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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


2003 FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31,
2003

Commission file number 1-14634

GlobalSantaFe Corporation

(Exact name of registrant as specified in its
charter)


|                                                                                     |  |                                         
|------------------------------------------------------------------------------------ |  | ----------------------------------------
|Cayman Islands                                                                       |  | 98-0108989                              
|(State or other jurisdiction of
    incorporation or organization)                   |  | (I.R.S. Employer
    Identification No.)
|                                                                                    
|15375 Memorial Drive,
    Houston, Texas(Address of principal executive
    offices) |  | 77079-4101(Zip Code)                    

Registrants telephone number, including
area code: (281) 925-6000

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

|                               |  |                                          
|------------------------------ |  | -----------------------------------------
|Title of each class            |  | Name of each exchange on which registered
|                               |  |                                          
|Ordinary Shares $.01 par value |  | New York Stock Exchange                  

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

None


Indicate by check
mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past
90 days.     Yes þ          No o

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

Indicate by check
mark whether the Registrant is an accelerated filer (as defined
in Rule 12b-2 of the Securities Exchange Act of
1934).     Yes þ          No o

The aggregate
market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the
common equity was last sold as of the last business day of the
Registrants most recently completed second fiscal quarter
(June 30, 2003) was approximately $4.4 billion (Kuwait
Petroleum Corporation and its affiliates and the executive
officers and directors of the registrant are considered
affiliates for purposes of this calculation).

Indicate the number
of shares outstanding of each of the registrants classes
of common stock, as of the latest practicable date: Ordinary
Shares, $.01 par value, 234,569,630 shares outstanding
as of February 27, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the
Proxy Statement in connection with the 2004 Annual General
Meeting of Shareholders are incorporated into Part III of
this Report.



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TABLE OF CONTENTS

|                                                   |  |                                                                                       |  |      |    |  |  | 
|-------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ---- | -- |  |  | 
|                                                   |  |                                                                                       |  | Page
|                                                   |  |                                                                                       |  |     
|Part I                                            
|Items 1. and 2.                                    |  | Business and Properties                                                               |  |      | 7  | 
|Item 3.                                            |  | Legal Proceedings                                                                     |  |      | 25 | 
|Item 4.                                            |  | Submission of Matters to a Vote of Security Holders                                   |  |      | 26 | 
|Part II                                           
|Item 5.                                            |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  |      | 27 | 
|Item 6.                                            |  | Selected Financial Data                                                               |  |      | 28 | 
|Item 7.                                            |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |      | 31 | 
|Item 7A.                                           |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |      | 52 | 
|Item 8.                                            |  | Financial Statements and Supplementary Data                                           |  |      | 55 | 
|Item 9.                                            |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  |      | 96 | 
|Item 9A.                                           |  | Controls and Procedures                                                               |  |      | 96 | 
|Part III                                          
|Item 10.                                           |  | Directors and Executive Officers of the Registrant                                    |  |      | 96 | 
|Item 11.                                           |  | Executive Compensation                                                                |  |      | 96 | 
|Item 12.                                           |  | Security Ownership of Certain Beneficial Owners and Management                        |  |      | 96 | 
|Item 13.                                           |  | Certain Relationships and Related Transactions                                        |  |      | 97 | 
|Item 14.                                           |  | Principal Accountant Fees and Services                                                |  |      | 97 | 
|Part IV                                           
|Item 15.                                           |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  |      | 98 | 
|Forms of Memoranda re Grant of Performance Units  
|Form of Notice of Stock Option Grant              
|Form of Notice of Stock Option Grant              
|Resolution of the Company's Board of Directors    
|Management Annual Incentive Plan for 2003         
|Computation of Ratios of Earnings to Fixed Charges
|List of Subsidiaries                              
|Consent of PricewaterhouseCoopers LLP             
|Certification of CEO Pursuant to Section 302      
|Certification of CFO Pursuant to Section 302      
|Certification of CEO Pursuant to Section 906      
|Certification of CFO Pursuant to Section 906      





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The Company makes available on its website, free
of charge, at www.gsfdrill.com its annual report on
Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and all amendments to these reports as
soon as reasonably practicable after they are filed with or
furnished to the Securities and Exchange Commission. The
information contained in the Companys website does not
constitute a part of this Annual Report.

Information relating to corporate governance at
the Company, including the Companys Corporate Governance
Policy; Director Independence Standards; Standards of Business
Conduct; Code of Ethics for Senior Financial Officers; and
information concerning the Companys Board Committees,
including Committee charters, is available on the Companys
website at www.gsfdrill.com under the Corporate
Governance caption. The Company will provide any of the
foregoing information without charge upon written request to the
Secretary of the Company at 15375 Memorial Drive, Houston, Texas
77079.

EARNINGS CONFERENCE CALL

On Wednesday, April 28, 2004, GlobalSantaFe
Corporation is scheduled to release its first quarter 2004
financial results before trading opens on the New York
Stock Exchange. On April 28, 2004, at 10:00 a.m.
Central Daylight Time (11:00 p.m. Eastern Daylight Time),
the Company is scheduled to hold an earnings conference call to
discuss the results.

Interested parties may participate in the
conference by calling (913) 981-4900, confirmation code
168490. The call is also available through the Companys
website at www.gsfdrill.com. It is recommended that





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listeners connect to the website prior to the
conference call to ensure adequate time for any software
download that may be needed to hear the webcast. Replays will be
available starting at 1:00 p.m. Central Daylight Time
(2:00 p.m. Eastern Daylight Time) on the day of the
conference call by webcast on the Companys website or by
telephoning (719) 457-0820, confirmation code 168490. Both
services will discontinue replays at 7:00 p.m. Central
Daylight Time on May 5, 2004.


ANNUAL GENERAL MEETING OF
SHAREHOLDERS

The 2004 Annual General Meeting of Shareholders
has been scheduled on Wednesday, June 9, 2004, at
9:00 a.m. Central Daylight time in the GlobalSantaFe
Auditorium, 15375 Memorial Drive, Houston, Texas 77079-4101.

2



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FORWARD-LOOKING STATEMENTS

Under the Private Securities Litigation Reform
Act of 1995, companies are provided a safe harbor
for discussing their expectations regarding future performance.
The Company believes it is in the best interests of its
shareholders and the investment community to use these
provisions and provide such forward-looking information. The
Company does so in this report and other communications.
Forward-looking statements are often but not always identifiable
by use of words such as anticipate,
believe, budget, could,
estimate, expect, forecast,
intend, may, might,
plan, predict, project,
should, and will.

The Companys forward-looking statements
include statements about the following subjects:



| |   |                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Companys possible or assumed results of
    operations;                                                                                                                                                                         
|
| |  | The Companys funding and financing plans;                                                                                                                                                                                           
|
| |  | the dates drilling rigs will become available
    following completion of current contracts;                                                                                                                                         
|
| |  | the dates the Companys rigs that are under
    construction are expected to be delivered;                                                                                                                                           
|
| |  | projected cash outlays, the timing of such
    outlays and expected sources of funding in connection with the
    rigs that are under construction;                                                                                  
|
| |  | the Companys belief that a Venezuelan tax
    lien will not impact the operations of the rigs within Venezuela;                                                                                                                     
|
| |  | the Companys contract drilling and drilling
    management services revenue backlogs and the amounts expected to
    be realized in 2004;                                                                                           
|
| |  | the potential sale of the Companys land rig
    fleet assets;                                                                                                                                                                       
|
| |  | the Companys estimate of undiscounted
    future cash flows relating to the determination of impairment of
    rigs and drilling equipment;                                                                                         
|
| |  | the expected outcomes of legal and administrative
    proceedings, their materiality, and their expected effects on
    the Companys financial position and results of operations;                                                  
|
| |  | the Companys expectations regarding the
    length of time mobile assets will be operating in given
    locations and the Companys resulting conclusions regarding
    the future tax consequences of operating in those locations;
|
| |  | the Companys expectation that certain rigs
    are more likely than not to be redeployed before operating in
    certain jurisdictions long enough to give rise to tax
    liabilities;                                             
|
| |  | the assumptions as to risk-free interest rates,
    stock volatility, dividend yield and expected lives of awards
    used to estimate the fair value of stock-based compensation
    awards;                                        
|
| |  | the return assumptions developed by Company
    consultants in determining expected long-term rate of return on
    pension plan assets assumption;                                                                                  
|
| |  | the Companys expectations regarding future
    conditions in various geographic markets in which the Company
    operates and the prospects for future work and dayrates in those
    markets;                                      
|
| |  | the Companys use of critical accounting
    policies and the assumptions and estimates made by management
    during the preparation of the Companys financial
    statements;                                                     
|
| |  | expected restructuring costs in connection with
    the Merger between Global Marine and Santa Fe International;                                                                                                                     
|
| |  | the fact that the Company does not have any
    current plans to offer securities under the registration
    Statement on Form S-3 filed with the SEC in September 2003;                                                             

3



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| |   |                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the fact that the Company does not anticipate
    using stock to satisfy future purchase obligations in connection
    with the Companys Zero Coupon Convertible Debentures;                                                                                                                                                                                                        
|
| |  | the Companys estimated capital expenditures
    in 2004;                                                                                                                                                                                                                                                                                                                            
|
| |  | the Companys expectation that it will fund
    various commitments, primarily related to the Companys
    debt and capital lease obligations, leases for office space and
    other property and equipment as well as commitments for
    construction of drilling rigs, with existing cash, cash
    equivalents, marketable securities and future cash flows from
    operations;
|
| |  | the effect recent and prospective contract awards
    in the ultra-deepwater market will have on backlog and dayrates;                                                                                                                                                                                                                                                               
|
| |  | the Companys ability to service
    indebtedness;                                                                                                                                                                                                                                                                                                                                   
|
| |  | the Companys ability to meet all of its
    current obligations, including working capital requirements,
    capital expenditures, total lease obligations, construction and
    development expenses, and debt service, from its existing cash,
    cash equivalents and marketable securities balances and future
    cash flow from operations;                                  
|
| |  | that the Company does not believe it has any VIEs
    within the scope of FIN 46;                                                                                                                                                                                                                                                                                                    
|
| |  | the results of the Companys sensitivity
    analyses to assess the impact of oil price changes under certain
    dayrate contracts;                                                                                                                                                                                                                                                 
|
| |  | the Companys expectation that, if required,
    any additional payments made under certain fully defeased
    financing leases would not be material to its financial position
    or results of operations in any given year;                                                                                                                                                      
|
| |  | the Companys belief that its exposure to
    interest rate fluctuations is not material to its financial
    position, results of operations or cash flows;                                                                                                                                                                                                                         
|
| |  | the Companys belief that credit risk in its
    commercial paper, U.S. Treasury Notes, money-market funds and
    Eurodollar time deposits with a variety of financial
    institutions with strong credit ratings is minimal;                                                                                                                                                      
|
| |  | the Companys intention not to exercise its
    option to build two additional new ultra-deepwater
    semisubmersibles;                                                                                                                                                                                                                                                             
|
| |  | the adequacy of the Companys valuation
    allowance in connection with net operating loss carryforwards;                                                                                                                                                                                                                                                                           
|
| |  | the costs, adequacy and availability of
    insurance; and                                                                                                                                                                                                                                                                                                                           
|
| |  | any other statements that are not historical
    facts.                                                                                                                                                                                                                                                                                                                              

The Companys forward-looking statements
speak only as of the date of this report and are based on
currently available industry, financial, and economic data and
the Companys operating plans. They are also inherently
uncertain, and investors must recognize that events could turn
out to be materially different from the Companys
expectations.

Factors that could cause or contribute to such
differences include, but are not limited to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | higher than anticipated accruals for
    performance-based compensation due to better than anticipated
    Company performance, higher than anticipated severance expenses
    due to unanticipated employee terminations, higher than
    anticipated legal and accounting fees due to unanticipated
    financing or other corporate transactions, and other factors
    that could increase G&A expenses;

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a material or extended decline in expenditures by
    the oil and gas industry, which is significantly affected by
    indications and expectations regarding the level and volatility
    of oil and natural gas prices, which in turn are affected by
    such things as political, economic and weather conditions
    affecting or potentially affecting regional or worldwide demand
    for oil and natural gas, actions or anticipated actions by OPEC,
    inventory level, deliverability constraints, and futures market
    activity;
|
| |  | if a competitor succeeds in enjoining the Company
    from using its dual drilling activity structure and method;                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | the extent to which customers and potential
    customers continue to pursue ultra-deepwater drilling;                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | the extent to which the Company is required to
    idle rigs or to enter into lower dayrate contracts in response
    to future market conditions;                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | exploration success or lack of exploration
    success by the Companys customers and potential customers;                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | the Companys ability to enter into and the
    terms of future drilling contracts;                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | the Companys ability to win bids for
    turnkey drilling operations;                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | rig availability and the Companys ability
    to hire suitable rigs at acceptable rates;                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | the availability of qualified personnel;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | the availability of adequate insurance at a
    reasonable cost;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | the occurrence of an uninsured or unidentified
    event;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | the risks of failing to complete a well or wells
    under turnkey contracts;                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | other risks inherent in turnkey contracts;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | the Companys failure to retain the business
    of one or more significant customers;                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | the termination or renegotiation of contracts by
    customers;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | the operating hazards inherent in drilling for
    oil and natural gas;                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | the risks of international operations and
    compliance with foreign laws;                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | political and other uncertainties inherent in
    non-U.S. operations, including exchange and currency
    fluctuations and the limitations on the ability to repatriate
    income or capital to the U.S.;                                                                                                                                                                                                                                                                                                                                     
|
| |  | compliance with or breach of environmental laws;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | proposed United States tax law changes;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | changes in employee demographics that impact the
    estimated remaining service lives of the active participants in
    the Companys pension plans;                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | the impact of governmental laws and regulations
    and the uncertainties involved in their administration,
    particularly in some foreign jurisdictions;                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | the highly competitive and cyclical nature of the
    Companys business, with periods of low demand and excess
    rig availability;                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | the outbreak of war, other armed conflicts or
    terrorist attacks;                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | the effect of SARS or other public health threats
    on the Companys international operations;                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | political or social disruptions that limit oil
    and/or gas production;                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | the actions of the Companys competitors in
    the oil and gas drilling industry, which could significantly
    influence rig dayrates and utilization;                                                                                                                                                                                                                                                                                                                                                                                        

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | delays or cost overruns in the Companys
    construction projects caused by such things as shortages of
    materials or skilled labor, unforeseen engineering problems,
    unanticipated actual or purported change orders, work stoppages,
    shipyard financial or operating difficulties, adverse weather
    conditions or natural disasters, unanticipated cost increases,
    and the inability to obtain requisite permits or approvals;          
|
| |  | the occurrence or nonoccurrence of anticipated
    changes in the Companys revenue mix between domestic and
    international drilling markets due to changes in the
    Companys customers oil and gas drilling plans, which
    can be the result of such things as changes in regional or
    worldwide economic conditions and fluctuations in the prices of
    oil and natural gas, which in turn could change or stabilize
    effective tax rates;
|
| |  | the vagaries of the legislative process due to
    the unpredictable nature of politics and national and world
    events, among other things;                                                                                                                                                                                                                                                                                                               
|
| |  | currently unknown rig repair needs and/or
    additional opportunities to accelerate planned maintenance
    expenditures due to presently unanticipated rig downtime;                                                                                                                                                                                                                                                                                       
|
| |  | changes in oil and natural gas drilling
    technology or in the Companys competitors drilling
    rig fleets that could make the Companys drilling rigs less
    competitive or require major capital investments to keep them
    competitive;                                                                                                                                                                                                          
|
| |  | the adequacy of sources of liquidity;                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | the incurrence of secured debt or additional
    unsecured indebtedness or other obligations by the Company or
    its subsidiaries;                                                                                                                                                                                                                                                                                                                         
|
| |  | the uncertainties inherent in dealing with
    financial and other third-party institutions that could have
    internal weaknesses unknown to the Company;                                                                                                                                                                                                                                                                                                  
|
| |  | changes in accepted interpretations of accounting
    guidelines and other accounting pronouncements;                                                                                                                                                                                                                                                                                                                                                        
|
| |  | the effects and uncertainties of legal and
    administrative proceedings and other contingencies; and                                                                                                                                                                                                                                                                                                                                                       
|
| |  | such other factors as may be discussed in this
    report in the Risk Factors section under
    Items 1 and 2 and elsewhere, and in the Companys
    other reports filed with the U.S. Securities and Exchange
    Commission.                                                                                                                                                                                                                            

You should not place undue reliance on
forward-looking statements. Each forward-looking statement
speaks only as of the date of the particular statement, and the
Company disclaims any obligation or undertaking to disseminate
any updates or revisions to these statements, forward-looking or
otherwise, to reflect changes in the Companys expectations
or any change in events, conditions or circumstances on which
any such statements are based.

6



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PART I



|                |                        
|--------------- | -----------------------
|Items 1. and 2. | Business and Properties

GlobalSantaFe Corporation
(GlobalSantaFe or the Company) is a
worldwide oil and gas drilling contractor, owning or operating a
fleet of over 90 marine and land drilling rigs. The
Companys owned fleet currently includes 13 floating rigs,
45 cantilevered jackup rigs (including the GSF
Constellation I, which was delivered in June 2003), 31
land rigs and one platform rig. In addition, the Company or its
affiliates currently maintain two platform rigs for third
parties, and it participates in a joint venture that operates
two semisubmersible rigs for third parties.

As part of the Companys goal of enhancing
long-term shareholder value, the Company is currently
considering the possibility of selling its land rig fleet assets
provided that the Company receives value from such a sale, if
any, that the Company deems fair in light of the quality of
these assets and the Companys long-term market outlook for
these assets. The net book value of the Companys land
drilling fleet totaled $190.9 million at December 31,
2003.

The Company provides offshore oil and gas
contract drilling services to the oil and gas industry worldwide
on a daily rate (dayrate) basis. The Company also
provides offshore oil and gas drilling management services on
either a dayrate or completed-project, fixed-price
(turnkey) basis, as well as drilling engineering and
drilling project management services, and it participates in oil
and gas exploration and production activities. Business segment
and geographic information is set forth in Note 13 of Notes
to Consolidated Financial Statements in Item 8 of this
Annual Report on Form 10-K. The Company is a Cayman Islands
company, with its executive offices in Houston, Texas.

Unless otherwise provided, the term
Company refers to GlobalSantaFe Corporation and,
unless the context otherwise requires, to its predecessors and
consolidated subsidiaries. Substantially all of the
Companys businesses are conducted by subsidiaries of
GlobalSantaFe Corporation.

Merger of Santa Fe International Corporation
and Global Marine Inc.

On November 20, 2001, Santa Fe
International Corporation (Santa Fe
International) and Global Marine Inc. (Global
Marine) consummated their business combination with the
merger (the Merger) of an indirect wholly owned
subsidiary of Santa Fe International with and into Global
Marine, with Global Marine surviving the Merger as a wholly
owned subsidiary of Santa Fe International. In connection
with the Merger, Santa Fe International was renamed
GlobalSantaFe Corporation. The Merger was accounted for as a
purchase business combination in accordance with accounting
principles generally accepted in the United States of America.
As the stockholders of Global Marine owned slightly over 50% of
GlobalSantaFe after the Merger and Global Marine officers filled
the majority of senior management positions, Global Marine was
considered the acquiring entity for accounting purposes.

Contract Drilling

Substantially all of the Companys domestic
offshore contract drilling operations are conducted by
GlobalSantaFe Drilling Company (GSFDC), a wholly
owned subsidiary headquartered in Houston, Texas. International
offshore and land contract drilling operations are conducted by
subsidiaries of the Company with operations in 20 countries
throughout the world.

Offshore Rig Fleet.The Company has a modern, diversified fleet of 58 mobile
offshore drilling rigs and one platform rig. The Companys
mobile offshore drilling rigs include six cantilevered
heavy-duty harsh environment jackups, 39 cantilevered jackups,
nine semisubmersibles, three ultra-deepwater, dynamically
positioned drillships and one moored drillship. All of the
Companys offshore rigs, with the exception of the
Britanniajackup and the platform rig, were placed into
service in 1974 or later, and, as of February 29, 2004, the
average age of the rigs in the Companys offshore fleet was
approximately 20 years.

7



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##### Table of Contents



The Companys fleet is deployed in major
offshore oil and gas operating areas worldwide. The principal
areas in which the fleet is currently deployed are the
U.S. Gulf of Mexico, the North Sea, West Africa, Southeast
Asia, the Middle East, North Africa, South America and eastern
Canada.

The following table lists the rigs in the
Companys offshore drilling fleet as of February 29,
2004, indicating the year each rig was placed in service, each
rigs maximum water and drilling depth capabilities,
current location, customer, and the date each rig is estimated
to become available.

Offshore Rig Fleet

Status as of February 29, 2004


|                                     |  |            |      |               |  |            |         |          |  |                  |            |                 |  |  |                     |  |  |  |                |  |  |  |           | 
|------------------------------------ |  | ---------- | ---- | ------------- |  | ---------- | ------- | -------- |  | ---------------- | ---------- | --------------- |  |  | ------------------- |  |  |  | -------------- |  |  |  | --------- | 
|                                     |  | Year       |      | Maximum       |  | Drilling   |         |          |  |                  |            |                
|                                     |  | Placed     |      | Water Depth   |  | Depth      |         |          |  |                  |            | Estimated      
|                                     |  | in Service |      | Capability(1) |  | Capability |         | Location |  | Current Customer |            | Availability(2)
|                                     |  |            |      |               |  |            |         |          |  |                  |            |                
|Heavy-Duty Harsh Environment Jackups |  |            |      |               |  |            |         |          |  |                  |            |                 |  |  |                     |  |  |  |                |  |  |  |           | 
|GSF Galaxy I                         |  |            | 1991 |               |  |            | 400 ft. |          |  |                  | 30,000 ft. |                 |  |  | North Sea           |  |  |  | Apache         |  |  |  | 03/04     | 
|GSF Galaxy II                        |  |            | 1998 |               |  |            | 400 ft. |          |  |                  | 30,000 ft. |                 |  |  | Eastern Canada      |  |  |  |               |  |  |  | Available | 
|GSF Galaxy III                       |  |            | 1999 |               |  |            | 400 ft. |          |  |                  | 30,000 ft. |                 |  |  | North Sea           |  |  |  | Apache         |  |  |  | 01/05     | 
|GSF Magellan                         |  |            | 1992 |               |  |            | 350 ft. |          |  |                  | 30,000 ft. |                 |  |  | North Sea           |  |  |  |               |  |  |  | Available | 
|GSF Monitor                          |  |            | 1989 |               |  |            | 350 ft. |          |  |                  | 30,000 ft. |                 |  |  | Trinidad and Tobago |  |  |  | BHPB           |  |  |  | 09/04     | 
|GSF Monarch                          |  |            | 1988 |               |  |            | 350 ft. |          |  |                  | 30,000 ft. |                 |  |  | North Sea           |  |  |  | Shell          |  |  |  | 09/04     | 
|                                    
|Cantilevered Jackups                 |  |            |      |               |  |            |         |          |  |                  |            |                 |  |  |                     |  |  |  |                |  |  |  |           | 
|GSF Constellation I                  |  |            | 2003 |               |  |            | 400 ft. |          |  |                  | 30,000 ft. |                 |  |  | Southeast Asia      |  |  |  |               |  |  |  | Available | 
|GSF Baltic                           |  |            | 1983 |               |  |            | 375 ft. |          |  |                  | 25,000 ft. |                 |  |  | West Africa         |  |  |  | Total Amenam   |  |  |  | 07/04     | 
|GSF Key Singapore                    |  |            | 1982 |               |  |            | 350 ft. |          |  |                  | 25,000 ft. |                 |  |  | North Africa        |  |  |  | BP/Gupco       |  |  |  | 06/04     | 
|GSF Key Manhattan                    |  |            | 1980 |               |  |            | 350 ft. |          |  |                  | 25,000 ft. |                 |  |  | North Africa        |  |  |  | Petrobel       |  |  |  | 07/04     | 
|Glomar Adriatic II                   |  |            | 1981 |               |  |            | 350 ft. |          |  |                  | 25,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | Forest Oil     |  |  |  | 03/04     | 
|GSF Adriatic III                     |  |            | 1982 |               |  |            | 350 ft. |          |  |                  | 25,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | ChevronTexaco  |  |  |  | 04/04     | 
|GSF Adriatic IV                      |  |            | 1983 |               |  |            | 350 ft. |          |  |                  | 25,000 ft. |                 |  |  | North Africa        |  |  |  | Petrobel       |  |  |  | 03/05     | 
|GSF Adriatic VII                     |  |            | 1983 |               |  |            | 350 ft. |          |  |                  | 20,000 ft. |                 |  |  | Trinidad and Tobago |  |  |  | EOG            |  |  |  | 05/04     | 
|GSF Adriatic VIII                    |  |            | 1983 |               |  |            | 328 ft. |          |  |                  | 25,000 ft. |                 |  |  | West Africa         |  |  |  | ExxonMobil     |  |  |  | 04/04     | 
|GSF Adriatic IX                      |  |            | 1981 |               |  |            | 350 ft. |          |  |                  | 20,000 ft. |                 |  |  | West Africa         |  |  |  | Total Gabon    |  |  |  | 09/04     | 
|GSF Adriatic X                       |  |            | 1982 |               |  |            | 350 ft. |          |  |                  | 25,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | W&T            |  |  |  | 05/04     | 
|GSF Compact Driller                  |  |            | 1993 |               |  |            | 300 ft. |          |  |                  | 25,000 ft. |                 |  |  | Southeast Asia      |  |  |  | ChevronTexaco  |  |  |  | 10/07     | 
|GSF Parameswara                      |  |            | 1993 |               |  |            | 300 ft. |          |  |                  | 25,000 ft. |                 |  |  | Southeast Asia      |  |  |  | Total          |  |  |  | 12/04     | 
|GSF Adriatic I                       |  |            | 1981 |               |  |            | 300 ft. |          |  |                  | 25,000 ft. |                 |  |  | West Africa         |  |  |  | Total Amenam   |  |  |  | 06/04     | 
|GSF Labrador                         |  |            | 1983 |               |  |            | 300 ft. |          |  |                  | 25,000 ft. |                 |  |  | North Sea           |  |  |  |               |  |  |  | Available | 
|Key Hawaii                           |  |            | 1983 |               |  |            | 300 ft. |          |  |                  | 25,000 ft. |                 |  |  | Middle East         |  |  |  | Aramco         |  |  |  | 04/04     | 
|GSF Main Pass I                      |  |            | 1982 |               |  |            | 300 ft. |          |  |                  | 25,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | Chevron Texaco |  |  |  | 04/04     | 
|GSF Main Pass IV                     |  |            | 1982 |               |  |            | 300 ft. |          |  |                  | 25,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | Apache         |  |  |  | 06/04     | 
|GSF Galveston Key                    |  |            | 1978 |               |  |            | 300 ft. |          |  |                  | 25,000 ft. |                 |  |  | Southeast Asia      |  |  |  | Cuulong JOC    |  |  |  | 10/04     | 
|GSF Key Gibraltar                    |  |            | 1976 |               |  |            | 300 ft. |          |  |                  | 25,000 ft. |                 |  |  | Southeast Asia      |  |  |  | Talisman       |  |  |  | 08/05     | 
|GSF Rig 134                          |  |            | 1982 |               |  |            | 300 ft. |          |  |                  | 20,000 ft. |                 |  |  | Southeast Asia      |  |  |  | Carigali       |  |  |  | 06/05     | 
|GSF Rig 136                          |  |            | 1982 |               |  |            | 300 ft. |          |  |                  | 25,000 ft. |                 |  |  | Southeast Asia      |  |  |  | Total          |  |  |  | 07/06     | 
|GSF Adriatic V                       |  |            | 1979 |               |  |            | 300 ft. |          |  |                  | 20,000 ft. |                 |  |  | West Africa         |  |  |  | Tullow Oil     |  |  |  | 03/04     | 
|GSF High Island V                    |  |            | 1981 |               |  |            | 270 ft. |          |  |                  | 20,000 ft. |                 |  |  | West Africa         |  |  |  | Pioneer Gabon  |  |  |  | 03/04     | 
|GSF High Island II                   |  |            | 1979 |               |  |            | 270 ft. |          |  |                  | 20,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | Chevron Texaco |  |  |  | 01/05     | 
|GSF High Island IX                   |  |            | 1983 |               |  |            | 250 ft. |          |  |                  | 20,000 ft. |                 |  |  | West Africa         |  |  |  | Euroil         |  |  |  | 05/04     | 
|GSF Rig 141                          |  |            | 1982 |               |  |            | 250 ft. |          |  |                  | 20,000 ft. |                 |  |  | Middle East         |  |  |  | Suco           |  |  |  | 08/04     | 

8



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##### Table of Contents



|                       |  |            |      |               |  |            |           |          |  |                  |            |                 |  |  |                     |  |  |  |                |  |  |  |              | 
|---------------------- |  | ---------- | ---- | ------------- |  | ---------- | --------- | -------- |  | ---------------- | ---------- | --------------- |  |  | ------------------- |  |  |  | -------------- |  |  |  | ------------ | 
|                       |  | Year       |      | Maximum       |  | Drilling   |           |          |  |                  |            |                
|                       |  | Placed     |      | Water Depth   |  | Depth      |           |          |  |                  |            | Estimated      
|                       |  | in Service |      | Capability(1) |  | Capability |           | Location |  | Current Customer |            | Availability(2)
|                       |  |            |      |               |  |            |           |          |  |                  |            |                
|GSF High Island VII    |  |            | 1982 |               |  |            | 250 ft.   |          |  |                  | 20,000 ft. |                 |  |  | West Africa         |  |  |  | Total Cameroon |  |  |  | 05/04        | 
|GSF High Island VIII   |  |            | 1982 |               |  |            | 250 ft.   |          |  |                  | 20,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | LLOG           |  |  |  | 03/04        | 
|GSF Rig 127            |  |            | 1981 |               |  |            | 250 ft.   |          |  |                  | 20,000 ft. |                 |  |  | Middle East         |  |  |  | Occidental     |  |  |  | 06/04        | 
|GSF High Island III    |  |            | 1980 |               |  |            | 250 ft.   |          |  |                  | 20,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | ChevronTexaco  |  |  |  | 04/04        | 
|GSF High Island IV     |  |            | 1980 |               |  |            | 270 ft.   |          |  |                  | 20,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | W&T            |  |  |  | 07/04        | 
|GSF Rig 124            |  |            | 1980 |               |  |            | 250 ft.   |          |  |                  | 20,000 ft. |                 |  |  | Middle East         |  |  |  | Petrobel       |  |  |  | 04/04        | 
|Glomar High Island I   |  |            | 1979 |               |  |            | 250 ft.   |          |  |                  | 20,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | ChevronTexaco  |  |  |  | 07/04        | 
|GSF Rig 103            |  |            | 1974 |               |  |            | 250 ft.   |          |  |                  | 20,000 ft. |                 |  |  | Middle East         |  |  |  | Occidental     |  |  |  | 10/04        | 
|GSF Rig 105            |  |            | 1975 |               |  |            | 250 ft.   |          |  |                  | 20,000 ft. |                 |  |  | Middle East         |  |  |  | Petrobel       |  |  |  | 12/04        | 
|Britannia              |  |            | 1968 |               |  |            | 200 ft.   |          |  |                  | 20,000 ft. |                 |  |  | North Sea           |  |  |  | Shell          |  |  |  | 10/04        | 
|GSF Adriatic VI        |  |            | 1981 |               |  |            | 225 ft.   |          |  |                  | 20,000 ft. |                 |  |  | West Africa         |  |  |  | Total Nigeria  |  |  |  | 05/04        | 
|GSF Adriatic XI        |  |            | 1983 |               |  |            | 225 ft.   |          |  |                  | 25,000 ft. |                 |  |  | North Sea           |  |  |  |               |  |  |  | Available    | 
|                      
|Semisubmersibles       |  |            |      |               |  |            |           |          |  |                  |            |                 |  |  |                     |  |  |  |                |  |  |  |              | 
|GSF Celtic Sea         |  |            | 1998 |               |  |            | 5,750 ft. |          |  |                  | 25,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | ENI (AGIP)     |  |  |  | 08/04        | 
|GSF Arctic I           |  |            | 1983 |               |  |            | 3,400 ft. |          |  |                  | 25,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | W&T            |  |  |  | 05/04        | 
|GSF Rig 135            |  |            | 1983 |               |  |            | 2,400 ft. |          |  |                  | 25,000 ft. |                 |  |  | West Africa         |  |  |  | ExxonMobil     |  |  |  | 07/04        | 
|GSF Rig 140            |  |            | 1983 |               |  |            | 2,400 ft. |          |  |                  | 25,000 ft. |                 |  |  | North Sea           |  |  |  |               |  |  |  | Available    | 
|GSF Aleutian Key       |  |            | 1976 |               |  |            | 2,300 ft. |          |  |                  | 25,000 ft. |                 |  |  | West Africa         |  |  |  | ExxonMobil     |  |  |  | 05/04        | 
|GSF Arctic III         |  |            | 1984 |               |  |            | 1,800 ft. |          |  |                  | 25,000 ft. |                 |  |  | North Sea           |  |  |  | ExxonMobil     |  |  |  | 05/04        | 
|GSF Arctic IV          |  |            | 1983 |               |  |            | 1,800 ft. |          |  |                  | 25,000 ft. |                 |  |  | North Sea           |  |  |  | BP             |  |  |  | 06/04        | 
|GSF Grand Banks        |  |            | 1984 |               |  |            | 1,500 ft. |          |  |                  | 25,000 ft. |                 |  |  | Eastern Canada      |  |  |  | Husky          |  |  |  | 07/05        | 
|GSF Arctic II          |  |            | 1982 |               |  |            | 1,200 ft. |          |  |                  | 25,000 ft. |                 |  |  | North Sea           |  |  |  |               |  |  |  | Cold-stacked | 
|Drillships             |  |            |      |               |  |            |           |          |  |                  |            |                 |  |  |                     |  |  |  |                |  |  |  |              | 
|GSF C.R. Luigs         |  |            | 2000 |               |  |            | 9,000 ft. |          |  |                  | 35,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | BHP            |  |  |  | 08/04        | 
|Glomar Jack Ryan       |  |            | 2000 |               |  |            | 8,000 ft. |          |  |                  | 35,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | Shell          |  |  |  | 03/04        | 
|Glomar Explorer        |  |            | 1998 |               |  |            | 7,800 ft. |          |  |                  | 30,000 ft. |                 |  |  | U.S. Gulf of Mexico |  |  |  | BHP            |  |  |  | 04/04        | 
|Glomar Robert F. Bauer |  |            | 1983 |               |  |            | 2,750 ft. |          |  |                  | 25,000 ft. |                 |  |  | North Africa        |  |  |  |               |  |  |  | Cold-stacked | 
|Platform               |  |            |      |               |  |            |           |          |  |                  |            |                 |  |  |                     |  |  |  |                |  |  |  |              | 
|Rig 82                 |  |            | 1968 |               |  |            | N/A       |          |  |                  | 20,000 ft. |                 |  |  | North Sea           |  |  |  | Shell          |  |  |  | 06/04        | 



---



|    |                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | As currently equipped.                                                                                                                                                                                                
|   
|(2) | Estimated based on the anticipated completion
    date of current commitments, including executed contracts,
    letters of intent, and other customer commitments for which
    contracts have not yet been executed.

Rig Types.Jackup
rigs have elevating legs which extend to the sea bottom,
providing a stable platform for drilling, and are generally
preferred in water depths of 400 feet or less. All of the
Companys jackup rigs have drilling equipment mounted on
cantilevers, which allow the equipment to extend outward from
the rigs hulls over fixed drilling platforms and enable
operators to drill both exploratory and development wells. In
addition, eight of the Companys jackups have been equipped
with skid-off packages, which allow the drilling equipment to be
transferred to fixed production platforms.

The Company owns one of the worlds largest
fleets of heavy-duty harsh environment jackup rigs in service in
the industry. Three of the Companys rigs, the GSF
Galaxy I, GSF Galaxy IIand GSF
Galaxy III, are Universe class rig designs capable of
operating in water depths up to 400 feet and are currently
qualified to operate year-round 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 GSF Monarch, GSF Monitorand GSF
Magellan, are Monarch class rig designs capable of operating
in water depths of up to 350 feet. These rigs are capable
of operating year-round in the central North Sea in water depths
of up to 300 feet.

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##### Table of Contents



Semisubmersible rigs are floating offshore
drilling units with pontoons and columns that, when flooded with
water, cause the unit to partially submerge to a predetermined
depth. Most semisubmersibles are anchored to the sea bottom, but
some use dynamic positioning (DP), which allows the
vessels to be held in position by computer-controlled
propellers, known as thrusters. Semisubmersibles are classified
into five generations, distinguished mainly by their age,
environmental rating, variable deck load and water-depth
capability. The Companys GSF Aleutian Keyis a
second-generation semisubmersible capable of drilling in water
depths up to 2,300 feet. The GSF Arctic I, GSF
Arctic II, GSF Arctic III, GSF Arctic IV, GSF Grand
Banks, GSF Rig 135 and GSF Rig 140semisubmersibles are
third-generation, conventionally-moored rigs suitable for
drilling in water depths ranging from 1,200 to 3,400 feet.
The Companys GSF Celtic Seais a fourth-generation
semisubmersible capable of drilling in water depths of up to
5,750 feet, and utilizes a mooring system that is
DP-assisted.

Drillships are generally preferred for deepwater
drilling in remote locations with moderate weather environments
because of their mobility and large load carrying capability.
The Companys GSF C.R. Luigs, Glomar Jack Ryanand
Glomar Explorerare dynamically positioned,
ultra-deepwater drillships capable of drilling in water depths
up to 9,000 feet, 8,000 feet and 7,800 feet,
respectively, as currently equipped. With modifications, maximum
water depth capabilities are 12,000 feet for the GSF
C.R. Luigsand Glomar Jack Ryan,and
10,000 feet for the Glomar Explorer. The Glomar
Robert F. Baueris a conventionally-moored drillship capable
of drilling in maximum water depths of 2,750 feet.

The Companys deepwater rigs
consist of its semisubmersibles and drillships. The Company
considers rigs with a maximum water-depth capability of
7,000 feet or more, such as the GSF C.R. Luigs, Glomar
Jack Ryanand Glomar Explorer,to be
ultra-deepwater rigs.

The Companys platform rig consists of a
number of self-contained drilling equipment packages, that, when
assembled on a customers offshore production platform,
forms a complete drilling rig.

The Company has title to all of the offshore
drilling rigs in its fleet in the table above with the exception
of the Glomar Explorer, which is subject to a 30-year
capital lease, and the GSF C.R. Luigsand Glomar Jack
Ryan, which are subject to fully defeased, 20-year capital
leases. None of the Companys offshore drilling rigs is
currently subject to any outstanding liens or mortgages.

In January 2003, in order to take advantage of an
attractive financing structure, the Company entered into a
lease-leaseback arrangement with a European bank related to the
Companys Britanniacantilevered jackup. Pursuant to
this arrangement, the Company leased the Britanniato the
bank, which then leased the rig back to the Company, each lease
being for a five-year term. The Company has classified this
arrangement as a capital lease.

The Company currently has a contract with PPL
Shipyard PTE, Ltd. of Singapore (PPL) for
construction of the GSF Constellation II, the second
of two high-performance jackups ordered from PPL. In June 2003,
the Company took delivery of the GSF
Constellation I, at a total construction cost of
$133 million, excluding an estimated $19 million of
capitalized interest, capital spares, startup expenses and
mobilization costs. Estimated cash outlays in connection with
the construction of the GSF Constellation II,
excluding capitalized interest, startup costs, capital spares
and mobilization costs, are also expected to total approximately
$133 million. The GSF Constellation IIis
expected to be delivered near the end of the first quarter of
2004.

The Company also has contracts with PPL for the
construction of two ultra-deepwater semisubmersible drilling
rigs at a cost of approximately $285 million each. The
Company has options for construction of two additional
ultra-deepwater semisubmersibles at a similar price to the two
current contracts, but does not intend to exercise these
options. Construction of the first new semisubmersible, the
GSF Development Driller I, commenced in the third
quarter of 2001, and the rig is scheduled for delivery in the
second quarter of 2004. The second ultra-deepwater
semisubmersible, the GSF Development Driller II, has
been under construction since November 2002 and is expected to
be delivered near the end of the first quarter of 2005.

The Company anticipates that this rig building
program will be funded through the Companys existing cash
and marketable securities balances and future cash flow from
operations.

10



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##### Table of Contents



Land Rig Fleet.The
majority of the Companys 31 land rigs are designed for use
in remote desert environments and generally include all
facilities necessary to support living and working in harsh and
remote environments, including accommodation camps and
inventories of repair parts and materials. Each rig 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. Three of the
rigs are equipped with special lift and roll systems
so the rigs can be quickly moved between well locations on a pad
site. An extensive fleet of specialized rig transport equipment
supports land rig operations in Kuwait and the Kuwait-Saudi
Arabia Partitioned Neutral Zone. This equipment consists
primarily of heavy-duty trucks built and equipped for desert
service. These operations are also supported by a fleet of heavy
equipment, including bulldozers, cranes and forklifts that
prepare access roads and drill site locations and facilitate the
assembly and disassembly of the land rigs.

The Company has historically concentrated its
land rig operations in the Middle East, South America and North
Africa. All of the Companys land rigs were placed into
service in 1972 or later, and, as of February 29, 2004,
their average age was approximately 14 years.

The following table lists the rigs in the
Companys land drilling fleet as of February 29, 2004,
indicating the year each rig was placed in service, rig type,
each rigs drilling depth capabilities, current location,
customer, and the date each rig is estimated to become available.

Land Rig Fleet

Status as of February 29, 2004


|           |  |            |      |          |  |                     |  |          |            |                  |  |                 |  |                  |  |  |           | 
|---------- |  | ---------- | ---- | -------- |  | ------------------- |  | -------- | ---------- | ---------------- |  | --------------- |  | ---------------- |  |  | --------- | 
|           |  | Year       |      |          |  | Drilling            |  |          |            |                  |  |                
|           |  | Placed     |      |          |  | Depth               |  |          |            |                  |  | Estimated      
|           |  | in Service |      | Rig Type |  | Capability          |  | Location |            | Current Customer |  | Availability(1)
|           |  |            |      |          |  |                     |  |          |            |                  |  |                
|Rig 180    |  |            | 1999 |          |  | National 1625       |  |          | 30,000 ft. |                  |  | Kuwait          |  | KOC              |  |  | 10/06     | 
|Rig 176    |  |            | 1999 |          |  | Ideco 3000E         |  |          | 30,000 ft. |                  |  | Venezuela       |  |                 |  |  | Available | 
|Rig 177    |  |            | 1998 |          |  | Oilwell E-3000      |  |          | 30,000 ft. |                  |  | Venezuela       |  |                 |  |  | Available | 
|Rig 174    |  |            | 1997 |          |  | EMSCO C3            |  |          | 30,000 ft. |                  |  | Saudi Arabia    |  |                 |  |  | Available | 
|Rig 173    |  |            | 1997 |          |  | Gardner Denver 3000 |  |          | 30,000 ft. |                  |  | Saudi Arabia    |  | Saudi Aramco     |  |  | 10/05     | 
|Rig 155    |  |            | 1992 |          |  | Oilwell E-3000      |  |          | 30,000 ft. |                  |  | Kuwait          |  | KOC              |  |  | 09/04     | 
|Rig 144    |  |            | 1973 |          |  | EMSCO C3            |  |          | 30,000 ft. |                  |  | Saudi Arabia    |  | Saudi Aramco     |  |  | 01/06     | 
|Rig 158    |  |            | 1992 |          |  | Oilwell E-2000      |  |          | 25,000 ft. |                  |  | Kuwait          |  | KOC              |  |  | 09/04     | 
|Rig 186    |  |            | 2002 |          |  | Oilwell E-2000      |  |          | 20,000 ft. |                  |  | Venezuela       |  |                 |  |  | Available | 
|Rig 187    |  |            | 2002 |          |  | National 1320 UE    |  |          | 20,000 ft. |                  |  | Venezuela       |  |                 |  |  | Available | 
|Rig 179    |  |            | 1998 |          |  | National 1320       |  |          | 20,000 ft. |                  |  | Venezuela       |  |                 |  |  | Available | 
|Rig 178    |  |            | 1998 |          |  | National 1320       |  |          | 20,000 ft. |                  |  | Venezuela       |  |                 |  |  | Available | 
|Rig 119    |  |            | 1979 |          |  | Oilwell E-2000      |  |          | 20,000 ft. |                  |  | Venezuela       |  | PDVSA            |  |  | 04/04     | 
|Rig 104    |  |            | 1973 |          |  | National 1320 UE    |  |          | 20,000 ft. |                  |  | Egypt           |  | Merlon Petroleum |  |  | 11/04     | 
|Rig 97     |  |            | 1973 |          |  | Oilwell E-2000      |  |          | 20,000 ft. |                  |  | Venezuela       |  |                 |  |  | Available | 
|Rig 94     |  |            | 1972 |          |  | National 110 UE     |  |          | 20,000 ft. |                  |  | Egypt           |  | Petrobel         |  |  | 10/04     | 
|Rig 157    |  |            | 1991 |          |  | Ideco 1700 UE       |  |          | 17,000 ft. |                  |  | Saudi Arabia    |  | Saudi Aramco     |  |  | 11/05     | 
|Rig 169    |  |            | 1998 |          |  | National 110 UE     |  |          | 16,000 ft. |                  |  | Kuwait          |  |                 |  |  | Available | 
|Rig 147    |  |            | 1987 |          |  | National 110 UE     |  |          | 16,000 ft. |                  |  | Kuwait          |  |                 |  |  | Available | 
|Rig 102    |  |            | 1973 |          |  | National 110 UE     |  |          | 16,000 ft. |                  |  | Kuwait          |  | KOC (JO)         |  |  | 03/04     | 
|Rig 92     |  |            | 1972 |          |  | National 1320       |  |          | 16,000 ft. |                  |  | Egypt           |  | AGIBA            |  |  | 04/04     | 
|Rig 170    |  |            | 1996 |          |  | National 110 UE     |  |          | 14,000 ft. |                  |  | Kuwait          |  |                 |  |  | Available | 
|Rig 161    |  |            | 1991 |          |  | Dreco 1250 E        |  |          | 12,000 ft. |                  |  | Kuwait          |  | KOC              |  |  | 09/04     | 
|Rig 160    |  |            | 1991 |          |  | Dreco 1250 E        |  |          | 12,000 ft. |                  |  | Kuwait          |  | KOC              |  |  | 09/04     | 
|Rig 159(2) |  |            | 1991 |          |  | Cooper LTO-750      |  |          | 8,000 ft.  |                  |  | Oman            |  |                 |  |  | Available | 
|Rig 151    |  |            | 1989 |          |  | National 80 UE      |  |          | 11,500 ft. |                  |  | Oman            |  | PDO              |  |  | 10/07     | 

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|        |  |            |      |          |  |                |  |          |            |                  |  |                 |  |          |  |  |           | 
|------- |  | ---------- | ---- | -------- |  | -------------- |  | -------- | ---------- | ---------------- |  | --------------- |  | -------- |  |  | --------- | 
|        |  | Year       |      |          |  | Drilling       |  |          |            |                  |  |                
|        |  | Placed     |      |          |  | Depth          |  |          |            |                  |  | Estimated      
|        |  | in Service |      | Rig Type |  | Capability     |  | Location |            | Current Customer |  | Availability(1)
|        |  |            |      |          |  |                |  |          |            |                  |  |                
|Rig 150 |  |            | 1989 |          |  | National 80 UE |  |          | 11,500 ft. |                  |  | Oman            |  | PDO      |  |  | 10/07     | 
|Rig 172 |  |            | 1997 |          |  | Oilwell 660-E  |  |          | 10,000 ft. |                  |  | Kuwait          |  | KOC      |  |  | 09/04     | 
|Rig 171 |  |            | 1997 |          |  | Oilwell 660-E  |  |          | 10,000 ft. |                  |  | Kuwait          |  |         |  |  | Available | 
|Rig 146 |  |            | 1987 |          |  | Kremco 750     |  |          | 10,000 ft. |                  |  | Kuwait          |  |         |  |  | Available | 
|Rig 143 |  |            | 1983 |          |  | Ideco H37 ED   |  |          | 6,500 ft.  |                  |  | Egypt           |  | Petrobel |  |  | 07/04     | 



---



|    |                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Estimated based on the anticipated completion
    date of current commitments, including executed contracts,
    letters of intent, and other customer commitments for which
    contracts have not yet been executed.
|   
|(2) | Rig 159was returned
    to the Companys operating fleet in the third quarter of
    2003. This rig was designated as held for sale at
    December 31, 2002.                                                         

The Company has title to all of the land drilling
rigs in its fleet. The Companys Rig 187land rig in
Venezuela is presently encumbered by a lien asserted by the
Venezuelan tax authorities in connection with certain assessed
retroactive tax liabilities. Although this claim restricts the
Companys ability to export the rig from Venezuela, the
Company does not believe that the claim will impact the
operations of the rig within Venezuela. The Company is
contesting the imposition of the lien and the various assertions
of the tax authorities. The Company has the option of posting a
bond with the Venezuelan authorities to release this claim. None
of the Companys other land rigs is currently subject to
any outstanding liens or mortgages.

Third-Party Rig
Operations.The Companys
third-party rig operations consist primarily of semisubmersible
rig operations in the Caspian Sea. See  Joint
Venture, Agency and Sponsorship Relationships and Other
Investments. Effective November 1, 2003, the Company
discontinued its maintenance operations related to nine
third-party owned oil and gas platforms in the North Sea, and,
as of February 29, 2004, the Company maintained two
platform rigs in the North Sea for third parties. Platform rig
operations have historically not had a material effect on the
Companys consolidated operating results.

Backlog.The
Companys contract drilling backlog at December 31,
2003, was $996.6 million, consisting of $930.8 million
related to executed contracts and $65.8 million related to
customer commitments for which contracts had not yet been
executed as of December 31, 2003. Approximately
$513.7 million of the backlog is expected to be realized in
2004. The Companys contract drilling backlog at
December 31, 2002, was $1.2 billion and included
$132.2 million attributable to customer commitments for
which contracts had not yet been executed as of that date.

Drilling Contracts and Major
Customers.Contracts to employ the
Companys drilling rigs extend over a specified period of
time or the time required to drill a specified well or number of
wells. While the final contract for employment of a rig is the
result of negotiations between the Company and the customer,
most contracts are awarded based upon competitive bidding. The
rates specified in drilling contracts are generally on a dayrate
basis and vary depending upon the type of rig employed,
equipment and services supplied, geographic location, term of
the contract, competitive conditions and other variables. Each
contract provides for a basic dayrate during drilling
operations, and may also include performance premiums or lower
rates or provision for no payment for periods of equipment
breakdown, adverse weather or other conditions which may be
beyond the Companys control. When a rig mobilizes to or
demobilizes from an operating area, a contract may provide for
different dayrates, specified fixed amounts or no payment during
the mobilization or demobilization. In some cases, a contract
may be terminated by the customer if drilling operations are
suspended for a specified period of time due to a breakdown of
major equipment, in the event of poor operational, safety or
environmental performance not remedied by the Company within a
specified period, or if other events occur that are beyond
either partys control. A contract may also be terminated
by the customer if the rig is destroyed. In addition, certain
contracts are cancellable upon specified notice at the option of
the customer.

The Companys business is subject to the
usual risks associated with having a limited number of customers
for its services. Two customers each accounted for more than 10%
of consolidated revenues in 2003: Total S.A. (Total)
provided $234.2 million of contract drilling revenues, and
ExxonMobil provided

12



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##### Table of Contents



$231.6 million of contract drilling
revenues. One customer accounted for more than 10% of
consolidated revenues in 2002: ExxonMobil provided
$267.7 million of contract drilling revenues and
$0.1 million of drilling management services revenues. Two
customers each accounted for more than 10% of consolidated
revenues in 2001: ExxonMobil provided $180.1 million of
contract drilling revenues, and BP provided $146.0 million
of contract drilling revenues and $1.6 million of drilling
management services revenues. The Companys results of
operations could suffer a material adverse effect if any of its
major customers terminates its contracts with the Company, fails
to renew the Companys existing contracts or refuses to
award new contracts to the Company. See Risk
Factors  The Company Relies Heavily on a Small Number
of Customers and the Loss of a Significant Customer Could Have a
Material Adverse Impact on the Companys Financial
Results.


Drilling Management Services

The Company provides drilling management
services, including turnkey, project management and daywork
services, primarily through a wholly owned subsidiary, Applied
Drilling Technology Inc. (ADTI), and through ADT
International, a division of one of the Companys U.K.
subsidiaries. ADTI operates primarily in the U.S. Gulf of
Mexico, and ADT International operates internationally. Under a
turnkey arrangement, the Company will assume responsibility for
the design and execution of a well and deliver a logged or cased
hole to an agreed depth for a guaranteed price. Compensation is
contingent upon satisfactory completion of the drilling program.
Under the Companys turnkey drilling operations, the
Company provides planning, engineering and management services
beyond the scope of its traditional contract drilling business
and thereby assumes greater risk. In the Companys project
management operations, the Company provides certain planning,
management and engineering services, purchases equipment and
provides personnel and other logistical services to customers.
Project management services differ from turnkey drilling
services in that the customer retains control of the drilling
operations and thus retains the risk associated with the project.

The Companys drilling management services
business is also subject to the usual risks associated with
having a limited number of customers for its services. One
customer, BG Group, accounted for $98.9 million, or 18.7%,
of drilling management services revenues in connection with
project management operations in the North Sea in 2003,
substantially all of which were reimbursable revenues.
Reimbursable revenues represent reimbursements received from the
client for certain out-of-pocket expenses and have no effect on
operating income. No turnkey drilling customer accounted for
more than 10% of drilling management services revenues for 2003.
One customer, Encana (U.K.) Ltd., accounted for
$44.3 million, or 10.6%, of drilling project management
services revenues in connection with project management
operations in the North Sea in 2002, substantially all of which
were reimbursable revenues. No turnkey drilling customer
accounted for more than 10% of drilling management services
revenues for 2002. See Risk Factors  The
Company Relies Heavily on a Small Number of Customers and the
Loss of a Significant Customer Could Have a Material Adverse
Impact on the Companys Financial Results.

