As filed with the Securities and Exchange Commission on June 2, 2003

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-F

|(mark one)                                   |                                                                                               
|-------------------------------------------- | ----------------------------------------------------------------------------------------------
|o                                            | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|OR                                          
|ý                                            | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          
|For the fiscal year ended November 30, 2002 
|OR                                          
|o                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      
|For the transition period
from            to

Commission File Number 00-21742

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STOLT OFFSHORE S.A.(Exact name of Registrant as specified in its charter)

LUXEMBOURG(Jurisdiction of incorporation or organization)

c/o STOLT OFFSHORE M.S. LTD
Dolphin House, Windmill Road, Sunbury-on-Thames
Middlesex TW16 7HT England(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:None

Securities registered or to be registered pursuant to Section 12(g) of the Act:Common Shares, $2.00 par value

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:None

Indicate the number of outstanding shares of each of the issuer's classes of capital or Common Stock as of the close of the period covered by the annual
report:

Common Shares, $2.00 par value

76,262,215Class B Shares, $2.00 par value

34,000,000


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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 ý    No o

Indicate
by check mark which financial statement item the registrant has elected to follow.

Item 17  o     Item 18  ý

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TABLE OF CONTENTS

|        |  |                                                       |  | Page
|------- |  | ----------------------------------------------------- |  | ----
|        |  | PART I                                                |  |     
|Item 1. |  | Identity of Directors, Senior Management and Advisers |  | 6   
|Item 2. |  | Offer Statistics and Expected Timetable               |  | 6   
|Item 3. |  | Key Information                                       |  | 6   
|        |  | Selected Financial Data                               |  | 6   
|        |  | Risk Factors                                          |  | 8   
|        |  | Other Matters                                         |  | 15  
|Item 4. |  | Information on the Company                            |  | 16  
|        |  | Overview                                              |  | 16  
|        |  | History and Development of Stolt Offshore             |  | 18  
|        |  | Capital Expenditures and Disposals of Assets          |  | 19  
|        |  | Business Segments                                     |  | 19  
|        |  | Market, Sales and Competition                         |  | 22  
|        |  | Seasonality                                           |  | 23  
|        |  | Supplies and Raw Materials                            |  | 23  
|        |  | Intellectual Property                                 |  | 24  
|        |  | Other Matters                                         |  | 24  
|        |  | Significant Subsidiaries                              |  | 27  
|        |  | Description of Property                               |  | 27  
|Item 5. |  | Operating and Financial Review and Prospects          |  | 29  
|        |  | Ship Utilization                                      |  | 30  
|        |  | Results of Operations                                 |  | 31  
|        |  | Liquidity and Capital Resources                       |  | 41  
|        |  | Subsequent Events                                     |  | 44  
|        |  | Currency Fluctuations                                 |  | 45  
|        |  | Inflation                                             |  | 45  
|        |  | Client Financial Standing and Credit Risk             |  | 46  
|        |  | Critical Accounting Policies                          |  | 46  
|        |  | Impact of New Accounting Standards                    |  | 48  
|        |  | Research and Development                              |  | 50  
|Item 6. |  | Directors, Senior Management and Employees            |  | 52  
|        |  | Directors and Senior Management                       |  | 52  
|        |  | Compensation of Directors and Officers                |  | 55  
|        |  | Incentive Plans                                       |  | 55  
|        |  | Board Practices                                       |  | 56  
|        |  | Employees                                             |  | 56  
|        |  | Share Ownership                                       |  | 57  
|        |  |                                                       |  |     

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|Item 7.                                                          |  | Major Shareholders and Related Party Transactions                            |  | 58
|---------------------------------------------------------------- |  | ---------------------------------------------------------------------------- |  | --
|                                                                 |  | Relationship with SNSA                                                       |  | 59
|                                                                 |  | Other Related Party Transactions                                             |  | 61
|Item 8.                                                          |  | Financial Information                                                        |  | 61
|                                                                 |  | Consolidated Financial Statements                                            |  | 61
|                                                                 |  | Other Financial Information                                                  |  | 61
|                                                                 |  | Legal Proceedings                                                            |  | 61
|                                                                 |  | Dividend Policy                                                              |  | 62
|                                                                 |  | Significant Changes                                                          |  | 62
|Item 9.                                                          |  | The Offer and Listing                                                        |  | 63
|                                                                 |  | Trading Markets                                                              |  | 63
|Item 10.                                                         |  | Additional Information                                                       |  | 64
|                                                                 |  | Organization and Registrar                                                   |  | 64
|                                                                 |  | Articles of Incorporation                                                    |  | 64
|                                                                 |  | Material Contracts                                                           |  | 68
|                                                                 |  | Exchange Controls                                                            |  | 69
|                                                                 |  | Taxation                                                                     |  | 69
|                                                                 |  | Ownership of ADSs in General                                                 |  | 71
|                                                                 |  | Distributions                                                                |  | 71
|                                                                 |  | Sale or Exchange of Common Shares or ADSs                                    |  | 72
|                                                                 |  | Backup Withholding Tax and Information Reporting Requirements                |  | 73
|                                                                 |  | Documents on Display                                                         |  | 73
|Item 11.                                                         |  | Quantitative and Qualitative Disclosures about Market Risk                   |  | 73
|                                                                 |  | Foreign-Exchange Risk Management                                             |  | 74
|                                                                 |  | Interest-Rate Risk Management                                                |  | 74
|                                                                 |  | Other Financial Instruments                                                  |  | 75
|Item 12.                                                         |  | Description of Securities Other than Equity Securities                       |  | 75
|PART II                                                         
|Item 13.                                                         |  | Defaults, Dividend Arrearages and Delinquencies                              |  | 75
|Item 14.                                                         |  | Material Modifications to the Rights of Security Holders and Use of Proceeds |  | 75
|Item 15.                                                         |  | Controls and Procedures                                                      |  | 75
|Item 16.                                                         |  | Reserved                                                                     |  | 76
|PART III                                                        
|Item 17.                                                         |  | Financial Statements                                                         |  | 76
|Item 18.                                                         |  | Financial Statements                                                         |  | 76
|Item 19.                                                         |  | Exhibits                                                                     |  | 77
|                                                                 |  | Signatures                                                                   |  | 78
|Index to Financial Statements                                    |  | F-1                                                                         
|Independent Auditors' Report on Financial Statement and Schedule |  | S-1                                                                         

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INTRODUCTION

Stolt Offshore S.A. is a Luxembourg registered company. In this Report, the terms "we", "us", "our" and "Stolt Offshore" refer to Stolt Offshore S.A. and, unless
the context otherwise requires, our consolidated subsidiaries. References to Stolt Offshore activities by years refer to fiscal years ended November 30. Our Common Shares are traded on the
Nasdaq National Market ("Nasdaq") in the form of American Depositary Shares ("ADSs") (each ADS representing one Common Share) under the ticker symbol "SOSA" and are listed on the Oslo Stock Exchange
under the ticker symbol "STO".

On
March 7, 2001, we reclassified our non-voting Class A Shares as Common Shares on a one-for-one basis; on that date, trading in the
Class A Shares on Nasdaq and the Oslo Stock Exchange ceased. As a result, Common Shares are our only publicly-traded security. Reference to Class A Shares means Class A Shares up
until March 7, 2001, and thereafter means Common Shares. The reclassification did not change the underlying economic interests of existing shareholders nor the number of shares used for
earnings per share purposes.

As
of April 30, 2003, we had outstanding 75,383,094 Common Shares and 34,000,000 Class B Shares, which are economically equivalent to 17,000,000 Common Shares and are all
owned by Stolt-Nielsen S.A. ("SNSA"), giving a total of 92,383,094 Common Share equivalents.

BASIS OF PRESENTATION

The consolidated financial statements, including the notes thereto, included in this Report (the "Consolidated Financial Statements") have been prepared in
accordance with accounting principles generally accepted in the United States. The Consolidated Financial Statements include the accounts of all majority-owned companies over which we have operating
control.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements made in this Report and some of the documents incorporated by reference in this Report may include "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to our expectations, beliefs, intentions or
strategies regarding the future. These statements may be identified by the use of words like "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "project," "will," "should,"
"seek," and similar expressions. In this Report, they include statements contained under "Item 3. Key InformationRisk Factors," "Item 4. Information on the Company," "Item 5. Operating
and Financial Review and Prospects," "Item 8. Legal Proceedings" and "Item 11. Quantitative and Qualitative Disclosures about Market Risk."

The
forward-looking statements that we make reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties. Actual and future results
and trends could differ materially from those set forth in such statements due to various factors, including those discussed in this Report under "Item 3. Key InformationRisk Factors,"
"Item 5. Operating and Financial Review and Prospects" and "Item 11. Quantitative and Qualitative Disclosures about Market Risk."

The
following factors, and others which are discussed in our public filings with the U.S. Securities and Exchange Commission including this report on Form 20-F, are
among those that may cause actual and future results and trends to differ materially from our forward-looking statements: (i) the level of our indebtedness, operating restrictions contained in
our financing arrangements, our ability to comply with financial and other covenants in our financing agreements, our ability to refinance our indebtedness on acceptable terms as it comes due and the
impact of floating interest rates on our debt service costs; (ii) our ability to deliver fixed price projects in accordance with customer expectations and the parameters of our bids and avoid
cost overruns; (iii) our ability to collect receivables, negotiate

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change
orders and collect the related revenues; (iv) capital expenditures by oil and gas companies; (v) oil and gas prices; (vi) delays or cancellation of projects included in our
backlog; (vii) general economic conditions and competition in the industries and markets in which we operate; (viii) prevailing prices for our products and services; (ix) the loss
of, or deterioration of our relationship with, any significant customers; (x) the outcome of pending and future legal proceedings, including pending patent litigation; (xi) uncertainties
inherent in operating internationally, including economic, political and social instability, boycotts or embargoes, labor unrest, changes in foreign governmental regulations, corruption and currency
fluctuations; (xii) liability to third parties for the failure of our joint venture partners to fulfill their obligations; (xiii) changes in, or our failure to comply with, applicable
laws and regulations; (xiv) cost and availability of raw materials; (xv) operating hazards, including spills, environmental damage, personal or property damage and business interruptions
caused by weather, mechanical failures or human error; (xvi) the impact of accounting for projects on a percentage-of-completion basis, which could reduce or eliminate
reported profits; (xvii) adverse weather conditions; (xviii) our ability to keep pace with technological changes; and (xix) other factors which are described from time to time in
our public filings with the U.S. Securities and Exchange Commission.

Many
of these factors are beyond our ability to control or predict. Given these uncertainties, you should not place undue reliance on the forward-looking statements. We undertake no
obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Neither
our independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures, with respect to the prospective financial information
contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the
prospective financial information.

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PART I

Item 1. Identity of Directors, Senior Management and Advisers.

Not applicable.

Item 2. Offer Statistics and Expected Timetable.

Not applicable.

Item 3. Key Information.

Selected Financial Data

The selected consolidated financial data as of November 30, 2002 and 2001 and for each of the three years in the period ended November 30, 2002 set
forth below has been derived from our audited Consolidated Financial Statements included in this Report. The selected consolidated financial data as of November 30, 2000, 1999 and 1998 and for
each of the two years in the period ended November 30, 1999 set forth below have been derived from our audited consolidated financial statements for the respective periods, which are not
included herein. For the year 2002, the Consolidated Financial Statements were audited by Deloitte & Touche and the years 2001, 2000, 1999 and 1998 were audited by Arthur Andersen. The
financial information presented below is only a summary and should be read together with the Consolidated Financial Statements and "Item 5. Operating and Financial Review and Prospects."

|                                                                                                                          |         | For Year Ended November 30, |         
|------------------------------------------------------------------------------------------------------------------------- | ------- | --------------------------- | --------
|
|
|Consolidated Statement of Operations Data:                                                                                |         |                             |         
|Net operating revenue                                                                                                     |         | $                           | 1,437.5 
|Operating expenses                                                                                                        |         |                             | (1,395.0
|Gross profit                                                                                                              |         |                             | 42.5    
|Equity in net income of non-consolidated joint ventures                                                                   |         |                             | 5.3     
|Administrative and general expenses                                                                                       |         |                             | (73.0   
|Impairment of goodwill and Comex trade name(b)                                                                            |         |                             | (106.4  
|Restructuring charges(c)                                                                                                  |         |                             |        
|Gain on sale of fixed assets                                                                                              |         |                             | 8.0     
|Other operating income (loss), net                                                                                        |         |                             |        
|Net operating (loss) income                                                                                               |         |                             | (123.6  
|Interest expense, net                                                                                                     |         |                             | (18.2   
|Foreign currency exchange gains (losses)                                                                                  |         |                             | 0.2     
|Income tax (provision) benefit                                                                                            |         |                             | (8.2    
|Minority interests                                                                                                        |         |                             | (2.1    
|Net (loss) income before cumulative effect of change in accounting policy                                                 |         |                             | (151.9  
|Cumulative effect of a change in accounting policy                                                                        |         |                             |        
|                                                                                                                          |         |                             |         
|Net (loss) income after cumulative effect of change in accounting policy                                                  |         | $                           | (151.9  
|Net (loss) income per Common Share and Common Share equivalent before cumulative effect of change in accounting policy(d) |         |                             |         
|                                                                                                                          | Basic   |                             |         
|                                                                                                                          | Diluted |                             |         
|Net (loss) income per Common Share and Common Share equivalent after cumulative effect of change in accounting policy(d)  |         |                             |         
|                                                                                                                          | Basic   |                             |         
|                                                                                                                          | Diluted |                             |         

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|Weighted average number of Common Shares and Common Share equivalents outstanding(d) |         |   |       |      |   |       |      |   |        |      |   |       |      |   |        |     
|------------------------------------------------------------------------------------ | ------- | - | ----- | ---- | - | ----- | ---- | - | ------ | ---- | - | ----- | ---- | - | ------ | ----
|                                                                                     | Basic   |   |       | 85.0 |   |       | 87.2 |   |        | 78.8 |   |       | 59.1 |   |        | 59.0
|                                                                                     | Diluted |   |       | 85.0 |   |       | 87.2 |   |        | 78.8 |   |       | 59.5 |   |        | 60.0
|Statement of Cash Flows Data:                                                        |         |   |       |      |   |       |      |   |        |      |   |       |      |   |        |     
|Net cash provided by operating activities                                            |         | $ | 84.7  |      | $ | 16.7  |      | $ | 58.2   |      | $ | 52.0  |      | $ | 116.3  |     
|Net cash used in investing activities                                                |         |   | (76.4 | )    |   | (83.4 | )    |   | (160.6 | )    |   | (87.4 | )    |   | (340.7 | )   
|Net cash (used in) provided by financing activities                                  |         |   | (8.4  | )    |   | 72.5  |      |   | 103.8  |      |   | 34.7  |      |   | 225.3  |     
|Other Financial Data:                                                                |         |   |       |      |   |       |      |   |        |      |   |       |      |   |        |     
|Depreciation and amortization                                                        |         | $ | 96.1  |      | $ | 91.8  |      | $ | 82.1   |      | $ | 56.1  |      | $ | 35.5   |     

No
dividends were declared or paid in any of the five years ended November 30, 2002 and accordingly dividends per share are not presented in this table.

|                                             |  | As of November 30,
|-------------------------------------------- |  | ------------------
|
|
|Balance Sheet Data:                          |  |                   
|Current assets less current liabilities      |  | $                 
|Fixed assets, net                            |  |                   
|Total assets                                 |  |                   
|Long-term debt, including current portion(e) |  |                   
|Capital stock, including paid in surplus     |  |                   
|Shareholders' equity                         |  |                   

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Risk Factors

You should carefully consider the following factors and the information contained in this Report, including the information incorporated by reference into this
Report. The following is a summary of the risks applicable to an investment in our shares and ADSs that we consider to be material. If any of the events described below occurs, our business, financial
condition or results of operations could be materially adversely affected.

We are at risk of failing to satisfy the financial covenants contained in our primary credit facilities.

Our principal credit facilities are a $385 million secured multi-currency, five-year revolving credit facility and another $100 million
secured multi-currency, four-year revolving credit facility. These facilities contain various financial covenants, including but not limited to, minimum consolidated tangible net worth,
maximum consolidated debt to tangible net worth and maximum consolidated debt to earnings before interest, taxation, depreciation and amortization (EBITDA). In early 2003 we amended the financial
covenants contained in our primary credit facilities to more appropriately reflect our financial prospects at that time. Based on those amendments, we expected that there would be a narrow margin of
compliance with the financial covenants throughout the 2003 fiscal year. Since that time, our new senior management team began a review of our major projects and identified a substantially poorer than
anticipated performance and cost overruns on three major EPIC projects and several smaller projects. As a result of these factors, we expect to incur significant losses. In light of this revised
forecast, we are working closely with our main banks in seeking to amend our two primary bank credit facilities to reflect our current financial position, including a waiver of certain financial
covenant tests until November 30, 2003. As an interim step, our banks have agreed to a 30-day "standstill" through June 30, 2003 whereby they will take no actions on any
potential non-compliance with the financial covenants while internal bank approvals are sought and documentation is completed. Without a waiver of certain financial covenants, we would be
out of compliance with our bank credit agreements. If we cannot reach final
agreement with our bank lenders on the terms of amendments and/or waivers to our primary credit facilities, our noncompliance with our primary credit facilities could potentially lead to the credit
facilities being repayable on demand. We would not be able to repay these facilities on demand, unless an alternative financing source could be arranged.

Even
if we are able to amend our credit facilities to incorporate terms and conditions with which we believe we can comply or obtain appropriate waivers, our ability to maintain
compliance with such facilities will be subject to adverse changes in our financial condition, results of operations or cash flows, including all of the risk factors identified in this Report on
Form 20-F. Any agreement that we reach with our lenders may provide only temporary relief from the current requirements of our credit facilities. Therefore, it is possible that we
may require further amendments or waivers in the future, which may or may not be possible depending on our financial condition at such time.

We have experienced significant losses on several projects in our Southern Europe, Africa and Middle East (SEAME) region which may continue to have an impact on our financial
condition and results of operations.

Execution
of EPIC and pipelay projects in West Africa and Egypt has and will continue to put a strain on our financial condition and results of operations. These projects generally
relate to the operations that we acquired in the ETPM acquisition. Certain projects within this region are making losses due to, among other things, costs that exceeded our estimates during the
tendering process, project execution problems that have caused cost overruns and requirements that we use local subcontractors who, in some cases, have not performed as we expected. For example, in
fiscal 2002, we recognized costs related to a number of our major projects in this region that we had not previously anticipated. Additionally, in early 2003, our new senior management team began a
review of our major projects and identified substantially poorer than anticipated performance and cost overruns on three major projects and several smaller projects. This has resulted in a significant
decrease to the results of operations compared to what we anticipated for the 2003 fiscal year. We believe that we have identified

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the
weaknesses that resulted in these problems and are taking action to remedy those that we can control or anticipate. If, however, we cannot successfully integrate the former ETPM operations and
improve our ability to recover our costs with respect to projects in this region, we will continue to suffer losses on our projects. Our SEAME region accounted for 49% of our revenues in 2002.
Therefore, problems in West Africa and Egypt can have a significant negative impact on our financial condition and results of operations. Additionally, we have been unsuccessful in collecting
significant amounts owed to us by customers on projects in this region and many of the delays and cost overruns with respect to West African projects are the subject of variation orders being
negotiated with the customers. If we are unable to resolve these negotiations on terms favorable to us, there will be an ongoing material negative impact on our financial condition, cash flows and
results of operations. The financial impact of our inability to resolve these issues has contributed to our inability to maintain compliance with the financial covenants of our credit facilities. Even
if we are able to obtain waivers of our non-compliance or renegotiate our credit facilities, our inability to collect amounts owed to us or successfully negotiate change orders in our
favor could make it more difficult for us to comply with any revised financial covenants or present an obstacle to renegotiating our credit agreements. See "Item 5. Operating and Financial Review and
ProspectsSubsequent Events."

Our level of debt may constrain our operations.

As of May 23, 2003, we had an aggregate of $432.3 million of debt outstanding. The degree to which we are leveraged may affect our ability to obtain
additional financing in the future for working capital, capital expenditures, product and service development and general corporate purposes, to utilize cash flow from operations for purposes other
than debt service, and to overcome seasonal or other cyclical variations in our business. As our existing indebtedness becomes due, we may be required to refinance all or part of it, sell assets or
borrow more money. We may not be able to refinance such debt on terms acceptable to us, if at all. If we were unable to refinance the debt, it is unlikely that we could repay it without selling the
assets which form the security for the credit facilities.

Unexpected costs may adversely affect the profitability of our fixed-price contracts.

A
significant proportion of our business is performed on a fixed-price or turnkey basis. In 2002, 2001 and 2000, approximately 88%, 72% and 74%, respectively, of our revenue was derived
from fixed-price contracts. Long-term fixed-priced contracts are inherently risky because of the possibility that we might incur costs that we did not expect at the time of bidding,
including the cost of satisfying post-completion warranty obligations. The net effect of significant revisions to contract estimates was a net loss of $58.8 million in 2002, net
income of $2.4 million in 2001 and a net loss of $10.7 million in 2000. In 2002, the net loss of $58.8 million included a $35.2 million of unanticipated costs for one of
our accounts recorded on an engineering, procurement, installation and commissioning (referred to as "EPIC") project for the Burullus Gas Company in the Scarab/Saffron field off the coast of Egypt.
The cost and gross profit realized on such contracts can vary from those expected because of changes beyond our control, including but not limited to:



These
risks are exacerbated if the duration of the project is long-term, because there is more time for and, therefore, an increased risk that the circumstances upon which we
originally bid and developed a price will change in a manner that increases our costs. Our long-term projects often subject us to penalties if we cannot complete portions of the projects
in accordance with agreed-upon time limits.

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Political or social instability in the developing countries in which we operate could increase our costs and reduce our future growth opportunities.

A
significant portion of our business involves projects in developing or less developed countries that are experiencing or may experience political or social instability. For the year
ended November 30, 2002, approximately 55% of our net sales came from projects located in Angola, Nigeria, Egypt, Brazil and Indonesia. Even though it is one of the world's largest oil
exporters, Nigeria, for example, has had a history of political instability and disorganized society with an internal infrastructure that is neither fully functional nor well maintained and parts of
Nigeria regularly experience localized civil unrest and violence. Unanticipated political events or social disturbances in developing or less developed countries, including labor unrest, could cause
cost overruns on projects for which we are not reimbursed or delays in execution of projects which lead to delayed revenues or potential contractual penalties. For example, in 2003 our Offshore Gas
Gathering System ("OGGS") project in Nigeria has suffered disruption due to a labor strike at a subcontractor's yard and the hijacking of a chartered survey vessel. The extent to which the impact of
these events will be borne by us is subject to negotiation with our customer. Additionally, to the extent a project is delayed or becomes more costly, there would be a negative impact on our financial
condition, results of operations and cash flows. This, in turn, could have a negative impact on our compliance with the financial covenants contained in our credit facilities. Political or social
instability could also inhibit offshore exploration or capital expenditures by our clients. It could also result in fewer new project tenders meeting our criteria thereby reducing growth opportunities
for our business.

Our use of the "percentage-of-completion" method of accounting for projects could result in a reduction or elimination of previously reported
profits.

Substantially
all of our projects are accounted for on the "percentage-of-completion" method, which is standard for our industry and in compliance with U.S.
generally accepted accounting principles. Under the percentage-of-completion method, estimated contract revenues are accrued based on the ratio of costs incurred to date to the
total estimated costs, taking into account the level of physical completion. Estimated contract losses are recognized in full when determined. Contract revenues and total cost estimates are reviewed
and revised periodically as work progresses and as change orders are approved, and adjustments based on the percentage of completion are reflected in contract revenues in the reporting period when
these estimates are revised. To the extent that these
adjustments result in a reduction or elimination of previously reported contract revenues, we would recognize a charge against current earnings that may be significant depending on the size of the
project or the adjustment.

Our business is affected by expenditures by participants in the oil and gas industry.

Demand
for our services depends on expenditures by participants in the oil and gas industry and particularly on capital expenditure budgets of the companies engaged in the exploration,
development and production of offshore oil and gas. In particular, the oil and gas industry has been consolidating. There are fewer and larger oil and gas companies that control expenditures for the
types of services and products that we and our competitors provide. Offshore oil and gas field capital expenditures are also influenced by many other factors beyond our control, including:



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There might be delays or cancellation of projects included in our backlog.

The dollar amount of our backlog does not necessarily indicate future earnings related to the performance of that work. Backlog refers to expected future revenues
under signed contracts and letters of intent which management has determined are likely to be performed. During the course of a project, the backlog is adjusted to take account of alterations to the
scope of work under approved variation orders and contract extensions. Although backlog represents only business that we consider to be firm, cancellations, delays or scope adjustments have occurred
in the past and are likely to occur in the future. For example, one construction project was recently cancelled due to an exploration and appraisal well being found to be dry. In this case, the
customer paid our costs as incurred and a cancellation fee was negotiated, but we lost our expected revenue stream. In another case, a construction project has been delayed for 12 months as the
customer is awaiting planning permission for a gas treatment plant. In this instance, the backlog relating to the project reflects the expected delay in revenue from 2003 to 2004 and has been adjusted
to include additional costs as negotiated with the customer. Due to factors outside our control, such as changes in project scope and schedule, we cannot predict with certainty when or if backlog will
be performed.

