wave and current severity at the location. Jackup rigs can be used to
drill exploration wells or to drill multiple production wells at the same
location. Several features are important for this latter capability. A
cantilever, upon which is mounted the derrick, drill floor and substructure,
enables the rig to drill alongside and be positioned over an adjacent platform
or subsea template and to drill multiple wells at the same location without
repositioning the rig. Twenty-one of the Company's 23 jackup rigs are
cantilevered and six of them also have skid-off capability which enables the
drilling system to be skidded onto a production platform for development
drilling while the rig serves in a tender-assist mode. All of the Company's
jackup rigs are equipped with top-drives. A top-drive enables the rig to drill
long, highly deviated wells both more efficiently and more safely than
conventional rotary equipment.

     The Company owns one of the world's largest fleets of heavy duty harsh
environment jackup rigs (six of the 18 currently in service in the industry).
Three of these rigs, the Galaxy I, Galaxy II and Galaxy III, are Universe class
rig designs capable of operating in water depths of up to 400 feet and are
currently qualified to operate in the harsh environment of the central North Sea
in water depths of up to 360 feet. The Company's three other heavy duty harsh
environment jackup rigs, the Monarch, Monitor and Magellan, are Monarch class
rig designs capable of operating in water depths of up to 350 feet and are able
to operate year-round in the central North Sea in water depths of up to 300
feet.

     Two of the Company's 300-350 foot cantilever jackup rigs are capable of
operating in water depths up to 350 feet and seven are capable of operating in
water depths of up to 300 feet. Six of the Company's 200-250 foot jackup rigs
are capable of operating in water depths of up to 250 feet, one in water depths
of up to 230 feet and one in water depths of up to 200 feet. Two of these rigs,
the Key Bermuda and the Key Victoria, are specially designed with eight-foot
drafts to permit them to work in shallow water depths and are equipped with
large cranes which enable them to perform certain construction and well
completion activities as well as drilling work. One of the Company's 200-250
foot jackup rigs, Rig 134, is currently in the shipyard for upgrade

                                        8
<PAGE>   11

to 300-foot water depth capability, extended cantilever capacity and other
significant activity and has been reclassified as a 300-350 foot cantilever
jackup rig effective January 1, 2000.

     Semisubmersible Rigs. The Company's three semisubmersible rigs are designed
to work in deeper water than jackup rigs. These semisubmersible rigs operate
afloat and include the machinery, quarters and drilling equipment on a deck
structure which is supported by the buoyancy of two submerged barge-shaped
hulls. The Company's semisubmersible rigs are moved between drill sites by
pumping seawater ballast out of the hulls until the rig is raised to its transit
draft. Once the rig is positioned on location by tugs, seawater ballast is
pumped into the hulls until the water level is approximately midway between
hulls and upper deck structure. The Company's semisubmersible rigs are
maintained on station by an eight point mooring system.

     All of the Company's semisubmersible rigs are equipped with top drives. The
Company's semisubmersible rig in Equatorial Guinea, the Aleutian Key, is capable
of operating in water depths of up to 2,300 feet of water. The Company's
semisubmersible rigs in the North Sea (Rig 135 and Rig 140) are capable of
operating in water depths of up to 2,400 feet.

     Company-Owned Platform Rig. The Company currently owns and operates one
platform rig in the North Sea that consists of a number of self-contained
drilling equipment packages which, when assembled on a customer's offshore
production platform, make a complete drilling rig.

     More detailed information concerning the Company's marine fleet, as of
February 29, 2000, is set forth in the table below:

<TABLE>
<CAPTION>
                                                                                         MAXIMUM   MAXIMUM
                               SERVICE DATE/                                              WATER    DRILLING    BLOWOUT
                               YEAR-OF-LATEST                                             DEPTH     DEPTH     PREVENTER
        TYPE AND NAME          ENHANCEMENT(1)      RIG DESIGN         ATTRIBUTES(2)       (FT)       (FT)       (PSI)
        -------------          --------------      ----------         -------------      -------   --------   ---------
<S>                            <C>              <C>                 <C>                  <C>       <C>        <C>
HEAVY DUTY HARSH ENVIRONMENT JACKUP RIGS
  Galaxy III.................  1999             F&G Universe        IC; SO: ATDS: SCR       400     30,000     15,000
  Galaxy II..................  1998             F&G Universe        IC; SO; ATDS; SCR       400     30,000     15,000
  Magellan...................  1992/1993        F&G Monarch         IC; SO; ATDS; SCR       350     30,000     15,000
  Galaxy I...................  1991             F&G Universe        IC; SO; ATDS; SCR       400     30,000     15,000
  Monitor....................  1989             F&G Monarch         IC; ATDS; SCR           350     30,000     15,000
  Monarch....................  1988/1996        F&G Monarch         IC; ATDS: SCR           350     30,000     10,000
SEMISUBMERSIBLE RIGS
  Rig 135....................  1983/1989        F&G 9500            PA; ATDS; 3G; SCR     2,400     25,000     15,000
  Rig 140....................  1983/1998        F&G 9500            PA; ATDS: 3G; SCR     2,400     25,000     15,000
  Aleutian Key...............  1976/1995        F&G L-907           ATDS: 2G; SCR         2,300     25,000     10,000
300-350 FOOT CANTILEVER JACKUP RIGS
  Compact Driller............  1993             MLT 116C            IC; TDS; SCR            300     25,000     10,000
  Parameswara................  1993             BMC 300IC           IC; SO; TDS; SCR        300     25,000     10,000
  Key Hawaii.................  1983             Mitsui              IC; ATDS: SCR           300     25,000     10,000
  Key Singapore..............  1982/1994        MLT 116C            IC; TDS; SCR            350     25,000     10,000
  Rig 134(3).................  1982/2000        F&G L-780 Mod. II   IC; TDS; SCR            300     20,000     10,000
  Rig 136....................  1982             F&G 780 Mod. II     IC; TDS; SCR            300     20,000     10,000
  Key Manhattan..............  1980/1996        MLT 116C            IC; TDS; SCR            350     25,000     10,000
  Galveston Key(3)...........  1978/1988        MLT 84/116C         IC; TDS; SCR            300     25,000     10,000
  Key Gibraltar..............  1976/1996        MLT 84/116C         IC; SO; TDS; SCR        300     25,000     10,000
200-250 FOOT JACKUP RIGS
  Rig 141....................  1982             MLT 82SDC           IC; TDS; SCR            250     20,000     10,000
  Rig 124....................  1980             Mitsui 200C-45      IC; TDS; SCR            250     20,000     10,000
  Key Bermuda................  1980             Mitsui F550         IS; SD; TDS; SCR        200     20,000     10,000
  Rig 127....................  1981/1995        F&G L-780 Mod. II   IC; TDS; SCR            250     20,000     10,000
  Rig 105....................  1975             MLT 52C             IC; TDS; SCR            250     20,000      5,000
  Key Victoria...............  1974/1996        MLT 80              IS; SD; TDS; DC/DC      250     20,000     10,000
  Rig 103....................  1974/1994        MLT 52C             IC; TDS; SCR            250     20,000     10,000
  Britannia..................  1968/1987        Breit & Garcia      IC; TDS; SCR            230     20,000     10,000
COMPANY-OWNED PLATFORM RIG
  Rig 82.....................  1968/1995        National 1320 UE    TDS; DC/DC              N/A     20,000      5,000
</TABLE>

                                        9
<PAGE>   12

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

(1) Indicates year rigs were placed in service by the Company and corresponds to
    the year built, except the Parameswara, Monarch and Compact Driller,which
    were built in 1983, 1986 and 1992, respectively. The second date, if given,
    is the most recent year in which the rig underwent a major upgrade in
    capacity and/or a refurbishment which extended its useful working life. In
    some cases, such upgrade or refurbishment took place over an extended
    period; in those instances, the year given is the year in which the work was
    completed.

(2) Attributes are abbreviated as follows: "ATDS" means an advanced top drive
    system (Varco TDS 4 and above); "DC/DC" means a power transmission system in
    which DC electricity is generated by diesel engines and supplied directly to
    DC motors driving the principal components of drilling equipment (mud pumps,
    drawworks, and rotary table); "IC" means independent leg cantilever; "IS"
    means independent leg slot rig; "PA" means propulsion assist; "SCR" means a
    highly efficient power transmission system which rectifies AC power to DC
    power using a silicon controlled rectifier; "SD" means shallow draft; "SO"
    means skid-off capability; "TDS" means top drive drilling system; "2G" means
    2nd generation semisubmersible; and "3G" means 3rd generation
    semisubmersible.

(3) The Galveston Key and Rig 134 are owned by P.T. Santa Fe Supraco Indonesia,
    a limited liability company of which the Company is a 95% shareholder. Prior
    to January 1, 2000, Rig 134 was classified as a 200-250 foot jackup rig.

     As of December 31, 1999, the average age of the Company's marine fleet,
measured from the date first placed in service by the Company, was 16.8 years.
The average age for heavy duty harsh environment jackup rigs, semisubmersible
rigs, 300-350 foot cantilever jackup rigs and 200 to 250 foot jackup rigs was
7.7 years, 18.5 years, 16.1 years and 21.9 years, respectively.

  Land Rigs

     The Company had its origins as a U.S. land drilling contractor and was a
pioneer in international land rig operations, especially in the Middle East and
Latin America. Although the Company has emphasized the development of its marine
fleet, it has maintained a substantial presence in selected international land
rig markets and has continuously upgraded, modernized and enhanced its land
rigs. Beginning in 1996, the Company has selectively expanded its land rig
fleet. During the period 1996 through 1999, the Company expanded its land rig
fleet through the addition of thirteen land rigs, comprised of six specialized,
highly mobile rigs, two medium duty 2,000 horsepower and five heavy duty 3,000
horsepower rigs, each of which are equipped with top drives, including a 3,000
horsepower high specification land rig which was placed in service in the Middle
East on June 22, 1999.

     The majority of the Company's land rigs are designed for use in remote
desert environments and generally include all necessary facilities to support
living and working in harsh and remote environments, including accommodation
camps and inventories of repair parts and materials. Each of the rigs is
designed for efficient disassembly, transport and reassembly. Eleven of the
newer rigs are specially designed as wheel-mounted units that can be moved
quickly between well locations and four of the rigs are equipped with special
"lift and roll" systems, enabling the rigs to be quickly moved between well
locations on a pad site. The Company's land rig operations in Egypt, Kuwait, the
Kuwait-Saudi Arabia Partitioned Neutral Zone and Qatar are supported by an
extensive fleet of specialized rig transport equipment, comprised primarily of
heavy duty trucks built and equipped for desert service. Additionally, these
operations are supported by a fleet of heavy equipment, such as bulldozers,
cranes and forklifts which prepare access roads and drill site locations and
facilitate the assembly and tear down of the Company's land rigs.

     The Company historically has concentrated its land rig operations in the
Middle East, South America and North Africa. The Company has a longstanding
operational history in these areas, having operated in each of them for over 29
years. As of December 31, 1999, the Company had 33 land rigs in Kuwait,
Venezuela, Egypt, Oman, Qatar, the Kuwait-Saudi Arabia Partitioned Neutral Zone
and Saudi Arabia. As of December 31, 1999, the average age of the Company's land
rig fleet, measured from the date first placed in service by the Company, was
10.8 years.

                                       10
<PAGE>   13

     Information concerning the Company's fleet of land drilling rigs as of
February 29, 2000 is set forth in the table below:

<TABLE>
<CAPTION>
                                                            MAXIMUM
                                                            DRILLING    BLOWOUT
                                                             DEPTH     PREVENTER
            NAME               RIG TYPE        HORSEPOWER    (FT.)       (PSI)     POWER(1)
            ----               --------        ----------   --------   ---------   --------
<S>  <C>                  <C>                  <C>          <C>        <C>         <C>
COMPANY OWNED LAND RIGS
     Rig 144............  EMSCO C3               3,000       30,000     10,000     SCR
     Rig 155............  Oilwell E-3000         3,000       30,000     15,000     SCR
     Rig 173............  Gardner Denver         3,000       30,000     10,000     SCR
                          3000...............
     Rig 174............  EMSCO C3               3,000       30,000     10,000     SCR
     Rig 176............  Ideco 3000E            3,000       30,000     10,000     SCR
     Rig 177............  Oilwell E-3000         3,000       30,000     10,000     SCR
     Rig 180............  National 1625          3,000       30,000     15,000     SCR
     Rig 94.............  National 110 UE        2,000       20,000     10,000     DC/DC
     Rig 97.............  Oilwell E-2000         2,000       20,000     10,000     SCR
     Rig 104............  National 1320 UE       2,000       20,000     10,000     DC/DC
     Rig 110............  Oilwell E-2000         2,000       20,000     10,000     DC/DC
     Rig 115............  National 1320 UE       2,000       20,000     10,000     DC/DC
     Rig 119............  Oilwell E-2000         2,000       20,000     10,000     DC/DC
     Rig 158............  Oilwell E-2000         2,000       25,000     10,000     SCR
     Rig 178............  National 1320          2,000       17,000      5,000     SCR
     Rig 179............  National 1320          2,000       17,000      5,000     SCR
     Rig 92.............  National 1320          2,000       16,000     10,000     DC/DC
     Rig 157............  Ideco 1700 UE          1,700       17,000      5,000     SCR
     Rig 102............  National 110 UE        1,500       16,000      5,000     DC/DC
     Rig 147............  National 110 UE        1,500       16,000      5,000     DC/DC
     Rig 170............  National 110 UE        1,500       14,000      5,000     SCR
     Rig 169............  National 110 UE        1,500       16,000      5,000     SCR
     Rig 160............  Dreco 1250 E           1,250       12,000      5,000     SCR
     Rig 161............  Dreco 1250 E           1,250       12,000      5,000     SCR
     Rig 150............  National 80 UE         1,000       11,500      5,000     SCR
     Rig 151............  National 80 UE         1,000       11,500      5,000     SCR
     Rig 166............  Wilson 75                900        7,000      5,000     Mech
     Rig 167............  Wilson 75                900        7,000      5,000     Mech
     Rig 146............  Kremco 750               750       10,000      5,000     SCR
     Rig 159............  Cooper 750               750        8,000      5,000     Mech
     Rig 171............  Oilwell 660-E            750       10,000      5,000     SCR
     Rig 172............  Oilwell 660-E            750       10,000      5,000     SCR
     Rig 143............  Ideco H37 ED             420        6,500      3,000     Mech
JOINT VENTURE OWNED LAND RIGS(2)
     Rig 89.............  National 110 UE        1,500       16,000     10,000     DC/DC
     QDC 3..............  Cooper 650               650        8,000      3,000     Mech
     Rig 131............  Portadril                330        1,000       None     Mech
</TABLE>

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

(1) For purposes of this table, "DC/DC" refers to a power transmission system in
    which DC electricity is generated by diesel engines and supplied directly to
    DC motors driving the principal components of drilling equipment (mud pumps,
    drawworks, and rotary table); "Mech" is a power transmission system in which
    power to the principal components of drilling equipment (mud pumps,
    drawworks and rotary table) is supplied by direct mechanical linkage; and
    "SCR" means a highly efficient power transmission system which rectifies AC
    power to DC power using a silicon controlled rectifier.

(2) For purposes of this table, joint ventures refer only to joint ventures
    which the Company accounts for on the equity method. The rigs listed are
    owned by Qatar Drilling Company W.L.L., of which the Company

                                       11
<PAGE>   14

    is a 49% shareholder. See "-- Joint Venture, Agency and Sponsorship
    Relationships and Other Investments."

  Rig Fleet Utilization

     The following table sets forth certain information for the Company's rig
fleet during the years ended December 31, 1999, 1998 and 1997. See "Item 9.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
                                                              AVERAGE FOR THE YEAR
                                                               ENDED DECEMBER 31,
                                                              --------------------
                                                              1999   1998    1997
                                                              ----   -----   -----
<S>                                                           <C>    <C>     <C>
HEAVY DUTY HARSH ENVIRONMENT JACKUP RIGS
  Total rigs(1).............................................   5.1     4.1     4.0
  Rigs under contract.......................................   4.7     4.1     4.0
  Utilization rate(2).......................................  93.0%   98.3%   99.0%
SEMISUBMERSIBLE RIGS
  Total rigs................................................   3.0     3.0     3.0
  Rigs under contract.......................................   2.5     2.7     2.9
  Utilization rate(2).......................................  84.7%   91.1%   97.2%
300-350 FOOT CANTILEVER JACKUP RIGS
  Total rigs................................................   8.0     8.0     8.0
  Rigs under contract.......................................   5.9     7.6     7.8
  Utilization rate(2).......................................  74.0%   94.7%   97.2%
200-250 FOOT JACKUP RIGS
  Total rigs................................................   9.0     9.0     9.0
  Rigs under contract.......................................   4.3     8.0     8.9
  Utilization rate(2).......................................  48.2%   88.4%   99.3%
OTHER MARINE RIGS
  Total rigs................................................    (3)    1.8     2.0
  Rigs under contract.......................................    (3)    1.8     2.0
  Utilization rate(2).......................................    (3)  100.0%  100.0%
LAND RIGS
  Total rigs................................................  32.5    29.2    25.9
  Rigs under contract.......................................  22.3    25.9    23.5
  Utilization rate(2).......................................  68.6%   88.8%   90.8%
</TABLE>

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

(1) There are 18 heavy duty harsh environment jackup rigs currently in service
    in the industry: Galaxy I, Galaxy II, Galaxy III, Maersk Endurer, Maersk
    Gallant, Maersk Giant, Maersk Guardian, Magellan, Monarch, Monitor,
    Rowan-Gorilla II, Rowan-Gorilla III, Rowan-Gorilla IV, Rowan-Gorilla V,
    Transocean Nordic, West Epsilon, Ensco 100 and Ensco 101.

(2) "Utilization" means the percentage of the number of days a drilling rig is
    earning a normal daily margin under a customer contract compared to the
    total number of days within a specified period.

(3) During the fourth quarter of 1998, the Company's lake barge rig, the Rey del
    Lago, was retired from service. Effective January 1, 1999, the Company
    reclassified its platform rig as a component of Drilling Related Services.

  Drilling Related Services

     The Company provides drilling related services to the petroleum industry
worldwide, including third party rig operations, incentive drilling, and
drilling engineering and project management. These activities complement the
Company's contract drilling business by enabling the Company to provide an
expanded suite of services, thus responding to customer requirements, and to
enhance the utilization and financial

                                       12
<PAGE>   15

performance of its rig fleet. The Company is generally able to provide these
services with its existing workforce and infrastructure without investing
significant additional capital.

     Third Party Rig Operations. The Company's third party rig operations
historically have been concentrated on oil and natural gas producing platforms
in the North Sea and land drilling rig operations in Venezuela, areas in which
the Company also maintains substantial contract drilling operations. This
enables the Company to meet the needs of its customers and to make more
efficient use of its workforce and infrastructure. In September 1996, the
Company expanded its third party rig operations into the emerging market of the
Caspian Sea when it commenced operation and management of the semisubmersible
rig, Dada Gorgud. A second semisubmersible, the Istiglal, initiated operations
in December 1998. As of December 31, 1999, the Company operated or maintained
seven platform and two semisubmersible rigs for third parties.

     The following table lists the location of third party rigs in which the
Company was participating as of February 29, 2000.

<TABLE>
<CAPTION>
              TYPE AND NAME                      RIG TYPE         CUSTOMER      LOCATION
              -------------                      --------         --------      --------
<S>                                         <C>                   <C>        <C>
PLATFORM RIGS
  Beatrice Alpha..........................  National 1320         Talisman   U.K. North Sea
  Beatrice Bravo..........................  National 610 E        Talisman   U.K. North Sea
  Buchan..................................  EMSCO C3              Talisman   U.K. North Sea
  Clyde...................................  Oilwell E-3000        Talisman   U.K. North Sea
  Fulmar..................................  National 1320 UE      Shell      U.K. North Sea
  Kittiwake...............................  National E-2000 VDB   Shell      U.K. North Sea
  Nelson..................................  EMSCO CE2             Enterprise U.K. North Sea
SEMISUBMERSIBLE RIGS
  Dada Gorgud(1)..........................  F&G Pacesetter        Idle(2)    Caspian Sea
  Istiglal(1).............................  F&G Pacesetter        BP Amoco   Caspian Sea
</TABLE>

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

(1) Rigs are operated under drilling contract (Istiglal) or subcontract (Dada
    Gorgud) by Caspian Drilling Company Limited of which the Company is a 45%
    shareholder. See "-- Joint Venture, Agency and Sponsorship Relationships and
    Other Investments" for a further discussion of Caspian Drilling Company
    Limited.

(2) Pending commencement of operations under a long term contract with the
    Azerbaijan International Operating Company.

     Incentive Drilling Services and Alliances. The Company selectively pursues
incentive drilling contracts and innovative contracting opportunities. In doing
so, the Company seeks markets that enable it to enhance its profitability by
undertaking work that rewards superior performance and drilling productivity.
Types of incentive contracts include:

          Turnkey. The Company generally provides all services, drill bits,
     casings, well consumables and logistical support to drill a well to a
     specified depth for a fixed price.

          Footage. The Company receives a predetermined lump sum per foot
     drilled in a well or a specified portion thereof.

          Well Target Time. The contract provides that the drilling of a
     specified well (or portion thereof) is subject to an agreed target time. If
     the well is drilled ahead of schedule, then a bonus is paid in accordance
     with a specified formula. If the well is drilled behind schedule, a penalty
     may be imposed.

          Lump Sum or Bonus Arrangement. This arrangement provides for the
     Company to perform a specific task either for a lump sum payment or for a
     day rate with a bonus payable for time saved.

          Alliances. An agreement under which the Company works in conjunction
     with the customer and selected parties, such as service companies,
     fabricators, designers and engineers, to provide and coordinate their
     resources, facilities and expertise to maximize efficiency on a specified
     drilling project. Alliances often involve common goals and targets, with an
     incentive for execution of a project in an

                                       13
<PAGE>   16

     efficient manner as measured against specific time and economic goals. The
     Company has participated in alliances involving execution of specified
     drilling programs as well as an alliance involving various aspects of
     engineering, design and procurement of platform rig equipment for a
     specific development drilling project.

     Drilling Engineering and Drilling Project Management. The Company's
drilling engineers and other engineering personnel provide drilling management
services for its own operations and on a contract basis for customer projects.
Additionally, the Company provides drilling rig project management, including
rig design, engineering, procurement and commissioning activities as well as
management of all phases of offshore rig new construction or upgrade projects.

COMPETITION

     The contract drilling industry is characterized by intense competition.
Competition is usually restricted to a particular region, although drilling rigs
are mobile and can be moved from one region to another in response to changes in
demand. While price is the most important competitive determinant in the
drilling industry, the availability and location of suitable equipment, the
design and technical capability of drilling rigs, and the reputation and
experience of the drilling contractor may also play a significant role in
obtaining a contract and may, in certain cases, warrant a contractor receiving
greater compensation than a competitor. Other competitive factors include the
ability to provide specialized services, such as well drilling engineering, the
technical and financial flexibility to perform turnkey and other incentive
contracts, and the contractor's reputation and safety record. The Company
believes that it competes favorably with respect to all of these factors. See
"-- Business Considerations and Risk Factors -- Industry Consolidation."

CONTRACTS

     Drilling contracts are most often awarded through competitive bidding;
however, some contracts are a result of direct negotiations between the drilling
contractor and the customer. In many cases, the specifications of the bid
contain certain requirements not met by any of the Company's available rigs. As
a result, if the Company is awarded the contract, the Company may incur
considerable expense to upgrade and outfit a rig in the specified manner.

     The Company operates each of its rigs under a contract either to drill a
specified well or number of wells or for a stated period of time, which
generally is automatically extended to include the period required to complete
the well in progress on the scheduled contract expiration date. Contracts often
are cancelable upon specified notice at the option of the customer, and some,
but not all, contracts provide for the customer to pay a specified early
termination payment in the event of such cancellation. The contracts customarily
provide for either automatic termination or termination at the option of the
customer in the event of total loss of the drilling rig or if drilling
operations are suspended for extended periods by reason of force majeure or
excessive rig downtime for repairs. The contracts also contain provisions
addressing automatic termination or termination at the option of the customer in
certain circumstances and may be dishonored or subject to renegotiation in
depressed market conditions. See "-- Business Considerations and Risk
Factors -- Contract Termination and Performance Risks."

     Many of the Company's contracts provide for compensation on a dayrate
basis, under which the Company receives a fixed amount per day for each day that
the rig is operating under contract. Under a dayrate contract, the Company
provides the drilling rig and personnel to operate the rig and to conduct the
drilling operations. The Company also selectively contracts on the basis that
the dayrate automatically will be adjusted periodically during the contract term
pursuant to a specified formula or index, most often based upon published rig
rates.

     Operating expenses, such as crew wages and incidental supplies, with
respect to the contracted rig are paid by the Company. Several of the Company's
dayrate contracts also contain incentive terms which provide for additional
remuneration if specified performance goals are met and sometimes provide for
penalties in the form of reduced or suspended compensation if the specified
goals are not achieved. The Company also

                                       14
<PAGE>   17

provides turnkey, footage and other services on an incentive contract basis. See
"-- Drilling Rig Fleet and Drilling Related Services -- Incentive Drilling
Services and Alliances" above.

     The Company's contracts generally provide for payment in dollars except for
amounts required to meet local expenses. The rate of compensation specified in
each contract depends on the type of equipment required, its availability and
location, the location and nature of the operation to be performed, the duration
of the work, market conditions and other variables. The contracts may provide
for no dayrate, a reduced dayrate or lump sum payment when the rig is being
transported to the first and from the last drill site. Generally, a reduced
dayrate or no payment is applicable when operations are suspended because of
force majeure or extended mechanical breakdown. Reduced dayrates often also
apply while a rig is on standby awaiting a customer's directions or
customer-furnished materials or services or while moving between well locations
under the same contract. When drilling rigs are being relocated a substantial
distance, the Company attempts to obtain either a lump sum payment or a dayrate
plus transport costs as compensation for mobilization and demobilization
expenses and the rig time incurred during the period of transit. In a depressed
market, such compensation is difficult to obtain and the Company may incur the
full costs of transportation and/or rig time during rig relocations.