As of December 31, 2003, the Companys
drilling management services revenue backlog was an estimated
$42 million, all of which is expected to be realized in
2004. The Companys drilling management services backlog
was an estimated $118 million at December 31, 2002.

Oil and Gas Operations

The Company conducts oil and gas exploration,
development and production activities through its wholly owned
subsidiary, Challenger Minerals Inc. (CMI). CMI
acquires its interests in oil and gas properties principally in
order to facilitate the acquisition of turnkey contracts for the
Companys drilling management services operations. In this
capacity, CMI facilitated the acquisition of 24 projects (15
turnkey wells and nine completions) in 2003. CMI participated in
14 of these turnkey wells, of which 7 proved successful. In
certain circumstances, CMI also acquires interests in oil and
gas properties to facilitate the acquisition of dayrate
contracts for the Companys offshore rigs. The
Companys oil and gas activities are conducted primarily in
the North Sea and in the United States offshore Louisiana and
Texas. In December 2003, CMI participated in a drilling project
in West Africa off the coast of Mauritania. The results of this
drilling project are currently being evaluated.

13



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##### Table of Contents



Joint Venture, Agency and Sponsorship
Relationships and Other Investments

In some areas of the world, local customs and
practice or governmental requirements necessitate the formation
of joint ventures with local participation, which the Company
may or may not control. The Company is a participant in several
joint venture drilling companies, principally in
Azerbaijan, Indonesia, Malaysia, Nigeria and Oman.

In Azerbaijan, the semisubmersibles Istiglaland Dada Gorgudoperate under long-term bareboat
charters. The Istiglalis bareboat chartered to and
operated by the joint venture Caspian Drilling Company Limited,
in which the Company holds a 45% ownership interest, until
October 2006. The Dada Gorgudis bareboat chartered to
the Company until October 2006 or the later termination of the
Companys current drilling contract with the Azerbaijan
International Operating Company. The Company has subcontracted
operations of the Dada Gorgudto Caspian Drilling Company
Limited.

The Company also participates in a joint venture
that operates a petroleum supply base in Indonesia. The
Indonesian supply base, in which the Company holds a 42%
ownership interest, is located at Merak Point on the western
portion of the island of Java. It provides both open and covered
storage and bulk chemical trans-shipment facilities. The land
lease for this supply base extends through 2030. The joint
venture is currently offering this supply base for sale.

The Company also has a passive minority interest
in a Libyan drilling company managed by non-U.S. persons
that is and has been managed in accordance with applicable trade
laws and regulations and is accounted for on the cost basis.

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

Risk Factors



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A Material or Extended Decline in
    Expenditures By the Oil and Gas Industry, Due to a Decline or
    Volatility in Oil and Gas Prices, a Decrease in Demand for Oil
    and Gas or Other Factors, Could Significantly Reduce the
    Companys Revenue and Income.

The Companys business depends on the level
of offshore and onshore oil and natural gas exploration,
development and production activity in markets worldwide. Prices
and demand for oil and natural gas, and market expectations of
potential changes in demand and prices, significantly affect
this level of activity. Worldwide military, political and
economic events have contributed to oil and natural gas price
volatility and are likely to continue to do so in the future.
Numerous factors may affect oil and natural gas prices and,
accordingly, the level of demand for the Companys
services, including:



| |   |                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | worldwide demand for oil and natural gas;                                                                                                                                                                                                                                                                        
|
| |  | the ability of the Organization of Petroleum
    Exporting Countries, or OPEC, to set and maintain production
    levels and pricing;                                                                                                                                                                            
|
| |  | the level of production by non-OPEC countries;                                                                                                                                                                                                                                                                   
|
| |  | Changes in supply and demand resulting from the
    development of liquefied natural gas markets;                                                                                                                                                                                                                
|
| |  | the worldwide military or political environment,
    including uncertainty or instability resulting from the
    situation in Iraq or other armed hostilities in the Middle East
    or other geographic areas in which the Company operates, or
    further acts of terrorism in the United States or elsewhere;
|
| |  | labor, political or other disruptions that limit
    exploration, development and production in oil-producing
    countries, such as has been experienced from time to time in
    various developing countries;                                                                                                 
|
| |  | domestic and foreign tax policy;                                                                                                                                                                                                                                                                                 

14



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##### Table of Contents





| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | laws and governmental regulations that restrict
    exploration and development of oil and natural gas in various
    jurisdictions;
|
| |  | advances in exploration and development
    technology; and                                                                         
|
| |  | further consolidation of the Companys
    customer base.                                                                           

Depending on the market prices of oil and natural
gas, companies exploring for oil and gas may cancel or curtail
their drilling programs, thereby reducing demand for drilling
services. Even during periods of high prices for oil and natural
gas, companies exploring for oil and gas may cancel or curtail
programs, or reduce their levels of capital expenditures for
exploration and production for a variety of reasons. Any
reduction in the demand for drilling services may materially
erode dayrates and utilization rates for the Companys rigs
and adversely affect its financial results.



| |                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Intense Price Competition and
    Cyclicality of the Drilling Industry, Which Is Marked By Periods
    of Low Demand, Excess Rig Availability and Low Dayrates, Could
    Have a Material Adverse Affect on the Companys Revenues
    and Profitability.

The contract drilling business is highly
competitive with numerous industry participants. The industry
has experienced consolidation in recent years and may experience
additional consolidation. Recent mergers among oil and natural
gas exploration and production companies have reduced the number
of available customers.

Drilling contracts are, for the most part,
awarded on a competitive bid basis. Price competition is often
the primary factor in determining which qualified contractor is
awarded a job, although rig availability and the quality and
technical capability of service and equipment are also factors.
The Company competes with numerous offshore drilling
contractors, one of which is larger and has greater resources
than the Company. Further, the Companys business is
subject to the risks associated with having a limited number of
customers for its services.

The Company may be required to idle rigs or to
enter into lower dayrate contracts in response to market
conditions in the future. The industry in which the Company
operates historically has been cyclical, marked by periods of
low demand, excess rig supply and low dayrates, followed by
periods of high demand, short rig supply and increasing
dayrates. Periods of excess rig supply intensify the competition
in the industry and often result in rigs being idled. Several
markets in which the Company operates are currently
oversupplied. Lower utilization and dayrates in one or more of
the regions in which the Company operates would adversely affect
its revenues and profitability. Prolonged periods of low
utilization and dayrates could also result in the recognition of
impairment charges on certain of the Companys drilling
rigs if future cash flow estimates, based upon information
available to management at the time, indicate that the carrying
value of these rigs may not be recoverable.



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | War, Other Armed Conflicts or Terrorist
    Attacks Could Result in a Material Adverse Effect on the
    Companys Business.

The continuing unrest in Iraq, increasing tension
with regard to North Korea, as well as the terrorist attacks of
September 11, 2001, and subsequent terrorist attacks and
unrest have significantly increased political and economic
instability in some of the geographic areas in which the Company
operates and have caused instability in the worlds
financial and insurance markets. The Companys operations
in Kuwait, Saudi Arabia and elsewhere in the Middle East could
be adversely affected by post-war conditions in Iraq if armed
hostilities, acts of terrorism or other unrest persist. Acts of
terrorism and threats of armed conflicts elsewhere in the Middle
East and in or around various other areas in which the Company
operates, such as Indonesia, could also limit or disrupt its
markets and operations. Further hostilities or additional acts
of terrorism in these regions could result in the evacuation of
personnel, cancellation of drilling contracts or the loss of
personnel or assets. In addition, the attacks of
September 11, 2001, led to war in Afghanistan and may lead
to armed hostilities or to further acts of terrorism in the
United States or elsewhere, and such acts of terrorism could be
directed against companies such as ours. Armed conflicts,
terrorism and their effects on the Company or its markets could
significantly affect its business in the future. United States
government regulations effectively

15



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##### Table of Contents



preclude the Company from actively engaging in
business activities in certain countries, including
oil-producing countries such as Iran and Libya. These
regulations could be amended to cover countries where the
Company currently operates or where it may wish to operate in
the future. Immediately following the events of September 11th,
the Companys war risk and terrorist insurance underwriters
cancelled those coverages in accordance with the terms of the
policies and would only reinstate them for significantly higher
premiums. The Company has reinstated and currently maintains war
and terrorism coverage for physical damage to its entire fleet.
Such war and terrorism coverage is generally cancelable by
underwriters on forty-eight hours notice, and,
accordingly, underwriters could cancel completely or cancel and
then offer to reinstate on terms that may not be acceptable to
the Company following any future acts of terrorism or armed
conflicts in and around the various areas in which the Company
operates. The Company may not have insurance to cover any or all
of its liabilities to our personnel for death or injury caused
by terrorist acts. These developments will subject the
Companys worldwide operations to increased risks and,
depending on their magnitude, could have a material adverse
effect on the Companys business.




| |                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company Does Not Have A Drilling
    Contract for One of Its Semisubmersibles Under Construction, and
    Without a Contract This Vessel Will Not Generate Revenues
    Following Completion of Construction.

The Company currently has one premium jackup rig
and two ultra-deepwater semisubmersible rigs under construction.
The Company has a three-year contract with BP America
Production Company (BP) for the use of the
semisubmersible GSF Development Driller IIfor
BPs Atlantis project in the U.S. Gulf of Mexico
beginning in July 2005. The Company has also received a
commitment from Total to use the premium jackup rig GSF
Constellation IIfor a six-well project off the coast
of Argentina beginning in August 2004. The Company is actively
marketing the semisubmersible GSF Development Driller I,but this vessel has not secured a contract for deployment
upon completion, which is scheduled for the second quarter of
2004. The Companys ability to obtain a contract for this
rig and the terms of any such contract will depend on market
conditions. Historically, the industry has experienced prolonged
periods of overcapacity, during which many rigs were idle for
long periods of time. The Company may not be able to obtain
contracts for all of its new or existing rigs and future
contract terms may not be similar to those for similar equipment
in current market conditions.



| |                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A Competitor Is Seeking to Enjoin the
    Companys Use of the Dual Drilling Capabilities in United
    States Waters of the Two Semisubmersibles Under Construction,
    and If Such an Injunction Were Issued in the United States or
    Elsewhere, the Companys Ability to Market, Obtain
    Contracts for and Generate Revenues From the Vessels Could be
    Adversely Affected.

The Company and two of its subsidiaries are
defendants in a lawsuit filed on July 28, 2003, by
Transocean Inc. (Transocean) in the United States
District Court for the Southern District of Texas, Houston
Division. The lawsuit alleges that the dual drilling structure
and method utilized by the Companys two ultra-deepwater
semisubmersibles under construction in Singapore infringe on
United States patents granted to Transocean. The lawsuit seeks
damages, royalties and attorneys fees, together with an
injunction preventing the Companys use of the dual
drilling activity structure and method in the U.S. The dual
drilling activity structure of these semisubmersibles consists
of multiple activity features which enable dual simultaneous
drilling operations on the drill floor and on the main deck and
are designed to deliver improved performance efficiencies. If
granted, this injunction would preclude the use of the dual
drilling capabilities in U.S. waters by the Companys
two ultra-deepwater semisubmersibles currently under
construction. If that occurs, it may be more difficult for the
Company to market and obtain contracts for the rigs or it may
have an adverse effect on the terms of any contracts for those
rigs which are obtained, including on the dayrate of the
contract. Accordingly, if Transocean is successful in its
action, the revenues generated from the semisubmersibles may be
adversely affected. Transocean has patents in most other
jurisdictions in which the Company might choose to market the
rigs and, if it brings similar actions in one or more of these
jurisdictions and is successful, the Companys ability to
use the dual drilling activity structure and method in those
jurisdictions would be restricted as well.

16



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##### Table of Contents





| |                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Turnkey Drilling Operations are Contingent
    on the Companys Ability to Win Bids and on Rig
    Availability, and the Failure to Win Bids or Obtain Rigs for Any
    Reason May Have an Adverse Effect on the Companys
    Financial Results.

The Companys results of operations from its
drilling management services may be limited by the
Companys ability to obtain and successfully perform
turnkey drilling contracts based on competitive bids, as well as
other factors. The Companys ability to obtain turnkey
drilling contracts will largely depend on the number of these
contracts available for bid, which in turn will be influenced by
market prices for oil and natural gas, among other factors.
Accordingly, results of the Companys drilling management
service operations may vary widely from quarter to quarter and
from year to year. Furthermore, its ability to enter into
turnkey drilling contracts may be constrained from time to time
by the availability of GlobalSantaFe or third party drilling
rigs.



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Turnkey Drilling Operations Expose the
    Company to Additional Risks, Which Could Adversely Affect Its
    Profitability, Because the Company Assumes the Risk for
    Operational Problems and the Contracts Are on a Fixed-Price
    Basis.

The Company enters into a significant number of
turnkey contracts each year. The Companys compensation
under turnkey contracts depends on whether it successfully
drills to a specified depth or, under some of its contracts,
completes the well. Unlike dayrate contracts, where ultimate
control is exercised by the operator, the Company will be
exposed to additional risks when serving as a turnkey drilling
contractor because the Company will make all critical decisions.
Under a turnkey contract, the amount of the Companys
compensation will be fixed at the amount it bids to drill the
well. Thus, the Company will not be paid if operational problems
prevent performance unless the Company chooses to drill a new
well at its own expense. Further, the Company must absorb the
loss if unforeseen problems arise that cause the cost of
performance to exceed the turnkey price. By contrast, in a
dayrate contract, the customer generally retains these risks.
The cost of contingencies could exceed budgeted amounts. The
Company is not insured against all of these risks associated
with turnkey drilling operations.



| |                                                                        
| | -----------------------------------------------------------------------
| | Failure to Obtain and Retain Key Personnel
    Could Impede Operations.

The Company requires highly skilled personnel to
operate and provide technical services and support for its
business. Competition for the skilled and other labor required
for deepwater and other drilling operations intensifies as the
number of rigs activated or added to worldwide fleets or under
construction increases. The Company currently has one premium
jackup rig and two deepwater semisubmersible rigs under
construction. The Company must hire full crews for these rigs
before they commence operations in addition to its routine
requirements for drilling crews. In periods of high utilization
the Company has found it more difficult to find qualified
individuals, and the possibility exists that competition for
skilled and other labor for deepwater and other operations could
limit the Companys results of operations.



| |                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company Relies Heavily on a Small
    Number of Customers, and the Loss of a Significant Customer
    Could Have an Adverse Impact on the Companys Financial
    Results.

The Companys contract drilling business is
subject to the usual risks associated with having a limited
number of customers for its services. Total S.A. and ExxonMobil
each provided approximately 12% of the Companys
consolidated revenues in 2003. The Companys five next
largest customers for 2003 (ChevronTexaco, BP, BG, BHP and
AGIP), none of which individually represented more than 10% of
revenues, accounted in the aggregate for approximately 27% of
the Companys 2003 consolidated revenues. ExxonMobil
provided approximately 13% of the Companys consolidated
revenues in 2002. The Companys five next largest customers
for 2002 (ChevronTexaco, BP, Shell, Total and BHP), none of
which individually represented more than 10% of consolidated
revenues, accounted in the aggregate for approximately 35% of
the Companys 2002 consolidated revenues. The
Companys results of operations could be materially
adversely affected if any of its major customers terminates its
contracts with the Company, fails to renew its existing
contracts or refuses to award new contracts to the Company.

17



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The Companys drilling management services
business is also subject to the usual risks associated with
having a limited number of customers for its services. One
customer, BG Group, accounted for $98.9 million, or 18.7%,
of drilling management services revenues in connection with
project management operations in the North Sea in 2003,
substantially all of which were reimbursable revenues.
Reimbursable revenues represent reimbursements received from the
client for certain out-of-pocket expenses and have no effect on
operating income. The Companys five next largest drilling
management services customers, none of which individually
represented more than 10% of drilling management services
revenues, accounted in the aggregate for approximately 27% of
the Companys drilling management services revenues for
2003. One customer, Encana (U.K.) Ltd., accounted for
$44.3 million, or 10.6%, of drilling management services
revenues in connection with project management operations in the
North Sea in 2002, substantially all of which were reimbursable
revenues. The Companys five next largest drilling
management services customers, none of which individually
represented more than 10% of drilling management services
revenues, accounted in the aggregate for approximately 32% of
the Companys drilling management services revenues for
2002.



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | The Company May Suffer Losses If Its
    Customers Terminate or Seek to Renegotiate Their
    Contracts.

Certain of the Companys contracts with
customers may be cancellable upon specified notice at the option
of the customer. Other contracts require the customer to pay a
specified early termination payment upon cancellation, which
payments may not fully compensate the Company for the loss of
the contract. 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 of time by reason
of acts of God or excessive rig downtime for repairs, or other
specified conditions. Early termination of a contract may result
in a rig being idle for an extended period of time. The
Companys revenues may be adversely affected by
customers early termination of contracts, especially if
the Company is unable to recontract the affected rig within a
short period of time. During depressed market conditions, a
customer may no longer need a rig that is currently under
contract or may be able to obtain a comparable rig at a lower
daily rate. As a result, customers may seek to renegotiate the
terms of their existing drilling contracts or avoid their
obligations under those contracts. The renegotiation of a number
of the Companys drilling contracts could adversely affect
the Companys financial position, results of operations and
cash flows.



| |                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Rig Upgrade, Refurbishment and Construction
    Projects, Including the Companys Current Semisubmersibles
    and Premium Jackup Rig Construction Projects, Will Be Subject to
    Risks Including Delays and Cost Overruns, Which Could Have a
    Material Adverse Impact on the Companys Results of
    Operations.

The Company currently has two ultra-deepwater
semisubmersible rigs and one premium jackup rig under
construction. In addition, the Company may make major upgrade
and refurbishment expenditures for its fleet. Rig upgrade,
refurbishment and construction projects are subject to the risks
of delay or cost overruns inherent in any large construction
project, including the following:



| |   |                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------
| |  | shortages of materials or skilled labor;                                                                
|
| |  | unforeseen engineering problems;                                                                        
|
| |  | unanticipated actual or purported change orders;                                                        
|
| |  | work stoppages;                                                                                         
|
| |  | financial or operating difficulties of the
    shipyard upgrading, refurbishing or constructing the rig;
|
| |  | adverse weather conditions;                                                                             
|
| |  | unanticipated cost increases; and                                                                       
|
| |  | inability to obtain any of the requisite permits
    or approvals.                                      

Significant cost overruns or delays could
materially and adversely affect the Companys financial
condition and results of operations. In addition, the
Companys premium jackup and ultra-deepwater
semisubmersibles currently under construction will employ
advancements in technology that may lead to

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certain difficulties, both operational and legal,
as to the Companys use of this technology. The
Companys inability to use this technology, or to use it
efficiently, could result in additional downtime or could render
these rigs less competitive in the marketplace.




| |                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys Business Involves
    Numerous Operating Hazards and It Is Not Fully Insured Against
    All of Them; the Occurrence of an Uninsured or Unidentified
    Event Could Have a Material Adverse Effect on the Companys
    Results and Financial Condition.

The Companys operations are subject to the
usual hazards incident to the drilling of oil and natural gas
wells, including blowouts, explosions, oil spills and fires. The
Companys activities are also subject to hazards peculiar
to marine operations, such as collision, grounding, and damage
or loss from severe weather.

All of these hazards can cause personal injury
and loss of life, severe damage to and destruction of property
and equipment, pollution or environmental damage and suspension
of operations. The Company insures against, or will have
indemnification from customers for some, but not all, of these
risks. The Company does not generally insure against loss of
revenue for rigs that are damaged or destroyed. The
Companys insurance contains various deductibles and
limitations on coverage and deductibles. In light of the current
volatility in the insurance markets and recent significant
increases in rates, the Company may elect to change its
insurance coverage, including by increasing deductibles,
retentions and other limitations on coverage. Changes in
coverage such as those would effectively increase the amount of
risk against which the Company is not insured.

As a result of poor underwriting results suffered
by the insurance industry over the past few years and the
catastrophic events of September 11, 2001, the Company has
been faced with the prospect of paying significantly higher
insurance premiums and/or significantly increasing its
deductibles in order to offset or mitigate premium increases. As
compared with its insurance obtained in the summer of 2001, the
Companys current insurance has a similar annual premium,
but it is subject to significantly higher deductibles. Most
notably, the Companys deductible for insurance for rig
physical damage increased from less than $500,000 to
$10 million per occurrence, subject to a $20 million
aggregate deductible. The Company may face increases in premiums
or deductibles or both in the future.

The occurrence of a significant event, including
terrorist acts, war, civil disturbances, pollution or
environmental damage, not fully insured or indemnified against
or the failure of a customer to meet its indemnification
obligations, could materially and adversely affect the
Companys operations and financial condition. The Company
may not be able to maintain adequate insurance in the future at
rates it considers reasonable or be able to obtain insurance
against certain risks.



| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Companys International Operations
    Involve Additional Risks Not Generally Associated With Domestic
    Operations, Which Could Have a Material Adverse Effect on the
    Companys Operations or Financial Results.

Risks associated with the Companys
international operations, any of which could limit or disrupt
its markets or operations, include heightened risks of:



| |   |                                                                                  
| | - | ---------------------------------------------------------------------------------
| |  | terrorist acts, war and civil disturbances;                                      
|
| |  | expropriation or nationalization of assets;                                      
|
| |  | renegotiation or nullification of existing
    contracts;                        
|
| |  | foreign taxation, including changes in law or
    interpretation of existing law;
|
| |  | assaults on property or personnel;                                               
|
| |  | changing political conditions;                                                   
|
| |  | foreign and domestic monetary policies; and                                      

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| |   |                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------
| |  | travel limitations or operational problems caused
    by Severe Acute Respiratory Syndrome (SARS) or other public
    health threats.

Additionally, the Companys ability to
compete in the international drilling market may be adversely
affected by non-U.S. governmental regulations favoring or
requiring the awarding of drilling contracts to local
contractors or requiring foreign contractors to employ citizens
of, or purchase supplies from, a particular jurisdiction.
Furthermore, foreign governmental regulations, which may in the
future become applicable to the oil and natural gas industry,
could reduce demand for the Companys services, or such
regulations could directly affect the Companys ability to
compete for customers.

Eight of the Companys land drilling rigs
are located in Venezuela, which has been experiencing labor
strikes and demonstrations, and in 2002 experienced an attempt
to overthrow the government. The implications and results of the
political, economic and social instability in Venezuela are
uncertain at this time, but the instability has had and could
continue to have an adverse effect on the Companys
business.

Due to the Companys structure and extensive
foreign operations, the Companys effective tax rate is
based on the provisions of numerous tax treaties, conventions
and agreements between various countries and taxing
jurisdictions, as well as the tax laws of many jurisdictions.
Changes in one or more of these tax regimes or changes in the
interpretation of existing laws in these regimes could also have
a material adverse effect on the Company.



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | SARS or Other Public Health Threats Could
    Have a Material Adverse Effect on the Companys
    International Operations and Its Financial
    Results.

SARS is a highly communicable disease, outbreaks
of which occurred early in 2003 in Southeast Asia and other
parts of the world in which the Company operates. Travel
restrictions and quarantines imposed primarily in Southeast Asia
posed some interference with the Companys operations
during 2003. Scientists are predicting that SARS may reappear.
The reappearance of SARS or other public health threats could
adversely impact the global economy, the worldwide demand for
oil and natural gas and the level of demand for the
Companys services. SARS or other public health threats
could also bring about quarantines of Company personnel, the
inability to access the Companys offices or rigs, or
restrictions on travel to or through countries in which the
Company operates. These restrictions could curtail the
Companys ability to operate its rigs. The SARS outbreak
early in 2003 was most severe in Southeast Asia where the
Company conducts operations and maintains offices (in Indonesia,
Malaysia, Thailand and Vietnam). The Company also has two
deepwater semisubmersible rigs and a premium jackup rig under
construction in Singapore. Any quarantine of personnel or
inability to access the Companys offices or rigs could
adversely affect the Companys operations, including
delaying the delivery of the three rigs under construction.
Travel restrictions or operational problems in any part of the
world in which the Company operates, or any reduction in the
demand for drilling services caused by SARS or other public
health threats in the future, may materially impact operations
and adversely affect the Companys financial results.



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company May Suffer Losses as a Result
    of Foreign Exchange Restrictions, Foreign Currency Fluctuations
    and Limitations on the Ability to Repatriate Income or Capital
    to the U.S.

A majority of the Companys international
drilling and services contracts are partially payable in local
currency in amounts that are generally intended to approximate
the Companys estimated local operating costs, with the
balance of the payments under the contract payable in
U.S. dollars (except in Kuwait, Malaysia and Saudi Arabia,
where the Company will likely be paid entirely in local
currency). In certain jurisdictions, including Egypt and
Nigeria, regulations exist which determine the amounts payable
in local currency. Those amounts can exceed the local currency
costs being incurred, leading to accumulations of excess local
currency, which in certain instances can be subject to either
temporary blocking or difficulties in converting to
U.S. dollars. To the extent that the Companys
revenues denominated in local currency do not equal its local
operating expenses, or during periods of idle time when no
revenue is earned, the Company is exposed to currency exchange
transaction losses, which could materially and adversely affect
the Companys

20



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results of operations and financial condition.
The Company has not historically entered into financial hedging
arrangements to manage risks relating to fluctuations in
currency exchange rates.




| |                                                                                   
| | ----------------------------------------------------------------------------------
| | Laws and Governmental Regulations May Add
    to Costs or Limit Drilling Activity.

The Companys business is affected by
changes in public policy and by federal, state, foreign and
local laws and regulations relating to the energy industry. The
drilling industry is dependent on demand for services from the
oil and natural gas exploration and production industry and,
accordingly, the Company will be directly affected by the
adoption of laws and regulations curtailing exploration and
development drilling for oil and natural gas for economic,
environmental and other policy reasons. The Company may be
required to make significant capital expenditures to comply with
governmental laws and regulations. It is also possible that
these laws and regulations may in the future add significantly
to the Companys operating costs or may significantly limit
drilling activity.

Governments in some non-U.S. countries have
become increasingly active in regulating and controlling the
ownership of concessions, companies holding concessions, the
exploration of oil and natural gas and other aspects of the oil
and natural gas industries in these countries. In some areas of
the world, this governmental activity has adversely affected the
amount of exploration and development work done by major oil
companies and may continue to do so.



| |                                                                   
| | ------------------------------------------------------------------
| | The Company May Be Limited in Its Use of
    Net Operating Losses.

The Companys ability to realize the benefit
of its deferred tax asset requires that the Company achieve
certain future earnings levels prior to the expiration of its
net operating loss (NOL) carryforwards. The Company
has established a valuation allowance against the future tax
benefit of a portion of its NOL carryforwards and could be
required to record an additional valuation allowance if market
conditions change materially and future earnings are, or are
projected to be, significantly different from the Companys
current estimates. The Companys NOL carryforwards are
subject to review and potential disallowance upon audit by the
tax authorities in the jurisdictions where the loss was incurred.

As of December 31, 2003, the Company had
approximately $679.1 million of NOL carryforwards for
U.S. federal income tax purposes, including an NOL
carryforward of $408.4 million at November 19, 2001,
related to Global Marine. The NOL carryforwards are scheduled to
expire from 2004 to 2024. The Companys NOL carryforwards
are subject to review and potential disallowance upon audit by
tax authorities. Section 382 of the U.S. Internal
Revenue Code could limit the future use of all or some of the
U.S. NOL carryforwards if the direct and indirect ownership
of stock of the relevant company changes by more than 50% in
certain circumstances over a prescribed testing period. The
Internal Revenue Service may take the position that the Merger
consummated pursuant to the business combination of
Santa Fe International and Global Marine caused a
greater-than-50-percent ownership change with respect to Global
Marine. If the Merger did not result in such an ownership
change, changes in the ownership of the Companys ordinary
shares following the Merger could result in such an ownership
change. In the event of such an ownership change, the
Section 382 rules would limit the utilization of the NOL
carryforwards of Global Marine in each taxable year ending after
the ownership change to an amount equal to a federal long-term
tax-exempt rate published monthly by the Internal Revenue
Service, multiplied by the fair market value of all of Global
Marines stock at the time of the ownership change. For
purposes of this calculation, the value of Global Marines
stock could also be subject to adjustments, thereby further
limiting the Companys ability to utilize its NOL
carryforwards in each taxable year thereafter.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Proposed United States Tax Law Changes
    Could Reduce the Companys Net Income.

Starting in 2002, various changes to the
U.S. federal income tax code were proposed that, if
enacted, could adversely affect the Companys United States
federal income tax position. Many of the proposed changes target
United States corporations that have expatriated to a foreign
jurisdiction and would in certain cases treat such corporations
as United States corporations for United States federal income
tax purposes. Several of the proposals would have retroactive
application and would treat the Company as a United States

21



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corporation. Some of the proposals would impose
additional limitations on the deductibility for United States
federal income tax purposes of certain intercompany
transactions, including intercompany interest expense. These
proposals would reduce or eliminate the Companys ability
to deduct interest expense on its intercompany debt, the benefit
of which was approximately $27 million in 2003 and is
expected to be the same in 2004.


At this time, it is impossible to predict what
changes, if any, may be enacted and, if enacted, what effect
such changes may have on the Company. However, there is a risk
that changes to U.S. tax laws could substantially increase
the Companys income tax costs. If this were to occur, such
changes could have a material adverse effect on the
Companys financial position and future results of
operations.



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | The Company May Be Required to Accrue
    Additional Tax Liability on Certain Earnings.

The Company has not provided for
U.S. deferred taxes on the unremitted earnings of its
U.S. subsidiaries and their foreign subsidiaries
(U.S. Subsidiaries) that are permanently
reinvested outside the U.S. Should the Company make a
distribution from the unremitted earnings of its
U.S. Subsidiaries, the Company would be required to record
additional U.S. deferred taxes that, if material, would
have an adverse effect on the Companys financial position,
results of operations and cash flows.

Taxes have not been provided for in circumstances
where management expects that, due to the changing demands of
the offshore drilling markets, the Companys rigs are more
likely than not to be redeployed to other locations before those
rigs operate in certain jurisdictions long enough to give rise
to future tax consequences. In 2003, management revised its
expectations relative to the continuing deployment and future
tax consequences for one such rig and recorded a deferred tax
liability of $24.1 million due to this change in
circumstance. Should managements expectations change
regarding the length of time other rigs will be operating in a
given location, the Company may be required to record additional
deferred income taxes that could have a material adverse effect
on its financial position, results of operations and cash flows.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | Governmental Regulations and Environmental
    Matters Could Significantly Affect the Companys
    Operations.

The Companys operations are subject to
numerous federal, state, and local laws and regulations
controlling the discharge of materials into the environment or
otherwise relating to the protection of the environment. As a
result, the application of these laws could have a material
adverse effect on the Companys results of operations by
increasing the Companys cost of doing business,
discouraging its customers from drilling for hydrocarbons or
subjecting the Company to liability. For example, the Company,
as an operator of mobile offshore drilling units in navigable
U.S. waters and certain offshore areas, including the Outer
Continental Shelf, is liable for damages and for the cost of
removing oil spills for which it may be held responsible,
subject to certain limitations. The Companys operations
may involve the use or handling of materials that may be
classified as environmentally hazardous substances. Laws and
regulations protecting the environment have generally become
more stringent and may in certain circumstances impose
strict liability, rendering a person liable for
environmental damage without regard to negligence or fault.
Environmental laws and regulations may expose the Company to
liability for the conduct of or conditions caused by others or
for acts that were in compliance with all applicable laws at the
time they were performed. For a discussion of potential
environmental liabilities affecting the Company, see
Item 3. Legal Proceedings  Environmental
Matters.



| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | The Company May Not Be Able to Generate
    Sufficient Cash Flow to Meet Its Debt Service
    Obligations.

The amount of debt that the Company can manage in
some periods may not be as large as in other periods because the
Companys earnings and cash flows vary significantly from
year to year following trends in its industry. The
Companys future cash flow may be insufficient to meet all
of its debt obligations and commitments, and any insufficiency
could negatively impact the Companys business. The
Companys ability to generate cash flow from operations to
pay its debt will depend on the Companys future financial
performance, which will be affected by a range of economic,
competitive and business factors. The Company

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cannot control many of these factors, such as
general economic and financial conditions in the oil and gas
industry, the economy at large and competitive initiatives of
the Companys competitors.


If the Company does not generate sufficient cash
flow from operations to satisfy its debt obligations, it may
have to undertake alternative financing plans, such as
refinancing or restructuring the Companys debt, selling
assets, reducing or delaying capital investments or seeking to
raise additional capital. A refinancing may not be possible, the
Company may be unable to sell assets for acceptable prices, and
additional financing may not be obtained on acceptable terms, if
at all. The Companys inability to generate sufficient cash
flow to satisfy all of its debt obligations, or to refinance its
indebtedness on commercially reasonable terms, would materially
adversely affect the Companys financial position, results
of operations and cash flows.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | SFIC Holdings Has the Ability to
    Significantly Influence Matters on Which Shareholders May
    Vote

SFIC Holdings (Cayman), Inc. (SFIC
Holdings), a wholly owned subsidiary of Kuwait Petroleum
Corporation, which is in turn wholly owned by the State of
Kuwait, held approximately 18.6% of the outstanding ordinary
shares of the Company at December 31, 2003.

As long as Kuwait Petroleum Corporation and its
affiliates own at least 12.5% of the outstanding ordinary shares
or at least 12.5% of the outstanding voting shares, SFIC
Holdings has the right to designate for election three directors
of the Company. If SFIC Holdings interest is reduced to
less than 12.5% and equal to or greater than 7.5%, the number of
directors that SFIC Holdings will have the right to designate
for election is reduced from three to two. If SFIC
Holdings interest is reduced to less than 7.5% and equal
to or greater than 4%, the number of directors that SFIC
Holdings may designate for election is reduced from two to one.
If SFIC Holdings interest is reduced to less than 4%, it
will not have the right to designate any directors for election
to the board of the Company. For purposes of determining SFIC
Holdings ownership interest in the Company, until SFIC
Holdings sells any GlobalSantaFe Ordinary Shares, only ordinary
shares outstanding at the completion of the Merger are included
in the calculation of the ownership percentage. Accordingly,
reductions in SFIC Holdings percentage ownership in the
Company as a result of the Companys issuance of shares
will not reduce SFIC Holdings board representation.

As a result, Kuwait Petroleum Corporation,
through SFIC Holdings, is able to significantly influence the
management and affairs of the Company and all matters requiring
shareholder approval, including the election of the
Companys Board of Directors. This concentration of
ownership could delay or deter a change of control of the
Company.

Although the owners of all the ordinary shares
after the Merger are entitled to one vote per share, the consent
of SFIC Holdings is required to change the jurisdiction of
incorporation of the Company or any existing subsidiary or to
incorporate a new subsidiary in a jurisdiction in a manner
materially adversely affecting the rights or interests of Kuwait
Petroleum Corporation and its affiliates as long as Kuwait
Petroleum Corporation and its affiliates own at least 10% of the
outstanding ordinary shares or at least 10% of the outstanding
voting shares of the Company. This restriction on the Company
may limit its ability to take action it deems to be in the best
interest of its other shareholders.



| |                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Some of the Directors of the Company Are
    Also Directors or Officers of Kuwait Petroleum Corporation or
    its Affiliates and May Have Interests That Are in Conflict with
    the Interests of Other Shareholders

As discussed above, SFIC Holdings has the right
to designate for election up to three members of the
Companys Board of Directors. The Companys articles
of association state that Kuwait Petroleum Corporation and its
affiliated companies have no duty to refrain from competing with
the Company. The articles of association also state that Kuwait
Petroleum Corporation and its affiliated companies are not under
any duty to present corporate opportunities to the Company in
the event of a conflict, and that corporate opportunities
offered to persons who are directors or officers of the Company
and of Kuwait Petroleum Corporation or its affiliates will be
allocated based principally on the capacities in which the
individual director or officer is offered the opportunity. As a
result, any director of the Company designated by SFIC Holdings
may have potential or actual conflicts that could affect the
process or outcome of board deliberations.

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| |                                                                            
| | ---------------------------------------------------------------------------
| | The Companys Shareholders Have
    Limited Rights Under Cayman Islands Law

The Company is incorporated under the laws of the
Cayman Islands, and its corporate affairs are governed by its
memorandum of association and its articles of association and by
the Companies Law (2001 Second Revision) of the Cayman Islands.
Principles of law relating to matters such as the validity of
corporate procedures, the fiduciary duties of management,
directors and controlling shareholders and the rights of
shareholders differ from those that would apply if the Company
were incorporated in a jurisdiction within the United States.
Further, the rights of shareholders under Cayman Islands law are
not as clearly established as the rights of shareholders under
legislation or judicial precedent applicable in some
U.S. jurisdictions. As a result, GlobalSantaFes
shareholders may face more uncertainty in protecting their
interests in the face of actions by the management or directors
than they might have as shareholders of a corporation
incorporated in a U.S. jurisdiction.

Employees

The Company had approximately 7,100 employees
worldwide at December 31, 2003, excluding approximately
1,200 persons contracted through contract labor providers. The
Company requires highly skilled personnel to operate its
drilling rigs and, accordingly, conducts extensive personnel
training and safety programs. A total of 282 of the
Companys local employees in Nigeria and 188 of the
Companys local employees in Trinidad are represented by
labor unions. The Company, through its membership in the U.K.
Drilling Contractors Association, has also entered into a
recognition agreement with a union which covers 836 of the
Companys 1,133 employees in the North Sea.

Executive Officers of the Registrant

The name, age as of December 31, 2003, and
office or offices currently held by each of the executive
officers of the Company are as follows:

|                   |  |     |    |                   |  |                                                  
|------------------ |  | --- | -- | ----------------- |  | -------------------------------------------------
|Name               |  | Age |    | Office or Offices
|                   |  |     |    |                  
|Robert E. Rose     |  |     | 65 |                   |  | Chairman of the Board                            
|Jon A. Marshall    |  |     | 52 |                   |  | President and Chief Executive Officer            
|Roger B. Hunt      |  |     | 54 |                   |  | Senior Vice President, Marketing                 
|James L. McCulloch |  |     | 51 |                   |  | Senior Vice President and General Counsel        
|W. Matt Ralls      |  |     | 54 |                   |  | Senior Vice President and Chief Financial Officer
|Cheryl D. Richard  |  |     | 47 |                   |  | Senior Vice President, Human Resources           
|Marion M. Woolie   |  |     | 49 |                   |  | Senior Vice President, Operations                
|R. Blake Simmons   |  |     | 45 |                   |  | President of Applied Drilling Technology Inc.    
|Michael R. Dawson  |  |     | 50 |                   |  | Vice President and Controller                    

Officers serve for a one-year term or until their
successors are elected and qualified to serve. Each executive
officers principal occupation has been as an executive
officer of the Company or its predecessors, Santa Fe
International or Global Marine, for more than the past five
years, with the exception of Messrs. Dawson and Simmons and
Ms. Richard. Mr. Dawson has been the Companys
Vice President and Controller since July 2003, prior to which he
served as Vice President and Treasurer for the Company. From
1999 to November 2001, he served as Vice
President, Investor Relations and Corporate Communications
for Global Marine. Mr. Dawsons previous experience
includes 16 years with Union Texas Petroleum Holdings,
where he served as Director of Acquisitions and Portfolio
Management, Director of Investor Relations and in numerous
management positions in the Controllers organization.
Mr. Simmons has been President of Applied Drilling
Technology Inc. since June 2003. Previously he served as
Regional Vice President of GlobalSantaFe Drilling U.K. Ltd. from
November 2001 to June 2003, prior to which he served as
President and Managing Director of Global Marine UK Ltd. (now
GlobalSantaFe Drilling U.K. Ltd.) from June 2000 to November
2001. He was GSFDCs Vice President, Sales and Contracts
from 1998 to June 2000. Ms. Richard has been

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the Companys Senior Vice President, Human
Resources since June 2003. Prior to joining the Company,
Ms. Richard was Vice President, Human Resources, with
Chevron Phillips Chemical Company from 2000 to 2003, prior to
which she served in a variety of positions with Phillips
Petroleum Company (now ConocoPhillips), including operational,
commercial and international positions.







|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

The Company and two of its subsidiaries are
defendants in a lawsuit filed on July 28, 2003, by
Transocean Inc. (Transocean) in the United States
District Court for the Southern District of Texas, Houston
Division. The lawsuit alleges that the dual drilling structure
and method utilized by the Companys two ultra-deepwater
semisubmersibles under construction in Singapore infringe on
United States patents granted to Transocean. The lawsuit seeks
damages, royalties and attorneys fees, together with an
injunction that would prevent the use of the dual drilling
capabilities of the rigs. The Company believes that the lawsuit
is without merit and intends to vigorously defend it. The trial
of this lawsuit has been scheduled for December 2005. The
Company does not expect that the matter will have a material
adverse effect on the Companys business or financial
position, results of operations or cash flows.

A subsidiary of the Company filed suit in
February 2004 against its insurance underwriters in the Superior
Court of San Francisco County, California, seeking a declaration
as to its rights to insurance coverage and the proper allocation
among its insurers of liability for claims payments in order to
assist in the future management and disposition of certain
claims described below. The subsidiary is continuing to receive
payment from its insurers for claim settlements and legal costs,
and expects to continue to receive such payments during the
pendency of this action.

The insurance coverage in question relates to
lawsuits filed against the subsidiary arising out of its
involvement in the design, construction and refurbishment of
major industrial complexes. The operating assets of the
subsidiary were sold and its operations discontinued in 1989,
and the subsidiary has no remaining assets other than the
insurance policies involved in the litigation. The subsidiary
has been named as a defendant, along with numerous other
companies, in lawsuits alleging personal injury as a result of
exposure to asbestos. To date, the subsidiary has been named as
a defendant in approximately 2,700 lawsuits, the first of which
was filed in 1990. Of the 2,700 lawsuits, approximately 1,700
have been resolved, with approximately 1,000 currently pending.
Over the course of the past fourteen years approximately $18.5
million has been expended to settle these claims with the
subsidiary having expended $3.4 million of that amount due to
insurance deductible obligations, all of which have now been
satisfied. Insurers have funded the balance of the settlement
costs and all legal costs associated therewith. The subsidiary
has in excess of $1 billion in insurance limits that it
believes will be available to cover future claims. The Company
does not believe that these claims will have any material impact
on the Companys consolidated financial position, results
of operations or cash flows.

Environmental matters

The Company has certain potential liabilities
under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) and similar state acts
regulating cleanup of various hazardous waste disposal sites,
including those described below. CERCLA is intended to expedite
the remediation of hazardous substances without regard to fault.
Potentially responsible parties (PRPs) for each site
include present and former owners and operators of, transporters
to and generators of the substances at the site. Liability is
strict and can be joint and several.

The Company has been named as a PRP in connection
with a site located in Santa Fe Springs, California known
as the Waste Disposal, Inc. site. The Company and other
PRPs have agreed with the U.S. Environmental Protection
Agency (EPA) and the U.S. Department of Justice
(DOJ) to settle their potential liabilities for this
site by agreeing to perform the remaining remediation required
by the EPA. The form of the agreement is a consent decree, which
has now been entered by the court. The parties to the settlement
have entered into a participation agreement, which makes the
Company liable for an estimated 7.7% of the remediation costs.
Although the remediation costs cannot be determined with
certainty until the

25



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##### Table of Contents



remediation is complete, the Company expects that
its share of the remaining remediation costs will not exceed
approximately $800,000. There are additional potential
liabilities related to the site, but these cannot be quantified,
and the Company has no reason at this time to believe that they
will be material.


The Company has also been named as a PRP in
connection with a site in California known as the Casmalia
Resources Site. The Company and other PRPs have entered into an
agreement with the EPA and the DOJ to resolve their potential
liabilities. Under the settlement, the Company is not likely to
owe any substantial additional amounts for this site beyond what
the Company has already paid. There are additional potential
liabilities related to this site, but these cannot be quantified
at this time, and the Company has no reason at this time to
believe that they will be material.

The Company has been named as one of many PRPs in
connection with a site located in Carson, California formerly
maintained by Cal Compact Landfill. On February 15, 2002,
the Company was served with a required 90-day notification that
eight California cities, on behalf of themselves and other PRPs,
intend to commence an action against the Company under the
Resource Conservation and Recovery Act (RCRA). On
April 1, 2002, a complaint was filed by the cities against
the Company and others alleging that they have liabilities in
connection with the site. However, the complaint has not been
served. The site was closed in or around 1965, and the Company
does not have sufficient information to enable it to assess its
potential liability, if any, for this site.

Resolutions of other claims by the EPA, the
involved state agency and/or PRPs are at various stages of
investigation. These investigations involve determinations of:



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | the actual responsibility attributed to the
    Company and the other PRPs at the site;
|
| |  | appropriate investigatory and/or remedial
    actions; and                             
|
| |  | allocation of the costs of such activities among
    the PRPs and other site users.    

The Companys ultimate financial
responsibility in connection with those sites may depend on many
factors, including:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | the volume and nature of material, if any,
    contributed to the site for which the Company is responsible;
|
| |  | the numbers of other PRPs and their financial
    viability; and                                            
|
| |  | the remediation methods and technology to be used.                                                          

It is difficult to quantify with certainty the
potential cost of these environmental matters, particularly in
respect of remediation obligations. Nevertheless, based upon the
information currently available, the Company believes that its
ultimate liability arising from all environmental matters,
including the liability for all other related pending legal
proceedings, asserted legal claims and known potential legal
claims which are likely to be asserted, is adequately accrued
and should not have a material effect on the Companys
financial position or ongoing results of operations. Estimated
costs of future expenditures for environmental remediation
obligations are not discounted to their present value.

Other Legal Matters

The Company and its subsidiaries are defendants
or otherwise involved in a number of lawsuits in the ordinary
course of business. In the opinion of management, the
Companys ultimate liability with respect to these pending
lawsuits is not expected to have a material adverse effect on
its consolidated financial position, results of operations or
cash flows.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to A Vote of Security
    Holders

There were no matters submitted to a vote of the
Companys security holders during the fourth quarter of
2003.

26



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##### Table of Contents






PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

The Companys Ordinary Shares, $.01 par
value per share, are listed on the New York Stock Exchange
under the symbol GSF. The following table sets forth
the high and low closing sales prices of the Companys
Ordinary Shares as reported on the New York Stock Exchange
Composite Transactions Tape for the calendar periods indicated.

|     |                |                 |   |       |  |  |   |       | 
|---- | -------------- | --------------- | - | ----- |  |  | - | ----- | 
|     |                |                
|     |                | Price per Share
|     |                |                
|     |                | High            |   | Low  
|     |                |                 |   |      
|2003 |                |                 |   |       |  |  |   |      
|     | First Quarter  |                 | $ | 25.02 |  |  | $ | 20.10 | 
|     | Second Quarter |                 |   | 26.35 |  |  |   | 20.35 | 
|     | Third Quarter  |                 |   | 25.03 |  |  |   | 21.52 | 
|     | Fourth Quarter |                 |   | 25.30 |  |  |   | 21.03 | 
|2002 |                |                 |   |       |  |  |   |      
|     | First Quarter  |                 | $ | 33.13 |  |  | $ | 25.00 | 
|     | Second Quarter |                 |   | 36.40 |  |  |   | 27.35 | 
|     | Third Quarter  |                 |   | 27.15 |  |  |   | 19.33 | 
|     | Fourth Quarter |                 |   | 26.20 |  |  |   | 21.90 | 

On February 27, 2004, the closing price of
the Ordinary Shares, as reported by the NYSE, was
$29.50 per share. As of February 27, 2004, there were
3,104 shareholders of record of Ordinary Shares. This
number does not include shareholders for whom shares are held in
a nominee or street name.

Dividend Policy

On March 2, 2004, the Companys Board
of Directors declared a dividend for the first quarter of 2004
of $0.05 per share, payable on April 15, 2004, to
holders of record of Ordinary Shares as of the close of business
on March 31, 2004. The Company paid dividends of
$0.0325 per share during each period in 2002 shown in the
table above. The Company paid dividends of $0.0325 per
share in the first quarter of 2003, $0.0375 per share in
the second and third quarters of 2003 and $0.05 per share
in the fourth quarter of 2003 and the first quarter of 2004. The
dividends paid in a given quarter relate to the immediately
preceding quarter. The Companys payment of dividends in
the future, if any, will be at the discretion of the
Companys Board of Directors and will depend on the
Companys results of operations, financial condition, cash
requirements, future business prospects and other factors.

27



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##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

In the following table, the Companys
operating results for 2002 and 2003 represent operations of the
combined company. Operating results for 2001 include Global
Marines operations for the full year and Santa Fe
Internationals operations from the November 2001 merger
date (42 days). Selected financial data for years prior to
2001 represents the operations of Global Marine only. As a
result, comparisons to prior years data may not be
meaningful. The selected financial data should be read in
conjunction with Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations and the audited consolidated financial
statements and the notes thereto included under
Item 8. Financial Statements and Supplementary
Data.