We may be liable to third parties for the failure of our joint venture partners to fulfill their obligations.

Under
some of our joint venture agreements, we and our partners are jointly and severally liable to the customer for the performance of the contract. If our joint venture partner in such
arrangement fails to fulfill its obligations, we could have to carry the resultant liability toward the customer and would have to rely on our ability to obtain reimbursement from our joint venture
partner. If our joint venture partner became insolvent or ceased operations, this might not be possible.

Our business could suffer as a result of current or future litigation.

We are subject to legal claims and investigations by customers, sub-contractors, employees, joint venture partners, government agencies and
competitors. In particular, our competitor, Coflexip S.A. ("CSO") commenced legal proceedings through the UK High Court against three subsidiaries of Stolt Offshore S.A. claiming infringement of a
certain patent held by CSO relating to flexible flowline laying technology in the UK. Judgement was given on January 22, 1999 and January 29, 1999. The disputed patent was held valid. We
appealed and the Appeal Court maintained in July 2000 the validity of the patent and potentially broadened its application compared to the High Court decision. We applied for leave to appeal
the Appeal Court decision to the House of Lords, which was denied. During 2001 after the Appeal Court decision became final, CSO submitted an amended claim to damages claiming lost profit on a total
of 15 projects. In addition, there is a claim for alleged price depreciation on certain other projects. The total claim for lost profits was for approximately $89.0 million, up from
approximately $14.0 million claimed after the High Court decision confirming the patent's validity, plus interest, legal costs and a royalty for each time that the flexible lay system tower on
theSeaway Falconwas brought into UK waters. The increase came because several more projects potentially became relevant. The amount of the claim has
not yet been considered by the Court and has thus so far not been upheld. We estimate that the total claim as submitted is in the order of $130.0 million at November 2002, increasing at
8% simple interest per annum. In the alternative, CSO claims a reasonable royalty for each act of infringement, interest and legal costs. CSO has not quantified this claim, but it will be considerably
less than the claim to lost profits. We, in consultation with our advisers, have assessed that the range of possible outcomes for the resolution of damages is $1.5 million to
$130.0 million and have determined that there is no amount within the range that is a better estimate than any other amount. Consequently, in accordance with SFAS
No.5,"Accounting for Contingencies", as interpreted by FASB Interpretation No.14"Reasonable Estimation of the Amounts of a
Loss",we have provided $1.5 million in the financial statements, being the lower amount of the range. The amount of damages is nevertheless uncertain and no assurance
can be given that the

11

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provided
amount is sufficient. If the amount we are ultimately determined to owe, if any, is substantially more than we have currently reserved or if we increase the amount of the reserve for this
claim, it could have a material adverse effect on our results of operations.

Our international operations expose us to changes in foreign regulations and other risks inherent to international business, any of which could affect our operating
results.

Our
operations in the South America, Asia-Pacific and Southern Europe/Africa/Middle East regions are mainly performed in emerging markets such as Angola, Nigeria, Egypt,
Brazil and Indonesia. In total, these regions accounted for 55%, 49% and 55% of our net operating revenue in 2002, 2001 and 2000, respectively. Operations in these emerging markets present risks
including:



Our quarterly results may fluctuate due to adverse weather conditions.

Over
the past three years, a substantial portion of our revenue has been generated from work performed in the North Sea and North America. Adverse weather conditions during the winter
months in these regions usually result in low levels of activity. Additionally, during certain periods of the year,
we may encounter adverse weather conditions such as hurricanes or tropical storms in the Gulf of Mexico. During periods of curtailed activity due to adverse weather conditions, we continue to incur
operating expenses, but our revenues from operations are delayed or reduced. As a result, full-year results are not likely to be a direct multiple of any particular quarter or combination
of quarters.

We face competition which could have an adverse effect upon our operating results and financial condition.

The
offshore oil and gas services business is highly competitive, and offshore contractors compete intensely for available projects. Contracts for our services are generally awarded on a
competitive bid basis. Although customers normally consider, among other things, the availability and capability of equipment and the reputation and experience of the contractor, price is a primary
factor in determining which contractor is awarded a contract. Several of our competitors and potential competitors are larger than we are and have greater financial and other resources than we have.
This intense competition could result in pricing pressures, lower sales and reduced margins which would have an adverse effect upon our operating results and financial condition.

We depend on certain significant customers and long-term contracts and the loss of one or more significant customers or the failure to replace or enter into new
long-term contracts could adversely affect our operating results.

In
2002, Shell accounted for 20% of our net operating revenue with BG Group and TotalFinaElf accounting for a further 10% and 9%, respectively, of our net operating revenue. In 2001,
TotalFinaElf accounted for 24% of our net operating revenue, while Shell and BG Group accounted for 9% and 4%, respectively. During 2002 and 2001, our ten largest customers accounted for 67% and 69%,

12

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respectively,
of our net operating revenue, and over that period seven customers, including Shell, TotalFinaElf, BG Group, BP, Statoil, Petrobras and Norsk Hydro consistently numbered among our ten
largest customers. Revenues from our largest customers are often related to specific long-term contracts that upon completion may not be replaced by contracts of equivalent size. In 2002
and 2001, approximately 88% and 72% respectively of our revenue was derived from long-term contracts. Our inability to replace significant long-term projects on similar terms
or the loss of any one or more of our significant customers or a substantial decrease in demand by our significant customers could result in a substantial loss of revenues which could have a material
adverse effect on us.

We could be adversely affected if we fail to keep pace with technological changes, and changes in technology could result in write-downs of assets.

Our customers are constantly seeking to develop oil and gas fields in deeper waters. To meet our customers' needs, we must continuously develop new, and update
existing, technology for the installation, repair and maintenance of offshore structures. In addition, rapid and frequent technology and market demand changes can often render existing technologies
obsolete, requiring substantial new capital expenditures and/or write-downs of assets. Our failure to anticipate or to respond adequately and timely to changing technology, market demands and/or
customer requirements could adversely affect our business and financial results.

Our international operations expose us to the risk of fluctuations in currency exchange rates.

The results of operations and financial position of many of our non-U.S. subsidiaries are initially reported in the local currencies of countries in
which those subsidiaries reside. That financial information is then translated into U.S. dollars at the applicable exchange rates for inclusion in our consolidated financial statements. Approximately
25.0% of our consolidated net operating revenues in 2002 and approximately 26.0% of our consolidated net operating revenues in 2001 were generated in local currencies and translated into U.S. dollars.
In 2002, approximately 16.0%, 7.2% and 1.1% of our revenue was generated in British pounds, Norwegian kroner and Brazilian real, respectively. In 2001, about 16.7%, 8.8% and 0.4% of our revenue was
generated in British pounds, Norwegian kroner and Euros, respectively. The exchange rate between these currencies and the U.S. dollar can fluctuate substantially, which could have a significant
translation effect on our reported consolidated results of operations and financial position.

13

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In addition, we are subject to currency risk exposure when our sales are denominated in currencies that are different from those in which our expenses are incurred. In this case, if the
value of the currency in which sales are recorded weakens relative to the currency in which we incur expenses, then there is a negative impact on our profit margin.

We are exposed to substantial hazards and risks that are inherent in the offshore services business for which liabilities may potentially exceed our insurance coverage and
contractual indemnity provisions.

Our operations are subject to all the risks normally associated with offshore development and production and could result in damage to or loss of property,
suspension of operations or injury or death to personnel or third parties. Our operations are conducted in hazardous environments where accidents involving catastrophic damage or loss of life could
result, and litigation arising from such an event may result in our being named a defendant in lawsuits asserting large claims. We insure for liability arising from our operations, both onshore and
offshore, including loss of or damage to third-party property, death or injury to employees or third parties, statutory workers compensation protection and pollution. There can be no assurance,
however, that the amount of insurance we carry is sufficient to protect us fully in all events. A successful liability claim for which we are underinsured or uninsured could have a material adverse
effect on us.

We
generally seek to obtain indemnity agreements whenever possible from our customers requiring those customers to hold us harmless in the event of structural damage, loss of production
or liability for pollution that originates below the water surface. Such contractual indemnification, however, does not generally cover liability resulting from the gross negligence or willful
misconduct of, or violation of law by, our employees or subcontractors. Additionally, if we suffer a loss for which we are entitled to indemnity, we are dependent on our customer's ability to satisfy
its indemnity obligation. If the customer cannot satisfy its obligation, we could suffer losses.

SNSA exercises a controlling influence over matters requiring shareholder approval, which could prevent a change of control.

As of March 31, 2003, a wholly owned subsidiary of SNSA owned 41,686,988 of our Common Shares and all 34,000,000 of our Class B Shares. This
ownership represents an economic interest in us of approximately 63.5% and a voting interest of approximately 69%. As of March 31, 2003, the Stolt-Nielsen family, directly and indirectly
through Fiducia Ltd., controlled approximately 60% of the
outstanding shares of SNSA entitled to vote generally on matters brought to a vote of shareholders of SNSA.

SNSA
currently exercises a controlling influence over our operations and has sufficient voting power to control the outcome of matters requiring shareholder approval including: the
composition of our Board of Directors which has the authority to direct our business and to appoint and remove our officers; approving or rejecting a merger, consolidation or other business
combination; raising future capital; and amending our Articles of Incorporation which govern the rights attached to our Common Shares. This control may also make it difficult to take control of Stolt
Offshore without the approval of SNSA. Additionally, the interests of SNSA may conflict with those of other shareholders.

Our Articles of Incorporation impose restrictions on the ownership of our securities.

Our Articles of Incorporation state that no one U.S. person (defined to include any person who is a citizen or resident of the United States, a corporation
organized under the laws of the United States and certain other entities and their affiliates and associates) may own, directly or indirectly, more than 9.9% of our total outstanding shares at any
time. In addition, the Articles provide that all shareholders of any single country may not own, directly or indirectly, more than 49.9% of our outstanding shares, and no person may own, directly or
indirectly, more than 20% of our outstanding shares unless a

14

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majority
of our Board of Directors shall have authorized such shareholding in advance. The Board of Directors may take remedial action if it determines that we are threatened with "imminent and grave
damage" (as defined in the Articles). We have been advised by our Luxembourg counsel, Elvinger, Hoss & Prussen, that there are no Luxembourg judicial interpretations of such phrase, but that
situations involving hostile takeovers, adverse tax consequences to us or governmental sanctions are likely to be among the situations covered by that phrase. These defensive measures may have the
effect of making more difficult a merger involving us, or a tender offer, open-market purchase program or other purchase of our shares, in circumstances that could give shareholders the
opportunity to realize a premium over the then prevailing market price for their shares.

It may be difficult to enforce a U.S. judgment against us, our officers and our directors or to assert U.S. securities laws claims in Luxembourg or serve process on our
officers or directors.

We are a corporation organized under the laws of Luxembourg. Several of our directors and officers reside and maintain most of their assets outside the United
States and it may not be possible to effect service of process within the United States on us or on such persons, or to enforce against us or them in U.S. courts judgments obtained in such courts
based on the civil liability provisions of the U.S. federal securities laws. We have been advised by Elvinger, Hoss & Prussen, our Luxembourg counsel, that there is substantial doubt as to
whether the courts of Luxembourg would (1) enforce judgments of U.S. courts obtained in actions against us or such directors and officers based on the civil liability
provisions of the U.S. federal securities laws or (2) entertain original actions brought in Luxembourg against us or such directors and officers predicated solely upon the civil liability
provisions of the U.S. federal securities laws. There is no treaty in effect between the United States and Luxembourg providing for such enforcement, and there are grounds upon which Luxembourg courts
may choose not to enforce judgments of U.S. courts. Certain remedies available under the U.S. federal securities laws would not be enforced by Luxembourg courts as contrary to that nation's public
policy.

Other Matters

Lack of written consent of Arthur Andersen

Our consolidated financial statements for each of the years ended November 30, 2001 and 2000 included in this Form 20-F were audited by
Arthur Andersen, which issued an audit report dated January 30, 2002 on these consolidated financial statements.

Arthur
Andersen was terminated as our independent public accountant effective July 31, 2002. On August 20, 2002, the board of directors approved the audit committee's
recommendation that Deloitte & Touche be appointed as our independent public accountant. Pursuant to Luxembourg law requiring that the decision to appoint new auditors be subject to the
approval of our shareholders, on October 17, 2002 at an extraordinary general meeting of shareholders, the shareholders approved the decision to appoint Deloitte & Touche as our
independent public accountant. Both the engagement partner and the manager for our audit are no longer with Arthur Andersen and Arthur Andersen has ceased practicing before the Securities and Exchange
Commission. As a result, we have been unable to obtain after reasonable efforts written consent of Arthur Andersen to the inclusion of its audit report in this Form 20-F.

Under
these circumstances, Rule 437a under the Securities Act permits us to file this Form 20-F, which is incorporated by reference into our previously filed
registration statements, without a written consent from Arthur Andersen. Because Arthur Andersen has not consented to the inclusion of its audit report, investors may be limited in their ability to
assert claims against Arthur Andersen under Section 11(a) of the Securities Act of 1933, as amended ("Securities Act"), for any untrue statement of a material fact, or omission of a material
fact required to be stated, in the financial statements audited

15

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by
Arthur Andersen. Therefore, investors may be limited in their ability to recover under the federal securities laws.

Lack of written consent of Barbier Frinault & Associes

The financial statements for each of the years ended December 31, 2001 and 2000 for Mar Profundo Girassol ("MPG") included in this
Form 20-F were audited by Barbier Frinault & Associes ("BFA"), formerly a Member of Andersen Worldwide Organization and a foreign affiliate of Arthur Andersen, which issued
an audit report dated April 2, 2002 on these financial statements.

Arthur
Andersen has ceased practicing before the Securities and Exchange Commission and as a result, we have been unable to obtain after reasonable efforts written consent of BFA to the
inclusion of its audit report in this Form 20-F. Pursuant to Rule 437a under the Securities Act of 1933, this Report has been filed without the written consent of BFA, a
former foreign affiliate of Arthur Andersen and the independent public accountants of MPG's financial statements for its fiscal year ended December 31, 2001. Because BFA has not consented to
the inclusion of its audit report, investors may be limited in their ability to assert claims against BFA under Section 11(a) of the Securities Act for any untrue statement of a material fact,
or omission of a material fact required to be stated, in the financial statements audited by BFA. Therefore, investors may be limited in their ability to recover under the federal securities laws.

Item 4. Information on the Company.

Overview

We are one of the largest offshore services contractors in the world. We design, procure, build, install and service a range of offshore surface and subsurface
infrastructure for the global oil and gas industry. We specialize in creating and applying innovative and efficient solutions in response to the technical challenges faced by offshore oil and gas
companies as they explore and develop production fields in increasingly deeper water and more demanding offshore environments. Our revenues for the year ended November 30, 2002 were
$1.4 billion, and our order backlog on March 31, 2003 was $1.4 billion, as compared to our order backlog of $1.6 billion at March 31, 2002. Of the March 31,
2003 backlog amount, we expect that $0.9 billion will be recognized as revenue in 2003 and $0.5 billion will be included in later years.

We
provide services and products that add value for our customers at all phases of offshore oil and gas field exploration, development and production. We survey the seabed and provide
other support services for drilling test holes during the exploration phase. When a field is being developed, we apply our technical expertise and knowledge of regional conditions to offer conceptual
and engineering designs for the field. We also procure or fabricate and install equipment used in field development. This equipment includes the above-water topsides and platforms used for processing
recovered oil and
gas, wellheads, pipelines and electrical and hydraulic cables, known as umbilicals, that are used to control subsea wells. The pipelines are used to transport oil and gas underwater and to the
production and processing facilities at the surface. They may be steel pipe, referred to as rigid pipe, or of a bonded structure, referred to as flexible pipe, depending on technical requirements, and
may be narrow (flowlines) or wide (trunklines) depending on production volumes and pressure. We also combine our design and fabrication expertise to manage the building of floating facilities (known
as FPSOs) that process, store and offload oil and which are used in very deep water where a platform or topside would be impractical. During the time that the field is producing oil or gas, we
inspect, maintain and repair this equipment. Once the field has been depleted and is to be abandoned, we provide field decommissioning services which include the removal of offshore structures and
equipment.

We
are one of only a few companies that can offer a full range of offshore development and construction services on a global basis. Our worldwide operations are managed through six
regional

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offices.
We employ approximately 1,400 engineering staff in project management and various engineering disciplines worldwide including about 140 conceptual and detailed design engineers. We have
operated in more than 73 countries and currently operate in over 21 countries.

We
have a world class fleet of highly specialized ships, barges and unmanned underwater remotely operated vehicles, or ROVs, deployed in the world's major offshore oil and gas
exploration regions, including:



Projects
relating to the engineering and construction of new offshore oil and gas field developments, which typically last more than one year, account for approximately 95% of our
revenues while work related to the inspection, repair and maintenance of oil and gas fields throughout their time in production accounts for the remaining 5% of revenues.

Our
services cover all phases of offshore oil and gas operations, from exploration to decommissioning. We offer our products and services through the following lines of business:



We
also provide field decommissioning services at the end of the working life of an offshore oilfield.

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We
offer heavy lift floating crane services through a joint venture company, Seaway Heavy Lifting Limited ("SHL"). SHL charters the heavy lift barge Stanislav Yudinfrom a subsidiary of
Lukoil-Kaliningradmorneft plc ("Lukoil"), our joint venture partner in SHL. We also manufacture flexible flowlines
and dynamic flexible risers (which are flexible pipelines from the sea floor to the surface) through the joint venture company NKT Flexibles I/S ("NKT Flexibles"), in which we have a 49% interest. The
remainder of the joint ventures in which we have interests have been formed either with a national oil company, such as Sonangol in Angola, or on a project-specific basis to enhance the range of
services provided to the customer. We typically have interests ranging from 30% to 55% in these joint ventures.

History and Development of Stolt Offshore

We are a "Societe Anonyme Holding", organized in the Grand Duchy of Luxembourg under the Company Law of 1915, as amended. Our registered office is located at 26,
rue Louvigny, Luxembourg and we are registered in the Companies' Registrar of the Luxembourg District Court under the designation "R.C. Luxembourg B43172." Our principal executive offices are c/o
Stolt Offshore M.S. Ltd., Dolphin House, Windmill Road, Sunbury-on-Thames, Middlesex TW16 7HT England, telephone number (+44) (0)1932-773-700.
Our website address is www.stoltoffshore.com. Our agent for U.S. federal securities law purposes is Stolt-Nielsen Inc., 8 Sound Shore Drive, P.O. Box 2300, Greenwich, Connecticut 06836.

A
publicly-traded company since May 1993, we were established through the merger of the businesses of two leading diving support services companies, Comex Services S.A. and
Stolt-Nielsen Seaway A/S, which were acquired by SNSA in separate transactions in 1992. At the time of acquisition, Comex was a leading world-wide subsea services contractor, which
pioneered deepwater saturation diving and subsea construction using both manned and unmanned techniques. Stolt-Nielsen Seaway A/S operated principally in the North Sea and pioneered the development
and use of specially designed, technologically sophisticated diving support ships and ROVs to support operations in hostile deepwater environments.

In
August 1998, we acquired the Houston-based Ceanic Corporation, a publicly traded subsea contractor, for approximately $218.9 million. Ceanic provided a range of subsea
services and products to the offshore oil and gas industry in the Gulf of Mexico and inland underwater services to domestic and governmental customers. With this acquisition we took possession of a
substantial fleet of ships mostly designed for shallow water work, ROVs and other related technologies.

The
acquisition of Ceanic was strategically important for us in that it provided access to the growing deepwater construction market in the Gulf of Mexico and the ability to build
relationships with Houston-based oil and gas companies who conduct much of their world-wide business from Houston.

On
December 7, 1999, we completed a transaction to form a joint venture entity, NKT Flexibles, a manufacturer of flexible flowlines and risers for the offshore oil and gas
industry. NKT Flexibles is owned 51% by NKT Holdings A/S and 49% by us. The total consideration for the acquisition was $36.0 million funded partly by cash and partly by Class A Shares
at a guaranteed value. The Class A Shares were subsequently converted to Common Shares on a one-for-one basis. This acquisition secured our supply of flexible products.

On
December 16, 1999, we acquired the French offshore construction and engineering company ETPM, a wholly owned subsidiary of Groupe GTM S.A. ("GTM"). GTM has subsequently been
acquired by Groupe Vinci S.A. ("Vinci"). The total consideration for this acquisition, including debt assumed, was approximately $350.0 million, funded partly by cash and partly by
6.1 million Class A Shares at a guaranteed value of $18.50 per share. The Class A Shares have subsequently been converted to Common Shares on a one-for-one
basis.

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ETPM
had a significant market position in West Africa, which is now one of the fastest growing markets for our services. ETPM also had significant engineering skills in offshore design
of both subsea
structures and of fixed and floating production platforms, in addition to a fleet of pipelay barges, which broaden our range of pipelay capabilities.

On
July 18, 2001, we acquired the Paris-based engineering company Ingerop Litwin from Vinci. On September 4, 2001, we acquired a controlling interest in the Houston-based
engineering company, Paragon Engineering Services, Inc. We paid a total of $16.7 million of cash for these two companies, $4.3 million of which has been deferred until 2005. These
acquisitions, by adding conceptual design and detailed engineering skills, have enabled us to better undertake all of the engineering required for many of the large engineering, procurement,
installation and commissioning ("EPIC") type contracts that are expected to come into the market in the next few years.

Capital Expenditures and Disposals of Assets

Our capital expenditures for property, plant and equipment were $54.6 million in 2002, $62.9 million in 2001 and $61.7 million in 2000. The
capital expenditures were financed by our operating cash flows and additional funds drawn on new and existing credit facilities. In August 2002, we sold a US subsidiary, Big Inch Marine Systems
Inc, for a net gain of $8 million. There were no other significant divestitures during these periods.

The
table below sets forth information with respect to our principal capital expenditures for fixed assets in each of the last three fiscal years, as well as the amounts we have
committed to spend in 2003 and onwards. The ongoing capital expenditures will be funded with cash from operations and additional funds drawn on new and existing credit facilities.

Committed
2003*

2002

2001

2000(in $ millions)DescriptionEquipment and Asset Development

4.7

28.9

38.0

42.5Capacity Upgrades to Ships and Other Equipment

13.1

24.1

21.2

9.1Other

1.2

1.6

3.7

10.1Total

19.0

54.6

62.9

61.7


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Among
the specific capital expenditures which are committed as of March 31, 2003 are the following projects:

Committed
2003(in $ millions)Description of projects:Steel Catenary Riser Pull-in system (mobile assets)

3.4New knuckle jib crane for Seaway Osprey

2.8J Lay Tower upgrade for Seaway Polaris

1.8Computerized Asset Supply Chain Management System

1.9Computerized Project Cost Management System

1.5


Business Segments

Our operations are managed through six regional offices: Aberdeen, Scotland for the United Kingdom and Southern North Sea; Stavanger, Norway for the Norway
region; Jakarta, Indonesia for

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Asia
Pacific; Nanterre, France for SEAME; Rio de Janeiro, Brazil for South America; and Houston, Texas for the Gulf of Mexico. We provide our conceptual design and engineering services for all
regional operations through our offices in Houston, Texas and Nanterre, France. We assemble and construct offshore infrastructure equipment at our fabrication yards in Nigeria and Angola. Our
principal executive offices are located in Sunbury, near London, England.

We
have business segments based on the geographic distribution of the activities as follows:

|Segment              |  | Geographic Coverage                                                                                          
|-------------------- |  | -------------------------------------------------------------------------------------------------------------
|Asia Pacific Region  |  | Includes all activities east of the Indian sub-continent including Australasia                               
|North America Region |  | Includes all activities in Canada, the U.S. and Central America                                              
|Norway Region        |  | Includes all activities in Scandinavia and the Baltic states                                                 
|SEAME Region         |  | Includes all activities in Southern Europe and Africa, India and the Middle East                             
|South America Region |  | Includes all activities in South America and the islands of the southern Atlantic Ocean                      
|U.K. Region          |  | Includes all activities in the UK, Ireland, Germany, Belgium, the Netherlands and the northern Atlantic Ocean
|Corporate            |  | Includes all activities that serve more than one region. These include:                                      
|                     |  |                                                                                                             
|                     |  |                                                                                                             
|                     |  |                                                                                                             
|                     |  |                                                                                                             
|                     |  |                                                                                                             
|                     |  |                                                                                                             

Asia Pacific Region

The Asia Pacific region is characterized by long distances between areas of offshore oil operations and from other areas of the world that have offshore
development activities. We are active in ROV work, drilling support and subsea construction in this region. Most work takes place in Indonesia, where our operations are performed through a subsidiary,
PT Komaritim, which carries out shallow water pipelay and construction work. We recently sold our small air diving operation in Australia.