     Contracts commonly contain renewal or extension provisions exercisable at
the option of the customer that address extension for a number of wells or
specified period of time. These options may provide that the compensation for
the extension period must be agreed upon before commencement of the extension or
the parties may have negotiated the extension period compensation at the time of
the initial contract. The Company prefers either to negotiate provisions which
require mutual agreement upon compensation for the option term (to obtain
then-prevailing market rates) or establish a means of increasing compensation
for the option term to reflect cost escalation and anticipated market
conditions. During industry down cycles, drilling companies compete aggressively
for contracts and often are compelled to accept contract terms which are less
favorable than those which normally prevail, especially in areas such as
liability and indemnity provisions, rate structure, termination and term
extension options. In periods of rapid market downturn, the Company's customers
may not honor the terms of existing contracts and may terminate contracts or
prevail upon the Company to renegotiate contract rates and terms to conform with
depressed market conditions.

     Contract information concerning the Company's marine and land drilling
fleet, as of February 29, 2000 is set forth in the table below:

<TABLE>
<CAPTION>
                                                                              CURRENT
                                                                             CONTRACT
          TYPE AND NAME                 LOCATION          CUSTOMER(1)      EXPIRATION(2)
          -------------                 --------          -----------      -------------
<S>                                 <C>                 <C>                <C>
HEAVY DUTY HARSH ENVIRONMENT
  JACKUP RIGS
  Galaxy III......................  U.K. North Sea      BP Amoco           Nov 02
  Galaxy II.......................  Canada              Exxon Mobil        Nov 03
  Magellan........................  U.K. North Sea      Elf                Jul 00(3)
  Galaxy I........................  U.K. North Sea      Elf                Mar 01
  Monitor.........................  U.K. North Sea      Talisman           May 00(4)
  Monarch.........................  U.K. North Sea      BP Amoco           Jun 01
SEMISUBMERSIBLE RIGS
  Rig 135.........................  U.K. North Sea      Idle
  Rig 140.........................  U.K. North Sea      Shell              Jan 02
  Aleutian Key....................  Equatorial Guinea   Idle
</TABLE>

                                       15
<PAGE>   18

<TABLE>
<CAPTION>
                                                                              CURRENT
                                                                             CONTRACT
          TYPE AND NAME                 LOCATION          CUSTOMER(1)      EXPIRATION(2)
          -------------                 --------          -----------      -------------
<S>                                 <C>                 <C>                <C>
300-350 FOOT CANTILEVER JACKUP
  RIGS
  Compact Driller.................  Thailand            Chevron            Aug 00
  Parameswara.....................  Indonesia           Kodeco             Apr 00(5)
  Key Hawaii......................  Egypt               Aramco             Feb 03
  Key Singapore...................  Egypt               Petrobel           Mar 00(6)
  Rig 136.........................  Egypt               Idle
  Key Manhattan...................  Egypt               Petrobel           Jan 01
  Galveston Key...................  Indonesia           Unocal             Feb 00
  Rig 134.........................  Indonesia           Idle
  Key Gibraltar...................  Malaysia            Shell              Feb 00
200-250 FOOT JACKUP RIGS
  Rig 141.........................  Egypt               Suco               May 00(3)
  Rig 124.........................  Egypt               Petrobel           Feb 00(3)
  Key Bermuda.....................  Nigeria             Chevron            Oct 01
  Rig 127.........................  Qatar               Oxy                Jul 00
  Rig 105.........................  Egypt               Petrobel           Feb 00(3)
  Key Victoria....................  Venezuela           Idle
  Rig 103.........................  Qatar               Idle
  Britannia.......................  U.K. North Sea      Shell              Jun 02
COMPANY OWNED PLATFORM RIG
  Rig 82..........................  U.K. North Sea      Shell              Evergreen
COMPANY OWNED LAND RIGS
  Rig 92..........................  Egypt               Khalda             Oct 00
  Rig 94..........................  Egypt               Wepco              Feb 00
  Rig 104.........................  Egypt               Eshpetco           Jun 00(3)
  Rig 143.........................  Egypt               Petrobel           Mar 00
  Rig 147.........................  Kuwait              Idle
  Rig 170.........................  Kuwait              Idle
  Rig 146.........................  Kuwait              KOC                Mar 01(3)
  Rig 155.........................  Kuwait              KOC                Mar 01(3)
  Rig 157.........................  Kuwait              Idle
  Rig 158.........................  Kuwait              KOC                Mar 01(3)
  Rig 160.........................  Kuwait              KOC                Mar 01(3)
  Rig 161.........................  Kuwait              KOC                Mar 01(3)
  Rig 169.........................  Kuwait              KOC                Jan 02(3)
  Rig 172.........................  Kuwait              KOC                Jun 00
  Rig 180.........................  Kuwait              KOC                Sep 02
  Rig 102.........................  Kuwait-Saudi PNZ    SAT                Aug 00
  Rig 171.........................  Kuwait-Saudi PNZ    SAT                Dec 00
  Rig 173.........................  Saudi Arabia        Aramco             May 00(3)
  Rig 174.........................  Saudi Arabia        Aramco             May 00(3)
  Rig 144.........................  Oman                Idle
  Rig 150.........................  Oman                PDO                Sep 01
  Rig 151.........................  Oman                PDO                Apr 03
  Rig 159.........................  Oman                Idle
  Rig 97..........................  Venezuela           Inemaka            Jul 00
  Rig 110.........................  Venezuela           Idle
  Rig 115.........................  Venezuela           Idle
</TABLE>

                                       16
<PAGE>   19

<TABLE>
<CAPTION>
                                                                              CURRENT
                                                                             CONTRACT
          TYPE AND NAME                 LOCATION          CUSTOMER(1)      EXPIRATION(2)
          -------------                 --------          -----------      -------------
<S>                                 <C>                 <C>                <C>
  Rig 119.........................  Venezuela           Idle
  Rig 166.........................  Venezuela           Idle
  Rig 167.........................  Venezuela           Idle
  Rig 176.........................  Venezuela           Arco               Jan 01(3)
  Rig 177.........................  Venezuela           Arco               Oct 00(3)
  Rig 178.........................  Venezuela           Exxon Mobil        Aug 00(3)
  Rig 179.........................  Venezuela           Exxon Mobil        Mar 00
JOINT VENTURE OWNED LAND RIGS
  Rig 89..........................  Qatar               Idle
  QDC 3...........................  Qatar               Idle
  Rig 131.........................  Qatar               Idle
</TABLE>

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

(1) Generic designation including affiliates, joint ventures and consortia.
    "QGPC" means Qatar General Petroleum Company; "KOC" means Kuwait Oil
    Company; "SAT" means Saudi Arabia Texaco; "PDO" means Petroleum Development
    Oman; "PDVSA" means Petroleos de Venezuela; "PNZ" means Kuwait -- Saudi
    Arabian Partitioned Neutral Zone.

(2) Indicates date of scheduled expiration of current contract term, or, if the
    contract is for a fixed number of wells, date of estimated completion of
    those wells at February 29, 2000. Many contracts are subject to early
    termination.

(3) Contract is subject to customer term extension option(s).

(4) Monitor contract secured with BHP for five-month program plus options.

(5) Parameswara letter of intent executed with Kodeco for a five-month extension
    of contract from May 2000.

(6) Key Singapore contract secured with Rashpetco for six-month program
    commencing on April 1, 2000, plus options.

CUSTOMERS

     The Company's customers consist primarily of major international, state
owned and large independent oil companies and their affiliates. Several major
international oil companies have consolidated, and the Company is currently
unable to predict the impact, if any, of such consolidation on its business.
During the calendar year ended December 31, 1999, Royal Dutch/Shell Group of
Companies and its affiliates, joint ventures and consortia, Total Elf Fina,
Exxon Mobil and BP Amoco accounted for 14.5%, 13.5%, 13.2% and 11.9% of the
Company's consolidated revenues, respectively. See Note 10 of the Notes to
Consolidated Financial Statements.

EMPLOYEES

     As of December 31, 1999, the Company had approximately 4,800 full time
employees from more than 40 nations, over 95% of who work outside the U.S.
Approximately two-thirds of the Company's employees are citizens of countries
outside North America and Europe. Approximately 550 and 110 of the Company's
employees in Venezuela and Nigeria, respectively, are represented by labor
unions.

JOINT VENTURE, AGENCY AND SPONSORSHIP RELATIONSHIPS AND OTHER INVESTMENTS

     In some areas of the world, local custom and practice or governmental
requirements necessitate the formation of joint ventures with local
participation. The Company is an active participant in several joint venture
drilling companies, principally in Azerbaijan, Indonesia, Malaysia, Nigeria,
Oman, Qatar and Saudi Arabia. The Company and its co-venturer in Qatar Drilling
Company (W.L.L.) are considering sale or other disposition of the joint
venture's assets and ultimate dissolution of the joint venture company.

                                       17
<PAGE>   20

     In Azerbaijan, the semisubmersibles Istiglal and Dada Gorgud operate under
long term bareboat charters. The Istiglal is bareboat chartered to and operated
by the joint venture Caspian Drilling Company Limited, of which the Company owns
45%, until October 2006 and the Dada Gorgud is bareboat chartered to the Company
until October 2006 or the later termination of its current drilling contract
with the Azerbaijan International Operating Company. The Company has
subcontracted operations of the Dada Gorgud to Caspian Drilling Company Limited.

     The Company participates in a joint venture that operates a petroleum
supply base in Indonesia. The Indonesian supply base, 42% owned by the Company,
is located at Merak Point on the island of West Java. It provides open and
covered storage and bulk chemical trans-shipment facilities. The Company has
co-owned and managed this supply base for nearly 30 years. The land lease for
the supply base, which was previously scheduled to expire in 2000, has been
renewed for an additional 30 years. The Company also has a passive minority
investment in a Libyan drilling company that is accounted for on the cost basis.

     Local law or custom in some areas of the world also effectively mandates
establishment of a relationship with a local agent or sponsor. When necessary or
appropriate in these areas, the Company enters into agency or sponsorship
agreements.

RISKS, INSURANCE AND INDEMNIFICATION

     The Company emphasizes ongoing safety and training programs and has
installed significant safety equipment, all designed to promote a safe working
environment. Nevertheless, the operations of the Company are subject to the many
hazards inherent in the drilling business.

     While the Company maintains broad insurance coverage, such insurance
generally does not cover all types of losses (e.g., loss of charter hire/dayrate
revenue, war, internal disturbances, expropriation, nationalization or business
interruption). Losses and liabilities arising from uninsured or underinsured
events would reduce revenues and increase costs to the Company. In addition,
pollution and similar environmental risks generally are not fully insurable. As
a consequence, the existing insurance may not be sufficient to protect the
Company from all of its operational risks or against liability from all
consequences of well disasters, maritime casualties or damage to the
environment. It is also not sufficient to protect the Company for the full
market or replacement value of assets that are rendered actual or constructive
total losses. The Company may be liable for oil spills, costs of controlling a
wild well, well loss or damage and similar matters if not indemnified by its
customers or insured. When appropriate, such as when contracting on a turnkey
basis, the Company may separately insure well-related risks (well loss or
damage, wild well control and pollution).

     The Company believes its policy with regard to the purchase of insurance
coverage is consistent with industry practice with regard to the types, amounts
and limits of insurance maintained. From time to time, the Company reviews its
coverage levels and adjusts them commensurate with industry conditions and
perceived rig values. Further, no assurances can be given that the desired
insurance coverage will continue to be available at rates considered reasonable
or that certain types of coverage will be available at any cost.

     In the event insurance is determined to be inadequate, uneconomic or
unavailable, the Company evaluates its exposure to uninsurable risks before
participating in any projects. To the extent permitted by market conditions, the
Company contracts with its customers to provide the Company with indemnification
or other protection against risks not generally covered by insurance and against
losses in excess of applicable insurance limits. The Company generally has been
able to obtain contractual indemnification from its customers which protects and
indemnifies the Company to some degree from liability arising out of damages to
customer property and injuries to certain personnel, reservoir, pollution and
environmental damages and wild well control. However, there can be no assurance
that the Company can obtain such indemnification in all of its contracts.

                                       18
<PAGE>   21

ITEM 2. DESCRIPTION OF PROPERTY.

     See "Item 1. Description of Business -- Drilling Rig Fleet and Drilling
Related Services" for a description of the Company's principal assets. The
Company leases and, in some cases, owns various operating and administrative
facilities, generally consisting of office, maintenance and storage space,
around the world.

ITEM 3. LEGAL PROCEEDINGS.

     The Company is involved in various legal proceedings incidental to its
business. In the opinion of the management of the Company, based upon
information presently available, the ultimate resolution of these legal
proceedings will not have a material adverse effect on the financial condition
or results of operations of the Company.

     The Company has been named as a Potentially Responsible Party ("PRP") in
connection with a Superfund site located in Santa Fe Springs, California and
maintained by Waste Disposal, Inc. ("WDI"). On August 18, 1994 the U.S.
Environmental Protection Agency (the "EPA") issued an Administrative Order for
Remedial Design ("ORD") against eight PRP's, not including the Company, alleging
that they are responsible for costs associated with the cleanup of the WDI site
and requesting that these parties consent to undertake certain specific
investigative and remedial measures with respect to the site. On March 31, 1997
the ORD was amended to modify the scope of remedial work to be performed at the
site and to add thirteen additional parties, including the Company. On April 29,
1997 the Company advised the EPA of its intention to comply with the ORD. In an
effort to minimize costs associated with its involvement in the site, the
Company has entered into a Participation Agreement with the other named PRPs, by
which the PRPs will provide monetary credit to certain PRPs for previously
incurred costs, cooperate in common response to any claims arising out of the
ORD, and allocate among themselves costs associated with their involvement with
the site. The PRP's have agreed to an allocation arrangement, which, subject to
resolution of pending appeals by certain PRP's, will result in the Company
assuming responsibility for approximately 7.7% of costs related to site
remediation. Under the allocation arrangement, this amount is reduced by
recoveries from other parties, including landowners, non-participating PRP's and
any contributions from the Environmental Protection Agency under its orphan
share program. Ultimate liability will be dependent upon agreement between the
EPA and the PRP's concerning the most cost effective and appropriate remediation
of the site.

     Based on information presently available, the Company does not believe that
any liability imposed in connection with the WDI site will have a material
adverse effect on the Company's financial condition or ongoing results or
operations given the nature and extent of its involvement at the site and
available resources.

ITEM 4. CONTROL OF REGISTRANT.

     (a) As of February 29, 2000, Holdings, a wholly-owned subsidiary of KPC,
beneficially owned approximately 64.8% of the outstanding Ordinary Shares. KPC
is wholly owned by the Government of Kuwait.

     So long as Holdings owns a majority of the outstanding Ordinary Shares, KPC
through Holdings will be able to elect the Board of Directors of the Company and
effectively control the outcome of the vote on certain matters submitted to a
vote of the Company's shareholders. Mr. Nader Hamad Sultan, a Director of the
Company who also serves as Chairman and a member of the Board of Holdings, has
been authorized by the Holdings Board to cast votes for Holdings' Ordinary
Shares of the Company at the Company's 2000 Annual General Meeting of
Shareholders, in person or by proxy. So long as KPC remains a significant
indirect shareholder of the Company, it intends to oversee its investment in the
Company, including exercise of its and Holdings' rights under the Intercompany
Agreement and the Company's Articles. See "Item 13. Interest of Management in
Certain Transactions."

     (b) The following table is furnished as of February 29, 2000 to indicate
beneficial ownership of the Company's Ordinary Shares by (i) each person who is
known by the Company to be a beneficial owner of

                                       19
<PAGE>   22

more than 5% of the Company's Ordinary Shares and (ii) all executive officers
and Directors of the Company as a group. The information in the following table
was provided by such persons.

<TABLE>
<CAPTION>
        TITLE OF CLASS                IDENTITY OF PERSON OR GROUP        AMOUNT OWNED    PERCENT OF CLASS
        --------------                ---------------------------        ------------    ----------------
<S>                              <C>                                     <C>             <C>
Ordinary Shares................  SFIC Holdings (Cayman), Inc.             74,500,000           64.8%
Ordinary Shares................  Directors and executive officers as a       205,695(1)         0.2%
                                 group (18 persons)
</TABLE>

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

(1) Does not include 44,600 restricted shares or 1,078,567 options that are not
    exercisable within 60 days. Includes 15,036 shares held in the Company's
    Investment Savings and Profit Sharing Plan and 250 shares held by a spouse
    in a custodial account for the benefit of a minor child. Does not include
    800 shares held of record by the spouse of Mr. Ferdinand A. Berger, a
    Director of the Company. Mr. Berger disclaims beneficial ownership of such
    800 shares. Does not include 74,500,000 shares over which Mr. Nader Hamad
    Sultan, a director of the Company, has the authority to cast votes on behalf
    of Holdings at the Company's 2000 Annual General Meeting of Shareholders.
    Mr. Sultan disclaims beneficial ownership of such 74,500,000 shares.

ITEM 5. NATURE OF TRADING MARKET.

     There is no non-U.S. trading market for the Ordinary Shares of the Company.

     Within the U.S., the Company's Ordinary Shares commenced trading on The New
York Stock Exchange ("NYSE") effective June 10, 1997 under the symbol "SDC."

     The following table sets forth the high and low sales price per Ordinary
Share for the periods indicated.

<TABLE>
<CAPTION>
                                                               HIGH     LOW
                                                              ------   ------
<S>                                                           <C>      <C>
1998
  First Quarter.............................................  $41.50   $29.75
  Second Quarter............................................  $42.94   $28.44
  Third Quarter.............................................  $31.44   $12.25
  Fourth Quarter............................................  $21.19   $11.19
1999
  First Quarter.............................................  $20.38   $13.00
  Second Quarter............................................  $23.31   $16.19
  Third Quarter.............................................  $27.00   $19.13
  Fourth Quarter............................................  $26.00   $19.00
</TABLE>

     Based upon records maintained by the Company's transfer agent, as of
February 29, 2000, there were approximately 310 shareholders of record in the
U.S. and 210 shareholders of record outside of the U.S. holding 40,620,070 and
74,509,175 Ordinary Shares, respectively. These numbers include persons or
entities holding shares as nominees for beneficial owners.

     The Company's current dividend policy contemplates the payment of quarterly
dividends of $0.0325 per Ordinary Share. On March 7, 2000, the Company's Board
of Directors declared a quarterly dividend of $0.0325 per Ordinary Share payable
on April 17, 2000 to holders of record at the close of business March 31, 2000.
The Company's dividend policy is subject to change based upon the Company's
financial condition, results of operations, capital needs and other factors
deemed relevant by the Board of Directors.

ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS.

     The Company is not subject to any governmental laws, decrees or regulations
in the Cayman Islands which restrict the export or import of capital, including
any foreign exchange controls, or which affect the remittance of dividends,
interest or other payments to non-resident holders of the Company's Ordinary
Shares.

                                       20
<PAGE>   23

     Additionally, neither the laws of the Cayman Islands nor the Company's
charter impose any limitations on the right of non-resident foreign owners to
hold or vote the Ordinary Shares of the Company.

ITEM 7. TAXATION.

     At the present time there is no Cayman Islands income or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by a Cayman Islands company or its shareholders. The
Company has obtained an assurance from the Cayman Islands Government under the
Tax Concessions Law (Revised) that, in the event that any legislation is enacted
in the Cayman Islands imposing tax computed on profits or income, or computed on
any capital assets, gain or appreciation, or any tax in the nature of estate
duty or inheritance tax, such tax shall not until February 13, 2010 be
applicable to the Company or to any of its operations or to the shares,
debentures or other obligations of the Company. Therefore, under present law
there will be no Cayman Islands tax consequences with respect to distributions
in respect to the Ordinary Shares. The U.S. does not have a tax treaty with the
Cayman Islands. See "Item 1. Description of Business -- Business Considerations
and Risk Factors -- Taxation Risks."

ITEM 8. SELECTED FINANCIAL DATA.

     At the direction of its Board of Directors, the Company implemented a
change from a June 30 fiscal year end to a December 31 fiscal year end effective
January 1, 1998.

     The following table sets forth selected consolidated financial data for the
Company as of and for the calendar years ended December 31, 1999, 1998 and 1997
and for the fiscal years ended June 30, 1997, 1996 and 1995. Audited financial
statements for the years ended December 31, 1999, 1998, and 1997 are included
elsewhere in this Annual Report on Form 20-F. The information set forth below
should be read in conjunction with "Item 9. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto.

<TABLE>
<CAPTION>
                                                 CALENDAR YEAR ENDED DECEMBER 31,        FISCAL YEAR ENDED JUNE 30,
                                               ------------------------------------   ---------------------------------
                                                  1999         1998         1997         1997        1996        1995
                                               ----------   ----------   ----------   ----------   ---------   --------
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>          <C>          <C>          <C>          <C>         <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues...........................  $  614,241   $  811,346   $  688,957   $  578,563   $ 470,882   $466,262
Operating costs..............................     355,763      414,022      373,833      339,665     308,513    320,317
                                               ----------   ----------   ----------   ----------   ---------   --------
Operating margin.............................     258,478      397,324      315,124      238,898     162,369    145,945
Other operating costs and expenses:
  Depreciation and amortization(1)...........      71,631       55,807       46,197       43,360      77,128     86,916
  General and administrative.................      18,596       22,161       20,149       16,931      17,168     16,225
  Gain on sale of assets.....................        (805)      (5,988)        (626)      (1,041)       (754)    (1,355)
                                               ----------   ----------   ----------   ----------   ---------   --------
Operating income (loss)......................     169,056      325,344      249,404      179,648      68,827     44,159
Other income (expense), net..................       9,403        1,320        2,868        6,593       9,016      5,094
                                               ----------   ----------   ----------   ----------   ---------   --------
Income before provision for taxes on
  income.....................................     178,459      326,664      252,272      186,241      77,843     49,253
Provision for taxes on income................      28,635       39,520       27,486       21,325      15,867      4,955
                                               ----------   ----------   ----------   ----------   ---------   --------
Net income...................................  $  149,824   $  287,144   $  224,786   $  164,916   $  61,976   $ 44,298
                                               ==========   ==========   ==========   ==========   =========   ========
Net income per ordinary share(2):
  Basic......................................  $     1.31   $     2.51   $     1.96   $     1.44
  Diluted....................................  $     1.30   $     2.50   $     1.96   $     1.44
Pro forma net income per ordinary share(2):
  Basic......................................                                                      $    0.54
  Diluted....................................                                                      $    0.54
Cash dividends per ordinary share(3).........  $     0.13   $     0.13   $    0.065   $       --   $      --
                                               ==========   ==========   ==========   ==========   =========
</TABLE>

                                       21
<PAGE>   24

<TABLE>
<CAPTION>
                                                 CALENDAR YEAR ENDED DECEMBER 31,        FISCAL YEAR ENDED JUNE 30,
                                               ------------------------------------   ---------------------------------
                                                  1999         1998         1997         1997        1996        1995
                                               ----------   ----------   ----------   ----------   ---------   --------
                                                                (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>          <C>          <C>          <C>          <C>         <C>
OTHER FINANCIAL DATA:
Capital expenditures.........................  $  124,608   $  277,400   $  229,192   $  146,596   $  64,810   $ 36,443
Cash flows provided by (used in):
  Operating activities.......................     254,856      343,221      297,794      207,178     113,118    131,685
  Investing activities.......................    (266,700)    (272,475)    (235,648)    (143,197)      5,012    (14,643)
  Financing activities.......................     (12,778)     (14,885)     (66,785)     (66,893)   (108,391)   (98,373)
EBITDA(4)....................................     240,687      381,151      295,601      223,008     145,955    131,075
BALANCE SHEET DATA:
Working capital..............................  $  259,266   $  170,776   $  122,700   $  125,730   $ 124,333   $ 89,033
Property and equipment, net..................   1,102,564    1,049,201      801,970      691,300     587,420    599,680
Total assets.................................   1,563,542    1,453,736    1,161,453    1,000,446     884,998    924,983
Total debt(5)................................          --           --           --           --          --     58,364
Shareholders' equity.........................   1,366,025    1,227,224      953,017      831,115     733,092    728,089
</TABLE>

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

(1) During 1996, the Company's management undertook engineering and economic
    studies to evaluate the economic useful lives of its drilling rigs. The
    study results indicated that the estimated useful lives should be extended
    by 12 years from 18 to 30 years for marine rigs and by four years from 12 to
    16 years for land rigs. The Company's Board of Directors approved
    application of the change in estimated useful lives effective July 1, 1996
    which reduced depreciation expense, and increased net income, by
    approximately $34.5 million for the fiscal year ended June 30, 1997.

(2) The basic net income per Ordinary Share data for the calendar years ended
    December 31, 1999, 1998 and 1997 and for the fiscal year ended June 30, 1997
    is calculated based on weighted average shares outstanding. The dilutive
    impact of Ordinary Share equivalents related to stock awards and options
    outstanding under the Company's share award plans was not significant for
    the periods presented, increasing the weighted average shares outstanding
    used in the computation for the calendar year ended December 31, 1999, 1998
    and 1997 and for the fiscal year ended June 30, 1997 to 115,443,000,
    114,812,000, 114,608,000 and 114,502,000, respectively. The pro forma net
    income per Ordinary Share data for the fiscal year ended June 30, 1996 is
    calculated as though 114,500,000 shares issued were outstanding. See Note 2
    of the Notes to Consolidated Financial Statements.

(3) Prior to becoming a public company, the Company made certain distributions
    to its sole shareholder.

(4) EBITDA (operating income before depreciation) is a supplemental financial
    measure used by the Company in evaluating its business and should be read in
    conjunction with all the information in the Consolidated Financial
    Statements and notes thereto included elsewhere herein. The Company believes
    that EBITDA is a measure commonly used by analysts, investors and others
    interested in the contract drilling industry. Accordingly, this information
    has been disclosed herein to permit a more complete analysis of the
    Company's operating performance. The difference between cash flows provided
    by operating activities and EBITDA relates to interest, taxes, depreciation
    and changes in operating assets and liabilities. EBITDA should not be
    considered as an alternative to net income or cash flow from operating
    activities or as an indication of the Company's performance or as a measure
    of liquidity. The Company's definition of EBITDA may not be comparable with
    similarly titled measures disclosed by other companies.