GlobalSantaFe Corporation and
Subsidiaries

Five-Year Review


|                            |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |       |       |  
|--------------------------- | ------------------------------------------ | ---------------------------------------------------- | - | ------- | ------- | ---- | - | ------- | ------- | ---- | - | ----- | ------- | - | - | ----- | ------- | - | - | ----- | ----- | -
|                            |                                            | 2003                                                 |   | 2002    |         | 2001 |   | 2000    |         | 1999
|                            |                                            |                                                      |   |         |         |      |   |         |         |     
|                            |                                            |                                                     
|                            |                                            | (In millions, except per share and operational data)
|Financial Performance       |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|Revenues:                   |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|                            | Contract drilling                          |                                                      | $ | 1,370.4 |         |      | $ | 1,606.5 |         |      | $ | 960.4 |         |   | $ | 598.5 |         |   | $ | 528.5 |      
|                            | Drilling management services               |                                                      |   | 523.4   |         |      |   | 400.6   |         |      |   | 409.3 |         |   |   | 440.1 |         |   |   | 321.2 |      
|                            | Oil and gas                                |                                                      |   | 20.9    |         |      |   | 10.6    |         |      |   | 13.9  |         |   |   | 20.1  |         |   |   | 8.3   |      
|                            |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|                            |                                            | Total revenues                                       |   | $       | 1,914.7 |      |   | $       | 2,017.7 |      |   | $     | 1,383.6 |   |   | $     | 1,058.7 |   |   | $     | 858.0 |  
|                            |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|Operating income:           |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|                            | Contract drilling                          |                                                      | $ | 154.6   |         |      | $ | 360.2   |         |      | $ | 338.5 |         |   | $ | 184.5 |         |   | $ | 153.5 |      
|                            | Drilling management services               |                                                      |   | 31.7    |         |      |   | 28.6    |         |      |   | 33.4  |         |   |   | 21.6  |         |   |   | 13.3  |      
|                            | Oil and gas                                |                                                      |   | 12.0    |         |      |   | 4.8     |         |      |   | 8.4   |         |   |   | 12.2  |         |   |   | 2.0   |      
|                            | Gain on sale of assets(1)                  |                                                      |   |        |         |      |   |        |         |      |   | 35.6  |         |   |   |      |         |   |   |      |      
|                            | Restructuring costs(2)                     |                                                      |   | (3.4    | )       |      |   |        |         |      |   | (22.3 | )       |   |   | (5.2  | )       |   |   |      |      
|                            | Corporate expenses                         |                                                      |   | (52.7   | )       |      |   | (61.8   | )       |      |   | (28.1 | )       |   |   | (24.6 | )       |   |   | (25.5 | )    
|                            |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|                            |                                            | Total operating income                               |   |         | 142.2   |      |   |         | 331.8   |      |   |       | 365.5   |   |   |       | 188.5   |   |   |       | 143.3 |  
|                            |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|Other income (expense):     |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|                            | Interest expense                           |                                                      |   | (67.5   | )       |      |   | (57.1   | )       |      |   | (57.4 | )       |   |   | (63.6 | )       |   |   | (56.6 | )    
|                            | Interest capitalized                       |                                                      |   | 34.9    |         |      |   | 20.5    |         |      |   | 1.1   |         |   |   | 26.4  |         |   |   | 25.9  |      
|                            | Interest income                            |                                                      |   | 11.2    |         |      |   | 15.1    |         |      |   | 13.9  |         |   |   | 4.0   |         |   |   | 2.7   |      
|                            | Other(3)                                   |                                                      |   | 25.0    |         |      |   | 2.3     |         |      |   | (0.6  | )       |   |   |      |         |   |   |      |      
|                            |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|                            |                                            | Total other income (expense)                         |   |         | 3.6     |      |   |         | (19.2   | )    |   |       | (43.0   | ) |   |       | (33.2   | ) |   |       | (28.0 | )
|                            |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|                            |                                            | Income before income taxes and extraordinary item    |   |         | 145.8   |      |   |         | 312.6   |      |   |       | 322.5   |   |   |       | 155.3   |   |   |       | 115.3 |  
|Provision for income taxes: |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|                            | Current income tax provision               |                                                      |   | 26.7    |         |      |   | 53.5    |         |      |   | 22.2  |         |   |   | 12.4  |         |   |   | 3.4   |      
|                            | Deferred income tax provision (benefit)(4) |                                                      |   | (10.3   | )       |      |   | (18.8   | )       |      |   | 101.5 |         |   |   | 29.0  |         |   |   | 22.4  |      
|                            |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|                            |                                            | Total provision for income taxes                     |   |         | 16.4    |      |   |         | 34.7    |      |   |       | 123.7   |   |   |       | 41.4    |   |   |       | 25.8  |  
|                            |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      
|                            |                                            | Net income                                           |   | $       | 129.4   |      |   | $       | 277.9   |      |   | $     | 198.8   |   |   | $     | 113.9   |   |   | $     | 89.5  |  
|                            |                                            |                                                      |   |         |         |      |   |         |         |      |   |       |         |   |   |       |         |   |   |      

28



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|                                                    |         |                                                      |         |      |  |      |         |      |  |      |         |      |  |   |         |      |  |   |         |      | 
|--------------------------------------------------- | ------- | ---------------------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- | ---- |  | - | ------- | ---- | 
|                                                    |         | 2003                                                 |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                                                    |         |                                                      |         |      |  |      |         |      |  |     
|                                                    |         |                                                     
|                                                    |         | (In millions, except per share and operational data)
|Net income per ordinary share:(5)                   |         |                                                      |         |      |  |      |         |      |  |      |         |      |  |   |         |      |  |   |         |     
|                                                    | Basic   |                                                      | $       | 0.55 |  |      | $       | 1.19 |  |      | $       | 1.52 |  |   | $       | 0.98 |  |   | $       | 0.77 | 
|                                                    | Diluted |                                                      | $       | 0.55 |  |      | $       | 1.18 |  |      | $       | 1.50 |  |   | $       | 0.95 |  |   | $       | 0.76 | 
|Average ordinary shares  Basic(5)                  |         |                                                      | 233.2   |      |  |      | 233.7   |      |  |      | 130.5   |      |  |   | 116.6   |      |  |   | 115.7   |     
|Average ordinary shares  Diluted(5)                |         |                                                      | 234.9   |      |  |      | 236.5   |      |  |      | 137.5   |      |  |   | 119.3   |      |  |   | 117.6   |     
|Cash dividends declared per ordinary share(6)       |         | $                                                    | 0.175   |      |  | $    | 0.13    |      |  | $    | 0.0325  |      |  | $ |        |      |  | $ |        |     
|Capital expenditures(7)                             |         | $                                                    | 466.0   |      |  | $    | 574.1   |      |  | $    | 158.4   |      |  | $ | 177.8   |      |  | $ | 448.1   |     
|Depreciation, depletion and amortization            |         | $                                                    | 273.2   |      |  | $    | 254.4   |      |  | $    | 146.3   |      |  | $ | 107.0   |      |  | $ | 88.8    |     
|Financial Position (end of year)                    |         |                                                      |         |      |  |      |         |      |  |      |         |      |  |   |         |      |  |   |         |     
|Working capital                                     |         | $                                                    | 816.2   |      |  | $    | 712.0   |      |  | $    | 722.2   |      |  | $ | 221.5   |      |  | $ | 63.4    |     
|Properties and equipment, net                       |         | $                                                    | 4,384.7 |      |  | $    | 4,194.0 |      |  | $    | 3,897.6 |      |  | $ | 1,940.1 |      |  | $ | 1,868.6 |     
|Total assets                                        |         | $                                                    | 6,149.7 |      |  | $    | 5,828.7 |      |  | $    | 5,528.9 |      |  | $ | 2,396.8 |      |  | $ | 2,264.5 |     
|Long-term debt, including capital lease obligation  |         | $                                                    | 1,230.9 |      |  | $    | 941.9   |      |  | $    | 929.2   |      |  | $ | 918.6   |      |  | $ | 955.3   |     
|Shareholders equity                                |         | $                                                    | 4,327.6 |      |  | $    | 4,234.2 |      |  | $    | 4,033.2 |      |  | $ | 1,270.9 |      |  | $ | 1,135.0 |     
|Operational Data                                    |         |                                                      |         |      |  |      |         |      |  |      |         |      |  |   |         |      |  |   |         |     
|Average rig utilization  marine (8)                |         |                                                      | 85      | %    |  |      | 89      | %    |  |      | 93      | %    |  |   | 84      | %    |  |   | 76      | %   
|Average rig utilization  land (8)                  |         |                                                      | 53      | %    |  |      | 69      | %    |  |      | 84      | %    |  |   | NA      |      |  |   | NA      |     
|Average revenues per day  marine (9)               |         | $                                                    | 65,900  |      |  | $    | 72,400  |      |  | $    | 75,400  |      |  | $ | 59,000  |      |  | $ | 59,600  |     
|Average revenues per day  land (9)                 |         | $                                                    | 16,400  |      |  | $    | 17,100  |      |  |      | 17,200  |      |  |   | NA      |      |  |   | NA      |     
|Number of active rigs  marine (end of
    year)    |         |                                                      | 59      |      |  |      | 58      |      |  |      | 58      |      |  |   | 33      |      |  |   | 31      |     
|Number of active rigs  land (end of
    year) (10) |         |                                                      | 31      |      |  |      | 30      |      |  |      | 30      |      |  |   | NA      |      |  |   | NA      |     
|Turnkey wells drilled                               |         |                                                      | 85      |      |  |      | 78      |      |  |      | 97      |      |  |   | 122     |      |  |   | 76      |     
|Turnkey well completions                            |         |                                                      | 31      |      |  |      | 20      |      |  |      | 22      |      |  |   | 27      |      |  |   | 16      |     
|Number of employees (end of year)                   |         |                                                      | 7,100   |      |  |      | 7,200   |      |  |      | 8,400   |      |  |   | 2,700   |      |  |   | 2,400   |     



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 2001 amount includes a $35.1 million gain on
    the sale of the Glomar Beaufort Sea I concrete
    island drilling system, which was sold in June 2001.                                                                                                                                                                                                                                                                                                                  
|   
|(2) | Restructuring costs for 2003 represent changes in
    estimated restructuring costs associated with Global Marine
    recorded in 2001 in connection with the Merger (see
    Item 7. Managements Discussion and Analysis of
    Financial Condition and Results of Operations  Merger
    with Santa Fe International). Restructuring costs for
    2000 relate to a restructuring program by Global Marine to
    streamline its organization and improve efficiency.
|   
|(3) | Includes $22.3 million awarded to the
    Company in 2003 as a result of the settlement of claims filed in
    1993 with the United Nations Compensation Commission for losses
    suffered as a result of the Iraq invasion of Kuwait in 1990. The
    claims were for the loss of four rigs and associated equipment,
    lost revenue and miscellaneous expenditures.                                                                                                  
|   
|(4) | 2001 amount includes a $47.2 million charge
    for increased valuation allowances, partially offset by
    adjustments to prior years tax contingencies.                                                                                                                                                                                                                                                                                                                
|   
|(5) | Income per share data for years prior to 2001 has
    been restated to reflect the effect of the exchange ratio of
    0.665 established in the merger agreement.                                                                                                                                                                                                                                                                                                         
|   
|(6) | In 2001, cash dividends declared per ordinary
    share included a regular quarterly cash dividend of
    $0.0325 per ordinary share approved by the Companys
    Board of Directors in December 2001. Global Marine historically
    did not pay dividends on its common stock.                                                                                                                                                                                         
|   
|(7) | Capital expenditures include $16.6 million,
    $19.2 million and $6.4 million of capital expenditures
    related to the Companys rig building program that had been
    accrued but not paid as of December 31, 2003, 2002 and
    2001, respectively.                                                                                                                                                                                                                 
|   
|(8) | The average rig utilization rate for a period
    represents the ratio of days in the period during which the rigs
    were under contract to the total days in the period during which
    the rigs were available to work.                                                                                                                                                                                                                                              

29



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##### Table of Contents





|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(9) | Average revenues per day is the ratio of
    rig-related contract drilling revenues divided by the aggregate
    contract days, adjusted to exclude days under contract at zero
    dayrate. The calculation of average revenues per day excludes
    non-rig related revenues, consisting mainly of reimbursed
    expenses, totaling $39.5 million, $74.9 million,
    $26.5 million, $14.4 million and $20.8 million
    for the years ended December 31, 2003, 2002, 2001, 2000 and
    1999, respectively. Average revenues per day including these
    reimbursed expenses would have been $67,700, $74,500, $77,800,
    $61,700 and $62,500 for the Companys marine rigs and
    $17,300, $18,000 and $18,600 for the Companys land rigs.
    Global Marine had no land rig operations prior to the Merger in
    November 2001. The calculation of average revenues per day
    excludes all contract drilling revenues related to the
    Companys platform rig operations.



|     |                                                                                                                                                                                                                       
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Totals for 2001 and 2002 exclude Rig 159, which
    was designated as held for sale as of December 31, 2002 and
    2001. This rig was returned to the Companys operating
    fleet during the third quarter of 2003.

30



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The Company is a worldwide oil and gas drilling
contractor, owning or operating a fleet of over 90 marine and
land drilling rigs. The Companys fleet currently includes
13 floating rigs, 45 cantilevered jackup rigs, 31 land rigs and
one platform rig. The Company currently has two ultra-deepwater
semisubmersibles and one high-performance jackup under
construction. The Company also operates two semisubmersible rigs
for third parties under a joint venture agreement. During 2003,
the Company announced its plans to exit its platform rig
operations, which have historically not had a material effect on
the Companys consolidated operating results. The Company
or its affiliates currently maintain two platform rigs for third
parties.

As part of the Companys goal of enhancing
long-term shareholder value, the Company is currently
considering the possibility of selling its land rig fleet assets
provided that the Company receives value from such a sale, if
any, that the Company deems fair in light of the quality of
these assets and the Companys long-term market outlook for
these assets. The net book value of the Companys land
drilling fleet totaled $190.9 million at December 31,
2003.

The Company provides oil and gas contract
drilling services to the oil and gas industry worldwide on a
daily rate (dayrate) basis. The Company also
provides oil and gas drilling management services on either a
dayrate or completed-project, fixed-price (turnkey)
basis, as well as drilling engineering and drilling project
management services, and it participates in oil and gas
exploration and production activities.

The Company derives substantially all of its
revenues from its contract drilling and drilling management
services operations, which depend on the level of activity in
offshore and onshore oil and natural gas exploration and
development drilling in markets worldwide. These operations are
subject to a number of risks, many of which are outside the
control of the Company. For a discussion of these risks, see
Item 1. and 2. Business and Properties 
Risk Factors.

Critical Accounting Policies and
Estimates

The Companys consolidated financial
statements are impacted by the accounting policies used and the
assumptions and estimates made by management during their
preparation. These policies, assumptions and estimates affect
the carrying values of assets and liabilities and disclosures of
contingent assets and liabilities at the balance sheet date and
the amounts of revenues and expenses recognized during the
period. The following is a discussion of the Companys most
significant accounting policies and assumptions as well as the
use of estimates.



| |                            
| | ---------------------------
| | Properties and Depreciation

Rigs and Drilling
Equipment.Capitalized costs of rigs
and drilling equipment include all costs incurred in the
acquisition of capital assets including allocations of interest
costs incurred during periods that assets are under
construction. Expenditures for maintenance and repairs are
charged to expense as incurred. Costs of property sold or
retired and the related accumulated depreciation are removed
from the accounts; resulting gains or losses are included in
income.

Depreciation and
amortization.The Company depreciates
its rigs and equipment over their remaining estimated useful
lives. The Companys estimates of these remaining useful
lives may be affected by such factors as changing market
conditions, technological advances in the industry or changes in
regulations governing the industry.

Jackup drilling rigs and semisubmersibles are
currently depreciated over lives ranging from 15 to
30 years, with salvage values of $0.5 million and
$1.0 million, respectively, per rig. All land drilling rigs
are depreciated over 15-year lives with no salvage value.
Drillships, with the exception of the Glomar Explorer,
are depreciated over 20-year lives, with salvage values of
$1.0 million per rig. The Glomar Exploreris being
depreciated over approximately 28 years, which represents
the time that remained on its 30-year lease as of the date it
entered service following its conversion to a drillship, with no
salvage value.

31



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Impairment of Rigs and Drilling
Equipment.The Company reviews its
long-term assets for impairment when changes in circumstances
indicate that the carrying amount of the asset may not be
recoverable, in accordance with Statement of Financial
Accounting Standards (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-lived
Assets. SFAS No. 144, among other things,
requires that long-lived assets and certain intangibles to be
held and used be reported at the lower of carrying amount or
fair value and establishes criteria to determine when a
long-lived asset is classified as available for sale. 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 or fair value less cost to sell.

The Companys determination of impairment of
rigs and drilling equipment, if any, requires estimates of
undiscounted future cash flows. Actual impairment charges, if
any, are recorded on the basis of an estimate of discounted
future cash flows utilizing a discount rate based upon the
Companys cost of capital. Estimation of future cash flows
expected to be generated by the Companys rigs and drilling
equipment requires the Company to estimate dayrates and
utilization in future periods. Actual future amounts may vary
from estimates due to changes in market conditions,
technological advances in the industry or changes in regulations
governing the industry.

Oil and Gas
Properties.The Company uses the
full-cost method of accounting for oil and gas exploration and
development costs. Under this method of accounting, the Company
capitalizes all costs incurred in the acquisition, exploration,
and development of oil and gas properties by cost center
(country) and amortizes such costs, together with estimated
future development and dismantlement costs, using the
units-of-production method.

Costs of offshore unproved properties and
development projects are not amortized until they are fully
evaluated or, in the case of development projects, ready for
their intended use. All unproved properties are reviewed
periodically to ascertain if impairment has occurred. If the
results of an assessment indicate that the properties are
impaired, the amount of the impairment is added to the
capitalized costs to be amortized. Costs of proved oil and gas
properties that exceed the present value of estimated future net
revenues are charged to expense.

Sales of proved and unproved properties are
accounted for as adjustments of capitalized costs with no gain
or loss recognized, unless such adjustments would significantly
alter the relationship between capitalized costs and proved
reserves of oil and gas attributable to a cost center, in which
case the gain or loss is recognized in income. Abandonments of
properties are accounted for as adjustments of capitalized costs
with no loss recognized.



| |                                          
| | -----------------------------------------
| | Intersegment Turnkey Drilling
    Profits

The Company defers all turnkey drilling profit
related to wells in which a wholly owned subsidiary of the
Company, Challenger Minerals Inc. (CMI), was the
operator and defers a portion of turnkey profit based on the
share of CMIs costs in the case of properties in which CMI
holds a working interest. This turnkey profit is credited to the
Companys full cost pool of oil and gas properties and is
then recognized through a lower depletion rate as reserves are
produced.



| |                    
| | -------------------
| | Revenue Recognition

The Companys contract drilling business
provides rigs and rig crews to customers on a dayrate basis.
Dayrate contracts can be for a specified period of time or the
time required to drill a specified well or number of wells.
Revenues and expenses from dayrate drilling operations, which
are classified under contract drilling services, are recognized
on a per-day basis as the work progresses. Lump-sum fees
received as compensation for the cost of relocating drilling
rigs from one major operating area to another, whether received
up-front or upon termination of the drilling contract, are
recognized as earned, which is generally over the term of the
related drilling contract.

The Company also designs and executes specific
offshore drilling or well-completion programs for customers at
fixed prices under short-term turnkey contracts.
Revenues and expenses from turnkey

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contracts, which are classified under drilling
management services, are earned and recognized upon completion
of each contract.


The Company recognizes revenue from oil and gas
production at the time title transfers.

The Company recognizes as revenue reimbursements
(referred to as reimbursable revenues) received from customers
for certain out-of-pocket expenses incurred by the Company (such
expenses are referred to as reimbursable expenses). Reimbursable
revenues have no effect on operating income.



| |             
| | ------------
| | Income Taxes

The Company is a Cayman Islands company. The
Cayman Islands does not impose corporate income taxes.
Consequently, income taxes have been provided based on the tax
laws and rates in effect in the countries in which operations
are conducted and income is earned.

The Companys ability to realize the benefit
of its deferred tax assets requires that the Company achieve
certain future earnings levels prior to the expiration of its
NOL carryforwards. The Company has established a valuation
allowance against the future tax benefit of a portion of its NOL
carryforwards and could be required to record an additional
valuation allowance if market conditions deteriorate and future
earnings are below, or are projected to be below, its current
estimates.

The Company has not provided for
U.S. deferred taxes on the unremitted earnings of its
U.S. subsidiaries and their foreign subsidiaries
(U.S. Subsidiaries) that are permanently
reinvested outside the U.S. Should the Company make a
distribution from the unremitted earnings of its
U.S. Subsidiaries, the Company would be required to record
additional U.S. deferred taxes.

Taxes have not been provided for in circumstances
where management expects that, due to the changing demands of
the offshore drilling markets, the Companys rigs are more
likely than not to be redeployed to other locations before those
rigs operate in certain jurisdictions long enough to give rise
to future tax consequences. Should managements
expectations change regarding the length of time other rigs will
be operating in a given location, the Company may be required to
record additional deferred taxes that could have a material
adverse effect on its financial position, results of operations
and cash flows.



| |         
| | --------
| | Goodwill

The Company accounts for goodwill in accordance
with the provisions of SFAS No. 142, Goodwill and
Other Intangible Assets. The Company has defined reporting
units within its contract drilling segment based upon economic
and market characteristics of these units. All of the goodwill
recorded in connection with the Merger has been allocated to the
jackup drilling fleet reporting unit, as these rigs were the
primary source of value in the Merger discussions and
negotiations. The estimated fair value of this reporting unit
for purposes of the Companys annual goodwill impairment
testing is based upon the present value of its estimated future
net cash flows, utilizing a discount rate based upon the
Companys cost of capital.

At December 31, 2003, Goodwill in the
Companys Consolidated Balance Sheet totaled approximately
$352.1 million, substantially all of which was recorded in
connection with the Merger (see Note 1 of Notes to the
Consolidated Financial Statements). Goodwill decreased by
$34.8 million from $386.9 million at December 31,
2002, due primarily to the adjustment during 2003 of certain
pre-Merger foreign tax contingencies.



| |                         
| | ------------------------
| | Stock-based Compensation

The Company accounts for its stock option and
stock-based compensation plans using the intrinsic-value method
prescribed by Accounting Principles Board (APB)
Opinion No. 25 Accounting for Stock Issued to
Employees. Accordingly, the Company computes compensation
cost for each employee stock option granted as the amount by
which the quoted market price of the Companys common stock
on the date of grant exceeds the amount the employee must pay to
acquire the stock. The amount of compensation cost, if any, is
charged to expense over the vesting period. No compensation cost
has been recognized for any of the

33



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Companys outstanding stock options, all of
which have exercise prices equal to or greater than the market
price of the stock on the date of grant.


Statement of Accounting Standards No. 148,
Accounting for Stock-Based Compensation  an
Amendment to FAS 123, however, requires the Company
to estimate the fair value of outstanding stock-based
compensation awards for its pro forma disclosures (see
Note 2 of Notes to Consolidated Financial Statements). The
Company uses an option-pricing model (Black-Scholes) to estimate
the fair values of these awards, which requires various
assumptions as to risk-free interest rates, stock volatility,
dividend yield and expected lives of awards.



| |                        
| | -----------------------
| | Self-insurance Accruals

The Company is self-insured for certain losses
related to workers compensation, employers
liability, general liability, automobile liability and property
damage. The Company maintains accruals in its consolidated
balance sheet to cover the estimated self-insurance retention.
These accruals are based on certain assumptions developed
utilizing historical data to project future anticipated losses.
Loss estimates in the calculation of these accruals are
periodically adjusted based upon actual claims settlements and
reported claims.



| |                                                   
| | --------------------------------------------------
| | Pension Cost and Other Postretirement
    Benefits

The Companys pension costs and liabilities
are actuarially determined based on certain assumptions
including expected long-term rates of return on plan assets,
rate of increase in future compensation levels and the discount
rate used to compute future benefit obligations. Actual results
could differ materially from these actuarially determined
amounts.

The Company uses a December 31 measurement
date for its pension and postretirement benefit plans. The
following weighted average assumptions were used to determine
the Companys pension benefit obligations:

|                              |  |                   |      |                   |  |            |      |            |  |  |      |   |  |  |      |  
|----------------------------- |  | ----------------- | ---- | ----------------- |  | ---------- | ---- | ---------- |  |  | ---- | - |  |  | ---- | -
|                              |  |                   |      |                  
|                              |  | December 31, 2003 |      | December 31, 2002
|                              |  |                   |      |                  
|                              |  | U.S. Plans        |      | U.K. Plans        |  | U.S. Plans |      | U.K. Plans
|                              |  |                   |      |                   |  |            |      |           
|Discount rate                 |  |                   | 6.25 | %                 |  |            | 5.50 | %          |  |  | 6.75 | % |  |  | 6.75 | %
|Rate of compensation increase |  |                   | 4.50 | %                 |  |            | 4.25 | %          |  |  | 4.50 | % |  |  | 4.75 | %

The following weighted average assumptions were
used to determine the Companys net periodic pension cost:

|                                                 |  |                         |      |            |  |            |      |            |  |            |      |            |  |  |      |   |  |  |      |   |  |  |      |  
|------------------------------------------------ |  | ----------------------- | ---- | ---------- |  | ---------- | ---- | ---------- |  | ---------- | ---- | ---------- |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|                                                 |  |                        
|                                                 |  | Year Ended December 31,
|                                                 |  |                        
|                                                 |  |                         |      |            |  |           
|                                                 |  | 2003                    |      | 2002       |  | 2001      
|                                                 |  |                         |      |            |  |           
|                                                 |  | U.S. Plans              |      | U.K. Plans |  | U.S. Plans |      | U.K. Plans |  | U.S. Plans |      | U.K. Plans
|                                                 |  |                         |      |            |  |            |      |            |  |            |      |           
|Discount rate                                    |  |                         | 6.75 | %          |  |            | 6.75 | %          |  |            | 7.25 | %          |  |  | 6.75 | % |  |  | 7.50 | % |  |  | 6.75 | %
|Expected long-term rate of return on plan assets |  |                         | 9.00 | %          |  |            | 8.00 | %          |  |            | 9.00 | %          |  |  | 8.00 | % |  |  | 9.00 | % |  |  | 8.00 | %
|Rate of compensation increase                    |  |                         | 4.50 | %          |  |            | 4.75 | %          |  |            | 4.50 | %          |  |  | 4.75 | % |  |  | 6.00 | % |  |  | 4.75 | %

The discount rate used to calculate the net
present value of future benefit obligations at December 31,
2003 and 2002, and pension costs for the years ended
December 31, 2003, 2002 and 2001, for the Companys
U.S. plans is based on the average of current rates earned
on long-term bonds that receive a Moodys rating of Aa or
better.

The Company employs third-party consultants for
its U.S. plans who use a portfolio return model to assess
the initial reasonableness of the expected long-term rate of
return on plan assets assumption. Using asset class return,
variance, and correlation assumptions, the model produces both
the expected return and the distribution of possible returns (at
every fifth percentile) for the chosen portfolio. Return
assumptions developed by the Companys consultants are
forward-looking gross returns. The building block approach used
by the portfolio return model begins with the current Treasury
yield curve, recognizing that expected returns

34



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on bonds are heavily influenced by the current
level of yields. The model then adds corporate bond spreads and
equity risk premiums based on current market conditions, to
develop the return expectations for each asset class based on
the investment mix for the Companys pension plans. The
volatility and correlation assumptions are also forward-looking:
they take into account historical relationships, but are
adjusted by the Companys consultants to reflect expected
capital market trends.


Following is a summary of how changes in the
assumed discount rate and expected return on assets, assuming
all other factors remain unchanged, would affect the net
periodic pension and postretirement benefit expense for 2003 and
related pension and postretirement benefit obligations as of
December 31, 2003:

|                                |  |               |       |               |  |                |       |        |  |        |       |  |  |   |      |  |  |   |      | 
|------------------------------- |  | ------------- | ----- | ------------- |  | -------------- | ----- | ------ |  | ------ | ----- |  |  | - | ---- |  |  | - | ---- | 
|                                |  |               |       |               |  |                |       |       
|                                |  |               |       |               |  | Return on Plan
|                                |  |               |       | Discount Rate |  | Assets        
|                                |  |               |       |               |  |               
|                                |  | 2003          |       | +0.25%        |  | -0.25%         |       | +0.25% |  | -0.25%
|                                |  |               |       |               |  |                |       |        |  |       
|                                |  |              
|                                |  | (In millions)
|Net Periodic Pension Cost:      |  |               |       |               |  |                |       |        |  |        |       |  |  |   |      |  |  |   |      | 
|U.S. plans                      |  | $             | 30.7  |               |  | $              | 29.1  |        |  | $      | 32.2  |  |  | $ | 30.2 |  |  | $ | 31.2 | 
|U.K. plans                      |  | $             | 11.8  |               |  | $              | 10.9  |        |  | $      | 13.5  |  |  | $ | 11.6 |  |  | $ | 11.9 | 
|Accumulated Benefit Obligation: |  |               |       |               |  |                |       |        |  |        |       |  |  |   |      |  |  |   |      | 
|U.S. plans                      |  | $             | 261.8 |               |  | $              | 254.0 |        |  | $      | 269.6 |  |  |   | N/A  |  |  |   | N/A  | 
|U.K. plans                      |  | $             | 118.6 |               |  | $              | 111.7 |        |  | $      | 126.0 |  |  |   | N/A  |  |  |   | N/A  | 
|Projected Benefit Obligation:   |  |               |       |               |  |                |       |        |  |        |       |  |  |   |      |  |  |   |      | 
|U.S. plans                      |  | $             | 312.0 |               |  | $              | 302.3 |        |  | $      | 321.7 |  |  |   | N/A  |  |  |   | N/A  | 
|U.K. plans                      |  | $             | 135.8 |               |  | $              | 127.7 |        |  | $      | 144.6 |  |  |   | N/A  |  |  |   | N/A  | 

The calculation of the Companys other
postretirement benefits costs and liabilities includes the
weighted-average annual assumed rate of increase in the per
capita cost of covered medical benefits. This assumption is
based on data available to management at the time the assumption
is made.

For further discussion of the components of the
Companys net periodic pension cost and funded status of
the Companys pension plans, see Note 9 of Notes to
the Consolidated Financial Statements.



| |                 
| | ----------------
| | Use of estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make certain estimates. The Company bases
these estimates on historical experience and various other
assumptions that the Company believes to be reasonable under the
circumstances. Actual results, however, could differ from these
estimates.

The following is a discussion of other critical
accounting estimates, in addition to those discussed above:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Allowance for doubtful
    accounts.The Company estimates its
    allowance for doubtful accounts based on analysis of historical
    collection activity. Factors that may affect this estimate
    include changes in the financial position of a major customer or
    significant changes in the prices of oil or natural gas.                                                                                                       
|
| | Turnkey drilling
    costs.The Company typically relies on
    detailed cost estimates created by project engineering staff to
    compute and record profits on turnkey drilling projects based on
    known revenues. These cost estimates are adjusted when final
    actual project costs have been determined, which may result in
    adjustments to previously recorded amounts.                                                  
|
| | Accrued claims and
    liabilities.The Company estimates its
    accrued claims and liabilities based on the facts and
    circumstances specific to the claims and past experience with
    similar claims. The actual outcome of litigated claims could
    differ significantly from estimated amounts.                                                                                                                               
|
| | Fair values of financial
    instruments.The Company estimates the
    fair values of its financial instruments based on available
    third-party market quotes for its financial instruments or
    market quotes based on financial instruments with similar
    characteristics. Where market quotes are unavailable, the
    Company bases its estimates of fair values on the net present
    value of estimated future cash flows.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Future cash flows.The Companys estimates of future cash flows are based on
    the most recent currently available market and operating data
    for the applicable asset or reporting unit at the time the
    estimate is made. In addition to goodwill or asset impairment
    analyses and fair value calculations discussed above, cash flow
    estimates are also used to determine certain tax-related
    valuations.

Merger with Santa Fe
International  Restructuring Costs

On November 20, 2001, Global Marine merged
with a subsidiary of Santa Fe International and became a
wholly owned subsidiary of Santa Fe International, which
was renamed GlobalSantaFe Corporation at the time of the Merger.

In connection with the Merger, the Company
implemented a restructuring program that included the
consolidation of Santa Fe Internationals
administrative office in Dallas, Texas, Global Marines
administrative office in Lafayette, Louisiana, and Global
Marines administrative office in Houston, Texas, into a
single administrative office in Houston, the consolidation of
Santa Fe Internationals and Global Marines
North Sea administrative offices in Aberdeen, Scotland, and the
separation of 169 employees from the Company. The employee
functions affected were primarily corporate support in nature
and included accounting, information technology, and employee
benefits, among others. Approximately 60% of the affected
positions were located in Dallas, 23% were located in Houston
and Lafayette, and the remaining 17% were located in Aberdeen.
All of the activities related to this restructuring program were
substantially complete as of December 31, 2003.

Estimated restructuring costs associated with
Global Marine were recorded as a pretax charge in the fourth
quarter of 2001. Changes in estimated costs, consisting mainly
of refinements of cost estimates related to the closure of
Global Marines office discussed below, and payments
related to these restructuring costs for the period from
November 20, 2001, to December 31, 2003, are
summarized as follows:

|                               |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |      |  
|------------------------------ | -------------------------- | --------------- | - | ------------ | - | ------------- | - | -------------- | - | ----- | - | ---- | - |  | - | ---- | - |  | - | ---- | -
|                               |                            |                 |   |              |   | Office        |   |                |   |      
|                               |                            | Employee        |   | Other        |   | Closures and  |   | Directors     |   |      
|                               |                            | Severance       |   | Compensation |   | Consolidation |   | Separation and |   |      
|Restructuring Costs:           |                            | Costs           |   | Expense      |   | of Facilities |   | Other Costs    |   | Total
|                               |                            |                 |   |              |   |               |   |                |   |      
|                               |                            |                
|                               |                            | ($ in millions)
|Houston and Lafayette Offices: |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                               | Number of Employees  38   |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |      |  
|                               | Restructuring Expense      |                 | $ | 8.2          |   |               | $ | 4.6            |   |       | $ | 4.1  |   |  | $ | 3.8  |   |  | $ | 20.7 |  
|                               | 2001 payments              |                 |   |             |   |               |   | (4.6           | ) |       |   |     |   |  |   | (1.3 | ) |  |   | (5.9 | )
|                               |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                               | Liability at 12/31/01      |                 |   | 8.2          |   |               |   |               |   |       |   | 4.1  |   |  |   | 2.5  |   |  |   | 14.8 |  
|                               | Changes in estimated costs |                 |   | (2.2         | ) |               |   |               |   |       |   | 2.6  |   |  |   | (0.5 | ) |  |   | (0.1 | )
|                               | 2002 payments              |                 |   | (2.6         | ) |               |   |               |   |       |   | (2.1 | ) |  |   |     |   |  |   | (4.7 | )
|                               |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                               | Liability at 12/31/02      |                 |   | 3.4          |   |               |   |               |   |       |   | 4.6  |   |  |   | 2.0  |   |  |   | 10.0 |  
|                               | Changes in estimated costs |                 |   | 0.5          |   |               |   |               |   |       |   | 4.0  |   |  |   |     |   |  |   | 4.5  |  
|                               | 2003 payments              |                 |   | (2.2         | ) |               |   |               |   |       |   | (2.9 | ) |  |   |     |   |  |   | (5.1 | )
|                               |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                               | Liability at 12/31/03      |                 |   | 1.7          |   |               |   |               |   |       |   | 5.7  |   |  |   | 2.0  |   |  |   | 9.4  |  
|                               |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|Aberdeen Office:               |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                               | Number of Employees  16   |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |      |  
|                               | Restructuring Expense      |                 |   | 1.3          |   |               |   |               |   |       |   | 0.2  |   |  |   | 0.1  |   |  |   | 1.6  |  
|                               | 2001 payments              |                 |   | (0.4         | ) |               |   |               |   |       |   |     |   |  |   |     |   |  |   | (0.4 | )
|                               |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                               | Liability at 12/31/01      |                 |   | 0.9          |   |               |   |               |   |       |   | 0.2  |   |  |   | 0.1  |   |  |   | 1.2  |  
|                               | Changes in estimated costs |                 |   | (0.1         | ) |               |   |               |   |       |   | 0.3  |   |  |   | (0.1 | ) |  |   | 0.1  |  
|                               | 2002 payments              |                 |   | (0.7         | ) |               |   |               |   |       |   | (0.5 | ) |  |   |     |   |  |   | (1.2 | )
|                               |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                               | Liability at 12/31/02      |                 |   | 0.1          |   |               |   |               |   |       |   |     |   |  |   |     |   |  |   | 0.1  |  
|                               | Changes in estimated costs |                 |   | 0.2          |   |               |   |               |   |       |   |     |   |  |   |     |   |  |   | 0.2  |  
|                               | 2003 payments              |                 |   | (0.3         | ) |               |   |               |   |       |   |     |   |  |   |     |   |  |   | (0.3 | )
|                               |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                               | Liability at 12/31/03      |                 |   |             |   |               |   |               |   |       |   |     |   |  |   |     |   |  |   |     |  
|                               |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     

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|                     |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |      |  
|-------------------- | -------------------------- | --------------- | - | ------------ | - | ------------- | - | -------------- | - | ----- | - | ---- | - |  | - | ---- | - |  | - | ---- | -
|                     |                            |                 |   |              |   | Office        |   |                |   |      
|                     |                            | Employee        |   | Other        |   | Closures and  |   | Directors     |   |      
|                     |                            | Severance       |   | Compensation |   | Consolidation |   | Separation and |   |      
|Restructuring Costs: |                            | Costs           |   | Expense      |   | of Facilities |   | Other Costs    |   | Total
|                     |                            |                 |   |              |   |               |   |                |   |      
|                     |                            |                
|                     |                            | ($ in millions)
|Total:               |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                     | Number of Employees  54   |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |      |  
|                     | Restructuring Expense      |                 |   | 9.5          |   |               |   | 4.6            |   |       |   | 4.3  |   |  |   | 3.9  |   |  |   | 22.3 |  
|                     | 2001 payments              |                 |   | (0.4         | ) |               |   | (4.6           | ) |       |   |     |   |  |   | (1.3 | ) |  |   | (6.3 | )
|                     |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                     | Liability at 12/31/01      |                 |   | 9.1          |   |               |   |               |   |       |   | 4.3  |   |  |   | 2.6  |   |  |   | 16.0 |  
|                     | Changes in estimated costs |                 |   | (2.3         | ) |               |   |               |   |       |   | 2.9  |   |  |   | (0.6 | ) |  |   |     |  
|                     | 2002 payments              |                 |   | (3.3         | ) |               |   |               |   |       |   | (2.6 | ) |  |   |     |   |  |   | (5.9 | )
|                     |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                     | Liability at 12/31/02      |                 |   | 3.5          |   |               |   |               |   |       |   | 4.6  |   |  |   | 2.0  |   |  |   | 10.1 |  
|                     | Changes in estimated costs |                 |   | 0.7          |   |               |   |               |   |       |   | 4.0  |   |  |   |     |   |  |   | 4.7  |  
|                     | 2003 payments              |                 |   | (2.5         | ) |               |   |               |   |       |   | (2.9 | ) |  |   |     |   |  |   | (5.4 | )
|                     |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     
|                     | Liability at 12/31/03      |                 | $ | 1.7          |   |               | $ |               |   |       | $ | 5.7  |   |  | $ | 2.0  |   |  | $ | 9.4  |  
|                     |                            |                 |   |              |   |               |   |                |   |       |   |      |   |  |   |      |   |  |   |     

Estimated costs related to the closure of Global
Marine Inc.s former Houston, Texas, office were originally
based on the assumption that this office space would be
subleased to a third party. Based on current Houston commercial
real estate market conditions, the Company now believes it is
probable that it will not be able to sublease this office space
before the end of the lease term. As a result, the Company has
now accrued the entire liability under the lease.

Estimated costs associated with Santa Fe
Internationals employee severance and closure of its
Dallas and Aberdeen offices were recognized as a liability
assumed in the purchase business combination and included in the
cost of acquisition in accordance with the provisions of
SFAS No. 141, Business Combinations.
Changes in estimated costs, consisting primarily of costs
associated with employee terminations and further employee
relocation costs, and payments related to this liability for the
period from November 20, 2001, to December 31, 2003,
are summarized as follows:

|                                  |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  
|--------------------------------- |  | --------------- | ----- | ---------- |  | ------------- | ---- | -------------- |  | ----- | ---- | - |  | - | ---- | - |  | - | ----- | -
|                                  |  |                 |       |            |  | Office        |      |                |  |      
|                                  |  | Employee        |       | Employee   |  | Closures and  |      | Directors     |  |      
|                                  |  | Severance       |       | Relocation |  | Consolidation |      | Separation and |  |      
|Purchase Price:                   |  | Costs           |       | Costs      |  | of Facilities |      | Other Costs    |  | Total
|                                  |  |                 |       |            |  |               |      |                |  |      
|                                  |  |                
|                                  |  | ($ in millions)
|Number of Employees  115         |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  
|Costs included in purchase price: |  | $               | 9.6   |            |  | $             | 5.4  |                |  | $     | 11.5 |   |  | $ | 1.2  |   |  | $ | 27.7  |  
|2001 payments                     |  |                 | (0.1  | )          |  |               |     |                |  |       |     |   |  |   | (0.3 | ) |  |   | (0.4  | )
|                                  |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  
|Liability at 12/31/01             |  |                 | 9.5   |            |  |               | 5.4  |                |  |       | 11.5 |   |  |   | 0.9  |   |  |   | 27.3  |  
|Changes in estimated costs        |  |                 | 4.8   |            |  |               | 2.8  |                |  |       |     |   |  |   | (0.4 | ) |  |   | 7.2   |  
|2002 payments                     |  |                 | (11.6 | )          |  |               | (7.7 | )              |  |       | (1.2 | ) |  |   | (0.2 | ) |  |   | (20.7 | )
|                                  |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  
|Liability at 12/31/02             |  |                 | 2.7   |            |  |               | 0.5  |                |  |       | 10.3 |   |  |   | 0.3  |   |  |   | 13.8  |  
|Changes in estimated costs        |  |                 | 0.8   |            |  |               |     |                |  |       | (0.2 | ) |  |   | (0.3 | ) |  |   | 0.3   |  
|2003 payments                     |  |                 | (3.5  | )          |  |               | (0.5 | )              |  |       | (2.6 | ) |  |   |     |   |  |   | (6.6  | )
|                                  |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  
|Liability at 12/31/03             |  | $               |      |            |  | $             |     |                |  | $     | 7.5  |   |  | $ |     |   |  | $ | 7.5   |  
|                                  |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  

In addition to the amounts in the above table,
Santa Fe International paid $10.0 million in 2001 at
the time of the Merger to SFIC Holdings in consideration for
SFIC Holdings consent to the Merger. This consent was
required pursuant to an intercompany agreement with Kuwait
Petroleum Corporation and SFIC Holdings that required the
consent of SFIC Holdings to, among other things, significant
corporate actions by Santa Fe International, including the
issuance of equity securities, sale of significant assets or a
change in the corporate domicile of Santa Fe International
or any of its subsidiaries. See Risk Factors 
SFIC Holdings Has the Ability to Significantly Influence Matters
on Which Shareholders May Vote.

As of December 31, 2003, the Companys
remaining liability in connection with its merger-related
restructuring activities totaled $16.9 million, consisting
of the following: $13.2 million related to office closures
and consolidation of facilities, which will be relieved over the
remaining terms of the various office leases

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ranging up to 4 1/2 years; $1.7 million
related to employee separation costs, which will be paid out
pursuant to the terms of various severance agreements, over
terms ranging up to three years from the date of separation; and
$2.0 million related to special retirement termination
costs, which will be satisfied pursuant to the payment terms of
the retirement plans affected.


Current Market Conditions

The drilling business has historically been
cyclical; marked by periods of low demand, excess rig supply and
low dayrates, followed by periods of high demand, short rig
supply and increasing dayrates. These cycles are volatile and
have traditionally been influenced by a number of factors,
including oil and gas prices, the spending plans of the
Companys customers and the highly competitive nature of
the offshore drilling industry. Even when rig markets appear to
have stabilized at a certain level of utilization and dayrates,
these markets can change swiftly, making it difficult to predict
trends or conditions in the market. The relocation of rigs from
weak markets to stable or strong markets may also have a
significant impact on utilization and dayrates in the affected
markets. A summary of current market conditions in the
Companys areas of operations follows:

North Sea.The
Companys North Sea fleet currently includes four
semisubmersibles, four cantilevered heavy-duty harsh environment
(HDHE) jackups, three cantilevered jackups and a
platform rig. Although the current industry utilization for
semisubmersibles in the North Sea is only slightly above 50%,
the Company has been successful in securing contracts for two of
its three idle semisubmersibles commencing late in the first
quarter of 2004. While the Company expects demand to increase
during the spring, industry utilization is not expected to
increase to a level that would support a material improvement in
dayrates during 2004.

The market for HDHE jackup rigs in the North Sea
has improved and the Company has observed a number of recent
tenders for HDHE work. The GSF Galaxy IIIis
contracted into early 2005 and is committed to another operator
for HDHE work commencing in mid-2005, continuing into early
2007. The GSF Galaxy Iand the GSF Magellaneach have contracts commencing in May 2004, with both
programs expected to extend into late third quarter 2004. The
GSF Monarchcontinues under a long-term contract
extending into late 2004. The standard specification jackups
GSF Labradorand GSF Adriatic XIwill both
experience some idle time during the first quarter of 2004 with
the GSF Labradorcommencing a one-well contract in March
2004. The Company expects the market for standard specification
jackups to strengthen in the spring. The Britanniacontinues under a long-term contract that extends into late
2004.

U.S. Gulf of
Mexico.The Company currently operates
ten cantilevered jackups and two semisubmersibles in the
U.S. Gulf of Mexico market. With the mobilization of a
number of jackups to other markets by industry participants, the
supply and demand outlook for jackups is improving, although
this market continues to be characterized by short-term
contracts. During the fourth quarter of 2003, the Company
experienced full employment of its jackup rig fleet in the
U.S. Gulf of Mexico while the industry utilization rate for
all jackups in the area averaged 75% for the same period.
Average dayrates for the Companys jackups increased
approximately 14% during the fourth quarter of 2003 from third
quarter levels.

Although the U.S. Gulf of Mexico market for
semisubmersibles is expected to remain weak through at least the
first half of 2004, the Company was successful in securing a
contract for the GSF Celtic Seacommencing in early March
2004 for an initial period of approximately five months. The
GSF Arctic Icommenced a new contract in October
2003 and the Company expects the rig to remain under contact
until the third quarter of 2004.

Ultra-deepwater
market.Industry-wide, the
ultra-deepwater market has shown signs of improvement recently
as evidenced by a number of contract awards for deepwater rigs
in the U.S. Gulf of Mexico and West Africa. For the past
several quarters, this market has been characterized by shorter
term work with the potential for downtime between contracts.
While this spot market softness still exists, the Company
believes that recent and prospective contract awards may lead to
a better balance between supply and demand and consequently to
greater backlog and higher dayrates for the premium equipment in
this asset class later in 2004 and into 2005. The Company
currently operates three drillships in the ultra-deepwater
market, with all three of those rigs currently located in the
U.S. Gulf of Mexico. Upon completion of a contract in
Mauritania

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(West Africa), the Glomar Jack Ryanmobilized to the U.S. Gulf of Mexico in the first
quarter of 2004 for a minimum one-well contract. Following the
project in the Gulf of Mexico, the rig is likely to move to
Brazil for a multiple well project. The Glomar Explorertransferred from one customer to another in February 2004
for a one-well contract, and while there are prospects for the
rig following this commitment, none have yet developed into a
contract. The GSF C.R. Luigsis expected to continue
under contract with its current customer for the foreseeable
future.


The Company currently has two ultra-deepwater
semisubmersibles under construction. The first of these, the
GSF Development Driller I, is scheduled for delivery
around the end of the second quarter of 2004 and the Company is
bidding the rig against several long-term projects. However,
most of those opportunities have commencement dates in 2005, so
the Company will be attempting to find shorter term work for the
rig in the interim. The second rig, the GSF Development
Driller II, is scheduled for delivery around the end of
the first quarter of 2005, after which it will mobilize to the
Gulf of Mexico for a three-year contract.

West Africa.The
Company currently operates two semisubmersibles and nine
cantilevered jackups in this market. Both of the Companys
semisubmersibles in this market are contracted until mid 2004.
The West Africa jackup market continues to be heavily influenced
by the level of rig demand in Nigeria, traditionally the area
with the largest concentration of rigs in this market.
Utilization continued to decrease during the fourth quarter of
2003 mainly as a result of rigs coming off contracts in Nigeria
due to operators experiencing funding difficulties with their
partner, the Nigerian national oil company. The industry
utilization rate was only 60% in January 2004. The Company
anticipates that the funding difficulties will be resolved and
the West Africa market will strengthen generally through the
year. Notwithstanding the recent market weakness, the Company
has been successful in contracting its three idle jackups to
return to work by the end of February 2004. In February 2004,
the Company was awarded contracts for two jackups for a long
term project in Angola, utilizing one jackup from Equatorial
Guinea and one from the U.S. Gulf of Mexico. The contracts
are scheduled to commence in August 2004 with a duration of
2 1/2 years each.

Middle East and
Mediterranean.The Company currently
operates six cantilevered jackups in the Middle East region,
three cantilevered jackups in the Mediterranean region offshore
North Africa and has a moored drillship cold-stacked in Egypt.
Given the relatively high level of demand for jackups in these
regions, the Company expects all nine of its jackups in these
regions to be fully utilized throughout 2004.

Southeast Asia.Utilization in this region has remained high and the Company has
observed an increase in dayrates with recent contract awards.
The Company currently operates seven cantilevered jackups in
this market. The recently constructed GSF
Constellation Icommenced a multi-well contract in
August 2003 but encountered difficulty in positioning near a
platform due to seabed conditions. The rig suffered leg damage
and is currently undergoing repairs in Singapore. The rig will
mobilize to Trinidad during March 2004. The Companys
remaining six jackup rigs in this region are expected to be
fully employed throughout 2004.

Other.The Company
currently operates one semisubmersible and one HDHE jackup
offshore eastern Canada. The semisubmersible commenced a
two-year contract in July 2003. The jackup is currently idle but
is contracted to commence a two-well contract in June 2004. In
Trinidad and Tobago, the Company expects both the GSF
Adriatic VIIand the GSF Monitorto remain under
contract with their current customers for the balance of 2004.
As discussed above, the GSF Constellation Iis
expected to mobilize to Trinidad in March for a three-year
contract. A sister rig, the GSF Constellation II, is
currently under construction in Singapore and is scheduled for
delivery around the end of the first quarter of 2004. Upon
delivery, the rig will mobilize to Argentina for an approximate
nine-month contract.

Land drilling fleet.The Company owns 31 land drilling rigs, with 19 of these located
in the Middle East (12 rigs in Kuwait, four in Saudi Arabia and
three in Oman), four in North Africa and eight in Venezuela.
Seven of the Companys 12 land rigs in Kuwait are currently
operating, five of which are contracted into the third quarter
of 2004. The Company expects its four land rigs in Egypt to be
fully utilized through the third quarter of 2004. In Oman, the
Company secured new four-year term contracts for two of its
three land rigs. In Venezuela, one of the Companys eight
land rigs has returned to work and the Company is negotiating
contracts for two more projects.

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As part of the Companys goal of enhancing
long-term shareholder value, the Company is currently
considering the possibility of selling its land rig fleet assets
provided that the Company receives value from such a sale, if
any, that the Company deems fair in light of the quality of
these assets and the Companys long-term market outlook for
these assets. The net book value of the Companys land
drilling fleet totaled $190.9 million at December 31,
2003.

Operating Results

The Companys operating results for 2003 and
2002 reflect a full year of operations for the combined company,
while the Companys results of operations for 2001 include
Global Marines operations for the full year and
Santa Fe Internationals operations from
November 20, 2001 (42 days). As a result, year-to-year
comparisons between 2002 and 2001 may not be meaningful.

Data relating to the Companys operations by
business segment follows:

|                  |                             |                 |         |            |   |      |     |            |    |      |         |         |   |  |    |      |    |   |         |       |  
|----------------- | --------------------------- | --------------- | ------- | ---------- | - | ---- | --- | ---------- | -- | ---- | ------- | ------- | - |  | -- | ---- | -- | - | ------- | ----- | -
|                  |                             |                 |         | Increase   |   |      |     | Increase   |    |     
|                  |                             | 2003            |         | (Decrease) |   | 2002 |     | (Decrease) |    | 2001
|                  |                             |                 |         |            |   |      |     |            |    |     
|                  |                             |                
|                  |                             | ($ in millions)
|Revenues:         |                             |                 |         |            |   |      |     |            |    |      |         |         |   |  |    |      |    |   |         |      
|                  | Contract drilling           |                 | $       | 1,373.1    |   |      |     | (15        | )% |      | $       | 1,619.0 |   |  |    | 66   | %  |   | $       | 974.1 |  
|                  | Drilling management         |                 |         | 528.4      |   |      |     | 27         | %  |      |         | 416.8   |   |  |    | 0    | %  |   |         | 417.3 |  
|                  | Oil and gas                 |                 |         | 20.9       |   |      |     | 97         | %  |      |         | 10.6    |   |  |    | (24  | )% |   |         | 13.9  |  
|                  | Less: intersegment revenues |                 |         | (7.7       | ) |      |     | (73        | )% |      |         | (28.7   | ) |  |    | 32   | %  |   |         | (21.7 | )
|                  |                             |                 |         |            |   |      |     |            |    |      |         |         |   |  |    |      |    |   |         |      
|                  |                             | $               | 1,914.7 |            |   |      | (5  | )%         |    | $    | 2,017.7 |         |   |  | 46 | %    |    | $ | 1,383.6 |      
|                  |                             |                 |         |            |   |      |     |            |    |      |         |         |   |  |    |      |    |   |         |      
|Operating income: |                             |                 |         |            |   |      |     |            |    |      |         |         |   |  |    |      |    |   |         |      
|                  | Contract drilling           |                 | $       | 154.6      |   |      |     | (57        | )% |      | $       | 360.2   |   |  |    | 6    | %  |   | $       | 338.5 |  
|                  | Drilling management         |                 |         | 31.7       |   |      |     | 11         | %  |      |         | 28.6    |   |  |    | (14  | )% |   |         | 33.4  |  
|                  | Oil and gas                 |                 |         | 12.0       |   |      |     | 150        | %  |      |         | 4.8     |   |  |    | (43  | )% |   |         | 8.4   |  
|                  | Gain on sale of assets (1)  |                 |         |           |   |      |     | N/A        |    |      |         |        |   |  |    | (100 | )% |   |         | 35.6  |  
|                  | Restructuring costs         |                 |         | (3.4       | ) |      |     | N/A        |    |      |         |        |   |  |    | (100 | )% |   |         | (22.3 | )
|                  | Corporate expenses          |                 |         | (52.7      | ) |      |     | (15        | )% |      |         | (61.8   | ) |  |    | 120  | %  |   |         | (28.1 | )
|                  |                             |                 |         |            |   |      |     |            |    |      |         |         |   |  |    |      |    |   |         |      
|                  |                             | $               | 142.2   |            |   |      | (57 | )%         |    | $    | 331.8   |         |   |  | (9 | )%   |    | $ | 365.5   |      
|                  |                             |                 |         |            |   |      |     |            |    |      |         |         |   |  |    |      |    |   |         |      



---



|    |                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In June 2001, the Company completed the sale of
    the Glomar Beaufort Sea I concrete island drilling system
    to Exxon Neftegas Limited for $45.0 million, resulting in a
    pretax gain in the amount of $35.1 million.

Operating income for 2003 decreased by
$189.6 million to $142.2 million from
$331.8 million for 2002 due primarily to lower utilization
and dayrates for the Companys drilling fleet and an
increase in the Companys restructuring liability as
discussed above. These factors were partially offset by higher
average natural gas prices and production, lower corporate
expenses and increased turnkey drilling activity.

40



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##### Table of Contents





| |                             
| | ----------------------------
| | Contract Drilling Operations

Data with respect to the Companys contract
drilling operations follows:

|                                        |                     |                 |         |            |   |          |     |                |    |          |         |        |   |  |    |       |    |   |       |        |  
|--------------------------------------- | ------------------- | --------------- | ------- | ---------- | - | -------- | --- | -------------- | -- | -------- | ------- | ------ | - |  | -- | ----- | -- | - | ----- | ------ | -
|                                        |                     |                 |         | Increase/  |   |          |     | Increase/      |    |         
|                                        |                     | 2003            |         | (Decrease) |   | 2002 (3) |     | (Decrease) (3) |    | 2001 (3)
|                                        |                     |                 |         |            |   |          |     |                |    |         
|                                        |                     |                
|                                        |                     | ($ in millions)
|Contract drilling revenues by area: (1) |                     |                 |         |            |   |          |     |                |    |          |         |        |   |  |    |       |    |   |       |       
|                                        | U.S. Gulf of Mexico |                 | $       | 291.6      |   |          |     | (15            | )% |          | $       | 342.0  |   |  |    | (25   | )% |   | $     | 458.7  |  
|                                        | North Sea           |                 |         | 253.3      |   |          |     | (44            | )% |          |         | 453.4  |   |  |    | 187   | %  |   |       | 158.0  |  
|                                        | West Africa         |                 |         | 255.5      |   |          |     | 21             | %  |          |         | 210.3  |   |  |    | 23    | %  |   |       | 170.7  |  
|                                        | Southeast Asia      |                 |         | 153.1      |   |          |     | 25             | %  |          |         | 122.7  |   |  |    | 837   | %  |   |       | 13.1   |  
|                                        | Middle East         |                 |         | 139.0      |   |          |     | (20            | )% |          |         | 173.2  |   |  |    | 640   | %  |   |       | 23.4   |  
|                                        | North Africa        |                 |         | 104.5      |   |          |     | 12             | %  |          |         | 93.4   |   |  |    | 2,569 | %  |   |       | 3.5    |  
|                                        | South America       |                 |         | 25.8       |   |          |     | (71            | )% |          |         | 89.2   |   |  |    | (30   | )% |   |       | 127.4  |  
|                                        | Other               |                 |         | 150.3      |   |          |     | 11             | %  |          |         | 134.8  |   |  |    | 598   | %  |   |       | 19.3   |  
|                                        |                     |                 |         |            |   |          |     |                |    |          |         |        |   |  |    |       |    |   |       |       
|                                        |                     | $               | 1,373.1 |            |   |          | (15 | )%             |    | $        | 1,619.0 |        |   |  | 66 | %     |    | $ | 974.1 |       
|                                        |                     |                 |         |            |   |          |     |                |    |          |         |        |   |  |    |       |    |   |       |       
|Average marine rig utilization by area: |                     |                 |         |            |   |          |     |                |    |          |         |        |   |  |    |       |    |   |       |       
|                                        | U.S. Gulf of Mexico |                 |         | 95         | % |          |     | 6              | %  |          |         | 90     | % |  |    | (4    | )% |   |       | 94     | %
|                                        | North Sea           |                 |         | 73         | % |          |     | (14            | )% |          |         | 85     | % |  |    | (3    | )% |   |       | 88     | %
|                                        | West Africa         |                 |         | 79         | % |          |     | (8             | )% |          |         | 86     | % |  |    | (11   | )% |   |       | 97     | %
|                                        | Southeast Asia      |                 |         | 86         | % |          |     | 5              | %  |          |         | 82     | % |  |    | (18   | )% |   |       | 100    | %
|                                        | Middle East         |                 |         | 100        | % |          |     | 1              | %  |          |         | 99     | % |  |    | (1    | )% |   |       | 100    | %
|                                        | North Africa        |                 |         | 86         | % |          |     | (4             | )% |          |         | 90     | % |  |    | 463   | %  |   |       | 16     | %
|                                        | South America       |                 |         | 72         | % |          |     | (28            | )% |          |         | 100    | % |  |    | 6     | %  |   |       | 94     | %
|                                        | Other               |                 |         | 79         | % |          |     | (18            | )% |          |         | 96     | % |  |    | (4    | )% |   |       | 100    | %
|Total average rig utilization:          |                     |                 |         |            |   |          |     |                |    |          |         |        |   |  |    |       |    |   |       |       
|                                        | Marine rigs         |                 |         | 85         | % |          |     | (4             | )% |          |         | 89     | % |  |    | (4    | )% |   |       | 93     | %
|                                        | Land rigs           |                 |         | 53         | % |          |     | (23            | )% |          |         | 69     | % |  |    | (18   | )% |   |       | 84     | %
|Average revenues per day: (2)           |                     |                 |         |            |   |          |     |                |    |          |         |        |   |  |    |       |    |   |       |       
|                                        | Marine rigs         |                 | $       | 65,900     |   |          |     | (9             | )% |          | $       | 72,400 |   |  |    | (4    | )% |   | $     | 75,400 |  
|                                        | Land rigs           |                 | $       | 16,400     |   |          |     | (4             | )% |          | $       | 17,100 |   |  |    | (1    | )% |   | $     | 17,200 |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes revenue earned from affiliates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(2) | Average revenues per day is the ratio of
    rig-related contract drilling revenues divided by the aggregate
    contract days, adjusted to exclude days under contract at zero
    dayrate. The calculation of average revenues per day excludes
    non-rig related revenues, consisting mainly of reimbursed
    expenses, totaling $39.5 million, $74.9 million and
    $26.5 million, respectively, for the years ended 2003, 2002, and
    2001. Average revenues per day including these reimbursed
    expenses would have been $67,700, $74,500 and $77,800 for 2003,
    2002 and 2001, respectively, for the Companys marine rigs
    and $17,300, $18,000 and $18,600 for 2003, 2002 and 2001,
    respectively, for the Companys land rigs. The calculation
    of average revenues per day excludes all contract drilling
    revenues related to the Companys platform rig operations.
|   
|(3) | Operating results for 2003 and 2002 represent the
    operations of the combined company. Operating results for 2001
    include the results of Global Marine for the full period and the
    results of Santa Fe International from November 20, 2001
    (42 days). As a result, year-to-year comparisons between
    2002 and 2001 may not be meaningful.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



| |                                                                           
| | --------------------------------------------------------------------------
| | Year Ended December 31, 2003, Compared to
    Year Ended December 31, 2002

Contract drilling revenues decreased by
$245.9 million to $1,373.1 million for 2003, compared
to $1,619.0 million for 2002. Lower dayrates and
utilization for the Companys marine drilling fleet
accounted for $105.9 million and $77.8 million,
respectively, of this decrease and lower utilization for the
Companys land rigs accounted for an additional
$35.3 million. The remainder of this decrease was due to
lower reimbursable

41



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and other revenues, which decreased by
$18.9 million and $8.0 million, respectively.
Reimbursable revenues represent reimbursements from customers
for certain out-of-pocket expenses incurred and have no effect
on operating income. Other revenues include rig mobilization
fees and miscellaneous fees including labor, material, rental,
handling and incentive bonuses.