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U.K. Region

The U.K. region's business consists of pipelay and EPIC projects, subsea construction, and inspection, maintenance and repair contracts. The majority of these
maintenance and repair contracts are short-term in nature. Included in backlog for the U.K. region are: a long-term construction and maintenance contract for BP, which is
expected to be completed in 2005; the Corrib project for Shell; the K7 & K15 project for NAM; and other subsea construction projects.

Norway Region

The Norway region's business consists of pipelay and EPIC projects and inspection, maintenance and drill support work for major oil producing companies. In 2002
we completed the installation of the Asgard B Flexible Gas Export Riser, a subsea construction project for Statoil, and we have a long-term contract with Statoil for construction and
maintenance that is performed through our joint venture with Subsea 7. We have recently started two further subsea construction projects, namely Skirne Byggve for TotalFinaElf and the Vigdis Extension
for Statoil.

SEAME Region

The majority of our business in the SEAME region is in West Africa and the Middle East and involves pipelay and EPIC projects, subsea construction, field
development, drill support, diving and ROV services as well as the operation of two fabrication yards. Significant projects in 2002 include pipelay and EPIC projects with Shell, TotalFinaElf and
ChevronTexaco. In 2002 we commenced the Shell Forcados Yokri and Sanha Bomboco field developments, as well as the installation of the Shell Offshore Gas Gathering System, all in Nigeria. We have
recently achieved first gas on the Scarab and Saffron development for the Burullus Gas Company in the Eastern Mediterranean. We commenced offshore operations on the Shell Bonga EPIC contract, and we
are a member of a joint venture consortium which was awarded the major Erha field contract by ExxonMobil in Nigeria. In addition, we are member of the joint venture consortium which was awarded the
major Dalia field contract by TotalFinaElf in Angola in May 2003.

South America Region

The majority of our operations in South America are located in Brazil, which currently operates mostly as a single customer market controlled by Petrobras, the
Brazilian state oil company. Brazil has now opened offshore oil and gas fields to foreign operators who will finance the growth of Brazilian offshore oil production by means of production sharing
contracts.

The
Brazilian market contains a number of large fields which are located in deep water and will require extensive use of diverless subsea construction techniques. We believe we are well
positioned to capitalize on our expertise in these techniques.

We
currently have a four-year contract with an optional four-year extension for the charter of theSeaway Condorwith Petrobras. We also have a two-year contract with Petrobras for theSeaway Harrier, which runs until July 2003. The contracts are
for flowline lay, diving support and ROV services. We also operate a number of ROVs to provide construction and drilling support services, usually under long-term contracts.

North America Region

Based in Houston, Texas and Port of Iberia, Louisiana, our North American regional business incorporates deepwater and shallow water pipelay and construction
work, dayrate diving and ROV inspection, repair and maintenance work and the manufacture of sophisticated flanges and connectors for offshore construction and repair works. A significant number of
contracts in this region are

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short-term
construction, repair and maintenance projects. In 2002 we completed a large pipelay project for Gulfstream Natural Gas LLC and were awarded a further Pipelay contract for Duke
Energy in Boston Harbour.

Corporate

The Corporate segment includes activities that cannot be readily assigned to a specific business segment due to the provision of services to our entire company.
These include the activities of SHL, a joint venture with a subsidiary of the Russian oil company Lukoil; NKT Flexibles; Serimer Dasa, a contract welding services entity employed both onshore and
offshore by pipelay contractors; and the Paragon companies, now incorporating Litwin, which provide engineering support particularly for large EPIC contracts. Also included in the Corporate segment
are global assets including all construction support
ships, ROVs and other deepsea assets that are used globally and therefore cannot be allocated to any specific region, as well as management and corporate services for the benefit of the entire company
including the design engineering, finance and legal departments.

The
net operating revenue for each of our business segments for each of the last three fiscal years is set forth under "Item 5. Operating and Financial Review and Prospects."

Market, Sales and Competition

Marketing and Tendering

Marketing of our services is performed through our regional offices. Our marketing strategy is focussed on ensuring that we are invited to bid on all projects
where we have a competitive advantage on the basis of our ships, our fabrication capacity, our engineering excellence and/or our technological specialization.

Most
of our work is obtained through a competitive tendering process. When a target project is identified by our regional marketing staff, the decision to prepare and submit a
competitive bid is taken by management in accordance with delegated authority limits. Cost estimates are prepared on the basis of a detailed standard costing manual, and the selling price and contract
terms are based on our minimum commercial standards and market conditions. Before the tender package is submitted to the customer, it is subject to detailed review; this review is performed by
representatives of regional, product line, legal and finance departments; major project tenders are also subject to approval by corporate management and the Board of Directors.

Customers

In 2002, we had 128 customers worldwide, of which 24 were major national and international oil and gas companies. The level of construction services required by
any particular customer depends on the size of that customer's capital expenditure budget devoted to construction plans in a particular year. Consequently, customers that account for a significant
portion of contract revenue in one fiscal year may represent an immaterial portion of contract revenue in subsequent fiscal years. In 2002, Shell accounted for 20% of our net operating revenue with BG
Group and TotalFinaElf accounting for a further 10% and 9% respectively of our net operating revenue. In 2001, TotalFinaElf accounted for 24%, of our net operating revenue, while Shell and BG Group
accounted for 9% and 4% respectively. During 2002 and 2001, our ten largest customers accounted for 69% and 76% respectively, of our net operating revenue, and over that period seven customers, Shell,
TotalFinaElf, BG Group, BP, Statoil, Petrobras and Norsk Hydro consistently numbered among our ten largest customers.

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Competition

The offshore contracting business is highly competitive. The consolidation in the offshore oil and gas services industry in the last few years has resulted in
fewer but more substantial competitors. Although we believe that customers consider, among other things, the availability and technical capabilities of equipment and personnel, efficiency, condition
of equipment, safety record and reputation, price competition is the primary factor in determining which qualified contractor with available equipment will be awarded a contract. Our ships are
specialized and have few alternative uses and, because of their nature and the environment in which they work, have relatively high maintenance costs whether or not operating. Because these costs are
essentially fixed, and in order to avoid additional expenses associated with temporarily idling our ships, we may from time to time be required to bid our ships in projects at lower margins depending
on the prevailing contractual rates in a given region.

We
believe that we are one of only four companies capable of providing a wide range of offshore services on a worldwide basis in the major offshore oil and gas producing regions.
Competition in most of the range of services that we offer to our customers is limited to three main competitors, Technip-Coflexip, Subsea 7 and Saipem S.p.A. We are subject to intense competition
from these offshore contractors. In North America, J. Ray McDermott Inc., Global Industries Inc., Cal Dive International, Torch Offshore Inc. and Horizon Offshore
Contractors Inc. also provide similar services to those that we provide. Additionally, these services are provided by J. Ray McDermott Inc. in Asia Pacific and the Middle East and by
Global Industries Inc. in Asia Pacific and West Africa. However, we believe that these companies are not capable of operating in all the major oil and gas producing regions worldwide. We also
compete with Allseas Marine Contractors and Heerema who operate in the worldwide market, providing trunkline and rigid pipelay services and heavy lifting services, respectively. We also face
substantial competition from smaller regional competitors and less integrated providers of offshore services.

Seasonality

Over the past three years, a substantial proportion of our revenue has been generated from work performed in the North Sea and North America. Adverse weather
conditions during the winter months in these regions usually result in low levels of activity, although this is less apparent than in the past due to technological advances. As a result,
full-year results are not likely to be a direct multiple of any particular quarter or combination of quarters. Additionally, during certain periods of the year, we may be affected by
delays caused by adverse weather conditions such as hurricanes or tropical storms in the Gulf of Mexico. During periods of curtailed activity due to adverse weather conditions, we continue to incur
operating expenses, but our revenues from operations are delayed or reduced.

Supplies and Raw Materials

We generally do not manufacture the components used in the offshore services that we provide, but rather supply, assemble and install equipment manufactured by
others. Assembly work is performed at our onshore fabrication yards located in Lobito (Angola), Warri (Nigeria), Louisiana (USA) and Macae City (Brazil). We coordinate our procurement and supply
activities on a regional basis with group level management overseeing the procurement and supply function for all of our operations.

The
majority of raw materials that we use have not been subject to significant price volatility; however, suppliers occasionally levy surcharges on materials to reflect the escalation of
fuel prices. We do not believe that long-term contracts for the supply of materials are appropriate as there is often a long lead time from the bid to contract award date, which can expose
us to price fluctuations in materials. We may be exposed to increased prices for raw materials on individual contracts. We actively challenge suppliers to offer competitive prices on materials by
inviting bids for supply contracts and

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introducing
new suppliers. Over the last year, our results have not been significantly affected by increased prices for raw materials.

Intellectual Property

Under our intellectual property policy, we protect ourselves through patents, publications and other means available. Some of our operations are conducted under
licensing agreements allowing us to make use of specific techniques or equipment patented by third parties. However, none of the operations conducted under patents held by us or under license
agreements represents a significant
percentage of our net operating revenue. As discussed under "Item 8. Legal Proceedings", we are in dispute with a competitor who is claiming damages for infringement of a patented technology.

Other Matters

Health, Safety & Environmental Management and Quality Assurance

We conduct our business through a well-defined set of processes specified in ourManagement Systemto
ensure the well-being and safety of our employees and others with whom we work, as well as giving the proper regard to the protection of the environment. Each of our managers is encouraged
to take the necessary steps to create a culture of continuous improvement. OurManagement Systemprovides the necessary instructions, procedures and
guidelines encompassing all areas of our operations so that we can assure the quality of our services to our customers. It is designed and maintained in accordance with ISO 9001, an international
standard established by the International Standards Organization to certify quality assurance systems. Each of our Regional businesses has dedicated Health, Safety, Environment and Quality ("HSEQ")
staff, who are responsible for coaching, auditing and verifying that these quality systems are fully implemented by projects in that particular Region. In addition, a Corporate HSEQ Manager, located
in Aberdeen, Scotland, formulates corporate HSEQ assurance policies and processes, and oversees the implementation and enforcement of such processes on a Group-wide basis.

Risks and Insurance

Our operations are subject to all the risks normally associated with offshore development and operations and could result in damage to or loss of property,
suspension of operations or injury or death to personnel or third parties. We insure our assets at levels which our management believes reflect their current market value, subject to appropriate
self-insured deductibles. Such assets include all capital items such as ships, major equipment and land-based property. We believe our insurance should protect against, among
other things, the impact on our business of the total or constructive total loss of a major asset.

Our
operations are conducted in hazardous environments where accidents involving catastrophic damage or loss of life could result, and litigation arising from such an event may result in
us being named a defendant in lawsuits asserting large claims. We insure ourselves for liability arising from our operations, both onshore and offshore, including loss of or damage to third-party
property, death or injury to employees or third parties, statutory workers' compensation protection and pollution. However, there can be no assurance that the amount of insurance we carry is
sufficient to protect us fully in all events, and a successful liability claim for which we are under-insured or uninsured could have a material adverse effect on us.

Government Regulation

Our business is subject to international conventions and governmental regulations that strictly regulate various aspects of our operations. The maritime laws and
the diving, health and safety regulations of the jurisdictions in which we operate govern our operations in these areas. Our

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Management
System which describes all our business processes, is designed to meet best practice and covers all legislative requirements in the regions in which we operate. We closely follow the
guidelines set by the International Marine Contractor Association.

Our
operations in the United Kingdom are subject to a variety of employee and European community safety laws. The Health and Safety at Work Act of 1974, and regulations made thereunder,
mandate general requirements for safe workplaces for all employees. Similar regulations apply in Norway, France and other European countries in which we operate.

In
the United States, we are subject to the jurisdiction of the U.S. Coast Guard, the National Transportation Safety Board and the U.S. Customs Service, as well as private industry
organizations such as the American Bureau of Shipping. The Coast Guard and the National Transportation Safety Board set safety standards and are authorized to investigate vessel accidents and
recommend improved safety standards. The Customs Service is authorized to inspect vessels at will. The exploration and development of oil and gas properties located on the Outer Continental Shelf of
the United States is regulated by the Minerals Management Service. Our U.S. operations are also affected by numerous federal, state, and local laws and regulations relating to safety and health of
employees and protection of the environment including the Occupational Safety & Health Act of 1970, the Resource Conservation & Recovery Act of 1976, the Outer Continental Shelf Lands
Act of 1953, the Federal Water Pollution Control Act of 1972, and the Oil Pollution Act of 1990.

The
International Maritime Organization has made the regulations of the International Safety Management (ISM) Code mandatory. The ISM Code provides an international standard for the safe
management and operation of ships, pollution prevention and certain crew and ship or barge certifications. We believe that we are in compliance with these standards to the extent such standards are
applicable to our operations.

Compliance
with current health, environmental, safety and other laws and regulations is a normal part of our business. These laws change frequently and, as a normal part of our business,
we incur costs to maintain compliance with such laws. Although these costs have not had a material impact on our financial condition or results of operations in recent years, there can be no assurance
that they will not have such an impact in the future. Moreover, although it is our objective to maintain compliance with
all such laws and regulations applicable to us, there can be no assurance that we will avoid material costs, liabilities and penalties imposed as a result of governmental regulation in the future.

In
addition, we are required by various governmental and other regulatory agencies, including the agencies referred to above, to obtain certain permits, licenses and certificates with
respect to our equipment and operations. The kind of permits, licenses and certificates required in our operations depends upon a number of factors but are normally of a type required of all operators
in a given jurisdiction. We believe that we have or can readily obtain all permits, licenses and certificates necessary to conduct our operations. Some countries require that we enter into joint
venture or similar business arrangements with local individuals or businesses in order to conduct business in such countries.

Our
operations are affected from time to time and to varying degrees by political developments and federal and local laws and regulations. In particular, oil and gas production
operations and economics are affected by price control, tax and other laws relating to the petroleum industry, by changes in such laws and by constantly changing administrative regulations. Such
developments directly or indirectly may affect our operations and those of our customers.

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We conduct business in certain countries known to experience governmental corruption. Although we are committed to conducting business in a legal and ethical manner in compliance with
local and international statutory requirements and standards applicable to our business, there is a risk that our employees or agents may take actions that violate either the U.S. Foreign Corrupt
Practices Act or legislation promulgated pursuant to the 1997 OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions or other applicable laws and
regulations. Such violations could result in monetary or other penalties against us or our subsidiaries and could damage our reputation and, therefore, our ability to do business.

Inspection by a Classification Society and Drydocking

The hull and machinery (including diving equipment) of most of our ships must be "classed" by a classification society authorized by its country of registry. The
classification society certifies that the ship is safe and seaworthy in accordance with the classification rules as well as with applicable rules and regulations of the country of registry of the ship
and the international conventions of which that country is a member. Certain of our ships are not required to be classed, but do comply with applicable regulations.

Each
classed ship is inspected by a surveyor of the classification society. A visual inspection is carried out annually to ascertain the general condition of the ship or relevant items.
Intermediate surveys are carried out at the second or third annual survey. This survey includes a visual inspection of the hull structure, machinery and electrical installations and equipment. Renewal
surveys which involve a major inspection of the hull structure, machinery installations and equipment are carried out at five-year intervals. A classed ship is also required to be
drydocked every 30 to 36 months for inspection of the underwater parts of the ship. As a general policy, we drydock our classed ships every second year during the winter off-season.
Should any defect be found, the classification society surveyor will issue his report as to appropriate repairs which must be made by the ship owner within the time limit prescribed. Insurance
underwriters make it a condition of insurance coverage that a classed ship be "in class," and all of our major classed ships currently meet that condition.

Our
U.S. flagged ships that are U.S. Coast Guard inspected but not classed are drydocked twice during each five-year cycle. The intermediate drydocking is due between the end
of the second and third years of the cycle. Our U.S. flagged Load Line only ships as well as the un-classed Panama and Honduras flagged ships are drydocked according to the same schedule
for condition surveys as required by the respective national Load Line regulations. The annual topside safety and equipment surveys are very similar to and parallel the traditional class surveys.

Organizational Structure

Our principal shareholder is SNTG, a wholly owned subsidiary of SNSA. SNSA is a holding company which through its subsidiaries has operations in various
industries including transportation, fish farming, software development and contracting for the offshore oil and gas industry. SNTG is one of the world's leading providers of transportation services
for bulk liquid chemicals, edible oils, acids and other specialty liquids. In addition, through its parcel tanker, tank container, terminal, rail and barge services, SNTG provides integrated
transportation for its customers. As of March 31, 2003, SNTG had an economic interest of approximately 63.5% in us and a voting interest of approximately 69%.

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Significant Subsidiaries

Our significant subsidiaries are set out in the table below.

|Company name                     |  | Country of incorporation |  | Percentage of ownership
|-------------------------------- |  | ------------------------ |  | -----------------------
|Stolt Offshore S.A.              |  | France                   |  | 100%                   
|Stolt Offshore Services S.A.     |  | France                   |  | 100%                   
|Stolt Offshore Inc.              |  | U.S.                     |  | 100%                   
|Stolt Comex Seaway Holdings Inc. |  | U.S.                     |  | 100%                   
|Stolt Offshore A/S               |  | Norway                   |  | 100%                   
|Stolt Offshore M.S. Limited      |  | Bermuda                  |  | 100%                   
|Stolt Offshore B.V.              |  | The Netherlands          |  | 100%                   
|Stolt Offshore Limited           |  | United Kingdom           |  | 100%                   
|ETPM DeepSea Limited             |  | United Kingdom           |  | 100%                   

Description of Property

Major Assets

The following table describes our major assets as of March 31, 2003:

|Name                       |  | Capabilities                                                                                      |  | Year built/
Major upgrade |  | ROVs |  | Length
overall
(meters) |  | Owned/Chartered |  
|-------------------------- |  | ------------------------------------------------------------------------------------------------- |  | ------------------------- |  | ---- |  | ----------------------- |  | --------------- | -
|Construction Support Ships |  |                                                                                                   |  |                           |  |      |  |                         |  |                 |  
|Seaway Harrier             |  | Subsea construction                                                                               |  | 1985                      |  | 1    |  | 84                      |  | Owned(1         | )
|Seaway Hawk                |  | Subsea construction                                                                               |  | 1978                      |  |     |  | 93                      |  | Owned           |  
|Seaway Osprey              |  | Flexible flowline and umbilical lay, accepts coiled tubing, straightener for tubing, stern roller |  | 1984/1992/1996            |  | 2    |  | 102                     |  | Owned(1         | )
|Seaway Eagle               |  | Flexible flowline lay, multi-purpose subsea construction                                          |  | 1997                      |  | 2    |  | 140                     |  | Owned(1         | )
|Seaway Legend              |  | ROV and hardsuit diving support, subsea construction                                              |  | 1985/1998                 |  | 2    |  | 73                      |  | Owned           |  
|Discovery                  |  | Flexible flowline lay, subsea construction                                                        |  | 1990                      |  | 1    |  | 120                     |  | Chartered(2     | )
|Seaway Kingfisher          |  | Diverless inspection, repair and maintenance                                                      |  | 1990/1998                 |  | 2    |  | 90                      |  | Chartered(3     | )
|Seaway Explorer            |  | Trenching ship                                                                                    |  | 1984                      |  |     |  | 80                      |  | Owned(1         | )
|Flowline Lay Ships         |  |                                                                                                   |  |                           |  |      |  |                         |  |                 |  
|Seaway Condor              |  | Flexible flowline and umbilical lay, module handling system, trenching                            |  | 1982/1994/1999/2002       |  | 2    |  | 141                     |  | Owned(1         | )
|Seaway Falcon              |  | Rigid and flexible flowline and umbilical lay                                                     |  | 1976/1995/1997            |  | 2    |  | 162                     |  | Owned(1         | )
|Seaway Polaris             |  | Deepwater derrick/pipelay barge                                                                   |  | 1979/1991/1996/1999/2002  |  | 2    |  | 137                     |  | Owned(1         | )
|Seaway Kestrel             |  | Rigid reel lay ship                                                                               |  | 1976/1991/1995            |  |     |  | 99                      |  | Owned(1         | )
|Survey/IRM Ships           |  |                                                                                                   |  |                           |  |      |  |                         |  |                 |  
|Seaway Defender            |  | ROV and hardsuit diving support, subsea construction                                              |  | 1976                      |  | 1    |  | 67                      |  | Owned           |  
|Seaway Pioneer             |  | ROV and hardsuit diving support, subsea construction                                              |  | 1966/1996                 |  | 1    |  | 64                      |  | Owned           |  
|                           |  |                                                                                                   |  |                           |  |      |  |                         |  |                 |  

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|Seaway Invincible                         |  | ROV support, subsea construction                                          |  | 1971                |  |  |  | 71  |  | Owned       |  
|----------------------------------------- |  | ------------------------------------------------------------------------- |  | ------------------- |  | - |  | --- |  | ----------- | -
|Seaway Rover                              |  | ROV support, subsea construction                                          |  | 1966/1972/1983/1991 |  |  |  | 71  |  | Owned       |  
|Elang Laut                                |  | Multi-role shallow seismic/multibeam survey and geotechnical service ship |  | 1978                |  |  |  | 35  |  | Owned       |  
|Far Saga                                  |  | ROV support, subsea construction                                          |  | 2001                |  | 2 |  | 89  |  | Chartered(4 | )
|Anchored Construction & Maintenance Ships |  |                                                                           |  |                     |  |   |  |     |  |             |  
|American Pride                            |  | Four-point anchor system                                                  |  | 1977/1992           |  |  |  | 59  |  | Owned       |  
|American Constitution                     |  | Four-point anchor system, saturation diving, moonpool                     |  | 1974                |  |  |  | 64  |  | Owned       |  
|American Eagle                            |  | Four-point anchor system                                                  |  | 1976                |  |  |  | 50  |  | Owned       |  
|American Independence                     |  | Four-point anchor system                                                  |  | 1970                |  |  |  | 52  |  | Owned       |  
|American Star                             |  | Four-point anchor system, saturation diving                               |  | 1967/1998           |  |  |  | 53  |  | Owned       |  
|American Triumph                          |  | Four-point anchor system                                                  |  | 1965/1997           |  |  |  | 53  |  | Owned       |  
|American Victory                          |  | Four-point anchor system                                                  |  | 1976/1997           |  |  |  | 50  |  | Owned       |  
|American Liberty                          |  | Four-point anchor system                                                  |  | 1974                |  |  |  | 33  |  | Owned       |  
|American Diver                            |  | Diving support                                                            |  | 1964                |  |  |  | 33  |  | Owned       |  
|Heavy Lift Ships and Barges               |  |                                                                           |  |                     |  |   |  |     |  |             |  
|Stanislav Yudin                           |  | Heavy lift, 2,500-ton crane                                               |  | 1985                |  |  |  | 183 |  | Chartered(5 | )
|Annette                                   |  | Pipelay barge, marine construction                                        |  | 1972/1989/1997      |  |  |  | 61  |  | Owned       |  
|Arwana                                    |  | Pipelay barge                                                             |  | 1998                |  |  |  | 70  |  | Owned       |  
|Jasamarine V (ex Sin Thai Hin IV)         |  | Flat top barge fitted out for inshore diving/construction                 |  | 1978                |  |  |  | 55  |  | Owned       |  
|Seaway Orion                              |  | Pipelay barge                                                             |  | 1977/1984/1997      |  |  |  | 85  |  | Owned       |  
|DLB 801                                   |  | Derrick lay barge                                                         |  | 1978/1980/1989      |  |  |  | 107 |  | Owned(1     | )
|LB 200                                    |  | Pipelay barge                                                             |  | 1975/1996           |  |  |  | 168 |  | Owned(1     | )
|CBL 103                                   |  | Seagoing barge                                                            |  | 1975/1985/1996      |  |  |  | 91  |  | Owned       |  
|Tugs and Other                            |  |                                                                           |  |                     |  |   |  |     |  |             |  
|Golek                                     |  | Transport barge                                                           |  | 1983/1992           |  |  |  | 46  |  | Owned       |  
|Polka                                     |  | River tug and anchor handler                                              |  | 1971                |  |  |  | 12  |  | Owned       |  
|Seaway Sabiá                              |  | Anchor Mooring support                                                    |  | 2002                |  |  |  | 37  |  | Owned       |  
|DLB 1                                     |  | Barge                                                                     |  | 1956                |  |  |  | 91  |  | Owned       |  

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The environmental regulations which affect the utilization of the above assets are described in the paragraph headed Government Regulation above.