(5) Total debt related to rigs held under leveraged capitalized lease
    obligations. During 1996 and 1994 the Company acquired the equity owner's
    interest in such rigs and extinguished the related obligations during 1996
    and 1995.

ITEM 9.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS.

     The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto, included elsewhere in this
Annual Report on Form 20-F.

                                       22
<PAGE>   25

RESULTS OF OPERATIONS

  General

     Overview. The Company is subject to many risks that could impair liquidity
and operating results because of decreased revenues, increased expenses or both.
The contract drilling industry is a highly competitive and cyclical industry
that is influenced by customer drilling budgets and expenditures and oil and
natural gas pricing, consumption and demand. The industry has and may encounter
periods of rapid downturn which result in substantially reduced dayrates and low
utilization. Any further reduction in industry utilization could idle more of
the Company's drilling rigs, in which event the Company must bear idle rig
expenses without any offsetting revenue. Should the industry engage in a more
extensive rig building program, the resulting increase in rig supply could cause
a further deterioration of the market for the Company's rigs. Any of these
events could have a materially adverse effect on the Company's revenues, gross
margins and net income and the Company's liquidity in future periods.

     The Company's contract drilling revenues vary based upon demand, which
affects the number of days the rig fleet is utilized and the dayrates received.
Revenue can also increase or decrease as a result of the acquisition or disposal
of rigs. In order to improve utilization, realize higher dayrates or retain
market share, the Company may mobilize its rigs from one market to another.
During periods of mobilization, however, revenues generally are adversely
affected. As a response to changes in demand and dayrate conditions, the Company
may withdraw a rig from the market by "stacking" it in an idle mode or may
reactivate a rig that was previously stacked, which may decrease or increase
revenues, respectively. See "Item 1. Description of Business -- Industry
Conditions."

     Beginning in 1998 and continuing through the first quarter of 1999, the
industry witnessed a substantial decline in oil prices with resulting reduction
in oil and gas company capital budgets. These depressed drilling industry
conditions resulted in a significant decline in demand for drilling rigs
throughout 1999 which, in turn, resulted in decreased rig utilization and an
increase in the number of idle rigs. As a result, for the year ended December
31, 1999, the Company realized sequential quarterly declines in rig utilization
and generally lower average rig dayrates, the combination of which led to
decreased operating revenues and lower net income. The Company implemented
certain actions to minimize its consequent decline in operating margin, such as
reducing personnel employment as rigs become idle, deferring certain
non-essential operating expenses, reducing land based support personnel,
deferring compensation actions and applying other cost reduction measures. The
Company will continue to evaluate market conditions and make further adjustments
as appropriate.

     Oil prices recovered beginning in the second quarter of 1999 and are
currently at near record levels. The contract drilling industry is now beginning
to recover from the 1999 down cycle that resulted in reduced worldwide rig
utilization and depressed rig rates. To date, this recovery has yielded
increased offshore rig utilization and dayrates primarily in the Gulf of Mexico.
International offshore and land rig drilling markets (including those in which
the Company operates) have yet to enter into a meaningful recovery and the
Company presently has a number of rigs idle. The Company believes the decreased
utilization and lower dayrate trends recently experienced by the industry will
be reversed as the industry continues to rebound. Although the price of crude
oil increased through the last half of 1999, the potential impact of this oil
price increase on the Company's future results of operations, both as to amount
and timing, cannot be accurately predicted. The Company believes, however, that
higher oil and natural gas prices for an extended period of time may result in
increased oil and gas company exploration and production budgets, which in turn
may result in increased future demand for drilling rigs.

     Operating revenues. Santa Fe derives its revenues from dayrates under
drilling contracts and the provision of drilling related services. A drilling
contract may provide both dayrate and drilling related service revenues. Changes
in or renewals of contracts may alter the composition of the Company's revenues.
Revenues from dayrate drilling contracts are recognized as work is performed.
When mobilization or rig enhancement is required for a contract, the Company may
receive a lump-sum payment to offset all or a portion of the cost. When an
offshore rig is mobilized from one market to another under contract,
mobilization revenues less costs incurred are recognized over the term of the
related drilling contract. If a rig is moved

                                       23
<PAGE>   26

without a contract, all costs incurred are immediately charged against income.
Payments received for rig enhancements are recognized as revenues over the term
of the related drilling contract. In addition to the impact of dayrates, which
increase and decrease with demand, revenues from contract drilling may fluctuate
from quarter to quarter due to the timing of contract completions,
mobilizations, scheduled maintenance, and the weather.

     The Company also earns revenue by providing drilling related services to
the petroleum industry worldwide, including third party rig operations,
incentive drilling, drilling engineering and project management. Revenues from
third party rig operations and drilling engineering services are recognized as
the services are performed. Revenues from incentive drilling are derived from
performance based contracts, including turnkey and footage contracts, in which
the Company has negotiated the opportunity to earn incremental revenue by
meeting or exceeding certain preset job performance criteria. Incremental
revenues from incentive drilling contracts are recognized as terms and
conditions of each contract are fulfilled. The Company uses the percentage of
completion method to account for project management contracts. Revenues from
drilling services fluctuate from quarter to quarter as a result of the amount of
services being performed during the quarter and the timing of achievement of
performance objectives under incentive based and project management contracts.

     Beginning in late 1998 and continuing through the first quarter of 1999,
oil prices declined substantially resulting in a significant decrease in the
worldwide demand for drilling services. Due to these depressed market
conditions, the Company realized significant declines in marine and land rig
utilization and dayrates, resulting in decreased revenues. Other revenues,
including those associated with mobilization, incentive programs, drilling
related services and project management, were adversely impacted as well.

     Operating costs. Operating costs are not affected by changes in dayrates,
nor are they necessarily significantly affected by fluctuations in utilization.
For instance, if a rig is idle for a short period of time, the Company realizes
few decreases in operating expenses since the rig typically is maintained in a
ready-to-operate state with a full crew. However, if a rig were expected to be
idle for more than a brief period of time, the Company may reduce the size of
the rig's crew and take steps to maintain the rig in an idle "stacked" mode,
which lowers expenses and partially offsets the negative impact on operating
income associated with loss of revenues. Operating costs also may be impacted by
the Company's ability to successfully hire and train sufficient numbers of
employees to operate the Company's drilling equipment. The Company recognizes
activities that maintain rather than upgrade the rigs as an operating cost. Such
repair and maintenance activities include, but are not limited to, painting,
inspections and routine overhauls. These operating costs also include the
purchase of parts and materials from third parties, the prices of which vary
from period to period and are, in part, impacted by influences outside the
control of the Company. While the Company has experienced significant increases
in the cost of rig related equipment and spare parts due to
manufacturer/supplier price increases over the past few years, prices generally
stabilized in 1998 and 1999. Should these or similar cost increases occur in the
future, the Company's financial results could be negatively impacted.

     Drilling industry conditions in 1999 resulted in a significant decline in
demand for drilling rigs which, in turn, resulted in an increase in the number
of idle rigs and lower utilization of the Company's drilling fleet. The
previously mentioned lower revenues combined with lower rig utilization caused
the Company to take certain actions during 1999, such as reduction of employment
as rigs became idle, deferral of certain non-essential operating expenses,
reduction of land based support personnel, deferral of compensation actions and
other similar cost conservation measures. The Company will continue to evaluate
market conditions and make further adjustments as appropriate.

     Operating income. In addition to operating revenues and costs, operating
income is also affected by the level of general and administrative expense,
depreciation and amortization expense and any gains or losses from the sale or
retirement of assets. Costs of rig enhancements are capitalized and depreciated
over the expected useful lives of the enhancements. Increased depreciation
expense subsequent to capital upgrade decreases operating income.

                                       24
<PAGE>   27

     Provision for taxes on income. The Company is not subject to income taxes
in the Cayman Islands. The Company's provision for taxes on income for the years
ended December 31, 1999, 1998 and 1997 was $28.6 million, $39.5 million and
$27.5 million, respectively. The Company's effective tax rate for the calendar
years ended December 31, 1999, 1998 and 1997 was 16.0%, 12.1% and 10.9%,
respectively. The relationship between income before provision for taxes on
income and the provision for taxes on income varies from period to period
because each country in which the Company operates has its own tax system and
because the amounts earned in, and subject to tax by, each jurisdiction change
from period to period. Increases or decreases in the Company's consolidated
pre-tax income may not lead to corresponding changes in its effective tax rate
because a substantial portion of the Company's pre-tax income is either not
subject to taxation or is subject to taxation at rates lower than the Company's
average worldwide rates. See Note 5 of Notes to Consolidated Financial
Statements.

     The following table presents data relating to the Company's operating
revenues, operating costs, operating income, utilization and average dayrates by
equipment type and for drilling services.

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1999        1998        1997
                                                             --------    --------    --------
                                                                      (IN THOUSANDS)
<S>                                                          <C>         <C>         <C>
OPERATING REVENUES
Heavy duty harsh environment jackup rigs...................  $181,662    $148,997    $135,931
Semisubmersible rigs.......................................    88,702     114,952      87,787
300-350 foot cantilever jackup rigs........................    81,015     150,602     121,854
200-250 foot jackup rigs...................................    58,351     143,164     122,817
Other marine rigs(1).......................................        --      11,836      11,984
                                                             --------    --------    --------
          Total marine rigs................................   409,730     569,551     480,373
                                                             --------    --------    --------
Land rigs..................................................   143,227     147,880     125,527
Drilling related services..................................    60,143      92,746      81,472
Other......................................................     1,141       1,169       1,585
                                                             --------    --------    --------
          Total operating revenues.........................   614,241     811,346     688,957
                                                             --------    --------    --------
OPERATING COSTS(2)
Heavy duty harsh environment jackup rigs...................    62,175      49,549      47,091
Semisubmersible rigs.......................................    43,969      63,712      41,694
300-350 foot cantilever jackup rigs........................    48,459      58,373      59,645
200-250 foot jackup rigs...................................    49,992      66,982      59,260
Other marine rigs(1).......................................        --       8,659       8,477
                                                             --------    --------    --------
          Total marine rigs................................   204,595     247,275     216,167
                                                             --------    --------    --------
Land rigs..................................................    95,255      97,966      86,547
Drilling related services..................................    42,437      65,665      61,641
Other......................................................    13,476       3,116       9,478
                                                             --------    --------    --------
          Total operating costs............................   355,763     414,022     373,833
                                                             --------    --------    --------
          OPERATING MARGIN.................................   258,478     397,324     315,124
                                                             --------    --------    --------
Depreciation and amortization..............................   (71,631)    (55,807)    (46,197)
General and administrative.................................   (18,596)    (22,161)    (20,149)
Gain on sale of assets.....................................       805       5,988         626
                                                             --------    --------    --------
          OPERATING INCOME.................................  $169,056    $325,344    $249,404
                                                             ========    ========    ========
OPERATING INCOME AS A PERCENTAGE OF REVENUES...............      27.5%       40.1%       36.2%
                                                             ========    ========    ========
</TABLE>

                                       25
<PAGE>   28

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1999        1998        1997
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
AVERAGE RIG FLEET UTILIZATION
Heavy duty harsh environment jackup rigs...................      93.0%       98.3%       99.0%
Semisubmersible rigs.......................................      84.7        91.1        97.2
300-350 foot cantilever jackup rigs........................      74.0        94.7        97.2
200-250 foot jackup rigs...................................      48.2        88.4        99.3
Other marine rigs(1).......................................        --       100.0       100.0
          Total marine rigs................................      69.9        93.0        98.4
Land rigs..................................................      68.6        88.8        90.8
AVERAGE DAYRATES
Heavy duty harsh environment jackup rigs...................  $105,434    $100,132    $ 94,005
Semisubmersible rigs.......................................    95,584     115,298      82,507
300-350 foot cantilever jackup rigs........................    37,472      54,487      42,952
200-250 foot jackup rigs...................................    36,838      49,299      37,662
Other marine rigs(1).......................................        --      18,237      16,416
          Total marine rigs................................    64,050      64,707      51,443
Land rigs..................................................    17,593      15,642      14,611
</TABLE>

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

(1) During the fourth quarter of calendar 1998, the Company's lake barge rig,
    the Rey del Lago, was retired from service. Effective January 1, 1999, the
    Company reclassified its platform rig as a component of Drilling Related
    Services.

(2) Exclusive of depreciation which is presented separately below.

CALENDAR YEARS ENDED DECEMBER 31, 1999 AND 1998

     Operating revenues. Total operating revenues decreased $197.1 million
(24.3%). Revenues from the Company's heavy duty harsh environment jackup rig
fleet increased $32.7 million (21.9%) primarily due to the full year impact of
Galaxy II operations ($41.6 million) and inception of Galaxy III operations on
December 5, 1999 ($4.1 million), partially offset by lower utilization ($8.1
million) and lower average dayrates ($4.9 million). Semisubmersible rig revenues
decreased $26.3 million (22.8%), mainly due to 17.1% lower average dayrates
($17.6 million) and lower utilization ($8.7 million). Revenues from 300-350 foot
cantilever jackups decreased $69.6 million (46.2%) primarily because of a 31.2%
decrease in average dayrates ($46.4 million) and decreased utilization of rigs
in Egypt, Indonesia, Vietnam and Malaysia ($27.8 million), partially offset by
increased utilization of the Compact Driller ($4.6 million). Revenues from
200-250 foot jackup rigs decreased $84.8 million (59.2%), mainly due to lower
utilization ($54.0 million) of rigs in Egypt, Qatar and Venezuela and a 25.3%
decrease in average dayrates ($30.8 million). The retirement of the Rey del Lago
and the reclassification of the Company's platform rig to drilling related
services led to decreased other marine revenues of $11.8 million. Revenues from
land rigs decreased $4.7 million (3.1%) primarily due to decreased utilization
($38.1 million) and lower average dayrates ($2.0 million) earned by rigs in
Egypt, Oman, Qatar and Venezuela, partially offset by $21.8 million increased
revenue from full year operations of three rigs placed in service in 1998 and
$13.6 million increased revenue from two new rigs placed in service during 1999.
Revenues from drilling related services decreased $32.6 million (35.2%) due to a
$16.9 million decrease in revenues from incentive contracts and decreased third
party rig operations revenues of $19.7 million, partially offset by $4.0 million
in revenues from the Company's platform rig that was transferred from other
marine rigs effective January 1, 1999. Incentive drilling revenues decreased
because of a decrease in the number of contracts containing incentive based
provisions, primarily in the North Sea, Egypt, Qatar and Venezuela. Third party
operations revenues decreased mainly due to fewer contracts in the North Sea and
Venezuela, partially offset by increased transportation operations in Kuwait.

     Operating costs. Total operating costs decreased $58.3 million (14.1%).
Operating expenses from heavy duty harsh environment jackup rigs increased $12.6
million (25.5%) primarily due to the impact of full year Galaxy II operations
and the inception of Galaxy III operations in December 1999. Semisubmersible rig

                                       26
<PAGE>   29

operating costs decreased $19.7 million (31.0%) primarily due to non-recurring
1998 Rig 140 upgrade costs and lower amortization of mobilization costs for Rig
135. Operating costs for the 300-350 foot cantilever jackup rigs decreased $9.9
million (17.0%), primarily due to lower utilization. Operating costs for the
200-250 foot jackup rigs decreased $17.0 million (25.4%) primarily due to lower
utilization of rigs in Egypt, Qatar and Venezuela, partially offset by increased
maintenance activity. The retirement of the Company's lake barge and the
reclassification of its platform rig to drilling related services led to a
decrease in other marine operating expenses of $8.7 million. Operating costs
associated with land rigs decreased $2.7 million (2.8%), primarily due to
reduced utilization ($23.9 million), partially offset by increased costs
associated with full year operations of three rigs placed in service in 1998
($12.6 million) and costs for two new rigs placed in service in 1999 ($7.0
million). Operating expenses from drilling related services decreased $23.2
million (35.4%) primarily due to a $10.6 million decrease in expenses from
incentive drilling activities and $15.5 decreased expenses from third party rig
operations, partially offset by $2.8 million in expense from the Company's
reclassified platform rig. Other operating expenses increased $10.4 million,
primarily due to increased provision for inventory obsolescence.

     General and administrative. General and administrative expense decreased
$3.6 million (16.1%), primarily due to decreased costs associated with reduced
staff and lower employee benefit costs.

     Depreciation and amortization. Depreciation and amortization expense
increased $15.8 million (28.4%) for the year ended December 31, 1999 as compared
with 1998. Depreciation of land rigs placed in service during 1998 and 1999
yielded increased expense of $6.8 million, while the addition of the Galaxy II
in 1998 increased depreciation expense by $5.3 million. The remainder of the
increase was due to depreciation of general capital additions to all other rigs
and equipment.

     Gain on sale of assets. Gain on sale of assets decreased $5.2 million for
the year ended December 31, 1999 as compared with the prior year. During 1998,
the Company recognized a $4.8 million gain due to insurance recovery for damages
sustained on a land rig following a blowout incident. The remaining decrease of
$0.4 million resulted from lower sales and dispositions of miscellaneous
equipment.

     Other income (expense), net. Other income increased $8.1 million during
1999 compared with 1998, mainly due to $4.9 million increased investment income
associated with higher invested balances, $1.6 million decreased foreign
exchange losses, primarily from operations in Indonesia and Venezuela, and $1.6
million lower non-operating charges, mainly due to decreased provision for
contingency reserves.

     Provision for taxes on income. The provision for taxes on income for the
year ended December 31, 1999 decreased $10.9 million (27.5%), primarily due to
lower reportable earnings primarily in Egypt and the North Sea. This situation
was partially offset by the initiation of Galaxy II operations in Canada and Rig
135 operations in Trinidad. The Company's annualized effective tax rate
increased to 16.1% from 12.0% for 1998 due to changes in the mix of reportable
earnings generated within the various taxing jurisdictions in which the Company
operates. Expressed as a percentage of revenue, the provision for taxes on
income was 4.7% and 4.9% for 1999 and 1998, respectively.

     Net income. Net income for the year ended December 31, 1999 decreased
$137.3 million (47.8%) to $149.8 million as compared to $287.1 million for the
prior year. This decrease resulted primarily from $197.1 million decreased
operating revenues, increased depreciation and amortization expense of $15.8
million and $5.2 million lower gains on sale of assets. Partially offsetting
these decreases to net income were lower operating expense of $58.3 million,
decreased general and administrative expense of $3.6 million, $8.1 million
higher other income (expense), net and $10.9 million decreased provision for
income taxes.

CALENDAR YEARS ENDED DECEMBER 31, 1998 AND 1997

     Operating revenues. Total operating revenues increased $122.4 million
(17.8%). Revenues from the Company's heavy duty harsh environment jackup rig
fleet increased $13.1 million (9.6%). Average dayrates increased 6.5% ($8.4
million), the new rig Galaxy II began operations on November 9, 1998 ($6.0
million) and the Galaxy I worked an additional eight days ($0.8 million).
Partially offsetting these increases, the Magellan was idle while completing
certification inspections and preparing for a new contract ($2.1 million).

                                       27
<PAGE>   30

Operating revenues for the Company's three semisubmersibles increased $27.2
million (30.9%), mainly due to a 39.7% increase in average dayrates ($30.5
million) and 31 days increased Rig 135 utilization in the North Sea ($3.0
million). These increases were partially offset by 98 days lower utilization of
Rig 140 ($6.3 million) as it was relocated from the Gulf of Mexico to the North
Sea, undergoing a planned shipyard maintenance and capital upgrade program prior
to the commencement of its new contract. Revenues from 300-350 foot cantilever
jackups increased $28.7 million (23.6%) primarily because of a 26.9% increase in
average dayrates ($33.7 million), partially offset by lower utilization ($5.0
million), mainly for the Parameswara and Compact Driller as they were mobilized
from Australia and Gabon to Malaysia and Thailand, respectively. Revenues from
200-250 foot jackup rigs increased $20.3 million (16.6%), mainly due to a 30.9%
increase in average dayrates ($33.3 million), partially offset by 357 days lower
utilization ($12.9 million), primarily on Rig 134 in Indonesia, Rig 127 in
Qatar, the Key Victoria in Venezuela and Rig 141 in Oman. Revenues from land
rigs increased by $22.4 million (17.8%). Four new rigs, three in South America
and one in North Africa, operated in the calendar year ended December 31, 1998
as compared with the same period of 1997, increasing revenues by $10.7 million.
Higher utilization of four rigs that were placed in service in the Middle East
during 1997 contributed higher revenues of $14.5 million. Revenues from the
remaining land rigs decreased $2.8 million due to 475 days decreased utilization
($6.5 million) partially offset by increased average dayrates ($3.7 million).
Revenues from drilling related services increased $11.3 million (13.8%)
primarily because of a $14.0 million increase in revenues from incentive
contracts, partially offset by a $2.7 million decrease in third party rig
operations revenues. Incentive drilling revenues increased because of an
increase in the number of contracts containing incentive based provisions,
primarily in the North Sea. Third party operations revenues decreased mainly due
to the August 1997 implementation of a joint venture company that operates a
third party semisubmersible in the Caspian Sea. Prior to that date, the rig was
operated solely by the Company. Decreased well engineering services in the North
Sea were partially offset by increased activity in the Middle East.

     Operating costs. Total operating costs increased $40.2 million (10.8%).
Operating costs for the heavy duty harsh environment jackup rigs increased $2.5
million (5.2%), primarily due to increased costs associated with a new contract
for the Magellan and the startup of the Galaxy II in November, 1998.
Semisubmersible rig operating costs increased $22.0 million (52.8%) primarily
due to the relocation of Rig 140 from the Gulf of Mexico and costs incurred for
its planned shipyard maintenance program prior to commencing new work in the
North Sea. Operating costs for 200-250 foot jackup rigs increased $7.7 million
(13.0%) mainly due to increased costs associated with a new contract for the Key
Victoria in South America, increased costs associated with maintenance and
support on the Key Bermuda in Nigeria and increased maintenance costs for Rig
127 in Qatar. Operating costs associated with land rigs increased $11.4 million
(13.2%) primarily due to the staged deployment of eight additional rigs during
the calendar years ended December 31, 1998 and 1997. In 1998, three rigs were
deployed in South America and one in North Africa, increasing operating costs by
$7.5 million. Increased utilization of rigs deployed in 1997, two to Saudi
Arabia and two to the Kuwait-Saudi Partitioned Neutral Zone, resulted in
increased expense of $7.2 million. The remaining decrease of $3.3 million in
land rig operating costs stemmed mainly from decreased utilization. Operating
costs from drilling related services increased $4.0 million (6.5%). Incentive
drilling expense increased $7.5 million mainly due to an increase in the number
of contracts containing incentive based provisions in the North Sea. Third party
rig operations expenses decreased $3.5 million mainly due to the August 1997
implementation of a joint venture company that operates a third party
semisubmersible in the Caspian Sea and decreased well engineering services in
the North Sea, partially offset by increased activity in the Middle East. The
$6.4 million (67.1%) decrease in other operating costs was primarily due to
reduced provision for inventory obsolescence.

     General and administrative. General and administrative expense increased
$2.0 million (10.0%) primarily due to increased costs associated with becoming a
public company in June 1997 ($1.0 million), increased employee benefit plan
costs ($0.5 million) and increased costs associated with higher staff levels
($0.5 million).

     Depreciation and amortization. Depreciation and amortization expense
increased $9.6 million (20.8%) for the calendar year ended December 31, 1998 as
compared with the same period in the prior year.

                                       28
<PAGE>   31

Depreciation of eight new land rigs placed in service during 1998 and 1997 and
the Galaxy II resulted in increased expense of $3.9 million and $1.1 million,
respectively, with the remainder of the increase due to depreciation of general
capital additions to all other rigs and equipment.

     Gain on sale of assets. Gain on sale of assets increased $5.4 million for
the calendar year ended December 31, 1998 as compared with the same period in
the prior year. On July 10, 1998, Rig 162, one of the Company's land rigs
operating in Saudi Arabia, was severely damaged following a blowout and
subsequent fire. As provided for in the drilling contract, the customer elected
to cancel the remaining term of the contract and the Company determined that the
rig would not be rebuilt. An unrepaired partial loss settlement was negotiated
with the Company's insurance carriers under which total proceeds of $13.8
million were received, resulting in recognition of a $4.8 million gain during
the fourth calendar quarter of 1998. The remaining increase of $0.6 million
resulted from increased sales and dispositions of miscellaneous equipment.

     Other income (expense), net. This category experienced a $1.5 million
decrease for the calendar year ended December 31, 1998. Foreign exchange losses
increased $1.7 million, primarily resulting from unfavorable movements of the
dollar in relation to the Indonesian rupiah and the Venezuelan bolivar. Other
charges increased $0.9 million, primarily due to increased provision for
contingencies. Investment income increased by $1.1 million, primarily due to
higher invested balances.

     Provision for taxes on income. The provision for taxes on income increased
$12.0 million (43.8%) primarily due to increased earnings in North Africa, South
America, Southeast Asia and the U.K., leading to an increase in the Company's
effective tax rate to 12.1% from 10.9% for the same period in 1997.

     Net income. Net income for the calendar year ended December 31, 1998
increased $62.3 million (27.7%) to $287.1 million as compared to $224.8 million
for the same period in the prior year. This increase resulted primarily from the
increase of $122.4 million in the Company's operating revenues and $5.4 million
increased gain on sales of assets, partially offset by increased operating
expense of $40.2 million, increased general and administrative expense of $2.0
million, $9.6 million higher depreciation expense, lower other income (expense),
net of $1.5 million and an increased provision for income taxes of $12.0
million.