The decreases attributable to the marine drilling
fleet were due primarily to both lower dayrates and utilization
for the North Sea and West Africa fleets, lower dayrates for the
Middle East drilling fleet and the GSF Arctic Iand
the GSF C. R. Luigs in the U.S. Gulf of Mexico and
lower utilization of the GSF Grand Banksoff the east
coast of Canada, which was idle through the first half of 2003.
These decreases in marine drilling revenues were offset in part
by increases in both dayrates and utilization for the
Companys U.S. Gulf of Mexico jackup fleet and by an
increase in utilization for GSF Rig 136in Southeast
Asia, which was undergoing upgrades during a substantial portion
of 2002. The decrease in utilization for the Companys land
fleet was due primarily to the Companys rigs in Venezuela,
which were idle for substantially all of 2003, along with lower
utilization for the Companys rigs in Kuwait.

The mobilization of marine rigs between the
geographic areas shown below also affected each areas
revenues and utilization noted in the table above. These
mobilizations were as follows:

|                 |  |                     |  |                     |  |                     |  |            |        | 
|---------------- |  | ------------------- |  | ------------------- |  | ------------------- |  | ---------- | ------ | 
|                 |  |                     |  |                     |  |                     |  | Completion
|Rig              |  | Rig Type            |  | From                |  | To                  |  | Date      
|                 |  |                     |  |                     |  |                     |  |           
|Glomar Jack Ryan |  | Drillship           |  | U.S. Gulf of Mexico |  | South America       |  |            | Mar-02 | 
|Glomar Jack Ryan |  | Drillship           |  | South America       |  | U.S. Gulf of Mexico |  |            | May-02 | 
|Glomar Jack Ryan |  | Drillship           |  | U.S. Gulf of Mexico |  | Other (Australia)   |  |            | Oct-02 | 
|GSF Labrador     |  | Cantilevered Jackup |  | South America       |  | North Sea           |  |            | May-02 | 
|GSF Baltic       |  | Cantilevered Jackup |  | South America       |  | West Africa         |  |            | Jul-02 | 
|GSF Grand Banks  |  | Semisubmersible     |  | North Sea           |  | Other (Canada)      |  |            | Jul-02 | 
|GSF Adriatic III |  | Cantilevered Jackup |  | South America       |  | U.S. Gulf of Mexico |  |            | Aug-02 | 
|GSF Adriatic VI  |  | Cantilevered Jackup |  | North Sea           |  | West Africa         |  |            | Nov-02 | 
|GSF Rig 135      |  | Semisubmersible     |  | North Sea           |  | West Africa         |  |            | Jan-03 | 
|GSF Adriatic IV  |  | Cantilevered Jackup |  | U.S. Gulf of Mexico |  | North Africa        |  |            | Mar-03 | 
|Glomar Jack Ryan |  | Drillship           |  | Other (Australia)   |  | West Africa         |  |            | Aug-03 | 
|GSF Monitor      |  | HDHE Jackup         |  | North Sea           |  | South America       |  |            | Oct-03 | 

Contract drilling operating expenses before
intersegment eliminations decreased by $56.1 million, or
5.6%, for 2003 compared 2002, due primarily to decreases in
repair and maintenance expenses, reimbursable expenses,
Merger-related transition expenses incurred in 2002, and lower
labor expense. The decrease in repair and maintenance expense
was due to repair projects performed on several of the
Companys marine rigs in 2002, offset in part by repairs
and maintenance work performed concurrent with upgrades on the
Glomar Grand Banksin 2003. The decrease in labor expense
was due primarily to the lower utilization of the North Sea,
West Africa and Middle East drilling fleets discussed above,
offset in part by an increase in pension expense. The Company
recorded approximately $14.8 million of Merger-related
transition expenses in its contract drilling operations during
2002, which represent costs incurred as part of the integration
of the operations of Global Marine and Santa Fe
International.

Contract drilling depreciation expense increased
by $16.5 million to $265.2 million from
$248.7 million in 2002, due primarily to upgrades on
several of the Companys marine rigs during 2002 and the
addition of the GSF Constellation I, which was
placed into service in August 2003.

The effects of the lower dayrates and utilization
and higher depreciation expense discussed above were reflected
in the Companys operating income and margin for contract
drilling operations, which decreased to $154.6 million and
11.3%, respectively, for the year ended December 31, 2003,
from $360.2 million and 22.2%, respectively, for 2002.

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The Companys contract drilling backlog at
December 31, 2003, totaled approximately
$996.6 million, of which approximately $513.7 million
is expected to be realized in 2004. Contract drilling backlog at
December 31, 2002 was $1.2 billion.



| |                                                                           
| | --------------------------------------------------------------------------
| | Year Ended December 31, 2002, Compared to
    Year Ended December 31, 2001

Contract drilling revenues increased by
$644.9 million to $1,619.0 million in 2002 compared to
$974.1 million in 2001 due primarily to $686.8 million
from the addition of the Santa Fe International rigs to the
Companys drilling fleet, partially offset by lower
dayrates and utilization in the U.S. Gulf of Mexico.

The Companys operating profit margin for
contract drilling operations decreased to 22% in 2002 from 35%
in 2001 due primarily to the addition of land drilling
operations, which have historically operated at substantially
lower margins than the Companys offshore fleet, and lower
average dayrates in the U.S. Gulf of Mexico, along with an
increase in depreciation expense due to the adjustment of the
carrying values of the Santa Fe International rigs to their
estimated market value in connection with the Merger. In
addition, the Companys contract drilling operating results
for 2002 were impacted by accelerated repair and maintenance
expenditures on several rigs that were relocating, undergoing
upgrades or idle, as well as a painting and maintenance project
on one of its semisubmersibles. In accordance with its normal
practice, the Company took advantage of idle rig time in the
North Sea and elsewhere to perform repair, maintenance and
upgrade work on several of its idle rigs.

The Company also recorded approximately
$14.8 million of Merger-related transition expenses in its
contract drilling operations during 2002, which represent costs
incurred as part of the integration of the operations of Global
Marine and Santa Fe International and are not considered
indicative of the Companys ongoing operations.



| |                             
| | ----------------------------
| | Drilling Management Services

Results of operations from the Companys
drilling management services may be limited by certain factors,
in particular the ability of the Company to find and retain
qualified personnel, to hire suitable rigs at acceptable rates,
and to obtain and successfully perform turnkey drilling
contracts based on competitive bids. The Companys ability
to obtain turnkey drilling contracts is largely dependent on the
number of such contracts available for bid, which in turn is
influenced by market prices for oil and gas, among other
factors. Accordingly, results of the Companys drilling
management service operations may vary widely from quarter to
quarter and from year to year.



| |                                                                           
| | --------------------------------------------------------------------------
| | Year Ended December 31, 2003, Compared to
    Year Ended December 31, 2002

Drilling management services revenues increased
by $111.6 million to $528.4 million for the year ended
December 31, 2003, from $416.8 million in 2002. This
increase in revenues consisted primarily of $61.9 million
attributable to a net increase in reimbursable revenues,
$49.2 million attributable to an increase in the number of
turnkey projects performed and $11.3 million attributable
to increases in daywork and other revenues, offset in part by a
$10.8 million decrease attributable to lower average
revenues per turnkey project. Reimbursable revenues represent
reimbursements received from the client for certain
out-of-pocket expenses and have no effect on operating income.
The Company completed 116 turnkey projects in 2003,
(85 wells drilled and 31 well completions) as compared
to 98 turnkey projects in 2002 (78 wells drilled and
20 well completions).

Drilling management services operating income
increased to $31.7 million for 2003 from $28.6 million
in 2002, as a result of the increase in turnkey drilling
activity noted above, while operating margin decreased to 6.0%
in 2003 from 6.9% in 2002, due primarily to lower margins
achieved on turnkey wells drilled in 2003 and the increase in
reimbursable revenues noted above. The lower margins achieved on
turnkey wells drilled in 2003 resulted from losses totaling
$7.8 million on eight of the 116 turnkey projects completed
in 2003, compared to losses totaling $3.1 million on five
of the 98 turnkey projects completed in 2002. The Company also
recognized $2.1 million of estimated losses in the fourth
quarter of 2002 related to a well in progress at
December 31, 2002, which the Company completed at a loss in
the first quarter of 2003. This well is not

43



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included in the 2003 losses noted above.
Operating income for the 2002 period also includes
$1.5 million of revenue earned in the first quarter of 2002
related to a turnkey well drilled in the North Sea in December
2000, in which the Company was entitled to additional payments
based on cumulative production from the well.


Results for the years ended December 31,
2003 and 2002, were also favorably affected by downward
revisions to cost estimates of wells completed in prior periods
totaling $4.8 million and $3.1 million, respectively,
offset by the deferral of turnkey drilling profit totaling
$12.1 million and $16.3 million, respectively, related
to wells in which CMI was either the operator or held a working
interest. This turnkey profit has been credited to the
Companys full cost pool of oil and gas properties and will
be recognized through a lower depletion rate as reserves are
produced.

As of December 31, 2003, the Companys
drilling management services backlog was approximately
$42 million, all of which is expected to be realized in
2004. The Companys drilling management services backlog
was approximately $118 million at December 31, 2002.



| |                                                                           
| | --------------------------------------------------------------------------
| | Year Ended December 31, 2002, Compared to
    Year Ended December 31, 2001

Drilling management services revenues decreased
by $0.5 million to $416.8 million in 2002 from
$417.3 million in 2001. The decrease in revenues consisted
of a $59.8 million decrease attributable to fewer turnkey
projects completed and an $8.7 million decrease in daywork
and other revenues, partly offset by a $36.0 million
increase in reimbursable revenues and an increase of
$32.0 million attributable to higher average revenues per
turnkey project. The Company completed 98 turnkey projects in
2002 (78 wells drilled and 20 well completions) as
compared to 119 turnkey projects in 2001 (97 wells drilled
and 22 well completions).

Drilling management services operating income
decreased by $4.8 million to $28.6 million in 2002
from $33.4 million in 2001, and operating margin decreased
to 6.9% in 2002 from 8.0% in 2001. These decreases were due
primarily to the deferral of turnkey profit totaling
$16.3 million and $9.9 million for 2002 and 2001,
respectively, related to wells in which CMI was either the
operator or held a working interest. Excluding the deferral of
this profit, drilling management services operating income
increased by $1.6 million to $44.9 million for 2002
from $43.3 million in 2001, due primarily to improved
turnkey drilling performance in 2002 as compared to 2001. The
Company incurred losses totaling $3.1 million on five of
the 98 turnkey projects completed in 2002 compared to losses
totaling $13.5 million on 11 of the 119 turnkey projects
completed in 2001. The Company also recognized $2.1 million
of estimated losses in the fourth quarter of 2002 related to a
well in progress at December 31, 2002, which the Company
completed at a loss in the first quarter of 2003.



| |                                        
| | ---------------------------------------
| | General and Administrative
    Expenses

General and administrative expenses decreased to
$47.8 million for the year ended December 31, 2003,
from $58.4 million for 2002 due primarily to lower
management bonus accruals and professional fees. The lower
management bonus accruals were a result of the Companys
lower operating results for 2003 as compared to 2002. The
decrease in professional fees resulted primarily from
non-recurring professional fees incurred during 2002 as part of
the Companys transition expenses, discussed below.

General and administrative expenses increased to
$58.4 million in 2002 as compared to $26.0 million in
2001 due primarily to increases in personnel from the inclusion
of Santa Fe International operations as a result of the
Merger, transition expenses and an increase in pension expense.
Transition expenses included in general and administrative
expenses totaled approximately $7.9 million in 2002.
Transition expenses for 2001 were not material. Transition
expenses, which represent costs incurred as part of the
integration of the operations of Global Marine and Santa Fe
International, are not considered to be indicative of the
Companys ongoing operations. Pension expense included in
general and administrative expenses increased to
$10.1 million in 2002 as compared to $3.5 million in
2001 due primarily to the inclusion of expenses related to
legacy Santa Fe International plans, lower returns on plan
assets and plan changes to conform benefits under the legacy
pension plans as a result of the Merger.

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| |      
| | -----
| | Other

Operating income for 2001 also includes a gain of
$35.1 million on the sale of the Glomar Beaufort
Sea Iconcrete island drilling system, which was sold
in June 2001.



| |                         
| | ------------------------
| | Other Income and Expense

Interest expense was $67.5 million for 2003,
$57.1 million for 2002 and $57.4 million for 2001. The
increase in interest expense in 2003 compared to 2002 was due
primarily to the issuance of the 5% Notes on
February 11, 2003, as discussed in Liquidity and
Capital Resources  Financing and Investing
Activities, offset in part by the effects of
fixed-for-floating interest rate swaps on a portion of the
Companys long-term debt. For a discussion of these
fixed-for-floating swaps, see Item 7A. Quantitative
and Qualitative Disclosures About Market Risk  Fair
Value Risk.

The Company capitalized $34.9 million,
$20.5 million and $1.1 million of interest costs in
2003, 2002 and 2001, respectively, in connection with the
Companys rig expansion program discussed in
Liquidity and Capital Resources   Financing and
Investing Activities.

Interest income decreased to $11.2 million
for the year ended December 31, 2003, from
$15.1 million in 2002, as a result of lower interest rates
earned in 2003 on the Companys cash, cash equivalents and
marketable securities balances, offset in part by an increase in
cash and cash equivalents balances resulting from the issuance
of the 5% Notes. Interest income increased to
$15.1 million in 2002 from $13.9 million in 2001 due
to increased average cash, cash equivalents and marketable
securities balances, primarily as a result of the Merger, and
cash generated from operations, offset in part by lower interest
rates earned in 2002 on the Companys cash, cash
equivalents and marketable securities balances.

Other income totaled $25.0 million for the
year ended December 31, 2003, due primarily to
$22.3 million awarded to the Company in 2003 as a result of
the settlement of claims filed in 1993 with the United Nations
Compensation Commission (UNCC) for losses suffered
as a result of the Iraqi invasion of Kuwait in 1990. The claims
were for the loss of four rigs and associated equipment, lost
revenue and miscellaneous expenditures. Other income totaled
$2.3 million in 2002, due primarily to net gains totaling
$4.0 million recorded on embedded derivative financial
instruments associated with two-year variable-dayrate contracts
for two of the Companys cantilevered jackups. See
discussion in Item 7A  Quantitative and
Qualitative Disclosures About Market Risk  Commodity
Price Risk. These net gains in 2002 were offset in part by
a $1.1 million loss on the sale of long-term marketable
securities related to one of the Companys retirement plans.



| |             
| | ------------
| | Income Taxes

The Companys effective income tax rates for
financial reporting purposes were approximately 11% for the
years ended December 31, 2003 and 2002, and 38% for 2001.
The effective rate for 2003 was reduced by the effect of the
$22.3 million UNCC settlements discussed above, partially
offset by a net total of $3.2 million of other discrete
items. The lower effective tax rates for 2003 and 2002 compared
to 2001 were due in part to the addition of the Santa Fe
International operations, which increased earnings in
international jurisdictions that are taxed at generally lower
rates, and a valuation allowance recorded against Global
Marines net operating loss (NOL) carryforwards
in 2001, discussed below. The 2003 and 2002 effective tax rates
were further lowered by approximately $27 million of
reduced annual tax costs related to intercompany debt incurred
in connection with the Merger.

The Company decreased its cumulative valuation
allowance against its foreign NOL carryforwards by
$18.1 million in 2003, due to revised expectations with
respect to future taxable income in various foreign
jurisdictions.

In 2001, the Company recorded a valuation
allowance against the NOL carryforwards of Global Marine and its
subsidiaries. The effect of that valuation allowance was to
increase 2001 tax expense by $47.2 million. The
Companys ability to realize the benefit of Global
Marines U.S. NOL carryforwards requires that the
Company achieve a certain level of future earnings in the United
States prior to the expiration of its NOL

45



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carryforwards. Reduced activity levels in the
U.S. Gulf of Mexico in 2001 contributed to a decrease in
the expected future earnings of the Companys
U.S. subsidiaries. Also, as a result of the Merger, the
expiration dates of the Companys NOL carryforwards were
accelerated by one year, decreasing the number of years
available to fully utilize the NOL carryforwards before they
expire. Based upon anticipated market conditions in the United
States as of December 31, 2003 and 2002, the Company did
not adjust the valuation allowance against the U.S. NOL
carryforwards of Global Marine during 2003 or 2002.


Taxes have not been provided for in circumstances
where management expects that, due to the changing demands of
the offshore drilling markets, the Companys rigs are more
likely than not to be redeployed to other locations before those
rigs operate in certain jurisdictions long enough to give rise
to future tax consequences. In 2003, management revised its
expectations relative to the continuing deployment and future
tax consequences for one such rig and recorded a deferred tax
liability of $24.1 million due to this change in
circumstance. Should managements expectations change
regarding the length of time other rigs will be operating in a
given location, the Company may be required to record additional
deferred taxes that could have a material adverse effect on its
financial position, results of operations and cash flows.

The Company intends to permanently reinvest all
of the unremitted earnings of its U.S. Subsidiaries in
their businesses. As a result, the Company has not provided for
U.S. deferred taxes on $1.4 billion of cumulative
unremitted earnings at December 31, 2003. Should the
Company make a distribution from the unremitted earnings of its
U.S. Subsidiaries, the Company would be required under
current law to record additional U.S. deferred taxes that
could have a material adverse effect on its financial position,
results of operations and cash flows.

Starting in 2002, various changes to the
U.S. federal income tax code were proposed that, if
enacted, could adversely affect the Companys United States
federal income tax position. Many of the proposed changes target
United States corporations that have expatriated to foreign
jurisdictions and would in certain cases treat such corporations
as United States corporations for United States federal income
tax purposes. Several of the proposals would have retroactive
application and would treat the Company as a United States
corporation. Some of the proposals would impose additional
limitations on the deductibility for United States federal
income tax purposes of certain intercompany transactions,
including intercompany interest expense. These proposals would
reduce or eliminate the Companys ability to deduct
interest expense on its intercompany debt, the benefit of which
was discussed above. The 2004 benefit is expected to be similar
to that recorded in 2003 and 2002.

At this time, it is impossible to predict what
changes, if any, may be enacted and, if enacted, what effect
such changes may have on the Company. However, there is a risk
that changes to U.S. tax laws could substantially increase
the Companys income tax costs. If this were to occur, such
changes could have a material adverse effect on the
Companys financial position and future results of
operations.



| |                             
| | ----------------------------
| | Transactions With Affiliates

In connection with the initial public offering of
Santa Fe International, Santa Fe International entered
into an intercompany agreement with Kuwait Petroleum Corporation
and SFIC Holdings, which agreement was amended in connection
with the Merger. The intercompany agreement, as amended,
provides that, as long as Kuwait Petroleum Corporation and its
affiliates, in the aggregate, own at least 10% of the Company,
the consent of SFIC Holdings is required to change the
jurisdiction of any existing subsidiary of the Company or
incorporate a new subsidiary in any jurisdiction in a manner
materially adversely affecting the rights or interests of Kuwait
Petroleum Corporation and its affiliates or reincorporate the
Company in another jurisdiction. The intercompany agreement, as
amended, also provides SFIC Holdings the right to designate up
to three representatives to the Companys Board of
Directors based on SFIC Holdings ownership percentage in
the Company and provides SFIC Holdings rights to access
information concerning the Company. At December 31, 2003,
SFIC Holdings held approximately 18.6% of the outstanding
ordinary shares of the Company.

The Company provides contract drilling services
in Kuwait to the Kuwait Oil Company, K.S.C. (KOC), a
subsidiary of Kuwait Petroleum Corporation, and also provides
contract drilling services to a

46



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partially owned affiliate of KOC in the
Kuwait-Saudi Arabian Partitioned Neutral Zone. Such services are
performed pursuant to drilling contracts containing terms and
conditions and rates of compensation which materially
approximate those that 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 providing
same, subject to the availability of the maintenance facilities,
through the current term of the drilling contracts and
extensions thereof as may be agreed. In relation to its drilling
business in Kuwait, the Company has an agency agreement with a
subsidiary of Kuwait Petroleum Corporation 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.


During the year ended December 31, 2003, the
Company earned revenues from KOC and its affiliate for
performing contract drilling services in the ordinary course of
business totaling $45.6 million and paid $444,000 of agency
fees pursuant to the agency agreement. During the year ended
December 31, 2002, the Company earned revenues from KOC and
its affiliate for performing contract drilling services in the
ordinary course of business totaling $62.7 million and paid
$586,000 of agency fees pursuant to the agency agreement. During
the period following the Merger until December 31, 2001,
the Company earned revenues from KOC and its affiliate totaling
$6.9 million and paid $80,000 of agency fees. At
December 31, 2003 and 2002, the Company had accounts
receivable from affiliates of Kuwait Petroleum Corporation of
$6.8 million and $11.1 million, respectively.

Liquidity and Capital Resources



| |                     
| | --------------------
| | Sources of Liquidity

The Companys primary sources of liquidity
are its cash and cash equivalents, marketable securities and
cash generated from operations. As of December 31, 2003,
the Company had $846.8 million of cash, cash equivalents
and marketable securities, all of which were unrestricted. The
Company had an additional $70.0 million of marketable
securities with remaining maturity dates in excess of one year
at December 31, 2003, all of which were unrestricted. These
long-term securities are included in Other assets on
the Consolidated Balance Sheets at December 31, 2003. The
Company had $736.5 million in cash, cash equivalents and
marketable securities at December 31, 2002, all of which
were unrestricted. Cash generated from operating activities
totaled $399.9 million, $551.1 million and
$413.1 million for the years ended December 31, 2003,
2002 and 2001, respectively.

In September 2003, the Company filed a
registration statement on Form S-3 with the
U.S. Securities and Exchange Commission under which the
Company may offer to sell from time to time any combination of
the following securities: (i) unsecured debt securities
consisting of notes, debentures or other evidences of
indebtedness, (ii) ordinary shares, par value
$0.01 per share, (iii) preference shares,
(iv) depositary shares, (v) warrants and
(vi) securities purchase contracts and units, for an
aggregate initial public offering price not to exceed
$1.0 billion. The Company does not currently have any plans
to offer any securities under this registration statement.



| |                     
| | --------------------
| | Investing Activities

The Company has contracts with PPL Shipyard PTE,
Ltd. of Singapore (PPL) for construction of two
ultra-deepwater semisubmersibles and one high-performance
jackup, with options for up to two additional similarly priced
semisubmersibles. The Company does not intend to exercise these
options. In June 2003, the Company took delivery of the GSF
Constellation I, the first of two high-performance
jackups ordered from PPL, at a total construction cost of
$133 million, excluding an estimated $19 million of
capitalized interest, capital spares, startup expenses and
mobilization costs. Estimated cash outlays in connection with
the construction of the remaining high-performance jackup, the
GSF Constellation II, excluding capitalized
interest, startup costs, capital spares and mobilization costs,
are also expected to total approximately $133 million. Of
the $133 million for the GSF Constellation II,
$118 million had been incurred as of

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December 31, 2003. A total of approximately
$73 million was incurred in 2003, and an additional
$15 million is expected to be incurred in 2004. Estimated
cash outlays in connection with construction of the two
ultra-deepwater semisubmersibles, excluding capitalized
interest, startup costs, capital spares and mobilization costs,
are expected to total approximately $570 million, or an
average of $285 million per rig. Of the $570 million,
$436 million had been incurred as of December 31,
2003. A total of approximately $139 million was incurred
for these two rigs in 2003, an additional $112 million is
expected to be incurred in 2004 and $22 million is expected
to be incurred in 2005. The GSF Constellation IIis
expected to be delivered around the end of the first quarter of
2004 and the first of the two ultra-deepwater semisubmersibles,
the GSF Development Driller I, is expected to be
delivered in the second quarter of 2004. The second
ultra-deepwater semisubmersible, the GSF Development
Driller II, is expected to be delivered near the end of
the first quarter of 2005. The Company expects to fund the
construction and startup of these rigs from its existing cash,
cash equivalents and marketable securities balances, and future
cash flow from operations.


In December 2003, the Company announced that
BP America Production Company (BP) awarded a
three-year contract to the GSF Development Driller IIfor BPs Atlantis project in the U.S. Gulf of
Mexico. The estimated 20-well project has a total contract value
of approximately $200 million, and is expected to commence
on July 1, 2005. The Company has also received a commitment
from Total for the jackup GSF Constellation IIfor a
six-well contract off the coast of Argentina beginning in August
2004. The Company is actively marketing the GSF Development
Driller I, but has not yet secured a contract for
deployment upon completion. The Companys ability to obtain
a contract for this rig and the terms of such contract will
depend on market conditions. See Risk Factors 
The Company Does Not Have a Drilling Contract for One of Its
Semisubmersibles Under Construction, and Without a Contract This
Vessel Will Not Generate Revenues Following Completion of
Construction and Risk Factors  A
Competitor is Seeking to Enjoin the Companys Use of the
Dual Drilling Capabilities in United States Waters of the Two
Semisubmersibles Under Construction, and If Such an Injunction
Were Issued in the United States or Elsewhere, the
Companys Ability to Market, Obtain Contracts For and
Generate Revenues From the Vessels Could Be Adversely
Affected.

Capital expenditures for 2003 totaled
$466 million, including $276 million in connection
with the construction of the Companys newbuild marine rigs
discussed above, $104 million for major upgrades to the
marine fleet, $32 million for other purchases and
replacements of capital equipment, $35 million for
capitalized interest, $13 million (net of intersegment
eliminations) for oil and gas operations and $6 million for
other capital expenditures.



| |                     
| | --------------------
| | Financing Activities

In January 2003, in order to take advantage of an
attractive financing structure, the Company entered into a
lease-leaseback arrangement with a European bank related to the
Companys Britanniacantilevered jackup. Pursuant to
this arrangement, the Company leased the Britanniato the
bank for a five-year term for a lump-sum payment of
approximately $37 million, net of origination fees of
approximately $1.5 million. The bank then leased the rig
back to the Company for a five-year term with an effective
annual interest rate based on the 3-month British Pound Sterling
LIBOR plus a margin of 0.625%, under which the Company makes
annual lease payments of approximately $8.0 million,
payable in advance. The Company has classified this arrangement
as a capital lease.

In February 2003, the Company issued
$250 million of 5% Notes due 2013 (the
5% Notes) and received cash proceeds of
approximately $247.4 million after deduction for discount,
underwriting fees and other related expenses. The Company
invested the net proceeds in marketable securities. Interest on
the 5% Notes is payable on February 15 and
August 15 of each year. No principal payments are required
with respect to the 5% Notes prior to their final maturity
date.

Other significant financing activities during the
year ended December 31, 2003, were as follows:



| |   |                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Paid quarterly dividends of $7.6 million
    ($0.0325 per ordinary share) in January 2003 for the fourth
    quarter of 2002, $8.7 million ($0.0375 per ordinary
    share) in April 2003 for the first quarter of 2003, and
    $8.8 million ($0.0375 per ordinary share) in July 2003
    for the second quarter of 2003.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Announced in September 2003 that the
    Companys Board of Directors increased the regular
    quarterly cash dividend for the third quarter of 2003 to
    $0.05 per ordinary share from $0.0375 per ordinary
    share. The dividend in the amount of $11.7 million was paid
    on October 15, 2003, to shareholders of record as of the
    close of business on September 30, 2003.



| |      
| | -----
| | Other

During the third quarter of 2003, the Company
also funded $38.0 million of accrued pension liabilities
related to the Companys various pension plans.

The Companys debt to capitalization ratio,
calculated as the ratio of total debt, including undefeased
capitalized lease obligations, to the sum of total
shareholders equity and total debt, was 22.3% at
December 31, 2003, compared to 18.2% at December 31,
2002. The Companys total debt includes the current portion
of its capitalized lease obligations, which totaled
$9.8 million and $1.8 million at December 31,
2003, and December 31, 2002, respectively.



| |                         
| | ------------------------
| | Future Cash Requirements

As of December 31, 2003, the Company had
total long-term debt and capital lease obligations, including
the current portion of its capital lease obligations, of
$1,240.7 million and shareholders equity of
$4,327.6 million. Long-term debt consisted of
$338.7 million (net of discount) Zero Coupon Convertible
Debentures due 2020; $301.4 million (net of discount)
7 1/8% Notes due 2007; $296.9 million (net of
discount) 7% Notes due 2028; $254.4 (net of discount)
5% Notes due 2013; and capitalized lease obligations,
including the current portion, totaling $49.3 million. The
Company was in compliance with its debt covenants at
December 31, 2003.

Annual interest on the 7 1/8% Notes is
$21.4 million, payable semiannually each March and
September. Annual interest on the 7% Notes is
$21.0 million, payable semiannually each June and December.
Annual interest on the 5% Notes is $12.5 million,
payable semiannually each February and August. No principal
payments are due under any of the three issues until the
maturity date.

The Company may redeem the
7 1/8% Notes, the 7% Notes and the 5% Notes
in whole at any time, or in part from time to time, at a price
equal to 100% of the principal amount thereof plus accrued
interest, if any, to the date of redemption, plus a premium, if
any, relating to the then-prevailing Treasury Yield and the
remaining life of the notes. The indentures relating to the
5% Notes, the Zero Coupon Convertible Debentures,
7 1/8% Notes and 7% Notes contain limitations on
the Companys ability to incur indebtedness for borrowed
money secured by certain liens and on its ability to engage in
certain sale/leaseback transactions. The Zero Coupon Convertible
Debentures, 7 1/8% Notes and 7% Notes continue to
be obligations of Global Marine Inc., and GlobalSantaFe
Corporation has not guaranteed any of these obligations.
GlobalSantaFe Corporation is the sole obligor under the
5% Notes.

The Zero Coupon Convertible Debentures were
issued at a price of $499.60 per debenture, which
represents a yield to maturity of 3.5% per annum to reach
an accreted value at maturity of $1,000 per debenture. The
Company has the right to redeem the debentures in whole or in
part on or after June 23, 2005, at a price equal to the
issuance price plus accrued original issue discount through the
date of redemption. Each debenture is convertible into 8.125103
GlobalSantaFe Ordinary Shares (4,875,062 total shares) at the
option of the holder at any time prior to maturity, unless
previously redeemed. Holders have the right to require the
Company to repurchase the debentures on June 23, 2005,
June 23, 2010, and June 23, 2015, at a price per
debenture of $594.25 on June 23, 2005, $706.82 per
debenture on June 23, 2010, and $840.73 per debenture
on June 23, 2015. These prices represent the accreted value
through the date of repurchase. The Company may pay the
repurchase price with either cash or stock or a combination
thereof. The Company does not anticipate using stock to satisfy
any such future purchase obligation.

In August 2002, the Companys Board of
Directors authorized the Company to repurchase up to
$150 million of its ordinary shares from time to time
depending on market conditions, the share price and

49



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##### Table of Contents



other factors. No repurchases were made in the
year ended December 31, 2003. At December 31, 2003,
$98.6 million of this authorized amount remained available
for future purchases.


CMI currently holds a 16% working interest in a
development project in the North Sea. CMIs portion of the
development costs of this project is expected to total
approximately £14.7 million ($25.0 million). A
total of approximately $10.1 million was incurred in 2003,
and an additional $14.9 million is expected to be incurred
in 2004.

Total capital expenditures for 2004 are currently
estimated to be approximately $443 million, including
$195 million in connection with the construction of the
three remaining newbuild marine rigs, $96 million for major
upgrades to the marine fleet, $107 million for other
purchases and replacements of capital equipment,
$31 million for capitalized interest, $8 million (net
of intersegment eliminations) for oil and gas operations and
$6 million for other capital expenditures.

The Company has various commitments primarily
related to its debt and capital lease obligations, leases for
office space and other property and equipment as well as
commitments for construction of drilling rigs. The Company
expects to fund these commitments from its existing cash and
cash equivalents and future cash flow from operations.

The following table summarizes the Companys
contractual obligations at December 31, 2003:

|                                            |                               |                        |         |           |  |           |       |           |  |       |       |       |  |   |       |       |  |   |       |         | 
|------------------------------------------- | ----------------------------- | ---------------------- | ------- | --------- |  | --------- | ----- | --------- |  | ----- | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ------- | 
|                                            |                               |                       
|                                            |                               | Payments Due by Period
|                                            |                               |                       
|                                            |                               |                        |         | Less than |  |           |       | After 5  
|Contractual Obligation                      |                               | Total                  |         | 1 Year    |  | 1-3 Years |       | 3-5 Years |  | Years
|                                            |                               |                        |         |           |  |           |       |           |  |      
|                                            |                               |                       
|                                            |                               | (In millions)         
|Principal payments on long-term debt(1)     |                               | $                      | 1,206.6 |           |  | $         |      |           |  | $     | 356.6 |       |  | $ | 300.0 |       |  | $ | 550.0 |        
|Interest payments                           |                               |                        | 718.8   |           |  |           | 54.9  |           |  |       | 109.8 |       |  |   | 88.4  |       |  |   | 465.7 |        
|Capital lease obligations(2)                |                               |                        | 72.6    |           |  |           | 9.8   |           |  |       | 19.6  |       |  |   | 11.6  |       |  |   | 31.6  |        
|Non-cancellable operating leases            |                               |                        | 57.4    |           |  |           | 13.5  |           |  |       | 19.9  |       |  |   | 13.3  |       |  |   | 10.7  |        
|Construction and development commitments(3) |                               |                        | 163.9   |           |  |           | 141.9 |           |  |       | 22.0  |       |  |   |      |       |  |   |      |        
|                                            |                               |                        |         |           |  |           |       |           |  |       |       |       |  |   |       |       |  |   |       |        
|                                            | Total contractual obligations |                        | $       | 2,219.3   |  |           | $     | 220.1     |  |       | $     | 527.9 |  |   | $     | 413.3 |  |   | $     | 1,058.0 | 
|                                            |                               |                        |         |           |  |           |       |           |  |       |       |       |  |   |       |       |  |   |       |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents cash payments required. Long-term debt
    totaled $1,191.4 million, net of unamortized discount, at
    December 31, 2003. Holders of the Zero Coupon Convertible
    Debentures have the right to require the Company to repurchase
    the debentures as early as June 23, 2005. The repurchase
    obligation at that time is included in the 1  3
    Years column.
|   
|(2) | Represents cash payments required. A portion of
    these obligations is recorded on the Companys balance
    sheet at net present value at December 31, 2003.                                                                                                                                                                                                                       
|   
|(3) | Consists of newbuild construction commitments
    discussed in Financing and Investing Activities and
    CMI development project discussed above.                                                                                                                                                                                                                                  

As part of the Companys goal of enhancing
long-term shareholder value, the Company has from time to time
considered and actively pursued business combinations, the
acquisition or construction of suitable additional drilling rigs
and other assets or the possible sale of existing assets. If the
Company decides to undertake a business combination or an
acquisition or additional construction projects, the issuance of
additional debt or additional shares could be required.

The Company believes it will be able to meet all
of its current obligations, including working capital
requirements, capital expenditures, lease obligations,
construction and development commitments and debt service, from
its existing cash, cash equivalents and total marketable
securities balances and future cash flow from operations.



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, which
amends SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 148 provides three
alternative methods of transition and disclosure requirements
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation: (1) the
prospective method, (2) the modified prospective method,
and (3) the retroactive restatement method. In

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addition to providing compensation cost
recognition methods, SFAS No. 148 also requires
certain disclosures, including the accounting method used for
each period presented, a description of the method used to
report the change in accounting principle and continuing tabular
presentation of proforma net income and earnings per share
effects for any awards outstanding under the intrinsic value
method of Accounting Principles Board Opinion No. 25.
SFAS No. 148 is effective for fiscal years ending
after December 15, 2002. The Company has reflected the
disclosure provisions of SFAS No. 148 in Note 2
of Notes to the Condensed Consolidated Financial Statements, and
currently accounts for stock-based compensation using the
intrinsic value method under APB Opinion No. 25.


In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51
(FIN 46). This interpretation provides guidance
on the identification of, and financial reporting for, entities
over which control is achieved through means other than voting
rights, or variable-interest entities (VIEs).
FIN 46 originally became effective for public entities with
VIEs created before February 1, 2003, at the beginning of
the first interim or annual reporting period starting after
June 15, 2003. In December 2003, the FASB issued
FIN 46-R, which amended FIN 46 to extend its effective
date until the first quarter of 2004 for all types of entities
except special purpose entities. In addition, FIN 46-R also
limited the scope of FIN 46 to exclude certain joint
ventures or other entities that meet the characteristics of
businesses. Upon the applicable effective date, FIN 46 will
become the guidance that determines whether consolidation is
required and whether the variable-interest accounting model must
be used to account for existing and new entities. The Company
does not believe that it currently has any VIEs within the scope
of FIN 46.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This
statement amends and clarifies accounting for derivative
instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. This statement is
effective for contracts entered into or modified after
June 30, 2003, with certain exceptions, and for hedging
relationships designated after June 30, 2003. The adoption
of SFAS 149 did not have a material effect on the
Companys financial position, results of operations or cash
flows.

In May 2003 the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. This statement establishes standards for how an
issuer classifies and measures in its statement of financial
position certain financial instruments with characteristics of
both liabilities and equity. In accordance with the standard,
financial instruments that embody obligations for the issuer are
required to be classified as liabilities. SFAS 150 is
effective for such financial instruments, except for those that
apply to mandatorily redeemable noncontrolling interests,
entered into or modified after May 31, 2003, and otherwise
was effective for such financial instruments, except for those
that apply to mandatorily redeemable noncontrolling interests,
at the beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS 150 did not have a
material effect on the Companys financial position,
results of operations or cash flows.

In December 2003, the FASB issued a revision of
SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits. This revision
(the revised SFAS No. 132) retains some of
the disclosure requirements of SFAS No. 132 and
requires additional pension and postretirement disclosures,
including, among others, the types of securities included in
plan assets, a description of investment policies and strategies
related to the investment of plan assets, and methods used to
determine assumptions for calculating pension and potsretirement
benefit liabilities and costs. In addition, the revised
SFAS No. 132 requires certain disclosures about net
periodic benefit cost and funding information to be included in
interim reports. The revised SFAS No. 132 is effective
for fiscal years ending after December 31, 2003, and for
interim periods beginning after December 31, 2003. The
disclosures related to the Companys pension plans included
in Note 9 of Notes to the Consolidated Financial Statements
include all relevant disclosures required by the revised
SFAS No. 132.

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|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

Commodity Price Risk

Two of the Companys cantilevered jackup
rigs are currently operating under similar dayrate contracts
that expose the Company to commodity price risk. These two-year
agreements, expiring in May 2004 and October 2004, respectively,
each contain a variable-dayrate formula linked to crude oil
prices, whereby dayrates earned under these contracts increase
or decrease in response to increases or decreases in oil prices.
Dayrates under these agreements are calculated using a sliding
scale formula based on the arithmetic average of the daily
closing price of Light Sweet Crude on the New York
Mercantile Exchange (NYMEX), subject to a maximum of
$28.00 per barrel and a minimum of $12.00 per barrel.

The variable-dayrate formula contained in these
agreements consists of multiple embedded derivative financial
instruments as defined in SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities. The net fair values, based upon market price,
of the embedded derivatives in each of these contracts at
December 31, 2003, were assets of approximately
$2.2 million and $3.4 million, respectively, or
$5.6 million in the aggregate. The fair values of these
embedded derivatives fluctuate in response to changes in oil
prices.

The Company has engaged third-party consultants
to perform sensitivity analyses to assess the impact of these
risks based on a hypothetical ten percent increase or decrease
in NYMEX Light Sweet Crude futures prices over the remaining
lives of these agreements at December 31, 2003. Oil prices
are dependent on many factors that are impossible to forecast,
and actual oil price increases or decreases could be greater
than the hypothetical ten percent change.

Based upon these analyses, a ten percent increase
in average NYMEX oil prices over the remaining lives of these
agreements would increase the net fair values of the embedded
derivatives contained in these contracts by $0.1 million
and $0.5 million, respectively. Conversely, a ten percent
decrease in oil prices over the lives of these agreements would
decrease the net fair value of the embedded derivatives by
approximately $0.4 million and $0.9 million,
respectively.

As part of the Companys overall risk
management strategy, the Company has entered into a number of
commodity caps, swaps and floors designed to mitigate its
exposure to fluctuations in fair values of the embedded
derivatives in these contracts resulting from changes in oil
prices. The net fair values of the derivative financial
instruments at December 31, 2003, represented a total
obligation of $5.6 million.

These embedded derivative financial instruments
and related commodity caps, swaps and floors have not been
designated as hedges. Accordingly, all changes in the fair
values of these instruments are recognized currently in earnings.



| |                   
| | ------------------
| | Interest Rate Risk

In 1998, the Company entered into fixed-price
contracts for the construction of two dynamically positioned,
ultra-deepwater drillships, the GSF C.R. Luigsand the
Glomar Jack Ryan, which began operating in April and
December 2000, respectively. Pursuant to two 20-year capital
lease agreements, the Company subsequently novated the
construction contracts for the drillships to two financial
institutions (the Lessors), which now own the
drillships and lease them to the Company. The Company has
deposited with three large foreign banks (the Payment
Banks) amounts equal to the progress payments that the
Lessors were required to make under the construction contracts,
less a lease benefit of approximately $62 million (the
Defeasance Payment). In exchange for the deposits,
the Payment Banks have assumed liability for making rental
payments required under the leases and the Lessors have legally
released the Company as the primary obligor of such rental
payments. Accordingly, the Company has recorded no capital lease
obligations on its balance sheet with respect to the two
drillships.

The Company has interest rate risk in connection
with these fully defeased financing leases for the Glomar
Jack Ryanand GSF C. R. Luigs. The Defeasance Payment
earns interest based on the British Pound Sterling three-month
LIBOR, which approximated 8.00% at the time of the agreements.
Should the Defeasance Payment earn less than the assumed 8.00%
rate of interest, the Company will be required to make
additional payments as necessary to augment the annual payments
made by the Payment Banks pursuant to

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the agreements. If the December 31, 2003,
LIBOR rate of 4.04% were to continue over the next nine years,
the Company would be required to fund an additional estimated
$57 million during that period. Any additional payments
made by the Company pursuant to the financing leases would
increase the carrying value of its leasehold interest in the
rigs and therefore be reflected in higher depreciation expense
over their then-remaining useful lives. The Company does not
expect that, if required, any additional payments made under
these leases would be material to its financial position,
results of operations or cash flows in any given year.


The Company does not consider its exposure to
interest rate fluctuations to be material to its financial
position, results of operations or cash flows.

Fair Value Risk

Investments.The
objectives of the Companys investment strategy are safety
of principal, liquidity maintenance, yield maximization and full
investment of all available funds. As a result, the
Companys short-term investment portfolio at
December 31, 2003, consisted primarily of high credit
quality commercial paper, U.S. Treasury notes, Eurodollar
debt securities and money market funds, all with original
maturities of less than twelve months. The Company believes that
the carrying value of these investments approximated market
value at December 31, 2003, due to the short-term nature of
these instruments. The Company also held approximately
$70.0 million of U.S. Treasury notes with remaining
maturities of 13 to 18 months at December 31, 2003,
that were classified as Other assets on the
Consolidated Balance Sheets. The fair value of these securities
totaled $70.1 million at December 31, 2003.

Long-term debt.The
Companys long-term debt is subject to fair value risk due
to changes in market interest rates. In addition, the fair value
of the Companys zero coupon convertible debt is subject to
changes in the market price of the Companys ordinary
shares.

The estimated fair value of the Companys
$300 million principal amount 7 1/8% Notes due
2007, based on quoted market prices, was $339.2 million at
December 31, 2003, compared to the carrying amount of
$301.4 million. The estimated fair value of the
Companys $300 million principal amount 7% Notes
due 2028, based on quoted market prices, was $331.5 million
at December 31, 2003, compared to the carrying amount of
$296.9 million. The estimated fair value of the
Companys $600 million Zero Coupon Convertible
Debentures due 2020, based on quoted market prices, was
$344.3 million at December 31, 2003, compared to the
carrying amount of $338.7 million. The estimated fair value
of the Companys $250 million principal amount
5% Notes due 2013, based on quoted market prices, was
$250.6 million at December 31, 2003, compared to the
carrying amount of $254.4 million.

The Company has engaged third-party consultants
to assess the impact of changes in interest rates and share
prices on the fair values of its long-term debt based on a
hypothetical ten-percent increase in market interest rates and a
hypothetical ten-percent decrease in the price of its ordinary
shares. Market interest rate and share price volatility are
dependent on many factors that are impossible to forecast, and
actual interest rate increases and share price decreases could
be more severe than the hypothetical ten-percent change.

Based upon these sensitivity analyses, if
prevailing market interest rates had been ten percent higher at
December 31, 2003, and all other factors affecting the
Companys debt remained the same, the fair value of the
Companys 7% Notes due 2028, as determined on a
present-value basis using prevailing market interest rates,
would have decreased by $23.4 million or 7%, the fair value
of the 5% Notes due 2013 would have decreased by
$9.4 million or 4%, and the fair values of the
Companys 7 1/8% Notes due 2007 and the
Companys zero coupon convertible debt would have decreased
by less than one percent. With respect to the Companys
zero coupon convertible debt, if the market price of the
Companys ordinary shares had been ten percent lower at
December 31, 2003, and all other factors remained the same,
the decrease in the fair value of the zero coupon convertible
debt would have been less than one percent.

The Company manages its fair value risk related
to its long-term debt by using interest rate swaps to convert a
portion of its fixed-rate debt into variable-rate debt. Under
these interest rate swaps, the Company agrees with other parties
to exchange, at specified intervals, the difference between the
fixed-rate and floating-rate amounts, calculated by reference to
an agreed-upon notional amount.

In October 2002, the Company entered into a
fixed-for-floating interest rate swap with a notional amount of
$50 million, effective October 2002 through September 2007.
This interest rate swap is intended to manage

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a portion of the fair value risk related to the
Companys 7 1/8% Notes due 2007 (the
7 1/8% Notes). Under the terms of this
swap, the Company has agreed to pay the counterparty an interest
rate equal to the six-month LIBOR rate plus 330 basis
points on the notional amount, and the Company will receive the
fixed 7 1/8% rate. The estimated fair value of this swap
was an asset of approximately $1.6 million at
December 31, 2003. The Company has designated this swap as
a fair value hedge of a portion of the 7 1/8% Notes.


In August 2003, the Company entered into
fixed-for-floating interest rate swaps with an aggregate
notional amount of $100 million, effective August 2003
through February 2013. These interest rate swaps are intended to
manage a portion of the fair value risk related to the
Companys 5% Notes due 2013 (the
5% Notes). Under the terms of these swaps, the
Company has agreed to pay the counterparties an interest rate
equal to the six-month LIBOR rate less 0.247% to 0.40% on the
notional amounts and the Company will receive the fixed 5.00%
rate. The estimated aggregate fair value of these swaps at
December 31, 2003, was an asset of $5.0 million. The
Company has designated these swaps as fair-value hedges of a
portion of the 5% Notes.

In connection with the sensitivity analyses
performed relative to the fair values of the Companys
long-term debt discussed above, similar analyses were performed
to assess the impact of market interest rate movements on the
fair values of the fixed-for-floating swaps related to the
5% Notes. Based upon these analyses, if prevailing market
interest rates had been ten percent higher at December 31,
2003, and all other factors affecting these swaps had remained
the same, the aggregate fair value of the fixed-for-floating
interest rate swaps, as determined on a present-value basis
using prevailing market interest rates, would have decreased by
$3.7 million or 74%.

With respect to the Companys
fixed-for-floating interest rate swap related to the
7 1/8% Notes, if prevailing market interest rates had
been ten percent higher at December 31, 2003, and all other
factors had remained the same, the fair value of the
fixed-for-floating interest rate swap, as determined on a
present-value basis, would have decreased by $0.5 million
or 31%.

Foreign Currency Risk

The Company, through its international
operations, is subject to foreign currency risk. This risk
arises from holding net monetary assets (cash and receivables in
excess of payables) denominated in foreign currencies during
periods of a strengthening U.S. dollar. The Company
attempts to minimize this currency risk by seeking international
drilling contracts payable in local currency in amounts equal to
its estimated local currency-based operating costs and in
U.S. dollars for the balance of the contract. As a result
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
entered into financial hedging transactions to manage risks
relating to fluctuations in currency exchange rates. The Company
may, however, enter into such transactions in the future should
the Company assume significant foreign currency risks.

Credit Risk

The market for the Companys services and
products is the offshore oil and gas industry, and the
Companys customers consist primarily of major integrated
international oil companies and independent oil and gas
producers. The Company performs ongoing credit evaluations of
its customers and has not historically required material
collateral. The Company maintains reserves for potential credit
losses, and such losses have been within managements
expectations.

The Companys cash deposits were distributed
among various banks in the areas of the Companys
operations throughout the world as of December 31, 2003. In
addition, the Company had commercial paper, money-market funds
and Eurodollar time deposits with a variety of financial
institutions with strong credit ratings. As a result, the
Company believes that credit risk in such instruments is minimal.