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Other Properties

As of March 31, 2003, we owned or held under long-term leases real estate property as described below:

|Location                      |  | Function                                   |  | Office Space
(square meters) |  | Work or Storage
Space or Land
(square meters) |  | Status      
|----------------------------- |  | ------------------------------------------ |  | ---------------------------- |  | --------------------------------------------- |  | ------------
|Aberdeen, Scotland            |  | Offices, workshop and storage              |  | 8,949                        |  | 95,351                                        |  | Owned/Leased
|Ardersier, Scotland           |  | Storage                                    |  |                             |  | 42,694                                        |  | Owned       
|Baku, Azerbaijan              |  | Offices                                    |  | 66                           |  |                                              |  | Leased      
|Bergen, Norway                |  | Offices                                    |  | 100                          |  |                                              |  | Leased      
|Cairo, Egypt                  |  | Offices                                    |  | 250                          |  |                                              |  | Leased      
|Dhahran, Saudi Arabia         |  | Offices and storage                        |  | 330                          |  | 750                                           |  | Leased      
|East Kalimantan, Indonesia    |  | Workshop and storage                       |  |                             |  | 190,267                                       |  | Leased      
|Houston, Texas                |  | Offices, workshop and storage              |  | 4,830                        |  | 9,467                                         |  | Leased      
|Houston, Texas                |  | Offices, workshop and storage              |  | 10,105                       |  | 25,738                                        |  | Leased      
|Jakarta, Indonesia            |  | Offices and storage                        |  | 915                          |  | 601                                           |  | Leased      
|Kristiansund, Norway          |  | Offices and storage                        |  | 120                          |  | 800                                           |  | Leased      
|Lagos, Nigeria                |  | Offices                                    |  | 200                          |  |                                              |  | Leased      
|Lobito, Angola                |  | Offices, fabrication and storage           |  | 5,945                        |  | 554,431                                       |  | Leased      
|Luanda, Angola                |  | Offices and storage                        |  | 53                           |  | 690                                           |  | Leased      
|Macae City, Brazil            |  | Offices, workshop, fabrication and storage |  | 1,286                        |  | 21,651                                        |  | Owned/Leased
|Nanterre, France              |  | Offices                                    |  | 22,364                       |  |                                              |  | Leased      
|New Orleans, Louisiana        |  | Offices, workshop and fabrication          |  | 347                          |  | 52,609                                        |  | Owned/Leased
|Perth, Australia              |  | Offices and storage                        |  | 440                          |  | 1,750                                         |  | Leased      
|Port Gentil, Gabon            |  | Offices and storage                        |  | 305                          |  | 5,070                                         |  | Owned/Leased
|Port of Fourchon, Louisiana   |  | Offices and workshop                       |  | 52                           |  | 39,256                                        |  | Leased      
|Port of Iberia, Louisiana     |  | Offices and workshop                       |  | 1,999                        |  | 97,373                                        |  | Owned/Leased
|Rio de Janeiro, Brazil        |  | Offices                                    |  | 295                          |  |                                              |  | Owned       
|Rotterdam, The Netherlands    |  | Storage                                    |  |                             |  | 4,200                                         |  | Leased      
|Rueil, France                 |  | Offices                                    |  | 5,235                        |  |                                              |  | Leased      
|Sharjah, United Arab Emirates |  | Offices                                    |  | 1,570                        |  |                                              |  | Leased      
|Singapore                     |  | Offices, workshop and storage              |  | 928                          |  | 4,606                                         |  | Leased      
|Stavanger, Norway             |  | Offices                                    |  | 7,721                        |  | 562                                           |  | Leased      
|Sunbury, England              |  | Principal Executive Offices                |  | 765                          |  |                                              |  | Leased      
|Tananger, Norway              |  | Offices and storage                        |  | 250                          |  | 26,000                                        |  | Leased      
|Tchengue, Gabon               |  | Offices and storage                        |  | 1,486                        |  | 60,000                                        |  | Leased      
|Tehran, Iran                  |  | Offices                                    |  | 200                          |  |                                              |  | Leased      
|Warri, Nigeria                |  | Offices, fabrication and storage           |  | 1,765                        |  | 222,582                                       |  | Leased      

During 2003, we plan for the North America region's headquarters to move to new, leased office premises in Houston. The reason for the move is to
locate our Regional Headquarters in a single office building adjacent to Paragon Engineering Services' offices. The removal will take place in September and October 2003, and the existing lease
will be terminated in January 2004 upon payment of an early exit penalty of $0.1 million.

Item 5. Operating and Financial Review and Prospects.

We are one of the largest offshore service contractors in the world. We design, procure, build, install and service a range of offshore surface and subsurface
infrastructure for the oil and gas industry, specializing in technologically sophisticated offshore and subsea engineering, flowline, trunkline and pipeline lay, construction, inspection and
maintenance services. Our revenues for the year ended November 30, 2002 were $1.4 billion, and our order backlog on March 31, 2003 was $1.4 billion, as

29

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compared
to our order backlog of $1.6 billion at March 31, 2002. Of the March 31, 2003 backlog amount, we expect that $0.9 billion will be recognized as revenue in 2003 and
$0.5 billion will be included in later years.

The
market for our services is dependent upon the success of exploration and the level of investment in offshore exploration and production by the major oil companies. Such investment is
cyclical in nature.

Following
a period of increasing oil prices in recent years, there has been a progressive increase in investment in offshore exploration and production by the major oil companies. The
impact of this investment takes time to work through to the offshore construction sector. We expect to see a continued expansion of demand in 2003 for our services, with this trend continuing over the
next few years. However, we believe that, for offshore EPIC contractors to survive, the oil companies which make up its customer base will need to bear more of the risks associated with EPIC projects
especially in challenging geographic areas. It is our strategy to be an EPIC contractor, but we will not accept excessively onerous contract terms, for example relating to subsea soil conditions or
bad weather, which we have in the past.

Following
review of information which became available in recent project reporting and a subsequent major project review led by our CEO, we have identified substantially poorer than
anticipated performance and cost overruns on three major EPIC contracts and several smaller projects. This has resulted in a significant decrease to the results of operations that we anticipate for
the 2003 fiscal year. A further discussion of these matters is included in "Liquidity and Capital Resources" and "Subsequent Events" below.

In
this section, we explain our general financial condition and the results of our operations. As you read the following discussion and analysis, you should refer to our Consolidated
Financial Statements and the related notes thereto for fiscal years 2002, 2001 and 2000 included in this Report.

Ship Utilization

The following table sets forth the average ship utilization by fiscal quarter for our fleets of dynamically positioned deepwater heavy construction ships, light
construction and survey ships and trunklines, barges and anchor ships. The utilization rate is calculated by dividing the total number of days for which the ships were engaged in project-related work
in a quarter by 87.5 days per quarter or 350 days annually, expressed as a percentage. The remaining 15 days are attributable to routine maintenance.

|                                    |      | Utilization Rate
|----------------------------------- | ---- | ----------------
|
|Deepwater Heavy Construction Ships  |      |                 
|                                    | 2002 |                 
|                                    | 2001 |                 
|                                    | 2000 |                 
|Light Construction and Survey Ships |      |                 
|                                    | 2002 |                 
|                                    | 2001 |                 
|                                    | 2000 |                 
|Trunklines, Barges and Anchor Ships |      |                 
|                                    | 2002 |                 
|                                    | 2001 |                 
|                                    | 2000 |                 

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Utilization
of all ships in 2002 was lower than 2001 due to the following factors: Utilization of Deepwater Heavy Construction Ships was reduced due to a decrease in the utilization of
theSeaway Falcon, which had 50 days of unpaid transit, and theSeaway Polarisdue to
dry-docking. Utilization of Light Construction and Survey ships was adversely affected by the eight-month lay-up of the survey shipSeaway
Invincible. The decrease in utilization of trunkline barge and Anchor ships was due to reduced utilization of Gulf of Mexico and African fleets, including the DLB 801, which was
laid up for most of the year, and theAmerican Recovery, which was eventually sold on
October 14, 2002. Utilization of the Deepwater Heavy Construction fleet in 2001 was higher than in 2000. This was due to growth in demand in the North Sea, Gulf of Mexico and West Africa,
particularly on the ship-intensive Girassol project. The poor market conditions in 2000 were more pronounced for the Light Construction and Survey fleet and the Trunkline, Barges and
Anchor Ships.

In
2003 we expect ship utilization to decline due to the lack of demand for certain ships and barges, most notably theLB 200, which is
being laid up for the remainder of the year.

Results of Operations

The following table shows annual net operating revenue and income before tax (after minority interests) for each of our business segments for the past three
fiscal years.

The
Asia Pacific region includes all activities east of the Indian sub-continent including Australasia; the North America region includes all activity in Canada, the United
States and Central America; the Norway region includes all activities in Scandinavia and the Baltic states; the SEAME region covers activities in Southern Europe and Africa, India and the Middle East;
the South America region includes activities in South America and the islands of the southern Atlantic Ocean; the U.K. region includes all activities in the United Kingdom, Ireland, Germany, Belgium,
The Netherlands and the northern Atlantic Ocean.

The
Corporate segment includes items which cannot be allocated to one particular region. These include the activities of SHL, a joint venture with a subsidiary of the Russian oil company
Lukoil; NKT Flexibles, a joint venture that manufactures flexible pipeline and risers; Serimer DASA, a contract welding services entity employed both onshore and offshore by pipelay contractors; and
Paragon Engineering Services and Paragon Litwin, both of which provide engineering services for the offshore oil and gas industry. Also included in the Corporate segment are assets which have global
mobility including construction support ships, ROVs and other assets that cannot be attributed to any one region; and corporate services provided for the benefit of the whole group, including design
engineering, finance and legal departments.

|                      |       | Year Ended November 30, |        
|--------------------- | ----- | ----------------------- | -------
|
|
|
|Net operating revenue |       |                         |        
|Asia Pacific region   |       | 25.7                    |        
|North America region  |       | 190.5                   |        
|Norway region         |       | 105.8                   |        
|SEAME region          |       | 702.7                   |        
|South America region  |       | 52.0                    |        
|U.K. region           |       | 229.8                   |        
|Corporate             |       | 131.0                   |        
|                      |       |                         |        
|                      | Total |                         | 1,437.5
|                      |       |                         |        
|                      |       |                         |        

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|Net (loss) income before tax (after minority interests) |       |        |        |       |        |       |     |        |       |       |       |       |       
|------------------------------------------------------- | ----- | ------ | ------ | ----- | ------ | ----- | --- | ------ | ----- | ----- | ----- | ----- | ------
|Asia Pacific region                                     |       | (3.3   | )      | (2.3  | )      |      |     |       |       | (14.9 | )     | (39.0 | )     
|North America region                                    |       | (116.0 | )      | (80.7 | )      | (36.2 | )   | (565.6 | )     | (21.2 | )     | (55.5 | )     
|Norway region                                           |       | 15.9   |        | 11.1  |        | 11.7  |     | 182.8  |       | 3.0   |       | 7.9   |       
|SEAME region                                            |       | (36.6  | )      | (25.5 | )      | 24.5  |     | 382.8  |       | 20.1  |       | 52.6  |       
|South America region                                    |       | 5.4    |        | 3.8   |        | 5.5   |     | 85.9   |       | 8.4   |       | 22.0  |       
|U.K. region                                             |       | (5.1   | )      | (3.6  | )      | 1.3   |     | 20.3   |       | (9.2  | )     | (24.1 | )     
|Corporate                                               |       | (4.0   | )      | (2.8  | )      | (0.4  | )   | (6.2   | )     | (24.4 | )     | (63.9 | )     
|                                                        |       |        |        |       |        |       |     |        |       |       |       |       |       
|                                                        | Total |        | (143.7 | )     | (100.0 | )     | 6.4 |        | 100.0 |       | (38.2 | )     | (100.0
|                                                        |       |        |        |       |        |       |     |        |       |       |       |       |       

Overall

Net operating revenue in 2002 increased to $1,437.5 million in 2002 from $1,255.9 million in 2001. This reflects the continued growth in the market
for our services, particularly on major projects in the SEAME region, in addition to increased year-on-year revenue on Paragon Engineering Services and Paragon Litwin which
were acquired during 2001. The results before tax have been adversely affected by losses incurred on several major contracts in West Africa, North Sea and Egypt, and also by a number of other items,
which are shown in the following table:

2002

2001

2000($ in millions)Pre-tax (loss) income (after minority interests) as reported

(143.7
)
6.4

(38.2
)Charge for impairment of goodwill

106.4



Charge for impairment of fixed assets

12.1



Gain on disposal of assets of Big Inch Marine Systems, Inc.

(8.0
)


Charge for impairment of Comex trade name



7.9

Restructuring charge





3.3Adjusted pre-tax (loss) income

(33.2
)
14.3

(34.9
)


The
charge of $106.4 million for impairment of goodwill results from the elimination of goodwill on acquisition of three subsidiaries: firstly, a charge of
$103.0 million in respect of the 1998 acquisition of Ceanic; secondly, a charge of $1.8 million in respect of Danco A/S, which holds our investment in the NKT Flexibles joint venture;
and thirdly, a charge of $1.6 million in respect of our Indonesian subsidiary PT Komaritim. These impairment adjustments are described more fully in the section below entitled "Depreciation and
Amortization".

The
charge of $12.1 million for impairment of fixed assets is made up of several items, the main one being our 49% share of a fixed asset impairment loss booked by the NKT
Flexibles joint venture. The remainder of the charge relates to adjustments to the carrying value of several smaller fixed assets.

Net
operating revenue increased to $1,255.9 million in 2001 from $983.4 million in 2000 largely due to greater activity on major projects in the Gulf of Mexico and West
Africa. During the year, the Girassol and Gulfstream projects suffered from project delays, cost overruns and delays in settling variation orders which negatively impacted our results. The project
delays also tied up some of our major construction assets reducing our capacity to participate in the spot market which can be significant in the second half of the year. Despite these factors, the
improved market conditions resulted in an
improvement in the results before tax from a loss of $38.2 million in 2000 to a profit before tax in 2001 of $6.4 million.

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Commentary on major projects

In the year ended November 30, 2002, there was an aggregate negative impact of $58.8 million on our net loss attributable to changes in estimates on
major projects, which highlight the risks to which offshore contractors are exposed when undertaking fixed price turnkey projects. The most significant components of this adverse development occurred
on the following projects:



In
early 2003, our new senior management team began a review of our major projects and identified substantially poorer than anticipated performance and cost overruns on three major
projects and several smaller projects. This has resulted in a significant decrease to the results of operations that we anticipate for the 2003 fiscal year. A further discussion of these matters is
included in "Liquidity and Capital Resources" and "Subsequent Events" below.

Asia Pacific Region

Net operating revenue in 2002 decreased to $25.7 million in 2002 from $39.4 million in 2001 due to a downturn in the market for construction and
shallow pipelay work in Indonesia and drill support ROV work throughout the region. The prospects for 2003 are expected to improve as the market for our shallow pipelay barges and other construction
work shows a steady growth.

In
2001, net operating revenue remained stable at $39.4 million compared to $40.5 million in 2000. This was due to a slight deterioration in the market for ROVs and in the
Indonesian market in general.

The
net result before tax for 2002 was a loss of $3.3 million compared with a break-even result in 2001 arising partly from a write down of assets due to the goodwill
impairment charge of $1.6 million in respect of the Indonesian subsidiary plus a drop in market conditions on construction and drill support ROV work.

In
2001, the region reported a break-even result compared to a net loss before tax of $14.9 million in 2000. The improvement in 2001 was the result of efforts carried
out in 2000 to reduce the local fixed cost structure and focus on the target niche market. In addition, 2000 results were adversely affected by two loss-making projects in the region.

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North America Region

Net operating revenue in 2002 decreased to $190.5 million in 2002 from $276.7 million in 2001. The decrease was due to reduced activity on the
pipelay project for Gulfstream Natural Gas LLC which was completed in early 2002, and reduced subsea construction activity as a result of depressed market conditions. There was an upturn in activity
in the final quarter due to Hurricane Lili, which caused damage to offshore installations.

The
prospects for 2003 are for higher turnover compared to 2002 with increased activity in subsea construction. The region replaced the Gulfstream project's pipelay activity with the
Hubline project for Duke Energy in Boston Harbor.

Net
operating revenue increased from $122.3 million in 2000 to $276.7 million in 2001. Contrary to expectations, higher oil and gas prices did not result in improved
margins during 2001, although they did increase the level of activity in the region with the pipelay project for Gulfstream Natural Gas LLC contributing to this increase.

The
net result before tax for 2002 was a loss of $116.0 million compared with a net loss of $36.2 million in 2001. This is largely due to the $103.0 million goodwill
impairment charge relating to the 1998 acquisition of Ceanic and the significant reduction in net operating revenue. Excluding the impairment charge, the net result before tax was $13.0 million
loss, an improvement of $23.2 million from 2001. The improvement is partially due to the one-off gain of $8.0 million on the asset sale of Big Inch Marine Systems, and
improved results on subsea construction projects and a neutral result on the Gulfstream Project. Poor performance in 2001 on the Gulfstream project resulted in an increased net loss before tax of
$36.2 million compared to a net loss before tax in 2000 of $21.2 million. Margins improved on other activity in the Gulf of Mexico due to cost reduction actions in 2000.

Norway Region

Net operating revenue in 2002 decreased to $105.8 million in 2002 from $110.6 million in 2001. There was a difficult market situation in both 2001
and 2002 during which time there have been no significant EPIC or Pipelay projects. The minor decrease in 2002 revenue was mainly related to the lower activity level in the subsea construction market.
We expect a significant increase in revenue due to large in-hand subsea construction projects. Net operating revenue in 2001 was $110.6 million compared to $198.8 million in
2000. The decrease was due to the absence of any major pipelay projects.

The
net result before tax for 2002 was a profit of $15.9 million compared with a net income before tax of $11.7 million in 2001. The figures for 2001 included two loss
making projects with a total loss of $4.9 million. Net income before tax in 2001 was $11.7 million compared to a net income before tax of $3.0 million in 2000. This improvement
was largely due to the good performance on subsea construction projects.

SEAME Region

Net operating revenue in 2002 increased to $702.7 million in 2002 from $520.2 million in 2001. This increase was largely due to high levels of
activity in Nigeria with the EA, Forcados Yokri and OGGS projects running in conventional water depths for Shell, and the TotalFinaElf Amenam project now close to completion. Some of these projects
are running at a negative margin due to problems with tendering, execution, local content issues and logistics. Much activity took place in Egypt where, as discussed above, the installation work was
carried out on the Scarab and Saffron projects for the Burullus Gas Company. Turnover in Angola was down from its 2001 level due to lower activity on the Girassol project. In 2003, we expect
continuing growth in the level of activity in the SEAME region. Revenue is likely to be slightly down from its 2002 level although we anticipate that this can be

34

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compensated
by higher levels of activity performed through non-consolidated joint ventures such as Sonamet.

Net
operating revenue has increased to $520.2 million in 2001 compared to $444.9 million in 2000. This increase is largely the result of the Girassol project in Angola and
traditional pipelay contracts on offshore projects in Nigeria.

The
net result before tax for 2002 was a loss of $36.6 million compared with a net income before tax of $24.5 million in 2001 This degradation in trading performance is due
to loss making turnkey projects in the EPIC product line.

The
result for the SEAME region in 2003 is expected to be very unfavorable as a result of project downgrades reported in "Item 5. Subsequent Events". Furthermore, we have mothballed the
pipelay bargeLB 200from March 2003 for the remainder of the year, and this will result in reduced ship cost recoveries in the SEAME region.

Net
income before tax was $24.5 million in 2001 compared to $20.1 million in 2000. The increase in 2001 is due to successful progress on several major turnkey projects,
notably Amenam, Hyundai South Pars and Triton la Ceiba.

South America Region

Net operating revenue in 2002 increased slightly to $52.0 million in 2002 from $50.5 million in 2001. The $1.5 million of increase was mainly
due to the good performance for both theSeaway Condorand the Seaway Harrier, which are both on long-term charter to Petrobras, partially offset by costs
relating to the ending of Argentina activities
and several other small contracts.

Revenue
for 2003 is expected to increase slightly due to a new ROV survey contract signed in February 2003.

Operating
revenue in 2001 was down slightly at $50.5 million, compared to $52.8 million in 2000. The reduction was due to the expiry in early 2001 of a
long-term diving contract in Argentina.

Net
income before tax for 2002 was $5.4 million, which was consistent with net income of $5.5 million in 2001.

Net
income before tax for 2001 of $5.5 million was a reduction from $8.4 million in 2000. The fall in profitability was due to the expiry of the Argentina diving contract.

U.K. Region

Net operating revenue increased to $229.8 million in 2002 from $214.7 million in 2001. This increase reflected a continuation of the increase in
project activity in the region from 2001, including Conoco CMS 3, ATP Helvellyn and BP Mirren and Madoes projects, as well as the inspection, repair and maintenance contracts.

The
prospects for 2003 are for a significant reduction in activity levels when compared with the previous two years. Several projects, which had been originally scheduled to take place
in 2003, have either been postponed or cancelled.

Net
operating revenue in 2001 was $214.7 million, compared to $123.6 million in 2000. The increase in revenue was due to the improved market conditions in the region.

The
net result before tax for 2002 was a loss of $5.1 million compared with a net income of $1.3 million in 2001. This adverse variance is mainly attributable to the Conoco
CMS 3 subsea construction project. Seabed soil conditions encountered during the project differed significantly from

35

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those
that had been anticipated, leading to significant increases in working duration and associated expenditure.

The
2001 net income before tax of $1.3 million was an improvement compared to the net loss before tax of $9.2 million in 2000. The increased market activity and the better
asset utilization largely explain this improvement.

Corporate

Corporate items include all activities that serve more than one region.

Net
operating revenue increased in 2002 to $131.0 million from $43.8 million in 2001. Of this increase, $68.7 million is attributable to the inclusion of both
Paragon Engineering Services and Ingerop Litwin for a full financial year. In 2001, these businesses were only consolidated for part of the year subsequent to acquisition.

2003
revenue and income are expected to be in line with 2002.

Net
operating revenue in 2001 amounted to $43.8 million compared to $0.5 million in 2000. The increase largely results from the acquisition of Paragon Engineering
Services, Inc. and Ingerop Litwin, a Paris-based engineering company.

The
net loss before tax for 2002 was $4.0 million compared with a net loss before tax of $0.4 million in 2001. The increased loss in 2002 is primarily due to asset
impairments of $8.1 million and goodwill impairment charges of $1.8 million on the NKT Flexibles joint venture. The year was also affected by under-recoveries of costs on group ships
totaling $18.0 million, which was offset by over-recoveries of interest expense totaling $8.6 million.

Among
the Corporate assets contributing to under-recovery is our advanced Radial Friction Welding equipment, which was under development for a number of years. We are investigating how
best to utilize it, including a proposal to install it on a jointly owned ship under a joint venture arrangement.

Net
loss before tax for 2001 was $0.4 million compared to losses of $24.4 million in 2000. The losses resulted from the under recovery of interest expense and under
recoveries on asset utilization.

Business Acquisitions

On March 30, 2001, we acquired 86% of the voting rights and 63% of the economic rights of a newly created company, Paragon Engineering
Holdings, Inc. ("PEH"). PEH subsequently purchased 20% of the share capital of Paragon Engineering Services, a Houston-based engineering service company, and an option to purchase an additional
40% of the share capital. PEH exercised the option on September 4, 2001. On July 18, 2001, we purchased the entire share capital of the Paris-based engineering company Ingerop Litwin.
These acquisitions brought a significant expansion of skills in conceptual and detailed engineering.

The
aggregate consideration paid to acquire Paragon Engineering Services and Ingerop Litwin was a total of $16.7 million in cash including a deferred amount of $4.3 million
relating to the acquisition of Paragon Engineering Services, which is due on March 30, 2005. The acquisition costs of the deal were $0.7 million. During the year ended
November 30, 2002, we finalized our valuations of the fair value of the intangible assets acquired. Our share of these intangible assets was revised upwards to $5.2 million from
$2.1 million. Following this exercise, goodwill on acquisition was calculated as $6.0 million.

36

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Additionally,
from March 30, 2005, the Paragon Engineering Services sale agreement provides for payment to be made to a former shareholder of Paragon and Paragon Litwin. The
payment is contingent upon a multiplier of the future earnings of Paragon Engineering Services, as defined in the agreement, exceeding the deferred consideration. No recognition of the contingent
payment has been made in our financial statements, as it is not certain that this payment will be made and currently it is not possible to quantify the amount.

During
the year ended November 30, 2002, we settled the minimum share price guarantee in respect of the 6,142,857 Class A Shares (subsequently converted to Common Shares)
issued to Vinci as consideration for ETPM. Under the terms of the sale and purchase agreement, these shares were issued to Vinci with a minimum guarantee price of $18.50 per share. In May 2002,
we repurchased these shares for cash of $113.6 million to settle the guarantee. $54.7 million of the outlay represented the
market price of the shares which we repurchased, and the remaining $58.9 million represented the settlement of the guarantee.

During
the year ended November 30, 2002, we settled the minimum share price guarantee in respect of 249,621 of the 1,758,242 Class A Shares (subsequently converted to
Common Shares) issued to NKT Holdings A/S as consideration for the purchase of the share in NKT. The 249,621 shares had been previously issued to NKT Holdings A/S with a minimum guaranteed price of
$13.65 per share. In February 2002, we repurchased the shares for cash of $3.4 million. Of that amount, $1.8 million represented the market price at the date of our repurchase,
and the remaining $1.6 million represented the settlement of the guarantee.

On
March 10, 2003 we made the final payment to NKT Holdings A/S of $13.5 million in respect of the settlement of the outstanding share price guarantee for the remaining
879,121 Common Shares owned by NKT Holdings A/S, which were issued as partial consideration in the acquisition of 49% of the NKT Flexibles joint venture in December 1999. A total of
$12.4 million will be deducted from paid in surplus in 2003, representing the value of the share price settlement guarantee.