LIQUIDITY AND CAPITAL RESOURCES

     Net cash provided by operating activities was $254.9 million and $343.2
million for the calendar years ended December 31, 1999 and 1998, respectively.
The decrease in cash flows from operations was primarily attributable to
decreased net income adjusted for non-cash charges, partially offset by
decreased working capital requirements. Investing activities used cash of $266.7
million and $272.5 million for the calendar years ended December 31, 1999 and
1998, respectively. The decreased usage in investing activities of $5.8 million
was primarily due to $171.3 million decreased capital spending and advance
payments related to drilling rig construction, partially offset by $151.6
million increased net purchases of marketable securities and $13.8 million
non-recurring proceeds received in 1998 from the insurance settlement associated
with the loss of Rig 162. Capital expenditures totaled $124.6 million and $277.4
million for the calendar years ended December 31, 1999 and 1998, respectively,
principally related to rig expansion, upgrades and modernization. For the
periods, capital expenditures on the heavy duty harsh environment jackup rigs
Galaxy II and Galaxy III decreased $50.2 million and $35.5 million,
respectively, while spending on new land rigs and related expenditures decreased
$66.2 million. Construction of the Galaxy III is complete and the rig was
mobilized to its initial work location in the U.K. sector of the North Sea where
it began work under its three year contract on December 5, 1999. Cash used in
financing activities was $12.8 million for the year ended December 31, 1999,
consisting of $14.9 million in dividends paid, partially offset by $2.1 million
generated by the January 1999 issuance of shares under the Company's Employee
Share Purchase Plan. For the year ended December 31, 1998, cash used in
financing activities was $14.9 million, consisting solely of dividends paid.

     The Company has budgeted approximately $150 million for capital
expenditures during the year ending December 31, 2000. Capital spending to meet
contractual obligations for customers and for rig upgrade, modernization and
enhancement projects is budgeted to require approximately $60 million and
represent numerous individual transactions spread over the course of the year.
In addition, $40 million has been budgeted for anticipated equipment upgrades to
the semisubmersible Dada Gorgud following favorable
                                       29
<PAGE>   32

negotiations with oil companies operating in Azerbaijan. Finally, the Company
identified $50 million intended for use in either constructing or acquiring new
rig(s) as indicated based upon market conditions. It is expected that the entire
2000 capital program will be funded from internally generated funds. Future
capital spending, particularly rig fleet additions, is subject to the Company's
prospects for securing appropriate drilling contract opportunities and the
availability of suitable rigs, rig components, construction facilities and
supplies.

     From time to time, the Company reviews opportunities for rig acquisition,
construction or upgrade. Once the Company undertakes a capital project, factors
outside the Company's control, such as changes in market demand, may alter the
project economics and the Company may be unable to fully recoup the cost of such
expenditures through future drilling contracts.

     On March 7, 2000, the Company's Board of Directors declared a quarterly
dividend of $0.0325 per Ordinary Share payable on April 17, 2000 to holders of
record at the close of business March 31, 2000. The Company's current dividend
policy contemplates payment of future quarterly dividends of $0.0325 per
Ordinary Share.

     The Company's principal source of funds has been cash flow from operations.
The Company believes available cash resources and cash flows from operations
will be sufficient to meet its capital requirements during 2000.

     The Company currently has a $35 million uncommitted credit facility for
advances and letter of credit with a major bank, none of which was drawn or
subject to standby letters of credit at December 31, 1999.

CURRENCY RISK AND INFLATION

     The Company conducts material business operations in foreign currency
environments, including the U.K., Venezuela, Indonesia and Egypt. The Company
generally attempts to minimize its currency exchange risk by seeking
international contracts payable in local currency in amounts equal to the
Company's estimated operating costs payable in local currency and in dollars for
the balance of the contract. Because of this strategy, the Company has minimized
its net asset or liability positions denominated in local currencies and has not
experienced significant gains or losses associated with changes in currency
exchange rates. Accordingly, the Company has not historically entered into
financial hedging arrangements to manage risks relating to fluctuations in
currency exchange rates. However, the Company may enter into such contracts in
the future in the event that the Company assumes significant foreign currency
risks.

     Although inflation has not had a significant impact on the Company's
results of operations during the past several years, labor availability and cost
and vendor prices and delivery fluctuate in response to overall drilling
industry conditions.

CREDIT RISK

     The Company's customers consist primarily of major international, state
owned and large independent oil companies and their affiliates. The Company has
not incurred any charges for credit losses during the last five years. There is
no assurance that in the future such charges will not occur. Such charges may
adversely affect the Company's profitability.

OTHER

     Operational risks and hazards may result in extensive damage to or total
loss of drilling rigs, with associated personal injuries and loss of life,
pollution, well loss, well control expenses and/or wreck removal or other
requirements. Such losses, liabilities or obligations may be uninsured or
underinsured. In the event of a major incident or incidents resulting from
operational risks and hazards, the Company will sustain a loss of revenue by
reason of the rig loss or damage and may be subject to extraordinary expenses in
respect of uninsured or underinsured losses, liabilities or obligations.

     The Company's worldwide operations are subject to numerous environmental
laws and regulations that relate directly or indirectly to its operations,
including certain regulations controlling the discharge of materials

                                       30
<PAGE>   33

into the environment, requiring removal and clean-up under certain
circumstances, or otherwise relating to the protection of the environment. Laws
and regulations protecting the environment have become increasingly stringent in
recent years and may in certain circumstances impose "strict liability" and
render a company liable for environmental damage without regard to negligence or
fault on the part of such company. Such laws and regulations may expose the
Company to liability for the conduct of or conditions caused by others, or for
acts of the Company that were in compliance with all applicable laws at the time
such acts were performed. See "Item 1. Description of Business -- Business
Considerations and Risk Factors -- Environmental and Regulatory Risks."

     The Company's liquidity also may be adversely impacted by reason of war,
political turmoil, revolution, insurrection or similar events which could, inter
alia, result in damage to or loss of the Company's rigs, either physically or by
reason of nationalization, expropriation or deprivation of use, or could impair
the concessionary rights of the Company's customers, thus jeopardizing the
Company's drilling contracts. The Company does not normally insure against these
risks, and such events could result in an actual or constructive loss of
substantial assets and the associated loss of revenues and/or receivables.

IMPACT OF YEAR 2000

     The Company actively pursued solutions to the Millennium Date Change
Problem ("Y2K") for approximately three years with initial activities
concentrating on Information Technology ("IT") issues. A Company-wide initiative
was launched in January 1998 with the formation of the Y2K Office responsible
for coordinating the Y2K efforts and reporting directly to the Company's Chief
Executive Officer. A Company policy was issued in April 1998 stating a goal of
"business as usual' with the responsibility for Y2K preparation allocated to
operating and administrative management. Requirements included development of a
'Quality Plan' document that organized local initiatives complete with
milestones and reporting responsibilities.

     A Company-wide awareness campaign was initiated, with all operational
centers visited. At these meetings, an outline of basic program awareness,
inventory guidelines, impact analysis, mitigation, implementation and testing
was presented, and the responsibilities of local management were established.
Corporate guidance was issued establishing minimum requirements for contingency
plans regarding rollover period sensitive issues such as air travel, material
supply, operational shutdowns, banking and financial control. Due to the diverse
geographic location and nature of the Company business activities, all Y2K
issues were considered in three categories: IT, Field Equipment and Third Party
Relationships. A common set of analyses was applied to these categories in order
to evaluate the potential for business disruption.

     Eighteen centers implemented solutions to their Y2K issues. All IT issues
were addressed with major corporate operating systems and software being
modified as required, tested, deployed and implemented. PC hardware and
corporate supported software were tested appropriately and proved compliant. All
Field Equipment identified as potentially Y2K sensitive due to the use of
imbedded microprocessors was risk assessed for appropriate remedial action.
Non-compliant equipment was upgraded or replaced and tested with independent
validation in accordance with corporate policy. In order to minimize potential
disruption in the area of third party relationships, all suppliers of goods and
services were surveyed, and critical suppliers were audited to determine their
preparedness for Y2K. Where doubt existed, alternative sources were secured.
Response centers were established at the Company's main area offices in order to
monitor and advise of developments. Communications links were established
between these centers and corporate headquarters.

     Total costs incurred through December 31, 1999 were $2.9 million, comprised
of $1.4 million in expenditures during 1998 and $1.5 million spent during 1999.
Y2K remediation costs are charged to operations on a current basis as incurred.

     During the Y2K rollover and immediately thereafter, including the February
29, 2000 leap year date, there was no disruption to Company business and no
Y2K-related interruption in operations. Although Company management believes
that an effective program was executed and that the Y2K issue has been
successfully addressed, contingency plans will remain active throughout the year
2000 as circumstances dictate.

                                       31
<PAGE>   34

ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

INTEREST RATE RISK

     The Company's exposure to interest rates relates primarily to its
investment portfolio. The Company does not currently use financial derivative
instruments to manage interest rate risk; however, it closely monitors the
relationship between interest rate-sensitive assets and liabilities and may
elect to use derivative instruments in the future.

     The objectives of the Company's short-term investments are safety of
principal, liquidity maintenance, yield maximization and full investment of all
available funds. As such, the Company's investment portfolio consists primarily
of high credit quality Eurodollar debt securities and commercial paper. If
short-term interest rates average 10% lower than they were during 1999, the
Company's interest income from short-term investments in 2000 would change by
approximately $1.0 million. This estimate was determined by applying the
hypothetical interest rate change to the Company's average short-term investment
balance for the year ended December 31, 1999.

FOREIGN CURRENCY RISK

     The Company conducts material business operations in foreign currency
environments, including the U.K., Venezuela, Indonesia and Egypt, as well as
others. The Company generally attempts to minimize its currency exchange risk by
seeking international contracts payable in local currency in amounts equal to
the Company's estimated local currency based operating costs and in dollars for
the balance of the contract. Because of this strategy, the Company has minimized
its net asset or liability positions denominated in local currencies and has not
experienced significant gains or losses associated with changes in currency
exchange rates. Accordingly, the Company has not historically entered into
financial hedging arrangements to manage risks relating to fluctuations in
currency exchange rates. However, the Company may enter into such contracts in
the future in the event that the Company assumes significant foreign currency
risks.

ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.

     The Board of Directors of the Company currently has nine members. The
Company's Articles of Association (the "Articles") divide the Board of Directors
into three classes having staggered terms of three years each, with Classes III,
I and II having initial terms expiring at the annual general meeting of
shareholders in 2000, 2001 and 2002, respectively. The Articles also require the
number of Directors to be not less than nine nor more than fifteen and provide
that the Board is to determine, from time to time, the number of Directors to
comprise the Board. The Board of Directors elects officers for one year terms of
office expiring at the next Annual General Meeting of Shareholders. Information
with respect to the current Directors and executive officers of the Company is
set forth below.

DIRECTORS AND EXECUTIVE OFFICERS

     The following is a list of the Directors and executive officers of the
Company as of February 29, 2000.

<TABLE>
<CAPTION>
                   NAME                     AGE                    POSITION
                   ----                     ---                    --------
<S>                                         <C>   <C>
Gordon M. Anderson........................  67    Chairman of the Board and Class I Director
C. Stedman Garber, Jr. ...................  56    President, Chief Executive Officer and
                                                  Class III Director
Richard N. Haass..........................  48    Class I Director
Khaled R. Al-Haroon.......................  50    Class I Director
Ferdinand Anton Berger....................  61    Class II Director
Stephen J. Solarz.........................  59    Class II Director
Nader Hamad Sultan........................  51    Class II Director
Maha A. R. Razzuqi........................  44    Class III Director
Robert E. Wycoff..........................  69    Class III Director
Roger B. Hunt.............................  50    Senior Vice President, Commercial Manager
</TABLE>

                                       32
<PAGE>   35

<TABLE>
<CAPTION>
                   NAME                     AGE                    POSITION
                   ----                     ---                    --------
<S>                                         <C>   <C>
Seals M. McCarty..........................  53    Senior Vice President and Chief Financial
                                                    Officer
Tom L. Seeliger...........................  56    Senior Vice President, Drilling Operations
Ali Awad..................................  59    Vice President and Regional Manager
James A. Blue.............................  54    Vice President and Regional Manager
Roger K. P. De Freitas....................  45    Vice President and Regional Manager
Steven J. Gangelhoff......................  48    Vice President and Regional Manager
Cary A. Moomjian, Jr. ....................  52    Vice President, General Counsel and
                                                  Secretary
James E. Oliver...........................  50    Vice President, Controller and Treasurer
</TABLE>

     Gordon M. Anderson has served as a Director of the Company since 1969. Mr.
Anderson was appointed President and Chief Executive Officer in 1991 and became
Chairman of the Board of Directors in 1993. Mr. Anderson has worked with the
Company since June 1954. Following several international assignments, he was
appointed President of Santa Fe Drilling Company in 1972. Mr. Anderson retired
as Chief Executive Officer in December 1997 and currently serves as a
non-employee Director and Chairman of the Board.

     C. Stedman Garber, Jr. has served as a Director of the Company since 1989.
Mr. Garber was employed by Getty Oil Company between 1977 and 1984. Mr. Garber
joined the Company in 1984 as Vice President of Planning and Acquisition and in
1989 was appointed President of Santa Fe Minerals, Inc., a former subsidiary of
the Company. Mr. Garber was named Executive Vice President and Chief Operating
Officer of the Company in 1991, was appointed President and Chief Operating
Officer in December 1995 and was appointed Chief Executive Officer effective
January 1, 1998. Mr. Garber also serves as a Director of the American Petroleum
Institute, as Secretary-Treasurer of the International Association of Drilling
Contractors and as a Trustee of the American University in Cairo.

     Richard N. Haass has served as a Director of the Company since November
1998. Dr. Haass is Director of Foreign Policy Studies at the Brookings
Institution. A widely quoted expert on contemporary American foreign policy, Dr.
Haass also consults for NBC News, is a frequent contributor to foreign affairs
journals and major newspapers and is an author of several books. Dr. Haass has
extensive government experience and served as Special Assistant to President
George Bush and Senior Director on the staff of the National Security Council.
He was awarded the Presidential Citizens Medal for his contribution to the
development of U.S. policy during Operations Desert Shield and Desert Storm, has
held various posts in the Departments of State and Defense, and was a
legislative aide in the U.S. Senate.

     Khaled R. Al-Haroon has served as a Director of the Company since November
1998. Mr. Al-Haroon serves on the Board of KPC and as its Managing Director of
International Operations. He also serves as the Chairman-Oils Sector Loss
Assessment Committee and is the Deputy Chairman of Kuwait Petroleum
Corporation's Higher Tender Committee. His career began in 1974 with the
International Marketing Group of the Kuwait National Petroleum Company. Since
1980, Mr. Al-Haroon has held various management positions at KPC. Mr. Al-Haroon
also serves as a Director of Holdings.

     Ferdinand A. Berger has served as a Director of the Company since September
1997. Mr. Berger retired from the Shell Group of Companies at the end of 1996,
having served in various management positions in South America, the Middle East
and Europe since 1965. He was appointed Senior Vice President of Shell
International Trading Company in 1987 and served as a Director of Shell
International Petroleum Company Limited, with responsibility for overall Shell
Group activities in the Middle East, Africa and South Asia from 1992 until his
retirement. He is also a Director of Xpronet Inc., a privately owned oil and gas
exploration and production company.

     Stephen J. Solarz has served as a Director of the Company since November
1998. Mr. Solarz is President of Solarz Associates, an international consulting
firm. He also is a Director of the George Washington University Foreign Policy
Forum, Vice Chairman of the International Crisis Group, and a Senior Counselor
at APCO Associates, Inc. Mr. Solarz serves on the Board of several corporations
including Samsonite, IRI International and the First Philippine Fund, and is a
Director of the National Endowment for Democracy, the

                                       33
<PAGE>   36

International Rescue Committee, the National Democratic Institute and the Balkan
Action Council Steering Committee. Mr. Solarz has served in public office for
twenty-four years, both in the New York Assembly and in the U.S. House of
Representatives. As a Congressman, Mr. Solarz served on various committees,
including the House Foreign Affairs Committee where he chaired the Subcommittee
on Africa and the Subcommittee on Asian and Pacific Affairs. He was appointed by
President Clinton as Chairman of the Board of the Central Asian-American
Enterprise Fund, served as President Clinton's special envoy to Cambodia and
co-chaired the National Democratic Institute's election observer delegation.

     Nader Hamad Sultan has served as a Director of the Company since January
1995. Since 1993, he has served as Deputy Chairman and Managing Director,
Planning and International Operations, of KPC and was appointed Chief Executive
Officer of KPC in 1998. Mr. Sultan also serves as a Director of KPC and
Holdings.

     Maha A. R. Razzuqi has served as a Director of the Company since August
1999. Mrs. Razzuqi is the KPC Executive Assistant Managing Director for
International Business Development. Mrs. Razzuqi has been associated with KPC's
international operations since 1996, including service on the Kuwait Foreign
Petroleum Company Board of Directors, and has held various management positions
in planning and marketing between 1986 and 1996. Mrs. Razzuqi also serves as a
Director of Holdings.

     Robert E. Wycoff has served as a Director of the Company since September
1997. Mr. Wycoff retired from the Atlantic Richfield Company ("ARCO") in 1993,
having served with ARCO since 1953. After holding various engineering and
management positions, he was named Vice President and Resident Manager of ARCO's
Alaska Region in 1973. Mr. Wycoff served as a Director, President and Chief
Operating Officer of ARCO from 1986 until his retirement. He is also a Director
of MagneTek, Inc., a publicly traded company engaged in electronic equipment and
controls.

     Roger B. Hunt joined the Company in 1970. During the period 1977 through
1982, he was assigned to Venezuela as Assistant Zone Manager. In 1983, he was
named Vice President and Manager of International Sales and in 1988 was assigned
regional operations responsibilities as Vice President and Regional Manager for
Asia, Australia, Venezuela, Azerbaijan, West Africa and the Gulf of Mexico. He
assumed his current responsibilities as Senior Vice President, Commercial
Manager, during September 1997.

     Seals M. McCarty joined the Company in 1985 concurrently with the purchase
of Keydril Company from Gulf/Chevron. He had served as Vice President of Finance
for Keydril since 1982. Mr. McCarty held various financial positions with the
Company including Vice President and Controller, before he was named as Senior
Vice President and Chief Financial Officer in January 2000.

     Tom L. Seeliger joined the Company in 1965. He has worked in progressively
more senior management positions, primarily internationally, including
assignments in Nigeria, the North Sea, Libya, Argentina, Trinidad, Venezuela and
London. Mr. Seeliger served as Vice President and Area Manager for North Sea
operations from 1993 until January 2000, when he was named Senior Vice
President, Drilling Operations.

     Ali Awad joined the Company in 1974 following a distinguished career with
major oil companies operating locally in Egypt. He held several managerial
positions in Egypt, including Zone Manager from 1979 to 1993. Mr. Awad served as
Vice President and Area Manager for all offshore and land operations in Egypt
and the Mediterranean area from 1993 until March 1999, when he was promoted to
Vice President and Regional Manager with responsibility for all operations in
the Middle East, North Africa and Mediterranean region.

     James A. Blue joined the Company in 1965. He initially served in various
assignments in England, Egypt, Libya, Scotland and Venezuela. He was named Vice
President and Regional Operations Manager in 1989. In 1997, he assumed his
current position of Vice President and Regional Manager with responsibility for
operations in Azerbaijan, the Gulf of Mexico, Venezuela and West Africa.

     Roger K. P. De Freitas joined the Company in 1974. He initially served in
various operational and supervisory assignments in Trinidad, Scotland, Great
Yarmouth, Egypt, Yemen and Singapore. Mr. De Freitas served as Operations
Manager in the North Sea and Zone Manager in Trinidad before

                                       34
<PAGE>   37

assuming his current position as Vice President and Regional Manager for Western
Europe/Canada in January 2000.

     Steven J. Gangelhoff joined the Company in 1985 concurrently with the
purchase of Keydril Company from Gulf/Chevron. He served as Regional Manager,
Eastern Hemisphere for Keydril since 1982, and prior to that held various
operations positions with Keydril. Since 1985, he has held operations and
management positions with the Company in the U.S., South America, Malaysia and
Indonesia and served as Regional Marketing Manager Southeast Asia/Australia from
1991 to 1996. He assumed his current position as Vice President and Regional
Manager for Southeast Asia in January 2000.

     Cary A. Moomjian, Jr. joined the Company in 1976. After two years as
Corporate Marine Counsel, Mr. Moomjian served as Santa Fe Drilling Company's
Senior Counsel and then Vice President, General Counsel. In 1983, Mr. Moomjian
was named Vice President, Contracts for Santa Fe Drilling Company. In January
1994, Mr. Moomjian was named Vice President, General Counsel and Secretary.

     James E. Oliver joined the Company in 1985 and served as Vice
President-Finance for Santa Fe Minerals, Inc., a former subsidiary of the
Company. He was named Vice President and Treasurer of the Company in 1993 and
assumed his current responsibilities as Vice President, Controller and Treasurer
in January 2000.

ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.

COMPENSATION OF DIRECTORS AND OFFICERS

     For the calendar year ended December 31, 1999, the aggregate remuneration
paid by the Company (which includes salary and other cash payments under the
Company's benefit plans and policies) to all Directors and executive officers of
the Company as a group (19 persons, including one former Director, one deceased
executive officer and two executive officers who retired effective December 31,
1999) for services in all capacities was $7,837,053.

     The Company and Gordon M. Anderson, a Director of the Company, entered into
a Consulting Agreement dated December 10, 1997 pursuant to which Mr. Anderson
received certain compensation. See "Item 13. Interest of Management in Certain
Transactions -- Consulting Agreement."

DIRECTOR FEES AND STOCK OPTIONS

     Effective July 1, 1997, the Board adopted a policy whereby each
non-employee Director is paid an annual retainer fee of $20,000 plus meeting
fees of $2,000 for each Board and committee meeting (other than telephonic
meetings) attended by that Director. Each non-employee Director also is paid a
meeting fee of $500 for any Board or committee telephonic meeting of one hour or
longer and an additional $1,000 for each Board meeting such Director attends
outside his or her country of residence. Each non-employee Director who serves
as a committee chairman receives an additional meeting fee of $1,000. The
Company also reimburses its Directors for travel, lodging and related expenses
they may incur attending Board and committee meetings. The Company has also
adopted a stock option plan for non-employee Directors. See "-- Long Term
Incentive Plans -- 1997 Non-Employee Director Stock Option Plan." Effective
January 1, 1999, non-employee Directors are permitted to defer receipt of cash
compensation for Director service pursuant to a Deferred Compensation Plan
adopted by the Company in December 1998.

INVESTMENT SAVINGS AND PROFIT SHARING (401(k)) PLAN

     The Company maintains an Investment Savings and Profit Sharing Plan, a
defined contribution 401(k) plan that allows dollar payroll employees to make
both pre-tax and after-tax employee contributions. The Company matches these
employee contributions up to a maximum of 5% of a participant's base salary
subject to the limitations of eligible salary. Employees are vested in all
contributions made. Additionally, although it has not done so since 1984 and
does not currently expect to do so in the future, the Company has the option to
make additional employer contributions any year out of profits.

                                       35
<PAGE>   38

ANNUAL INCENTIVE COMPENSATION PLAN

     The Company also maintains an Annual Incentive Compensation Plan ("AIP").
The AIP provides for payment of additional compensation to participating
employees, including executive officers, based on individual contributions and
overall performance of the Company and its key operating business units during
the fiscal year. The AIP is administered by the Compensation Committee.
Employees of the Company and its subsidiaries eligible for awards under the AIP
are executive officers, officers and other key management personnel of the
Company and its subsidiaries, whose performance, in the judgment of the
Compensation Committee, can have a significant effect on the success of the
Company. During the term of the AIP, an aggregate of 286,250 Ordinary Shares
will be available for awards granted wholly or partly in Ordinary Shares under
the AIP.

     In general, the Compensation Committee will establish a target incentive
award for each participant based on performance measures (and performance scales
for the measures) and individual objectives. The maximum target incentive award
shall not exceed 100% of the participant's base salary in effect at the
beginning of the plan year. The current performance measures are (i) cash flow
from operations and (ii) return on average capital employed as compared to
certain peer group companies set forth in the AIP. In general, except for
"covered employees," as defined in Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code") (relating to deduction limits for compensation
over $1 million), the Compensation Committee has discretion to vary these
measures and the relative weight to assign to the various objectives. With
respect to covered employees, the individual objectives must be capable of
determination by a third party and all of the objectives must be established
during the first 90 days of the plan year.

     In the event of a Change in Control (as defined below), (i) if the various
objectives have not yet been determined during the plan year, then the
objectives and participants shall generally be based on the same rules as set
forth in the preceding plan year and (ii) in general, participants are eligible
for full unprorated target incentives for that year.

PENSION PLANS

     The Company maintains a tax-qualified pension plan for employees of the
Company and participating subsidiaries who are residing in or are citizens of
the U.S. and who have completed one year of service, and a "mirror"
non-qualified pension plan for selected non-U.S. management and other employees
of the Company and participating subsidiaries which provides substantially
similar benefits (hereafter referred to collectively as the "Pension Plans"). In
addition, the Company maintains two non-qualified pension plans that provide
certain additional pension benefits.

     The Pension Plans provide for monthly retirement benefits upon normal
retirement at age 62 based on the number of credited years of service and the
average of the highest 60 months of salary covered by the Pension Plans. The
Pension Plans permit retirement as early as age 55 with reduced benefits. The
Equity Restoration Plan restores to Pension Plan participants any benefits
otherwise lost as a result of the benefit limitations contained in Section 415
of the Code and limitations contained in Section 401(a)(17) of the Code on the
amount of compensation includable in determining benefits provided by
tax-qualified trusts. The Company's Supplemental Executive Retirement Plan
("SERP") provides additional benefits for a select group of management employees
as a means to attract and retain employees of exceptional ability who are
critical to the Company's success.

     For employees who participate only in the Pension Plans and the Company's
Equity Restoration Plan, the annual retirement income benefit is equal to 1.525%
of the participant's average annual base salary in the highest 60 consecutive
months during the final 10 years of service multiplied by years of credited
service, plus 0.475% of this same base salary amount less the participant's
Social Security Covered Compensation (as defined), multiplied by years of
credited service not exceeding 35 years. For employees who also participate in
the SERP, the benefit so calculated will be 60% of the participant's average
annual salary and bonus in the highest consecutive 36 months during the final
five years of service, reduced ratably for service under 15 years.