54



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##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of
GlobalSantaFe Corporation

In our opinion, the accompanying consolidated
balance sheets and the related consolidated statements of
income, shareholders equity and cash flows present fairly,
in all material respects, the financial position of
GlobalSantaFe Corporation and subsidiaries (the
Company) at December 31, 2003 and 2002, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the
United States of America. 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 of these
statements in accordance with auditing standards generally
accepted in the United States of America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.



| |                           
| | --------------------------
| | PRICEWATERHOUSECOOPERS LLP

Houston, Texas

March 12, 2004


55



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

|                             |                                          |                                      |         |         |         |          |         |         |         |   |         |       |         |  
|---------------------------- | ---------------------------------------- | ------------------------------------ | ------- | ------- | ------- | -------- | ------- | ------- | ------- | - | ------- | ----- | ------- | -
|                             |                                          |                                     
|                             |                                          | Year Ended December 31,             
|                             |                                          |                                     
|                             |                                          | 2003                                 |         | 2002    |         | 2001 (1)
|                             |                                          |                                      |         |         |         |         
|                             |                                          |                                     
|                             |                                          | (In millions, except per share data)
|Revenues:                    |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             | Contract drilling                        |                                      | $       | 1,370.4 |         |          | $       | 1,606.5 |         |   | $       | 960.4 |        
|                             | Drilling management                      |                                      |         | 523.4   |         |          |         | 400.6   |         |   |         | 409.3 |        
|                             | Oil and gas                              |                                      |         | 20.9    |         |          |         | 10.6    |         |   |         | 13.9  |        
|                             |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             |                                          | Total revenues                       |         |         | 1,914.7 |          |         |         | 2,017.7 |   |         |       | 1,383.6 |  
|                             |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|Expenses:                    |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             | Contract drilling                        |                                      |         | 950.6   |         |          |         | 997.6   |         |   |         | 480.0 |        
|                             | Drilling management                      |                                      |         | 491.7   |         |          |         | 371.9   |         |   |         | 375.7 |        
|                             | Oil and gas                              |                                      |         | 5.8     |         |          |         | 3.6     |         |   |         | 3.4   |        
|                             | Depreciation, depletion and amortization |                                      |         | 273.2   |         |          |         | 254.4   |         |   |         | 146.3 |        
|                             | Gain on sale of assets                   |                                      |         |        |         |          |         |        |         |   |         | (35.6 | )      
|                             | Restructuring costs                      |                                      |         | 3.4     |         |          |         |        |         |   |         | 22.3  |        
|                             | General and administrative               |                                      |         | 47.8    |         |          |         | 58.4    |         |   |         | 26.0  |        
|                             |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             |                                          |                                      | 1,772.5 |         |         |          | 1,685.9 |         |         |   | 1,018.1 |      
|                             |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             |                                          | Operating income                     |         |         | 142.2   |          |         |         | 331.8   |   |         |       | 365.5   |  
|Other income (expense):      |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             | Interest expense                         |                                      |         | (67.5   | )       |          |         | (57.1   | )       |   |         | (57.4 | )      
|                             | Interest capitalized                     |                                      |         | 34.9    |         |          |         | 20.5    |         |   |         | 1.1   |        
|                             | Interest income                          |                                      |         | 11.2    |         |          |         | 15.1    |         |   |         | 13.9  |        
|                             | Other                                    |                                      |         | 25.0    |         |          |         | 2.3     |         |   |         | (0.6  | )      
|                             |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             |                                          | Total other income (expense)         |         |         | 3.6     |          |         |         | (19.2   | ) |         |       | (43.0   | )
|                             |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             |                                          | Income before income taxes           |         |         | 145.8   |          |         |         | 312.6   |   |         |       | 322.5   |  
|Provision for income taxes:  |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             | Current income tax provision             |                                      |         | 26.7    |         |          |         | 53.5    |         |   |         | 22.2  |        
|                             | Deferred income tax provision (benefit)  |                                      |         | (10.3   | )       |          |         | (18.8   | )       |   |         | 101.5 |        
|                             |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             |                                          | Total provision for income taxes     |         |         | 16.4    |          |         |         | 34.7    |   |         |       | 123.7   |  
|                             |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             |                                          | Net income                           |         | $       | 129.4   |          |         | $       | 277.9   |   |         | $     | 198.8   |  
|                             |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|Earnings per ordinary share: |                                          |                                      |         |         |         |          |         |         |         |   |         |      
|                             | Basic                                    |                                      | $       | 0.55    |         |          | $       | 1.19    |         |   | $       | 1.52  |        
|                             | Diluted                                  |                                      | $       | 0.55    |         |          | $       | 1.18    |         |   | $       | 1.50  |        



---



|    |                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------
|(1) | Results for 2001 include the combined operations
    of the Company since the November 2001 merger date
    (42 days).

See notes to consolidated financial statements

56



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

($ in millions)


|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |         |         | 
|---------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | ------- |  | ----- | ------- | ------- | 
|                                         |                                                                                                                                                                                           |                                           
|                                         |                                                                                                                                                                                           | December 31,                              
|                                         |                                                                                                                                                                                           |                                           
|                                         |                                                                                                                                                                                           | 2003                                       |         | 2002   
|                                         |                                                                                                                                                                                           |                                            |         |        
|ASSETS                                  
|Current assets:                          |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|                                         | Cash and cash equivalents                                                                                                                                                                 |                                            | $       | 711.8   |         |  | $     | 677.0   |        
|                                         | Marketable securities                                                                                                                                                                     |                                            |         | 135.0   |         |  |       | 59.5    |        
|                                         | Accounts receivable, less allowance for doubtful
    accounts of $7.9 in 2003 and $3.4 in 2002                                                                                            |                                            |         | 313.5   |         |  |       | 346.3   |        
|                                         | Costs incurred on turnkey drilling projects in
    progress                                                                                                                               |                                            |         | 10.5    |         |  |       | 9.1     |        
|                                         | Prepaid expenses                                                                                                                                                                          |                                            |         | 31.5    |         |  |       | 49.6    |        
|                                         | Other current assets                                                                                                                                                                      |                                            |         | 6.0     |         |  |       | 4.1     |        
|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|                                         |                                                                                                                                                                                           | Total current assets                       |         |         | 1,208.3 |  |       |         | 1,145.6 | 
|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|Properties and equipment:                |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|                                         | Rigs and drilling equipment, less accumulated
    depreciation of $1,191.6 in 2003 and $926.6 in 2002                                                                                     |                                            |         | 3,733.7 |         |  |       | 3,710.9 |        
|                                         | Construction in progress                                                                                                                                                                  |                                            |         | 629.8   |         |  |       | 472.0   |        
|                                         | Oil and gas properties, full-cost method, less
    accumulated depreciation, depletion and amortization of $12.7 in
    2003 and $20.2 in 2002                                            |                                            |         | 21.2    |         |  |       | 11.1    |        
|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|                                         |                                                                                                                                                                                           | Net properties and equipment               |         |         | 4,384.7 |  |       |         | 4,194.0 | 
|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|Goodwill                                 |                                                                                                                                                                                           |                                            | 352.1   |         |         |  | 386.9 |        
|Future income tax benefits               |                                                                                                                                                                                           |                                            | 31.2    |         |         |  | 20.8  |        
|Other assets                             |                                                                                                                                                                                           |                                            | 173.4   |         |         |  | 81.4  |        
|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|                                         |                                                                                                                                                                                           | Total assets                               |         | $       | 6,149.7 |  |       | $       | 5,828.7 | 
|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|LIABILITIES AND SHAREHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|                                         | Accounts payable                                                                                                                                                                          |                                            | $       | 179.6   |         |  | $     | 209.2   |        
|                                         | Accrued compensation and related employee costs                                                                                                                                           |                                            |         | 67.5    |         |  |       | 63.8    |        
|                                         | Accrued income taxes                                                                                                                                                                      |                                            |         | 8.0     |         |  |       | 32.0    |        
|                                         | Accrued interest                                                                                                                                                                          |                                            |         | 13.5    |         |  |       | 8.9     |        
|                                         | Deferred revenue                                                                                                                                                                          |                                            |         | 27.6    |         |  |       | 45.5    |        
|                                         | Capital lease obligations                                                                                                                                                                 |                                            |         | 9.8     |         |  |       | 1.8     |        
|                                         | Other accrued liabilities                                                                                                                                                                 |                                            |         | 86.1    |         |  |       | 72.4    |        
|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|                                         |                                                                                                                                                                                           | Total current liabilities                  |         |         | 392.1   |  |       |         | 433.6   | 
|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|Long-term debt                           |                                                                                                                                                                                           |                                            | 1,191.4 |         |         |  | 925.2 |        
|Capital lease obligations                |                                                                                                                                                                                           |                                            | 39.5    |         |         |  | 16.7  |        
|Deferred income taxes                    |                                                                                                                                                                                           |                                            | 21.5    |         |         |  | 23.2  |        
|Other long-term liabilities              |                                                                                                                                                                                           |                                            | 177.6   |         |         |  | 195.8 |        
|Commitments and contingencies (Note 5)   |                                                                                                                                                                                           |                                            |        |         |         |  |      |        
|Shareholders equity:                    |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|                                         | Ordinary shares, $0.01 par value, 600 million
    shares authorized, 233,516,104 shares and 232,889,001 shares
    issued and outstanding at December 31, 2003 and 2002,
    respectively |                                            |         | 2.3     |         |  |       | 2.3     |        
|                                         | Additional paid-in capital                                                                                                                                                                |                                            |         | 2,959.1 |         |  |       | 2,950.1 |        
|                                         | Retained earnings                                                                                                                                                                         |                                            |         | 1,410.8 |         |  |       | 1,322.4 |        
|                                         | Accumulated other comprehensive loss                                                                                                                                                      |                                            |         | (44.6   | )       |  |       | (40.6   | )      
|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|                                         |                                                                                                                                                                                           | Total shareholders equity                 |         |         | 4,327.6 |  |       |         | 4,234.2 | 
|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |        
|                                         |                                                                                                                                                                                           | Total liabilities and shareholders equity |         | $       | 6,149.7 |  |       | $       | 5,828.7 | 
|                                         |                                                                                                                                                                                           |                                            |         |         |         |  |       |        

See notes to consolidated financial statements

57



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                 |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |        |       |       |       | 
|------------------------------------------------ | -------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------------------------ | ----- | ----- | ------ | ------ | ----- | ----- | ------ | ------ | ----- | ----- | ----- | 
|                                                 |                                                                                  |                                                                       
|                                                 |                                                                                  | Year Ended December 31,                                               
|                                                 |                                                                                  |                                                                       
|                                                 |                                                                                  | 2003                                                                   |                                                                      | 2002                                                         |       | 2001 
|                                                 |                                                                                  |                                                                        |                                                                      |                                                              |       |      
|                                                 |                                                                                  |                                                                       
|                                                 |                                                                                  | (In millions)                                                         
|Cash flows from operating activities:            |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |       
|                                                 | Net income                                                                       |                                                                        | $                                                                    | 129.4                                                        |       |       | $      | 277.9  |       |       | $      | 198.8  |      
|                                                 | Adjustments to reconcile net income to cash flows
    from operating activities: |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |        |      
|                                                 |                                                                                  | Depreciation, depletion and amortization                               |                                                                      |                                                              | 273.2 |       |        |        | 254.4 |       |        |        | 146.3 |      
|                                                 |                                                                                  | Deferred income taxes                                                  |                                                                      |                                                              | (10.3 | )     |        |        | (18.8 | )     |        |        | 101.5 |      
|                                                 |                                                                                  | Gain on sale of rig                                                    |                                                                      |                                                              |      |       |        |        |      |       |        |        | (35.6 | )    
|                                                 |                                                                                  | Changes in working capital, net of amounts
    acquired in the Merger: |                                                                      |                                                              |       |       |        |        |       |       |        |        |       |      
|                                                 |                                                                                  |                                                                        | Decrease in accounts receivable                                      |                                                              |       | 28.3  |        |        |       | 26.3  |        |        |       | 3.7   |      
|                                                 |                                                                                  |                                                                        | Decrease (increase) in prepaid expenses and other
    current assets |                                                              |       | 10.1  |        |        |       | (30.5 | )      |        |       | 5.5   |      
|                                                 |                                                                                  |                                                                        | (Decrease) increase in accounts payable                              |                                                              |       | (27.0 | )      |        |       | 48.6  |        |        |       | (19.1 | )    
|                                                 |                                                                                  |                                                                        | (Decrease) increase in accrued liabilities                           |                                                              |       | (14.2 | )      |        |       | (9.4  | )      |        |       | 7.0   |      
|                                                 |                                                                                  | (Decrease) increase in deferred revenues                               |                                                                      |                                                              | (16.8 | )     |        |        | 8.7   |       |        |        | (2.9  | )    
|                                                 |                                                                                  | Increase (decrease) in other long-term liabilities                     |                                                                      |                                                              | 5.1   |       |        |        | (8.4  | )     |        |        | 5.1   |      
|                                                 |                                                                                  | Other, net                                                             |                                                                      |                                                              | 22.1  |       |        |        | 2.3   |       |        |        | 2.8   |      
|                                                 |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |       
|                                                 |                                                                                  |                                                                        |                                                                      | Net cash flows from operating activities                     |       |       | 399.9  |        |       |       | 551.1  |        |       |       | 413.1 | 
|                                                 |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |       
|Cash flows from investing activities:            |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |       
|                                                 | Capital expenditures                                                             |                                                                        |                                                                      | (468.6                                                       | )     |       |        | (561.3 | )     |       |        | (158.4 | )    
|                                                 | Purchases of held-to-maturity marketable
    securities                          |                                                                        |                                                                      | (364.5                                                       | )     |       |        | (282.9 | )     |       |        | (103.9 | )    
|                                                 | Proceeds from maturities of held-to-maturity
    marketable securities           |                                                                        |                                                                      | 219.0                                                        |       |       |        | 353.0  |       |       |        | 79.4   |      
|                                                 | Purchases of available-for-sale marketable
    securities                        |                                                                        |                                                                      | (19.2                                                        | )     |       |        | (18.7  | )     |       |        | (5.9   | )    
|                                                 | Proceeds from sales of available-for-sale
    marketable securities              |                                                                        |                                                                      | 8.5                                                          |       |       |        | 12.2   |       |       |        |       |      
|                                                 | Cash received in Merger, net of fees                                             |                                                                        |                                                                      |                                                             |       |       |        |       |       |       |        | 190.7  |      
|                                                 | Proceeds from sales of property and equipment                                    |                                                                        |                                                                      | 5.9                                                          |       |       |        | 93.4   |       |       |        | 13.2   |      
|                                                 |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |       
|                                                 |                                                                                  |                                                                        |                                                                      | Net cash flow (used in) provided by investing
    activities |       |       | (618.9 | )      |       |       | (404.3 | )      |       |       | 15.1  | 
|                                                 |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |       
|Cash flows from financing activities:            |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |       
|                                                 | Dividend payments                                                                |                                                                        |                                                                      | (36.7                                                        | )     |       |        | (30.4  | )     |       |        |       |      
|                                                 | Issuance of long-term debt, net of discount                                      |                                                                        |                                                                      | 249.4                                                        |       |       |        |       |       |       |        |       |      
|                                                 | Deferred financing costs                                                         |                                                                        |                                                                      | (3.6                                                         | )     |       |        |       |       |       |        |       |      
|                                                 | Lease/leaseback transaction                                                      |                                                                        |                                                                      | 37.0                                                         |       |       |        |       |       |       |        |       |      
|                                                 | Payments on capitalized lease obligations                                        |                                                                        |                                                                      | (8.3                                                         | )     |       |        | (1.8   | )     |       |        | (1.8   | )    
|                                                 | Ordinary shares repurchased and retired                                          |                                                                        |                                                                      |                                                             |       |       |        | (51.4  | )     |       |        |       |      
|                                                 | Proceeds from issuance of ordinary shares                                        |                                                                        |                                                                      | 9.7                                                          |       |       |        | 27.3   |       |       |        | 7.6    |      
|                                                 | Bank overdrafts and other                                                        |                                                                        |                                                                      | 6.3                                                          |       |       |        | 8.2    |       |       |        |       |      
|                                                 |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |       
|                                                 |                                                                                  |                                                                        |                                                                      | Net cash flow provided by (used in) financing
    activities |       |       | 253.8  |        |       |       | (48.1  | )      |       |       | 5.8   | 
|                                                 |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |       
|Increase in cash and cash equivalents            |                                                                                  |                                                                        | 34.8                                                                 |                                                              |       |       | 98.7   |        |       |       | 434.0  |       
|Cash and cash equivalents at beginning of period |                                                                                  |                                                                        | 677.0                                                                |                                                              |       |       | 578.3  |        |       |       | 144.3  |       
|                                                 |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |       
|Cash and cash equivalents at end of period       |                                                                                  | $                                                                      | 711.8                                                                |                                                              |       | $     | 677.0  |        |       | $     | 578.3  |       
|                                                 |                                                                                  |                                                                        |                                                                      |                                                              |       |       |        |        |       |       |        |       

See notes to consolidated financial statements

58



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

|                             |                                                                  |                      |             |             |   |             |     |               |  |             |         |         |   |   |         |       |   |   |       |       |   |   |         |         |       | 
|---------------------------- | ---------------------------------------------------------------- | -------------------- | ----------- | ----------- | - | ----------- | --- | ------------- |  | ----------- | ------- | ------- | - | - | ------- | ----- | - | - | ----- | ----- | - | - | ------- | ------- | ----- | 
|                             |                                                                  |                      |             |             |   |             |     |               |  | Accumulated |         |        
|                             |                                                                  |                      |             |             |   |             |     | Other         |  |            
|                             |                                                                  | Ordinary Shares (1)  |             | Additional  |   |             |     | Comprehensive |  |            
|                             |                                                                  |                      |             | Paid-in     |   | Retained    |     | Income        |  |            
|                             |                                                                  | Shares               |             | Par Value   |   | Capital (1) |     | Earnings      |  | (Loss)      |         | Total  
|                             |                                                                  |                      |             |             |   |             |     |               |  |             |         |        
|                             |                                                                  |                     
|                             |                                                                  | ($ in millions)     
|Balance at December 31, 2000 |                                                                  |                      | 117,054,291 |             |   | $           | 1.2 |               |  | $           | 366.5   |         |   | $ | 905.0   |       |   | $ | (1.8  | )     |   | $ | 1,270.9 |        
|                             | Net income                                                       |                      |             |            |   |             |     |              |  |             |         |        |   |   |         | 198.8 |   |   |       |      |   |   |         | 198.8   |      
|                             | Minimum pension liability adjustment                             |                      |             |            |   |             |     |              |  |             |         |        |   |   |         |      |   |   |       | (12.1 | ) |   |         | (12.1   | )    
|                             | Unrealized loss on securities                                    |                      |             |            |   |             |     |              |  |             |         |        |   |   |         |      |   |   |       | (0.5  | ) |   |         | (0.5    | )    
|                             |                                                                  |                      |             |             |   |             |     |               |  |             |         |         |   |   |         |       |   |   |       |       |   |   |         |        
|                             |                                                                  | Comprehensive income |             |             |   |             |     |               |  |             |         |         |   |   |         |       |   |   |       |       |   |   |         |         | 186.2 | 
|                             | Merger with Santa Fe
    International                           |                      |             | 115,497,050 |   |             |     | 1.1           |  |             |         | 2,566.0 |   |   |         |      |   |   |       |      |   |   |         | 2,567.1 |      
|                             | Exercise of employee stock
    options                           |                      |             | 469,898     |   |             |     |              |  |             |         | 7.6     |   |   |         |      |   |   |       |      |   |   |         | 7.6     |      
|                             | Shares issued under other benefit plans                          |                      |             | 471,468     |   |             |     |              |  |             |         | 6.3     |   |   |         |      |   |   |       |      |   |   |         | 6.3     |      
|                             | Dividends declared                                               |                      |             |            |   |             |     |              |  |             |         |        |   |   |         | (7.6  | ) |   |       |      |   |   |         | (7.6    | )    
|                             | Shares canceled                                                  |                      |             | (2,558      | ) |             |     |              |  |             |         |        |   |   |         |      |   |   |       |      |   |   |         |        |      
|                             | Income tax benefit from stock option exercises                   |                      |             |            |   |             |     |              |  |             |         | 2.7     |   |   |         |      |   |   |       |      |   |   |         | 2.7     |      
|                             |                                                                  |                      |             |             |   |             |     |               |  |             |         |         |   |   |         |       |   |   |       |       |   |   |         |        
|Balance at December 31, 2001 |                                                                  |                      | 233,490,149 |             |   |             | 2.3 |               |  |             | 2,949.1 |         |   |   | 1,096.2 |       |   |   | (14.4 | )     |   |   | 4,033.2 |        
|                             | Net income                                                       |                      |             |            |   |             |     |              |  |             |         |        |   |   |         | 277.9 |   |   |       |      |   |   |         | 277.9   |      
|                             | Minimum pension liability adjustment                             |                      |             |            |   |             |     |              |  |             |         |        |   |   |         |      |   |   |       | (26.7 | ) |   |         | (26.7   | )    
|                             | Change in unrealized loss on securities                          |                      |             |            |   |             |     |              |  |             |         |        |   |   |         |      |   |   |       | 0.5   |   |   |         | 0.5     |      
|                             |                                                                  |                      |             |             |   |             |     |               |  |             |         |         |   |   |         |       |   |   |       |       |   |   |         |        
|                             |                                                                  | Comprehensive income |             |             |   |             |     |               |  |             |         |         |   |   |         |       |   |   |       |       |   |   |         |         | 251.7 | 
|                             | Exercise of employee stock
    options                           |                      |             | 1,684,807   |   |             |     |              |  |             |         | 24.6    |   |   |         |      |   |   |       |      |   |   |         | 24.6    |      
|                             | Shares issued under other benefit plans                          |                      |             | 105,839     |   |             |     |              |  |             |         | 3.9     |   |   |         |      |   |   |       |      |   |   |         | 3.9     |      
|                             | Share repurchase program                                         |                      |             | (2,374,600  | ) |             |     |              |  |             |         | (30.1   | ) |   |         | (21.3 | ) |   |       |      |   |   |         | (51.4   | )    
|                             | Dividends declared                                               |                      |             |            |   |             |     |              |  |             |         |        |   |   |         | (30.4 | ) |   |       |      |   |   |         | (30.4   | )    
|                             | Shares canceled                                                  |                      |             | (17,194     | ) |             |     |              |  |             |         |        |   |   |         |      |   |   |       |      |   |   |         |        |      
|                             | Income tax benefit from stock option exercises                   |                      |             |            |   |             |     |              |  |             |         | 2.6     |   |   |         |      |   |   |       |      |   |   |         | 2.6     |      
|                             |                                                                  |                      |             |             |   |             |     |               |  |             |         |         |   |   |         |       |   |   |       |       |   |   |         |        
|Balance at December 31, 2002 |                                                                  |                      | 232,889,001 |             |   |             | 2.3 |               |  |             | 2,950.1 |         |   |   | 1,322.4 |       |   |   | (40.6 | )     |   |   | 4,234.2 |        
|                             | Net income                                                       |                      |             |            |   |             |     |              |  |             |         |        |   |   |         | 129.4 |   |   |       |      |   |   |         | 129.4   |      
|                             | Minimum pension liability adjustment                             |                      |             |            |   |             |     |              |  |             |         |        |   |   |         |      |   |   |       | (7.7  | ) |   |         | (7.7    | )    
|                             | Unrealized gain on securities                                    |                      |             |            |   |             |     |              |  |             |         |        |   |   |         |      |   |   |       | 3.7   |   |   |         | 3.7     |      
|                             |                                                                  |                      |             |             |   |             |     |               |  |             |         |         |   |   |         |       |   |   |       |       |   |   |         |        
|                             |                                                                  | Comprehensive income |             |             |   |             |     |               |  |             |         |         |   |   |         |       |   |   |       |       |   |   |         |         | 125.4 | 
|                             | Exercise of employee stock
    options                           |                      |             | 374,160     |   |             |     |              |  |             |         | 4.6     |   |   |         |      |   |   |       |      |   |   |         | 4.6     |      
|                             | Shares issued under other benefit plans                          |                      |             | 264,949     |   |             |     |              |  |             |         | 6.6     |   |   |         |      |   |   |       |      |   |   |         | 6.6     |      
|                             | Dividends declared                                               |                      |             |            |   |             |     |              |  |             |         |        |   |   |         | (41.0 | ) |   |       |      |   |   |         | (41.0   | )    
|                             | Shares canceled                                                  |                      |             | (12,006     | ) |             |     |              |  |             |         | (0.3    | ) |   |         |      |   |   |       |      |   |   |         | (0.3    | )    
|                             | Adjustment to income tax benefit from stock
    option exercises |                      |             |            |   |             |     |              |  |             |         | (1.9    | ) |   |         |      |   |   |       |      |   |   |         | (1.9    | )    
|                             |                                                                  |                      |             |             |   |             |     |               |  |             |         |         |   |   |         |       |   |   |       |       |   |   |         |        
|Balance at December 31, 2003 |                                                                  |                      | 233,516,104 |             |   | $           | 2.3 |               |  | $           | 2,959.1 |         |   | $ | 1,410.8 |       |   | $ | (44.6 | )     |   | $ | 4,327.6 |        
|                             |                                                                  |                      |             |             |   |             |     |               |  |             |         |         |   |   |         |       |   |   |       |       |   |   |         |        



---



|    |                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Share, par value amounts and additional paid-in
    capital amounts prior to the merger date have been restated to
    reflect the exchange ratio (0.665) as outlined in the Merger.

See notes to consolidated financial statements

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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




|         |                                                      
|-------- | -----------------------------------------------------
|Note 1  | Basis of Presentation and Description of
    Business

GlobalSantaFe Corporation (the
Company or GlobalSantaFe) is an oil and
gas drilling contractor, owning or operating a fleet of over 90
marine and land drilling rigs. The Companys fleet
currently includes 13 floating rigs, 45 cantilevered jackup
rigs, 31 land rigs and one platform rig. The Company has two
ultra-deepwater semisubmersibles and one high-performance
cantilevered jackup under construction, and it operates two
semisubmersible rigs for third parties under a joint venture
agreement. As of December 31, 2003, the Company or its
affiliates also maintained two platform rigs in the North Sea
for third parties. The Company provides oil and gas contract
drilling services to the oil and gas industry worldwide on a
daily rate (dayrate) basis. The Company also
provides oil and gas drilling management services on either a
dayrate or completed-project, fixed-price (turnkey)
basis, as well as drilling engineering and drilling project
management services, and it participates in oil and gas
exploration and production activities.



| |                                                                        
| | -----------------------------------------------------------------------
| | Merger of Santa Fe International
    Corporation and Global Marine Inc.

On November 20, 2001, Santa Fe
International Corporation (Santa Fe
International) and Global Marine Inc. (Global
Marine) consummated their business combination with the
merger (the Merger) of an indirect wholly owned
subsidiary of Santa Fe International with and into Global
Marine, with Global Marine surviving the Merger as a wholly
owned subsidiary of Santa Fe International. In connection
with the Merger, Santa Fe International was renamed
GlobalSantaFe Corporation. At the effective time of the Merger,
each issued and outstanding share of common stock, par value
$0.10 per share, of Global Marine was converted into the
right to receive 0.665 ordinary shares, par value $0.01 per
share, of GlobalSantaFe Corporation (GlobalSantaFe
Ordinary Shares). Approximately 118 million
GlobalSantaFe Ordinary Shares were issued in connection with the
Merger.

The consolidated balance sheets as of
December 31, 2003 and 2002, and the consolidated statements
of income, cash flows and shareholders equity for the
years ended December 31, 2003 and 2002, reflect the results
of the combined company. The statements of income, cash flows
and shareholders equity for the year ended
December 31, 2001, include the results of Global Marine for
the full-year 2001 and the results of Santa Fe
International from November 20, 2001 (42 days).

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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Pro Forma Financial Information
(Unaudited)

The following unaudited condensed consolidated
pro forma results for the year ended December 31, 2001, has
been prepared as if the Merger had occurred on January 1,
2001. If Global Marine and Santa Fe International had merged on
this date, GlobalSantaFe might have performed differently. The
pro forma financial information should not be relied on as an
indication of the results of operations that the Company would
have achieved had the Merger taken place at a different date or
of the future results that the Company will achieve.

|                             |         |               |         |      | 
|---------------------------- | ------- | ------------- | ------- | ---- | 
|                             |         | Year Ended   
|                             |         | December 31, 
|                             |         | 2001         
|                             |         |              
|                             |         | (In millions,
|                             |         | except per   
|                             |         | share data)  
|Revenues                     |         | $             | 2,058.5 |     
|Operating income             |         |               | 497.7   |     
|Income before income taxes   |         |               | 525.1   |     
|Net income                   |         |               | 377.8   |     
|Earnings per ordinary share: |         |               |         |     
|                             | Basic   |               | $       | 1.62 | 
|                             | Diluted |               | $       | 1.59 | 

The pro forma information includes adjustments
for additional revenue based on the fair market value of certain
drilling contracts acquired, additional depreciation based on
the fair market value of drilling rigs and other property and
equipment acquired and related adjustments for income taxes,
reflecting the incremental benefit attributable to the effect of
the Companys tax structure on the earnings of the combined
companies.



| |                    
| | -------------------
| | Restructuring Costs

In connection with the Merger, the Company
implemented a restructuring program that included the
consolidation of Santa Fe Internationals
administrative office in Dallas, Texas, Global Marines
administrative office in Lafayette, Louisiana, and Global
Marines administrative office in Houston, Texas, into a
single administrative office in Houston, the consolidation of
Santa Fe Internationals and Global Marines
North Sea administrative offices in Aberdeen, Scotland, and the
separation of 169 employees from the Company. The employee
functions affected were primarily corporate support in nature
and included accounting, information technology, and employee
benefits, among others. Approximately 60% of the affected
positions were located in Dallas, 23% were located in Houston
and Lafayette, and the remaining 17% were located in Aberdeen.
All of the activities related to this restructuring program were
substantially complete as of December 31, 2003.

Estimated restructuring costs associated with
Global Marine were recorded as a pretax charge in the fourth
quarter of 2001. Changes in estimated costs, consisting mainly
of refinements of cost estimates, including the estimate related
to the closure of Global Marines office discussed below,
and payments related

61



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

to these restructuring costs for the period from
November 20, 2001, to December 31, 2003, are
summarized as follows:

|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|------------------------------ |  | --------------- | ---- | ------------ |  | ------------- | ---- | -------------- |  | ----- | ---- | - |  | - | ---- | - |  | - | ---- | -
|                               |  |                 |      |              |  | Office        |      |                |  |      
|                               |  | Employee        |      | Other        |  | Closures and  |      | Directors     |  |      
|                               |  | Severance       |      | Compensation |  | Consolidation |      | Separation and |  |      
|Restructuring Costs:           |  | Costs           |      | Expense      |  | of Facilities |      | Other Costs    |  | Total
|                               |  |                 |      |              |  |               |      |                |  |      
|                               |  |                
|                               |  | ($ in millions)
|Houston and Lafayette Offices: |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Number of Employees  38       |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Restructuring Expense          |  | $               | 8.2  |              |  | $             | 4.6  |                |  | $     | 4.1  |   |  | $ | 3.8  |   |  | $ | 20.7 |  
|2001 payments                  |  |                 |     |              |  |               | (4.6 | )              |  |       |     |   |  |   | (1.3 | ) |  |   | (5.9 | )
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Liability at 12/31/01          |  |                 | 8.2  |              |  |               |     |                |  |       | 4.1  |   |  |   | 2.5  |   |  |   | 14.8 |  
|Changes in estimated costs     |  |                 | (2.2 | )            |  |               |     |                |  |       | 2.6  |   |  |   | (0.5 | ) |  |   | (0.1 | )
|2002 payments                  |  |                 | (2.6 | )            |  |               |     |                |  |       | (2.1 | ) |  |   |     |   |  |   | (4.7 | )
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Liability at 12/31/02          |  |                 | 3.4  |              |  |               |     |                |  |       | 4.6  |   |  |   | 2.0  |   |  |   | 10.0 |  
|Changes in estimated costs     |  |                 | 0.5  |              |  |               |     |                |  |       | 4.0  |   |  |   |     |   |  |   | 4.5  |  
|2003 payments                  |  |                 | (2.2 | )            |  |               |     |                |  |       | (2.9 | ) |  |   |     |   |  |   | (5.1 | )
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Liability at 12/31/03          |  |                 | 1.7  |              |  |               |     |                |  |       | 5.7  |   |  |   | 2.0  |   |  |   | 9.4  |  
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Aberdeen Office:               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Number of Employees  16       |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Restructuring Expense          |  |                 | 1.3  |              |  |               |     |                |  |       | 0.2  |   |  |   | 0.1  |   |  |   | 1.6  |  
|2001 payments                  |  |                 | (0.4 | )            |  |               |     |                |  |       |     |   |  |   |     |   |  |   | (0.4 | )
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Liability at 12/31/01          |  |                 | 0.9  |              |  |               |     |                |  |       | 0.2  |   |  |   | 0.1  |   |  |   | 1.2  |  
|Changes in estimated costs     |  |                 | (0.1 | )            |  |               |     |                |  |       | 0.3  |   |  |   | (0.1 | ) |  |   | 0.1  |  
|2002 payments                  |  |                 | (0.7 | )            |  |               |     |                |  |       | (0.5 | ) |  |   |     |   |  |   | (1.2 | )
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Liability at 12/31/02          |  |                 | 0.1  |              |  |               |     |                |  |       |     |   |  |   |     |   |  |   | 0.1  |  
|Changes in estimated costs     |  |                 | 0.2  |              |  |               |     |                |  |       |     |   |  |   |     |   |  |   | 0.2  |  
|2003 payments                  |  |                 | (0.3 | )            |  |               |     |                |  |       |     |   |  |   |     |   |  |   | (0.3 | )
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Liability at 12/31/03          |  |                 |     |              |  |               |     |                |  |       |     |   |  |   |     |   |  |   |     |  
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Total:                         |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Number of Employees  54       |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Restructuring Expense          |  |                 | 9.5  |              |  |               | 4.6  |                |  |       | 4.3  |   |  |   | 3.9  |   |  |   | 22.3 |  
|2001 payments                  |  |                 | (0.4 | )            |  |               | (4.6 | )              |  |       |     |   |  |   | (1.3 | ) |  |   | (6.3 | )
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Liability at 12/31/01          |  |                 | 9.1  |              |  |               |     |                |  |       | 4.3  |   |  |   | 2.6  |   |  |   | 16.0 |  
|Changes in estimated costs     |  |                 | (2.3 | )            |  |               |     |                |  |       | 2.9  |   |  |   | (0.6 | ) |  |   |     |  
|2002 payments                  |  |                 | (3.3 | )            |  |               |     |                |  |       | (2.6 | ) |  |   |     |   |  |   | (5.9 | )
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Liability at 12/31/02          |  |                 | 3.5  |              |  |               |     |                |  |       | 4.6  |   |  |   | 2.0  |   |  |   | 10.1 |  
|Changes in estimated costs     |  |                 | 0.7  |              |  |               |     |                |  |       | 4.0  |   |  |   |     |   |  |   | 4.7  |  
|2003 payments                  |  |                 | (2.5 | )            |  |               |     |                |  |       | (2.9 | ) |  |   |     |   |  |   | (5.4 | )
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  
|Liability at 12/31/03          |  | $               | 1.7  |              |  | $             |     |                |  | $     | 5.7  |   |  | $ | 2.0  |   |  | $ | 9.4  |  
|                               |  |                 |      |              |  |               |      |                |  |       |      |   |  |   |      |   |  |   |      |  

Estimated costs related to the closure of Global
Marine Inc.s former Houston, Texas, office were originally
based on the assumption that this office space would be
subleased to a third party. Based on current Houston commercial
real estate market conditions, the Company now believes it is
probable that it will not be able to sublease this office space
before the end of the lease term. As a result, the Company has
now accrued the entire liability under the lease.

Estimated costs associated with Santa Fe
Internationals employee severance and closure of its
Dallas and Aberdeen offices were recognized as a liability
assumed in the purchase business combination and included in the
cost of acquisition in accordance with the provisions of
SFAS No. 141, Business

62



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Combinations. Changes in estimated costs,
consisting primarily of costs associated with employee
terminations and further employee relocation costs, and payments
related to this liability for the period from November 20,
2001, to December 31, 2003, are summarized as follows:

|                                  |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  
|--------------------------------- |  | --------------- | ----- | ---------- |  | ------------- | ---- | -------------- |  | ----- | ---- | - |  | - | ---- | - |  | - | ----- | -
|                                  |  |                 |       |            |  | Office        |      |                |  |      
|                                  |  | Employee        |       | Employee   |  | Closures and  |      | Directors     |  |      
|                                  |  | Severance       |       | Relocation |  | Consolidation |      | Separation and |  |      
|Purchase Price:                   |  | Costs           |       | Costs      |  | of Facilities |      | Other Costs    |  | Total
|                                  |  |                 |       |            |  |               |      |                |  |      
|                                  |  |                
|                                  |  | ($ in millions)
|Number of Employees  115         |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  
|Costs included in purchase price: |  | $               | 9.6   |            |  | $             | 5.4  |                |  | $     | 11.5 |   |  | $ | 1.2  |   |  | $ | 27.7  |  
|2001 payments                     |  |                 | (0.1  | )          |  |               |     |                |  |       |     |   |  |   | (0.3 | ) |  |   | (0.4  | )
|                                  |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  
|Liability at 12/31/01             |  |                 | 9.5   |            |  |               | 5.4  |                |  |       | 11.5 |   |  |   | 0.9  |   |  |   | 27.3  |  
|Changes in estimated costs        |  |                 | 4.8   |            |  |               | 2.8  |                |  |       |     |   |  |   | (0.4 | ) |  |   | 7.2   |  
|2002 payments                     |  |                 | (11.6 | )          |  |               | (7.7 | )              |  |       | (1.2 | ) |  |   | (0.2 | ) |  |   | (20.7 | )
|                                  |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  
|Liability at 12/31/02             |  |                 | 2.7   |            |  |               | 0.5  |                |  |       | 10.3 |   |  |   | 0.3  |   |  |   | 13.8  |  
|Changes in estimated costs        |  |                 | 0.8   |            |  |               |     |                |  |       | (0.2 | ) |  |   | (0.3 | ) |  |   | 0.3   |  
|2003 payments                     |  |                 | (3.5  | )          |  |               | (0.5 | )              |  |       | (2.6 | ) |  |   |     |   |  |   | (6.6  | )
|                                  |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  
|Liability at 12/31/03             |  | $               |      |            |  | $             |     |                |  | $     | 7.5  |   |  | $ |     |   |  | $ | 7.5   |  
|                                  |  |                 |       |            |  |               |      |                |  |       |      |   |  |   |      |   |  |   |       |  

In addition to the amounts in the above table,
Santa Fe International paid $10.0 million in 2001 at
the time of the merger to SFIC Holdings in consideration for
SFIC Holdings consent to the Merger. This consent was
required pursuant to an intercompany agreement with Kuwait
Petroleum Corporation and SFIC Holdings that required the
consent of SFIC Holdings to, among other things, significant
corporate actions by Santa Fe International, including the
issuance of equity securities, sale of significant assets or a
change in the corporate domicile of Santa Fe International
or any of its subsidiaries (see Note 14).

As of December 31, 2003, the Companys
remaining liability related to its merger-related restructuring
activities totaled $16.9 million, consisting of the
following: $13.2 million related to office closures and
consolidation of facilities, which will be relieved over the
remaining terms of the various office leases ranging up to
4 1/2 years; $1.7 million related to employee
separation costs, which will be paid out pursuant to the terms
of various severance agreements, over terms ranging up to three
years from the date of separation; and $2.0 million related
to special retirement termination costs, which will be satisfied
pursuant to the payment terms of the retirement plans affected.



| |          
| | ---------
| | Dividends

Holders of GlobalSantaFe Ordinary Shares are
entitled to participate in the payment of dividends in
proportion to their holdings. Under Cayman Islands law, the
Company may pay dividends or make other distributions to the
Companys 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, will be declared and paid in U.S. dollars. The Company
declared cash dividends of $11.7 million that were unpaid
as of December 31, 2003.



| |                      
| | ---------------------
| | Basis of Presentation

The accompanying consolidated financial
statements and related footnotes are presented in
U.S. dollars and in accordance with accounting principles
generally accepted in the United States of America. Certain
prior period amounts have been reclassified to conform to the
current presentation.

63



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|         |                                               
|-------- | ----------------------------------------------
|Note 2  | Summary of Significant Accounting
    Policies



| |                            
| | ---------------------------
| | Principles of Consolidation

The Company consolidates all of its
majority-owned subsidiaries and 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.



| |                                               
| | ----------------------------------------------
| | Cash Equivalents and Marketable
    Securities

Cash equivalents include highly liquid debt
instruments with remaining maturities of three months or less at
the time of purchase. The Companys marketable securities,
consisting of debt securities with maturities of less than
12 months, are classified as held-to-maturity. The carrying
value of these securities approximates market value due to the
short-term nature of these securities. In addition, the Company
holds securities in connection with certain nonqualified pension
plans (see Note 3), which are classified as
available-for-sale. These investments are reported at fair
value, with unrealized gains and losses excluded from earnings
and reported as a separate component of shareholders
equity.



| |                            
| | ---------------------------
| | Properties and Depreciation

Rigs and Drilling
Equipment.Capitalized costs of rigs
and drilling equipment include all costs incurred in the
acquisition of capital assets including allocations of interest
costs incurred during periods that assets are under construction
or refurbishment. Expenditures for maintenance and repairs are
charged to expense as incurred. Costs of property sold or
retired and the related accumulated depreciation are removed
from the accounts; resulting gains or losses are included in
income.

Jackup drilling rigs and semisubmersibles are
depreciated over lives ranging from 15 to 30 years, with
salvage values of $0.5 million and $1.0 million,
respectively, per rig. All land drilling rigs are depreciated
over 15-year lives with no salvage value. Drillships, with the
exception of the Glomar Explorer, are depreciated over
20-year lives, with salvage values of $1.0 million per rig.
The Glomar Exploreris being depreciated over the time
that remained on its 30-year lease as of the date it entered
service following its conversion to a drillship, or
approximately 28 years, with no salvage value.

Rigs and drilling equipment included
$1.1 billion of assets recorded under capital leases at
December 31, 2003, and $1.0 billion at
December 31, 2002. Accumulated amortization of assets under
capital leases totaled $185.8 million and
$134.2 million at December 31, 2003 and 2002,
respectively.

The Company reviews its long-term assets for
impairment when changes in circumstances indicate that the
carrying amount of the asset may not be recoverable, in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the
Impairment and Disposal of Long-lived Assets.
SFAS No. 144 requires that long-lived assets and
certain 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 or fair
value less cost to sell. The Company recorded no impairment
charges during the years ended December 31, 2003, 2002 or
2001.

Oil and Gas
Properties.The Company uses the
full-cost method of accounting for oil and gas exploration and
development costs. Under this method of accounting, the Company
capitalizes all costs incurred in the acquisition, exploration
and development of oil and gas properties and amortizes such
costs, together with estimated future development and
dismantlement costs, using the units-of-production method.

Costs of offshore unproved properties and
development projects are not amortized until they are fully
evaluated. Unproved oil and gas properties totaled approximately
$2.9 million at December 31, 2003. All unproved
properties are reviewed periodically to ascertain if impairment
has occurred. If the results of an

64



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

assessment indicate that the properties are
impaired, the amount of the impairment is added to the
capitalized costs to be amortized. Costs of proved oil and gas
properties that exceed the present value of estimated future net
revenues are charged to expense.

Sales of proved and unproved properties are
accounted for as adjustments of capitalized costs with no gain
or loss recognized, unless such adjustments would significantly
alter the relationship between capitalized costs and proved
reserves of oil and gas attributable to a cost center, in which
case the gain or loss is recognized in income. Abandonments of
properties are accounted for as adjustments of capitalized costs
with no loss recognized.



| |                                          
| | -----------------------------------------
| | Intersegment Turnkey Drilling
    Profits

The Company defers all turnkey drilling profit
related to wells in which Challenger Minerals Inc.
(CMI) was the operator and defers turnkey profit up
to the share of CMIs costs in properties in which CMI
holds a working interest. This turnkey profit is credited to the
Companys full cost pool of oil and gas properties and will
be recognized through a lower depletion rate as reserves are
produced.



| |         
| | --------
| | Goodwill

The Company tests goodwill and indefinite-lived
intangible assets annually for impairment (and in interim
periods if certain events occur indicating that the carrying
value of goodwill and/or indefinite-lived intangible assets may
be impaired) in accordance with the provisions of
SFAS No. 142, Goodwill and Other Intangible
Assets.

The Company has defined reporting units within
its contract drilling segment based upon economic and market
characteristics of these units. All of the goodwill recorded in
connection with the Merger (see Note 1) has been
allocated to the jackup drilling fleet reporting unit, as these
rigs were the primary source of value in the Merger discussions
and negotiations. The estimated fair value of this reporting
unit for purposes of the Companys annual goodwill
impairment testing is based upon the present value of its
estimated future net cash flows, utilizing a discount rate based
upon the Companys cost of capital. The Company has
completed its goodwill impairment testing for 2003 and was not
required to record a goodwill impairment loss.

At December 31, 2003, Goodwill in the
Companys Consolidated Balance Sheet totaled approximately
$352.1 million, substantially all of which was recorded in
connection with the Merger (see Note 1). Goodwill decreased
by $34.8 million from $386.9 million at
December 31, 2002, due primarily to the adjustment during
2003 of certain pre-Merger foreign tax contingencies.



| |                    
| | -------------------
| | Revenue Recognition

The Companys contract drilling business
provides rigs and rig crews to customers on a dayrate basis.
Dayrate contracts can be for a specified period of time or the
time required to drill a specified well or number of wells.
Revenues and expenses from dayrate drilling operations, which
are classified under contract drilling services, are recognized
on a per-day basis as the work progresses. Lump-sum fees
received as compensation for the cost of relocating drilling
rigs from one major operating area to another, whether received
up-front or upon termination of the drilling contract, are
recognized as earned, which is generally over the term of the
related drilling contract.

The Company also designs and executes specific
offshore drilling or well-completion programs for customers at
fixed prices under short-term turnkey contracts.
Revenues and expenses from turnkey contracts, which are
classified under drilling management services, are earned and
recognized upon completion of each contract.

The Company recognizes revenue from oil and gas
production at the time title transfers.

65



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The Company recognizes as revenue reimbursements
received from customers for certain out-of-pocket expenses
incurred by the Company. Reimbursable revenues have no effect on
operating income.



| |                                     
| | ------------------------------------
| | Derivative Financial
    Instruments

From time to time, the Company may make use of
derivative financial instruments to manage its exposure to
fluctuations in cash flows, interest rates or foreign currency
exchange rates. The Company accounts for its derivative
financial instruments pursuant to SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 138,
Accounting for Derivative Instruments and Hedging
Activities  an amendment of FASB Statement
No. 133, as amended by SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. Derivative instruments held by the
Company at December 31, 2003, include dayrate contracts on
two of the Companys drilling rigs that are indexed to
exchange-traded oil futures contracts, various commodity caps,
swaps and floors used to mitigate the Companys exposure to
fluctuations in the fair values of these dayrate contracts, and
certain fixed-for-floating interest rate swaps related to a
portion of the Companys long-term debt (see Note 7).



| |                              
| | -----------------------------
| | Foreign Currency Transactions

The United States dollar is the functional
currency for all of the Companys operations. Realized and
unrealized foreign currency transaction gains and losses are
recorded in income.

The Company may be exposed to the risk of foreign
currency exchange losses in connection with its foreign
operations. Such losses are the result of holding net monetary
assets (cash and receivables in excess of payables) denominated
in foreign currencies during periods of a strengthening
U.S. dollar. The Company attempts to lessen the impact of
exchange rate changes by requiring customer payments to be
primarily in U.S. dollars, by keeping foreign cash balances
at minimal levels and by not speculating in foreign currencies.



| |             
| | ------------
| | Income Taxes

The Company is a Cayman Islands company. The
Cayman Islands does not impose corporate income taxes.
Consequently, income taxes have been provided based on the tax
laws and rates in effect in the countries in which the
operations are conducted and income is earned.

The Company has not provided for deferred taxes
on the unremitted earnings of its U.S. subsidiaries and their
foreign subsidiaries (U.S. Subsidiaries) that are
permanently reinvested. Should the Company make a distribution
from the unremitted earnings of these subsidiaries, it would be
required to record additional U.S. and foreign deferred taxes.



| |                                   
| | ----------------------------------
| | Stock-Based Compensation
    Plans

The Company accounts for its stock option and
stock-based compensation plans using the intrinsic-value method
prescribed by Accounting Principles Board (APB)
Opinion No. 25. Accordingly, the Company computes
compensation cost for each employee stock option granted as the
amount by which the quoted market price of the Companys
common stock on the date of grant exceeds the amount the
employee must pay to acquire the stock. The amount of
compensation cost, if any, is charged to income over the vesting
period. No compensation cost has been recognized for options
granted under the Companys Employee Share Purchase Plan or
for any of the Companys outstanding stock options, all of
which stock options have exercise prices equal to the market
price of the stock on the date of grant. The Company does,
however, recognize compensation cost for all grants of
performance-based stock awards (see Note 8).

66



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Had compensation cost for the Companys
stock-based compensation plans been determined based on fair
values as of the dates of grant, the Companys net income
and earnings per share would have been reported as follows:

|                                                                                                                                                      |             |                           |       |      |  |      |       |      |  |   |       |      | 
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- | ---- | 
|                                                                                                                                                      |             |                          
|                                                                                                                                                      |             | Year Ended December 31,  
|                                                                                                                                                      |             |                          
|                                                                                                                                                      |             | 2003                      |       | 2002 |  | 2001
|                                                                                                                                                      |             |                           |       |      |  |     
|                                                                                                                                                      |             |                          
|                                                                                                                                                      |             | (In millions,            
|                                                                                                                                                      |             | except per share amounts)
|Net income, as reported                                                                                                                               |             | $                         | 129.4 |      |  | $    | 277.9 |      |  | $ | 198.8 |     
|Add: Stock-based employee compensation expense
    included in reported net income, net of related tax effects                                        |             |                           | 0.6   |      |  |      | 1.1   |      |  |   | 3.0   |     
|Deduct: Total stock-based employees, compensation
    expense determined under fair-value based method for all awards,
    net of related tax effects |             |                           | (39.8 | )    |  |      | (32.4 | )    |  |   | (24.7 | )   
|                                                                                                                                                      |             |                           |       |      |  |      |       |      |  |   |       |     
|Pro forma net income                                                                                                                                  |             | $                         | 90.2  |      |  | $    | 246.6 |      |  | $ | 177.1 |     
|                                                                                                                                                      |             |                           |       |      |  |      |       |      |  |   |       |     
|Basic earnings per ordinary share  as
    reported                                                                                                   |             | $                         | 0.55  |      |  | $    | 1.19  |      |  | $ | 1.52  |     
|                                                                                                                                                      |  Pro forma |                           | $     | 0.39 |  |      | $     | 1.05 |  |   | $     | 1.36 | 
|Diluted ordinary earnings per share 
    as reported                                                                                                 |             | $                         | 0.55  |      |  | $    | 1.18  |      |  | $ | 1.50  |     
|                                                                                                                                                      |  Pro forma |                           | $     | 0.38 |  |      | $     | 1.04 |  |   | $     | 1.29 | 

The pro forma figures in the preceding table may
not be representative of pro forma amounts in future years.

The weighted average per share fair value of
stock options as of the grant date was $10.81 in 2003, $15.68 in
2002 and $14.55 in 2001. The weighted average per share fair
value of the outstanding Santa Fe International stock
options at November 20, 2001 was $4.94. The value of
options granted under the Employee Share Purchase Plan was
$8.78 per share and $9.61 per share for 2003 and 2002,
respectively. The per share fair value of the Companys
performance-based stock awards as of the grant date was $23.92
in 2002 and $29.36 in 2001. The Company did not grant any
performance-based stock awards in 2003.

Estimates of fair values of stock options,
options granted under the Employee Share Purchase Plan and
performance-based stock awards on the grant dates for purposes
of calculating the pro forma data in the table above were
computed using the Black-Scholes option-pricing model based on
the following assumptions:

|                                                          |  |      |               |      |  |      |              |  |  |  |              | 
|--------------------------------------------------------- |  | ---- | ------------- | ---- |  | ---- | ------------ |  |  |  | ------------ | 
|                                                          |  | 2003 |               | 2002 |  | 2001
|                                                          |  |      |               |      |  |     
|Expected price volatility range                           |  |      | 50%           |      |  |      | 60%          |  |  |  | 49% to 60%   | 
|Risk-free interest rate range                             |  |      | 1.7% to 3.1%  |      |  |      | 2.0% to 4.5% |  |  |  | 4.2% to 5.0% | 
|Expected annual dividends                                 |  |      | $0.15  $0.20 |      |  |      | $0.13        |  |  |  | none  $0.13 | 
|Expected life of stock options                            |  |      | 4  6 years   |      |  |      | 4  6  years |  |  |  | 4  7  years | 
|Expected life of Employee Share Purchase Plan
    options |  |      | 1 year        |      |  |      | 1 year       |  |  |  | N/A          | 
|Expected life of performance-based stock awards           |  |      | N/A           |      |  |      | 3 years      |  |  |  | 3 years      | 

As of December 31, 2003, the Company changed
its assumption as to the expected lives of stock option awards
from a single award method to a tranche-based method. This
method treats an option grant as if it were a series of awards
with separate expected lives rather than a single award. Under
this method, a greater portion of pro forma compensation expense
related to an option award will be recognized in the earlier
years of the option vesting periods because the early years are
also part of the vesting period for later awards in the series.
The Company has revised its pro forma stock-based compensation
disclosures in the table above to reflect the use of this
tranche-based method.

67



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                 
| | ----------------
| | Use of Estimates

The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make certain estimates and assumptions.
These estimates and assumptions affect the carrying values of
assets and liabilities and disclosures of contingent assets and
liabilities at the balance sheet date and the amounts of
revenues and expenses recognized during the period. Actual
results could differ from such estimates.



|         |            
|-------- | -----------
|Note 3  | Investments

At December 31, 2003 and 2002, the Company
held various debt securities consisting primarily of commercial
paper, U.S. Treasury notes, money market funds and
Eurodollar time deposits with maturity dates up to
12 months that are classified as marketable securities on
the Consolidated Balance Sheets. The Company also held
approximately $70.0 million of U.S. Treasury notes
with maturities between 13 and 18 months that are included
in Other assets on the Consolidated Balance Sheets at
December 31, 2003. These debt securities have been
designated as held-to-maturity and carried at amortized cost.
The fair value of these investments approximated their carrying
value at December 31, 2003 and 2002.