Depreciation and Amortization

Depreciation and amortization in 2002 was $96.1 million compared to $91.8 million in 2001. This increase was due to impairment charges included in
depreciation totaling $4.0 million in respect of a number of smaller fixed assets, which had suffered under-utilization. The carrying value of these assets was tested by undiscounted and
discounted cash flow projections.

During
the year ended November 30, 2002, the continuing poor returns obtained on certain investments made in 1998 and 1999 led us to perform an impairment review of all goodwill
on acquisition.As a result, impairment charges totaling $106.4 million were recorded against goodwill, of which $103.0 million related to
the entire remaining goodwill on the acquisition of Ceanic. The remainder of the charge eliminated the outstanding goodwill on the acquisition of Danco, which holds our investment in NKT Flexibles,
and our Indonesian subsidiary, PT Komaritim.

Several
factors were taken into account in the decision to record an impairment charge of $103.0 million to eliminate the entire remaining goodwill on acquisition of Ceanic. The
acquisition was made in 1998 as part of a strategy to establish a presence in one of the world's most important offshore markets, at a price that reflected rising oil prices and favorable investment
conditions. Since then the Gulf of Mexico offshore market has experienced an unprecedented downturn. As a result, the North America region was loss-making for the two years ended
November 30, 2001, and again performed below management's expectations in 2002. Recent market analysts' reports indicate that the major oil companies are directing their development funds away
from U.S. waters and towards overseas targets, particularly West Africa, where the per-barrel recovery costs are lower. We foresee no significant upturn in demand in the Gulf of Mexico
market in 2003, and have therefore revised earlier

37

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assumptions
of long term market growth in the undiscounted and discounted cash flow projections used to assess goodwill impairment, and eliminated the remaining goodwill. Our strategy is still to
maintain a strong competitive presence in the Gulf of Mexico, and we are planning to expand our service offering to the ultra-deepwater market in this and other regions, including
ship-board Radial Friction Welding.

The
NKT Flexibles joint venture has been loss-making since we acquired a 49% share in 2000, and the market for flexible pipes has not grown as quickly as expected, with the
result that the joint venture has suffered from excess production capacity and has not met its performance targets. During 2002, NKT Flexibles management revised its strategy to focus on efficiency
and forecasts slower growth in the next few years than initially forecast. We performed an impairment test of Danco's goodwill based on the NKT Flexibles cash flow projections in the business plan,
and determined that the goodwill was fully impaired. An impairment adjustment of $1.8 million was recorded in the books of Danco in November 2002. This goodwill was previously amortized
over 10 years on a straight-line basis.

The
PT Komaritim subsidiary in Indonesia has been loss-making for several years, and in 2002 once again underperformed management's expectations. The Indonesian market is
still characterized by high competition and shallow water, an environment in which we are unable to fully leverage our technology and core expertise. Following the preparation of undiscounted and
discounted cash flow projections, we therefore decided that the $1.6 million of goodwill on acquisition was fully impaired, and wrote it off in November 2002. This goodwill was
previously amortized over 20 years on a straight-line basis.

We
changed our name from "Stolt Comex Seaway" to "Stolt Offshore" midway through 2000. In 2000, management's view was that both names were used in the marketplace and we believed that
the "Comex" brand was recognized by customers in the main markets. By the final quarter of 2001, management determined that the "Stolt Offshore" name had gained a higher prominence than the "Stolt
Comex Seaway" name. As a result it was not practicable to justify separate projected cash flow streams to support the value of the "Comex" name. Therefore, management determined that the "Comex" brand
had been fully impaired and we recorded an impairment charge of $7.9 million during
the year-ended November 30, 2001. The "Comex" trade name was previously amortized over 30 years on a straight-line basis.

Depreciation
and amortization in 2001 was $91.8 million, compared to $82.1 million in 2000. The increase was due to a larger fixed asset base and the writedown of certain
small assets.

Equity in Net Income of Non-Consolidated Joint Ventures

Equity in net income of non-consolidated joint ventures in 2002 was $5.3 million, compared to $11.7 million in 2001 and
$5.8 million in 2000. The decrease in 2002 was due to our share of losses in the NKT Flexibles joint venture, which included losses resulting from operations of $5.9 million and
$8.1 million in respect of fixed asset impairment charges recorded by the joint venture. These were recorded after NKT Flexibles management revised the joint venture's strategy and downgraded
expectations for growth in future years. Offsetting this was $7.0 million in respect of our share of Sonamet income, resulting from improved performance of the Lobito Yard in 2002. The increase
in 2001 was largely due to the successful year for joint venture operations in the North Sea.

Administrative and General Expenses

Administrative and general expenses in 2002 were $73.0 million, compared to $64.0 million and $60.9 million in 2001 and 2000, respectively.
The increase in 2002 was due to the introduction of a new management performance incentive scheme, executive redundancy and severance payments, professional fees in connection with an aborted share
offering, and increased salary costs for newly

38

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hired
Corporate staff. The increase in 2001 was largely due to the acquisitions of Paragon Engineering Services and Ingerop Litwin.

Other operating income, net

In 2002, we recognized other operating income of $8.1 million. This primarily related to a gain of $8.0 million on the sale of the assets of Big
Inch Marine Systems Inc.

In
2001, we recognized other operating income of $2.3 million. This primarily related to a gain of $1.2 million on the sale of the assets of Hard Suits Inc., a
specialized diving company.

Non-operating (Expense) Income

Net Interest Expense

In 2002, net interest expense decreased to $18.2 million from $26.8 million in 2001. This decrease resulted largely from lower interest rates.
Furthermore, during the year we exercised an option on a finance lease to purchase the bargeDLB 801and the hull of theSeaway
Polaris,that was refinanced with bank borrowings at a lower interest rate.

In
2001, net interest expense decreased to $26.8 million from $30.0 million in 2000. This decrease was due to reductions in interest rates during the year.

Income Tax Provision (Benefit)

We recorded a net tax charge of $8.2 million in 2002, compared to a net tax charge of $20.6 million in 2001 and a net tax benefit of
$3.8 million in 2000.

The
tax charge in 2002 included withholding taxes of $14.0 million imposed by tax authorities in certain countries. Additionally, in the North America region, we did not recognize
any net deferred tax asset for the losses incurred, and took a further $10.8 million valuation allowance against the deferred tax asset brought forward from 2001.

We
also reviewed our position under the U.K. tonnage tax regime, whereby taxable income is calculated by reference to the tonnage of the vessel, and released a further
$21.3 million of deferred tax liability in respect of fixed asset timing differences which will not reverse due to our intention to remain permanently in the tonnage tax regime. This was
partially offset by a valuation allowance against our net operating losses.

As
in the current year, the tax charge of $20.6 million in 2001 largely resulted from withholding taxes imposed by tax authorities in certain territories in West Africa, which had
higher revenue in 2001 than in previous years. Additionally, we did not recognize any net deferred tax asset in 2001 for the losses in the North America region as had been done in previous years.

Partially
offsetting these items in 2001 was the release of a portion of the deferred tax liability of $15.2 million for accelerated U.K. shipping allowances as a result of our
U.K. shipping subsidiaries electing to join the U.K. tonnage tax regime.

The
tax credit in 2000 largely resulted from poor results in the North Sea and North America where deferred tax assets were recognized.

Share Capital and Earnings Per Share

During the year ended November 30, 2002, we repurchased 6,392,478 Common Shares as part of the transaction to settle the share price guarantees in respect
of the acquisition of ETPM and NKT Flexibles. This is described in more detail in the "Business Acquisitions" section above.

39

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The
6,392,478 Common Shares were subsequently sold to SNSA for proceeds of $38.4 million. This partially repaid a loan of $64.0 million provided by SNSA to assist in
funding the settlement of the guarantees.

On
November 26, 2002, we issued 6,019,287 Common Shares to SNSA for proceeds of $25.6 million to repay the remaining outstanding portion of the $64.0 million loan
provided by SNSA.

On
March 7, 2001, a previously announced share reclassification became effective. The objective of the reclassification was to create a simplified and more transparent share
capital structure to give all shareholders a vote on all matters and to increase the liquidity of the Common Share public float by some 50%. The previously outstanding non-voting Stolt
Offshore Class A Shares were reclassified as Common Shares on a one-for-one basis.

As
a result of this reclassification, at November 30, 2002, we had outstanding 76.3 million Common Shares and 34.0 million Class B Shares (which are
economically equivalent to 17.0 million Common Shares and are all owned by SNSA) for a total of 93.3 million Common Share equivalents. The reclassification did not change the underlying
economic interests of existing shareholders or the number of shares used for earnings per share purposes.

Related Party Transactions

SNSA provides management services to us comprising legal, administrative, treasury, taxation, insurance and information technology services, which are invoiced on
an arms-length basis. The cost of these management services were $3.2 million, $3.7 million and $3.3 million for the years 2002, 2001 and 2000 respectively.

In
May 2002 SNSA advanced $64.0 million to us in order to assist our repurchase of the 6,142,857 Common Shares previously issued to Vinci and to settle the share price
guarantee. We subsequently issued these and other shares to SNSA during 2002. The proceeds of $38.4 million from the issue of the shares were used to repay the debt due to SNSA. In
November 2002, we issued 6,019,287 Common Shares to SNSA for proceeds of $25.6 million to repay the remaining outstanding portion of the $64.0 million loan.

During
2002 we made a payment of $50,000 for marketing services to a company in which a non-executive director has an interest (2001: $50,000, 2000: $50,000).

For
more information on related party transactions refer to "Item 7. Major Shareholders and Related Party Transactions".

Legal matters

CSO commenced legal proceedings through the UK High Court against three subsidiaries of Stolt Offshore S.A. claiming infringement of a certain patent held by CSO
relating to flexible flowline laying technology in the UK. Judgement was given on January 22, 1999 and January 29, 1999. The disputed patent was held valid. We appealed and the Appeal
Court maintained in July 2000 the validity of the patent and potentially broadened its application compared to the High Court decision. We applied for leave to appeal the Appeal Court decision
to the House of Lords, which was denied.

During
2001 after the Appeal Court decision became final, CSO submitted an amended claim to damages claiming lost profit on a total of 15 projects. In addition, there is a claim for
alleged price depreciation on certain other projects. The total claim for lost profits was for approximately $89.0 million, up from approximately $14.0 million claimed after the High
Court decision confirming the patent's validity, plus interest, legal costs and a royalty for each time that the flexible lay system tower on theSeaway
Falconwas brought into UK waters. The increase came because several more projects potentially became relevant. The amount of the claim has not yet been considered by the

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Court
and has thus so far not been upheld. We estimate that the total claim as submitted is approximately of $130.0 million at November 2002, increasing at 8% simple interest per annum.

In
the alternative, CSO claims a reasonable royalty for each act of infringement, interest and legal costs. CSO has not quantified this claim, but it will be considerably less than the
claim to lost profits.

We,
in consultation with our advisers, have assessed that the range of possible outcomes for the resolution of damages is $1.5 million to $130.0 million and have determined
that there is no amount within the range that is a better estimate than any other amount. Consequently, in accordance with SFAS No.5,"Accounting for
Contingencies", as interpreted by FASB Interpretation No.14"Reasonable Estimation of the Amounts of a Loss",we have provided
$1.5 million in the financial statements, being the lower amount of the range. The amount of damages is nevertheless uncertain and no assurance can be given that the provided amount is
sufficient.

On
April 15, 2003, the U.K. High Court, in an action between Rockwater Ltd. (part of the Halliburton Group) and CSO, held that the same patent, the subject of the
proceedings against us, was invalid. We are considering our position in the light of this recent judgement.

On
December 6, 2002, we settled a long-standing dispute with the owners of theToisa Pumavessel for
$7.3 million, including interest of $1.0 million. The nature of the dispute was the cancellation of a charter of the vessel in 1999. We had expected that the settlement would be made in
the range of $2 million to $8 million. The cost of the final settlement was included in our 2002 results.

Performance Bonds

We have issued performance bonds amounting to $349.5 million at November 30, 2002. In the normal course of business, we provide project guarantees
to guarantee the project performance of our subsidiaries and joint ventures to third parties.

Other contingencies

In connection with a major West African contract, we received a letter dated December 13, 2002 from the customer notifying the consortium of which we are a
member, of a potential claim for liquidated damages, of which our share would be $14.5 million. The claim relates to delays in completion of certain milestones. We do not believe that the
customer has a valid case for liquidated damages, and on that basis have not recorded a provision. We have been in negotiations with the customer regarding the claims and have made demands that the
customer reimburse us for costs incurred to operate ships during times when they were idle due to project delays for which the customer is responsible.

In
these negotiations the customer has offered to drop the claim for liquidated damages against us in exchange for our dropping the claim (not recorded in revenue) for reimbursement of
ship costs. We are still negotiating these matters with the customer and we do not yet know what the outcome will be. The claim for liquidated damages has no effect on our reported results for 2002.

Liquidity and Capital Resources

Our primary liquidity needs are to fund working capital, acquisitions, expenditures and dry-dock costs. Our principal sources of funds have been cash
generated from operations, borrowings from commercial banks, SNSA and the issuance of share capital.

Our
principal credit facility is a $385.0 million secured multi-currency five-year revolving facility. The facility was entered into on September 22, 2000 with
a syndicate of banks, the lead banks being Den norske Bank ASA, Banc of America Securities LLC, Salomon Brothers International Limited, HSBC Bank plc and ING Barings LLC. The facility reduces to
$330.0 million on August 31, 2003.

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On July 9, 2002, we entered into another secured multi-currency four-year revolving credit facility (together with the $385.0 million facility, the "Secured
Credit Facilities") with a principal amount of $100.0 million. The facility amount reduces by $10.0 million commencing on January 9, 2004 and thereafter by $10.0 million at
six monthly intervals until the termination date when the facility reduces to zero. The lead bank for this facility is Nordea Bank Norge ASA (Grand Cayman Branch), and the conditions of the facility
are the same as for the $385.0 million credit facility.

The
total amount which can be drawn under the Secured Credit Facilities and the interest charge on outstanding debt is based on the ratio of our debt to EBITDA. The interest charge will
range from 0.75% to 3.00% over the London InterBank Offered Rate ("LIBOR"). Debt under the Secured Credit Facilities is secured by a first priority mortgage on certain of our ships.

As
of November 30, 2002, we had available bank facilities, including overdraft facilities, of $542.3 million, of which $351.0 million were utilized. Of the bank
facilities utilized, $335.0 million was classified as long-term debt.

Net
cash provided by operating activities was $84.7 million during 2002 compared to $16.7 million in 2001. This resulted from positive cash flow from operations of
$48.9 million, a reduction in working capital of $22.6 million, and dividends of $13.2 million which were received from non-consolidated joint ventures, compared to
$12.2 million in 2001.

Average
accounts receivable decreased to 114 days at November 30, 2002 from 125 days at November 30, 2001. Accounts payable days of 120 at November 30,
2002 compared to 134 days at November 30, 2001.

Net
cash provided by operating activities during 2001 was $16.7 million compared to $58.2 million in 2000. Improved operating performance in 2001 was largely offset by a
build up in working capital, particularly unbilled receivables from customers, where under the terms of the contract, invoices could not yet be raised. Average accounts receivable increased to
125 days at November 30, 2001 from 111 days at November 30, 2000. Accounts payable days of 134 days at November 30, 2001 compared to 131 days in 2000.

The
other year-to-year fluctuations in cash from operating activities are due to fluctuations in net operating income as discussed under "Results of Operations"
above.

Net
cash used in investing activities in 2002 was $76.4 million compared to $83.4 million in 2001. This mainly comprises the payment of $58.9 million to Vinci in
respect of the settlement of the share price guarantee in respect of the acquisition of ETPM, and the payment of $1.6 million for the settlement of the share price guarantee to NKT Holdings
A/S. This was partially offset by $23.5 million from the sale of the assets of Big Inch Marine Systems, Inc. Investments made in the purchase of fixed assets were $54.6 million
which is $8.2 million lower than in 2001. A total of $15.2 million was received in respect of investments in non-consolidated joint ventures.

Net
cash used in investing activities in 2001 was $83.4 million compared to $160.6 million in 2000. In 2001, the acquisition of Paragon Engineering Services and Ingerop
Litwin accounted for $0.1 million, net of cash acquired, $62.9 million was used to purchase fixed assets and $26.1 million was paid in respect of investments in
non-consolidated joint ventures.

Net
cash used by financing activities in 2002 was $8.4 million, compared to cash provided of $72.5 million in 2001. Sources of financing were the receipt of a
$64.0 million loan from SNSA to fund settlement of share price guarantees, and an increase in bank overdrafts of $10.2 million. These funds were used to repay capital lease purchase
obligations totaling $23.7 million on theSeaway PolarisandDLB 801, and repurchase of treasury
shares of $56.5 million.

Net
cash provided by financing activities in 2001 was $72.5 million, compared to $103.8 million in 2000. In 2001, this was mainly composed of an increase in
long-term debt of $70.0 million, a

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$3.3 million
additional drawdown on short-term facilities, a $2.6 million decrease of restricted cash and a $3.8 million repayment of capital lease obligations. In
2000, net cash provided by financing activities mainly comprised the proceeds of $199.8 million from the issuance of 19,775,223 Class A Shares for further investment from SNSA; a net
increase in long-term debt of $14.4 million was offset by the $104.3 million repayment of short-term facilities most of which were assumed through the acquisition
of ETPM; the $5.4 million repayment of capital lease obligations; and a $2.6 million increase in restricted cash.

As
of November 30, 2002, the outstanding commitment under the minimum share price guarantee given in connection with the acquisition of NKT Flexibles, as described earlier, covers
879,121 Common Shares. We repurchased these shares in March 2003 at a price of $15.30 per share for a total of $13.5 million. During the 2003 financial year, we also expect to make
capital expenditures of about $35.3 million of which approximately $19.0 million was committed at March 31, 2003. We expect our interest expense to be $29.3 million for the
year 2003, proceeds of sales of assets are expected to exceed $30 million, and miscellaneous cash outflows are expected to total $12.4 million. Based on the current level of activity,
cash used in operations is expected to be about $41.3 million. We expect that there will be a funding requirement of about $84.1 million. This funding requirement will be met through the
use of existing credit facilities assuming that they remain available to us.

Our
credit facilities contain various financial covenants, including but not limited to, minimum consolidated tangible net worth, maximum consolidated debt to net worth and maximum
consolidated debt to EBITDA. In early 2003 we amended the financial covenants contained in our Secured Credit Facilities to more appropriately reflect our financial prospects at that time. Based on
those amendments, we expected that there would be a narrow margin of compliance with the financial covenants throughout the 2003 fiscal year. Since that time, our new senior management team began a
review of our major projects and identified a substantially poorer than anticipated performance and cost overruns on three major EPIC projects and several smaller projects. In light of this revised
forecast, we are working closely with our main banks in seeking to amend our two primary bank credit facilities to reflect our current financial position, including a waiver of certain financial
covenant tests until November 30, 2003. As an interim step, our banks have agreed to a 30-day "standstill" through June 30, 2003 whereby they will take no actions on any
potential non-compliance with our financial covenants while internal bank approvals are sought and documentation is completed. Without a waiver of certain financial covenants, we would be
out of compliance with our bank credit agreements. If we cannot reach final agreement with our bank lenders on the terms of amendments and/or waivers to our Secured Credit Facilities, our
noncompliance with our Secured Credit Facilities could potentially lead to the credit facilities being repayable on demand. We would not be able to repay these facilities on demand, unless an
alternative financing source could be arranged.

Even
if we are able to amend our Secured Credit Facilities to incorporate terms and conditions with which we believe we can comply or obtain appropriate waivers, our ability to maintain
compliance with such facilities will be subject to adverse changes in our financial condition, results of operations or cash flows, including all of the risk factors identified in this Report on
Form 20-F. Any agreement that we reach with our lenders may provide only temporary relief from the current requirements of our Secured Credit Facilities. Therefore, it is possible
that we may require further amendments or waivers in the future, which may or may not be possible depending on our financial condition at such time.

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The
following table sets forth our contractual obligations and other commercial commitments as at November 30, 2002:

|                             |       | Total |       | Less
Than
1 year |      | 1-3
years |       | 4-5
years |      | After 5
Years
|---------------------------- | ----- | ----- | ----- | ---------------- | ---- | --------- | ----- | --------- | ---- | -------------
|
|Contractual obligations      |       |       |       |                  |      |           |       |           |      |              
|Long-term debt               |       | 335.0 |       |                 |      | 325.0     |       | 10.0      |      |             
|Capital lease obligations    |       |      |       |                 |      |          |       |          |      |             
|Operating leases             |       | 129.5 |       | 33.3             |      | 46.5      |       | 36.7      |      | 13.0         
|                             | Total |       | 464.5 |                  | 33.3 |           | 371.5 |           | 46.7 |              
|Other commercial commitments |       |       |       |                  |      |           |       |           |      |              
|Performance guarantees       |       | 349.5 |       | 173.3            |      | 141.0     |       | 32.1      |      | 3.1          

Subsequent events

On December 3, 2002, we made a capital contribution of $12.0 million in cash to the NKT Flexibles joint venture. At the same date NKT Flexibles
repaid an outstanding loan for $12.0 million due to us.

In
the first quarter of the fiscal year 2003, one of our West African projects has suffered a disruption due to a strike at a subcontractor's yard and the hijacking of a chartered survey
vessel. The extent to which the impact of these events will be borne by us is currently under negotiation with the customer.

On
February 28, 2003, we made a drawdown of $48 million against the $50 million liquidity line provided by SNSA as discussed in Note 13 to our Consolidated
Financial Statements and included elsewhere in this Report on Form 20-F. The $48 million drawdown was repaid within seven days.

On
March 10, 2003 we made the final payment to NKT Holding A/S of $13.5 million in respect of the settlement of the outstanding share price guarantee in respect of the
remaining 879,121 Common Shares owned by NKT Holdings A/S, which were issued as partial consideration in the acquisition of 49% of the NKT Flexibles joint venture in December 1999.

Major Project Downgrades and other adverse cost effects

Our new senior management team began a review of our major projects and identified substantially poorer than anticipated performance and cost overruns on three
major EPIC contracts and several smaller projects. In addition, it is expected that activity levels will be slightly lower than previously anticipated. As a result of these factors, we at this time
expect to incur a significant loss in the 2003 fiscal year. The specific reasons for this include:



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Revised banking arrangements

In light of this revised forecast, we are working closely with our main banks in seeking to amend our two primary bank credit facilities to reflect our current
financial position, including a waiver of certain financial covenant tests until November 30, 2003. The steps we are taking in this regard and the possible consequences are described above
under "Item 3. Risk Factors" and "Liquidity and Capital Resources."

Currency Fluctuations

Our reporting currency is the U.S. Dollar. The majority of net operating expenses are denominated in the functional currency of the individual operating
subsidiaries. The U.S. Dollar is the functional currency of the most significant subsidiaries within the Asia Pacific, North America, SEAME and South American regions. In the Norway and U.K. regions,
the functional currencies are the Norwegian Kroner and the British Pound, respectively. Our exposure to currency rate fluctuations results from our net investments in foreign subsidiaries, primarily
in the U.K., Norway, France and Brazil, and from our share of the local currency earnings in our operations in the U.K., Norway and SEAME regions. We do not use derivative instruments to hedge the
value of investments in foreign subsidiaries. The net translation adjustments arising on the above currency exposures were $41.7 million gain, $4.4 million gain and $45.4 million
loss for the years 2002, 2001 and 2000 respectively. These are recorded in Other Comprehensive Income in the Consolidated Statement of Shareholders' Equity.

We
are also exposed to fluctuations in several other currencies resulting from operating expenditures and one-off liabilities. Our currency rate exposure policy prescribes
the range of allowable hedging activity. We primarily use forward exchange contracts. We enter into forward exchange and options contracts to hedge capital expenditures and operational
non-functional currency exposures on a continuing basis for periods consistent with our
committed exposures. All of the instruments used are hedges against forecasted underlying operating exposures, which are designated as cash flow hedges. We do not engage in currency speculation.

Currently,
our major foreign currency exposures are to the Euro, British Pound and Norwegian Krone. These exposures are managed by entering into derivative instruments pursuant to our
policies in areas such as counterparty exposure and hedging practices. Designation is performed on a specific exposure basis to support hedge accounting. The changes in the fair value of these
derivative instruments are offset in part or in whole by corresponding changes in the fair value of cash flows of the underlying exposures being hedged.

All
of our derivative instruments are over-the-counter instruments entered into with major financial credit institutions to hedge our committed exposures. Our
derivative instruments are primarily standard foreign exchange forward contracts which subject us to a minimum level of exposure risk and have maturities of less than 24 months. We do not
consider that we have a material exposure to credit risk from third parties failing to perform according to the terms of derivative instruments. Further details are included in Note 23 to the
Consolidated Financial Statements.