                                       36
<PAGE>   39

LONG TERM INCENTIVE PLANS

  Performance Unit Plan

     On June 28, 1995, the Company adopted the Santa Fe International
Corporation Performance Unit Plan ("Performance Unit Plan") to provide incentive
via performance share units to foster and promote the long-term financial
success of the Company and materially increase the value of the equity interests
of the shareholder.

     Each unit awarded under the Performance Unit Plan represents the right to
receive an amount in cash on the date of payout, the amount of which depends
upon the Company's targeted three-year total cash flow from operations and a
return on fixed assets (three-year average of the annual cash flow from
operations divided by fixed assets) compared to a comparative group of peer
companies. The minimum (threshold) is $20 per unit, which is payable if the
Company's cash flow from operations equals 80% of targeted cash flow from
operations and the Company's return on fixed assets equals the 40th percentile
of its peer companies. If the results are less than threshold for any of the two
performance criteria, no awards are earned. The target amount of $100 per unit
is payable if the Company meets targeted total cash flow from operations and
return on fixed assets equals the 60th percentile of its peer companies. The
maximum amount of $300 per unit is payable if the Company's cash flow from
operations equals or exceeds 150% of targeted cash flow from operations and
return on fixed assets equals or exceeds the 90th percentile of peer companies.
As of December 31, 1998, there were 14 participants in the Performance Unit
Plan.

     The last awards under the Performance Unit Plan were granted in December
1996. No further awards will be made under the Performance Unit Plan. The
Performance Unit Plan remained in existence until the last performance cycle has
elapsed and payouts were made to participants. The Performance Unit Plan was
terminated in September 1999, shortly after the results had been finalized for
the third plan year ending June 30, 1999.

  1997 Long Term Incentive Plan

     The Company has adopted the 1997 Long Term Incentive Plan (the "LTIP"),
which is designed to retain key executives and other selected employees by
rewarding them for making major contributions to the success of the Company and
to provide participants with a proprietary interest in the growth and
performance of the Company.

     Employees of the Company eligible for awards under the LTIP are executive
officers, other officers and key management personnel selected by the
Compensation Committee (including employees who are Directors), and whose
performance, in the judgment of the Compensation Committee, can have a
significant effect on the success of the Company. As of December 31, 1999, there
were 409 persons who participated in the LTIP. Awards under the LTIP may consist
of the grant of stock options, share appreciation rights, restricted and/or
performance-based share awards and/or restricted and/or performance-based cash
awards, granted singly, in combination or in tandem. The exercise price for
stock options shall not be less than 85% of the fair market value of the stock
on the date of the option grant (100% in the case of incentive stock options).
The Compensation Committee can also award supplemental payments up to the amount
necessary to pay the federal income tax payable with respect to exercise of
non-qualified stock options, share appreciation rights, restricted shares and
performance units. If approved by the Compensation Committee, the Company may
also make loans to participants to purchase shares pursuant to the exercise of
an award. During the term of the LTIP, an aggregate of 5,725,000 Ordinary Shares
will be available for awards granted wholly or partly in Ordinary Shares under
the LTIP. No participant may receive during a fiscal year incentive awards
covering an aggregate of more than 150,000 Ordinary Shares.

     The Compensation Committee is responsible for administration and
interpretation of the LTIP. When a participant's employment with the Company is
terminated, any unexercised, deferred or unpaid awards will be treated as
provided in the specific agreement evidencing the award. If a participant
terminates for "good reason" (as defined in the LTIP) within two years after a
Change in Control (as defined below), all outstanding stock options shall become
vested and immediately exercisable and will remain exercisable until

                                       37
<PAGE>   40

the earlier of the expiration of their term or the first anniversary of the
termination of employment, all shares of restricted stock will immediately cease
to be forfeitable and all conditions relating to realization of any other
stock-based or non-stock award will immediately terminate. In addition, upon a
Change in Control (as defined below), the Company will have the right to cash
out all incentive awards (and all non-vested awards will vest) based on their
fair market value; for this purpose, their market value will be the average fair
market value per share on each of the five trading days immediately following a
Change in Control or the highest price per share, if any, offered in connection
with a Change in Control, whichever is higher. This cash out is automatic if the
stock of the surviving entity in a Change in Control is not publicly traded.

     As of February 29, 2000, an aggregate of 1,072,375 options to purchase the
Company's Ordinary Shares (net of canceled or expired options) had been granted
under the LTIP to all Directors and executive officers as a group (18 persons).
Such options were granted at exercise prices ranging from $12.25 to $45.00 per
Ordinary Share and expire ten years from date of grant or earlier. In addition,
the Company has granted restricted share awards for an aggregate of 48,600
Ordinary Shares (net of canceled, expired or issued shares) to all Directors and
executive officers as a group (18 persons).

  1997 Non-Employee Director Stock Option Plan

     The 1997 Non-Employee Director Stock Option Plan (the "Director Plan") has
been adopted by the Company. The Director Plan is designed to attract and retain
the services of experienced and knowledgeable non-employee Directors and to
provide non-employee Directors with a proprietary interest in the growth and
performance of the Company. Awards under the Director Plan consist of a grant of
stock options. The purchase price for the shares as to which the option is
exercised will be payable in full upon exercise, in cash or, if permitted by the
Compensation Committee, by tender of Ordinary Shares, valued at "fair market
value." During the term of the Director Plan, an aggregate of 286,250 Ordinary
Shares will be available for awards granted wholly or partly in Ordinary Shares.
No option will be granted under the Director Plan after 10 years following
consummation of the Company's initial public offering of Ordinary Shares in June
1997 (the "Offering"). The Compensation Committee is responsible for
administration and interpretation of the Director Plan.

     As of February 29, 2000, an aggregate of 97,000 options to purchase the
Company's Ordinary Shares (net of canceled or expired options) had been granted
under the Director Plan to eight non-employee Directors who participated in the
Director Plan. Such options were granted at exercise prices ranging from $12.25
to $45.50 per Ordinary Share. Any new non-employee Director will be granted a
one-time award of a right to purchase 10,000 Ordinary Shares (increased from
4,000 by amendment of the Director Plan in March 1999) upon their election to
the Board at the fair market stock price/value on the date of their election.
Each non-employee Director who continues in office immediately following the
Annual General Meeting of Shareholders in any year (commencing in 1998) will
automatically be granted an option to acquire 5,000 shares of Ordinary Shares
(increased from 2,000 by amendment of the Director Plan in March 1999). The
Board may increase the number of options granted, provided that a non-employee
Director cannot receive more than 22,000 options (increased from 10,000 by
amendment of the Director Plan in December 1998) in any year. The price of
shares that may be purchased upon exercise of an option is the fair market value
of the Ordinary Shares on the date of the grant. Options granted pursuant to the
Director Plan are exercisable in installments of 33 1/3% upon each anniversary
of the date of grant. The term of each option is for a period not exceeding 10
years from the date of grant.

     In the event of a Change in Control of the Company (as defined below), all
outstanding stock options will become vested and immediately exercisable and
will remain exercisable until the earlier of the expiration of their term or the
first anniversary of the Change in Control. In addition, the Company may cash
out options upon a Change in Control; these provisions are substantially the
same as set forth in the LTIP.

  1997 Employee Share Purchase Plan

     The Company has adopted the 1997 Employee Share Purchase Plan (the "Share
Purchase Plan"), which is designed to furnish eligible employees of the Company
and designated subsidiaries of the Company an

                                       38
<PAGE>   41

incentive to advance the best interests of the Company by providing a formal
program whereby they may voluntarily purchase Ordinary Shares of the Company at
a favorable price and upon favorable terms. Generally speaking, all covered
employees of a participating company who are scheduled to work an average of at
least 20 hours per week are eligible to participate in the Plan.

     Once a year, participants in the Share Purchase Plan are granted options to
purchase Ordinary Shares with a fair market value equal to the lesser of 10% of
the participant's eligible compensation (as defined in the Share Purchase Plan)
and the amount specified in Section 423(b) of the Code (currently $25,000). The
exercise price of the options is 85% of the fair market value of the Ordinary
Shares on the date of grant or the date of exercise, whichever is less. Options
granted under the Share Purchase Plan are exercisable on the date one year after
the date of grant. Generally, participants pay option exercise prices through
payroll deductions made ratably throughout the year. An aggregate of 572,500
Ordinary Shares are available for grants of options under the Share Purchase
Plan. The Share Purchase Plan, which became effective January 1, 1998, is
administered by the Administrative Committee for the Employee Benefit Plans of
the Santa Fe International Corporations. An aggregate of 159,411 and 192,938
Ordinary Shares were issued in January of the following year to participating
employees for the years ended December 31, 1999 and 1998, respectively, at
exercise prices of $12.325 and $10.997 per Ordinary Share.

  1997 Employee Severance Protection Plan

     The Company maintains the 1997 Employee Severance Protection Plan (the
"Severance Protection Plan") to retain the services of its employees in the
event of an unsolicited takeover of the Company or in the event of a threat of a
Change in Control of the Company. The Severance Protection Plan is intended to
ensure the continued dedication and efforts of the Company's employees in such
events without undue concern for their personal financial and employment
security. The Severance Protection Plan covers all full-time U.S.-based payroll
employees as defined therein. Severance is only payable in the event of a
termination of employment by the Company other than for "cause" or voluntary
termination by the Employee for "good reason," each as defined in the Severance
Protection Plan, within a specified period following a Change in Control. A
participant will also receive severance if the employee is terminated by the
Company without "cause" or for "good reason" at the request or direction of the
third party involved in the Change in Control or otherwise in connection with or
in anticipation of a Change in Control.

  Executive Severance Protection Agreements

     Commencing in 1999, the Company entered into Executive Severance Protection
Agreements (the "Executive Agreements") with certain of its officers
supplementing the provisions of the Severance Protection Plan for purposes of
insuring the continued dedication and efforts of the Company's executives. The
Executive Agreements provide certain benefits supplemental to and in lieu of the
Severance Protection plan in the event of termination of employment (other than
for "cause") or voluntary termination for "good reason" following a Change in
Control of the Company, each as defined in the Severance Protection Plan, within
two years following a Change in Control. The benefits applicable upon a Change
in Control and termination of the executive's employment include severance
compensation based upon three times annual salary and AIP bonus, a gross-up for
any applicable excise tax, extension of welfare benefits for three years or
until employment affording such benefits is secured, and an addition of three
years service time and three years age for purposes of calculating the
executive's pension plan benefits. In consideration for such supplemental
severance protection, the Executive Agreements contain a one year worldwide
non-compete provision, confidentiality undertakings and provisions limiting the
application of "good reason" in respect of a relocation to another office of the
Company or its successor. As of February 29, 2000, Executive Agreements had been
entered into with fourteen of the Company's officers.

DEFINITION OF CHANGE IN CONTROL

     A "Change in Control" for all of the Company's benefit plans described
above is generally deemed to occur (a) if any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) is or becomes the beneficial owner (as defined in Rule
13d-3
                                       39
<PAGE>   42

under the Exchange Act), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities; (b) if, during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof, unless the election or nomination for the election by the Company's
shareholders of each new Director was approved by a vote of at least two-thirds
of the Directors then still in office who were Directors at the beginning of the
period; (c) upon consummation of a merger, consolidation or similar event, if
the equity holders of the Company prior to the transaction have beneficial
ownership of less than 50% of the combined voting power of the surviving entity;
(d) upon any sale, disposition or similar transaction of 50% or more of the
assets or earning power of the Company or business operations which generate a
majority of the consolidated revenues; (e) upon a liquidation of the Company; or
(f) (as amended in November 1999) upon consummation of a merger of equals or
similar event, if the equity holders of the Company prior to the transaction
have beneficial ownership of less than 55% of the combined voting power of the
surviving entity or such greater percentage as may be approved by the Board.

ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.

     See "Item 11. Compensation of Directors and Officers."

ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.

     This section describes certain transactions among KPC, Holdings and the
Company that occurred prior to the Company's Offering and certain arrangements
that became effective upon the Offering. Because the Company is controlled by
KPC, these transactions and arrangements were not the result of arms-length
negotiations. See Note 11 of the Notes to Consolidated Financial Statements.

CONTRACT DRILLING SERVICES

     The Company provides contract drilling and associated services in Kuwait to
the Kuwait Oil Company K.S.C. ("KOC"), a subsidiary of KPC, and also provides
contract drilling services to a partially owned affiliate of the Kuwait Oil
Company in the Kuwait-Saudi Arabia Partitioned Neutral Zone. Such services are
performed pursuant to drilling contracts which contain terms and conditions and
rates of compensation which materially approximate those which are customarily
included in the Company's arms-length contracts of a similar nature. In
connection therewith, KOC provides the Company rent-free use of certain land and
maintenance facilities and has committed to continue providing same, subject to
availability of the maintenance facilities, through the current February 2001
term of the drilling contracts. In relation to its drilling business in Kuwait,
the Company has an agency agreement with a subsidiary of KPC which obligates the
Company to pay an agency fee based upon a percentage of revenues. The Company
believes the terms of this agreement are more favorable than those which could
be obtained with an unrelated third party in an arms-length negotiation and
recently received a request to increase the agency fee. The value of such
favorable terms and the proposed fee increase are currently immaterial to the
Company's results of operations.

     The Company earned revenues from KPC affiliated companies in the ordinary
course of business of $56.1 million for the year ended December 31, 1999. The
Company paid agency fees to a subsidiary of KPC of $0.6 million during the year
ended December 31, 1999. The Company had accounts receivable from KPC affiliated
companies of $5.9 million at December 31, 1999.

RELATED PARTY AGREEMENTS

     The following summary description of the agreements among the Company,
Holdings and KPC and of the Articles is qualified in its entirety by reference
to the forms of Intercompany Agreement and Management Services Agreement and the
Articles filed as exhibits to this Annual Report on Form 20-F.

  Intercompany Agreement

     In connection with the Offering, the Company, Holdings and KPC entered into
an Intercompany Agreement (the "Intercompany Agreement"), certain provisions of
which are summarized below. As used
                                       40
<PAGE>   43

herein, "KPC Affiliated Group" means KPC and its affiliates, including Holdings,
other than the Company and its subsidiaries.

     Indemnification. As of December 31, 1999, the consolidated financial
statements of Holdings contained liabilities to third parties, including tax
liabilities, aggregating approximately $51 million incurred by certain
subsidiaries which conducted the Company's former non-drilling operations and
services (the "Non-Drilling Subsidiaries") on or before March 31, 1997. Holdings
maintains cash and cash equivalents (the "Liability Payment Fund") which the
Company believes will be sufficient to satisfy those liabilities remaining after
such date. The Company, Holdings and KPC have agreed in the Intercompany
Agreement that all amounts paid to claimants to satisfy those liabilities,
whether by settlement, judgment or award (including claimants' attorneys' fees),
will be paid by Holdings from the Liability Payment Fund. The Company will pay
all internal and external costs and fees (including the Company's and Holdings'
attorneys' fees) associated with management and resolution of those liabilities,
and believes such costs and fees will not be material. If any amount remains in
the Liability Payment Fund at March 31, 2002, Holdings will pay the Company the
first $10 million of such amount and 50% of any amount in excess of $10 million.
Thereafter, or if the resolution of those liabilities earlier exhausts the
Liability Payment Fund, Holdings will have no further responsibility for those
liabilities, and the Company will be responsible for all costs, fees and amounts
paid to resolve those liabilities and will indemnify the KPC Affiliated Group in
respect of such costs and fees and those liabilities. The Company believes that
the Liability Payment Fund is adequate to provide for such costs and fees and
those liabilities. Accordingly, the Company believes that the indemnification
costs, if any, will not be material and no additional reserves have been
established by the Company in respect of such costs and fees and those
liabilities or the Company's obligation under the Intercompany Agreement
relating to such costs and fees and those liabilities. See "-- Management
Services Agreement."

     The Intercompany Agreement also provides that, except as may be provided in
a separate agreement, the Company will indemnify the KPC Affiliated Group
against claims by third parties based on, or taxes arising from, the following:
(i) the ownership of the assets or the operation of the business of the Company
or its subsidiaries, (ii) any other activities of the Company or its
subsidiaries, (iii) any guaranty or similar agreement by the KPC Affiliated
Group provided to any person with respect to any obligation of the Company or
its subsidiaries, and (iv) certain other matters. In addition, the Company has
agreed to indemnify the KPC Affiliated Group against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act"), relating to misstatements in or omissions from the
Registration Statement filed in respect of the Offering and any other
registration statement or report that the Company files under the Securities
Act. Holdings has also agreed to indemnify the Company and its subsidiaries
against losses based on the ownership or operation of the assets or properties
or the operation or conduct of the business of Holdings and its subsidiaries on
or after March 31, 1997.

     Consent of Holdings to Certain Events. The Intercompany Agreement provides
that until members of the KPC Affiliated Group cease to own the lesser of at
least 25% of the outstanding Ordinary Shares or 25% of the Company's outstanding
voting shares, the prior consent of Holdings generally will be required for: (i)
any disposition by the Company of assets involving consideration in excess of
$50 million; (ii) any issuance by the Company or any subsidiary of the Company
of any equity securities; (iii) the incurrence of any indebtedness or guaranty
in a consolidated amount in excess of $250 million at any time outstanding; and
(iv) a change in corporate domicile of the Company or any of its subsidiaries.
Analogous provisions are contained in the Articles. Under this arrangement,
consents may be requested from time to time. In the event Holdings does not
respond within 30 days after receipt of written notice from the Company
requesting consent to a proposed action, then the consent will be deemed to have
been given by Holdings to the Company.

     Registration Rights. The Company has granted to the KPC Affiliated Group
certain demand and "piggyback" registration rights with respect to equity
securities owned by it. Pursuant to the demand registration rights, the KPC
Affiliated Group may, at any time, request the Company to register under the
Securities Act any or all Ordinary Shares held by the KPC Affiliated Group
whenever it wishes to sell Ordinary Shares in a transaction it reasonably
expects will yield gross proceeds of at least $250 million. The Company has
agreed to use its best efforts to effect any demand registrations requested by
the KPC Affiliated Group and has also agreed to register under the Securities
Act a certain amount of Ordinary Shares held by
                                       41
<PAGE>   44

the KPC Affiliated Group when the Company initiates certain other registrations
of equity securities of the Company on its own behalf or on behalf of any
shareholder of the Company. Such registration rights are transferable by the KPC
Affiliated Group. The Company has agreed to pay all costs and expenses in
connection with each such registration, except underwriting discounts and
commissions applicable to the equity securities sold by the KPC Affiliated Group
and its transferees. The Intercompany Agreement also contains specified
restrictions on the ability of the KPC Affiliated Group to exercise its demand
and piggyback registration rights and also contains customary terms and
provisions with respect to, among other things, registration procedures and
certain rights to indemnification granted by parties thereunder in connection
with the registration of Ordinary Shares on behalf of the KPC Affiliated Group
under the Securities Act and otherwise.

     Other Provisions. Until the end of the first fiscal year of KPC in which
the KPC Affiliated Group owns the lesser of at least 25% of the outstanding
Ordinary Shares or 25% of the Company's outstanding voting shares, the Company
has agreed to furnish extensive financial information to Holdings, including
certain information before it becomes publicly available. So long as the KPC
Affiliated Group owns at least 10% of the outstanding Ordinary Shares or 10% of
the Company's outstanding voting shares, the Company has agreed to discuss its
affairs, finances and accounts with Holdings and to permit Holdings to inspect
its properties, corporate books, and financial and other records.

  Management Services Agreement

     The Company has also entered into a Management Services Agreement with
Holdings (the "Management Services Agreement") for the purpose of providing
asset (primarily real estate) management services, general and administrative
services and liability management and resolution services to Holdings, the Non-
Drilling Subsidiaries and inactive subsidiaries of Holdings. The Management
Services Agreement authorizes the Company to resolve the liabilities of the
Non-Drilling Subsidiaries described under "Intercompany Agreement" using the
Liability Payment Fund. Although Holdings retains the right to reduce or expand
the scope of services to be performed by the Company pursuant to the Management
Services Agreement, the Company's liability management and resolution services
may not be reduced or terminated. The Management Services Agreement also
provides for payment of an initial asset management fee to the Company of
$173,000 per year as well as reimbursement of out-of-pocket costs in respect of
asset management services, and stipulates that the fees are subject to
negotiation on an annual basis and upon any reduction in or expansion of the
scope of services provided by the Company. By mutual agreement, the asset
management fee was discontinued effective January 1, 2000. The Company will pay
all internal and external costs and fees (including the Company's and Holdings'
attorneys' fees) associated with the Company's liability management and
resolution services and all internal and external costs and fees associated with
the provision of general and administrative services pursuant to the Management
Services Agreement. The Company believes such costs and fees have not been and
will not be material.

  Charter Provisions Relating to Corporate Opportunities and Interested
  Directors

     The Company's Board of Directors currently includes persons who are also
Directors or officers of Holdings or KPC. As a consequence, Directors of the
Company who are also Directors or officers of KPC or Holdings charged with
granting or withholding consent for certain of the Company's actions may be
faced with conflicts of interest. In addition, potential conflicts of interest
exist or could arise in the future for such Directors with respect to a number
of areas, including the Company's contract drilling activities in Kuwait and its
other business relationships with KPC subsidiaries.

     In order to address certain potential conflicts of interest between the
Company and the KPC Affiliated Group, the Articles contain provisions regulating
and defining the conduct of certain affairs of the Company as they may involve
the KPC Affiliated Group and their Directors and officers, and the powers,
rights, duties and liabilities of the Company and its officers, Directors and
shareholders in connection therewith. In general, these provisions recognize
that the Company and the KPC Affiliated Group may engage in the same line of
business and have an interest in the same areas of corporate opportunities and
that the Company and the KPC

                                       42
<PAGE>   45

Affiliated Group will continue to have certain contractual and business
relations with each other (including service of Directors and officers of the
KPC Affiliated Group as Directors of the Company).

     The Articles provide that the KPC Affiliated Group shall have no duty to
refrain from (i) engaging in the same line of business as the Company, (ii)
doing business with any customer of the Company or (iii) employing any employee
of the Company. The Articles also provide that the KPC Affiliated Group is not
under any duty to present any corporate opportunity to the Company which may be
a corporate opportunity for both the KPC Affiliated Group and the Company.

     When corporate opportunities are offered to persons who are Directors or
officers of the Company and the KPC Affiliated Group, the Articles provide that
such Directors or officers of the Company shall not be liable to the Company or
its shareholders by reason of the fact that such members of the KPC Affiliated
Group pursue such corporate opportunities for themselves or do not present such
corporate opportunities to the Company, except in the case of willful default or
fraud of such Directors or officers, if such Directors or officers act in a
manner consistent with a policy that provides for allocation based principally
on the capacities in which the individual Director or officer is offered the
opportunity.

     The Articles also provide that no arrangement between the Company and the
KPC Affiliated Group or another related party shall be voidable, and no
liability shall be imposed, solely because a member of the KPC Affiliated Group
is a party thereto, or solely because any Directors or officers who are related
parties are present at, participate in or vote with respect to, the
authorization of the arrangement, except in the case of willful default or fraud
on the part of the Directors or officers, if the material facts as to the
arrangement are disclosed to the Company's Board of Directors or the holders of
the Ordinary Shares who approve the arrangement.

     The affirmative vote of a two-thirds majority of the shares entitled to
vote thereon and voting at a meeting of shareholders is required to amend the
Articles, including the provisions concerning corporate opportunity and
interested Directors described above and the provisions requiring the consent of
Holdings to certain actions described in "-- Intercompany Agreement -- Consent
of Holdings to Certain Events." Accordingly, so long as the KPC Affiliated Group
controls more than one third of such voting power, it can prevent any such
amendment.

CONSULTING AGREEMENT

     On December 10, 1997, Gordon M. Anderson, a Director of the Company, and
the Company entered into a Consulting Agreement pursuant to which Mr. Anderson
shall serve as an independent consultant to the Company with respect to matters
relating to or affecting the operations of the Company. The term of the
Consulting Agreement was one year, terminating on January 1, 1999. Pursuant to
the Consulting Agreement, the Company has compensated Mr. Anderson by issuing to
Mr. Anderson 4,000 restricted Ordinary Shares under the Company's LTIP. In
addition, on the 25th month anniversary from the date of the grant of restricted
Ordinary Shares, the Company will further compensate Mr. Anderson under the
Consulting Agreement by paying Mr. Anderson cash in an amount equal to the
federal income tax payable with respect to the vesting of the 4,000 Ordinary
Shares and the federal income tax payable with respect to the cash payment to
Mr. Anderson. The Consulting Agreement also provides that Mr. Anderson will be
entitled to the standard Directors' cash and noncash compensation that all other
non-employee Directors are entitled to receive. Mr. Anderson has fulfilled his
obligations under the Consulting Agreement, which was not renewed following its
termination on December 31, 1998.

                                    PART II

ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.

     Not applicable.

                                       43
<PAGE>   46

                                    PART III

ITEM 15. DEFAULTS UPON SENIOR SECURITIES.

     None.

ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED
SECURITIES.

     None.

                                    PART IV

ITEM 17. FINANCIAL STATEMENTS.

     Not applicable.

ITEM 18. FINANCIAL STATEMENTS.

     See Item 19(a).

ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS.

     (a) Financial Statements

     See Index to Consolidated Financial Statements on page F-1.