In addition, the Company had other investments in
debt and equity securities classified as available-for-sale held
in connection with certain nonqualified pension plans. These
investments, which were included in Other assets at
December 31, are disclosed in the table that follows:

|                          |  |               |      |             |  |       |     |      |  |             |      |       |  |   |      |  |  |   |      |   |  |   |      | 
|------------------------- |  | ------------- | ---- | ----------- |  | ----- | --- | ---- |  | ----------- | ---- | ----- |  | - | ---- |  |  | - | ---- | - |  | - | ---- | 
|                          |  |               |      |            
|                          |  | 2003          |      | 2002       
|                          |  |               |      |            
|                          |  |               |      | Unrealized  |  | Fair  |     |      |  | Unrealized  |      | Fair 
|                          |  | Cost          |      | Gain (Loss) |  | Value |     | Cost |  | Gain (Loss) |      | Value
|                          |  |               |      |             |  |       |     |      |  |             |      |      
|                          |  |              
|                          |  | (In millions)
|Fixed-income mutual funds |  | $             | 14.1 |             |  | $     | 0.6 |      |  | $           | 14.7 |       |  | $ | 6.7  |  |  | $ |     |   |  | $ | 6.7  | 
|Equity mutual funds       |  |               | 16.8 |             |  |       | 1.6 |      |  |             | 18.4 |       |  |   | 9.0  |  |  |   | (0.3 | ) |  |   | 8.7  | 
|Balanced mutual funds     |  |               | 6.7  |             |  |       | 1.1 |      |  |             | 7.8  |       |  |   | 11.2 |  |  |   |     |   |  |   | 11.2 | 
|Other                     |  |               | 0.1  |             |  |       | 0.1 |      |  |             | 0.2  |       |  |   | 0.7  |  |  |   |     |   |  |   | 0.7  | 
|                          |  |               |      |             |  |       |     |      |  |             |      |       |  |   |      |  |  |   |      |   |  |   |      | 
|                          |  | $             | 37.7 |             |  | $     | 3.4 |      |  | $           | 41.1 |       |  | $ | 27.6 |  |  | $ | (0.3 | ) |  | $ | 27.3 | 
|                          |  |               |      |             |  |       |     |      |  |             |      |       |  |   |      |  |  |   |      |   |  |   |      | 

Realized gains and losses associated with the
sales of these securities have been immaterial for all periods
presented.



|         |               
|-------- | --------------
|Note 4  | Long-term Debt

Long-term debt as of December 31 consisted
of the following:

|                                                                                                                                                                     |                |               |       |         |  |   |       |       | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------- | ------------- | ----- | ------- |  | - | ----- | ----- | 
|                                                                                                                                                                     |                | 2003          |       | 2002   
|                                                                                                                                                                     |                |               |       |        
|                                                                                                                                                                     |                |              
|                                                                                                                                                                     |                | (In millions)
|5% Notes due 2013, net of unamortized
    discount of $0.6 million at December 31, 2003(1)                                                                           |                | $             | 254.4 |         |  | $ |      |      
|7 1/8% Notes due 2007, net of
    unamortized discount of $0.2 million at December 31,
    2003, and $0.3 million at December 31, 2002(2)                            |                |               | 301.4 |         |  |   | 301.3 |      
|7% Notes due 2028, net of unamortized
    discount of $3.1 million at December 31, 2003, and
    $3.3 million at December 31, 2002                                   |                |               | 296.9 |         |  |   | 296.7 |      
|Zero Coupon Convertible Debentures due 2020, net
    of unamortized discount of $261.3 million at
    December 31, 2003, and $272.8 million at
    December 31, 2002 |                |               | 338.7 |         |  |   | 327.2 |      
|                                                                                                                                                                     |                |               |       |         |  |   |       |      
|                                                                                                                                                                     | Long-term debt |               | $     | 1,191.4 |  |   | $     | 925.2 | 
|                                                                                                                                                                     |                |               |       |         |  |   |       |      



---



|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The balance at December 31, 2003, includes
    mark-to-market adjustments totaling $5.0 million as part of
    fair value hedge accounting related to fixed-for-floating
    interest rate swaps (see Note 7).     
|   
|(2) | Balances at both December 31, 2003 and 2002,
    include mark-to-market adjustments of $1.6 million as part
    of fair value hedge accounting related to a fixed-for-floating
    interest rate swap (see Note 7).

68



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

On February 11, 2003, the Company issued
$250 million of 5% Notes due 2013 (the
5% Notes) in a private placement and received
cash proceeds of approximately $247.4 million after
deduction for discount, underwriting fees and expenses. The
5% Notes are unsecured senior obligations of the Company
and rank equally with all other senior unsecured indebtedness of
the Company. The 5% Notes, however, have a junior position
to the claims of holders of the indebtedness and capital lease
obligations of Global Marine and its subsidiaries on Global
Marines assets and earnings. The indenture relating to the
5% Notes contains limitations on the Companys ability
to incur indebtedness for borrowed money secured by certain
liens and on its ability to engage in certain sale/leaseback
transactions. The indenture, however, does not restrict the
Companys ability to incur additional senior indebtedness.
Interest on the 5% Notes is payable on February 15 and
August 15 of each year. No principal payments are required
with respect to the 5% Notes prior to their final maturity
date.

The Company may redeem the 5% Notes in whole
or in part, at any time and from time to time, at a price equal
to 100% of the principal amount plus accrued interest to the
redemption date, plus a premium relating to the then-prevailing
Treasury Yield and the remaining life of the notes.

The Zero Coupon Convertible debentures were
issued at a price of $499.60 per debenture, which
represents a yield to maturity of 3.5% per annum to reach
an accreted value at maturity of $1,000 per debenture. The
Company has the right to redeem the debentures in whole or in
part on or after June 23, 2005, at a price equal to the
issuance price plus accrued original issue discount through the
date of redemption. Each debenture is convertible into 8.125103
GlobalSantaFe ordinary shares (4,875,062 total shares) at the
option of the holder at any time prior to maturity, unless
previously redeemed. Holders have the right to require the
Company to repurchase the debentures on June 23, 2005,
June 23, 2010, and June 23, 2015, at a price per
debenture of $594.25 on June 23, 2005, $706.82 per
debenture on June 23, 2010, and $840.73 per debenture
on June 23, 2015. These prices represent the accreted value
through the date of repurchase. The Company may pay the
repurchase price with either cash or shares or a combination
thereof. The Company does not anticipate using stock to satisfy
any such future repurchase obligation.

No principal payments are required with respect
to either the 7 1/8% Notes or the 7% Notes prior
to their final maturity date. The Company may redeem the
7 1/8% Notes and the 7% Notes in whole at any
time, or in part from time to time, at a price equal to 100% of
the principal amount thereof plus accrued interest, if any, to
the date of redemption, plus a premium, if any, relating to the
then-prevailing Treasury Yield and the remaining life of the
notes.

The indentures relating to the Zero Coupon
Convertible Debentures, the 7 1/8% Notes and
7% Notes contain limitations on Global Marines
ability to incur indebtedness for borrowed money secured by
certain liens and to engage in certain sale/leaseback
transactions. The Zero Coupon Convertible Debentures,
7 1/8% Notes and 7% Notes continue to be
obligations solely of Global Marine and the Company has not
guaranteed any of these obligations. The Company is the sole
obligor under the 5% Notes.



|         |                              
|-------- | -----------------------------
|Note 5  | Commitments and Contingencies

At December 31, 2003, the Company had office
space and equipment under operating leases with remaining terms
ranging from approximately one to 10 years. Certain of the
leases may be renewed at the Companys option, and some are
subject to rent revisions based on the Consumer Price Index or
increases in building operating costs. In addition, at
December 31, 2003, the Britannia cantilevered jackup
and the Glomar Explorerdrillship were held under capital
lease through 2007 and 2026, respectively. Total rent expense
was $79.8 million for 2003, $73.9 million for 2002,
and $116.9 million for 2001. Included in rent expense was
the rental of offshore drilling rigs used in the Companys
turnkey operations totaling $60.6 million for 2003,
$55.0 million for 2002, and $109.9 million for 2001.

69



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Future minimum rental payments with respect to
the Companys lease obligations as of December 31,
2003, were as follows:

|                                                                         |             |               |       |           |  |   |      |      | 
|------------------------------------------------------------------------ | ----------- | ------------- | ----- | --------- |  | - | ---- | ---- | 
|                                                                         |             | Capital       |       | Operating
|                                                                         |             | Leases        |       | Leases   
|                                                                         |             |               |       |          
|                                                                         |             |              
|                                                                         |             | (In millions)
|Year ended December 31:                                                  |             |               |       |           |  |   |      |     
|                                                                         | 2004        |               | $     | 9.8       |  |   | $    | 12.9 | 
|                                                                         | 2005        |               |       | 9.8       |  |   |      | 11.2 | 
|                                                                         | 2006        |               |       | 9.8       |  |   |      | 7.5  | 
|                                                                         | 2007        |               |       | 9.8       |  |   |      | 6.1  | 
|                                                                         | 2008        |               |       | 1.8       |  |   |      | 6.0  | 
|                                                                         | Later years |               |       | 31.6      |  |   |      | 10.7 | 
|                                                                         |             |               |       |           |  |   |      |     
|Total future minimum rental payments                                     |             |               | 72.6  |           |  | $ | 54.4 |     
|                                                                         |             |               |       |           |  |   |      |     
|Less amount representing imputed interest                                |             |               | (23.3 | )         |  |   |      |     
|                                                                         |             |               |       |           |  |   |      |     
|Present value of future minimum rental payments
    under capital leases |             |               | 49.3  |           |  |   |      |     
|Less current portion included in accrued
    liabilities                 |             |               | (9.8  | )         |  |   |      |     
|                                                                         |             |               |       |           |  |   |      |     
|Long-term capital lease obligations                                      |             | $             | 39.5  |           |  |   |      |     
|                                                                         |             |               |       |           |  |   |      |     

As of December 31, 2003, the Company had
operating leases in place for Santa Fe Internationals
offices in Dallas, Texas and Aberdeen, Scotland, and Global
Marines office in Lafayette, Louisiana, which have been
closed as part of the restructuring program described in
Note 1. These costs are included in the table above. Costs
associated with the closure of Santa Fe
Internationals offices in Dallas and Aberdeen totaling
approximately $11.5 million were recognized as a liability
assumed in the Merger and included in the cost of acquisition in
accordance with SFAS No. 141, Business
Combinations. Estimated costs related to the closure of
Global Marines Lafayette office along with the
consolidation of the Companys offices in Aberdeen and
Houston totaling approximately $4.3 million were accrued as
part of Restructuring costs in the consolidated financial
statements for the year ended December 31, 2001. These
estimated costs assumed that Global Marines Houston office
would be subleased to a third party. The Company, however, has
not yet entered into such a transaction. Consequently, the
Company revised its original estimate of closure costs
associated with Global Marines former office space to
$11.2 million, which represents the Companys entire
liability under the lease.

In January 2003, the Company entered into a
lease-leaseback arrangement with a European bank related to the
Companys Britanniacantilevered jackup. Pursuant to
this arrangement, the Company leased the Britanniato the
bank for a five-year term for a lump-sum payment of
approximately $37 million, net of origination fees of
approximately $1.5 million. The bank then leased the rig
back to the Company for a five-year term with an effective
annual interest rate based on the 3-month British Pound Sterling
LIBOR plus a margin of 0.625%, under which the Company makes
annual lease payments of approximately $8.0 million,
payable in advance. The Company has classified this arrangement
as a capital lease.

In March 2002, the Company entered into a
sublease agreement with BP America Inc. for the Companys
current executive offices located at 15375 Memorial Drive,
Houston, Texas. This sublease expires in September 2009. Lease
payments pursuant to this sublease total $2.3 million per
year. In July 2002, the Company also entered into an 11-year
lease for the Companys Aberdeen, Scotland, office.
Payments pursuant to this lease total £597,000
(approximately $1 million) per year. Payments under this
lease may be adjusted every five years beginning in February
2004, subject to a maximum of £650,000 per year.

70



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                    
| | -------------------
| | Capital Commitments

The Company currently has contracts with PPL
Shipyard PTE, Ltd. of Singapore (PPL) for
construction of two ultra-deepwater semisubmersibles and one
high-performance cantilevered jackup, with options for two
additional similarly priced semisubmersibles. In June 2003, the
Company took delivery of the GSF Constellation I,
the first of two high-performance cantilevered jackups ordered
from PPL, at a total cost of $133 million, excluding
capitalized interest, capital spares, startup expenses and
mobilization costs. Contractual obligations in connection with
the remaining high-performance cantilevered jackup, the GSF
Constellation II, excluding capitalized interest,
capital spares, startup expenses and mobilization costs, are
also expected to total approximately $133 million, of which
$118 million had been incurred as of December 31,
2003. Contractual obligations in connection with the two
ultra-deepwater semisubmersibles, excluding capitalized
interest, capital spares, startup expenses and mobilization
costs, are expected to total approximately $570 million, or
an average of $285 million per rig. Of the
$570 million, $436 million had been incurred as of
December 31, 2003.

CMI currently holds a 16% working interest in a
development project in the North Sea. CMIs portion of the
development costs of this project is expected to total
approximately £14.7 million ($25.0 million). Of
the $25.0 million, approximately $10.1 million had
been incurred as of December 31, 2003.



| |                  
| | -----------------
| | Legal Proceedings

The Company and two of its subsidiaries are
defendants in a lawsuit filed on July 28, 2003, by
Transocean Inc. (Transocean) in the United States
District Court for the Southern District of Texas, Houston
Division. The lawsuit alleges that the dual drilling structure
and method utilized by the Companys two ultra-deepwater
semisubmersibles under construction in Singapore infringe on
United States patents granted to Transocean. The lawsuit seeks
damages, royalties and attorneys fees, together with an
injunction that would prevent the use of the dual drilling
capabilities of the rigs. The Company believes that the lawsuit
is without merit and intends to vigorously defend it. The trial
of this lawsuit has been scheduled for December 2005. The
Company does not expect that the matter will have a material
adverse effect on the Companys business or financial
position, results of operations or cash flows.

A subsidiary of the Company filed suit in
February 2004 against its insurance underwriters in the Superior
Court of San Francisco County, California, seeking a declaration
as to its rights to insurance coverage and the proper allocation
among its insurers of liability for claims payments in order to
assist in the future management and disposition of certain
claims described below. The subsidiary is continuing to receive
payment from its insurers for claim settlements and legal costs,
and expects to continue to receive such payments during the
pendency of this action.

The insurance coverage in question relates to
lawsuits filed against the subsidiary arising out of its
involvement in the design, construction and refurbishment of
major industrial complexes. The operating assets of the
subsidiary were sold and its operations discontinued in 1989,
and the subsidiary has no remaining assets other than the
insurance policies involved in the litigation. The subsidiary
has been named as a defendant, along with numerous other
companies, in lawsuits alleging personal injury as a result of
exposure to asbestos. To date, the subsidiary has been named as
a defendant in approximately 2,700 lawsuits, the first of which
was filed in 1990. Of the 2,700 lawsuits, approximately 1,700
have been resolved, with approximately 1,000 currently pending.
Over the course of the past fourteen years approximately $18.5
million has been expended to settle these claims with the
subsidiary having expended $3.4 million of that amount due to
insurance deductible obligations, all of which have now been
satisfied. Insurers have funded the balance of the settlement
costs and all legal costs associated therewith. The subsidiary
has in excess of $1 billion in insurance limits that it
believes will be available to cover future claims. The Company
does not believe that these claims will have any material impact
on the Companys consolidated financial position, results
of operations or cash flows.

71



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                      
| | ---------------------
| | Environmental Matters

The Company has certain potential liabilities
under the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) and similar state acts
regulating cleanup of various hazardous waste disposal sites,
including those described below. CERCLA is intended to expedite
the remediation of hazardous substances without regard to fault.
Potentially responsible parties (PRPs) for each site
include present and former owners and operators of, transporters
to and generators of the substances at the site. Liability is
strict and can be joint and several.

The Company has been named as a PRP in connection
with a site located in Santa Fe Springs, California, known
as the Waste Disposal, Inc. site. The Company and other
PRPs have agreed with the U.S. Environmental Protection
Agency (EPA) and the U.S. Department of Justice
(DOJ) to settle their potential liabilities for this
site by agreeing to perform the remaining remediation required
by the EPA. The form of the agreement is a consent decree, which
has now been entered by the court. The parties to the settlement
have entered into a participation agreement, which makes the
Company liable for an estimated 7.7% of the remediation costs.
Although the remediation costs cannot be determined with
certainty until the remediation is complete, the Company expects
that its share of the remaining remediation costs will not
exceed approximately $800,000. There are additional potential
liabilities related to the site, but these cannot be quantified,
and the Company has no reason at this time to believe that they
will be material.

The Company has also been named as a PRP in
connection with a site in California known as the Casmalia
Resources Site. The Company and other PRPs have entered into an
agreement with the EPA and the DOJ to resolve their potential
liabilities. Under the settlement, the Company is not likely to
owe any substantial additional amounts for this site beyond what
the Company has already paid. There are additional potential
liabilities related to this site, but these cannot be quantified
at this time, and the Company has no reason at this time to
believe that they will be material.

The Company has been named as one of many PRPs in
connection with a site located in Carson, California, formerly
maintained by Cal Compact Landfill. On February 15, 2002,
the Company was served with a required 90-day notification that
eight California cities, on behalf of themselves and other PRPs,
intend to commence an action against the Company under the
Resource Conservation and Recovery Act (RCRA). On
April 1, 2002, a complaint was filed by the cities against
the Company and others alleging that they have liabilities in
connection with the site. However, the complaint has not been
served. The site was closed in or around 1965, and the Company
does not have sufficient information to enable it to assess its
potential liability, if any, for this site.

Resolutions of other claims by the EPA, the
involved state agency and/or PRPs are at various stages of
investigation. These investigations involve determinations of:



| |   |                                                                                        
| | - | ---------------------------------------------------------------------------------------
| |  | the actual responsibility attributed to the
    Company and the other PRPs at the site;
|
| |  | appropriate investigatory and/or remedial
    actions; and                             
|
| |  | allocation of the costs of such activities among
    the PRPs and other site users.    

The Companys ultimate financial
responsibility in connection with those sites may depend on many
factors, including:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | the volume and nature of material, if any,
    contributed to the site for which the Company is responsible;
|
| |  | the numbers of other PRPs and their financial
    viability; and                                            
|
| |  | the remediation methods and technology to be used.                                                          

It is difficult to quantify with certainty the
potential cost of these environmental matters, particularly in
respect of remediation obligations. Nevertheless, based upon the
information currently available, the

72



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Company believes that its ultimate liability
arising from all environmental matters, including the liability
for all other related pending legal proceedings, asserted legal
claims and known potential legal claims which are likely to be
asserted, is adequately accrued and should not have a material
effect on the Companys financial position or ongoing
results of operations. Estimated costs of future expenditures
for environmental remediation obligations are not discounted to
their present value.



| |                                          
| | -----------------------------------------
| | Contingencies and Other Legal
    Matters

In 1998, the Company entered into fixed-price
contracts for the construction of two dynamically positioned,
ultra-deepwater drillships, the Glomar C.R. Luigs and the
Glomar Jack Ryan, which began operating in April and
December 2000, respectively. Pursuant to two 20-year capital
lease agreements, the Company subsequently novated the
construction contracts for the drillships to two financial
institutions (the Lessors), which now own the
drillships and lease them to the Company. The Company has
deposited with three large foreign banks (the Payment
Banks) amounts equal to the progress payments that the
Lessors were required to make under the construction contracts,
less a lease benefit of approximately $62 million (the
Defeasance Payment). In exchange for the deposits,
the Payment Banks have assumed liability for making rental
payments required under the leases and the Lessors have legally
released the Company as the primary obligor of such rental
payments. Accordingly, the Company has recorded no capital lease
obligations on its balance sheet with respect to the two
drillships.

The Company has interest rate risk in connection
with these fully defeased financing leases for the Glomar
Jack Ryanand Glomar C. R. Luigs. The Defeasance
Payment earns interest based on the British Pound Sterling
three-month LIBOR, which approximated 8.00% at the time of the
agreement. Should the Defeasance Payment earn less than the
assumed 8.00% rate of interest, the Company will be required to
make additional payments as necessary to augment the annual
payments made by the Payment Banks pursuant to the agreements.
If the December 31, 2003, LIBOR rate of 4.04% were to
continue over the next nine years, the Company would be required
to fund an additional estimated $57 million during that
period. Any additional payments made by the Company pursuant to
the financing leases would increase the carrying value of its
leasehold interest in the rigs and therefore be reflected in
higher depreciation expense over their then-remaining useful
lives. The Company does not expect that, if required, any
additional payments made under these leases would be material to
its financial position, results of operations or cash flows in
any given year.

The Company and its subsidiaries are defendants
or otherwise involved in a number of lawsuits in the ordinary
course of business. In the opinion of management, the
Companys ultimate liability with respect to these pending
lawsuits is not expected to have a material adverse effect on
its consolidated financial position, results of operations or
cash flows.



|         |                                     
|-------- | ------------------------------------
|Note 6  | Accumulated Other Comprehensive Loss

The components of the Companys accumulated
other comprehensive loss were as follows:

|                             |  |                      |      |                       |  |                   |       |   |  |   |       |  
|---------------------------- |  | -------------------- | ---- | --------------------- |  | ----------------- | ----- | - |  | - | ----- | -
|                             |  |                      |      | Minimum Pension       |  |                  
|                             |  |                      |      | Liability Adjustment, |  | Accumulated Other
|                             |  | Unrealized Gain      |      | Net of Tax (In        |  | Comprehensive    
|                             |  | (Loss) on Securities |      | millions)             |  | Loss             
|                             |  |                      |      |                       |  |                  
|Balance at December 31, 2001 |  | $                    | (0.8 | )                     |  | $                 | (13.6 | ) |  | $ | (14.4 | )
|Net change for the year      |  |                      | 0.5  |                       |  |                   | (26.7 | ) |  |   | (26.2 | )
|                             |  |                      |      |                       |  |                   |       |   |  |   |       |  
|Balance at December 31, 2002 |  |                      | (0.3 | )                     |  |                   | (40.3 | ) |  |   | (40.6 | )
|Net change for the year      |  |                      | 3.7  |                       |  |                   | (7.7  | ) |  |   | (4.0  | )
|                             |  |                      |      |                       |  |                   |       |   |  |   |       |  
|Balance at December 31, 2003 |  | $                    | 3.4  |                       |  | $                 | (48.0 | ) |  | $ | (44.6 | )
|                             |  |                      |      |                       |  |                   |       |   |  |   |       |  

73



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The minimum pension liability adjustments in the
table above are shown net of tax benefits of $2.1 million
and $14.8 million in 2003 and 2002, respectively. The tax
effect of the unrealized holding gains and losses was immaterial
for all periods presented.



|         |                                                                              
|-------- | -----------------------------------------------------------------------------
|Note 7  | Derivative Financial Instruments and Fair
    Values of Financial Instruments



| |                       
| | ----------------------
| | Derivative Instruments

Two of the Companys cantilevered jackup
rigs are currently operating under similar dayrate contracts
that expose the Company to commodity price risk. These two-year
agreements, expiring in May 2004 and October 2004, respectively,
each contain a variable-dayrate formula linked to crude oil
prices, whereby dayrates earned under these contracts increase
or decrease in response to increases or decreases in oil prices.
Dayrates under these agreements are calculated using a sliding
scale formula based on the arithmetic average of the daily
closing price of Light Sweet Crude on the New York
Mercantile Exchange (NYMEX), subject to a maximum of
$28.00 per barrel and a minimum of $12.00 per barrel.

The variable-dayrate formula contained in these
agreements is comprised of multiple embedded derivative
financial instruments as defined in SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities. The fair values of these embedded derivatives
fluctuate in response to changes in oil prices. The net fair
values, based upon market price, of the embedded derivatives in
each of these contracts were assets of approximately
$2.2 million and $3.4 million, respectively, at
December 31, 2003, or $5.6 million in the aggregate.

As part of the Companys overall risk
management strategy, the Company has entered into a number of
commodity caps, swaps and floors designed to mitigate its
exposure to fluctuations in fair values of the embedded
derivatives in these contracts resulting from changes in oil
prices. The fair values of these derivative financial
instruments represented a total liability of $5.6 million
at December 31, 2003.

These embedded derivative financial instruments
and related commodity caps, swaps and floors have not been
designated as hedges. Accordingly, all changes in the fair
values of these instruments are recognized currently in earnings.

The Company manages its fair value risk related
to its long-term debt by using interest rate swaps to convert a
portion of its fixed-rate debt into variable-rate debt. Under
these interest rate swaps, the Company agrees with other parties
to exchange, at specified intervals, the difference between the
fixed-rate and floating-rate amounts, calculated by reference to
an agreed-upon notional amount.

In October 2002, the Company entered into a
fixed-for-floating interest rate swap with a notional amount of
$50 million, effective October 2002 through September 2007.
This interest rate swap is intended to manage a portion of the
fair value risk related to the Companys
7 1/8% Notes. Under the terms of this swap, the
Company has agreed to pay the counterparty an interest rate
equal to the six-month LIBOR rate plus 330 basis points on
the notional amount, and the Company will receive the fixed
7 1/8% rate. The estimated fair value of this swap was an
asset of approximately $1.6 million at both
December 31, 2003 and 2002. The Company has designated this
swap as a fair value hedge of a portion of the
7 1/8% Notes.

In August 2003, the Company entered into
fixed-for-floating interest rate swaps with an aggregate
notional amount of $100 million, effective August 2003
through February 2013. These interest rate swaps are intended to
manage a portion of the fair value risk related to the
Companys 5% Notes. Under the terms of these swaps,
the Company has agreed to pay the counterparties an interest
rate equal to the six-month LIBOR rate less 0.247% to 0.40% on
the notional amounts and the Company will receive the fixed
5.00% rate. The estimated aggregate fair value of these swaps at
December 31, 2003, was an asset of $5.0 million. The
Company has designated these swaps as fair value hedges of a
portion of the 5% Notes.

74



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                                         
| | ----------------------------------------
| | Fair Values of Financial
    Instruments

The estimated fair value of the Companys
$300 million principal amount 7 1/8% Notes due
2007, based on quoted market prices, was $339.2 million at
December 31, 2003, compared to the carrying amount of
$301.4 million. The estimated fair value of the
Companys $300 million principal amount 7% Notes
due 2028, based on quoted market prices, was $331.5 million
at December 31, 2003, compared to the carrying amount of
$296.9 million. The estimated fair value of the
Companys $600 million Zero Coupon Convertible
Debentures due 2020, based on quoted market prices, was
$344.3 million at December 31, 2003, compared to the
carrying amount of $338.7 million. The estimated fair value
of the Companys $250 million principal amount
5% Notes due 2013, based on quoted market prices, was
$250.6 million at December 31, 2003, compared to the
carrying amount of $254.4 million.

The fair values of the Companys cash
equivalents, marketable securities, trade receivables, and trade
payables approximated their carrying values due to the
short-term nature of these instruments (see Note 3).



| |                              
| | -----------------------------
| | Concentrations of Credit Risk

The market for the Companys services and
products is the offshore oil and gas industry, and the
Companys customers consist primarily of major integrated
international oil companies and independent oil and gas
producers. The Company performs ongoing credit evaluations of
its customers and has not historically required material
collateral. The Company maintains reserves for potential credit
losses, and such losses have been within managements
expectations.

The Companys cash deposits were distributed
among various banks in the areas of the Companys
operations throughout the world as of December 31, 2003. In
addition, the Company had commercial paper, U.S. Treasury
notes, money-market funds and Eurodollar time deposits with a
variety of financial institutions. As a result, the Company
believes that credit risk in such instruments is minimal.



|         |                               
|-------- | ------------------------------
|Note 8  | Stock-Based Compensation Plans

The Company has stock-based compensation plans
under which it may grant shares of the Companys ordinary
shares or options to purchase a fixed number of shares. Stock
options and performance-based stock awards granted under the
Companys various stock-based compensation plans vest over
two to four years. Stock options expire ten years after the
grant date.

As a result of the Merger, all options to
purchase Global Marine stock outstanding as of November 20,
2001, the effective date of the Merger, became immediately
exercisable and were converted into options to purchase
GlobalSantaFe Ordinary Shares. All options to purchase
Santa Fe International ordinary shares that were
outstanding as of the Merger date also became immediately
exercisable pursuant to the terms of the merger agreement.

At December 31, 2003, there were a total of
4,498,535 shares available for future grants under the
Companys various stock-based compensation plans, including
1,076,586 shares reserved for issuance under the
Companys Employee Share Purchase Plan discussed below.

75



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |              
| | -------------
| | Stock Options

A summary of the status of stock options granted,
as adjusted for the conversion ratio as outlined in the merger
agreement (see Note 1), is presented below:

|                                         |                                |              |            |                  |   |   |       |       | 
|---------------------------------------- | ------------------------------ | ------------ | ---------- | ---------------- | - | - | ----- | ----- | 
|                                         |                                | Number Of    |            |                 
|                                         |                                | Shares Under |            | Weighted Average
|                                         |                                | Option       |            | Exercise Price  
|                                         |                                |              |            |                 
|Shares under option at December 31, 2000 |                                |              | 6,915,236  |                  |   | $ | 23.10 |      
|                                         | Granted                        |              |            | 2,861,668        |   |   | $     | 34.79 | 
|                                         | Exercised                      |              |            | (469,898         | ) |   | $     | 16.35 | 
|                                         | Santa Fe International options |              |            | 5,192,171        |   |   | $     | 25.20 | 
|                                         | Canceled                       |              |            | (88,713          | ) |   | $     | 32.37 | 
|                                         |                                |              |            |                  |   |   |       |      
|Shares under option at December 31, 2001 |                                |              | 14,410,464 |                  |   | $ | 26.34 |      
|                                         | Granted                        |              |            | 4,401,550        |   |   | $     | 29.69 | 
|                                         | Exercised                      |              |            | (1,684,807       | ) |   | $     | 14.66 | 
|                                         | Canceled                       |              |            | (387,539         | ) |   | $     | 32.34 | 
|                                         |                                |              |            |                  |   |   |       |      
|Shares under option at December 31, 2002 |                                |              | 16,739,668 |                  |   | $ | 28.25 |      
|                                         | Granted                        |              |            | 3,669,200        |   |   | $     | 24.49 | 
|                                         | Exercised                      |              |            | (374,160         | ) |   | $     | 12.26 | 
|                                         | Canceled                       |              |            | (889,834         | ) |   | $     | 28.47 | 
|                                         |                                |              |            |                  |   |   |       |      
|Shares under option at December 31, 2003 |                                |              | 19,144,874 |                  |   | $ | 27.76 |      
|                                         |                                |              |            |                  |   |   |       |      
|Options exercisable at December 31, 2001 |                                |              | 13,410,464 |                  |   | $ | 26.74 |      
|                                         | 2002                           |              |            | 11,490,568       |   |   | $     | 28.32 | 
|                                         | 2003                           |              |            | 12,709,808       |   |   | $     | 28.49 | 

All stock options granted in 2001 through 2003
had exercise prices equal to or greater than the market price of
the Companys ordinary shares on the date of grant.

The weighted average per share fair value of
options as of the grant date was $10.81 in 2003, $15.68 in 2002
and $14.55 in 2001. The weighted average per share fair value of
the outstanding Santa Fe International options at
November 20, 2001 was $4.94.

The following table summarizes information with
respect to stock options outstanding at December 31, 2003:

|                         |  |                     |            |                     |  |          |      |             |  |          |       |  |  |  |            |  |  |   |       | 
|------------------------ |  | ------------------- | ---------- | ------------------- |  | -------- | ---- | ----------- |  | -------- | ----- |  |  |  | ---------- |  |  | - | ----- | 
|                         |  |                     |            |                    
|                         |  | Options Outstanding |            | Options Exercisable
|                         |  |                     |            |                    
|                         |  |                     |            | Weighted            |  | Weighted |      |             |  | Weighted
|                         |  | Number              |            | Average             |  | Average  |      | Number      |  | Average 
|                         |  | Outstanding         |            | Remaining           |  | Exercise |      | Exercisable |  | Exercise
|Range of Exercise Prices |  | at 12/31/03         |            | Contractual Life    |  | Price    |      | at 12/31/03 |  | Price   
|                         |  |                     |            |                     |  |          |      |             |  |         
|$5.45 to $12.25          |  |                     | 2,275,667  |                     |  |          | 4.30 |             |  | $        | 10.83 |  |  |  | 2,275,667  |  |  | $ | 10.83 | 
|$14.00 to $20.90         |  |                     | 1,285,027  |                     |  |          | 6.86 |             |  | $        | 19.76 |  |  |  | 884,677    |  |  | $ | 19.25 | 
|$20.94 to $25.02         |  |                     | 4,796,075  |                     |  |          | 8.30 |             |  | $        | 23.66 |  |  |  | 1,257,161  |  |  | $ | 21.29 | 
|$25.25 to $29.50         |  |                     | 1,713,044  |                     |  |          | 6.11 |             |  | $        | 28.78 |  |  |  | 1,604,524  |  |  | $ | 28.92 | 
|$29.85 to $43.23         |  |                     | 6,945,400  |                     |  |          | 7.04 |             |  | $        | 32.04 |  |  |  | 4,558,118  |  |  | $ | 33.14 | 
|$44.29 to $51.41         |  |                     | 2,129,661  |                     |  |          | 6.39 |             |  | $        | 45.16 |  |  |  | 2,129,661  |  |  | $ | 45.16 | 
|                         |  |                     |            |                     |  |          |      |             |  |          |       |  |  |  |            |  |  |   |       | 
|                         |  |                     | 19,144,874 |                     |  |          | 6.86 |             |  | $        | 27.76 |  |  |  | 12,709,808 |  |  | $ | 28.49 | 
|                         |  |                     |            |                     |  |          |      |             |  |          |       |  |  |  |            |  |  |   |       | 

76



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                             
| | ----------------------------
| | Employee Share Purchase Plan

On May 6, 2003, the Companys
shareholders approved an amendment and restatement to the
GlobalSantaFe Corporation 1997 Employee Share Purchase Plan
(the 1997 Plan) to increase the authorized shares
from 1,145,000 to 2,145,000 and rename the 1997 Plan the
GlobalSantaFe Employee Share Purchase Plan (the Share
Purchase Plan). In December 2003, the Company filed a
registration statement on Form S-8 with the Securities and
Exchange Commission to register an additional 1,000,000 of the
Companys ordinary shares for offering and sale under the
Share Purchase Plan.

The Share Purchase Plan 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. Generally speaking,
substantially all covered employees 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 no greater than 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 the 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. The Company granted options to purchase a total of 250,900
ordinary shares and 263,713 ordinary shares under the Share
Purchase Plan in 2003 and 2002, respectively. The fair value of
options granted under the Share Purchase Plan as of the grant
date was $8.78 per share for 2003 and $9.61 per share
for 2002.



| |                                   
| | ----------------------------------
| | Performance-Based Stock
    Awards

From time to time, the Company offers ordinary
shares to certain key employees at nominal or no cost to the
employee. Under the Companys current plan, which covers
grants made in 2002 in the table below, the exact number of
shares that each employee received was dependent on Company
performance over a one-year period as measured against
performance goals with respect to operating performance and cash
flow, among other measures. The performance period applicable to
each offer ended on December 31 of the year of the grant,
and the shares received by participants on that date were then
restricted for an additional three-year vesting period, subject
to acceleration upon the occurrence of certain events. Data for
2001 represents shares granted under the Global Marine plan. The
Company did not grant any performance-based stock awards in
2003. A summary of the status of performance-based stock awards
is presented in the table that follows:

|                                                 |          |      |         |        |   |      |         |         |  |   |         |          |  
|------------------------------------------------ | -------- | ---- | ------- | ------ | - | ---- | ------- | ------- |  | - | ------- | -------- | -
|                                                 |          | 2003 |         | 2002   |   | 2001
|                                                 |          |      |         |        |   |     
|Number of contingent shares at beginning of year |          |      | 148,752 |        |   |      |        |         |  |   | 286,873 |         
|                                                 | Granted  |      |         |       |   |      |         | 148,752 |  |   |         | 142,975  |  
|                                                 | Issued   |      |         | (1,236 | ) |      |         |        |  |   |         | (300,856 | )
|                                                 | Canceled |      |         | (7,664 | ) |      |         |        |  |   |         | (128,992 | )
|                                                 |          |      |         |        |   |      |         |         |  |   |         |         
|Number of contingent shares at end of year       |          |      | 139,852 |        |   |      | 148,752 |         |  |   |        |         
|                                                 |          |      |         |        |   |      |         |         |  |   |         |         
|Shares vested at December 31                     |          |      |        |        |   |      |        |         |  |   |        |         
|Fair value at grant date                         |          |      | N/A     |        |   | $    | 23.92   |         |  | $ | 29.36   |         

The amount of compensation cost included in
expense for the Companys performance-based stock awards
was $0.7 million, $1.3 million and $4.6 million
in 2003, 2002 and 2001, respectively.

77



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|         |                 
|-------- | ----------------
|Note 9  | Retirement Plans

Pensions

The Company has defined benefit pension plans in
the United States and the United Kingdom covering all of its
U.S. employees and a portion of its
non-U.S. employees. The Companys U.S. qualified plans
are subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). The Companys
qualified plans are also designed and operated to be in
compliance with the applicable requirements of the respective
U.S. and U.K. tax codes for qualified plans and, as such, are
not subject to income taxes. For the most part, benefits are
based on the employees length of service and average
earnings for the highest consecutive 60 months of
compensation during the last ten years of service. Substantially
all benefits are paid from funds previously provided to
trustees. The Company is the sole contributor to the plans, with
the exception of one of the Companys plans in the U.K.,
and its funding objective is to fund participants benefits
under the plans as they accrue.

The Company uses a December 31 measurement
date for its pension and postretirement benefit plans. The
following table shows the changes in the projected benefit
obligation and assets for all pension plans for the year ended
December 31 and a reconciliation of the plans funded
status at year-end.

|                                        |                                                   |                                             |   |                   |       |            |   |            |       |  |   |       |       |  |   |       |      | 
|--------------------------------------- | ------------------------------------------------- | ------------------------------------------- | - | ----------------- | ----- | ---------- | - | ---------- | ----- |  | - | ----- | ----- |  | - | ----- | ---- | 
|                                        |                                                   |                                             |   |                  
|                                        |                                                   | December 31, 2003                           |   | December 31, 2002
|                                        |                                                   |                                             |   |                  
|                                        |                                                   | U.S. Plans                                  |   | U.K. Plans        |       | U.S. Plans |   | U.K. Plans
|                                        |                                                   |                                             |   |                   |       |            |   |           
|Change in projected benefit obligation: |                                                   |                                             |   |                   |       |            |   |            |       |  |   |       |       |  |   |      
|                                        | Projected benefit obligation at beginning of year |                                             | $ | 264.6             |       |            | $ | 74.2       |       |  | $ | 203.5 |       |  | $ | 49.3  |     
|                                        | Service cost                                      |                                             |   | 10.5              |       |            |   | 9.9        |       |  |   | 9.1   |       |  |   | 4.6   |     
|                                        | Interest cost                                     |                                             |   | 18.4              |       |            |   | 5.1        |       |  |   | 16.1  |       |  |   | 4.2   |     
|                                        | Employee contributions                            |                                             |   |                  |       |            |   | 3.1        |       |  |   |      |       |  |   | 2.2   |     
|                                        | Plan amendments                                   |                                             |   | 4.4               |       |            |   |           |       |  |   | 18.8  |       |  |   |      |     
|                                        | Settlement loss                                   |                                             |   |                  |       |            |   |           |       |  |   | 0.1   |       |  |   |      |     
|                                        | Special termination benefits                      |                                             |   | 0.4               |       |            |   |           |       |  |   | 3.8   |       |  |   |      |     
|                                        | Actuarial loss                                    |                                             |   | 30.3              |       |            |   | 35.3       |       |  |   | 32.1  |       |  |   | 1.5   |     
|                                        | Exchange rate fluctuations                        |                                             |   |                  |       |            |   | 9.1        |       |  |   |      |       |  |   | 12.8  |     
|                                        | Benefits paid                                     |                                             |   | (16.6             | )     |            |   | (0.9       | )     |  |   | (18.9 | )     |  |   | (0.4  | )   
|                                        |                                                   |                                             |   |                   |       |            |   |            |       |  |   |       |       |  |   |      
|                                        |                                                   | Projected benefit obligation at end of year |   | $                 | 312.0 |            |   | $          | 135.8 |  |   | $     | 264.6 |  |   | $     | 74.2 | 
|                                        |                                                   |                                             |   |                   |       |            |   |            |       |  |   |       |       |  |   |      
|Change in plan assets:                  |                                                   |                                             |   |                   |       |            |   |            |       |  |   |       |       |  |   |      
|                                        | Fair value of plan assets at beginning of year    |                                             | $ | 142.5             |       |            | $ | 52.0       |       |  | $ | 156.7 |       |  | $ | 42.4  |     
|                                        | Actual return on plan assets                      |                                             |   | 36.1              |       |            |   | 11.6       |       |  |   | (21.3 | )     |  |   | (11.0 | )   
|                                        | Employer contributions                            |                                             |   | 26.9              |       |            |   | 9.3        |       |  |   | 26.0  |       |  |   | 7.6   |     
|                                        | Employee contributions                            |                                             |   |                  |       |            |   | 3.1        |       |  |   |      |       |  |   | 2.2   |     
|                                        | Exchange rate fluctuations                        |                                             |   |                  |       |            |   | 7.5        |       |  |   |      |       |  |   | 11.2  |     
|                                        | Benefits paid                                     |                                             |   | (16.6             | )     |            |   | (0.9       | )     |  |   | (18.9 | )     |  |   | (0.4  | )   
|                                        |                                                   |                                             |   |                   |       |            |   |            |       |  |   |       |       |  |   |      
|                                        |                                                   | Fair value of plan assets at end of year    |   | $                 | 188.9 |            |   |            | 82.6  |  |   | $     | 142.5 |  |   | $     | 52.0 | 
|                                        |                                                   |                                             |   |                   |       |            |   |            |       |  |   |       |       |  |   |      

78



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                                                      |                                      |                       |   |                   |       |            |   |            |      |   |   |        |       |   |   |       |      |  
|--------------------------------------------------------------------- | ------------------------------------ | --------------------- | - | ----------------- | ----- | ---------- | - | ---------- | ---- | - | - | ------ | ----- | - | - | ----- | ---- | -
|                                                                      |                                      |                       |   |                  
|                                                                      |                                      | December 31, 2003     |   | December 31, 2002
|                                                                      |                                      |                       |   |                  
|                                                                      |                                      | U.S. Plans            |   | U.K. Plans        |       | U.S. Plans |   | U.K. Plans
|                                                                      |                                      |                       |   |                   |       |            |   |           
|Reconciliation of funded status:                                      |                                      |                       |   |                   |       |            |   |            |      |   |   |        |       |   |   |      
|                                                                      | Funded status at end of year         |                       | $ | (123.1            | )     |            | $ | (53.2      | )    |   | $ | (122.1 | )     |   | $ | (22.2 | )   
|                                                                      | Unrecognized net loss                |                       |   | 90.1              |       |            |   | 44.7       |      |   |   | 93.1   |       |   |   | 16.8  |     
|                                                                      | Unrecognized prior service cost      |                       |   | 17.9              |       |            |   |           |      |   |   | 17.7   |       |   |   |      |     
|                                                                      |                                      |                       |   |                   |       |            |   |            |      |   |   |        |       |   |   |      
|                                                                      |                                      | Net amount recognized |   | $                 | (15.1 | )          |   | $          | (8.5 | ) |   | $      | (11.3 | ) |   | $     | (5.4 | )
|                                                                      |                                      |                       |   |                   |       |            |   |            |      |   |   |        |       |   |   |      
|Amounts recognized in the Consolidated Balance
    Sheets consist of: |                                      |                       |   |                   |       |            |   |            |      |   |   |        |       |   |   |      
|                                                                      | Accrued benefit liability            |                       | $ | (74.0             | )     |            | $ | (36.0      | )    |   | $ | (85.9  | )     |   | $ | (6.2  | )   
|                                                                      | Intangible asset                     |                       |   | 14.3              |       |            |   |           |      |   |   | 13.1   |       |   |   |      |     
|                                                                      | Accumulated other comprehensive loss |                       |   | 44.6              |       |            |   | 27.5       |      |   |   | 61.5   |       |   |   | 0.8   |     
|                                                                      |                                      |                       |   |                   |       |            |   |            |      |   |   |        |       |   |   |      
|                                                                      |                                      | Net amount recognized |   | $                 | (15.1 | )          |   | $          | (8.5 | ) |   | $      | (11.3 | ) |   | $     | (5.4 | )
|                                                                      |                                      |                       |   |                   |       |            |   |            |      |   |   |        |       |   |   |      

During 2002, the Company made certain amendments
to its pension plans which changed, among other things,
calculations of retirement benefit formulas, the amount of
compensation included in these calculations and formulas used
for the determination of early retirement benefits. These
amendments were made to conform benefits received under the
Global Marine and Santa Fe International plans. Benefits
paid for 2003 and 2002 included approximately $4.8 million
and $11.4 million, respectively, of lump-sum termination
payments made as a result of the Merger.

The following table provides information related
to those plans that were underfunded, including the nonqualified
plans discussed below, as of December 31. In the table
below, the projected benefit obligation (PBO) is the
actuarially computed present value of earned benefits based on
service to date and includes the estimated effect of future
salary increases. The accumulated benefit obligation
(ABO) is the actuarially computed present value of
earned benefits based on service to date, but differs from the
PBO in that it is based on current salary levels.

|                               |  |                   |       |                   |  |            |       |            |  |   |       |  |  |   |      | 
|------------------------------ |  | ----------------- | ----- | ----------------- |  | ---------- | ----- | ---------- |  | - | ----- |  |  | - | ---- | 
|                               |  |                   |       |                  
|                               |  | December 31, 2003 |       | December 31, 2002
|                               |  |                   |       |                  
|                               |  | U.S. Plans        |       | U.K. Plans        |  | U.S. Plans |       | U.K. Plans
|                               |  |                   |       |                   |  |            |       |           
|                               |  |                  
|                               |  | (In millions)    
|Projected benefit obligation   |  | $                 | 312.0 |                   |  | $          | 135.8 |            |  | $ | 264.6 |  |  | $ | 74.2 | 
|Accumulated benefit obligation |  | $                 | 261.8 |                   |  | $          | 118.6 |            |  | $ | 226.4 |  |  | $ | 58.1 | 
|Fair value of plan assets      |  | $                 | 188.9 |                   |  | $          | 82.6  |            |  | $ | 142.5 |  |  | $ | 52.0 | 

The Company has also established grantor trusts
to provide funding for benefits payable under certain
nonqualified plans. Assets in the trusts, which are irrevocable
and can only be used to pay such benefits, with certain
exceptions, are excluded from plan assets in the preceding
tables in accordance with Statement of Financial Accounting
Standards No. 87, Employers Accounting for
Pensions. The fair market value of such assets was
$41.1 million at December 31, 2003, and
$27.3 million at December 31, 2002 (see Note 3).

79



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The components of net periodic pension benefit
cost for the Companys pension plans were as follows:

|                                                        |                           |                         |       |            |  |            |      |            |  |            |       |            |  |   |      |     |  |   |      |     |  |   |   |   | 
|------------------------------------------------------- | ------------------------- | ----------------------- | ----- | ---------- |  | ---------- | ---- | ---------- |  | ---------- | ----- | ---------- |  | - | ---- | --- |  | - | ---- | --- |  | - | - | - | 
|                                                        |                           |                        
|                                                        |                           | Year ended December 31,
|                                                        |                           |                        
|                                                        |                           |                         |       |            |  |           
|                                                        |                           | 2003                    |       | 2002       |  | 2001(1)   
|                                                        |                           |                         |       |            |  |           
|                                                        |                           | U.S. Plans              |       | U.K. Plans |  | U.S. Plans |      | U.K. Plans |  | U.S. Plans |       | U.K. Plans
|                                                        |                           |                         |       |            |  |            |      |            |  |            |       |           
|                                                        |                           |                        
|                                                        |                           | (In millions)          
|Service cost  benefits earned during
    the period    |                           | $                       | 10.5  |            |  | $          | 9.9  |            |  | $          | 9.1   |            |  | $ | 4.6  |     |  | $ | 4.7  |     |  | $ |  |  
|Interest cost on projected benefit obligation           |                           |                         | 18.4  |            |  |            | 5.1  |            |  |            | 16.1  |            |  |   | 4.2  |     |  |   | 7.8  |     |  |   |  |  
|Expected return on plan assets                          |                           |                         | (13.1 | )          |  |            | (4.2 | )          |  |            | (14.5 | )          |  |   | (4.6 | )   |  |   | (8.5 | )   |  |   |  |  
|Recognized actuarial loss                               |                           |                         | 11.1  |            |  |            | 1.0  |            |  |            | 4.2   |            |  |   |     |     |  |   | 0.4  |     |  |   |  |  
|Recognized actuarial loss  termination
    benefits(2) |                           |                         | 0.4   |            |  |            |     |            |  |            |      |            |  |   |     |     |  |   | 2.0  |     |  |   |  |  
|Settlement gain                                         |                           |                         | (0.7  | )          |  |            |     |            |  |            |      |            |  |   |     |     |  |   |     |     |  |   |  |  
|Amortization of prior service cost                      |                           |                         | 4.1   |            |  |            |     |            |  |            | 1.1   |            |  |   |     |     |  |   |     |     |  |   |  |  
|                                                        |                           |                         |       |            |  |            |      |            |  |            |       |            |  |   |      |     |  |   |      |     |  |   |   |  
|                                                        | Net periodic pension cost |                         | $     | 30.7       |  |            | $    | 11.8       |  |            | $     | 16.0       |  |   | $    | 4.2 |  |   | $    | 6.4 |  |   | $ |  | 
|                                                        |                           |                         |       |            |  |            |      |            |  |            |       |            |  |   |      |     |  |   |      |     |  |   |   |  



---



|    |                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | 2001 costs attributable to the U.K. Plans since
    the merger date (42 days) were immaterial to the
    Companys results of operations (see Note 1).
|   
|(2) | Termination benefits for 2001 related to certain
    pension plans are included in Restructuring costs. See
    discussion in Note 1.                 

Net periodic pension cost for 2003 and 2002
includes full-year costs related to the Santa Fe
International plans, including the U.K. plan.



| |                 
| | ----------------
| | Plan Assumptions

The following weighted average assumptions were
used to determine the Companys pension benefit obligations:

|                              |  |                   |       |                   |  |            |       |            |  |  |       |  |  |  |       | 
|----------------------------- |  | ----------------- | ----- | ----------------- |  | ---------- | ----- | ---------- |  |  | ----- |  |  |  | ----- | 
|                              |  |                   |       |                  
|                              |  | December 31, 2003 |       | December 31, 2002
|                              |  |                   |       |                  
|                              |  | U.S. Plans        |       | U.K. Plans        |  | U.S. Plans |       | U.K. Plans
|                              |  |                   |       |                   |  |            |       |           
|Discount rate                 |  |                   | 6.25% |                   |  |            | 5.50% |            |  |  | 6.75% |  |  |  | 6.75% | 
|Rate of compensation increase |  |                   | 4.50% |                   |  |            | 4.25% |            |  |  | 4.50% |  |  |  | 4.75% | 

The following weighted average assumptions were
used to determine the Companys net periodic pension cost:

|                                                 |  |                         |       |            |  |            |       |            |  |            |       |            |  |  |       |  |  |  |       |  |  |  |       | 
|------------------------------------------------ |  | ----------------------- | ----- | ---------- |  | ---------- | ----- | ---------- |  | ---------- | ----- | ---------- |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|                                                 |  |                        
|                                                 |  | Year Ended December 31,
|                                                 |  |                        
|                                                 |  |                         |       |            |  |           
|                                                 |  | 2003                    |       | 2002       |  | 2001      
|                                                 |  |                         |       |            |  |           
|                                                 |  | U.S. Plans              |       | U.K. Plans |  | U.S. Plans |       | U.K. Plans |  | U.S. Plans |       | U.K. Plans
|                                                 |  |                         |       |            |  |            |       |            |  |            |       |           
|Discount rate                                    |  |                         | 6.75% |            |  |            | 6.75% |            |  |            | 7.25% |            |  |  | 6.75% |  |  |  | 7.50% |  |  |  | 6.75% | 
|Expected long-term rate of return on plan assets |  |                         | 9.00% |            |  |            | 8.00% |            |  |            | 9.00% |            |  |  | 8.00% |  |  |  | 9.00% |  |  |  | 8.00% | 
|Rate of compensation increase                    |  |                         | 4.50% |            |  |            | 4.75% |            |  |            | 4.50% |            |  |  | 4.75% |  |  |  | 6.00% |  |  |  | 4.75% | 

80



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The discount rate used to calculate the net
present value of future benefit obligations is based on the
average of current rates earned on long-term bonds that receive
a Moodys rating of Aa or better.

The Company employs third-party consultants for
its U.S. plans who use a portfolio return model to assess
the initial reasonableness of the expected long-term rate of
return on plan assets assumption. Using asset class return,
variance and correlation assumptions, the model produces both
the expected return and the distribution of possible returns (at
every fifth percentile) for the chosen portfolio. Return
assumptions developed by these consultants are forward-looking
gross returns. The building block approach used by the portfolio
return model begins with the current Treasury yield curve,
recognizing that expected returns on bonds are heavily
influenced by the current level of yields. The model then adds
corporate bond spreads and equity risk premiums, based on
current conditions, to develop the return expectations for each
asset class based on the investment mix for the Companys
pension plans. The volatility and correlation assumptions are
also forward-looking: they take into account historical
relationships, but are adjusted by the Companys
consultants to reflect expected capital market trends.



| |            
| | -----------
| | Plan Assets

The Companys objective with regard to its
allocation of pension assets is to limit the variability of its
pension funding requirements, while maintaining funding at
levels that will ensure the payment of obligations as they come
due. The Companys strategy in achieving this objective is
to allocate its pension assets in a mix that will achieve an
optimal rate of return considering the anticipated timing of its
pension benefit obligations.

The Company determines its asset allocations by
performing an asset/ liability analysis for its various pension
plans based on the demographics of plan participants, including
compensation levels and estimated remaining service lives, to
determine the timing and amounts of its benefit obligations
under the various plans. This consultant then recommends the
optimal asset allocations for the pension trust assets within
the guidelines set by the Company.

The Companys weighted-average asset
allocations for its various pension plans at December 31,
2003, and 2002, by asset category are as follows:

|                        |  |                   |     |                   |  |            |     |            |  |  |     |   |  |  |     |  
|----------------------- |  | ----------------- | --- | ----------------- |  | ---------- | --- | ---------- |  |  | --- | - |  |  | --- | -
|                        |  |                   |     |                  
|                        |  | December 31, 2003 |     | December 31, 2002
|                        |  |                   |     |                  
|                        |  | U.S. Plans        |     | U.K. Plans        |  | U.S. Plans |     | U.K. Plans
|                        |  |                   |     |                   |  |            |     |           
|Equity securities       |  |                   | 74  | %                 |  |            | 87  | %          |  |  | 81  | % |  |  | 87  | %
|Fixed-income securities |  |                   | 26  | %                 |  |            | 9   | %          |  |  | 19  | % |  |  | 9   | %
|Real estate             |  |                   |    | %                 |  |            | 4   | %          |  |  |    | % |  |  | 4   | %
|                        |  |                   |     |                   |  |            |     |            |  |  |     |   |  |  |     |  
|Total                   |  |                   | 100 | %                 |  |            | 100 | %          |  |  | 100 | % |  |  | 100 | %
|                        |  |                   |     |                   |  |            |     |            |  |  |     |   |  |  |     |  

The Company expects the long-term target asset
allocations for its pension plan assets to average 70% for
equity securities and 30% for fixed-income securities for the
Companys U.S. plans. The Company expects its
long-term target asset allocations for pension assets for its
U.K. plans to average 90% for equity securities and 10% for
fixed-income securities.



| |        
| | -------
| | Funding

As noted previously, the Companys funding
objective is to fund participants benefits under the plans
as they accrue. Although the Company expects that there will be
no minimum pension contribution required under ERISA guidelines
to the Companys qualified plans for 2004, the Company has
funded the plans in the past on a regular basis. Accordingly,
the Company may make discretionary contributions, which will be
determined after the 2004 actuarial valuations are complete.