Inflation

Our business transactions in high-inflation countries such as Brazil and Nigeria are almost entirely denominated in stable currencies, such as the
U.S. dollar, and inflation therefore does not materially affect our consolidated financial results.

Client Financial Standing and Credit Risk

We believe we take appropriate measures to protect against the risk of our clients' inability to pay. Our clients range from global oil companies to medium-sized
offshore operators and contractors and project consortiums. Generally, where the contract counterparty is a major oil company, we do not

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require
any evidence of ability to pay and we rely on the credit of such company. Where the contract counterparty is a newly-formed project consortium or otherwise gives us reason to believe that we
may be assuming some credit risk, we take steps to mitigate that risk. The specific steps we take vary according to the financial status of our clients. Where appropriate, we assist our client in
obtaining project financing, but we do not require project financing to be in place in all cases before we execute a contract. Before starting work for smaller clients, we obtain credit agency
references. Furthermore, we limit our risk of nonpayment by structuring our contract to provide for progress payments or payments based on milestones. Because our remuneration typically does not
depend on the volume of oil or gas that our clients ultimately extract, our pre-contractual procedures do not include verification of recoverable reserves.

Critical Accounting Policies

The preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities
and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an
on-going basis, we evaluate the estimates and judgements, including those related to revenue, bad debts, inventories, investments in non-consolidated joint ventures, intangible
assets, income taxes, impairment charges, restructuring costs, pension benefits, and contingencies and litigation. We base our estimates and judgements on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There
have not been any material changes to our accounting policies in the last three years. We believe the following critical accounting policies, among others, affect the more
significant judgements and estimates used in the preparation of our Consolidated Financial Statements. The selection and development of our accounting policies are discussed periodically with our
Audit Committee.

Revenue Recognition

A significant portion of our revenue is derived from long-term contracts and is recognized using the percentage-of-completion
accounting method. We apply Statement of Position 81-1 ("Accounting for Performance of Certain Construction-type Projects").Under the percentage-of-completion method, estimated contract revenues are accrued based on the ratio of costs incurred to date to the total estimated costs, taking into
account the level of estimated physical completion. Management reviews these estimates monthly and revenue and gross profit are recognized each period unless the stage of completion is insufficient to
enable a reasonably certain forecast of revenue to be established.

Since
the financial reporting of these contracts depends on estimates, which are assessed continually during the term of these contracts, recognized revenues and profit are subject to
revisions as the contract progresses to completion. Revisions in profit estimates are reflected in the period in which the facts that give rise to the revision become known. Accordingly, favorable
changes in estimates result in additional revenue and profit recognition, and unfavorable changes in estimates result in a reduction of recognized revenue and profits. Changes in estimates occur
regularly in connection with long term projects and these changes may be significant depending on the size of the project or the adjustment. When estimates indicate that a loss will be incurred on a
contract on completion, a provision for the expected loss is recorded in the period in which the loss becomes known. The effects of changes in estimates in fiscal year 2002 are described in "Item 5.
Commentary on major projects" and effects in 2003 are shown in "Item 5. Operating and Financial Review and ProspectsSubsequent Events".

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A
major portion of our revenue is billed under fixed-price contracts. However, due to the nature of the services performed, variation orders and claims are commonly billed to the
customers in the normal course of business and are recognized as contract revenue where recovery is probable and can be reasonably estimated. In addition, some contracts contain incentive provisions
based upon performance in relation to established targets, which are recognized in the contract estimates when deemed realizable.

In
certain circumstances we use the services of an independent claims consultant to corroborate judgements made by management to assess whether it is probable that the claims or
variation order will result in additional contract revenue and if the amount can be reliably estimated.

Tangible fixed assets, goodwill and other intangible assets

This subject is included under Critical Accounting Policies due to the subjectivity of the estimates used in projecting cash flows for assets over which there are
potential impairment issues, and because of the large net book value of fixed assets.

Fixed
assets are recorded at cost, and depreciation is recorded on a straight-line basis over the useful lives of the assets except for ships, which are considered to have a
residual value of 10%.

Goodwill
represents the excess of the purchase price over the fair value of net assets acquired. Goodwill arising on acquisitions prior to June 30, 2001 was amortized on a
straight-line basis over 10 to 30 years and was reviewed for impairment whenever events or changes in circumstances indicated that the carrying value may not be recoverable.

Impairment of tangible fixed assets, goodwill and other intangibles

In accordance with SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of",tangible fixed assets, goodwill and other intangibles are required to be reviewed for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. In performing the review for recoverability, we estimate the future cash flows expected to result from the use of the asset and its eventual
disposition. If the undiscounted future cash flow is less than the carrying amount of the asset, the asset is deemed impaired. The amount of the impairment is measured as the difference between the
carrying value and the fair value of the asset. When we record an impairment charge, this creates a new cost base for the assets which have been impaired.

We
have discussed the significant impairment charges recorded in 2002 and 2001 in the "Depreciation and amortization" section above. In addition, we performed an impairment review of our
Radial Friction Welding asset, which has a carrying value of $40.1 million. This asset was under development for a number of years. We are investigating how best to utilize it, including a
proposal to install it on a jointly owned ship under a joint venture arrangement. The carrying value of this asset was supported by projected undiscounted cash flows, prepared in accordance with SFAS
No. 121.

Recognition of Provisions for Legal Claims, Suits and Complaints

In the ordinary course of business, we are subject to various claims, suits and complaints. Management, in consultation with internal and external advisers, will
provide for a contingent loss in the financial statements if the contingency had been incurred at the date of the financial statements and the amount of the loss can be reasonably estimated. In
accordance with SFAS No. 5,"Accounting for Contingencies", as interpreted by FASB Interpretation No. 14 "Reasonable Estimation of the Amount of a Loss", if we have determined that the reasonable estimate of the loss is a range and that there is no best
estimate within the range, we will provide the lower amount of the range. The provision is subject to uncertainty and no assurance can be given that the amount provided in the financial statements is
the amount that will be ultimately settled. Our results may be adversely affected if the

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provision
proves not to be sufficient. The notable legal claims made against us are discussed fully in Note 22 to the financial statements and are summarized in the section above entitled
"Legal matters".

Income Taxes

This subject is included under Critical Accounting Policies due to the necessity of making assumptions about future taxable profits and tax planning strategies.
Changes in these assumptions are reasonably likely to occur from period to period and are likely to have a material impact on the results of our operations and our financial position.

We
account for income taxes in accordance with SFAS No. 109,"Accounting for Income taxes"which requires that the deferred tax
assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between book and tax bases of recorded assets and liabilities. SFAS No. 109 also requires
that the deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized.

Impact of New Accounting Standards

We have adopted SFAS No. 142"Goodwill and Other Intangible Assets"from December 1, 2002 which
requires us to cease amortization of our remaining net goodwill balance and perform an impairment test of our existing goodwill based on a fair value concept. In view of the $106.4 million
write off of goodwill on acquisition booked in 2002, the only future impact of SFAS No. 142 will be in respect of the assessment of impairment of the goodwill and intangibles arising on the
acquisition of Paragon Engineering Services Inc. (Note 3 to the financial statements). We do not believe that the adoption of the new standard will have a material impact on the results
of our operations and financial position.

In
June 2001, the FASB issued SFAS No. 143,"Accounting for Asset Retirement Obligations". SFAS No. 143 requires the
fair value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset. We have adopted SFAS No. 143 from December 1, 2002 and do not anticipate that the standard will
have a material impact on our results of operations or financial position.

In
August 2001, the FASB issued SFAS No. 144,"Accounting for the Impairment or Disposal of Long-Lived Assets".SFAS No. 144 superseded SFAS No. 121,"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of".SFAS No. 144 primarily addresses significant issues relating to the implementation of SFAS No. 121 and develops a single accounting model for
long-lived assets to be disposed of by sale that is consistent with the fundamental provisions of SFAS No. 121. We have adopted SFAS No. 144 from December 1, 2002 and
do not anticipate that the standard will have material impact on our results of operations or financial position.

In
April 2002, the FASB issued SFAS No. 145,"Rescission of SFAS Nos. 4, 44 and 64, Amendment of SFAS No. 13, and Technical Corrections as of
"April 2002"("SFAS No. 145"). SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt," SFAS No. 44,"Accounting for Intangible Assets of Motor Carriers,"and SFAS No. 64,
"Extinguishments of Debt made to satisfy Sinking-Fund requirements."As a result, gains and losses from extinguishment of debt that are part
of our recurring operations will no longer be classified as extraordinary items. In addition, SFAS No. 145 amends SFAS No. 13,"Accounting for
Leases,"to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability under changed conditions. We have adopted SFAS No. 145 from December 1, 2002 and are currently evaluating the impact that
the adoption of SFAS No. 145 will have

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on
our results of operations and financial position. However, we do not believe that the standard will have a material impact on our results of operations or financial position.

In
June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This
Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)"("EITF 94-3"). SFAS No. 146 eliminates the definition and requirements for recognition of exit costs in EITF 94-3. SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF 94-3, a liability for an
exit cost as defined in EITF 94-3 was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also concluded that an entity's commitment to a plan, by itself,
does not create a present obligation to
others that meets the definition of a liability. SFAS No. 146 also establishes that fair value is the objective for initial measurement of the liability. SFAS No. 146 will be applied to
exit or disposal activities occurring subsequent to December 1, 2002.

In
November 2002, the FASB issued Interpretation Number 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others"("FIN 45"). This interpretation requires certain disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The disclosure requirements of FIN 45 are effective for reporting periods ending after December 15, 2002. The initial recognition and initial measurement
requirements of FIN 45 are effective prospectively for guarantees issued or modified after December 31, 2002. We do not believe that the adoption of the recognition and initial
measurement requirements of FIN 45 will have a material impact on our financial position, cash flows or results of operations.

In
December 2002, FASB issued SFAS No. 148,"Accounting for Stock-based CompensationTransition and Disclosure, an amendment of FASB
Statement No. 123."This statement amends SFAS No. 123,"Accounting for Stock-based Compensation",to provide
alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of
that Statement to require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Since we are
continuing to account for stock-based compensation according to APB No. 25, we will adopt the provisions of SFAS No. 148 which require prominent disclosure. The standard is effective
from periods ending after December 15, 2002.

In
January 2003, the FASB issued Interpretation Number 46 ("FIN 46"),"Consolidation of Variable Interest Entities, an Interpretation of APB
No. 51."FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the equity do
not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support
from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first reporting period beginning after June 15, 2003. We are currently evaluating the effect that the adoption
of FIN 46 will have on our results of operations and financial condition.

In
April 2003 the FASB issued SFAS No. 149, "Amendment of SFAS No. 133 on Derivative Instruments and Hedging
Activities".The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. In particular, it (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative as discussed in
SFAS No. 133, (2) clarifies when a derivative contains a financing component, (3) amends the definition of an underlying to conform it to the language used in FASB Interpretation
No. 45,Guarantor Accounting and Disclosure

49

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Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Othersand (4) amends certain other existing pronouncements. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003.

The
provisions of SFAS No. 149 that relate to SFAS No. 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective dates. In addition, certain provisions relating to forward purchases or sales of when-issued securities or other
securities that do not yet exist, should be applied to existing contracts as well as new contracts entered into after June 30, 2003. SFAS No. 149 should be applied prospectively. We do
not expect that the adoption of SFAS No. 149 will have a material impact on our results of operations and financial position.

In
May 2003 the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 150 ("SFAS 150"), Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.SFAS 150 modifies the accounting for certain
financial instruments that, under previous guidance, issuers could account for as equity. The Statement requires that those instruments be classified as liabilities in statements of financial
position.

SFAS 150
affects an issuer's accounting for three types of freestanding financial instruments, namely:



SFAS 150
does not apply to features embedded in financial instruments that are not derivatives in their entirety.

In
addition to its requirements for the classification and measurement of financial instruments within its scope, SFAS 150 also requires disclosures about alternative ways of
settling those instruments and the capital structure of entities, all of whose shares are mandatorily redeemable.

SFAS 150
is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of
the Statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted.

We
are currently evaluating the impact of SFAS 150 on our results of operations and financial position.

Research and Development

We have a long history of innovation and the development of new technologies that have contributed significantly to the evolution of the offshore oil and gas
industry. Particular strengths include our construction techniques, which include but are not limited to: deepwater pipeline laying and umbilicals installation, deep water riser technology, subsea
construction equipment, remote intervention technologies and automated welding systems. Our expenditures on Company-sponsored research and development were less than $1 million in each of 2002,
2001 and 2000.

50

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Two
of our notable developments have recently been successfully applied to great effect on deep water projects in West Africa. These include the riser bundle tower technology and the
automatic bolted flange connection system known as MATIS.

In
deepwater field developments, it critical to keep the hydrocarbon fluids sufficiently warm to prevent the blockage of flowlines and risers caused by the formation of for example wax,
with the riser being the most critical area. The riser bundle tower technology that we developed and introduced on the Girassol Project in Angola has proven to be an excellent solution to these
difficult flow assurance issues. A number of riser pipes can be bundled together in one riser tower and then surrounded in foam to provide the necessary insulation. The towers, which are built onshore
and then towed to the field for upending and installation are connected to the production ship using a series of short flexible pipes.

The
introduction of standard flange connectors for deep water applications is now a reality owing to the introduction of the MATIS remote tooling system. MATIS
has been one of our long term research and development projects, which has now been successfully introduced to the market place. The system has now been used to remotely connect in excess of 70
flanges as part of the operation to link together the subsea flowline and riser systems at the Girassol Field at water depths of around 1,500 meters. Standard flanges have a considerable cost
advantage over the proprietary remote connectors normally used for deep water applications, as well as a huge track record of successful subsea applications throughout the world.

We
have a current active Research and Development program based upon a combination of internally directed development projects and participation in external Joint Industry Projects. The
Group Technical Division (GTD), whose resources are split evenly between our facilities in Aberdeen and Paris, manages the research and development program centrally. The research and development work
is mainly performed internally. Where a particular technical expertise is not internally available we form strategic alliances with specific specialist companies in the area of interest. Projects
currently in progress include the development of ultra deep water handling systems aimed at meeting the challenges of future field developments with water depths in excess of 2,000 meters. In these
conditions, conventional systems based upon steel wire rope become limiting due to the weight of the wire rope. Developments are currently in progress to investigate ways in which lightweight
synthetic fiber ropes can be used to replace steel wire for these applications. Other development areas include the further development of the riser tower technology to improve on the initial design
from both a technical and cost efficiency point of view, and the development of inflatable buoyancy units for subsea applications. We also perform research and development work directly with our
customers; one example is the ongoing development work to investigate ways of removing large North Sea steel structures. In this particular project we are working together with a group of major North
Sea operators to develop tools and techniques to remove these large structures using remote technology.

Ongoing
development activities are also related to the improvement of our major assets such as ships and equipment. We have recently begun to investigate ways in which the transit speed
of key ships within our fleet can be improved. The transit speed can have a significant commercial impact, as the ship is effectively idle during the transit period. Projects are also in progress in
the area of deep water pipelay. These range from improvements implemented to increase the capacity of existing equipment such as the J Lay Tower onboard theSeaway
Polaris, to the development of the next generation of deep water pipelay systems.

Our
Technical Department performs continuous medium-to long-range research into new technical solutions to industry related processes.

51

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In addition our development activities are also related to customer and project-specific development efforts. Within these areas we undertake to tailor systems and equipment to the needs
of a customer in connection with specific orders or projects. Our customers pay for order-related developments as part of the contract price. They are accounted for as cost of sales until the relevant
project is completed, after which the expenditure is capitalized if we retain the asset in question and it is recognized as having extended useful life.

Item 6. Directors, Senior Management and Employees.

Directors and Senior Management

Stolt Offshore is a Luxembourg holding company and does not have officers as such. The following is a list of our current Directors and persons employed by our
subsidiaries who currently perform the indicated executive and administrative functions for the combined business of our subsidiaries (dates included in cases of new appointments since the start of
the fiscal year 2002):

|Name                   |  | Age* |  | Position                                                                               
|---------------------- |  | ---- |  | ---------------------------------------------------------------------------------------
|Jacob Stolt-Nielsen    |  | 71   |  | Chairman of the Board of Directors                                                     
|Mark Woolveridge       |  | 68   |  | Deputy Chairman of the Board of Directors (from February 18, 2002; Director since 1993)
|James B. Hurlock       |  | 70   |  | Director                                                                               
|Haakon Lorentzen       |  | 48   |  | Director                                                                               
|J. Frithjof Skouveroe  |  | 59   |  | Director                                                                               
|Niels G. Stolt-Nielsen |  | 38   |  | Director                                                                               
|Bernard Vossier        |  | 58   |  | Director                                                                               
|Tom Ehret              |  | 51   |  | Chief Executive Officer (from March 17, 2003)                                          
|Bruno Chabas           |  | 38   |  | Chief Operating Officer (from October 7, 2002)                                         
|Stuart Jackson         |  | 43   |  | Chief Financial Officer (from April 22, 2003)                                          
|Jean Coombes           |  | 54   |  | Director of Human Resources                                                            
|Johan Rasmussen        |  | 47   |  | General Counsel                                                                        

---

The
following Directors and persons performed executive and administrative functions during the fiscal year 2002, but have since relinquished their positions as shown:

|Name                   |  | Position                                                                 
|---------------------- |  | -------------------------------------------------------------------------
|Christopher J. Wright  |  | Deputy Chairman of the Board of Directors, from 1993 to February 18, 2002
|Fernand Poimbeuf       |  | Director, from 1998 to May 8, 2003                                       
|Bernard Vossier        |  | Chief Executive Officer, from 1995 to October 2002                       
|Niels G. Stolt-Nielsen |  | Interim Chief Executive Officer, from October 2002 to March 17, 2003     
|Alan Brunnen           |  | Chief Operating Officer, from 1999 to October 7, 2002                    
|Bruno Chabas           |  | Chief Financial Officer, from 1999 to October 7, 2002                    
|Jan Chr. Engelhardtsen |  | Interim Chief Financial Officer, from October 7, 2002 to April 22, 2003  
|Joel Leroux            |  | Director of Product Lines, from 1999 to October 7, 2002                  

Under
the terms of our Articles of Incorporation, our Directors may be elected for terms of up to six years and serve until their successors are elected. It has been our practice to
elect directors for one-year terms. Under the Articles, the Board must consist of not fewer than three Directors.

52

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Candidates
for election as Director can only be nominated by either an individual sitting Director, or by the sitting Board of Directors. Elections are by shareholder vote.

Mr. Jacob
Stolt-Nielsen has served as our Chairman of the Board since 1993 and is the Chairman of our Compensation Committee. He is currently Chairman of the board of SNSA and
served as Chief Executive Officer of Stolt-Nielsen S.A. from 1959 until November 2000. He founded Stolt-Nielsen Seaway AS in 1973. He holds a degree from Handelsgymnasium, Haugesund, Norway. He
is the father of Niels-G. Stolt-Nielsen, and is a Norwegian citizen.

Mr. Woolveridge
has been a Director since 1993, was elected Deputy Chairman on February 18, 2002, and is the Chairman of our Audit Committee. He held a number of positions
with BP since 1968 and most recently served as the Chief Executive of BP Engineering from 1989 until his retirement in 1992.
He was also General Manager, Oil and Gas Developments, responsible for field development projects in the United Kingdom and Norwegian sectors of the North Sea, and served on the board of BP
Oil Ltd. He holds a Masters degree from Cambridge University and is a Fellow of the Royal Academy of Engineering and of the Institute of Mechanical Engineers. He is a British citizen.

Mr. Hurlock
was appointed a Director in February 2002, and is a member of our Audit Committee. He is also a member of the Board of Orient Express Hotels. He is a retired
partner of the law firm of White & Case LLP and served as the Chairman of its Management Committee from 1980 to 2000. He participated in the formation and served on the Board of Northern
Offshore Ltd, which during the 1970s operated diver lock-out submarines and provided other services to the offshore industry. He holds a BA degree from Princeton University, a M.A.
Jurisprudence from Oxford University and a J.D. from Harvard Law School. He is a U.S. citizen.

Mr. Lorentzen
was elected as a Director in May 2002. He is Managing Director of Lorentzen Empreendimentos SA of Rio de Janeiro, a diversified holding company with
investments in Aracrus Celulose SA, Cia Norsul Navegacao (of which he is Chairman) and a diversified IT portfolio. He is also a director of Aracrus Celulose, Ideiasnet, Advicenet, Intellibridge, CEAL
and WWF Brazil. He holds a Bachelors Degree in Economics from Pontificia Universidade Catalica do Rio de Janeiro and a Harvard Business School Post Graduate Degree. He is a resident of Brazil. He is a
Norwegian citizen.

Mr. Poimboeuf
had been a Director from 1998 until May 8, 2003, and was a member of our Audit Committee. He has had a career of 33 years with Elf Aquitaine that
included periods as Deputy General Manager in Gabon, Executive Vice President of Texagulf Inc. in Houston and General Manager in Angola. He graduated from the Ecole de Mines in Paris and
specialized in Petroleum Engineering at the University of Texas. He is a French citizen.

Mr. Skouverøe
has been a Director since 1993, and is a member of our Audit Committee. He is the Owner and Chairman of Concentus AS, a Norwegian/Swedish Industrial
Group. He is also a member of the Board of Ocean Rig ASA, an offshore drilling contractor listed on the Oslo Stock Exchange. He was Chairman of the Board and Chief Executive Officer of Stolt-Nielsen
Seaway A/S ("Seaway") from 1990 until it was acquired by SNSA in 1992. From 1985 to 1990 he was President and Second Vice Chairman of Seaway. From 1982 until 1985 he served as the President of
Stolt-Nielsen Seaway Contracting AS, a predecessor to Seaway. He holds an MBA from INSEAD and a Masters degree in Mechanical Engineering from the Technical University of Norway. He is a Norwegian
citizen.

Mr. Niels
G. Stolt-Nielsen has been a Director since 1999, is a member of our Compensation Committee, and served as Interim Chief Executive Officer between October 2002 and
March 2003. Mr. Stolt-Nielsen has also served as a Director of SNSA since 1996. In November 2000, he was appointed to the position of Chief Executive Officer of SNSA. From 1996
until September 2001 he held the position of Chief Executive Officer, Stolt Sea Farm. He previously worked in SNTG. He is the son of Mr. Jacob Stolt-Nielsen. He graduated from Hofstra
University in 1990 with a BS degree in Business and Finance. He is the son of Jacob Stolt-Nielsen, and is a Norwegian citizen.

53

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Mr. Vossier
has been a Director since 2000 and served as our Chief Executive Officer from May 1995 until October 2002. He previously served as our Chief Operating
Officer from December 1994 to May 1995. He joined Comex in 1974 and has held numerous management positions in operations and marketing. He has a degree in General Mechanics from the
Technical School of St. Vallier. He is a French citizen.

Mr. Ehret
was appointed Chief Executive Officer in March 2003. He joined Comex, a predecessor to Stolt Offshore, in 1975 and held design engineering and project management
positions based in Paris, London and Houston. In 1978 he joined the FMC Corporation, where he became a member of the Executive Committee of FMC Europe. In 1982 he returned to Comex as a member of the
Comex Group Executive committee and Managing Director of Comex Houlder Diving. In 1989 Mr Ehret became Chief Executive Officer at Stena Offshore. Between 1989 and 2002 he held a number of key senior
management positions within the Coflexip Stena Offshore and Technip-Coflexip Groups and was ultimately Vice Chairman of the Management Board of the Technip-Coflexip Group and President of its Offshore
Branch. Mr. Ehret holds a masters degree in Mechanical Engineering at Ecole des Arts et Metiers, Paris. He is a French citizen.

Mr. Engelhardtsen
served as Interim Chief Financial Officer, Stolt Offshore S.A. from September 2002 until April 2003. He served as Chief Financial Officer of SNSA
since 1991. He served as President and General Manager of Stolt-Nielsen Singapore Pte. Ltd. from 1998 through 1991. He has been associated with Stolt-Nielsen since 1974.
Mr. Engelhardtsen holds an M.B.A. from the Sloan School at the Massachusetts Institute of Technology, as well as undergraduate degrees in Business Administration and Finance. He is a Norwegian
citizen.

Mr. Jackson
was appointed Chief Financial Officer in April 2003. He joined Marathon Oil in London in 1983 as a financial analyst before moving to LASMO in 1985 where he
held various financial management positions in London, the Far East and North Africa. In 1995 he joined Humber Power as Commercial and Finance Director and Deputy General Manager for operations in
London and Lincolnshire. In 2000 he joined NRG Energy as Executive Director, Asset Management and Trading. He was appointed Executive Director, Business Development in 2001 and Vice President and
Managing Director in 2002. Mr. Jackson holds a BSc in Accounting and Financial Management from Loughborough University and he is a Fellow Chartered Management Accountant. He is a British
citizen.

Mr. Chabas
was appointed Chief Operating Officer in October 2002. He joined Stolt Offshore in 1992, working first in business development project analysis in Marseille then
Aberdeen, then as General Manager of Sogetram and Deputy General Manager of our SEAME region. In 1997 he was put in charge of developing new markets in the Gulf of Mexico. From June 1999 to
October 2002 Mr. Chabas served as Chief Financial Officer. Mr. Chabas holds an MA in Economics at University of Science, Aix-en-Provence, France and an MBA
from Babson College, Massachusetts. He is a French citizen.