     (b) Exhibits

<TABLE>
<CAPTION>
      EXHIBIT NO.                            EXHIBIT DESCRIPTION
      -----------                            -------------------
<C>                      <S>
        **3.1            -- Amended and Restated Memorandum of Association of the
                            Registrant.
        **3.2            -- Amended and Restated Articles of Association of the
                            Registrant.
         *4              -- Specimen of Ordinary Shares Certificate.
       **10.1            -- Registrant's Investment Savings and Profit Sharing Plan.
       **10.2            -- Registrant's Pension Plan (U.S. employees).
       **10.3            -- Registrant's Special Pension Plan (non-U.S. employees).
       **10.4            -- Registrant's Equity Restoration Plan.
        *10.5            -- Registrant's Supplemental Executive Retirement Plan.
        *10.6            -- Registrant's Performance Unit Plan.
      ***10.7            -- Registrant's Annual Incentive Compensation Plan.
      ***10.8            -- Registrant's 1997 Long Term Incentive Plan.
      ***10.9            -- Registrant's 1997 Non-Employee Director Stock Option
                            Plan.
      ***10.10           -- Registrant's 1997 Non-Employee Director Stock Option
                            Plan.
        *10.11           -- Registrant's Employee Severance Protection Plan.
        *10.12           -- Registrant's Directors and Officers Indemnity Agreement.
        *10.13           -- Intercompany Agreement by and among Kuwait Petroleum
                            Corporation, SFIC Holdings (Cayman), Inc. and the
                            Registrant, dated June 9, 1997.
        *10.14           -- Management Services Agreement by and between SFIC
                            Holdings (Cayman), Inc. and the Registrant, dated June 9,
                            1997.
       **10.15           -- Agency Agreement between Kuwait Santa Fe Braun for
                            Engineering and Petroleum Enterprises (K.S.B.) Company
                            K.S.C. and the Registrant, dated April 1, 1992.
       **10.16           -- Contract for the Construction and Sale of a Jackup
                            Drilling Unit by and between Far East Levingston
                            Shipbuilding Ltd. and the Registrant, dated as of
                            December 16, 1996.
</TABLE>

                                       44
<PAGE>   47

<TABLE>
<CAPTION>
      EXHIBIT NO.                            EXHIBIT DESCRIPTION
      -----------                            -------------------
<C>                      <S>
       **10.17           -- Drilling Contract by and between Mobil Oil Canada
                            Properties and Santa Fe Drilling Company (Canada)
                            Limited, dated as of December 16, 1996.
        *10.19           -- Contract for the Construction and Sale of Jackup Drilling
                            Unit Galaxy III by and between Keppel FELS Limited and
                            the Registrant, dated as of September 17, 1997.
     ****10.21           -- Consulting Agreement dated December 10, 1997 between
                            Registrant and Gordon M. Anderson.
     ****10.22           -- AMOCO (U.K.) Exploration Company Form of Contract Ref:
                            AD3300 for The Provision of the Jack-Up Drilling Unit
                            Santa Fe "Galaxy III" for Drilling Operations on the
                            U.K.C.S. with Santa Fe Drilling Company (North Sea)
                            Limited, dated September 3, 1997 (with Appendix 5 only).
    *****10.23           -- Registrant's Non-Employee Direct or Deferred Compensation
                            Plan.
    *****10.24           -- Amendment to Registrant's 1997 Non-Employee Director
                            Stock Option Plan.
    *****10.25           -- Amendment to Registrant's 1997 Long Term Incentive
                            Compensation Plan.
    *****10.26           -- Amendment to Registrant's Supplemental Executive
                            Retirement Plan.
    *****10.27           -- Amendment to Registrant's Supplemental Executive
                            Retirement Plan.
    *****10.28           -- Amendment to Registrant's 1997 Non-Employee Director
                            Stock Option Plan.
        +10.29           -- Amendment to Registrant's 1997 Non-Employee Director
                            Stock Option Plan, dated March 23, 1999
        +10.30           -- Form of Registrant's Executive Severance Protection
                            Agreement and list of participants.
        +10.31           -- Amendment to Registrant's Employee Severance Protection
                            Agreement, dated December 1, 1999.
        +10.32           -- Amendment to Registrant's Annual Incentive Compensation
                            Plan, dated December 1, 1999.
        +10.33           -- Amendment to Registrant's 1997 Long Term Incentive Plan,
                            dated December 1, 1999.
        +10.34           -- Amendment to Registrant's Supplemental Executive
                            Retirement Plan, dated December 1, 1999.
        +10.35           -- Amendment to Trust under Santa Fe International
                            Corporation Non-Qualified Plans, dated December 1, 1999.
        +10.36           -- Amendment to Registrant's Non-Employee Director Stock
                            Option Plan, dated December 1, 1999.
        +10.37           -- Amendment to Registrant's Employee Share Purchase Plan,
                            dated December 7, 1999.
    *****21              -- List of Subsidiaries.
        +23.1            -- Consent of Ernst & Young LLP, independent auditors
</TABLE>

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

*      Incorporated by reference to the Company's Annual Report on Form 20-F for
       the fiscal year ended June 30, 1997.

**    Incorporated by reference to the Company's Registration Statement on Form
      F-1 (No. 333-6912) filed May 14, 1997.

***   Incorporated by reference to the Company's Registration Statement on Form
      S-8 (No. 333-7070) filed June 13, 1997.

****  Incorporated by reference to the Company's Report on Form 6-K filed March
      3, 1998.

***** Incorporated by reference to the Company's Annual Report on Form 20-F for
      the calendar year ended December 31, 1998.

+      Filed herewith.

                                       45
<PAGE>   48

                       SANTA FE INTERNATIONAL CORPORATION

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Auditors..............................  F-2
Consolidated Statements of Operations for the years ended
  December 31, 1999, 1998 and 1997..........................  F-3
Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................  F-4
Consolidated Statements of Shareholders' Equity for the
  years ended December 31, 1999, 1998
  and 1997..................................................  F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 1999, 1998 and 1997..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                       F-1
<PAGE>   49

                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Santa Fe International Corporation

     We have audited the accompanying consolidated balance sheets of Santa Fe
International Corporation and subsidiary companies (the Company) as of December
31, 1999 and 1998, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Santa Fe
International Corporation and subsidiary companies at December 31, 1999 and
1998, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.

                                            /s/ ERNST & YOUNG

Dallas, Texas
January 26, 2000

                                       F-2
<PAGE>   50

          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
         (U.S. DOLLARS, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                     ------------------------------------------
                                                         1999           1998           1997
                                                     ------------   ------------   ------------
<S>                                                  <C>            <C>            <C>
Operating revenues (Notes 10 and 11)...............  $    614,241   $    811,346   $    688,957
Operating costs....................................       355,763        414,022        373,833
                                                     ------------   ------------   ------------
     Operating margin..............................       258,478        397,324        315,124
Other operating costs and expenses:
  Depreciation and amortization (Note 3)...........        71,631         55,807         46,197
  General and administrative.......................        18,596         22,161         20,149
  Gain on sale of assets...........................          (805)        (5,988)          (626)
                                                     ------------   ------------   ------------
Operating income...................................       169,056        325,344        249,404
Other income (expense):
  Investment income................................        10,473          5,583          4,518
  Other, net.......................................        (1,070)        (4,263)        (1,650)
                                                     ------------   ------------   ------------
Income before provision for taxes on income........       178,459        326,664        252,272
Provision for taxes on income (Note 5).............        28,635         39,520         27,486
                                                     ------------   ------------   ------------
Net income.........................................  $    149,824   $    287,144   $    224,786
                                                     ============   ============   ============
Net income per ordinary share:
  Basic............................................  $       1.31   $       2.51   $       1.96
                                                     ============   ============   ============
  Diluted..........................................  $       1.30   $       2.50   $       1.96
                                                     ============   ============   ============
Weighted average shares used in per ordinary share
  computations:
  Basic............................................   114,735,287    114,500,249    114,500,000
                                                     ============   ============   ============
  Diluted..........................................   115,442,597    114,812,234    114,608,000
                                                     ============   ============   ============
</TABLE>

                See notes to consolidated financial statements.

                                       F-3
<PAGE>   51

          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

                          CONSOLIDATED BALANCE SHEETS
                (U.S. DOLLARS, IN THOUSANDS, EXCEPT SHARE DATA)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              -------------------------
                                                                 1999           1998
                                                              -----------    ----------
<S>                                                           <C>            <C>
Current assets:
  Cash and cash equivalents.................................  $    99,692    $  124,314
  Marketable securities.....................................      147,749            --
  Accounts receivable (Note 11).............................      107,741       161,728
  Inventories...............................................       42,083        51,481
  Prepaid expenses and other current assets.................       11,427        14,913
                                                              -----------    ----------
          Total current assets..............................      408,692       352,436
                                                              -----------    ----------
Property and equipment, at cost (Note 3)....................    2,152,094     2,030,756
  Less accumulated depreciation and amortization............   (1,049,530)     (981,555)
                                                              -----------    ----------
  Property and equipment, net...............................    1,102,564     1,049,201
Other noncurrent assets (Notes 5 and 7).....................       52,286        52,099
                                                              -----------    ----------
          Total assets......................................  $ 1,563,542    $1,453,736
                                                              ===========    ==========

                         LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accounts payable..........................................  $    49,212    $   74,603
  Accrued liabilities (Note 4)..............................      100,214       107,057
                                                              -----------    ----------
          Total current liabilities.........................      149,426       181,660
Other noncurrent liabilities (Note 6).......................       48,091        44,852
                                                              -----------    ----------
          Total liabilities.................................      197,517       226,512
Commitments and contingencies (Note 9)
Shareholders' equity (Notes 1 and 8):
  Ordinary Shares par value $0.01; 600,000,000 shares
     authorized, 114,971,177 and 114,762,469 shares issued
     and outstanding at December 31, 1999 and 1998,
     respectively...........................................        1,150         1,148
Additional paid-in capital..................................      671,707       667,816
Retained earnings...........................................      693,168       558,260
                                                              -----------    ----------
          Total shareholders' equity........................    1,366,025     1,227,224
                                                              -----------    ----------
          Total liabilities and shareholders' equity........  $ 1,563,542    $1,453,736
                                                              ===========    ==========
</TABLE>

                See notes to consolidated financial statements.

                                       F-4
<PAGE>   52

          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              (U.S. DOLLARS, IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                         ORDINARY SHARES       ADDITIONAL                  TOTAL
                                     -----------------------    PAID-IN     RETAINED   SHAREHOLDERS'
                                       SHARES      PAR VALUE    CAPITAL     EARNINGS      EQUITY
                                     -----------   ---------   ----------   --------   -------------
<S>                                  <C>           <C>         <C>          <C>        <C>
BALANCE AT DECEMBER 31, 1996.......   84,500,000    $  845     $  728,418   $ 68,658    $  797,921
  Ordinary Shares issued for cash,
     net (Note 1)..................   40,000,000       400      1,080,320         --     1,080,720
  Purchase of Ordinary Shares from
     Holdings (Note 1).............  (10,000,000)     (100)      (272,080)        --      (272,180)
  Distributions to parent..........           --        --       (871,604)        --      (871,604)
  Ordinary Shares issued pursuant
     to employee benefit plans, net
     of forfeitures................      246,550         2            815         --           817
  Dividends........................           --        --             --     (7,443)       (7,443)
  Net income.......................           --        --             --    224,786       224,786
                                     -----------    ------     ----------   --------    ----------
BALANCE AT DECEMBER 31, 1997.......  114,746,550     1,147        665,869    286,001       953,017
  Ordinary Shares issued pursuant
     to employee benefit plans, net
     of forfeitures................       15,919         1          1,947         --         1,948
  Dividends........................           --        --             --    (14,885)      (14,885)
  Net income.......................           --        --             --    287,144       287,144
                                     -----------    ------     ----------   --------    ----------
BALANCE AT DECEMBER 31, 1998.......  114,762,469     1,148        667,816    558,260     1,227,224
  Ordinary Shares issued pursuant
     to employee benefit plans, net
     of forfeitures................      208,708         2          3,891         --         3,893
  Dividends........................           --        --             --    (14,916)      (14,916)
  Net income.......................           --        --             --    149,824       149,824
                                     -----------    ------     ----------   --------    ----------
BALANCE AT DECEMBER 31, 1999.......  114,971,177    $1,150     $  671,707   $693,168    $1,366,025
                                     ===========    ======     ==========   ========    ==========
</TABLE>

                See notes to consolidated financial statements.

                                       F-5
<PAGE>   53

          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (U.S. DOLLARS, IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                            ----------------------------------
                                                              1999        1998         1997
                                                            ---------   ---------   ----------
<S>                                                         <C>         <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................  $ 149,824   $ 287,144   $  224,786
Adjustments to reconcile net income to net cash provided
  by operating activities:
  Depreciation and amortization...........................     71,631      55,807       46,197
  Gain on sale of assets..................................       (805)     (5,988)        (626)
  Accretion of interest income and gains on sales of
     marketable securities................................     (4,400)       (127)      (2,356)
  Deferred provision (benefit) for taxes on income........        (71)       (785)       3,422
Changes in operating assets and liabilities:
     Accounts receivable..................................     53,987     (12,460)     (12,908)
     Inventories..........................................      9,398        (299)      (1,399)
     Prepaid expenses and other current assets............      3,486       2,546       (7,015)
     Accounts payable.....................................    (25,391)    (17,411)      35,280
     Accrued liabilities..................................     (6,843)     27,316       14,220
Other, net................................................      4,040       7,478       (1,807)
                                                            ---------   ---------   ----------
          Net cash provided by operating activities.......    254,856     343,221      297,794
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures....................................   (124,608)   (277,400)    (229,192)
  Advance payments for drilling rigs......................         --     (18,532)     (23,111)
  Proceeds from sales of property and equipment...........      1,257       1,406          911
  Maturities of marketable securities.....................     90,774       8,220       68,491
  Purchases of marketable securities......................   (234,123)         --      (52,747)
  Proceeds from insurance settlement......................         --      13,831           --
                                                            ---------   ---------   ----------
          Net cash used for investing activities..........   (266,700)   (272,475)    (235,648)
CASH FLOWS FROM FINANCING ACTIVITIES:
  Sale of ordinary shares, net............................      2,130          --    1,080,720
  Purchase of ordinary shares from holdings...............         --          --     (272,180)
  Distributions to parent, net............................         --          --     (871,604)
  Dividends paid..........................................    (14,908)    (14,885)      (3,721)
                                                            ---------   ---------   ----------
          Net cash used for financing activities..........    (12,778)    (14,885)     (66,785)
                                                            ---------   ---------   ----------
Net change in cash and cash equivalents...................    (24,622)     55,861       (4,639)
Cash and cash equivalents at beginning of period..........    124,314      68,453       73,092
                                                            ---------   ---------   ----------
Cash and cash equivalents at end of period................  $  99,692   $ 124,314   $   68,453
                                                            =========   =========   ==========
Supplemental disclosures of cash flows information:
  Income taxes paid.......................................  $  31,592   $  28,005   $   15,199
                                                            =========   =========   ==========
</TABLE>

                See notes to consolidated financial statements.

                                       F-6
<PAGE>   54

          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1999

1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

     Santa Fe International Corporation (the "Company"), a Cayman Islands
corporation, is a majority-owned subsidiary of SFIC Holdings (Cayman), Inc.
("Holdings"), which in turn is a wholly-owned subsidiary of Kuwait Petroleum
Corporation ("KPC"). KPC is wholly owned by the Government of Kuwait. The
Company owns and operates a high quality, technologically advanced fleet of 27
marine drilling rigs and 33 land drilling rigs and provides drilling related
services to the petroleum industry worldwide.

     On May 27, 1997, the Company was recapitalized, resulting in the Company's
900,000 authorized ordinary shares, par value $1.00 per share, with 1,003
ordinary shares issued and outstanding, being recapitalized into 600,000,000
authorized ordinary shares, par value $0.01 per share ("Ordinary Shares"), with
84,500,000 Ordinary Shares issued and outstanding. The accompanying consolidated
financial statements have been adjusted to reflect this recapitalization
retroactively.

     On June 9 and 13, 1997, respectively, the Company commenced and completed
an initial public offering (the "Offering") of Ordinary Shares. Upon the
issuance of 40,000,000 Ordinary Shares in the Offering and consummation of the
purchase described below of Ordinary Shares from Holdings, the Company had
114,500,000 Ordinary Shares outstanding. Immediately following the Offering,
Holdings held 65.1% of the outstanding Ordinary Shares of the Company. The
Offering price was $28.50 per share, resulting in net proceeds of approximately
$1,088,720,000 after deducting underwriting discounts and commissions. The
Company also incurred approximately $8 million of expenses in connection with
the Offering which has been charged to additional paid-in-capital. Upon receipt
of proceeds from the sale of the first 30,000,000 Ordinary Shares sold in the
Offering, the Company paid a cash dividend to Holdings in an amount equal to
those proceeds. All of the proceeds the Company received from the sale in the
Offering of Ordinary Shares in excess of that amount were used to purchase a
like number of Ordinary Shares from Holdings.

     The Company's current dividend policy contemplates the payment of quarterly
dividends of $0.0325 per Ordinary Share. Holders of Ordinary Shares are entitled
to participate in the payment of dividends in proportion to their holdings.
Under Cayman Island law, the Company may pay dividends or make other
distributions to its shareholders, in such amounts as the Board of Directors
deems appropriate, from the profits of the Company or out of the Company's share
premium account (equivalent to additional paid-in capital) if the Company
thereafter has the ability to pay its debts as they come due. Cash dividends, if
any, are declared and paid in U.S. dollars. At December 31, 1999, the Company
had declared dividends which had not been paid amounting to $3,729,000.

     The accompanying consolidated financial statements are presented in U.S.
dollars and in accordance with accounting principles generally accepted in the
United States.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Basis of Consolidation

     The Company consolidates all of its majority-owned subsidiaries. The
Company also consolidates joint ventures over which the Company exercises
control through the joint venture agreement or related operating and financing
agreements. The Company accounts for its interest in other joint ventures using
the equity method. All material intercompany accounts and transactions are
eliminated in consolidation.

  Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the

                                       F-7
<PAGE>   55
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.

  Cash Equivalents and Marketable Securities

     Cash equivalents consist of highly liquid short-term investments that are
readily convertible into cash and which at the date of purchase were so near
their maturity that they expose the Company to an insignificant risk from
changes in interest rates. Cash equivalents are carried at cost plus accrued
interest, which approximates fair value. The interest method is used to account
for any premium or discount on cash equivalents. The Company's policy is to
place its temporary cash investments with high credit quality financial
institutions and by policy limit the amount of credit exposure to any one
financial institution.

     The Company's marketable securities and long-term investments are
classified as available-for-sale securities. Unrealized holding gains and losses
on securities available-for-sale are recorded as a component of other
comprehensive income, net of tax effect. The fair values for marketable
securities are based on quoted market prices. The amortized cost of debt
securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity. Such amortization is included in investment
income. Realized gains and losses and declines in value judged to be
other-than-temporary on available-for-sale securities are included in investment
income. The Company does not believe that it is exposed to any significant risks
on its investments.

     At December 31, 1999, marketable securities consisted primarily of
Eurodollar debt securities and commercial paper for which cost approximates
market value.

  Inventories

     Inventories consist primarily of materials and supplies which are used in
operations and are stated at the lower of cost (determined principally by the
average cost or specific identification method) or estimated net realizable
value.

  Concentrations of Credit Risk

     The Company's customers consist primarily of major international, state
owned and large independent oil companies and their affiliates. The Company
provides allowances for potential credit losses when necessary. The Company did
not incur any charges for credit losses during the periods presented. Accounts
receivable from the Company's customers are generally unsecured.

  Property and Equipment

     Property and equipment, composed primarily of marine and land drilling
rigs, is carried at cost. Maintenance and repairs are charged to expense as
incurred. Major replacements and upgrades are capitalized, as is the cost of
initial mobilization of a newly constructed rig. Upon retirement or other
disposal of fixed assets, the cost and related accumulated depreciation and
amortization are removed from the respective accounts and any gains or losses
are included in the results of operations. Property and equipment is depreciated
on the straight-line method, after allowing for salvage values, over the
remaining estimated useful lives from the date the asset is placed into service.

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", the Company reviews its long-term assets for
impairment when changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used be reported at the lower of
carrying amount or fair value. Assets to be disposed of and assets not expected
to provide any future service potential to the Company are recorded at the lower
of carrying amount

                                       F-8
<PAGE>   56
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

or fair value less cost to sell. No impairment charges were recorded by the
Company during the years ended December 31, 1999, 1998 or 1997.

  Operating Revenues and Costs

     The majority of the Company's drilling contracts are performed on a dayrate
basis, with revenues and expenses recognized as work is performed. The Company
also operates under incentive-based contracts, such as turnkey drilling and
footage contracts, under the terms of which the Company may earn additional
revenues by exceeding preset conditions of job performance. The Company
recognizes incremental revenues from these incentive-based contracts when such
conditions of the contract have been achieved. Under certain incentive-based
contracts, the Company may incur penalties or reduced remuneration if preset
conditions are not achieved. The Company recognizes the effect of such penalties
or reduced remuneration, which historically has been immaterial, as an
adjustment to incentive revenues when the amount reasonably can be estimated.

     In connection with drilling contracts, the Company may receive lump sum
fees for the mobilization of equipment and personnel or for capital improvements
to rigs. In connection with mobilization reimbursements, the net of mobilization
fees received and expenses incurred is recognized over the term of the drilling
contract. Costs of relocating drilling units without contracts are expensed as
incurred. Demobilization fees received are reflected in income, net of any
related expense. Capital upgrade fees received from the client are deferred and
recognized as revenue over the period of the drilling contract. The actual cost
incurred for the capital upgrade is capitalized and depreciated over the
estimated useful life of the asset.

     The Company also earns revenue by providing drilling related services.
Revenues from third party rig operations, drilling engineering and integrated
well services are recognized as the services are performed. Revenues from
drilling project management contracts are recognized using the percentage of
completion method based on the ratio of costs incurred to total estimated
contract costs. Provisions for losses are recorded for contracts in progress
when losses are anticipated.

  Income Taxes

     The Company is not subject to income taxes in the Cayman Islands. The
current provision for taxes on income consists primarily of income taxes based
on the tax laws and rates of the countries in which operations were conducted
during the periods presented. Certain of the Company's operations were included
in consolidated income tax returns of affiliates during the periods presented.
Under tax sharing agreements, the Company provides for income taxes payable to
such affiliates as if it filed separate income tax returns.

     The Company computes its provision for deferred income taxes using the
liability method. Under the liability method, deferred income tax assets and
liabilities are determined based on differences between financial reporting and
income tax bases of assets and liabilities and are measured using the enacted
tax rates and laws. The measurement of deferred tax assets is adjusted by a
valuation allowance, if necessary, to recognize the future tax benefits to the
extent, based on available evidence, it is more likely than not they will be
realized.

  Foreign Currency Translation

     The functional currency of the primary economic environments in which the
Company operates is the U.S. dollar. Gains and losses resulting from the
remeasurement of local currencies into U.S. dollars are included in the
consolidated results of operations of the current period. The Company
periodically reviews the operations of its entities to ensure the functional
currency of each entity is the currency of the primary economic environment in
which it operates.

                                       F-9
<PAGE>   57
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Share Options and Awards

     The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) in accounting for its
employee share options. Under APB 25, if the exercise price of an employee's
share option equals or exceeds the market price of the underlying share on the
date of grant, no compensation expense is recognized.

  Net Income Per Ordinary Share

     The following table sets forth the computation of basic and diluted net
income per ordinary share in accordance with SFAS No. 128, "Earnings Per Share"
(in thousands except share and per share amounts):

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                             ------------------------------------------
                                                 1999           1998           1997
                                             ------------   ------------   ------------
<S>                                          <C>            <C>            <C>
Numerator:
  Net income...............................  $    149,824   $    287,144   $    224,786
                                             ============   ============   ============
Denominator:
Denominator for basic net income per
  Ordinary Share -- weighted-average
  shares...................................   114,735,287    114,500,249    114,500,000
Effect of dilutive securities
  Employee stock options...................       707,310        311,985        108,000
                                             ------------   ------------   ------------
Dilutive potential common shares...........       707,310        311,985        108,000
  Denominator for diluted net income per
     Ordinary Share -- adjusted
     weighted-average shares and assumed
     conversions...........................   115,442,597    114,812,234    114,608,000
                                             ============   ============   ============
Basic net income per Ordinary Share........  $       1.31   $       2.51   $       1.96
Diluted net income per Ordinary Share......  $       1.30   $       2.50   $       1.96
</TABLE>

     For additional disclosures regarding employee stock options, see Note 8.

  Comprehensive Income

     Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 established standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. For the years ended
December 31, 1999, 1998 and 1997, the Company realized no transactions other
than those reported in net income.

  Derivative Instruments and Hedging Activities

     The Company accounts for derivative instruments and hedging activities in
accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain of those imbedded in other contracts,
and for hedging activities by requiring that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. At December 31, 1999, 1998 and 1997,
the Company had no material derivative instruments or hedging activities that
would require disclosure or measurement under SFAS No. 133.

                                      F-10
<PAGE>   58
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Business Conditions and Risk Factors

     The contract drilling industry is and historically has been highly
volatile, competitive and cyclical, with periods of high demand and rig
utilization resulting in high rig dayrates followed by periods of low demand,
excess rig supply and depressed rig dayrates. The contract drilling business is
influenced by many factors beyond the control of the Company, including the
current and anticipated prices of oil and natural gas and drilling budgets of
oil and gas companies.

     During industry down cycles, drilling companies compete aggressively for
contracts at depressed rates and often are compelled to accept contract terms
which are less favorable than those which normally prevail, especially in areas
such as liability and indemnity provisions, rate structure, termination and term
extension options. Low rig utilization in weak markets causes drilling companies
to lay-up or "stack" idle rigs, which often results in termination of employment
of all or part of the associated rig crews.

     The volatile and cyclical nature of the industry may be further exacerbated
as newly built rigs enter the market and drilling companies aggressively compete
for the opportunities to contract offshore and land rigs.

3. PROPERTY AND EQUIPMENT

     Property and equipment is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                   ESTIMATED     -----------------------
                                                 USEFUL LIVES       1999         1998
                                                 -------------   ----------   ----------
<S>                                              <C>             <C>          <C>
Drilling rigs and equipment....................  3 to 30 years   $2,025,629   $1,764,359
Buildings, facilities, and camps...............  4 to 10 years       57,617       52,094
Transportation equipment.......................   3 to 5 years       19,828       18,421
Land...........................................                         316          316
Construction in progress.......................                      48,704      195,566
                                                                 ----------   ----------
                                                                 $2,152,094   $2,030,756
                                                                 ==========   ==========
</TABLE>

4. ACCRUED LIABILITIES

     Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1999       1998
                                                              --------   --------
<S>                                                           <C>        <C>
Compensation and benefits...................................  $ 27,653   $ 29,182
Deferred revenue............................................     9,544     14,409
Income taxes (Note 5).......................................    50,582     54,323
Accrued insurance...........................................     2,360      1,656
Other.......................................................    10,075      7,487
                                                              --------   --------
                                                              $100,214   $107,057
                                                              ========   ========
</TABLE>

5. INCOME TAXES

     The Company is not subject to income taxes in the Cayman Islands. All of
the Company's income before provision for taxes on income and the related
provision for taxes on income relates to operations in jurisdictions other than
the Cayman Islands. The relationship between income before provision for taxes
on income and the provision for taxes on income varies from period to period
because each jurisdiction in which the Company operates has its own system of
taxation (not only with respect to the nominal rate, but also with respect to
the allowability of deductions, credits and other benefits) and because the
amounts earned in, and subject to tax by, each jurisdiction changes from period
to period.