81



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                              
| | -----------------------------
| | Other Postretirement Benefits

The Company provides health care benefits to all
retirees who are U.S. citizens and to certain
non-U.S. citizen employees who were participants in a
U.S. based health care plan at the time of their retirement
and elect to enroll for continued coverage. Generally, employees
who have reached the age of 55 and have rendered a minimum of
five years of service are eligible for postretirement health
care benefits. For the most part, health care benefits require a
contribution from the retiree. Prior to July 1, 2002, the
Company also provided term life insurance to certain retirees,
both U.S. citizens and non-U.S. citizens. Liabilities
for postretirement health care and life insurance benefits were
$15.4 million and $13.9 million at December 31,
2003 and 2002, respectively.

The weighted-average annual assumed rate of
increase in the per capita cost of covered postretirement
medical benefits was 10% for 2003 and 11% for 2002 and 2001.
This 10% rate is expected to decrease ratably to 5% in 2009 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, 2003,
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
$0.6 million and $0.5 million, respectively, and the
aggregate of the service and interest cost components of net
periodic postretirement benefit by approximately $35,000 and
$32,000, respectively.

The Company does not consider its postretirement
benefits costs and liabilities to be material to its results of
operations or financial position.



| |                          
| | -------------------------
| | Defined Contribution Plan

The Company has a defined contribution
(401(k)) savings plan in which substantially all of
the Companys U.S. employees are eligible to
participate. Company contributions to the 401(k) savings plan
are based on the amount of employee contributions. The Company
matches 100% of each participants first six percent of
compensation contributed to the plan. Charges to expense with
respect to this plan totaled $7.4 million for both 2003 and
2002 and $5.2 million for 2001.



|          |             
|--------- | ------------
|Note 10  | Income Taxes

Income before income taxes was comprised of the
following:

|              |                            |               |       |       |  |      |       |       |  |   |       |       | 
|------------- | -------------------------- | ------------- | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|              |                            | 2003          |       | 2002  |  | 2001
|              |                            |               |       |       |  |     
|              |                            |              
|              |                            | (In millions)
|United States |                            | $             | (64.5 | )     |  | $    | (76.4 | )     |  | $ | 147.2 |      
|Foreign       |                            |               | 210.3 |       |  |      | 389.0 |       |  |   | 175.3 |      
|              |                            |               |       |       |  |      |       |       |  |   |       |      
|              | Income before income taxes |               | $     | 145.8 |  |      | $     | 312.6 |  |   | $     | 322.5 | 
|              |                            |               |       |       |  |      |       |       |  |   |       |      

Income taxes have been provided based upon the
tax laws and rates in the countries in which operations are
conducted and income is earned. The Company is a Cayman Islands
company and the Cayman Islands does not impose corporate income
taxes. The Companys U.S. subsidiaries are subject to
a U.S. tax rate of 35%.

82



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

At December 31, the provision for income
taxes consisted of the following:

|                   |                            |               |       |      |  |      |       |      |  |   |       |       | 
|------------------ | -------------------------- | ------------- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- | ----- | 
|                   |                            | 2003          |       | 2002 |  | 2001
|                   |                            |               |       |      |  |     
|                   |                            |              
|                   |                            | (In millions)
|Current  Foreign  |                            | $             | 26.6  |      |  | $    | 53.4  |      |  | $ | 20.1  |      
|
    U.S. federal |                            |               | 0.1   |      |  |      | 0.1   |      |  |   | 2.1   |      
|                   |                            |               |       |      |  |      |       |      |  |   |       |      
|                   |                            |               | 26.7  |      |  |      | 53.5  |      |  |   | 22.2  |      
|                   |                            |               |       |      |  |      |       |      |  |   |       |      
|Deferred  Foreign |                            |               | (11.5 | )    |  |      | 6.2   |      |  |   | 0.1   |      
|
    U.S. federal |                            |               | 1.2   |      |  |      | (25.0 | )    |  |   | 101.4 |      
|                   |                            |               |       |      |  |      |       |      |  |   |       |      
|                   |                            |               | (10.3 | )    |  |      | (18.8 | )    |  |   | 101.5 |      
|                   |                            |               |       |      |  |      |       |      |  |   |       |      
|                   | Provision for income taxes |               | $     | 16.4 |  |      | $     | 34.7 |  |   | $     | 123.7 | 
|                   |                            |               |       |      |  |      |       |      |  |   |       |      

A reconciliation of the differences between the
Companys income tax provision computed at the appropriate
statutory rate and the Companys reported provision for
income taxes follows:

|                                                                               |                            |                 |       |      |  |      |      |      |  |   |       |       | 
|------------------------------------------------------------------------------ | -------------------------- | --------------- | ----- | ---- |  | ---- | ---- | ---- |  | - | ----- | ----- | 
|                                                                               |                            | 2003            |       | 2002 |  | 2001
|                                                                               |                            |                 |       |      |  |     
|                                                                               |                            |                
|                                                                               |                            | ($ in millions)
|Income tax provision at statutory rate (Cayman
    Islands)                    |                            | $               |      |      |  | $    |     |      |  | $ |      |      
|Taxes on U.S. and foreign earnings at greater
    than the Cayman Islands rate |                            |                 | 41.2  |      |  |      | 12.6 |      |  |   | 98.9  |      
|Permanent differences                                                          |                            |                 | (1.5  | )    |  |      | 3.2  |      |  |   |      |      
|Adjustments to contingencies related to closed
    years                       |                            |                 |      |      |  |      |     |      |  |   | (55.7 | )    
|Change in valuation allowance(1)                                               |                            |                 | (23.3 | )    |  |      | 21.1 |      |  |   | 80.5  |      
|Other, net                                                                     |                            |                 |      |      |  |      | (2.2 | )    |  |   |      |      
|                                                                               |                            |                 |       |      |  |      |      |      |  |   |       |      
|                                                                               | Provision for income taxes |                 | $     | 16.4 |  |      | $    | 34.7 |  |   | $     | 123.7 | 
|                                                                               |                            |                 |       |      |  |      |      |      |  |   |       |      
|                                                                               | Effective tax rate         |                 |       | 11%  |  |      |      | 11%  |  |   |       | 38%   | 
|                                                                               |                            |                 |       |      |  |      |      |      |  |   |       |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The 2001 amount is comprised of the net change in
    the valuation allowance for the year of $105.9 million less
    $25.4 million of valuation allowance acquired from
    Santa Fe International at the time of the Merger. The 2003
    amount does not include a foreign currency exchange adjustment
    of $5.1 million which had no effect on earnings.

The Company intends to permanently reinvest all
of the unremitted earnings of its U.S. Subsidiaries in
their businesses. As a result, the Company has not provided for
U.S. deferred taxes on $1.4 billion of cumulative
unremitted earnings at December 31, 2003. Should the
Company make a distribution from the unremitted earnings of its
U.S. Subsidiaries, it would be required to record
additional U.S. deferred taxes. It is not practicable to
estimate the amount of deferred tax liability associated with
these unremitted earnings.

In certain circumstances, management expects
that, due to the changing demands of the offshore drilling
markets, certain of the Companys mobile assets are more
likely than not to be redeployed to other locations before those
assets operate in certain jurisdictions long enough to give rise
to future tax consequences. As a result, no deferred tax
liability has been recognized on the earnings from these assets.
During the fourth quarter of 2003, the Company revised its
expectations regarding the deployment of certain foreign-owned
assets in the U.S., determining that such assets would operate
predominantly in the U.S. for the remainder of their
expected useful lives and therefore giving rise to future
U.S. tax consequences. As a result, the Company recorded a
$24.1 million deferred tax charge in the fourth quarter of
2003, representing the expected tax consequences of such assets
as of December 31, 2003.

83



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Deferred tax assets and liabilities are recorded
in recognition of the expected future tax consequences of events
that have been recognized in the Companys financial
statements or tax returns. The significant components of the
Companys deferred tax assets and liabilities as of
December 31 were as follows:

|                          |                                                                  |                                         |        |       |       |  |        |       |       |  
|------------------------- | ---------------------------------------------------------------- | --------------------------------------- | ------ | ----- | ----- |  | ------ | ----- | ----- | -
|                          |                                                                  | 2003                                    |        | 2002 
|                          |                                                                  |                                         |        |      
|                          |                                                                  |                                        
|                          |                                                                  | (In millions)                          
|Deferred tax assets:      |                                                                  |                                         |        |       |       |  |        |      
|                          | Net operating loss carryforwards 
    U.S.                      |                                         | $      | 237.7 |       |  | $      | 189.1 |      
|                          | Net operating loss carryforwards 
    various foreign           |                                         |        | 59.3  |       |  |        | 55.1  |      
|                          | Tax credit carryforwards                                         |                                         |        | 15.1  |       |  |        | 15.2  |      
|                          | Interest carryforward                                            |                                         |        | 6.1   |       |  |        |      |      
|                          | Accrued expenses not currently deductible                        |                                         |        | 51.9  |       |  |        | 35.3  |      
|                          | Other                                                            |                                         |        | 13.6  |       |  |        | 13.6  |      
|                          |                                                                  |                                         |        |       |       |  |        |      
|                          |                                                                  |                                         | 383.7  |       |       |  | 308.3  |      
|Less: Valuation allowance |                                                                  |                                         | (149.6 | )     |       |  | (167.7 | )    
|                          |                                                                  |                                         |        |       |       |  |        |      
|                          | Deferred tax assets, net of valuation allowance                  |                                         |        | 234.1 |       |  |        | 140.6 |      
|                          |                                                                  |                                         |        |       |       |  |        |      
|Deferred tax liabilities: |                                                                  |                                         |        |       |       |  |        |      
|                          | Depreciation and depletion for tax in excess of
    book expense |                                         |        | 218.1 |       |  |        | 135.1 |      
|                          | Tax benefit transfers                                            |                                         |        | 6.3   |       |  |        | 4.3   |      
|                          | Other                                                            |                                         |        |      |       |  |        | 2.9   |      
|                          |                                                                  |                                         |        |       |       |  |        |      
|                          |                                                                  | Total deferred tax liabilities          |        |       | 224.4 |  |        |       | 142.3 |  
|                          |                                                                  |                                         |        |       |       |  |        |      
|                          |                                                                  | Net future income tax asset/(liability) |        | $     | 9.7   |  |        | $     | (1.7  | )
|                          |                                                                  |                                         |        |       |       |  |        |      

Based upon anticipated market conditions in the
United States as of December 31, 2003 and 2002, the Company
did not adjust the valuation allowance against the U.S. NOL
carryforwards of Global Marine in 2003 or 2002.

The Company has recorded a valuation allowance
against its net deferred tax assets in certain foreign
jurisdictions. The net valuation allowance decreased by
approximately $18.1 million in 2003 and increased by
approximately $21.1 million in 2002. The 2003 net decrease
was comprised of the following: a $21.0 million decrease
due to revised earnings projections in the U.K., where the
Company now expects to fully utilize its remaining NOL
carryforward; a $12.4 million decrease due to current year
activity in Trinidad and Tobago, and a $0.8 million
decrease due to activity in various other foreign jurisdictions.
The above decreases were partially offset by a $9.5 million
increase in the valuation allowances in Norway and Venezuela due
to an increase in net operating losses that the Company believes
will more likely than not expire before they are utilized, a
$1.5 million increase due to activity in other foreign
jurisdictions and a $5.1 million increase resulting from
foreign currency translation effects. The 2002 valuation
allowance change reflects a $21.1 million increase in net
deferred tax assets in certain of the Companys foreign
jurisdictions, wherein the respective valuation allowances
changed accordingly.

At December 31, 2003, the Company had
$679.1 million of U.S. NOL carryforwards. In addition,
the Company has $15.2 million of non-expiring
U.S. alternative minimum tax credit carryforwards. The
Company has recorded an asset for an interest expense
carryforward in the amount of $6.1 million which is carried
forward indefinitely. The NOL carryforwards, interest expense
carryforward and the U.S. alternative

84



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

minimum tax credit carryforward can be used to
reduce the Companys U.S. federal income taxes payable
in future years. The NOL carryforwards subject to expiration
expire as follows (in millions):

|                        |  |       |       |                  |  |         |       |  |  |   |      | 
|----------------------- |  | ----- | ----- | ---------------- |  | ------- | ----- |  |  | - | ---- | 
|Year ended December 31: |  | Total |       | United States(1) |  | Foreign
|                        |  |       |       |                  |  |        
|2004                    |  | $     | 227.0 |                  |  | $       | 214.6 |  |  | $ | 12.4 | 
|2005                    |  |       | 89.0  |                  |  |         | 82.8  |  |  |   | 6.2  | 
|2006                    |  |       | 32.5  |                  |  |         | 19.6  |  |  |   | 12.9 | 
|2007                    |  |       | 36.9  |                  |  |         | 34.1  |  |  |   | 2.8  | 
|2008                    |  |       | 21.7  |                  |  |         | 18.8  |  |  |   | 2.9  | 
|2010                    |  |       | 2.2   |                  |  |         |      |  |  |   | 2.2  | 
|2011                    |  |       | 4.3   |                  |  |         |      |  |  |   | 4.3  | 
|2012                    |  |       | 21.4  |                  |  |         |      |  |  |   | 21.4 | 
|2013                    |  |       | 4.7   |                  |  |         |      |  |  |   | 4.7  | 
|2018                    |  |       | 22.9  |                  |  |         | 22.9  |  |  |   |     | 
|2020                    |  |       | 53.4  |                  |  |         | 53.4  |  |  |   |     | 
|2021                    |  |       | 43.3  |                  |  |         | 43.3  |  |  |   |     | 
|2022                    |  |       | 112.9 |                  |  |         | 112.9 |  |  |   |     | 
|2023                    |  |       | 76.7  |                  |  |         | 76.7  |  |  |   |     | 
|                        |  |       |       |                  |  |         |       |  |  |   |      | 
|Total                   |  | $     | 748.9 |                  |  | $       | 679.1 |  |  | $ | 69.8 | 
|                        |  |       |       |                  |  |         |       |  |  |   |      | 



---



|    |                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(1) | Includes $129.7 million of NOL carryforward
    amounts from the GSF C. R. Luigs, which
    was made part of the U.S. group.

In addition, the Company also had
$42.6 million, $70.5 million and $0.9 million of
non-expiring NOL carryforwards in the United Kingdom, Trinidad
and Tobago and Kuwait, respectively.

The Companys ability to realize the benefit
of its deferred tax asset requires that the Company achieve
certain future earnings levels prior to the expiration of its
NOL carryforwards. The Company has established a valuation
allowance against the future tax benefit of a portion of its NOL
carryforwards and could be required to further adjust that
valuation allowance if market conditions change materially and
future earnings are, or are projected to be, significantly
different from its current estimates. The Companys NOL
carryforwards are subject to review and potential disallowance
upon audit by the tax authorities in the jurisdictions where the
loss was incurred.

85



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|          |                            
|--------- | ---------------------------
|Note 11  | Earnings Per Ordinary Share

A reconciliation of the numerators and
denominators of the basic and diluted per share computations for
net income follows:

|                               |                                                                                                    |                                                                                   |         |             |           |      |   |             |           |      |   |             |           |      | 
|------------------------------ | -------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ------- | ----------- | --------- | ---- | - | ----------- | --------- | ---- | - | ----------- | --------- | ---- | 
|                               |                                                                                                    | 2003                                                                              |         | 2002        |           | 2001
|                               |                                                                                                    |                                                                                   |         |             |           |     
|                               |                                                                                                    |                                                                                  
|                               |                                                                                                    | ($ in millions, except share and per share amounts)                              
|Net income (numerator):        |                                                                                                    |                                                                                   |         |             |           |      |   |             |           |      |   |            
|                               | Net income  Basic                                                                                 |                                                                                   | $       | 129.4       |           |      | $ | 277.9       |           |      | $ | 198.8       |          
|                               | Add: Interest savings (net of tax) on assumed
    conversion of Zero Coupon Convertible Debentures |                                                                                   |         |            |           |      |   |            |           |      |   | 7.0         |          
|                               |                                                                                                    |                                                                                   |         |             |           |      |   |             |           |      |   |            
|                               | Net income  Diluted                                                                               |                                                                                   | $       | 129.4       |           |      | $ | 277.9       |           |      | $ | 205.8       |          
|                               |                                                                                                    |                                                                                   |         |             |           |      |   |             |           |      |   |            
|Ordinary shares (denominator): |                                                                                                    |                                                                                   |         |             |           |      |   |             |           |      |   |            
|                               | Shares  Basic                                                                                     |                                                                                   |         | 233,183,966 |           |      |   | 233,747,710 |           |      |   | 130,544,893 |          
|                               | Add:                                                                                               |                                                                                   |         |             |           |      |   |             |           |      |   |             |          
|                               |                                                                                                    | Effect of employee stock options                                                  |         |             | 1,739,218 |      |   |             | 2,707,061 |      |   |             | 2,089,233 |     
|                               |                                                                                                    | Shares issuable upon assumed conversion of Zero
    Coupon Convertible Debentures |         |             |          |      |   |             |          |      |   |             | 4,875,062 |     
|                               |                                                                                                    |                                                                                   |         |             |           |      |   |             |           |      |   |            
|                               | Shares  Diluted                                                                                   |                                                                                   |         | 234,923,184 |           |      |   | 236,454,771 |           |      |   | 137,509,188 |          
|                               |                                                                                                    |                                                                                   |         |             |           |      |   |             |           |      |   |            
|Earnings per ordinary share:   |                                                                                                    |                                                                                   |         |             |           |      |   |             |           |      |   |            
|                               |                                                                                                    |                                                                                   | Basic   |             | $         | 0.55 |   |             | $         | 1.19 |   |             | $         | 1.52 | 
|                               |                                                                                                    |                                                                                   | Diluted |             | $         | 0.55 |   |             | $         | 1.18 |   |             | $         | 1.50 | 

The computation of diluted earnings per share
excludes outstanding stock options with exercise prices greater
than the average market price of the Companys ordinary
shares for the year, because the inclusion of such options would
have the effect of increasing diluted earnings per ordinary
share (i.e., their effect would be antidilutive).
The number of antidilutive options that were excluded from
diluted earnings per ordinary share and could potentially dilute
basic earnings per ordinary share in the future were
15,635,120 shares in 2003, 9,401,866 shares in 2002,
and 4,668,834 shares in 2001.

Diluted earnings per share for 2003 and 2002 also
excludes 4,875,062 potentially dilutive shares issuable upon
conversion of the Companys Zero Coupon Convertible
Debentures because the inclusion of these shares would be
antidilutive given the level of net income for these periods.

As discussed in Note 4, holders of the Zero
Coupon Convertible Debentures have the right to require the
Company to repurchase the debentures on June 23, 2005,
June 23, 2010, and June 23, 2015. The Company may pay
the repurchase price with either cash or stock or a combination
thereof. The Company does not anticipate using stock to satisfy
any such future repurchase obligation.



|          |                                   
|--------- | ----------------------------------
|Note 12  | Supplemental Cash Flow Information

In December 2003, the Companys Board of
Directors declared a regular quarterly cash dividend in the
amount of $0.05 per ordinary share. The dividend in the
amount of $11.7 million was paid on January 15, 2004,
to shareholders of record as of the close of business on
December 31, 2003.

Cash payments for capital expenditures for the
year ended December 31, 2003, include $19.2 million of
capital expenditures that were accrued but unpaid at
December 31, 2002. Cash payments for capital expenditures
for the year ended December 31, 2002, include
$6.4 million of capital expenditures that were accrued but
unpaid at December 31, 2001. Capital expenditures that were
accrued but not paid as of

86



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

December 31, 2003, totaled
$16.6 million. This amount is included in Accounts payable
in the Consolidated Balance Sheet at December 31, 2003.

On November 20, 2001, Global Marine merged
with a subsidiary of Santa Fe International. The following
table summarizes the allocation of the purchase price to the
specific assets and liabilities of Santa Fe International
based on estimates of fair values and costs at the time of the
Merger.

|                                |  |               |         |  
|------------------------------- |  | ------------- | ------- | -
|                                |  | (In millions)
|                                |  |              
|Current assets                  |  | $             | 526.7   |  
|Properties, plant and equipment |  |               | 1,958.7 |  
|Other assets                    |  |               | 38.1    |  
|Goodwill                        |  |               | 382.1   |  
|                                |  |               |         |  
|                                |  |               | 2,905.6 |  
|Current liabilities             |  |               | (259.4  | )
|Deferred income taxes           |  |               | (17.5   | )
|Other liabilities               |  |               | (61.6   | )
|                                |  |               |         |  
|                                |  | $             | 2,567.1 |  
|                                |  |               |         |  

In June 2001, the Company completed the sale of
the Glomar Beaufort Sea I concrete island drilling system
to Exxon Neftegas Limited for $45.0 million. The Company
received $5.0 million in cash at closing and received
approximately $35 million (including accrued interest)
during the first quarter of 2002, net of $7 million in
sales commissions and payments to minority owners, representing
full payment of the remaining purchase price.

Cash payments for interest, net of amounts
capitalized, totaled $13.9 million, $21.9 million and
$41.3 million for the years ended December 31, 2003,
2002 and 2001, respectively. Cash payments for income taxes, net
of refunds, totaled $50.4 million, $51.8 million and
$14.5 million for the years ended December 31, 2003,
2002 and 2001, respectively.



|          |                                   
|--------- | ----------------------------------
|Note 13  | Segment and Geographic Information

The Company has three lines of business, each
organized along the basis of services and products and each with
a separate management team. The Companys three lines of
business are reported as separate operating segments and consist
of contract drilling, drilling management services and oil and
gas. The Companys contract drilling business provides
fully crewed, mobile offshore and land drilling rigs to oil and
gas operators on a daily rate basis and is also referred to as
dayrate drilling. The Companys drilling management
services business provides offshore oil and gas drilling
management services on either a dayrate or completed-project,
fixed-price (turnkey) basis, as well as drilling
engineering and drilling project management services. The
Companys oil and gas business participates in exploration
and production activities, principally in order to facilitate
the acquisition of turnkey contracts for the Companys
drilling management services operations.

The Company evaluates and measures segment
performance on the basis of operating income. Segment operating
income is inclusive of intersegment revenues. Such revenues,
which have been eliminated from the consolidated totals, are
recorded at transfer prices, which are intended to approximate
the prices charged to external customers. Segment operating
income consists of revenues less the related operating costs and
expenses and excludes interest expense, interest income,
restructuring costs and corporate expenses. Segment assets
consist of all current and long-lived assets, exclusive of
affiliate receivables and investments.

87



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Information by operating segment, together with
reconciliations to the consolidated totals, is presented in the
following table:

|                                         |         |               |   |            |  |             |   |           |  |              |   |              |  |  |   |       |   |  |   |       |      |  |   |         | 
|---------------------------------------- | ------- | ------------- | - | ---------- |  | ----------- | - | --------- |  | ------------ | - | ------------ |  |  | - | ----- | - |  | - | ----- | ---- |  | - | ------- | 
|                                         |         |               |   | Drilling   |  |             |   |           |  |              |   |             
|                                         |         | Contract      |   | Management |  |             |   |           |  | Eliminations |   |             
|                                         |         | Drilling      |   | Services   |  | Oil and Gas |   | Corporate |  | and Other    |   | Consolidated
|                                         |         |               |   |            |  |             |   |           |  |              |   |             
|                                         |         |              
|                                         |         | (In millions)
|Revenues From External Customers         |         |               |   |            |  |             |   |           |  |              |   |              |  |  |   |       |   |  |   |       |      |  |   |        
|                                         | 2003    |               | $ | 1,370.4    |  |             | $ | 523.4     |  |              | $ | 20.9         |  |  |   |       |   |  |   |       |      |  | $ | 1,914.7 | 
|                                         | 2002    |               |   | 1,606.5    |  |             |   | 400.6     |  |              |   | 10.6         |  |  |   |       |   |  |   |       |      |  |   | 2,017.7 | 
|                                         | 2001    |               |   | 960.4      |  |             |   | 409.3     |  |              |   | 13.9         |  |  |   |       |   |  |   |       |      |  |   | 1,383.6 | 
|Intersegment Revenues                    |         |               |   |            |  |             |   |           |  |              |   |              |  |  |   |       |   |  |   |       |      |  |   |        
|                                         | 2003    |               |   | 2.7        |  |             |   | 5.0       |  |              |   |             |  |  |   |       |   |  | $ | (7.7  | )    |  |   |        | 
|                                         | 2002    |               |   | 12.5       |  |             |   | 16.2      |  |              |   |             |  |  |   |       |   |  |   | (28.7 | )    |  |   |        | 
|                                         | 2001    |               |   | 13.7       |  |             |   | 8.0       |  |              |   |             |  |  |   |       |   |  |   | (21.7 | )    |  |   |        | 
|Total Revenues                           |         |               |   |            |  |             |   |           |  |              |   |              |  |  |   |       |   |  |   |       |      |  |   |        
|                                         | 2003    |               |   | 1,373.1    |  |             |   | 528.4     |  |              |   | 20.9         |  |  |   |       |   |  |   | (7.7  | )    |  |   | 1,914.7 | 
|                                         | 2002    |               |   | 1,619.0    |  |             |   | 416.8     |  |              |   | 10.6         |  |  |   |       |   |  |   | (28.7 | )    |  |   | 2,017.7 | 
|                                         | 2001    |               |   | 974.1      |  |             |   | 417.3     |  |              |   | 13.9         |  |  |   |       |   |  |   | (21.7 | )    |  |   | 1,383.6 | 
|Operating Income                         |         |               |   |            |  |             |   |           |  |              |   |              |  |  |   |       |   |  |   |       |      |  |   |        
|                                         | 2003    |               |   | 154.6      |  |             |   | 31.7      |  |              |   | 12.0         |  |  | $ | (52.7 | ) |  |   | (3.4  | )(1) |  |   | 142.2   | 
|                                         | 2002    |               |   | 360.2      |  |             |   | 28.6      |  |              |   | 4.8          |  |  |   | (61.8 | ) |  |   |      |      |  |   | 331.8   | 
|                                         | 2001    |               |   | 338.5      |  |             |   | 33.4      |  |              |   | 8.4          |  |  |   | (28.1 | ) |  |   | 13.3  | (1)  |  |   | 365.5   | 
|Depreciation, Depletion and Amortization |         |               |   |            |  |             |   |           |  |              |   |              |  |  |   |       |   |  |   |       |      |  |   |        
|                                         | 2003    |               |   | 265.2      |  |             |   |          |  |              |   | 3.1          |  |  |   | 4.9   |   |  |   |      |      |  |   | 273.2   | 
|                                         | 2002    |               |   | 248.7      |  |             |   | 0.1       |  |              |   | 2.2          |  |  |   | 3.4   |   |  |   |      |      |  |   | 254.4   | 
|                                         | 2001    |               |   | 141.9      |  |             |   | 0.2       |  |              |   | 2.1          |  |  |   | 2.1   |   |  |   |      |      |  |   | 146.3   | 
|Capital Expenditures                     |         |               |   |            |  |             |   |           |  |              |   |              |  |  |   |       |   |  |   |       |      |  |   |        
|                                         | 2003(2) |               |   | 446.3      |  |             |   |          |  |              |   | 13.3         |  |  |   | 6.4   |   |  |   |      |      |  |   | 466.0   | 
|                                         | 2002    |               |   | 562.1      |  |             |   | 0.1       |  |              |   | 6.9          |  |  |   | 5.0   |   |  |   |      |      |  |   | 574.1   | 
|                                         | 2001    |               |   | 150.0      |  |             |   |          |  |              |   | 2.0          |  |  |   | 6.4   |   |  |   |      |      |  |   | 158.4   | 
|Segment Assets                           |         |               |   |            |  |             |   |           |  |              |   |              |  |  |   |       |   |  |   |       |      |  |   |        
|                                         | 2003    |               |   | 5,284.5    |  |             |   | 81.3      |  |              |   | 85.6         |  |  |   | 770.8 |   |  |   | (72.5 | )(3) |  |   | 6,149.7 | 
|                                         | 2002    |               |   | 5,139.3    |  |             |   | 69.4      |  |              |   | 60.7         |  |  |   | 620.4 |   |  |   | (61.1 | )    |  |   | 5,828.7 | 
|                                         | 2001    |               |   | 4,758.6    |  |             |   | 34.6      |  |              |   | 56.7         |  |  |   | 723.7 |   |  |   | (44.7 | )    |  |   | 5,528.9 | 
|Goodwill                                 |         |               |   |            |  |             |   |           |  |              |   |              |  |  |   |       |   |  |   |       |      |  |   |        
|                                         | 2003    |               |   | 352.1      |  |             |   |          |  |              |   |             |  |  |   |      |   |  |   |      |      |  |   | 352.1   | 
|                                         | 2002    |               |   | 386.4      |  |             |   | 0.5       |  |              |   |             |  |  |   |      |   |  |   |      |      |  |   | 386.9   | 
|                                         | 2001    |               |   | 382.1      |  |             |   | 0.5       |  |              |   |             |  |  |   |      |   |  |   |      |      |  |   | 382.6   | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amount for 2003 consists of changes to estimated
    restructuring costs incurred in connection with the Merger in
    2001. The 2001 amount consists of a $35.6 million gain
    recorded in connection with the sale of the Glomar Beaufort
    Sea I and $22.3 million in estimated restructuring
    costs in connection with the Merger. Restructuring costs are
    discussed in Note 1.                                                                                                                                                                                                                                                                  
|   
|(2) | Capital expenditures for 2003 include
    approximately $16.6 million of capital expenditures related
    to the Companys rig building program that had been accrued
    but not paid as of December 31, 2003. Capital expenditures
    for 2002 include approximately $19.2 million of capital
    expenditures related to the Companys rig building program
    that had been accrued but not paid as of December 31, 2002.
    Capital expenditures for 2001 include approximately
    $6.4 million of capital expenditures related to the
    Companys rig building program that had been accrued but
    not paid as of December 31, 2001 (see Note 12).
|   
|(3) | Amounts for 2003, 2002 and 2001 reflect the
    deferral of intersegment turnkey drilling profit credited to the
    Companys full cost pool of oil and gas properties (see
    Note 2).                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

88



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##### Table of Contents



GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Two customers each accounted for more than 10% of
consolidated revenues in 2003: Total S.A. provided
$234.2 million of contract drilling revenues, and
ExxonMobil provided $231.6 million of contract drilling
revenues. One customer accounted for more than 10% of
consolidated revenues for 2002: ExxonMobil provided
$267.7 million of contract drilling revenues and
$0.1 million of drilling management services revenues. In
2001, two customers each accounted for more than 10% of
consolidated revenues: ExxonMobil provided $180.1 million
of contract drilling revenues, and BP provided
$146.0 million of contract drilling revenues and
$1.6 million of drilling management services revenues.

The Company is incorporated in the Cayman
Islands; however, all of its operations are located in countries
other than the Cayman Islands. Revenues and assets by geographic
area in the tables that follow were attributed to countries
based on the physical location of the assets. The mobilization
of rigs among geographic areas has affected area revenues and
long-lived assets over the periods presented. Revenues from
external customers by geographic areas were as follows:

|                           |                        |               |       |         |  |      |       |         |  |   |       |         | 
|-------------------------- | ---------------------- | ------------- | ----- | ------- |  | ---- | ----- | ------- |  | - | ----- | ------- | 
|                           |                        | 2003          |       | 2002    |  | 2001
|                           |                        |               |       |         |  |     
|                           |                        |              
|                           |                        | (In millions)
|United Kingdom             |                        | $             | 447.0 |         |  | $    | 535.3 |         |  | $ | 174.5 |        
|Nigeria                    |                        |               | 119.2 |         |  |      | 105.2 |         |  |   | 86.7  |        
|Egypt                      |                        |               | 96.2  |         |  |      | 72.6  |         |  |   | 2.3   |        
|Trinidad and Tobago        |                        |               | 25.5  |         |  |      | 70.7  |         |  |   | 80.7  |        
|Other foreign countries(1) |                        |               | 622.8 |         |  |      | 625.0 |         |  |   | 236.5 |        
|                           |                        |               |       |         |  |      |       |         |  |   |       |        
|                           | Total foreign revenues |               |       | 1,310.7 |  |      |       | 1,408.8 |  |   |       | 580.7   | 
|United States              |                        |               | 604.0 |         |  |      | 608.9 |         |  |   | 802.9 |        
|                           |                        |               |       |         |  |      |       |         |  |   |       |        
|                           | Total revenues         |               | $     | 1,914.7 |  |      | $     | 2,017.7 |  |   | $     | 1,383.6 | 
|                           |                        |               |       |         |  |      |       |         |  |   |       |        



---



|    |                                                                                
|--- | -------------------------------------------------------------------------------
|(1) | Individually less than 5% of consolidated
    revenues for 2003, 2002 and 2001.

Long-lived assets by geographic areas, based on
their physical location at December 31, were as follows:

|                          |                                      |                                 |       |         |         |      |       |         |         |  |       |         |         | 
|------------------------- | ------------------------------------ | ------------------------------- | ----- | ------- | ------- | ---- | ----- | ------- | ------- |  | ----- | ------- | ------- | 
|                          |                                      | 2003                            |       | 2002    |         | 2001
|                          |                                      |                                 |       |         |         |     
|Properties and equipment: |                                      |                                 |       |         |         |      |       |         |         |  |       |        
|                          | United Kingdom                       |                                 | $     | 658.4   |         |      | $     | 918.3   |         |  | $     | 1,070.9 |        
|                          | Other foreign countries(1)           |                                 |       | 2,137.7 |         |      |       | 1,777.8 |         |  |       | 1,306.3 |        
|                          |                                      |                                 |       |         |         |      |       |         |         |  |       |        
|                          |                                      | Total foreign long-lived assets |       |         | 2,796.1 |      |       |         | 2,696.1 |  |       |         | 2,377.2 | 
|                          | United States                        |                                 |       | 958.8   |         |      |       | 1,025.9 |         |  |       | 1,364.5 |        
|                          |                                      |                                 |       |         |         |      |       |         |         |  |       |        
|                          |                                      | Total productive assets         |       |         | 3,754.9 |      |       |         | 3,722.0 |  |       |         | 3,741.7 | 
|                          | Construction in progress  Singapore |                                 |       | 629.8   |         |      |       | 472.0   |         |  |       | 155.9   |        
|                          |                                      |                                 |       |         |         |      |       |         |         |  |       |        
|                          |                                      | Total properties and equipment  |       |         | 4,384.7 |      |       |         | 4,194.0 |  |       |         | 3,897.6 | 
|Goodwill                  |                                      |                                 | 352.1 |         |         |      | 386.9 |         |         |  | 382.6 |        
|                          |                                      |                                 |       |         |         |      |       |         |         |  |       |        
|                          |                                      | Total long-lived assets         |       | $       | 4,736.8 |      |       | $       | 4,580.9 |  |       | $       | 4,280.2 | 
|                          |                                      |                                 |       |         |         |      |       |         |         |  |       |        



---



|    |                                                                                                
|--- | -----------------------------------------------------------------------------------------------
|(1) | Individually less than 10% of consolidated
    long-lived assets at December 31, 2003 and 2002.



|          |                             
|--------- | ----------------------------
|Note 14  | Transactions with Affiliates

In connection with its initial public offering,
Santa Fe International entered into an intercompany
agreement with Kuwait Petroleum Corporation and SFIC Holdings,
which agreement was amended in

89



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

connection with the Merger. The intercompany
agreement, as amended, provides that, as long as Kuwait
Petroleum Corporation and its affiliates, in the aggregate, own
at least 10% of the Company, the consent of SFIC Holdings is
required to change the jurisdiction of any existing subsidiary
of the Company or incorporate a new subsidiary in any
jurisdiction in a manner materially adversely affecting the
rights or interests of Kuwait Petroleum Corporation and its
affiliates or reincorporate the Company in another jurisdiction.
The intercompany agreement, as amended, also provides SFIC
Holdings the right to designate up to three representatives to
the Companys Board of Directors based on SFIC
Holdings ownership percentage in the Company and provides
SFIC Holdings rights to access certain information concerning
the Company. SFIC Holdings currently holds approximately 18.6%
of the outstanding ordinary shares of the Company.

The Company provides contract drilling services
in Kuwait to the Kuwait Oil Company, K.S.C. (KOC), a
subsidiary of Kuwait Petroleum Corporation, and it 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 containing
terms and conditions and rates of compensation that materially
approximate those 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 providing same,
subject to the availability of the maintenance facilities,
through the current term of the drilling contracts and
extensions thereof as may be agreed. In relation to its drilling
business in Kuwait, the Company has an agency agreement with a
subsidiary of Kuwait Petroleum Corporation 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.

During the year ended December 31, 2003, the
Company earned revenues from KOC and its affiliate for
performing contract drilling services in the ordinary course of
business totaling $45.6 million and paid $444,000 of agency
fees pursuant to the agency agreement. During the year ended
December 31, 2002, the Company earned revenues from KOC and
its affiliate for performing contract drilling services in the
ordinary course of business totaling $62.7 million and paid
$586,000 of agency fees, and, during the period following the
Merger until December 31, 2001, the Company earned revenues
from KOC and its affiliate totaling $6.9 million and paid
$80,000 of agency fees. At December 31, 2003 and 2002, the
Company had accounts receivable from affiliates of Kuwait
Petroleum Corporation of $6.8 million and
$11.1 million, respectively.



|          |                                                                    
|--------- | -------------------------------------------------------------------
|Note 15  | Summarized Financial Data  Global
    Marine Inc. and Subsidiaries

Global Marine Inc. (Global Marine), a
wholly owned subsidiary of GlobalSantaFe Corporation, is a
domestic and international offshore drilling contractor. Global
Marine, through its subsidiaries, provides offshore drilling
services on a dayrate basis in the U.S. Gulf of Mexico and
internationally, with a fleet of 13 mobile offshore drilling
rigs. In addition, Global Marine co-owns a non-U.S. subsidiary
with GlobalSantaFe Corporation which owns 55 mobile
offshore and land drilling rigs. Global Marine also provides
drilling management services on a turnkey basis, and engages in
oil and gas exploration, development and production activities,
principally in order to facilitate the acquisition of turnkey
contracts for its drilling management services operations.

In the fourth quarter of 2003, the Company
commenced an internal restructuring to integrate its
non-U.S. operations. In connection with this restructuring,
certain of Santa Fe Internationals operations were
combined with those of Global Marines previously wholly
owned non-U.S. subsidiary discussed above. As a result,
Global Marines interest in the combined operations of this
subsidiary was reduced to less than 50% as of December 31,
2003. The balance of the interest in this subsidiary is now held
by GlobalSantaFe Corporation.

90



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Summarized financial information for Global
Marine and its consolidated subsidiaries follows:

|                                   |  |                         |         |      |  |      |         |  |  |   |         | 
|---------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                   |  |                        
|                                   |  | Year Ended December 31,
|                                   |  |                        
|                                   |  | 2003                    |         | 2002 |  | 2001
|                                   |  |                         |         |      |  |     
|                                   |  |                        
|                                   |  | (In millions)          
|Sales and other operating revenues |  | $                       | 1,361.8 |      |  | $    | 1,223.7 |  |  | $ | 1,286.6 | 
|Operating income                   |  |                         | 50.4    |      |  |      | 136.2   |  |  |   | 303.1   | 
|Net income (loss)                  |  |                         | (13.5   | )    |  |      | 74.2    |  |  |   | 171.2   | 

|                                          |  |               |         |      |  |   |         | 
|----------------------------------------- |  | ------------- | ------- | ---- |  | - | ------- | 
|                                          |  |              
|                                          |  | December 31, 
|                                          |  |              
|                                          |  | 2003          |         | 2002
|                                          |  |               |         |     
|                                          |  |              
|                                          |  | (In millions)
|Current assets                            |  | $             | 516.7   |      |  | $ | 791.0   | 
|Net properties and equipment              |  |               | 912.8   |      |  |   | 1,887.4 | 
|Investment in unconsolidated subsidiaries |  |               | 1,105.9 |      |  |   |        | 
|Other assets                              |  |               | 267.3   |      |  |   | 103.6   | 
|Current liabilities                       |  |               | 113.7   |      |  |   | 260.7   | 
|Total long-term debt(1)                   |  |               | 953.4   |      |  |   | 941.9   | 
|Other long-term liabilities               |  |               | 58.9    |      |  |   | 81.5    | 
|Net equity                                |  |               | 1,676.7 |      |  |   | 1,497.9 | 



---



|    |                                       
|--- | --------------------------------------
|(1) | Includes capitalized lease obligation.



|          |                                 
|--------- | --------------------------------
|Note 16  | Recent Accounting Pronouncements

In December 2002, the FASB issued
SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, which
amends SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 148 provides three
alternative methods of transition and disclosure requirements
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation: (1) the
prospective method, (2) the modified prospective method,
and (3) the retroactive restatement method. In addition to
providing compensation cost recognition methods,
SFAS No. 148 also requires certain disclosures,
including the accounting method used for each period presented,
a description of the method used to report the change in
accounting principle and continuing tabular presentation of
proforma net income and earnings per share effects for any
awards outstanding under the intrinsic value method of
Accounting Principles Board Opinion No. 25.
SFAS No. 148 is effective for fiscal years ending
after December 15, 2002. The Company has reflected the
disclosure provisions of SFAS No. 148 in Note 2
of Notes to the Condensed Consolidated Financial Statements, and
currently accounts for stock-based compensation using the
intrinsic value method under APB Opinion No. 25.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51
(FIN 46). This interpretation provides guidance
on the identification of, and financial reporting for, entities
over which control is achieved through means other than voting
rights, or variable-interest entities (VIEs).
FIN 46 originally became effective for public entities with
VIEs created before February 1, 2003, at the beginning of
the first interim or annual reporting period starting after
June 15, 2003. In December 2003, the FASB issued
FIN 46-R, which amended FIN 46 to extend its effective
date until the first quarter of 2004 for all types of entities
except special purpose entities. In addition, FIN 46-R also
limited the scope of FIN 46 to exclude certain joint
ventures or other entities that meet the characteristics of
businesses. Upon the applicable effective date, FIN 46 will
become the guidance that determines whether consolidation is
required and whether the variable-interest accounting model must
be used to account for

91



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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

existing and new entities. The Company does not
believe that it currently has any VIEs within the scope of
FIN 46.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This
statement amends and clarifies accounting for derivative
instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. This statement is
effective for contracts entered into or modified after
June 30, 2003, with certain exceptions, and for hedging
relationships designated after June 30, 2003. The adoption
of SFAS 149 did not have a material effect on the
Companys financial position, results of operations or cash
flows.

In May 2003 the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity. This statement establishes standards for how an
issuer classifies and measures in its statement of financial
position certain financial instruments with characteristics of
both liabilities and equity. In accordance with the standard,
financial instruments that embody obligations for the issuer are
required to be classified as liabilities. SFAS 150 is
effective for such financial instruments, except for those that
apply to mandatorily redeemable noncontrolling interests,
entered into or modified after May 31, 2003, and otherwise
was effective for such financial instruments, except for those
that apply to mandatorily redeemable noncontrolling interests,
at the beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS 150 did not have a
material effect on the Companys financial position,
results of operations or cash flows.

In December 2003, the FASB issued a revision of
SFAS No. 132, Employers Disclosures about
Pensions and Other Postretirement Benefits. This revision
(the revised SFAS No. 132) retains some of
the disclosure requirements of SFAS No. 132 and
requires additional pension and postretirement disclosures,
including, among others, the types of securities included in
plan assets, a description of investment policies and strategies
related to the investment of plan assets, and methods used to
determine assumptions for calculating pension and postretirement
benefit liabilities and costs. In addition, the revised
SFAS No. 132 requires certain disclosures about net
periodic benefit cost and funding information to be included in
interim reports. The revised SFAS No. 132 is effective
for fiscal years ending after December 31, 2003, and for
interim periods beginning after December 31, 2003. The
disclosures related to the Companys pension plans included
in Note 9 of Notes to the Consolidated Financial Statements
include all relevant disclosures required by the revised
SFAS No. 132.

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CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)

The consolidated selected quarterly financial
data should be read in conjunction with Item 7.
Managements Discussion and Analysis of Financial Condition
and Results of Operations and the audited consolidated
financial statements and the notes thereto included under
Item 8. Financial Statements and Supplementary
Data.

|                                                 |                                           |                                      |       |         |  |         |       |         |  |         |        |         |  |         |        |         |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |       | 
|------------------------------------------------ | ----------------------------------------- | ------------------------------------ | ----- | ------- |  | ------- | ----- | ------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- |  | - | ------ | ----- | 
|                                                 |                                           |                                      |       |        
|                                                 |                                           | 2003                                 |       | 2002   
|                                                 |                                           |                                      |       |        
|                                                 |                                           | Fourth                               |       | Third   |  | Second  |       | First   |  | Fourth  |        | Third   |  | Second  |        | First  
|                                                 |                                           | Quarter                              |       | Quarter |  | Quarter |       | Quarter |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                                                 |                                           |                                      |       |         |  |         |       |         |  |         |        |         |  |         |        |        
|                                                 |                                           |                                     
|                                                 |                                           | (In millions, except per share data)
|Revenues                                         |                                           | $                                    | 506.2 |         |  | $       | 458.1 |         |  | $       | 497.4  |         |  | $       | 453.0  |         |  | $ | 512.9  |       |  | $ | 514.4  |       |  | $ | 501.7  |       |  | $ | 488.7  |      
|Operating income                                 |                                           |                                      | 33.1  |         |  |         | 24.6  |         |  |         | 51.2   |         |  |         | 33.3   |         |  |   | 59.6   |       |  |   | 90.7   |       |  |   | 88.7   |       |  |   | 92.8   |      
|Net income                                       |                                           |                                      | 24.5  |         |  |         | 15.1  |         |  |         | 43.9   |         |  |         | 45.9   |         |  |   | 52.4   |       |  |   | 75.0   |       |  |   | 73.4   |       |  |   | 77.1   |      
|Earnings per ordinary share:                     |                                           |                                      |       |         |  |         |       |         |  |         |        |         |  |         |        |         |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|                                                 | Basic                                     |                                      |       | 0.10    |  |         |       | 0.07    |  |         |        | 0.19    |  |         |        | 0.20    |  |   |        | 0.23  |  |   |        | 0.32  |  |   |        | 0.31  |  |   |        | 0.33  | 
|                                                 | Diluted                                   |                                      |       | 0.10    |  |         |       | 0.06    |  |         |        | 0.19    |  |         |        | 0.20    |  |   |        | 0.22  |  |   |        | 0.32  |  |   |        | 0.31  |  |   |        | 0.33  | 
|Net income includes the following special items: |                                           |                                      |       |         |  |         |       |         |  |         |        |         |  |         |        |         |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|                                                 | Gain on settlement of litigation claim(1) |                                      |       |        |  |         |       |        |  |         |        |        |  |         |        | 22.1    |  |   |        |      |  |   |        |      |  |   |        |      |  |   |        |      | 
|Cash dividends declared per ordinary share:      |                                           |                                      | 0.05  |         |  |         | 0.05  |         |  |         | 0.0375 |         |  |         | 0.0375 |         |  |   | 0.0325 |       |  |   | 0.0325 |       |  |   | 0.0325 |       |  |   | 0.0325 |      
|Price ranges of ordinary shares:                 |                                           |                                      |       |         |  |         |       |         |  |         |        |         |  |         |        |         |  |   |        |       |  |   |        |       |  |   |        |       |  |   |        |      
|                                                 | High                                      |                                      |       | 25.30   |  |         |       | 25.03   |  |         |        | 26.35   |  |         |        | 25.02   |  |   |        | 26.20 |  |   |        | 27.15 |  |   |        | 36.40 |  |   |        | 33.13 | 
|                                                 | Low                                       |                                      |       | 21.03   |  |         |       | 21.52   |  |         |        | 20.35   |  |         |        | 20.10   |  |   |        | 21.90 |  |   |        | 19.33 |  |   |        | 27.35 |  |   |        | 25.00 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company filed a claim in 1993 with the United
    Nations Compensation Commission (UNCC) for losses
    suffered as a result of the Iraqi invasion of Kuwait in 1990.
    The claim was for the loss of four rigs and associated
    equipment, lost revenue and miscellaneous expenditures. During
    the first quarter of 2003, the Governing Council of the UNCC
    awarded the Company compensation in the amount of
    $22.1 million in a final, non-appealable, adjudication of
    the claim.

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REPORT OF INDEPENDENT AUDITORS

ON FINANCIAL STATEMENT SCHEDULES


To the Board of Directors and Shareholders of
GlobalSantaFe Corporation:

Our audits of the consolidated financial
statements referred to in our report dated March 12, 2004,
appearing in the 2003 Annual Report on Form 10-K of
GlobalSantaFe Corporation and subsidiaries also included an
audit of the financial statement schedule listed in
Item 15(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.



| |                               
| | ------------------------------
| | /s/ PRICEWATERHOUSECOOPERS LLP

Houston, Texas

March 12, 2004


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GLOBALSANTAFE CORPORATION AND
SUBSIDIARIES

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS


(In millions)


|                              |                                            |            |   |               |  |                 |   |          |  |            |   |         |   |  |   |     |  |  |   |       |   |  |   |       | 
|----------------------------- | ------------------------------------------ | ---------- | - | ------------- |  | --------------- | - | -------- |  | ---------- | - | ------- | - |  | - | --- |  |  | - | ----- | - |  | - | ----- | 
|                              |                                            |            |   |               |  |                 |   |          |  |           
|                              |                                            |            |   |               |  | Additions       |   |          |  |           
|                              |                                            |            |   |               |  |                 |   |          |  |           
|                              |                                            | Balance at |   | Merger with   |  | Charge (Credit) |   | Charged  |  |            |   | Balance
|                              |                                            | Beginning  |   | Santa Fe      |  | to Costs and    |   | to Other |  |            |   | at End 
|Description                   |                                            | of Year    |   | International |  | Expenses        |   | Accounts |  | Deductions |   | of Year
|                              |                                            |            |   |               |  |                 |   |          |  |            |   |        
|Year ended December 31, 2003: |                                            |            |   |               |  |                 |   |          |  |            |   |         |   |  |   |     |  |  |   |       |   |  |   |      
|                              | Allowance for doubtful accounts receivable |            | $ | 3.4           |  |                 | $ |         |  |            | $ | 4.9     |   |  | $ |    |  |  | $ | (0.4  | ) |  | $ | 7.9   | 
|                              | Deferred tax asset valuation allowance     |            |   | 167.7         |  |                 |   |         |  |            |   | 11.0    |   |  |   | 5.1 |  |  |   | (34.2 | ) |  |   | 149.6 | 
|Year ended December 31, 2002: |                                            |            |   |               |  |                 |   |          |  |            |   |         |   |  |   |     |  |  |   |       |   |  |   |      
|                              | Allowance for doubtful accounts receivable |            | $ | 3.2           |  |                 | $ |         |  |            | $ | 0.2     |   |  | $ |    |  |  | $ |      |   |  | $ | 3.4   | 
|                              | Deferred tax asset valuation allowance     |            |   | 146.6         |  |                 |   |         |  |            |   | 49.6    |   |  |   |    |  |  |   | (28.5 | ) |  |   | 167.7 | 
|Year ended December 31, 2001: |                                            |            |   |               |  |                 |   |          |  |            |   |         |   |  |   |     |  |  |   |       |   |  |   |      
|                              | Allowance for doubtful accounts receivable |            | $ | 4.7           |  |                 | $ | 3.1      |  |            | $ | (4.6    | ) |  | $ |    |  |  | $ |      |   |  | $ | 3.2   | 
|                              | Deferred tax asset valuation allowance     |            |   | 40.7          |  |                 |   | 25.4     |  |            |   | 136.2   |   |  |   |    |  |  |   | (55.7 | ) |  |   | 146.6 | 

95



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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

Not applicable.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

The Company carried out an evaluation, under the
supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the
Companys disclosure controls and procedures as of
December 31, 2003, pursuant to Rule 13a-15(b) of the
Securities Exchange Act of 1934. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures are
effective in timely alerting them to material information
relating to the Company (including its consolidated
subsidiaries) required to be included in the Companys
periodic Securities and Exchange Commission filings. There have
been no changes in the Companys internal control over
financial reporting that occurred during the Companys last
fiscal quarter that have materially affected, or are reasonably
likely to materially affect, the Companys control over
financial reporting.




PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Information relating to the directors of the
Company is incorporated herein by reference to the Sections
entitled Election of Directors, Board
Committees and Other Matters 
Section 16(a) Beneficial Ownership Reporting
Compliance of the Companys definitive proxy
statement which will be filed no later than 120 days after
December 31, 2003.

Information related to the designation of the
Companys audit committee financial expert is incorporated
herein by reference to the section entitled Board
Committees of the Companys definitive proxy
statement which will be filed no later than 120 days after
December 31, 2003.

Information with respect to the Companys
executive officers required by Item 401 of
Regulation S-K is set forth in Part I of this Annual
Report on Form 10-K under the caption Executive
Officers of the Registrant.

The Company has adopted a code of ethics that
applies to the Chief Executive Officer, the Chief Financial
Officer, Treasurer and the Controller. The Company has posted a
copy of the code on the Companys Internet website at:
http://www.gsfdrill.com under the caption Corporate
Governance. Copies of the code may be obtained free of
charge from the Companys website or by requesting a copy
in writing from the Companys Secretary at 15375 Memorial
Drive, Houston, Texas 77079. The Company intends to disclose any
amendments to, or waivers from, a provision of the code of
ethics that applies to the Chief Executive Officer, the Chief
Financial Officer, Treasurer or the Controller by posting such
information on its website.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Information required by Item 11 is
incorporated herein by reference to the Sections entitled
Director Compensation, Executive
Compensation and Employment Agreements and
Termination Agreements of the Companys definitive
proxy statement which will be filed no later than 120 days
after December 31, 2003.






|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

Information related to security ownership
required by Item 12 is incorporated herein by reference to
the Section entitled Security Ownership of Certain
Beneficial Owners, Security Ownership of Directors
and Executive Officers, and Equity Compensation Plan
Information of the Companys definitive proxy
statement which will be filed no later than 120 days after
December 31, 2003.