Ms. Coombes
was appointed Director of Human resources on joining Stolt Offshore in March 2001. She has held various senior Human Resource Manager positions with BP
Exploration, was the Human Resources Manager for Oryx UK Energy and was a partner in an independent human resource consultancy since 1997. She has an honors degree in Chemistry from Durham University
and is a member of the Chartered Institute of Personnel and Development. She is a British citizen.

Mr. Rasmussen
joined Seaway in 1988 as an in-house legal advisor and was promoted to the position of Group General Counsel in March 1996. Prior to joining Stolt
Offshore, he served with a sub-division of the Norwegian Ministry of Defense and as a Deputy Judge. He graduated in law from the Oslo University, Norway in 1983, is licensed to practice
law in Norway, and is a member of the Norwegian Bar Association. He is a Norwegian citizen.

54

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Mr. Brunnen
was our Chief Operating Officer from February 1999 until October 7, 2002. He joined Seaway in 1992 and was involved in managing several major projects
prior to his appointment as Vice President, United Kingdom in 1995. Prior to his appointment as Chief Operating Officer, he held the position of Vice President, Organization and Process Development
from February 15, 1998. He is a British citizen.

Mr. Leroux
was appointed Director of Product Lines in December 1999 following the acquisition of ETPM and reliquished his position on October 7, 2002. He joined ETPM
in 1972 and held several management positions with ETPM including Chief Operating Officer. He holds a degree in Mechanical Engineering from Ecole Nationale Superieure des Arts et Metiers. He is a
French citizen.

Mr. Wright
served as Deputy Chairman of the Board from 1993 until February 18, 2002. He served as President and Chief Operating Officer of SNSA since 1986.
Mr. Wright was employed by British Petroleum plc ("BP") from 1958 until the time he joined SNSA. Mr. Wright held a variety of positions at BP working in Scandinavia, Asia, the U.S. and
London. Mr. Wright holds a Masters degree in History from Cambridge University. He is a British citizen.

Compensation of Directors and Officers

As described above, we do not have officers, but certain persons employed by our subsidiaries perform executive and administrative functions for the combined
business of its subsidiaries. The aggregate annual compensation paid to the eight officers performing such executive functions for the group, for the fiscal year ended November 30, 2002,
(including certain benefits) was $1,489,000. In addition, $151,000 was contributed on behalf of such officers to defined contribution pension plans. During 2002, our Directors who were affiliated with
Stolt Offshore or a subsidiary of SNSA received no compensation for their services, as such, but received reimbursement of their out-of-pocket expenses. Each of our
non-executive directors received an annual fee of $30,000 plus reimbursement of their out-of-pocket expenses in 2002. In addition, each of our
non-executive directors who are members of the audit committee receive an annual fee of $5,000 and non-executive directors on the compensation committee receive an annual fee
of $5,000. The annual directors' fees are prorated for the period in office.

Incentive Plans

We have a profit-sharing plan and during 2002, we introduced a new incentive compensation plan, which provides for annual cash awards to officers and employees.

Performance Bonus

The performance bonus provides for annual cash rewards to officers and employees. The determination of an employee's individual award will be based on salary and
individual performance measured against set criteria. The Compensation Committee appointed by our Board of Directors administers the policy. A charge of $2.8 million has been recorded in
respect of 2002.

Net profit sharing

During 1993 we adopted a profit sharing plan which distributes 10% of net income after specific adjustments, to certain of our officers and employees worldwide,
on the basis of performance. The determination of an employee's individual award will be based on salary and overall contribution to Stolt Offshore. The Compensation Committee appointed by the our
Board of Directors administers this plan. No charge in respect of profit sharing has been included in the statement of operations for each of the years ended November 30, 2002, 2001 and 2000.

55

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Board Practices

Committees of the Board of Directors

The standing committees of the Board of Directors consist of an Audit Committee and a Compensation Committee.

Audit Committee

The Audit Committee, formed in 1993, meets regularly to review our audit practices and procedures, scope and adequacy of internal controls and related matters,
our financial statements and to advise the Board of Directors on such matters. The Audit Committee recommends to the Board of Directors the annual appointment of auditors, the scope of audit and other
assignments to be performed by the auditors and the fees relating thereto. The Audit Committee also meets periodically with representatives of our auditors to review the scope of our auditors'
engagement with respect to the audit of our financial statements and to review the recommendations of the auditors arising therefrom. The current members of the Audit Committee are
Messrs. Woolveridge (Chairman), Skouveroe and Hurlock. In 2002, the Audit Committee was comprised of Messrs. Woolveridge (Chairman), Poimboeuf, Skouveroe and Hurlock.

Compensation Committee

The Compensation Committee, formed in 1993, reviews and approves salaries for the executive officers, salary parameters for all other staff, performance bonus,
profit sharing awards (if any, pursuant to our Profit Sharing Plan) and stock option awards under our Stock Option Plan. The current members of the Compensation Committee are Messrs. Jacob
Stolt-Nielsen (Chairman), Chris Wright and Niels G. Stolt-Nielsen.

Service Contracts

No director has a service contract that provides for benefits upon termination.

Employees

Our workforce varies based on the workload at any particular time. The following table presents the year end breakdown of both permanent employees by geographic
region for the last three financial years and temporary employees for the last financial year. A significant number of our offshore employees are represented by labor unions. As part of normal
business, a number of union agreements come up for annual renegotiations in 2003. We believe that we maintain a good relationship with our employees and their unions. In addition, many workers,
including most of our divers, are hired on a contract basis and are available on short notice.

Year ended November 30,2002
Permanent

2002
Temporary

2001
Permanent

2000
PermanentAsia Pacific

260

164

238

221North America

621

113

818

613Norway

836

204

718

679SEAME

926

1,573

984

406South America

415

29

350

361U.K

463

548

435

378Corporate

406

108

415

79Total

3,927

2,739

3,958

2,737


56

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The
increase in the number of employees in Norway in 2002 is due to higher recruiting of engineering personnel in preparation for increased project activity in 2003. The increase in
permanent employees in 2001 was largely a result of the acquisition of Paragon and Litwin in the Corporate segment, and the employment, on a permanent basis, of temporary employees in welding services
in the SEAME region.

Share Ownership

As of April 30, 2003, our Directors and executive officers as a group directly owned 578,551 of our Common Share equivalents. This represented
approximately 0.8% of all outstanding Common Shares and 0.6% of total Common Share equivalents. Each individual Director and executive officer owned less than 1% of the outstanding Common Shares. As
of April 30, 2003, SNTG, a wholly owned subsidiary of SNSA owned 41,686,988 of our Common Shares and all 34,000,000 of our Class B Shares. This ownership represents an economic interest
in us of approximately 63.5% and a voting interest of approximately 69%.

Our
1993 Stock Option Plan (the "Plan") covers 7.7 million shares represented by Common Shares, Class A Shares or any combination thereof not exceeding 7.7 million
shares. Since March 7, 2001, all Class A Share options, when exercised, are automatically converted into Common Shares. We account for awards granted to directors and key employees under
APB (Accounting Principles Board) Opinion 25, under which no compensation costs are recognized. Options may be granted under the Plan exercisable for periods of up to ten years. The options granted
under the Plan will be at an exercise price not less than the fair market value per share at the time the option is granted. Options vest 25% on the first anniversary of the grant date, with an
additional 25% vesting on each subsequent anniversary. A Compensation Committee appointed by our Board of Directors administers the Plan. The Compensation Committee awards options based on the
grantee's position in Stolt Offshore, degree of responsibility, seniority, contribution to Stolt Offshore and such other factors as it deems relevant under the circumstances.

As
of March 31, 2003, a total of 5,353,366 options for Common Shares had been granted. As of March 31, 2003, 4,093,182 options exercisable for Common Shares remain
outstanding and 1,872,892 options over Common Shares are currently exercisable. Of the total remaining outstanding, options for 834,900 Common Shares and options for 220,000 Class A Shares have
been granted to employees who are our Directors and executive officers. Each of our Directors and executive officers hold options exercisable for shares representing less than 1% of outstanding Common
Shares. The outstanding options are exercisable at their respective prices set forth below and expire on the dates indicated:

|Range of Exercise Price |       | Options
Outstanding |           | Weighted average
remaining
contractual life |      | Weighted average
exercise price |       | Number exercisable |           | Weighted average
exercise price
|----------------------- | ----- | ------------------- | --------- | ------------------------------------------- | ---- | ------------------------------- | ----- | ------------------ | --------- | -------------------------------
|
|Common Shares           |       |                     |           |                                             |      |                                 |       |                    |           |                                
|$12.13 - 16.58          |       | 718,800             |           | 7.40                                        |      | 14.32                           |       | 429.750            |           | 14.84                          
|$  7.82 - 11.21         |       | 26,000              |           | 8.74                                        |      | 9.19                            |       | 6,500              |           | 9.19                           
|$  4.38 - 7.38          |       | 824,180             |           | 7.96                                        |      | 6.24                            |       | 296,418            |           | 6.09                           
|$  1.19 - 3.00          |       | 1,304,500           |           | 9.34                                        |      | 1.44                            |       | 110,000            |           | 2.77                           
|                        |       |                     |           |                                             |      |                                 |       |                    |           |                                
|                        | Total |                     | 2,873,480 |                                             | 8.45 |                                 | 6.11  |                    | 842,668   |                                
|                        |       |                     |           |                                             |      |                                 |       |                    |           |                                
|Class A Shares          |       |                     |           |                                             |      |                                 |       |                    |           |                                
|$12.13 - 16.58          |       | 105,250             |           | 5.39                                        |      | 16.18                           |       | 101,625            |           | 16.32                          
|$  7.82 - 11.21         |       | 1,001,912           |           | 6.82                                        |      | 10.21                           |       | 816,059            |           | 10.20                          
|$  4.38 - 7.38          |       | 61,290              |           | 3.64                                        |      | 5.74                            |       | 61,290             |           | 5.74                           
|$  1.19 - 3.00          |       | 51,250              |           | 2.48                                        |      | 2.77                            |       | 51,250             |           | 2.77                           
|                        |       |                     |           |                                             |      |                                 |       |                    |           |                                
|                        | Total |                     | 1,219,702 |                                             | 6.36 |                                 | 10.19 |                    | 1,030,224 |                                
|                        |       |                     |           |                                             |      |                                 |       |                    |           |                                
|                        | Total |                     | 4,093,182 |                                             |      |                                 |       |                    | 1,872,892 |                                
|                        |       |                     |           |                                             |      |                                 |       |                    |           |                                

57

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As part of the acquisition of Ceanic, holders of Ceanic shares were entitled to exercise all vested and one-third of their unvested Ceanic options or to convert any portion
thereof to vested Stolt Offshore options. Their remaining two-thirds unvested Ceanic options were automatically converted to unvested Stolt Offshore options at the date of acquisition. As
of March 31, 2003, a total of 1,026,372 options exercisable for Common Shares had been granted to our subsidiaries' employees. A total of 621,810 of these options are outstanding and
exercisable at March 31, 2003. The outstanding options are exercisable at their respective prices set forth below and expire on the dates indicated:

|Range of Exercise Price |       | Options
Outstanding |         | Weighted average
remaining
contractual life |      | Weighted average
exercise price |       | Number
exercisable |         | Weighted average
exercise price
|----------------------- | ----- | ------------------- | ------- | ------------------------------------------- | ---- | ------------------------------- | ----- | ------------------ | ------- | -------------------------------
|
|Common Shares           |       |                     |         |                                             |      |                                 |       |                    |         |                                
|$7.82 - 11.21           |       | 523,674             |         | 4.60                                        |      | 10.75                           |       | 523,674            |         | 10.75                          
|$4.38 - 7.38            |       | 98,136              |         | 4.06                                        |      | 6.28                            |       | 98,136             |         | 6.28                           
|                        |       |                     |         |                                             |      |                                 |       |                    |         |                                
|                        | Total |                     | 621,810 |                                             | 4.51 |                                 | 10.05 |                    | 621,810 |                                
|                        |       |                     |         |                                             |      |                                 |       |                    |         |                                

Item 7. Major Shareholders and Related Party Transactions.

Except as set forth below, we are not, directly or indirectly, owned by another corporation or by any government. There are no arrangements known to us, the
operation of which may at a subsequent date result in a change in control of Stolt Offshore.

Set
forth below is information concerning the share ownership of all persons who owned beneficially 5% or more of the Common Share equivalents, as of March 31, 2003. The
Class A Shares for the comparative period of 2000 have been reclassified as Common Shares.

|Name of Beneficial Owner        |  | Number of
Common Shares
Owned |  | Percentage of
Common
Shares Owned |   | Number of
Class B
Shares Owned* |  | Percentage of
Class B
Shares Owned |   | Percentage of
Economically
Equivalent
Shares Owned |  
|------------------------------- |  | ----------------------------- |  | --------------------------------- | - | ------------------------------- |  | ---------------------------------- | - | -------------------------------------------------- | -
|Holdings as at March 31, 2003   |  |                               |  |                                   |   |                                 |  |                                    |   |                                                    |  
|SNTG                            |  | 41,686,988                    |  | 55.3                              | % | *34,000,000                     |  | 100                                | % | ***63.5                                            | %
|Rutabaga Capital Management Llc |  | **4,013,700                   |  | 5.3                               | % |                                |  |                                   |   | 4.3                                                | %
|Holdings as at May 31, 2002     |  |                               |  |                                   |   |                                 |  |                                    |   |                                                    |  
|SNTG                            |  | 29,275,223                    |  | 45.9                              | % | *34,000,000                     |  | 100                                | % | 57.2                                               | %
|Rutabaga Capital Management Llc |  | **772,500                     |  | 1.2                               | % |                                |  |                                   |   | 1.0                                                | %
|Holdings as at April 30, 2001   |  |                               |  |                                   |   |                                 |  |                                    |   |                                                    |  
|SNTG                            |  | 29,275,233                    |  | 41.7                              | % | *34,000,000                     |  | 100                                | % | 53.1                                               | %

---

58

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Significant
changes in the number of common shares held by our largest shareholder, SNTG, were recorded as follows:

In
June 2002, SNTG's shareholding increased to 32,275,223 common shares, representing 48.3% of common shares owned and 58.8% of economically equivalent shares owned. In
November 2002, SNTG's shareholding increased to 41,686,988 common shares, representing 54.7% of common shares owned and 62.9% of economically equivalent shares owned.

As
of March 20, 2003, the record date for the Annual General Meeting, all of our 76,262,215 Common Shares were registered in the Verdipapirsentralen in the names of 794
shareholders. Excluding outstanding Common Shares registered in the name of the SNTG and outstanding Common Shares registered in the name of Citibank N.A. as depositary for the ADSs and treasury
shares, held by one of our subsidiaries, it is estimated that the free float of Common Shares on the Oslo Stock Exchange is 12,977,975.

As
of March 20, 2003, the record date for the Annual General Meeting, there was a total of 22,546,873 ADSs registered in the names of 37 shareholders. Of the ADSs, 968,968 ADSs
were registered in the names of 21 shareholders having U.S. addresses (although some of such ADSs may be held on behalf of non-U.S. persons). Based on communications with banks and
securities dealers who hold our ADSs in street name for individuals, we estimate the number of beneficial owners of ADSs is approximately 1,900. Excluding ADSs registered in the name of SNTG and
treasury shares, held by one of our subsidiaries, it is estimated that the free float of ADSs on Nasdaq is 20,718,131.

Relationship with SNSA

Share Ownership

As of March 31, 2003, SNTG, a wholly owned subsidiary of SNSA, owned 41,686,988 of our Common Shares and all 34,000,000 of our Class B Shares. This
ownership represents an economic interest in us of approximately 63.5% and a voting interest of approximately 69%. As of March 31, 2003, the Stolt-Nielsen family (including Jacob Stolt-Nielsen
and Niels G. Stolt-Nielsen), directly and indirectly through Fiducia Ltd., controlled approximately 60% of the outstanding shares of SNSA entitled to vote generally on matters brought to a vote
of shareholders of SNSA.

Arrangements and Transactions with SNSA

We and SNSA have developed a number of arrangements and engage in various transactions as affiliated companies. We believe that these arrangements and
transactions, taken as a whole, are based on arm's length principles to accommodate our respective interests in a manner that is fair and

59

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beneficial
to both parties. However, because of the scope of the various relationships between us and SNSA (and our respective subsidiaries), we cannot assure you that each of the agreements and
transactions, if considered separately, has been or will be effected on terms no less favorable to us than could have been obtained from unaffiliated third parties.

All
material arrangements with SNSA are reviewed by the audit committee of our Board of Directors consisting of directors who are not employees or officers of either SNSA or us and who
are not related to the Stolt-Nielsen family. Existing material arrangements include agreements with an affiliate of SNSA under which the affiliate provides certain management, administrative,
accounting, financial and other services to us. From time to time, some of our financing may be provided for or guaranteed by SNSA or its affiliates, and our continued access to such financing would
depend on a number of factors, including compliance by SNSA or its affiliates with covenants in their financing arrangements.

Pursuant
to a corporate services agreement, SNSA supplies through its subsidiaries, financial, risk management, public relations and other services to us for an annual fee based on costs
incurred in rendering those services. The fee is subject to negotiation and agreement between us and SNSA on an annual basis. The fees for 2002, 2001 and 2000 were approximately $3.2 million,
$3.7 million and $3.3 million, respectively. The services agreement is automatically renewed for additional one-year terms unless we and SNSA are unable to agree on the
annual fees payable. The services agreement may also be terminated by either party on the occurrence of certain events, including the other party's:



Intercompany Payments

Our payments to / (receipts from) SNSA for the years 2002, 2001 and 2000 consisted of the following in millions:

Year ended November 30,2002

2001

2000Interest payments

$
0.6

$
0.4

$
3.6Management services

$
3.2

$
3.7

$
3.3Insurance premia

$
2.8





Receipts under insurance policy

$
(2.8
)




Guarantee fees







$
0.3


Short-term
payables due to SNSA of $0.6 million as of November 30, 2002 (2001: $9.5 million) relate primarily to outstanding insurance premia and
management service charges.

In
May 2002, SNSA advanced $64.0 million to us in order to assist our repurchase of the 6,142,857 Common Shares previously issued to Vinci and to settle the ETPM share
price guarantee. Further details are provided in Note 3 and 19 to our Consolidated Financial Statements. We subsequently issued
these and other shares to SNSA during 2002. The proceeds from the issue of the shares were used to repay the advance due to SNSA.

We
have obtained a commitment from SNSA to provide a subordinated credit line of $50 million which is currently available until November 28, 2003 and which is excluded in
the calculation of covenants. On February 28, 2003, we made a drawdown of $48 million against this $50 million liquidity line provided by SNSA as discussed in Note 13 to
the Consolidated Financial Statements. The $48 million drawdown was repaid within seven days.

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On
May 30, 2003, SNSA loaned us $50 million as subordinated debt. The specific terms and conditions of the loan are the subject of discussions between us and SNSA.

Service Mark Agreement

We and SNSA are parties to an agreement under which we have been granted the right to use the Stolt name and logo, without payment of any royalty, so long as SNSA
or its affiliates own more than one-third of our voting shares.

Other Related Party Transactions

For commercial reasons, we have structured certain contractual services through joint ventures and Note 9 to the Consolidated Financial Statements includes
details of the joint ventures. The following table is a summary of our transactions with these joint ventures.

Income statement datadollars in millions:Year ended November 30,2002

2001

2000Income received for services provided to the joint ventures

53.4

65.6

38.6Payments made for services received from the joint ventures

29.4

39.5

45.0


Balance sheet datadollars in millions:As of November 30,2002

2001Short term accounts receivable from the joint ventures

50.4

61.1Short term loan to joint venture (NKT Flexibles)

12.0

Accounts payable to the joint ventures

5.3

9.7


On
December 3, 2002, we made a capital contribution of $12.0 million in cash to the NKT Flexibles I/S joint venture, the same date NKT Flexibles repaid an outstanding loan
for $12.0 million due to us.

Although
this is no longer the practice, historically we have provided loans to our senior management for relocation expenses. As of March 31, 2003, there were no such loans
outstanding. The highest aggregate amount of loans outstanding to senior management at any time in the last three years was $363,000. The interest rate on this loan was 6.25%.

In
2002, we made a payment of $50,000 for marketing services to a company in which a non-executive director has an interest.

Item 8. Financial Information.

Consolidated Financial Statements

See "Item 18. Financial Statements."

Other Financial Information

Legal Proceedings

We are involved in legal proceedings from time to time incidental to the ordinary conduct of our business.

CSO
commenced legal proceedings through the UK High Court against three of our subsidiaries claiming infringement of a certain patent held by CSO relating to flexible flowline laying
technology in the UK. Judgement was given on January 22, 1999 and January 29, 1999. The disputed patent was held valid. We appealed and the Appeal Court maintained in July 2000
the validity of the patent and

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potentially
broadened its application compared to the High Court decision. We applied for leave to appeal the Appeal Court decision to the House of Lords, which was denied.

During
2001 after the Appeal Court decision became final, CSO submitted an amended claim to damages claiming lost profit on a total of 15 projects. In addition, there is a claim for
alleged price depreciation on certain other projects. The total claim for lost profits was for approximately $89.0 million, up from approximately $14.0 million claimed after the High
Court decision confirming the patent's validity, plus interest, legal costs and a royalty for each time that the flexible lay system tower on theSeaway
Falconwas brought into U.K. waters. The increase came because several more projects potentially became relevant. The amount of the claim has not yet been considered by the
Court and has thus so far not been upheld. We estimate that the total claim as submitted is in the order of $130.0 million at November 2002, increasing at 8% simple interest per annum.

In
the alternative, CSO claims a reasonable royalty for each act of infringement, interest and legal costs. CSO has not quantified this claim, but it will be considerably less than the
claim to lost profits.

We,
in consultation with our advisers, have assessed that the range of possible outcomes for the resolution of damages is $1.5 million to $130.0 million and have determined
that there is no amount within the range that is a better estimate than any other amount. Consequently, in accordance with SFAS No. 5,"Accounting for
Contingencies", as interpreted by FASB Interpretation No.14"Reasonable Estimation of the Amounts of a Loss",we have provided
$1.5 million in the financial statements, being the lower amount of the range. The amount of damages is nevertheless uncertain and no assurance can be given that the provided amount is
sufficient.

On
April 15, 2003, the U.K. High Court, in an action between Rockwater Ltd. (part of the Halliburton Group) and CSO, held that the same patent, the subject of the
proceedings against us, was invalid. We are considering our position in the light of this recent judgement.

On
December 6, 2002, we settled a long-standing dispute with the owners of theToisa Pumavessel for
$7.3 million, including interest of $1.0 million. The nature of the dispute was the cancellation of a charter of the vessel in 1999. We had expected that the settlement would be made in
the range of $2 million to $8 million. The cost of the final settlement was included in our 2002 results.

Legal
costs are expensed as incurred.

Litigation
is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. It is reasonably possible that the final resolution of any
litigation could require us to make additional expenditures in excess of reserves that we may establish. In the ordinary course of business, various claims, suits and complaints have been filed
against us in addition to those specifically referred to above. Although the final resolution of any such other matters could have a material effect on our operating results for a particular reporting
period, we believe that they should not materially affect our consolidated financial position.

Dividend Policy

We have never paid dividends on our share capital, and currently intend to retain any earnings for the future operation and growth of the business. The Board of
Directors will review this policy from time to time in light of our earnings, financial condition, prospects, tax considerations and foreign exchange rates. We will pay dividends, if any, in U.S.
dollars.

Significant Changes

Except as otherwise disclosed in "Item 5. Subsequent Events" and elsewhere in this Report, there has been no material change in our financial position since
November 30, 2002.

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Item 9. The Offer and Listing

Trading Markets

Our Common Shares trade as ADSs in the United States on the Nasdaq National Market under the symbol "SOSA" and are listed in Norway on the Oslo Stock Exchange
under the symbol "STO."