                                      F-11
<PAGE>   59
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The reconciliation of income taxes computed at the applicable statutory
rates of the jurisdictions in which the Company's operations are located and the
provision for taxes on income is as follows (in thousands):

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                      -------------------------------
                                                       1999        1998        1997
                                                      -------    --------    --------
<S>                                                   <C>        <C>         <C>
Provision for taxes on income at the applicable
  statutory rates of the jurisdictions in which the
  Company's operations are located..................  $16,763    $108,708    $ 91,446
Effect of income taxed at rates other than the
  statutory rates of jurisdictions in which the
  Company's operations are located..................   11,070     (66,336)    (53,852)
Benefit of additional tax depreciation..............   (7,114)    (10,114)    (16,461)
Taxes on income resulting from indexation...........       --         720       2,629
Benefit of net operating loss carryforwards.........   (4,012)     (2,827)       (127)
Benefit of net operating losses not recognized......   11,178       8,743       3,851
Other...............................................      750         626          --
                                                      -------    --------    --------
Provision for taxes on income.......................  $28,635    $ 39,520    $ 27,486
                                                      =======    ========    ========
</TABLE>

     The components of the provision for taxes on income are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                        -----------------------------
                                                         1999       1998       1997
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Current provision.....................................  $28,706    $40,305    $24,064
Deferred provision (benefit)..........................      (71)      (785)     3,422
                                                        -------    -------    -------
Provision for taxes on income.........................  $28,635    $39,520    $27,486
                                                        =======    =======    =======
</TABLE>

                                      F-12
<PAGE>   60
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company's net deferred tax liabilities and assets consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                                1999      1998
                                                              --------   -------
<S>                                                           <C>        <C>
Deferred tax liabilities:
  Property and equipment....................................  $(12,298)  $(8,739)
  Other.....................................................     3,943     2,216
                                                              --------   -------
                                                                (8,355)   (6,523)
Deferred tax assets:
  Net operating loss carryforwards:
     Australia..............................................     4,016     4,016
     Egypt..................................................     2,743        --
     Venezuela..............................................       209     3,902
     Oman...................................................     4,126     1,741
     Qatar..................................................     3,339     2,448
     Indonesia..............................................     4,621       420
     Tunisia................................................     3,305     3,305
     Ireland................................................     2,662        81
     U.S....................................................     1,812     2,031
     U.S. credit carryover..................................       168       240
                                                              --------   -------
          Total deferred income tax assets..................    27,001    18,184
  Valuation allowance.......................................   (19,736)  (12,852)
                                                              --------   -------
                                                                 7,265     5,332
                                                              --------   -------
  Net deferred income tax liabilities.......................  $ (1,090)  $(1,191)
                                                              ========   =======
</TABLE>

     The Company's net operating loss carryforwards include tax effected losses
of $20,155,000 that expire between 2001 and 2013. The remaining $6,678,000 of
net operating losses do not expire.

     The Company's income tax returns are subject to review and examination in
the various jurisdictions in which the Company operates. At December 31, 1999
and 1998, accrued income taxes include $30,799,000 and $24,613,000,
respectively, representing estimated liabilities which will result from final
settlements of such reviews and examinations. The Company believes that all
income tax issues which have been or may be raised as a result of such reviews
and examinations will be resolved with no material impact on the Company's
financial position or results of operations.

6. OTHER NONCURRENT LIABILITIES

     Other noncurrent liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                              -----------------
                                                               1999      1998
                                                              -------   -------
<S>                                                           <C>       <C>
Pension benefits (Note 7)...................................  $ 7,210   $10,214
Postretirement health and insurance benefits (Note 7).......   13,806    14,054
Deferred mobilization revenue...............................   10,442     3,460
Deferred Taxes..............................................    1,090     1,191
Other.......................................................   15,543    15,933
                                                              -------   -------
                                                              $48,091   $44,852
                                                              =======   =======
</TABLE>

                                      F-13
<PAGE>   61
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. EMPLOYEE BENEFIT PLANS

     The Company sponsors several qualified and non-qualified benefit plans and
other postretirement benefit plans for its employees. The following tables
provide a reconciliation of the changes in the plans' benefit obligations and
fair value of plan assets at December 31, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                           OTHER
                                            PENSION BENEFITS      POSTRETIREMENT BENEFITS
                                          --------------------    ------------------------
                                            1999        1998         1999          1998
                                          --------    --------    ----------    ----------
<S>                                       <C>         <C>         <C>           <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of
  period................................  $101,216    $ 88,631     $  9,008      $  8,855
Service cost............................     5,630       5,137           63            65
Interest cost...........................     7,829       6,967          661           621
Plan paticipants' contributions.........     1,087         958          407           354
Actuarial (gains) losses................    (5,239)      5,667          241           468
Benefits paid...........................    (2,237)     (2,903)      (1,049)       (1,355)
Settlements.............................    (1,544)     (3,241)          --            --
                                          --------    --------     --------      --------
Benefit obligation at end of period.....  $106,742    $101,216     $  9,331      $  9,008
                                          ========    ========     ========      ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning
  of period.............................  $109,739    $ 94,942     $     --      $     --
Actual return on plan assets............    12,939      13,723           --            --
Company contributions...................     4,706       6,260          642         1,001
Plan participants' contributions........     1,087         958          407           354
Benefits paid...........................    (2,237)     (2,903)      (1,049)       (1,355)
Settlements.............................    (1,544)     (3,241)          --            --
                                          --------    --------     --------      --------
Fair value of plan assets at end of
  period................................  $124,690    $109,739     $     --      $     --
                                          ========    ========     ========      ========
FUNDED STATUS
Funded status of the plan
  (underfunded).........................  $ 17,948    $  8,523     $ (9,331)     $ (9,008)
Unrecognized net actuarial gains........   (21,581)     (9,894)      (4,425)       (4,990)
Unrecognized prior service cost.........     2,340       1,655          (50)          (56)
Unrecognized net transition liability...      (295)       (290)          --            --
                                          --------    --------     --------      --------
Aggregate accrued benefit cost..........  $ (1,588)   $     (6)    $(13,806)     $(14,054)
                                          ========    ========     ========      ========
</TABLE>

     The following table provides the amounts recognized in the statement of
financial position as of December 31, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                          OTHER
                                          PENSION BENEFITS       POSTRETIREMENT BENEFITS
                                        --------------------     -----------------------
                                          1999        1998         1999          1998
                                        --------     -------     ---------     ---------
<S>                                     <C>          <C>         <C>           <C>
Prepaid benefit cost..................  $ 10,033     $ 8,929     $     --      $     --
Accrued benefit liability.............   (11,621)     (8,935)     (13,806)      (14,054)
Additional minimum liability..........    (2,250)     (1,279)          --            --
Intangible asset......................     2,250       1,279           --            --
                                        --------     -------     --------      --------
Net amount recognized.................  $ (1,588)    $    (6)    $(13,806)     $(14,054)
                                        ========     =======     ========      ========
</TABLE>

     Certain of the Company's nonqualified supplemental retirement plans had
accumulated benefit obligations in excess of plan assets. These plans'
accumulated and projected benefit obligations were $13,871,000 and $17,488,000
at December 31, 1999 and $10,214,000 and $14,198,000 at December 31, 1998,

                                      F-14
<PAGE>   62
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

respectively. There are no plan assets in these plans. All of the Company's
plans for postretirement benefits other than pensions also have no plan assets.

     The following table provides the components of net periodic benefit costs
for the plans for the periods presented (in thousands):

<TABLE>
<CAPTION>
                                       PENSION BENEFITS         OTHER POSTRETIREMENT BENEFITS
                                  ---------------------------   ------------------------------
                                    YEAR ENDED DECEMBER 31,        YEAR ENDED DECEMBER 31,
                                  ---------------------------   ------------------------------
                                   1999      1998      1997       1999       1998       1997
                                  -------   -------   -------   --------   --------   --------
<S>                               <C>       <C>       <C>       <C>        <C>        <C>
Service cost....................  $ 5,635   $ 5,127   $ 4,246    $  63      $  65      $  55
Interest cost...................    7,833     6,957     5,870      661        621        670
Expected return on plan
  assets........................   (8,962)   (7,856)   (7,067)      --         --         --
Amortization of transition
  obligation....................       20        19        19       --         --         --
Amortization of prior service
  cost..........................       97        26      (114)      (5)        (5)        (6)
Amortization of net (gain)
  loss..........................     (296)      204       969     (324)      (508)      (588)
Settlement charge...............    1,852       971        --       --         --         --
                                  -------   -------   -------    -----      -----      -----
Net periodic benefit cost.......  $ 6,179   $ 5,448   $ 3,923    $ 395      $ 173      $ 131
                                  =======   =======   =======    =====      =====      =====
</TABLE>

     Prior service costs are amortized on a straight-line basis over the average
remaining service period of active participants. Gains and losses in excess of
10% of the greater of the benefit obligation and the market value of assets are
amortized over the remaining service period of active participants.

     The assumptions used in the measurement of the Company's benefit obligation
are shown in the following table:

<TABLE>
<CAPTION>
                                                                     OTHER POSTRETIREMENT
                                       PENSION BENEFITS                    BENEFITS
                              ----------------------------------   ------------------------
                                   YEAR ENDED DECEMBER 31,         YEAR ENDED DECEMBER 31,
                              ----------------------------------   ------------------------
                                 1999        1998        1997       1999     1998     1997
                              ----------   ---------   ---------   ------   ------   ------
<S>                           <C>          <C>         <C>         <C>      <C>      <C>
WEIGHTED-AVERAGE ASSUMPTIONS
  Discount rate.............  7.75%-8.0%   7.0%-9.0%   8.0%-9.0%   7.75%    7.00%    8.00%
  Increase in future
     compensation levels....  4.5%-6.0%    4.5%-7.0%   4.5%-7.0%    N/A      N/A      N/A
  Expected long-term rate of
     return on assets.......    8.00%      8.0%-9.0%   8.0%-9.0%    N/A      N/A      N/A
</TABLE>

     The Company provides postretirement medical benefits to all employees who
are U.S. citizens and certain non-U.S. citizen employees. Postretirement life
insurance benefits are provided to certain U.S. and non-U.S. citizen employees.
The Company's policy is to fund the cost of these benefits as claims are
incurred. The Company allocates benefit costs to affiliates based on the ratio
of active employees of affiliates to total employees.

     The weighted-average annual assumed rate of increase in the per capita cost
of covered medical benefits is 8% for the years ended December 31, 1999, 1998
and 1997, respectively. This rate is assumed to decrease to 7% in 2000, then to
6% in 2005 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example, as of
and for the year ended December 31, 1999, increasing or decreasing the assumed
health care cost trend rates by one percentage point each year would change the
accumulated postretirement benefit obligation by approximately $487,000 and
$436,000, respectively, and the aggregate of the service and interest cost
components of net periodic postretirement benefit by approximately $34,000 and
$31,000, respectively.

                                      F-15
<PAGE>   63
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Annual Incentive Compensation Plan

     The Company maintains an Annual Incentive Compensation Plan ("AIP"), which
provides for payment of additional compensation to participating employees,
including executive officers, based on individual contributions and performance
measures of the Company as defined in the plan. During the term of the AIP, an
aggregate amount of 286,250 Ordinary Shares will be available for awards granted
wholly or partly in Ordinary Shares under the AIP. Amounts charged to expense
related to awards under the Annual Incentive Compensation Plan aggregated
$1,100,000, $2,100,000 and $2,520,000 for the years ended December 31, 1999,
1998 and 1997, respectively.

  Performance Unit Plan

     The Company's Performance Unit Plan provides incentives to certain members
of management through performance share units to foster and promote the
long-term financial success of the Company. The performance share units vest,
and the related compensation expense is accrued, over a three year performance
period based on performance measures of the Company as defined in the plan.
Amounts charged to expense related to awards under the Performance Unit Plan
aggregated $800,000, $2,090,000, and $2,998,000 for the years ended December 31,
1999, 1998 and 1997, respectively. The last awards under the Performance Unit
Plan were granted in December 1996, and no further awards will be made under the
Plan. The Performance Unit Plan remained in existence until the last performance
cycle had elapsed and payouts were made to participants. The Performance Unit
Plan was terminated in September 1999, shortly after the results had been
finalized for the third plan year ending June 30, 1999.

  Investment Savings and Profit Sharing Plan

     The Company maintains an Investment Savings and Profit Sharing Plan, a
defined contribution 401(k) plan that allows U.S. dollar payroll employees to
make both pre-tax and after-tax employee contributions. The Company matches
these employee contributions up to a maximum of 5% of a participant's base
salary subject to the limitations of eligible salary. Employees are vested in
all contributions made. Additionally, although it has not done so since 1984 and
currently does not expect to do so in the future, the Company may also make
additional employer contributions in any year from profits. Matching
contributions totaled $1,392,000, $1,756,000 and $1,660,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.

  1997 Employee Severance Protection Plan

     The Company maintains the 1997 Employee Severance Protection Plan (the
"Severance Protection Plan") to retain the services of its employees in the
event of an unsolicited takeover of the Company or in the event of a threat of a
Change of Control, as defined, of the Company. The Severance Protection Plan is
intended to ensure the continued dedication and efforts of the Company's
employees in such events without undue concern for their personal financial and
employment security. The Severance Protection Plan covers all full-time
U.S.-based payroll employees. Severance is only payable in the event of a
termination of employment by the Company other than for "cause" or voluntary
termination by the Employee for "good reason", each as defined in the Severance
Protection Plan, within a specific period following a Change in Control. A
participant will also receive severance if the employee is terminated by the
Company without "cause" or for "good reason" at the request or direction of the
third party involved in the Change in Control or otherwise in connection with or
in anticipation of a Change in Control.

  Executive Severance Protection Agreements

     Commencing in 1999, the Company entered into Executive Severance Protection
Agreements (the "Executive Agreements") with certain of its officers
supplementing the provisions of the Severance Protection

                                      F-16
<PAGE>   64
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Plan for purposes of insuring the continued dedication and efforts of the
Company's executives. The Executive Agreements provide certain benefits
supplemental to and in lieu of the Severance Protection plan in the event of
termination of employment (other than for "cause") or voluntary termination for
"good reason" following a Change in Control of the Company, each as defined in
the Severance Protection Plan, within two years following a Change in Control.
The benefits applicable upon a Change in Control and termination of the
executive's employment include severance compensation based upon three times
annual salary and AIP bonus, a gross-up for any applicable excise tax, extension
of welfare benefits for three years or until employment affording such benefits
is secured, and an addition of three years service time and three years age for
purposes of calculating the executive's pension plan benefits. In consideration
for such supplemental severance protection, the Executive Agreements contain a
one year worldwide non-compete provision, confidentiality undertakings and
provisions limiting the application of "good reason" in respect of a relocation
to another office of the Company or its successor. As of February 29, 2000,
Executive Agreements had been entered into with fourteen of the Company's
officers.

8. SHARE AWARDS AND OPTIONS

  1997 Long-term Incentive Plan

     The Company has adopted the 1997 Long Term Incentive Plan (the "LTIP"),
which is designed to retain key executives and other selected employees by
rewarding them for making major contributions to the success of the Company and
to provide participants with a proprietary interest in the growth and
performance of the Company.

     Employees of the Company eligible for awards under the LTIP are executive
officers, other officers and key management personnel selected by the
Compensation Committee (including employees who are Directors), and whose
performance, in the judgment of the Compensation Committee, can have a
significant effect on the success of the Company. Awards under the LTIP may
consist of the grant of stock options, share appreciation rights, restricted
and/or performance-based share awards and/or restricted and/or performance-
based cash awards, granted singly, in combination or in tandem. The exercise
price for stock options shall not be less than 85% of the fair market value of
the stock on the date of the option grant (100% in the case of incentive stock
options). The Compensation Committee can also award supplemental payments up to
the amount necessary to pay the federal income tax payable with respect to
exercise of non-qualified stock options, share appreciation rights, restricted
shares and performance units. If approved by the Compensation Committee, the
Company may also make loans to participants to purchase shares pursuant to the
exercise of an award. During the term of the LTIP, an aggregate of 5,725,000
Ordinary Shares will be available for awards granted wholly or partly in
Ordinary Shares under the LTIP. No participant may receive during a fiscal year
incentive awards covering an aggregate of more than 150,000 Ordinary Shares.

     As of December 31, 1999, an aggregate of 3,674,800 options to purchase the
Company's Ordinary Shares (net of cancelled or expired options) had been granted
under the LTIP at prices ranging between $12.25 to $45.00 per Ordinary Share. In
addition, the Company had granted restricted share awards for an aggregate of
235,199 Ordinary Shares (net of forfeited or issued shares) under the LTIP. The
options will vest over periods ranging from two to four years and expire seven
to ten years from the date of grant. The restricted share awards will vest over
periods ranging from two to five years from the date of grant.

  1997 Employee Share Purchase Plan

     The Company has also adopted the 1997 Employee Share Purchase Plan (the
"Share Purchase Plan"), which is designed to furnish eligible employees of the
Company and designated subsidiaries of the Company an incentive to advance the
best interests of the Company by providing a formal program whereby they may
voluntarily purchase Ordinary Shares of the Company at a favorable price and
upon favorable terms.

                                      F-17
<PAGE>   65
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Generally speaking, all covered employees of a participating company who are
scheduled to work an average of at least 20 hours per week are eligible to
participate in the Share Purchase Plan.

     Once a year, participants in the Share Purchase Plan will be granted
options to purchase Ordinary Shares with a fair market value equal to the lesser
of 10% of the participant's eligible compensation (as defined in the Share
Purchase Plan) and the amount specified in Section 423(b) of the Code
(currently, $25,000). The exercise price of the options is 85% of the fair
market value of the Ordinary Shares on the date of grant or the date of
exercise, whichever is less. Options granted under the Share Purchase Plan are
exercisable on the date one year after the date of grant. Generally,
participants pay option exercise prices through payroll deductions made ratably
throughout the year. An aggregate of 572,500 Ordinary Shares are available for
grants of options under the Share Purchase Plan. The Share Purchase Plan, which
became effective January 1, 1998, is administered by the Administrative
Committee for the Employee Benefit Plans of the Santa Fe International
Corporations. An aggregate of 159,411 and 192,938 Ordinary Shares were issued in
January of the following year to participating employees for the years ended
December 31, 1999 and 1998, respectively, at exercise prices of $12.325 and
$10.997 per Ordinary Share.

  1997 Non-Employee Director Stock Option Plan

     The Company has also adopted the 1997 Non-Employee Director Stock Option
Plan (the "Director Plan"). The Director Plan is designed to attract and retain
the services of experienced and knowledgeable non-employee Directors and to
provide non-employee Directors with a proprietary interest in the growth and
performance of the Company. Awards under the Director Plan consist of a grant of
stock options. The purchase price for the shares as to which the option is
exercised will be payable in full upon exercise, in cash or, if permitted by the
Compensation Committee, by tender of Ordinary Shares, valued at "fair market
value." During the term of the Director Plan, an aggregate of 286,250 Ordinary
Shares will be available for awards granted wholly or partly in Ordinary Shares.
No option will be granted under the Director Plan after 10 years following
consummation of the Offering. The Compensation Committee is responsible for
administration and interpretation of the Director Plan.

     As of December 31, 1999, an aggregate of 97,000 options to purchase the
Company's Ordinary Shares (net of cancelled or expired options) had been granted
under the Director Plan to eight non-employee Directors who participated in the
Director Plan. Such options were granted at exercise prices ranging from $12.25
to $45.50 per Ordinary Share. Any new non-employee Director will be granted a
one-time award of a right to purchase 10,000 Ordinary Shares (increased from
4,000 by amendment of the Director Plan in March 1999). Each non-employee
Director who continues in office immediately following the Annual General
Meeting of Shareholders in any year (commencing in 1998) will automatically be
granted an option to purchase 5,000 shares of Ordinary Shares (increased from
2,000 by amendment of the Director Plan in March 1999). The Board may increase
the number of options granted, provided that a non-employee Director cannot
receive more than 22,000 options (increased from 10,000 by amendment of the
Director Plan in December 1998) in any year. The exercise price of options
granted under the Director Plan is the fair market value of the Ordinary Shares
on the date of the grant. Options granted pursuant to the Director Plan are
exercisable in installments of 33 1/3% upon each anniversary of the date of
grant. The term of each option is for a period not exceeding 10 years from the
date of grant.

  Accounting treatment and disclosures related to share awards and options

     The Company follows APB Opinion No. 25, "Accounting for Stock Issued to
Employees", in accounting for its plans. Compensation cost charged against
income in connection with stock plans totaled $3,891,000, $1,947,000 and
$815,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
Differences between the quoted market price as of the date of the grant and the
purchase price of restricted share grants is charged to operations over the
vesting period. No compensation cost has been recognized for stock option

                                      F-18
<PAGE>   66
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

grants as the Company routinely grants options with exercise prices equal to the
market prices of the underlying stock on the date of grant.

     The following is a summary of all of the Company's share option activity,
and related information for the above plans for the years ended December 31,
1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                        WEIGHTED AVERAGE
                                                             OPTIONS     EXERCISE PRICE
                                                            ---------   ----------------
<S>                                                         <C>         <C>
Outstanding at December 31, 1996..........................         --            --
  Granted.................................................    950,400        $39.94
  Cancelled...............................................     (7,800)       $41.19
                                                            ---------        ------
Outstanding at December 31, 1997..........................    942,600        $39.93
  Granted.................................................  1,483,125        $12.55
  Cancelled...............................................    (49,725)       $39.18
                                                            ---------        ------
Outstanding at December 31, 1998..........................  2,376,000        $22.85
  Granted.................................................  1,544,350        $20.89
  Cancelled...............................................   (147,900)       $27.65
  Exercised...............................................       (650)       $12.25
                                                            ---------        ------
Outstanding at December 31, 1999..........................  3,771,800        $21.86
                                                            =========        ======
</TABLE>

     There were 512,233 and 29,708 options exercisable at December 31, 1999 and
1998, respectively, and none exercisable at December 31, 1997.

     The following table summarizes information about options outstanding at
December 31, 1999:

<TABLE>
<CAPTION>
                                                                          NUMBER OF SHARES
               EXERCISE                  WEIGHTED AVERAGE REMAINING   -------------------------
                 PRICE                    CONTRACTUAL LIFE (YEARS)    OUTSTANDING   EXERCISABLE
               --------                  --------------------------   -----------   -----------
<S>                                      <C>                          <C>           <C>
$28.50.................................             7.44                 260,950      109,367
$45.50.................................             7.69                   8,000        5,333
$45.00.................................             7.94                 556,550      231,707
$39.75.................................             8.35                   8,000        2,667
$12.25.................................             8.95               1,398,950      152,492
$15.19.................................             9.01                  13,175       10,667
$20.38.................................             9.44                  35,000           --
$22.94.................................             9.73                  10,000           --
$20.94.................................             9.95               1,481,175           --
                                                                       ---------      -------
          Total........................             8.75               3,771,800      512,233
                                                                       =========      =======
</TABLE>

     Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation", ("SFAS 123") requires the disclosure of pro forma net
income and net income per Ordinary Share information computed as if the Company
had accounted for its employee share options under the fair value method set
forth in SFAS 123. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              1999     1998     1997
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Expected life (in years)....................................  3.73     3.74     3.74
Risk-free interest rate.....................................  6.00%    5.00%    6.00%
Volatility..................................................  0.66     0.55     0.40
Dividend yield..............................................  0.29%    0.46%    0.46%
</TABLE>

                                      F-19
<PAGE>   67
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The weighted average estimated fair value of options granted during the
years ended December 31, 1999, 1998 and 1997 was $10.81, $5.94 and $14.43,
respectively. The fair value of these options was estimated based on an expected
life of the vesting period plus one year. For purposes of pro forma disclosures,
the estimated fair value of stock based compensation plans and other options is
amortized to expense over the vesting period. The Company's pro forma net income
and net income per Ordinary Share is as follows (in thousands except per share
amounts):

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         1999       1998       1997
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
Net income
  As reported........................................  $149,824   $287,144   $224,786
  Pro forma..........................................  $142,501   $281,658   $224,100
Basic net income per Ordinary Share
  As reported........................................  $   1.31   $   2.51   $   1.96
  Pro forma..........................................  $   1.24   $   2.46   $   1.96
Diluted net income per Ordinary Share
  As reported........................................  $   1.30   $   2.50   $   1.96
  Pro forma..........................................  $   1.23   $   2.45   $   1.96
</TABLE>

     The Black-Scholes option valuation was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected share price volatility. Because
the Company's employee share options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee share options.

9. COMMITMENTS AND CONTINGENCIES

     In the normal course of business, the Company is involved in various
lawsuits, claims and related matters. In the opinion of management, the ultimate
resolution of such matters will not have a material adverse effect on the
consolidated financial position or results of operations of the Company.

     On September 20, 1999, the Company took delivery of the Galaxy III, a new
heavy duty harsh environment jackup rig, the construction of which was
contracted in September 1997. The Galaxy III departed the shipyard in late
September for transit to the U.K. sector of the North Sea where it commenced
work on a three year drilling contract December 5, 1999. The final cost of the
rig, excluding initial mobilization costs, totaled approximately $178 million.

     On July 10, 1998, Rig 162, one of the Company's land rigs operating in
Saudi Arabia, was severely damaged following a blowout and subsequent fire.
There were no personnel injuries. As provided for in the drilling contract, the
customer elected to cancel the remaining term of the contract and the Company
determined that the rig would not be rebuilt. An unrepaired partial loss
settlement of $13.8 million was negotiated with the Company's insurance
carriers. All proceeds from this settlement were received during 1998. The
Company recognized a gain of $4.8 million in connection with the insurance
settlement.