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|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Information required by Item 13 is
incorporated herein by reference to the Section entitled
Certain Relationships and Related Transactions of
the Companys definitive proxy statement which will be
filed no later than 120 days after December 31, 2003.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

Information required by Item 14 is
incorporated herein by reference to the Section entitled
Fees to Independent Auditors for Fiscal 2002 and
2003 of the Companys definitive proxy statement
which will be filed no later than 120 days after
December 31, 2003.

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PART IV






|         |                                                                      
|-------- | ---------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form  8-K

|    |  |                                                                                               |  |      |    | 
|--- |  | --------------------------------------------------------------------------------------------- |  | ---- | -- | 
|    |  |                                                                                               |  | Page
|    |  |                                                                                               |  |     
|(a) |  | Financial Statements, Schedules and Exhibits                                                  |  |      |    | 
|(1) |  | Financial Statements                                                                          |  |      |    | 
|    |  | Report of Independent Auditors                                                                |  |      | 55 | 
|    |  | Consolidated Statements of Income                                                             |  |      | 56 | 
|    |  | Consolidated Balance Sheets                                                                   |  |      | 57 | 
|    |  | Consolidated Statements of Cash Flows                                                         |  |      | 58 | 
|    |  | Consolidated Statements of Shareholders
    Equity                                           |  |      | 59 | 
|    |  | Notes to Consolidated Financial Statements                                                    |  |      | 60 | 
|(2) |  | Financial Statement Schedule                                                                  |  |      |    | 
|    |  | Report of Independent Auditors                                                                |  |      | 94 | 
|    |  | Schedule II  Valuation and
    Qualifying Accounts                                           |  |      | 95 | 
|    |  | Schedules other than Schedule II are omitted
    for the reason that they are not applicable. |  |      |    | 
|(3) |  | Exhibits                                                                                      |  |      |    | 

The following are included as exhibits to this
Annual Report on Form 10-K (Commission File
No. 1-14634). Exhibits filed herewith are so indicated by a
+. Exhibits incorporated by reference are so
indicated by parenthetical information.

| |     |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1 |  |  | Agreement and Plan of Merger, dated as of
    August 31, 2001, among the Company, Silver Sub, Inc.,
    Gold Merger Sub, Inc. and Global Marine Inc. (incorporated
    herein by this reference to the Companys Current Report on
    Form 8-K filed September 4, 2001).                                                                                                                                                                                                                                                                                                                                                     
| | 3.1 |  |  | Amended and Restated Memorandum of Association of
    the Company, adopted by Special Resolution of the members
    effective November 20, 2001 (incorporated herein by this
    reference to Exhibit 3.1 to the Companys Annual
    Report on Form 10-K for the year ended December 31,
    2001).                                                                                                                                                                                                                                                                                                                          
| | 3.2 |  |  | Amended and Restated Articles of Association of
    the Company, adopted by Special Resolution of the shareholders
    effective November 20, 2001 (incorporated herein by this
    reference to Exhibit 3.2 to the Companys Annual
    Report on Form 10-K for the year ended December 31,
    2001).                                                                                                                                                                                                                                                                                                                       
| | 4.1 |  |  | Section 15.2 of the Amended and Restated
    Articles of Association of the Company requiring advance written
    notice of any nomination or proposal to be submitted by a
    shareholder at any general meeting of shareholders (incorporated
    herein by this reference to Exhibit 4.1 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2001).                                                                                                                                                                                                                                       
| | 4.2 |  |  | Indenture dated as of September 1, 1997,
    between Global Marine Inc. and Wilmington Trust Company, as
    Trustee, relating to Debt Securities of Global Marine Inc.
    (incorporated herein by this reference to Exhibit 4.1 of
    Global Marine Inc.s Registration Statement on
    Form S-4 (No. 333-39033) filed with the Commission on
    October 30, 1997); First Supplemental Indenture dated as of
    June 23, 2000 (incorporated herein by this reference to
    Exhibit 4.2 of Global Marine Inc.s Quarterly Report
    on Form 10-Q (Commission File No. 1-5471) for the
    quarter ended June 30, 2000).
| | 4.3 |  |  | Form of 7 1/8% Exchange Note Due 2007
    (incorporated herein by this reference to Exhibit 4.4 of
    Amendment No. 1 to Global Marine Inc.s Registration
    Statement on Form S-4 (No. 333- 39033) filed with the
    Commission on February 3, 1998).                                                                                                                                                                                                                                                                                                                                                                    
| | 4.4 |  |  | Terms of 7 1/8% Notes Due 2007
    (incorporated herein by this reference to Exhibit 4.5 of
    Global Marine Inc.s Registration Statement on
    Form S-4 (No. 333-39033) filed with the Commission on
    October 30, 1997).                                                                                                                                                                                                                                                                                                                                                                                               
| | 4.5 |  |  | Form of 7% Note Due 2028 (incorporated
    herein by this reference to Exhibit 4.2 of Global Marine
    Inc.s Current Report on Form 8-K (Commission File
    No. 1-5471) dated May 20, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                               

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| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.6   |  |  | Terms of 7% Note Due 2028 (incorporated
    herein by this reference to Exhibit 4.1 of Global Marine
    Inc.s Current Report on Form 8-K (Commission File
    No. 1-5471) dated May 20, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | 4.7   |  |  | Form of Zero Coupon Convertible Debentures Due
    June 23, 2020 (incorporated herein by this reference to
    Exhibit 4.4 of Global Marine Inc.s Quarterly Report
    on Form 10-Q (Commission File No. 1-5471) for the
    quarter ended June 30, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 4.8   |  |  | Indenture dated as of February 1, 2003,
    between GlobalSantaFe Corporation and Wilmington Trust Company,
    as Trustee, relating to Debt Securities of GlobalSantaFe
    Corporation (incorporated herein by this reference to
    Exhibit 4.9 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | 4.9   |  |  | Form of 5% Note due 2013 (incorporated
    herein by this reference to Exhibit 4.10 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 4.10  |  |  | Terms of 5% Note due 2013 (incorporated
    herein by this reference to Exhibit 4.11 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 10.1  |  |  | Intercompany Agreement by and among Kuwait
    Petroleum Corporation, SFIC Holdings (Cayman), Inc. and the
    Company, dated June 9, 1997 (incorporated herein by this
    reference to the Companys Annual Report on Form 20-F
    for the fiscal year ended June 30, 1997); Amendment to
    Intercompany Agreement dated December 26, 2000
    (incorporated herein by this reference to Exhibit 10.39 to
    the Companys Annual Report on Form 10-K for the
    calendar year ended December 31, 2000); Consent and
    Amendment to Intercompany Agreement dated August 31, 2001
    (incorporated herein by this reference to Annex E to the
    joint proxy statement/ prospectus constituting part of Amendment
    No. 1 to the Companys Registration Statement on
    Form S-4 (No. 333-70268) filed October 12, 2001).
| | 10.2  |  |  | Management Services Agreement by and between SFIC
    Holdings (Cayman), Inc. and the Company, dated June 9,
    1997 (incorporated herein by this reference to the
    Companys Annual Report on Form 20-F for the fiscal
    year ended June 30, 1997).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 10.3  |  |  | Agency Agreement between Kuwait Santa Fe
    Braun for Engineering and Petroleum Enterprises(K.S.B.) Company
    K.S.C. and the Company, dated April 1, 1992 (incorporated
    herein by this reference to the Companys Registration
    Statement on Form F-1 (No. 333-6912) filed
    May 14, 1997).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 10.4  |  |  | Drilling Contract between Azerbaijan
    International Operating Company and the Company, executed on
    March 14, 2000, dated effective July 7, 1999
    (incorporated herein by this reference to the Companys
    Report on Form 6-K filed May 5, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 10.5  |  |  | Overall Agreement between Santa Fe
    International Corporation and PPL Shipyard PTE, Ltd. of
    Singapore, dated February 1, 2001 (incorporated herein by
    this reference to Exhibit 10.40 to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 10.6  |  |  | Amendment of Overall Agreement between
    Santa Fe International Corporation and PPL Shipyard PTE,
    Ltd. of Singapore, dated February 1, 2001 (incorporated
    herein by this reference to Exhibit 10.41 to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 10.7  |  |  | Contract for the Construction and Sale of a
    Jackup Drilling Unit (Hull No. 2001) between Santa Fe
    International Corporation and PPL Shipyard PTE, Ltd. of
    Singapore, dated February 1, 2001 (incorporated herein by
    this reference to Exhibit 10.42 to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 10.8  |  |  | Contract for the Construction and Sale of a
    Jackup Drilling Unit (Hull No. 2002) between Santa Fe
    International Corporation and PPL Shipyard PTE, Ltd. of
    Singapore, dated February 1, 2001 (incorporated herein by
    this reference to Exhibit 10.43 to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 10.9  |  |  | Overall Agreement between the Company and PPL
    Shipyard PTE, Ltd. of Singapore, dated April 11, 2001
    (incorporated herein by this reference to Exhibit 10.1 to
    the Companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 10.10 |  |  | Contract for the Construction and Sale of a
    Semi-submersible Drilling Unit (Hull No. P.2003) between
    the Company and PPL Shipyard PTE, Ltd. of Singapore, dated
    April 11, 2001 (incorporated herein by this reference to
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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| |        |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------ |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.11  |  |  | Contract for the Construction and Sale of a
    Semi-submersible Drilling Unit (Hull No. P-2004) between
    the Company and PPL Shipyard PTE, Ltd. of Singapore, dated
    April 11, 2001 (incorporated herein by this reference to
    Exhibit 10.3 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2001).                                                                                                                                                                                                                                                                                                                               
| | 10.12  |  |  | Bareboat Charter Agreement, dated July 2,
    1996, between the United States of America and Global Marine
    Capital Investments Inc. (incorporated herein by this reference
    to Exhibit 10.1 of Global Marine Inc.s Current Report
    on Form 8-K (Commission File No. 1-5471) dated
    August 1, 1996).                                                                                                                                                                                                                                                                                                                                                                 
| | 10.13  |  |  | Head Lease Agreement dated 8th December 1998 by
    and between Nelstar Leasing Company Limited, as lessor, and
    Global Marine Leasing Corporation, as lessee, relating to a
    Glomar Hull 456 class deepwater drillship to be constructed by
    Harland and Wolff Shipbuilding and Heavy Industries Ltd. with
    hull number 1739 (t.b.n. Glomar C.R. Luigs)
    (incorporated herein by this reference to Exhibit 10.10 of
    Global Marine Inc.s Annual Report on Form 10-K
    (Commission File No. 1-5471) for the year ended
    December 31, 1998).                                                                                                             
| | 10.14  |  |  | Guarantee and Indemnity dated 8th December 1998
    by and between Global Marine Inc., as guarantor, and Nelstar
    Leasing Company Limited, as lessor (incorporated herein by this
    reference to Exhibit 10.11 of Global Marine Inc.s
    Annual Report on Form 10-K (Commission File
    No. 1-5471) for the year ended December 31, 1998).                                                                                                                                                                                                                                                                                                                                
| | 10.15  |  |  | Head Lease Agreement dated 8th December 1998 by
    and between BMBF (No. 12) Limited, as lessor, and Global Marine
    International Drilling Corporation, as lessee, relating to one
    double hulled, dynamically positioned ultra-deepwater Glomar
    class 456 drillship to be constructed by Harland and Wolff
    Shipbuilding and Heavy Industries Ltd. with hull number 1740
    (incorporated herein by this reference to Exhibit 10.14 of
    Global Marine Inc.s Annual Report on Form 10-K
    (Commission File No. 1-5471) for the year ended
    December 31, 1998).                                                                                            
| | 10.16  |  |  | Deed of Guarantee and Indemnity dated 8th
    December 1998 by and between Global Marine Inc., as Guarantor,
    and BMBF (No. 12) Limited, as Lessor (incorporated herein
    by this reference to Exhibit 10.15 of Global Marine
    Inc.s Annual Report on Form 10-K (Commission File
    No. 1-5471) for the year ended December 31, 1998).                                                                                                                                                                                                                                                                                                                                  
| | 10.17  |  |  | Head-lease Agreement dated January 30, 2003
    between GlobalSantaFe Drilling Company (North Sea) Limited, as
    lessor, and Sogelease B.V., as lessee, in respect of the jack-up
    drilling unit known as Britannia.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 10.18  |  |  | Sub-lease Agreement dated January 30, 2003
    between Sogelease B.V., as sub-lessor, and GlobalSantaFe
    Drilling Company (North Sea) Limited, as sub-lessee, in respect
    of the jack-up drilling unit known as Britannia.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 10.19  |  |  | Guarantee and Indemnity dated January 30,
    2003 between GlobalSantaFe Corporation, as guarantor, and
    Sogelease B.V. relating to the jack-up drilling unit known as
    Britannia.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | *10.20 |  |  | Amended and Restated Employment Agreement dated
    as of August 16, 2001, among Global Marine Inc., Global
    Marine Corporate Services Inc. (subsequently assumed by the
    Company) and Robert E. Rose; First Amendment thereto dated
    August 31, 2001 (incorporated herein by this reference to
    Exhibit 10.3 of Global Marine Inc.s Quarterly Report
    on Form 10-Q (Commission File No. 1-5471) for the
    quarter ended September 30, 2001); and Second Amendment
    thereto dated July 29, 2003, (incorporated herein by this
    reference to Exhibit 10.1 of the Companys Quarterly
    report on Form 10-Q for the quarter ended
    September 30, 2003).
| | *10.21 |  |  | Employee Severance Protection Plan adopted
    May 2, 1997 (incorporated herein by this reference to the
    Companys Annual Report on Form 20-F for the fiscal
    year ended June 30, 1997); Form of Executive Severance
    Protection Agreement thereunder, effective October 18,
    1999, between the Company and fourteen executive officers,
    respectively (incorporated herein by this reference to the
    Companys Annual Report on Form 20-F for the calendar
    year ended December 31, 1999).                                                                                                                                                                 
| | 10.22  |  |  | Amendments to Executive Severance Protection
    Agreements, dated October 25, 2001, between the Company and
    three executive officers, respectively (incorporated herein by
    this reference to Exhibit 10.1 of the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2002).                                                                                                                                                                                                                                                                                                                                                                  

100



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| |        |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ------ |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *10.23 |  |  | Amendment to Executive Severance Protection
    Agreement, dated August 31, 2001, between the Company and
    C. Stedman Garber, Jr. (incorporated herein by this
    reference to Exhibit 10.32 to the Companys Annual
    Report on Form 10-K for the year ended December 31,
    2001); and Employment Agreement effective as of March 14,
    2003, (incorporated herein by this reference to
    Exhibit 10.1 of the Companys Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | *10.24 |  |  | Form of Severance Agreement dated August 16,
    2001, between Global Marine Inc. and six executive officers,
    respectively (subsequently assumed by the Company) (incorporated
    herein by this reference to Exhibit 10.4 of Global Marine
    Inc.s Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended September 30, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | *10.25 |  |  | Supplemental Agreement to Severance Agreement
    dated January 20, 2003 by and between Global Marine Inc.,
    GlobalSantaFe Corporation and W. Matt Ralls.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | *10.26 |  |  | Form of Severance Agreement dated July 29,
    2003, between the Company and three executive officers,
    respectively (incorporated herein by this reference to
    Exhibit 10.2 of the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | *10.27 |  |  | Global Marine Severance Program for Shorebased
    Staff Personnel, as amended and restated effective
    August 16, 2001 (subsequently assumed by the Company)
    (incorporated herein by this reference to Exhibit 10.5 of
    Global Marine Inc.s Quarterly Report on Form 10-Q
    (Commission File No. 1-5471) for the quarter ended
    September 30, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | *10.28 |  |  | 1997 Long Term Incentive Plan (incorporated
    herein by this reference to the Companys Registration
    Statement on Form S-8 (No. 333-7070) filed
    June 13, 1997); Amendment to 1997 Long Term Incentive Plan
    (incorporated herein by this reference to the Companys
    Annual Report on Form 20-F for the calendar year ended
    December 31, 1998); Amendment to 1997 Long Term Incentive
    Plan dated December 1, 1999 (incorporated herein by this
    reference to the Companys Annual Report on Form 20-F
    for the calendar year ended December 31, 1999).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | *10.29 |  |  | GlobalSantaFe Corporation 2001 Long-Term
    Incentive Plan (incorporated herein by this reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | *10.30 |  |  | Global Marine Inc. 1989 Stock Option and
    Incentive Plan (incorporated herein by this reference to
    Exhibit 10.6 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1988); First Amendment (incorporated
    herein by this reference to Exhibit 10.6 of Global Marine
    Inc.s Annual Report on Form 10-K (Commission File
    No. 1-5471) for the year ended December 31, 1990);
    Second Amendment (incorporated herein by this reference to
    Exhibit 10.7 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1991); Third Amendment (incorporated
    herein by this reference to Exhibit 10.19 of Global Marine
    Inc.s Annual Report on Form 10-K (Commission File
    No. 1-5471) for the year ended December 31, 1993.);
    Fourth Amendment (incorporated herein by this reference to
    Exhibit 10.16 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1994.); Fifth Amendment (incorporated
    herein by this reference to Exhibit 10.1 of Global Marine
    Inc.s Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended June 30, 1996.);
    Sixth Amendment (incorporated herein by this reference to
    Exhibit 10.18 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1996).
| | *10.31 |  |  | GlobalSantaFe Corporation 1998 Stock Option and
    Incentive Plan (incorporated herein by this reference to
    Exhibit 10.1 of Global Marine Inc.s Quarterly Report
    on Form 10-Q (Commission File No. 1-5471) for the
    quarter ended March 31, 1998); First Amendment
    (incorporated herein by this reference to Exhibit 10.2 of
    Global Marine Inc.s Quarterly Report on Form 10-Q
    (Commission File No. 1-5471) for the quarter ended
    June 30, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | *10.32 |  |  | GlobalSantaFe Corporation 2003 Long-Term
    Incentive Plan (incorporated herein by this reference to
    Exhibit 10.2 of the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | *10.33 |  |  | Memorandum dated November 20, 2001,Regarding
    Grant of Restricted Stock, including Terms and Conditions of
    Restricted Stock (incorporated herein by this reference to
    Exhibit 10.39 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

101



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| |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ------- |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *10.34  |  |  | Form of Memorandum dated March 4, 2002,
    Regarding Grant of Performance-Based Restricted Units to certain
    executive officers of the Company, respectively, including Terms
    and Conditions of Performance-Based Restricted Units
    (incorporated herein by this reference to Exhibit 10.40 to
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | *+10.35 |  |  | Forms of Memoranda Regarding Grant of Performance
    Units to certain executive officers of the Company, including
    terms and conditions for 2003  2005 and
    2004  2006 performance cycles.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | *10.36  |  |  | Form of Notice of Grant of Stock Options used for
    stock option grants under the 2001 Long-Term Incentive Plan and
    the GlobalSantaFe Corporation 1998 Stock Option and Incentive
    Plan as amended (incorporated herein by this reference to
    Exhibit 10.41 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | *+10.37 |  |  | Form of Notice of Grant of Stock Options
    currently in use for new stock option grants under the 2003
    Long-Term Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | *+10.38 |  |  | Form of Notice of Stock Option Grant used for new
    stock option grants to non-employee directors under the
    GlobalSantaFe Corporation 2003 Long-Term Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | *10.39  |  |  | Global Marine Executive Life Insurance Plan
    (incorporated herein by this reference to Exhibit 10.5 of
    Global Marine Inc.s Annual Report on Form 10-K
    (Commission File No. 1-5471) for the year ended
    December 31, 1988).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | *10.40  |  |  | Equity Restoration Plan (incorporated herein by
    this reference to the Companys Registration Statement on
    Form F-1 (No. 333-6912) filed May 14, 1997).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | *10.41  |  |  | GlobalSantaFe Supplemental Executive Retirement
    Plan (incorporated herein by this reference to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | *10.42  |  |  | Global Marine Executive Deferred Compensation
    Trust as established effective January 1, 1995
    (incorporated herein by this reference to Exhibit 10.24 of
    Global Marine Inc.s Annual Report on Form 10-K
    (Commission File No. 1-5471) for the year ended
    December 31, 1995); First Amendment (incorporated herein by
    this reference to Exhibit 10.2 of Global Marine Inc.s
    Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended March 31, 1997);
    Second Amendment and Appointment of Successor Trustee dated as
    of June 1, 1999, by and between Global Marine Corporate
    Services Inc. and SEI Trust Company (incorporated herein by this
    reference to Exhibit 10.2 of Global Marine Inc.s
    Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended June 30, 1999).
| | *10.43  |  |  | Global Marine Benefit Equalization Retirement
    Plan effective January 1, 1990 (incorporated herein by this
    reference to Exhibit 10.8 of Global Marine Inc.s
    Annual Report on Form 10-K (Commission File
    No. 1-5471) for the year ended December 31, 1989).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | *10.44  |  |  | Global Marine Benefit Equalization Retirement
    Trust as established effective January 1, 1990
    (incorporated herein by this reference to Exhibit 10.9 of
    Global Marine Inc.s Annual Report on Form 10-K
    (Commission File No. 1-5471) for the year ended
    December 31, 1989); First Amendment and Appointment of
    Successor Trustee dated as of June 1, 1999, by and between
    Global Marine Corporate Services Inc. and SEI Trust Company
    (incorporated herein by this reference to Exhibit 10.3 of
    Global Marine Inc.s Quarterly Report on Form 10-Q
    (Commission File No. 1-5471) for the quarter ended
    June 30, 1999).                                                                                                                                                                                                               
| | *10.45  |  |  | Form of GlobalSantaFe Indemnity Agreement
    (incorporated herein by this reference to Exhibit 10.51 to
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | *+10.46 |  |  | Resolution of the Companys Board of
    Directors dated December 16, 2003, regarding Non-Employee
    Director Compensation Schedule.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | *10.47  |  |  | Non-Employee Director Deferred Compensation Plan
    (incorporated herein by this reference to the Companys
    Annual Report on Form 20-F for the calendar year ended
    December 31, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

102



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| |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *10.48  |  |  | 1997 Non-Employee Director Stock Option Plan
    (incorporated herein by this reference to the Companys
    Registration Statement on Form S-8 (No. 333-7070) filed
    June 13, 1997); Amendment to 1997 Non-Employee Director
    Stock Option Plan (incorporated herein by this reference to the
    Companys Annual Report on Form 20-F for the calendar
    year ended December 31, 1998); Amendment to 1997
    Non-Employee Director Stock Option Plan (incorporated herein by
    this reference to the Companys Annual Report on
    Form 20-F for the calendar year ended December 31,
    1998); Amendment to 1997 Non-Employee Director Stock Option Plan
    dated March 23, 1999 (incorporated herein by this reference
    to the Companys Annual Report on Form 20-F for the
    calendar year ended December 31, 1999); Amendment to
    Non-Employee Director Stock Option Plan dated December 1,
    1999 (incorporated herein by this reference to the
    Companys Annual Report on Form 20-F for the calendar
    year ended December 31, 1999).
| | *10.49  |  |  | Global Marine Inc. 1990 Non-Employee Director
    Stock Option Plan (incorporated herein by this reference to
    Exhibit 10.18 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1991); First Amendment (incorporated
    herein by this reference to Exhibit 10.1 of Global Marine
    Inc.s Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended June 30, 1995);
    Second Amendment (incorporated herein by this reference to
    Exhibit 10.37 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1996).                                                                                                                                                                                                                                                                                                                                                                                 
| | *10.50  |  |  | GlobalSantaFe Corporation 2001 Non-Employee
    Director Stock Option and Incentive Plan (incorporated herein by
    this reference to the Companys Registration Statement on
    Form S-8 (No. 333-73878) filed November 21, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | *+10.51 |  |  | GlobalSantaFe Management Annual Incentive Plan
    for 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | *10.52  |  |  | Global Marine Personal Financial Planning
    Assistance Program for Senior Executive Officers, adopted
    August 16, 2001 Amendment (incorporated herein by this
    reference to Exhibit 10.1 of Global Marine Inc.s
    Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended September 30, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | *10.53  |  |  | Employment Agreement dated as of January 8,
    2002, by and among GlobalSantaFe Corporate Services Inc.,
    GlobalSantaFe Corporation and Douglas C. Stegall; and Employment
    Agreement Amendment thereto dated as of November 22, 2002
    (incorporated herein by this reference to Exhibit 10.51 of
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | + 12.1  |  |  | Statement setting forth detail of Computation of
    Ratios of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | + 21.1  |  |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | +23.1   |  |  | Consent of PricewaterhouseCoopers
    LLP, Independent Accountants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | +31.1   |  |  | Chief Executive Officers Certification
    pursuant to Rule 13a  15(e) and 15d 
    15(e) of the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | +31.2   |  |  | Chief Financial Officers Certification
    pursuant to Rule 13a  15(e) and 15d 
    15(e) of the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | +32.1   |  |  | Chief Executive Officers Certification
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | +32.2   |  |  | Chief Financial Officers Certification
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 99.1    |  |  | Press Release dated August 6, 2002,
    announcing a share repurchase program (incorporated herein by
    this reference to Exhibit 99.1 to the Companys
    Current Report on Form 8-K dated August 7, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



---



|  |                
|- | ---------------
|+ | Filed herewith.



|  |                                                                       
|- | ----------------------------------------------------------------------
|* | Indicates management contract or compensatory
    plan or arrangement.



| |                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company hereby undertakes, pursuant to
    Regulation S-K, Item 601(b), paragraph (4) (iii),
    to furnish to the Securities and Exchange Commission on request
    agreements defining the rights of holders of long-term debt of
    the Company and its consolidated subsidiaries not filed herewith
    in accordance with said Item.

(b) Reports on Form 8-K

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The Company filed the following Current Reports
on Form 8-K during the last quarter of 2003:

|                  |  |                                                                                     |  |                            |      | 
|----------------- |  | ----------------------------------------------------------------------------------- |  | -------------------------- | ---- | 
|Filing Date       |  | Items Reported                                                                      |  | Financial Statements Filed
|                  |  |                                                                                     |  |                           
|October 3, 2003   |  | Item 7, Financial Statements and Exhibits;
    and Item 9, Regulation FD Disclosure |  |                            | None | 
|October 22, 2003  |  | Item 12, Results of Operations and Financial
    Disclosure                         |  |                            | None | 
|                 
|November 12, 2003 |  | Item 9, Regulation FD Disclosure                                                    |  |                            | None | 
|                 
|December 4, 2003  |  | Item 9, Regulation FD Disclosure                                                    |  |                            | None | 

104



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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.



| |                          
| | -------------------------
| | GLOBALSANTAFE CORPORATION
| | (Registrant)             

Date: March 12, 2004

| |     |                  
| | --- | -----------------
| | By: | /s/ W. MATT RALLS

| |                            
| | ---------------------------
| |                            
| | (W. Matt Ralls)            
| | Senior Vice President      
| | and Chief Financial Officer

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.

|                                             |  |                                                                                         |  |                |  |     
|-------------------------------------------- |  | --------------------------------------------------------------------------------------- |  | -------------- |  | ----
|                                             |  | Signature                                                                               |  | Title          |  | Date
|                                             |  |                                                                                         |  |                |  |     
|                                            
|/s/ JON A. MARSHALL(Jon A. Marshall)         |  | President, Chief Executive Officer
    and Director
    (Principal Executive Officer)   |  | March 12, 2004
|                                            
|/s/ W. MATT RALLS(W. Matt Ralls)             |  | Senior Vice President
    and Chief Financial Officer
    (Principal Financial Officer) |  | March 12, 2004
|                                            
|/s/ MICHAEL R. DAWSON(Michael R. Dawson)     |  | Vice President and Controller
    (Principal Accounting Officer)                        |  | March 12, 2004
|                                            
|/s/ ROBERT E. ROSE(Robert E. Rose)           |  | Chairman of the Board                                                                   |  | March 12, 2004
|                                            
|/s/ FERDINAND A. BERGER(Ferdinand A. Berger) |  | Director                                                                                |  | March 12, 2004
|                                            
|/s/ THOMAS W. CASON(Thomas W. Cason)         |  | Director                                                                                |  | March 12, 2004
|                                            
|/s/ RICHARD L. GEORGE(Richard L. George)     |  | Director                                                                                |  | March 12, 2004
|                                            
|/s/ KHALED R. AL-HAROON(Khaled R. Al-Haroon) |  | Director                                                                                |  | March 12, 2004
|                                            
|/s/ C. RUSSELL LUIGS(C. Russell Luigs)       |  | Director                                                                                |  | March 12, 2004
|                                            
|/s/ EDWARD R. MULLER(Edward R. Muller)       |  | Director                                                                                |  | March 12, 2004

105



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|                                           |  |           |  |                |  |     
|------------------------------------------ |  | --------- |  | -------------- |  | ----
|                                           |  | Signature |  | Title          |  | Date
|                                           |  |           |  |                |  |     
|                                          
|/s/ PAUL J. POWERS(Paul J. Powers)         |  | Director  |  | March 12, 2004
|                                          
|/s/ MAHA A. R. RAZZUQI(Maha A. R. Razzuqi) |  | Director  |  | March 12, 2004
|                                          
|/s/ STEPHEN J. SOLARZ(Stephen J. Solarz)   |  | Director  |  | March 12, 2004
|                                          
|/s/ CARROLL W. SUGGS(Carroll W. Suggs)     |  | Director  |  | March 12, 2004
|                                          
|/s/ NADER H. SULTAN(Nader H. Sultan)       |  | Director  |  | March 12, 2004
|                                          
|/s/ JOHN L. WHITMIRE(John L. Whitmire)     |  | Director  |  | March 12, 2004

106



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EXHIBIT INDEX

The following are included as exhibits to this
Annual Report on Form 10-K (Commission File
No. 1-14634). Exhibits filed herewith are so indicated by a
+. Exhibits incorporated by reference are so
indicated by parenthetical information.

| |      |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ---- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.1  |  |  | Agreement and Plan of Merger, dated as of
    August 31, 2001, among the Company, Silver Sub, Inc.,
    Gold Merger Sub, Inc. and Global Marine Inc. (incorporated
    herein by this reference to the Companys Current Report on
    Form 8-K filed September 4, 2001).                                                                                                                                                                                                                                                                                                                                                     
| | 3.1  |  |  | Amended and Restated Memorandum of Association of
    the Company, adopted by Special Resolution of the members
    effective November 20, 2001 (incorporated herein by this
    reference to Exhibit 3.1 to the Companys Annual
    Report on Form 10-K for the year ended December 31,
    2001).                                                                                                                                                                                                                                                                                                                          
| | 3.2  |  |  | Amended and Restated Articles of Association of
    the Company, adopted by Special Resolution of the shareholders
    effective November 20, 2001 (incorporated herein by this
    reference to Exhibit 3.2 to the Companys Annual
    Report on Form 10-K for the year ended December 31,
    2001).                                                                                                                                                                                                                                                                                                                       
| | 4.1  |  |  | Section 15.2 of the Amended and Restated
    Articles of Association of the Company requiring advance written
    notice of any nomination or proposal to be submitted by a
    shareholder at any general meeting of shareholders (incorporated
    herein by this reference to Exhibit 4.1 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2001).                                                                                                                                                                                                                                       
| | 4.2  |  |  | Indenture dated as of September 1, 1997,
    between Global Marine Inc. and Wilmington Trust Company, as
    Trustee, relating to Debt Securities of Global Marine Inc.
    (incorporated herein by this reference to Exhibit 4.1 of
    Global Marine Inc.s Registration Statement on
    Form S-4 (No. 333-39033) filed with the Commission on
    October 30, 1997); First Supplemental Indenture dated as of
    June 23, 2000 (incorporated herein by this reference to
    Exhibit 4.2 of Global Marine Inc.s Quarterly Report
    on Form 10-Q (Commission File No. 1-5471) for the
    quarter ended June 30, 2000).
| | 4.3  |  |  | Form of 7 1/8% Exchange Note Due 2007
    (incorporated herein by this reference to Exhibit 4.4 of
    Amendment No. 1 to Global Marine Inc.s Registration
    Statement on Form S-4 (No. 333- 39033) filed with the
    Commission on February 3, 1998).                                                                                                                                                                                                                                                                                                                                                                    
| | 4.4  |  |  | Terms of 7 1/8% Notes Due 2007
    (incorporated herein by this reference to Exhibit 4.5 of
    Global Marine Inc.s Registration Statement on
    Form S-4 (No. 333-39033) filed with the Commission on
    October 30, 1997).                                                                                                                                                                                                                                                                                                                                                                                               
| | 4.5  |  |  | Form of 7% Note Due 2028 (incorporated
    herein by this reference to Exhibit 4.2 of Global Marine
    Inc.s Current Report on Form 8-K (Commission File
    No. 1-5471) dated May 20, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 4.6  |  |  | Terms of 7% Note Due 2028 (incorporated
    herein by this reference to Exhibit 4.1 of Global Marine
    Inc.s Current Report on Form 8-K (Commission File
    No. 1-5471) dated May 20, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                              
| | 4.7  |  |  | Form of Zero Coupon Convertible Debentures Due
    June 23, 2020 (incorporated herein by this reference to
    Exhibit 4.4 of Global Marine Inc.s Quarterly Report
    on Form 10-Q (Commission File No. 1-5471) for the
    quarter ended June 30, 2000).                                                                                                                                                                                                                                                                                                                                                                   
| | 4.8  |  |  | Indenture dated as of February 1, 2003,
    between GlobalSantaFe Corporation and Wilmington Trust Company,
    as Trustee, relating to Debt Securities of GlobalSantaFe
    Corporation (incorporated herein by this reference to
    Exhibit 4.9 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2002).                                                                                                                                                                                                                                                                                     
| | 4.9  |  |  | Form of 5% Note due 2013 (incorporated
    herein by this reference to Exhibit 4.10 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 4.10 |  |  | Terms of 5% Note due 2013 (incorporated
    herein by this reference to Exhibit 4.11 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                               



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| |       |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.1  |  |  | Intercompany Agreement by and among Kuwait
    Petroleum Corporation, SFIC Holdings (Cayman), Inc. and the
    Company, dated June 9, 1997 (incorporated herein by this
    reference to the Companys Annual Report on Form 20-F
    for the fiscal year ended June 30, 1997); Amendment to
    Intercompany Agreement dated December 26, 2000
    (incorporated herein by this reference to Exhibit 10.39 to
    the Companys Annual Report on Form 10-K for the
    calendar year ended December 31, 2000); Consent and
    Amendment to Intercompany Agreement dated August 31, 2001
    (incorporated herein by this reference to Annex E to the
    joint proxy statement/ prospectus constituting part of Amendment
    No. 1 to the Companys Registration Statement on
    Form S-4 (No. 333-70268) filed October 12, 2001).
| | 10.2  |  |  | Management Services Agreement by and between SFIC
    Holdings (Cayman), Inc. and the Company, dated June 9,
    1997 (incorporated herein by this reference to the
    Companys Annual Report on Form 20-F for the fiscal
    year ended June 30, 1997).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | 10.3  |  |  | Agency Agreement between Kuwait Santa Fe
    Braun for Engineering and Petroleum Enterprises(K.S.B.) Company
    K.S.C. and the Company, dated April 1, 1992 (incorporated
    herein by this reference to the Companys Registration
    Statement on Form F-1 (No. 333-6912) filed
    May 14, 1997).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 10.4  |  |  | Drilling Contract between Azerbaijan
    International Operating Company and the Company, executed on
    March 14, 2000, dated effective July 7, 1999
    (incorporated herein by this reference to the Companys
    Report on Form 6-K filed May 5, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | 10.5  |  |  | Overall Agreement between Santa Fe
    International Corporation and PPL Shipyard PTE, Ltd. of
    Singapore, dated February 1, 2001 (incorporated herein by
    this reference to Exhibit 10.40 to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | 10.6  |  |  | Amendment of Overall Agreement between
    Santa Fe International Corporation and PPL Shipyard PTE,
    Ltd. of Singapore, dated February 1, 2001 (incorporated
    herein by this reference to Exhibit 10.41 to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended March 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | 10.7  |  |  | Contract for the Construction and Sale of a
    Jackup Drilling Unit (Hull No. 2001) between Santa Fe
    International Corporation and PPL Shipyard PTE, Ltd. of
    Singapore, dated February 1, 2001 (incorporated herein by
    this reference to Exhibit 10.42 to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 10.8  |  |  | Contract for the Construction and Sale of a
    Jackup Drilling Unit (Hull No. 2002) between Santa Fe
    International Corporation and PPL Shipyard PTE, Ltd. of
    Singapore, dated February 1, 2001 (incorporated herein by
    this reference to Exhibit 10.43 to the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | 10.9  |  |  | Overall Agreement between the Company and PPL
    Shipyard PTE, Ltd. of Singapore, dated April 11, 2001
    (incorporated herein by this reference to Exhibit 10.1 to
    the Companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 10.10 |  |  | Contract for the Construction and Sale of a
    Semi-submersible Drilling Unit (Hull No. P.2003) between
    the Company and PPL Shipyard PTE, Ltd. of Singapore, dated
    April 11, 2001 (incorporated herein by this reference to
    Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 10.11 |  |  | Contract for the Construction and Sale of a
    Semi-submersible Drilling Unit (Hull No. P-2004) between
    the Company and PPL Shipyard PTE, Ltd. of Singapore, dated
    April 11, 2001 (incorporated herein by this reference to
    Exhibit 10.3 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | 10.12 |  |  | Bareboat Charter Agreement, dated July 2,
    1996, between the United States of America and Global Marine
    Capital Investments Inc. (incorporated herein by this reference
    to Exhibit 10.1 of Global Marine Inc.s Current Report
    on Form 8-K (Commission File No. 1-5471) dated
    August 1, 1996).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



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##### Table of Contents



| |        |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------ |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10.13  |  |  | Head Lease Agreement dated 8th December 1998 by
    and between Nelstar Leasing Company Limited, as lessor, and
    Global Marine Leasing Corporation, as lessee, relating to a
    Glomar Hull 456 class deepwater drillship to be constructed by
    Harland and Wolff Shipbuilding and Heavy Industries Ltd. with
    hull number 1739 (t.b.n. Glomar C.R. Luigs)
    (incorporated herein by this reference to Exhibit 10.10 of
    Global Marine Inc.s Annual Report on Form 10-K
    (Commission File No. 1-5471) for the year ended
    December 31, 1998).                                                                                                             
| | 10.14  |  |  | Guarantee and Indemnity dated 8th December 1998
    by and between Global Marine Inc., as guarantor, and Nelstar
    Leasing Company Limited, as lessor (incorporated herein by this
    reference to Exhibit 10.11 of Global Marine Inc.s
    Annual Report on Form 10-K (Commission File
    No. 1-5471) for the year ended December 31, 1998).                                                                                                                                                                                                                                                                                                                                
| | 10.15  |  |  | Head Lease Agreement dated 8th December 1998 by
    and between BMBF (No. 12) Limited, as lessor, and Global Marine
    International Drilling Corporation, as lessee, relating to one
    double hulled, dynamically positioned ultra-deepwater Glomar
    class 456 drillship to be constructed by Harland and Wolff
    Shipbuilding and Heavy Industries Ltd. with hull number 1740
    (incorporated herein by this reference to Exhibit 10.14 of
    Global Marine Inc.s Annual Report on Form 10-K
    (Commission File No. 1-5471) for the year ended
    December 31, 1998).                                                                                            
| | 10.16  |  |  | Deed of Guarantee and Indemnity dated 8th
    December 1998 by and between Global Marine Inc., as Guarantor,
    and BMBF (No. 12) Limited, as Lessor (incorporated herein
    by this reference to Exhibit 10.15 of Global Marine
    Inc.s Annual Report on Form 10-K (Commission File
    No. 1-5471) for the year ended December 31, 1998).                                                                                                                                                                                                                                                                                                                                  
| | 10.17  |  |  | Head-lease Agreement dated January 30, 2003
    between GlobalSantaFe Drilling Company (North Sea) Limited, as
    lessor, and Sogelease B.V., as lessee, in respect of the jack-up
    drilling unit known as Britannia.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | 10.18  |  |  | Sub-lease Agreement dated January 30, 2003
    between Sogelease B.V., as sub-lessor, and GlobalSantaFe
    Drilling Company (North Sea) Limited, as sub-lessee, in respect
    of the jack-up drilling unit known as Britannia.                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | 10.19  |  |  | Guarantee and Indemnity dated January 30,
    2003 between GlobalSantaFe Corporation, as guarantor, and
    Sogelease B.V. relating to the jack-up drilling unit known as
    Britannia.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | *10.20 |  |  | Amended and Restated Employment Agreement dated
    as of August 16, 2001, among Global Marine Inc., Global
    Marine Corporate Services Inc. (subsequently assumed by the
    Company) and Robert E. Rose; First Amendment thereto dated
    August 31, 2001 (incorporated herein by this reference to
    Exhibit 10.3 of Global Marine Inc.s Quarterly Report
    on Form 10-Q (Commission File No. 1-5471) for the
    quarter ended September 30, 2001); and Second Amendment
    thereto dated July 29, 2003, (incorporated herein by this
    reference to Exhibit 10.1 of the Companys Quarterly
    report on Form 10-Q for the quarter ended
    September 30, 2003).
| | *10.21 |  |  | Employee Severance Protection Plan adopted
    May 2, 1997 (incorporated herein by this reference to the
    Companys Annual Report on Form 20-F for the fiscal
    year ended June 30, 1997); Form of Executive Severance
    Protection Agreement thereunder, effective October 18,
    1999, between the Company and fourteen executive officers,
    respectively (incorporated herein by this reference to the
    Companys Annual Report on Form 20-F for the calendar
    year ended December 31, 1999).                                                                                                                                                                 
| | 10.22  |  |  | Amendments to Executive Severance Protection
    Agreements, dated October 25, 2001, between the Company and
    three executive officers, respectively (incorporated herein by
    this reference to Exhibit 10.1 of the Companys
    Quarterly Report on Form 10-Q for the quarter ended
    March 31, 2002).                                                                                                                                                                                                                                                                                                                                                                  
| | *10.23 |  |  | Amendment to Executive Severance Protection
    Agreement, dated August 31, 2001, between the Company and
    C. Stedman Garber, Jr. (incorporated herein by this
    reference to Exhibit 10.32 to the Companys Annual
    Report on Form 10-K for the year ended December 31,
    2001); and Employment Agreement effective as of March 14,
    2003, (incorporated herein by this reference to
    Exhibit 10.1 of the Companys Quarterly Report on
    Form 10-Q for the quarter ended March 31, 2003).                                                                                                                                                                     
| | *10.24 |  |  | Form of Severance Agreement dated August 16,
    2001, between Global Marine Inc. and six executive officers,
    respectively (subsequently assumed by the Company) (incorporated
    herein by this reference to Exhibit 10.4 of Global Marine
    Inc.s Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended September 30, 2001).                                                                                                                                                                                                                                                                                                             



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| |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *10.25  |  |  | Supplemental Agreement to Severance Agreement
    dated January 20, 2003 by and between Global Marine Inc.,
    GlobalSantaFe Corporation and W. Matt Ralls.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | *10.26  |  |  | Form of Severance Agreement dated July 29,
    2003, between the Company and three executive officers,
    respectively (incorporated herein by this reference to
    Exhibit 10.2 of the Companys Quarterly Report on
    Form 10-Q for the quarter ended September 30, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | *10.27  |  |  | Global Marine Severance Program for Shorebased
    Staff Personnel, as amended and restated effective
    August 16, 2001 (subsequently assumed by the Company)
    (incorporated herein by this reference to Exhibit 10.5 of
    Global Marine Inc.s Quarterly Report on Form 10-Q
    (Commission File No. 1-5471) for the quarter ended
    September 30, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | *10.28  |  |  | 1997 Long Term Incentive Plan (incorporated
    herein by this reference to the Companys Registration
    Statement on Form S-8 (No. 333-7070) filed
    June 13, 1997); Amendment to 1997 Long Term Incentive Plan
    (incorporated herein by this reference to the Companys
    Annual Report on Form 20-F for the calendar year ended
    December 31, 1998); Amendment to 1997 Long Term Incentive
    Plan dated December 1, 1999 (incorporated herein by this
    reference to the Companys Annual Report on Form 20-F
    for the calendar year ended December 31, 1999).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | *10.29  |  |  | GlobalSantaFe Corporation 2001 Long-Term
    Incentive Plan (incorporated herein by this reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | *10.30  |  |  | Global Marine Inc. 1989 Stock Option and
    Incentive Plan (incorporated herein by this reference to
    Exhibit 10.6 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1988); First Amendment (incorporated
    herein by this reference to Exhibit 10.6 of Global Marine
    Inc.s Annual Report on Form 10-K (Commission File
    No. 1-5471) for the year ended December 31, 1990);
    Second Amendment (incorporated herein by this reference to
    Exhibit 10.7 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1991); Third Amendment (incorporated
    herein by this reference to Exhibit 10.19 of Global Marine
    Inc.s Annual Report on Form 10-K (Commission File
    No. 1-5471) for the year ended December 31, 1993.);
    Fourth Amendment (incorporated herein by this reference to
    Exhibit 10.16 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1994.); Fifth Amendment (incorporated
    herein by this reference to Exhibit 10.1 of Global Marine
    Inc.s Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended June 30, 1996.);
    Sixth Amendment (incorporated herein by this reference to
    Exhibit 10.18 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1996).
| | *10.31  |  |  | GlobalSantaFe Corporation 1998 Stock Option and
    Incentive Plan (incorporated herein by this reference to
    Exhibit 10.1 of Global Marine Inc.s Quarterly Report
    on Form 10-Q (Commission File No. 1-5471) for the
    quarter ended March 31, 1998); First Amendment
    (incorporated herein by this reference to Exhibit 10.2 of
    Global Marine Inc.s Quarterly Report on Form 10-Q
    (Commission File No. 1-5471) for the quarter ended
    June 30, 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | *10.32  |  |  | GlobalSantaFe Corporation 2003 Long-Term
    Incentive Plan (incorporated herein by this reference to
    Exhibit 10.2 of the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2003).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | *10.33  |  |  | Memorandum dated November 20, 2001,Regarding
    Grant of Restricted Stock, including Terms and Conditions of
    Restricted Stock (incorporated herein by this reference to
    Exhibit 10.39 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | *10.34  |  |  | Form of Memorandum dated March 4, 2002,
    Regarding Grant of Performance-Based Restricted Units to certain
    executive officers of the Company, respectively, including Terms
    and Conditions of Performance-Based Restricted Units
    (incorporated herein by this reference to Exhibit 10.40 to
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | *+10.35 |  |  | Forms of Memoranda Regarding Grant of Performance
    Units to certain executive officers of the Company, including
    terms and conditions for 2003  2005 and
    2004  2006 performance cycles.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



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##### Table of Contents



| |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ------- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *10.36  |  |  | Form of Notice of Grant of Stock Options used for
    stock option grants under the 2001 Long-Term Incentive Plan and
    the GlobalSantaFe Corporation 1998 Stock Option and Incentive
    Plan as amended (incorporated herein by this reference to
    Exhibit 10.41 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | *+10.37 |  |  | Form of Notice of Grant of Stock Options
    currently in use for new stock option grants under the 2003
    Long-Term Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | *+10.38 |  |  | Form of Notice of Stock Option Grant used for
    stock option grants to non-employee directors under the
    GlobalSantaFe Corporation 2003 Long-Term Incentive Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | *10.39  |  |  | Global Marine Executive Life Insurance Plan
    (incorporated herein by this reference to Exhibit 10.5 of
    Global Marine Inc.s Annual Report on Form 10-K
    (Commission File No. 1-5471) for the year ended
    December 31, 1988).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | *10.40  |  |  | Equity Restoration Plan (incorporated herein by
    this reference to the Companys Registration Statement on
    Form F-1 (No. 333-6912) filed May 14, 1997).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | *10.41  |  |  | GlobalSantaFe Supplemental Executive Retirement
    Plan (incorporated herein by this reference to the
    Companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | *10.42  |  |  | Global Marine Executive Deferred Compensation
    Trust as established effective January 1, 1995
    (incorporated herein by this reference to Exhibit 10.24 of
    Global Marine Inc.s Annual Report on Form 10-K
    (Commission File No. 1-5471) for the year ended
    December 31, 1995); First Amendment (incorporated herein by
    this reference to Exhibit 10.2 of Global Marine Inc.s
    Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended March 31, 1997);
    Second Amendment and Appointment of Successor Trustee dated as
    of June 1, 1999, by and between Global Marine Corporate
    Services Inc. and SEI Trust Company (incorporated herein by this
    reference to Exhibit 10.2 of Global Marine Inc.s
    Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended June 30, 1999).                                                                                                                                                                                            
| | *10.43  |  |  | Global Marine Benefit Equalization Retirement
    Plan effective January 1, 1990 (incorporated herein by this
    reference to Exhibit 10.8 of Global Marine Inc.s
    Annual Report on Form 10-K (Commission File
    No. 1-5471) for the year ended December 31, 1989).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | *10.44  |  |  | Global Marine Benefit Equalization Retirement
    Trust as established effective January 1, 1990
    (incorporated herein by this reference to Exhibit 10.9 of
    Global Marine Inc.s Annual Report on Form 10-K
    (Commission File No. 1-5471) for the year ended
    December 31, 1989); First Amendment and Appointment of
    Successor Trustee dated as of June 1, 1999, by and between
    Global Marine Corporate Services Inc. and SEI Trust Company
    (incorporated herein by this reference to Exhibit 10.3 of
    Global Marine Inc.s Quarterly Report on Form 10-Q
    (Commission File No. 1-5471) for the quarter ended
    June 30, 1999).                                                                                                                                                                                                                                                                                                                                                                                                           
| | *10.45  |  |  | Form of GlobalSantaFe Indemnity Agreement
    (incorporated herein by this reference to Exhibit 10.51 to
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | *+10.46 |  |  | Resolution of the Companys Board of
    Directors dated December 16, 2003, regarding Non-Employee
    Director Compensation Schedule.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | *10.47  |  |  | Non-Employee Director Deferred Compensation Plan
    (incorporated herein by this reference to the Companys
    Annual Report on Form 20-F for the calendar year ended
    December 31, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | *10.48  |  |  | 1997 Non-Employee Director Stock Option Plan
    (incorporated herein by this reference to the Companys
    Registration Statement on Form S-8 (No. 333-7070) filed
    June 13, 1997); Amendment to 1997 Non-Employee Director
    Stock Option Plan (incorporated herein by this reference to the
    Companys Annual Report on Form 20-F for the calendar
    year ended December 31, 1998); Amendment to 1997
    Non-Employee Director Stock Option Plan (incorporated herein by
    this reference to the Companys Annual Report on
    Form 20-F for the calendar year ended December 31,
    1998); Amendment to 1997 Non-Employee Director Stock Option Plan
    dated March 23, 1999 (incorporated herein by this reference
    to the Companys Annual Report on Form 20-F for the
    calendar year ended December 31, 1999); Amendment to
    Non-Employee Director Stock Option Plan dated December 1,
    1999 (incorporated herein by this reference to the
    Companys Annual Report on Form 20-F for the calendar
    year ended December 31, 1999).



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##### Table of Contents



| |         |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ------- |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *10.49  |  |  | Global Marine Inc. 1990 Non-Employee Director
    Stock Option Plan (incorporated herein by this reference to
    Exhibit 10.18 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1991); First Amendment (incorporated
    herein by this reference to Exhibit 10.1 of Global Marine
    Inc.s Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended June 30, 1995);
    Second Amendment (incorporated herein by this reference to
    Exhibit 10.37 of Global Marine Inc.s Annual Report on
    Form 10-K (Commission File No. 1-5471) for the year
    ended December 31, 1996).
| | *10.50  |  |  | GlobalSantaFe Corporation 2001 Non-Employee
    Director Stock Option and Incentive Plan (incorporated herein by
    this reference to the Companys Registration Statement on
    Form S-8 (No. 333-73878) filed November 21, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | *+10.51 |  |  | GlobalSantaFe Management Annual Incentive Plan
    for 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | *10.52  |  |  | Global Marine Personal Financial Planning
    Assistance Program for Senior Executive Officers, adopted
    August 16, 2001 Amendment (incorporated herein by this
    reference to Exhibit 10.1 of Global Marine Inc.s
    Quarterly Report on Form 10-Q (Commission File
    No. 1-5471) for the quarter ended September 30, 2001).                                                                                                                                                                                                                                                                                                                                                    
| | *10.53  |  |  | Employment Agreement dated as of January 8,
    2002, by and among GlobalSantaFe Corporate Services Inc.,
    GlobalSantaFe Corporation and Douglas C. Stegall; and Employment
    Agreement Amendment thereto dated as of November 22, 2002
    (incorporated herein by this reference to Exhibit 10.51 of
    the Companys Annual Report on Form 10-K for the year
    ended December 31, 2002).                                                                                                                                                                                                                                                                                       
| | + 12.1  |  |  | Statement setting forth detail of Computation of
    Ratios of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | + 21.1  |  |  | List of Subsidiaries.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | +23.1   |  |  | Consent of PricewaterhouseCoopers
    LLP, Independent Accountants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | +31.1   |  |  | Chief Executive Officers Certification
    pursuant to Rule 13a  15(e) and 15d 
    15(e) of the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | +31.2   |  |  | Chief Financial Officers Certification
    pursuant to Rule 13a  15(e) and 15d 
    15(e) of the Securities Exchange Act of 1934.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | +32.1   |  |  | Chief Executive Officers Certification
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | +32.2   |  |  | Chief Financial Officers Certification
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | 99.1    |  |  | Press Release dated August 6, 2002,
    announcing a share repurchase program (incorporated herein by
    this reference to Exhibit 99.1 to the Companys
    Current Report on Form 8-K dated August 7, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                           



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|  |                
|- | ---------------
|+ | Filed herewith.



|  |                                                                       
|- | ----------------------------------------------------------------------
|* | Indicates management contract or compensatory
    plan or arrangement.