     The Company has an uncommitted credit facility with a major bank which
provides for advances and letters of credit up to a maximum of $35,000,000,
denominated in U.S. dollars. This credit facility expires on June 29, 2000. At
the Company's election, advances under this credit facility bear interest at the
higher of (a) 0.50% per annum above the latest Federal Funds Rate and (b) the
bank's publically announced Reference

                                      F-20
<PAGE>   68
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rate, or at the LIBOR rate plus 0.25%. The fee for letters of credit is 0.375%
per annum. At December 31, 1999, none of the credit facility was drawn or used
for standby letters of credit.

10. SEGMENT INFORMATION AND RELATED DISCLOSURES

     The Company has seven reportable segments, defined as different equipment
classifications, or by contract terms in the case of drilling related services,
as follows: heavy duty harsh environment jackup rigs, semisubmersible rigs, 300
to 350 foot cantilever jackup rigs, 200 to 250 foot jackup rigs, other marine
rigs, land rigs and drilling related services. The Company's heavy duty harsh
environment jackup rig fleet consists of six rigs capable of operating in water
depths of 350-400 feet. The semisubmersible segment is comprised of three rigs
capable of operating in water depths of up to 2,400 feet. Eight rigs capable of
operating in water depths of 300-350 feet make up the 300 to 350 foot cantilever
jackup rig segment. The 200 to 250 foot jackup rig segment consists of nine rigs
capable of operating in water depths of 200-250 feet, seven of which are
cantilevered and two of which are specially designed to operated in shallow
water. One of the Company's 200-250 foot jackup rigs, Rig 134, is being upgraded
to 300-foot depth capability and was reclassified as a 300-350 foot cantilever
jackup rig effective January 1, 2000. Historically, the Company's platform rig
and inland lake barge were combined and reported as "other marine rigs". During
the fourth quarter of 1998, the Company's inland lake barge was retired from
service, and, effective January 1, 1999, the Company has reclassified the
remaining platform rig to its drilling related services segment. The land rig
segment includes 33 rigs, all of which are specially designed to operate in
remote areas. Through its drilling related services segment, the Company
provides third party rig operations, incentive drilling and drilling engineering
and project management services.

     The Company evaluates performance and allocates resources based upon the
operating margin (operating revenues less operating expenses) generated by the
segment. The accounting policies of the segments are the same as those described
in the summary of significant policies (Note 2). There are no intersegment sales
and transfers due to the nature of the business of the segments.

     Santa Fe's reportable segments are managed separately due to the distinct
capabilities of each of the underlying equipment classifications or the
particular contract requirements in the case of drilling related services. The
following table sets forth the operating margin for each of the reportable
segments and reconciles

                                      F-21
<PAGE>   69
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

total operating revenues and operating expenses to amounts reported in the
accompanying consolidated statements of operations (in thousands):

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         1999       1998       1997
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
Operating revenues
  Heavy duty harsh environment jackup rigs...........  $181,662   $148,997   $135,931
  Semisubmersibles...................................    88,702    114,952     87,787
  300-350 foot cantilever jackup rigs................    81,015    150,602    121,854
  200-250 foot jackup rigs...........................    58,351    143,164    122,817
  Other marine rigs..................................        --         --     11,984
                                                       --------   --------   --------
          Total marine rigs..........................   409,730    557,715    480,373
  Land rigs..........................................   143,227    147,880    125,527
  Drilling related services..........................    60,143    104,582     81,472
  Other..............................................     1,141      1,169      1,585
                                                       --------   --------   --------
          Total operating revenues...................   614,241    811,346    688,957
Operating costs
  Heavy duty harsh environment jackup rigs...........    62,175     49,549     47,091
  Semisubmersibles...................................    43,969     63,712     41,694
  300-350 foot cantilever jackup rigs................    48,459     58,373     59,645
  200-250 foot jackup rigs...........................    49,992     66,982     59,260
  Other marine rigs..................................        --         --      8,477
                                                       --------   --------   --------
          Total marine rigs..........................   204,595    238,616    216,167
  Land rigs..........................................    95,255     97,966     86,547
  Drilling related services..........................    42,437     74,325     61,641
  Other..............................................    13,476      3,115      9,478
                                                       --------   --------   --------
          Total operating costs......................   355,763    414,022    373,833
Operating margin
  Heavy duty harsh environment jackup rigs...........   119,487     99,448     88,840
  Semisubmersibles...................................    44,733     51,240     46,093
  300-350 foot cantilever jackup rigs................    32,556     92,229     62,209
  200-250 foot jackup rigs...........................     8,359     76,182     63,557
  Other marine rigs..................................        --         --      3,507
                                                       --------   --------   --------
          Total marine rigs..........................   205,135    319,099    264,206
  Land rigs..........................................    47,972     49,914     38,980
  Drilling related services..........................    17,706     30,257     19,831
  Other..............................................   (12,335)    (1,946)    (7,893)
                                                       --------   --------   --------
          Total operating margin.....................  $258,478   $397,324   $315,124
                                                       ========   ========   ========
</TABLE>

                                      F-22
<PAGE>   70
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following tables reconcile operating margin for each of the reportable
segments to consolidated income before provision for taxes on income as reported
in the accompanying consolidated statements of operations and presents capital
spending for each reportable segment (in thousands):

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         1999       1998       1997
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
Operating margin.....................................  $258,478   $397,324   $315,124
                                                       --------   --------   --------
Depreciation/(gain) loss on sale of assets
  Heavy duty harsh environment jackup rigs...........    18,034     12,423     10,974
  Semisubmersibles...................................     6,558      4,975      3,752
  300-350 foot cantilever jackup rigs................    10,535      9,836      9,625
  200-250 foot jackup rigs...........................     9,378      9,011      7,185
  Other marine rigs..................................        --         --        321
                                                       --------   --------   --------
          Total marine rigs..........................    44,505     36,245     31,857
  Land rigs..........................................    23,219     10,387     12,138
  Drilling related services..........................       912      1,333        322
  Other..............................................     2,190      1,854      1,254
                                                       --------   --------   --------
          Total depreciation/(gain) loss on sale of
            assets...................................    70,826     49,819     45,571
Unallocated amount:
  General and administrative.........................    18,596     22,161     20,149
                                                       --------   --------   --------
     Operating income................................   169,056    325,344    249,404
                                                       --------   --------   --------
  Other income (expense).............................     9,403      1,320      2,868
                                                       --------   --------   --------
Income before provision for taxes on income..........  $178,459   $326,664   $252,272
                                                       ========   ========   ========
Capital spending by segment
  Heavy duty harsh environment jackup rigs...........  $ 60,533   $145,411   $121,096
  Semisubmersibles...................................     8,154     14,329     11,418
  300-350 foot cantilever jackup rigs................     4,530      5,223     16,273
  200-250 foot jackup rigs...........................    26,825     19,615     15,430
  Other marine rigs..................................        --        293         --
                                                       --------   --------   --------
          Total marine rigs..........................   100,042    184,871    164,217
  Land rigs..........................................    19,750     88,906     54,215
  Drilling related services..........................       603         79         --
  Other..............................................     4,213      3,544     10,760
                                                       --------   --------   --------
          Total capital spending by segment..........  $124,608   $277,400   $229,192
                                                       ========   ========   ========
</TABLE>

                                      F-23
<PAGE>   71
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Segment assets for each of the reportable segments is defined as the net
book value of the property and equipment for each classification. The following
table presents assets for each of the Company's reportable segments and
reconciles such segment assets to total consolidated assets (in thousands):

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                               -----------------------
                                                                  1999         1998
                                                               ----------   ----------
<S>                                                            <C>          <C>
Property and equipment, net
  Heavy duty harsh environment jackup rigs..................   $  580,480   $  538,207
  Semisubmersibles..........................................       67,520       65,745
  300-350 foot cantilever jackup rigs.......................      141,734      147,041
  200-250 foot jackup rigs..................................       88,573       75,069
  Other marine rigs.........................................           --          340
                                                               ----------   ----------
          Total marine rigs.................................      878,307      826,402
  Land rigs.................................................      197,237      200,216
  Drilling related services.................................        3,314        3,103
  Other.....................................................       23,706       19,480
                                                               ----------   ----------
          Total property and equipment, net.................    1,102,564    1,049,201
                                                               ----------   ----------
Unallocated amounts:
  Total current assets......................................      408,692      352,436
  Other noncurrent assets...................................       52,286       52,099
                                                               ----------   ----------
          Total assets......................................   $1,563,542   $1,453,736
                                                               ==========   ==========
</TABLE>

     All of the Company's operations are located outside of the Cayman Islands.
The following table summarizes, by geographical area, the identifiable assets of
the Company (in thousands):

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 1999         1998
                                                              ----------   ----------
<S>                                                           <C>          <C>
North Sea...................................................  $  545,000   $  401,243
North Africa................................................      90,766      121,717
West Africa.................................................      33,649       38,902
Southeast Asia and Pacific..................................     133,025      131,234
Middle East and Azerbaijan..................................     178,776      163,704
South America...............................................     121,688      110,597
North America...............................................     195,953      201,525
Corporate assets(1).........................................     264,685      284,814
                                                              ----------   ----------
          Total assets......................................  $1,563,542   $1,453,736
                                                              ==========   ==========
</TABLE>

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

(1) Consists primarily of cash equivalents, marketable securities, construction
    in progress, and other corporate assets.

                                      F-24
<PAGE>   72
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes, by geographical area, operating revenues
(in thousands):

<TABLE>
<CAPTION>
                                                          YEAR ENDED DECEMBER 31,
                                                       ------------------------------
                                                         1999       1998       1997
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
North Sea............................................  $242,510   $308,802   $251,369
North Africa.........................................    48,443    142,468    117,377
West Africa..........................................    38,331     71,480     66,187
Southeast Asia and Pacific...........................    54,622     84,760     67,412
Middle East and Azerbaijan...........................   103,909    132,003    115,177
South America........................................    78,424     58,366     48,042
North America........................................    48,002     13,467     23,393
                                                       --------   --------   --------
          Total operating revenues...................  $614,241   $811,346   $688,957
                                                       ========   ========   ========
</TABLE>

     The Company's operations in the North Sea are presently all conducted
within the U.K. sector of the North Sea. The Company's operations in North
Africa consist principally of operations in Egypt. The Company's operations in
the Middle East include significant operations in Kuwait. See Note 11.

     A substantial portion of the Company's assets are mobile. Asset locations
at the end of the period are not necessarily indicative of the geographic
distribution of the earnings generated by such assets during the periods.
General corporate assets are principally cash and cash equivalents and other
nonoperating assets.

     The Company's operations are geographically dispersed and are therefore
subject to certain political and other uncertainties not encountered in domestic
operations, including risks of war, expropriation of equipment, renegotiation or
modification of existing contracts, taxation policies, and the general hazards
associated with foreign sovereignty over certain areas in which operations are
conducted.

     Operational risks and hazards may result in extensive damage to or total
loss of drilling rigs, with associated personal injuries and loss of life,
pollution, well loss, well control expenses and/or wreck removal or other
requirements. Such losses, liabilities or obligations may be uninsured or
underinsured. In the event of a major incident or incidents resulting from
operational risks and hazards, the Company will sustain a loss of revenue by
reason of the rig loss or damage and may be subject to significant additional
expenses in respect of uninsured or underinsured losses, liabilities or
obligations.

     The following table summarizes revenues from major customers of the Company
as a percentage of total operating revenues for the period indicated.

<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                              ------------------
                                                              1999   1998   1997
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Shell.......................................................  14.5%  13.2%  12.7%
Total Elf Fina(1)...........................................  13.5%  10.5%   4.5%
Exxon Mobil.................................................  13.2%   7.4%   4.7%
BP Amoco....................................................  11.9%   9.9%  11.8%
Kuwait Oil Company (Note 11)................................   9.1%   5.5%   4.3%
British Gas.................................................   6.4%   0.5%   8.8%
AGIP........................................................   2.1%   5.7%   6.3%
Texaco......................................................   1.5%   2.7%   5.4%
</TABLE>

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

(1) Pending EU approval of merger

                                      F-25
<PAGE>   73
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. TRANSACTIONS WITH AFFILIATES

     The Company provides contract drilling services in Kuwait to the Kuwait Oil
Company, K.S.C. ("KOC"), a subsidiary of KPC, and also provides contract
drilling services to a partially owned affiliate of KOC in the Kuwait-Saudi
Arabian Partitioned Neutral Zone. Such services are performed pursuant to
drilling contracts which contain terms and conditions and rates of compensation
which materially approximate those which are customarily included in
arm's-length contracts of a similar nature. In connection therewith, KOC
provides the Company rent free use of certain land and maintenance facilities
and has committed to continue providing same, subject to availability of the
maintenance facilities, through the current February 2001 term of the drilling
contracts. In relation to its drilling business in Kuwait, the Company has an
agency agreement with a subsidiary of KPC that obligates the Company to pay an
agency fee based on a percentage of revenues. The Company believes the terms of
this agreement are more favorable than those which could be obtained with an
unrelated third party in an arm's-length negotiation, but the value of such
terms is currently immaterial to the Company's results of operations.

     The Company earned revenues from KPC affiliated companies in the ordinary
course of business of $56,084,000, $44,800,000 and $29,818,000 for the years
ended December 31, 1999, 1998 and 1997, respectively. The Company paid agency
fees to a subsidiary of KPC of $647,995, $563,028 and $274,905 during the years
ended December 31, 1999, 1998 and 1997, respectively. The Company had accounts
receivable from KPC affiliated companies of $5,902,000 and $6,072,000 at
December 31, 1999 and 1998, respectively.

     In connection with the reorganization of Holdings and its subsidiaries
which resulted in the Company owning all of the drilling assets and the direct
and indirect subsidiaries of Holdings and KPC engaged in providing contract
drilling and drilling related services (the "Reorganization"), the Company made
distributions to Holdings during the three years ended December 31, 1997
comprised principally of certain subsidiaries which conducted the Company's
former non-drilling operations and services (the "Non-Drilling Subsidiaries")
and certain additional non-drilling assets, including real estate, cash and cash
equivalents.

     The Company, Holdings and KPC entered into an Intercompany Agreement before
the consummation of the Offering (the "Intercompany Agreement"), certain
provisions of which are summarized below. As used herein, "KPC Affiliated Group"
means KPC and its affiliates, including Holdings, other than the Company and its
subsidiaries.

     As of December 31, 1999, the consolidated financial statements of Holdings
contained liabilities to third parties, including tax liabilities, aggregating
approximately $51 million incurred by the Non-Drilling Subsidiaries on or before
March 31, 1997. As of December 31, 1999, Holdings maintained cash and cash
equivalents (the "Liability Payment Fund") which the Company believes will be
sufficient to satisfy those liabilities remaining after such date. The Company,
Holdings and KPC have agreed in the Intercompany Agreement that all amounts paid
to claimants to satisfy those liabilities, whether by settlement, judgment or
award (including claimants' attorneys' fees), will be paid by Holdings from the
Liability Payment Fund. The Company will pay all internal and external costs and
fees (including the Company's and Holdings' attorneys' fees) associated with
management and resolution of those liabilities, and believes such costs and fees
will not be material. If any amount remains in the Liability Payment Fund at
March 31, 2002, Holdings will pay the Company the first $10 million of such
amount and 50% of any amount in excess of $10 million. Thereafter, or if the
resolution of those liabilities earlier exhausts the Liability Payment Fund,
Holdings will have no further responsibility for those liabilities, and the
Company will be responsible for all costs, fees and amounts paid to resolve
those liabilities and will indemnify the KPC Affiliated Group in respect of such
costs and fees and those liabilities. The Company believes that the Liability
Payment Fund is adequate to provide for such costs and fees and those
liabilities. Accordingly, the Company believes that the indemnification costs,
if any, will not be material and no additional reserves have been established by
the Company in respect of such costs and fees

                                      F-26
<PAGE>   74
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and those liabilities or the Company's obligation under the Intercompany
Agreement relating to such costs and fees and those liabilities.

     The Intercompany Agreement also provides that, except as may be provided in
a separate agreement, the Company will indemnify the KPC Affiliated Group
against losses based on, or taxes arising from, the following: (i) the ownership
of the assets or the operation of the business of the Company or its
subsidiaries, (ii) any other activities of the Company or its subsidiaries,
(iii) any guaranty or similar agreement by the KPC Affiliated Group provided to
any person with respect to any obligation of the Company or its subsidiaries,
and (iv) certain other matters. In addition, the Company has agreed to indemnify
the KPC Affiliated Group against certain civil liabilities, including
liabilities under the Securities Act of 1933, as amended ("the Securities Act"),
relating to misstatements in or omissions from any registration statement or
report that the Company files under the Securities Act. Holdings has also agreed
to indemnify the Company and its subsidiaries against losses based on the
ownership or operation of the assets or properties or the operation or conduct
of the business of Holdings and its subsidiaries on or after March 31, 1997.

     The Company also entered into a Management Services Agreement with Holdings
(the "Management Services Agreement"), for the purpose of providing asset
(primarily real estate) management services, general and administrative services
and liability management and resolution services to Holdings, the Non-Drilling
Subsidiaries and inactive subsidiaries of Holdings. The Management Services
Agreement authorizes the Company to resolve the liabilities of the Non-Drilling
Subsidiaries under the Intercompany Agreement using the Liability Payment Fund.
Although Holdings retains the right to reduce or expand the scope of services to
be performed by the Company pursuant to the Management Services Agreement, the
Company's liability management and resolution service may not be reduced or
terminated. The Management Services Agreement also provides for payment of an
asset management fee to the Company of $173,000 per year as well as
reimbursement of out-of-pocket costs in respect of asset management services. By
mutual agreement, the asset management fee was discontinued effective January 1,
2000. The Company will pay all internal and external costs and fees (including
the Company's and Holdings' attorney's fees) associated with the Company's
liability management and resolution services and all internal and external costs
and fees associated with the provision of general and administrative services
pursuant to the Management Services Agreement. The Company believes such costs
and fees will not be material.

                                      F-27
<PAGE>   75
          SANTA FE INTERNATIONAL CORPORATION AND SUBSIDIARY COMPANIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12. QUARTERLY RESULTS (UNAUDITED)

     Shown below are selected unaudited quarterly data (in thousands, except per
share data):

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                 ------------------------------------------------
                                                 MARCH 31   JUNE 30    SEPTEMBER 30   DECEMBER 31
                                                 --------   --------   ------------   -----------
<S>                                              <C>        <C>        <C>            <C>
YEAR ENDED DECEMBER 31, 1999
Operating revenues.............................  $185,516   $160,002     $143,599      $125,124
                                                 ========   ========     ========      ========
Operating income...............................  $ 69,356   $ 48,917     $ 35,062      $ 15,721
                                                 ========   ========     ========      ========
Net income.....................................  $ 58,456   $ 43,189     $ 31,834      $ 16,345
                                                 ========   ========     ========      ========
Basic net income per Ordinary Share............  $   0.51   $   0.38     $   0.28      $   0.14
                                                 ========   ========     ========      ========
Diluted net income per Ordinary Share..........  $   0.51   $   0.37     $   0.28      $   0.14
                                                 ========   ========     ========      ========
YEAR ENDED DECEMBER 31, 1998
Operating revenues.............................  $196,281   $202,646     $201,085      $211,334
                                                 ========   ========     ========      ========
Operating income...............................  $ 78,103   $ 72,596     $ 81,565      $ 93,080
                                                 ========   ========     ========      ========
Net income.....................................  $ 67,759   $ 63,980     $ 72,734      $ 82,671
                                                 ========   ========     ========      ========
Basic net income per Ordinary Share............  $   0.59   $   0.56     $   0.64      $   0.72
                                                 ========   ========     ========      ========
Diluted net income per Ordinary Share..........  $   0.59   $   0.56     $   0.64      $   0.72
                                                 ========   ========     ========      ========
YEAR ENDED DECEMBER 31, 1997
Operating revenues.............................  $149,253   $164,519     $176,787      $198,398
                                                 ========   ========     ========      ========
Operating income...............................  $ 47,134   $ 58,046     $ 67,058      $ 77,166
                                                 ========   ========     ========      ========
Net income.....................................  $ 42,923   $ 53,335     $ 59,322      $ 69,206
                                                 ========   ========     ========      ========
Basic net income per Ordinary Share............  $   03.7   $   0.47     $   0.52      $   0.60
                                                 ========   ========     ========      ========
Diluted net income per Ordinary Share..........  $   0.37   $   0.47     $   0.52      $   0.60
                                                 ========   ========     ========      ========
</TABLE>

                                      F-28
<PAGE>   76

                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form 20-F and has duly caused
this annual report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                            SANTA FE INTERNATIONAL CORPORATION

                                          By:       /s/ S. M. MCCARTY
                                            ------------------------------------
                                                       S. M. McCarty
                                                   Senior Vice President
                                                and Chief Financial Officer

Date: March 29, 2000
<PAGE>   77
                               INDEX TO EXHIBITS

<TABLE>
<CAPTION>


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

<S>            <C>  <C>

     **3.1     --   Amended and Restated Memorandum of Association of the
                    Registrant.

     **3.2     --   Amended and Restated Articles of Association of the Registrant.

      *4       --   Specimen of Ordinary Shares Certificate.

    **10.1     --   Registrant's Investment Savings and Profit Sharing Plan.

    **10.2     --   Registrant's Pension Plan (U.S. employees).

    **10.3     --   Registrant's Special Pension Plan (non-U.S. employees).

    **10.4     --   Registrant's Equity Restoration Plan.

     *10.5     --   Registrant's Supplemental Executive Retirement Plan.

     *10.6     --   Registrant's Performance Unit Plan.

   ***10.7     --   Registrant's Annual Incentive Compensation Plan.

   ***10.8     --   Registrant's 1997 Long Term Incentive Plan.

   ***10.9     --   Registrant's 1997 Non-Employee Director Stock Option Plan.

  ***10.10     --   Registrant's 1997 Employee Share Purchase Plan.

    *10.11     --   Registrant's Employee Severance Protection Plan.

    *10.12     --   Registrant's Directors and Officers Indemnity Agreement.

    *10.13     --   Intercompany Agreement by and among Kuwait Petroleum
                    Corporation, SFIC Holdings (Cayman), Inc. and the
                    Registrant, dated June 9, 1997.

    *10.14     --   Management Services Agreement by and between SFIC Holdings
                    (Cayman), Inc. and the Registrant, dated June 9, 1997.

   **10.15     --   Agency Agreement between Kuwait Santa Fe Braun for
                    Engineering and Petroleum Enterprises(K.S.B.) Company K.S.C.
                    and the Registrant, dated April 1, 1992.

   **10.16     --   Contract for the Construction and Sale of a Jackup Drilling
                    Unit by and between Far East Levingston Shipbuilding Ltd.
                    and the Registrant, dated as of December 16, 1996.

</TABLE>


<PAGE>   78

<TABLE>

<S>            <C>  <C>
   **10.17     --   Drilling Contract by and between Mobil Oil Canada Properties
                    and Santa Fe Drilling Company (Canada) Limited, dated as of
                    December 16, 1996.

    *10.19     --   Contract for the Construction and Sale of Jackup Drilling
                    Unit Galaxy III by and between Keppel FELS Limited and the
                    Registrant, dated as of September 17, 1997.

 ****10.21     --   Consulting Agreement dated December 10, 1997 between
                    Registrant and Gordon M. Anderson.

 ****10.22     --   AMOCO (U.K.) Exploration Company Form of Contract Ref:
                    AD3300 for The Provision of the Jack-Up Drilling Unit Santa
                    Fe "Galaxy III" for Drilling Operations on the U.K.C.S. with
                    Santa Fe Drilling Company (North Sea) Limited, dated
                    September 3, 1997 (with Appendix 5 only).

*****10.23     --   Registrant's Non-Employee Director Deferred Compensation
                    Plan.

*****10.24     --   Amendment to Registrant's 1997 Non-Employee Director Stock
                    Option Plan.

*****10.25     --   Amendment to Registrant's 1997 Long Term Incentive
                    Compensation Plan.

*****10.26     --   Amendment to Registrant's Supplemental Executive Retirement
                    Plan.

*****10.27     --   Amendment to Registrant's Supplemental Executive Retirement
                    Plan.

*****10.28     --   Amendment to Registrant's 1997 Non-Employee Director Stock
                    Option Plan.

    +10.29     --   Amendment to Registrant's 1997 Non-Employee Director Stock
                    Option Plan, dated March 23, 1999

    +10.30     --   Form of Registrant's Executive Severance Protection Agreement
                    and list of participants.

    +10.31     --   Amendment to Registrant's Employee Severance Protection
                    Agreement, dated December 1, 1999.

    +10.32     --   Amendment to Registrant's Annual Incentive Compensation
                    Plan, dated December 1, 1999.

    +10.33     --   Amendment to Registrant's 1997 Long Term Incentive Plan,
                    dated December 1, 1999.

    +10.34     --   Amendment to Registrant's Supplemental Executive Retirement
                    Plan, dated December 1, 1999.

    +10.35     --   Amendment to Trust under Santa Fe International Corporation
                    Non-Qualified Plans, dated December 1, 1999.

    +10.36     --   Amendment to Registrant's Non-Employee Director Stock Option
                    Plan, dated December 1, 1999.

    +10.37     --   Amendment to Registrant's Employee Share Purchase Plan,
                    dated December 7, 1999.

*****21        --   List of Subsidiaries.

    +23.1      --   Consent of Ernst & Young LLP, independent auditors

</TABLE>

----------

*     Incorporated by reference to the Company's Annual Report on Form 20-F for
      the fiscal year ended June 30, 1997.

**    Incorporated by reference to the Company's Registration Statement on Form
      F-1 (No. 333-6912) filed May 14, 1997.

***   Incorporated by reference to the Company's Registration Statement on Form
      S-8 (No. 333-7070) filed June 13, 1997.

****  Incorporated by reference to the Company's Report on Form 6-K filed March
      3, 1998.

***** Incorporated by reference to the Company's Annual Report on Form 20-F for
      the calendar year ended December 31, 1998.

+    Filed herewith.