The
following table sets forth the high and low last reported sale prices for our ADSs reported on the Nasdaq National Market and the closing prices for our Common Shares reported on the
Oslo Stock Exchange during the indicated periods.

|                         |                       | ADSs*
Nasdaq
(U.S. Dollars) |       | Common Shares
Oslo Stock Exchange
(Norwegian Kroner)
|------------------------ | --------------------- | --------------------------- | ----- | ----------------------------------------------------
|
|Annual Highs and Lows    |                       |                             |       |                                                     
|1998                     |                       | 24.42                       |       | 7.88                                                
|1999                     |                       | 14.94                       |       | 6.13                                                
|2000                     |                       | 16.38                       |       | 9.13                                                
|2001                     |                       | 15.88                       |       | 6.15                                                
|2002                     |                       | 9.29                        |       | 1.14                                                
|Quarterly Highs and Lows |                       |                             |       |                                                     
|Fiscal 2001              |                       |                             |       |                                                     
|                         | Second Quarter        |                             | 15.88 |                                                     
|                         | Third Quarter         |                             | 14.65 |                                                     
|                         | Fourth Quarter        |                             | 9.40  |                                                     
|Fiscal 2002              |                       |                             |       |                                                     
|                         | First Quarter         |                             | 9.29  |                                                     
|                         | Second Quarter        |                             | 9.17  |                                                     
|                         | Third Quarter         |                             | 7.90  |                                                     
|                         | Fourth Quarter        |                             | 5.04  |                                                     
|Fiscal 2003              |                       |                             |       |                                                     
|                         | First Quarter         |                             | 1.88  |                                                     
|Monthly Highs and Lows   |                       |                             |       |                                                     
|                         | November 2002         |                             | 2.84  |                                                     
|Fiscal 2003              |                       |                             |       |                                                     
|                         | December              |                             | 1.82  |                                                     
|                         | January               |                             | 1.88  |                                                     
|                         | February              |                             | 1.60  |                                                     
|                         | March                 |                             | 1.20  |                                                     
|                         | April                 |                             | 1.73  |                                                     
|                         | May (to May 23, 2003) |                             | 2.08  |                                                     

---

The
bid prices reported for these periods reflect inter-dealer prices, rounded to the nearest cent, and do not include retail markups, markdowns or commissions, and may not represent
actual transactions.

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On
April 30 2003, the last reported sale price of our ADSs on the Nasdaq National Market was $1.73 per ADS, and the closing price of our Common Shares on the Oslo Stock Exchange
was NOK 11.60 per share.

As
of March 31, 2003, we had 75,383,094 Common Shares outstanding, excluding an aggregate of 4,714,992 Common Shares reserved for issuance upon exercise of options outstanding as
of March 31, 2003 and 2,965,008 additional Common Shares available for further grants under stock plans.

Item 10. Additional Information.

Organization and Register

Stolt Offshore S.A. is a "Société Anonyme Holding," organized in the Grand Duchy of Luxembourg under the Company Law of 1915, as
amended. We were incorporated in Luxembourg in 1993 as the holding company for all of our activities.

Our
registered office is located at 26, rue Louvigny, L-1946 Luxembourg and we are registered in the Companies' Register of the Luxembourg District Court under the
designation "R.C. Luxembourg B 43172."

Articles of Incorporation

Set forth below is a description of the material provisions of our Articles of Incorporation and the Luxembourg Company Law. The following summary is qualified by
reference to the Articles of Incorporation and applicable Luxembourg law. The full text of the Articles of Incorporation is available at our registered office.

Objects and Purposes

Article 3 of our Articles of Incorporation sets forth our objects as a holding company, namely to invest in subsidiaries which will provide subsea
construction, maintenance, inspection, survey and engineering services, predominantly for the offshore oil and gas industry. More generally, we may participate in any manner in all commercial,
industrial, financial and other enterprises of Luxembourg or foreign nationality through the acquisition by participation, subscription, purchase, option or by other means of all shares, stocks,
debentures, bonds or securities; the acquisition of patents and licenses which it will administer and exploit; we may lend or borrow with or without security, provided that any money so borrowed may
only be used for the purposes of Stolt Offshore or companies that are subsidiaries of or associated with or affiliated to Stolt Offshore; and in general to undertake any operations directly or
indirectly connected with such objects as permitted by the Luxembourg Holding Company Law of 1929.

Directors

Our Board of Directors is comprised of not less than three members, elected by a simple majority of our outstanding shares represented at a general meeting of
shareholders for a period not exceeding six years and until their successors are elected. It is our customary practice that Directors are elected for terms of one year at the Annual General Meeting of
Shareholders held each year in Luxembourg.

Our
Articles of Incorporation do not mandate the retirement of Directors under an age limit requirement. Our Articles of Incorporation do not require Board members to be shareholders in
Stolt Offshore.

Under
Luxembourg law and our Articles of Incorporation, the members of the Board of Directors owe a duty of loyalty and care to Stolt Offshore. They must exercise the standard of care of
a prudent and diligent business person.

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Our
Articles of Incorporation provide that no transaction between Stolt Offshore and another party in which a Director serves as a director, officer or employee, will be invalidated
solely for that reason. The Articles also provide that any Director who has a personal interest in a transaction must disclose such interest, must abstain from voting on such transaction and may not
be counted for purposes of determining whether a quorum is present at the meeting. Such Director's interest in any such transaction shall be reported at the next meeting of shareholders. A Director
who owns less than 5% of our capital stock or of the other party whose transaction with us is being submitted to our Board of Directors for its approval is not subject to the provisions of this
paragraph.

Authorized Shares

Our authorized share capital consists of:



Pursuant
to our Articles of Incorporation, and as required by Luxembourg law as presently in effect, authorized capital will automatically be reduced to the amount represented by
outstanding shares on the fifth anniversary date of the publication of the most recent amendment of the Articles revising our authorized capital. Amendments amending our authorized capital were
approved at an Extraordinary General Meeting held on March 6, 2001, and publication of such amendment in theOfficial Gazettetook place in
October 2001. From time to time we take such steps that are required to continue the authorized capital in effect.

The
Board of Directors is authorized to issue additional Common Shares and Class B Shares, from time to time, up to the maximum authorized number. The Articles of Incorporation
require all shares to be issued in registered form. All shares, when issued, are fully paid and non-assessable. All shares are freely transferable by the holder thereof.

As
a general rule, shareholders are entitled to preemptive rights under Luxembourg law in respect of the issuance of shares for cash, unless the Articles of Incorporation provide
otherwise. Our Articles authorize the Board of Directors to deny shareholders' preemptive rights for a period of five years and our Board of Directors has done so with respect to all authorized but
unissued Common Shares. Upon the expiration of authorized but unissued shares as described above, the suppression of preemptive rights will also terminate and shareholders will be entitled to
preemptive rights once again unless the Board recommends denying further such rights and such recommendation is approved by the shareholders. As a result, Common Shares will not be entitled to
preemptive rights for a period of at least five years ending October 2006.

In
addition to the authorized Common Shares and Class B Shares set forth above, an additional 1,500,000 Class A Shares, par value U.S. $2.00 per share, have been authorized
for the sole purpose of options granted under our existing stock option plans, and may not be used for any other purpose. The rights, preferences and priorities of such Class A Shares are set
forth in the Articles of Incorporation. All such Class A Shares convert to Common Shares immediately upon issuance. Such authorized Class A Shares and all of the rights relating thereto
shall expire, without further action, on December 31, 2010.

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Voting Rights

Except for matters where applicable law requires the approval of both classes of shares voting as separate classes, Common Shares and Class B Shares vote
as a single class on all matters submitted to a vote of the shareholders, with each share entitled to one vote. Under Luxembourg law, shareholder action can generally be taken by a simple majority of
Common Shares and Class B Shares present or represented at a meeting, without regard to any minimum quorum requirements. Three exceptions to the law are (i) to amend the Articles which
requires (x) a two-thirds vote of those Common Shares and Class B Shares present or represented, and (y) when the meeting is first convened, a quorum of 50% of the
outstanding shares entitled to vote; (ii) to change the country of incorporation of Stolt Offshore to a country other than Luxembourg or to increase the contribution of the shareholders, which
require the affirmative vote of 100% of the Common Shares and Class B Shares; and (iii) any action for which the Articles require more than a majority vote or a quorum. Luxembourg law
further provides that a two-thirds majority vote of those shares present or represented and when the meeting is first convened, a quorum of 50% of such shares, of the outstanding Common
Shares and Class B Shares, each voting and counted for quorum purposes as a separate class, is required to authorize any amendment to the Articles in respect of a recapitalization,
reclassification and similar transactions affecting the relative rights, preferences and priorities of the Common Shares and Class B Shares if such class of shares is adversely affected
thereby.

Shareholder Meetings and Notice Thereof

Under the Articles, we are required to hold a general meeting of shareholders each year in Luxembourg. The meeting is normally convened in April or May. In
addition, the Board may call any number of extraordinary general meetings, which may be held in Luxembourg or elsewhere, although any extraordinary general meeting convened to amend the Articles will
be held in Luxembourg. The Board of Directors is further obliged to call a general meeting of shareholders to be held within thirty days after receipt of a written demand therefor by shareholders
representing at least one-fifth of the outstanding shares entitled to vote thereat.

The
Articles require notice of any general meeting to be sent by first class mail, postage prepaid, to all shareholders at least twenty days prior to such meeting. Shareholders may be
represented by written proxy, provided the written proxy is deposited with us at our registered office in Luxembourg, or with any Director, at least five days before the meeting.

Dividends

Under the Articles, holders of Common Shares and Class B Shares participate in all dividends, if any are declared, provided that, in the case of cash or
property dividends, each Class B Share shall receive $0.005 per share for each $0.01 per share in cash or value paid on each Common Share. No dividend, in cash or property, may be paid
separately on either class of shares. If share dividends are declared, holders of Common Shares will receive Common Shares and holders of Class B Shares will receive Class B Shares.

Interim
dividends can be declared up to three times in any fiscal year by the Board of Directors. Interim dividends can be paid, but only after the prior year's financial statements have
been approved by the shareholders at a general meeting and any such interim dividend must be approved by our independent auditors. Final dividends are declared once a year at the annual general
meeting of the shareholders. Interim and final dividends on Common Shares and Class B Shares can be paid out of earnings, retained and current, as well as paid in surplus.

Luxembourg
law authorizes the payment of stock dividends if sufficient surplus exists to provide for the related increase in stated capital or the par value of the shares issued in
connection with any stock dividend.

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Luxembourg
law requires that 5% of our unconsolidated net profit each year be allocated to a legal reserve before declaration of dividends. This requirement continues until the reserve
is 10% of our stated capital, as represented by the Common Shares and Class B Shares, after which no further allocations are required until further issuance of shares.

The
legal reserve may also be satisfied by allocation of the required amount at the time of issuance of shares or by a transfer from paid-in surplus. The legal reserve is not
available for dividends. The legal reserve for all existing Common Shares and Class B Shares has heretofore been satisfied and appropriate allocations will be made to the legal reserve account
at the time of each new issuance of Common Shares and Class B Shares.

Liquidation Preference

Under the Articles, in the event of a liquidation, all of our debts and obligations must first be paid, and thereafter all of our remaining assets are paid to the
holders of Common Shares and Class B Shares,
provided that each Class B Share shall receive $0.005 per share for each $0.01 per share in cash or value paid to each Common Share.

Conversion Rights

Class B Shares are convertible into Common Shares on a two-for-one basis, at any time at the option of the holders thereof. In
addition, if SNTG or its affiliates dispose of Class B Shares to a third party, each Class B Share disposed of shall automatically convert into one-half of one Common Share.
Furthermore, in the event that SNTG (or any entity controlling, controlled by or under common control with it) shall own shares (whether Class B Shares or Common Shares) representing less than
a majority of the combined voting power of our then outstanding shares, then, without any action on the part of the holders thereof, each such Class B Share shall automatically convert into
one-half of one Common Share.

Restrictions on Shareholders

Our Articles of Incorporation provide that in recognition of the fact that certain shareholdings may threaten us with "imminent and grave damage," which term
includes adverse tax consequences, a hostile takeover attempt or adverse governmental sanctions,



The
Articles provide that the foregoing restrictions shall not apply to any person who was a shareholder as of March 10, 1993, or certain Affiliates or Associates (as such terms
are defined in the Articles) of such person.

In
addition, the Board is authorized to restrict, reduce or prevent the ownership of our shares if it appears to the Board that such ownership may threaten us with "imminent and grave
damage." Luxembourg company law does not provide a specific definition of imminent and grave damage, but instead leaves the interpretation of the phrase within the Board's discretion. We have been
advised by Elvinger, Hoss & Prussen, that there are no Luxembourg judicial interpretations of the phrase, but that situations involving hostile takeovers, adverse tax consequences or
governmental sanctions are likely to be among the situations covered by such phrase.

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In
order to enforce the foregoing restrictions, the Articles empower the Board to take certain remedial action including causing us: (i) to decline to register any prohibited
transfer; (ii) to decline to recognize any vote of a shareholder precluded from holding shares; (iii) to require any shareholder on our Register of Shareholders or any prospective
shareholder to provide information to determine whether such person is precluded from holding shares and (iv) upon the issuance of a notice, to require the sale of shares to us at the lesser of
(A) the amount paid for the shares if acquired within the twelve months immediately preceding the date of the notice, and (B) the last quoted sale price for the shares on the day
immediately preceding the day on which the notice is served (provided that the Board may in its discretion pay the amount calculated under (B) in situations where (A) would otherwise
apply and result in a lower purchase price, if the Board determines it equitable after taking into account specified factors); and to remove the name of any shareholder from the Register of
Shareholders immediately after the close of business on the day the notice is issued and payment is made available. The foregoing defensive measures may have the effect of making more difficult a
merger involving us, or a tender offer, open-market purchase program or other purchase of our shares, in circumstances that could give shareholders the opportunity to realize a premium
over the then prevailing market price for their shares.

There
are no limitations currently imposed by Luxembourg law on the rights of our non-resident shareholders to hold or vote their shares.

Change in Control

Except as described above, there are no provisions in our Articles of Incorporation that would have the effect of delaying, deferring or preventing a change in
control of Stolt Offshore and that would only operate with respect to a merger, acquisition or corporate restructure involving us or any of our subsidiaries.

Material Contracts

$385 Million Revolving Credit Facility.On September 22, 2000, we and Stolt Comex Seaway Finance B.V. ("Stolt Comex")
entered into a five year secured multi-currency revolving credit facility with a syndicate of international banks and financial institutions. The credit facility currently permits Stolt Comex to
borrow up to $385 million and, beginning August 31, 2003, amounts available to Stolt Comex under the credit facility will be reduced to $330 million pursuant to a mandatory
facility reduction provision. This amount will remain available to Stolt Comex until the credit facility terminates in September 2005. All amounts outstanding under the credit facility are
secured by a full and unconditional guarantee provided by us and the execution of certain security documents by Stolt Comex, including mortgages on certain of our ships. On December 20, 2002,
we amended certain financial covenants contained in the credit facility to prevent an event of default from occurring under the terms of the credit facility. In exchange for these amendments, the
interest rate on outstanding borrowings was increased to between 0.75% to 3.0% over LIBOR, depending on our ratio of consolidated debt to EBITDA. The credit facility contains affirmative and negative
covenants, including financial covenants relating to our minimum tangible net worth, ratio of consolidated debt to consolidated tangible net worth and ratio of consolidated debt to EBITDA. The credit
facility also contains a cross default provision and other events of default pursuant to which amounts outstanding under the credit facility could be declared immediately due and payable.

$100 Million Revolving Credit Facility.On July 9, 2002, we and Stolt Comex entered into a four year secured revolving
credit facility with a syndicate of international banks and financial institutions. The credit facility currently permits Stolt Comex to borrow up to $100 million. Beginning in
January 2004, and on each consecutive six month period ending thereafter until the termination of the credit facility in July 2006, amounts available to Stolt Comex will be reduced by
$10 million pursuant to a mandatory facility reduction provision. All amounts outstanding under the credit facility are secured

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by
a full and unconditional guarantee provided by us and the execution of certain security documents by Stolt Comex, including mortgages on certain of our ships. On January 3, 2003, we amended
certain financial covenants contained in the credit facility to us to prevent an event of default from occurring under the terms of the credit facility. In exchange for these amendments, the interest
rate on outstanding borrowings was increased to between 1.0% to 3.125% over LIBOR, depending on our ratio of consolidated debt to EBITDA. The affirmative and negative covenants and events of default
contained in the credit facility are substantially identical to those contained in the $385 million credit facility described above.

Without
a waiver to certain financial covenants, we would be out of compliance with our primary credit facilities. As an interim step, our banks have agreed to a 30-day
"standstill" through June 30, 2003 whereby they will take no actions on any potential non-compliance with our financial covenants while internal bank approvals are sought and
documentation is completed. For
a further description of the risks relating to these credit facilities, see "Item 3. Key InformationRisk Factors."

Line of Credit from SNSA.We also have a $50 million line of credit available to us from SNSA, which is committed
until November 28, 2003. A variable interest rate is charged on outstanding borrowings and this rate is note to exceed 12% per annum. We are permitted to repay all or any portion of the
principal amount outstanding, along with any accrued interest, at any time, however, the line of credit will become fully subordinated to our $385 million and $100 million credit
facilities upon the occurrence of an event of default under these credit facilities. In addition, we are prohibited under the terms of our credit facilities from repaying any amounts under this line
of credit at any time that an event of default or potential event of default has occurred and is continuing or, as a result of such payment, would occur under either of our credit facilities. The line
of credit is available for working capital and other corporate purposes.

Exchange Controls

We have been advised by Elvinger, Hoss & Prussen, our Luxembourg counsel, that at the present time there are no exchange controls in existence in
Luxembourg that would impact our operations or affect our ability to pay dividends to non-resident shareholders.

Taxation

Luxembourg Taxation

The following is intended only as a general summary of material tax considerations affecting dividend payments by us relevant to prospective investors. It does
not constitute and should not be construed to constitute legal or tax advice to any such investor. Prospective investors are therefore urged to consult their own tax advisers with respect to their
particular circumstances. Double taxation treaties may contain rules affecting the description in this summary.

Stolt Offshore

We are a holding company under the law of July 31, 1929 of Luxembourg and are eligible for the following taxation provided for by the decree of
December 17, 1938. An annual tax on all amounts paid by us on interest payments made on bonds or debentures issued by us would be levied at the rate of
3% on such interest payments. We have not and do not contemplate to issue bonds or debentures so that this tax on interest is unlikely to become relevant. Additionally an annual tax on all amounts
paid by us as dividends and non-resident Directors' fees will be computed on the following basis:



69

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with
a minimum annual tax of Euro 48,000. These taxes are paid by us. Since we have not since our incorporation paid any dividends we have only been subject to the minimum annual tax.

Subject
to the foregoing, we, as a Luxembourg holding company, are not liable under present Luxembourg law for any income tax, withholding tax, capital gains tax, estate or inheritance
tax, or any other tax (except for a contribution tax of 1% on issues of share capital), calculated by reference to our capital assets, or income.

Shareholders

Under present Luxembourg law, so long as we maintain our status as a holding company, no income tax, withholding tax, capital gains tax, estate or inheritance tax
is payable in Luxembourg by shareholders in respect of the Common Shares, expect for shareholders domiciled, resident (or, in certain circumstances, formerly resident) or having a permanent
establishment in Luxembourg.

Shareholders
domiciled or resident in Luxembourg (expect holding companies) or who have a permanent establishment in Luxembourg with whom the holding of the Common Shares is effectively
connected, have to include the dividend received in their taxable income during the relevant period.

Physical
persons domiciled or resident in Luxembourg are not subject to taxation of capital gains unless the disposal of the Common Shares preceded the acquisition or the disposal occurs
within 6 months following the acquisition of the Common Shares. Physical persons domiciled or resident in Luxembourg who own more than 10% (the limit being 25% for those participations which
had been acquired prior to fiscal year 2002 and disposed of at the latest during fiscal year 2007) of the issued Common Shares are liable to taxation on capital gains even after the 6 months
holding and physical persons who were formerly residents or domiciled in Luxembourg will remain so liable during a period of 5 years after they have given up their domicile or residence in
Luxembourg or their holding has been reduced below 10% (the limit being 25% for those participations which had been acquired prior to fiscal year 2002 and disposed of at the latest during fiscal year
2007) provided they had their domicile or residence in Luxembourg for more than 15 years.

Income
and capital gains on Common Shares which are included in the assets of a trade or business of a physical person domiciled or resident in Luxembourg or in the permanent
establishment in Luxembourg of a non-resident and income and capital gains on Common Shares which are held by corporations (other than holding companies) will be included in the taxable
income of the relevant taxpayers.

There
is no Luxembourg transfer duty or stamp tax applicable on sales or acquisitions of the Common Shares.

U.S. Federal Income Taxation

The following is a description of the material U.S. federal income tax consequences that may be relevant with respect to the acquisition, ownership and
disposition of Common Shares or ADSs. This description addresses only the U.S. federal income tax considerations of holders that will hold Common Shares or ADSs as capital assets. This description
does not address tax considerations applicable to:



70

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Moreover,
this description does not address the U.S. federal estate and gift or alternative minimum tax consequences of the acquisition, ownership and disposition of Common Shares or
ADSs. This description is based on:



each
as in effect and available on the date of this Report. This description is also based in part on the representations of the depositary and the assumption that each obligation in the deposit
agreement and any related agreement will be performed in accordance with its terms. All of the foregoing are subject
to change, which change could apply retroactively and could affect the tax consequences described below.

The
U.S. Treasury Department has expressed concern that depositaries for American depositary receipts, or other intermediaries between the holders of shares of an issuer and the issuer,
may be taking actions that are inconsistent with the claiming of U.S. foreign tax credits by U.S. holders of such receipts or shares. Accordingly, the analysis regarding the availability of a U.S.
foreign tax credit for Luxembourg taxes and sourcing rules described below could be affected by future actions that may be taken by the U.S. Treasury Department.

For
purposes of this description, a U.S. Holder is a beneficial owner of Common Shares or ADSs that, for U.S. federal income tax purposes, is:



A
Non-U.S. Holder is a beneficial owner, or, in the case of a partnership, a holder of Common Shares or ADSs that is not a U.S. Holder.

We
urge you to consult your own tax advisor with respect to the U.S. federal, state, local and foreign tax consequences of acquiring, owning or disposing of Common Shares or ADSs.

Ownership of ADSs in General

For U.S. federal income tax purposes, a holder of ADSs generally will be treated as the owner of the Common Shares represented by such ADSs.

Distributions

If you are a U.S. Holder, the gross amount of any distribution by us of cash or property, other than certain distributions, if any, of Common Shares distributed
pro rata to all of our shareholders, including holders of ADSs, with respect to Common Shares or ADSs will be includible in your income

71

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as
dividend income to the extent such distributions are paid out of our current or accumulated earnings and profits as determined under U.S. federal income tax principles. Such dividends will not be
eligible for the dividends received deduction generally allowed to corporate U.S. Holders. To the extent, if any, that the amount of any distribution by us exceeds our current and accumulated earnings
and profits as determined under U.S. federal income tax principles, it will be treated first as a tax-free return of your adjusted tax basis in the Common Shares or ADSs and thereafter as
capital gain.

Dividends
received by you with respect to Common Shares or ADSs will be treated as foreign source income, which, if you are a U.S. Holder, may be relevant in calculating your foreign tax
credit limitation. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us generally will
constitute "passive income", or, in the case of certain U.S. Holders, "financial services income".

Subject
to the discussion below under "Backup Withholding Tax and Information Reporting Requirements", if you are a Non-U.S. Holder of Common Shares or ADSs, generally you
will not be subject to U.S. federal income or withholding tax on dividends received on Common Shares or ADSs, unless such income is effectively connected with your conduct of a trade or business in
the U.S.

Sale or Exchange of Common Shares or ADSs

If you are a U.S. Holder, you will generally recognize gain or loss on the sale or exchange of Common Shares or ADSs equal to the difference between the amount
realized on such sale or exchange and your adjusted tax basis in the Common Shares or ADSs. Such gain or loss will be capital gain or loss. If
you are a noncorporate U.S. Holder, the maximum marginal U.S. federal income tax rate applicable to such gain will be lower than the maximum marginal U.S. federal income tax rate applicable to
ordinary income if your holding period for such Common Shares or ADSs exceeds one year and will be further reduced if your holding period exceeds five years. If you are a U.S. Holder, gain or loss, if
any, recognized by you generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. The deductibility of capital losses is subject to limitations.

If
you are a U.S. Holder, your initial tax basis of Common Shares will be the U.S. dollar value of the Norwegian kroner denominated purchase price determined on the date of purchase. If
the Common Shares are treated as traded on an "established securities market," and you are a cash basis U.S. Holder (or, if you elect, an accrual basis U.S. Holder), you will determine the dollar
value of the cost of such Common Shares by translating the amount paid at the spot rate of exchange on the settlement date of the purchase. The conversion of U.S. dollars to Norwegian kroners and the
immediate use of that currency to purchase Common Shares generally will not result in taxable gain or loss for a U.S. Holder. If you are a U.S. Holder, the initial tax basis of the ADSs will be the
U.S. dollar denominated purchase price determined on the date of purchase.

With
respect to the sale or exchange of Common Shares, the amount realized generally will be the U.S. dollar value of the payment received determined on (1) the date of receipt of
payment in the case of a cash basis U.S. Holder and (2) the date of disposition in the case of an accrual basis U.S. Holder. If the Common Shares are treated as traded on an "established
securities market," a cash basis taxpayer, or, if it elects, an accrual basis taxpayer, will determine the U.S. dollar value of the amount realized by translating the amount received at the spot rate
of exchange on the settlement date of the sale.

If
you are a Non-U.S. Holder of Common Shares or ADSs, subject to the discussion below under "Backup Withholding Tax and Information Reporting Requirements", you will
generally not be subject to U.S. federal income or withholding tax on any gain realized on the sale or exchange of such Common Shares or ADSs unless (1) such gain is effectively connected with
your conduct of a trade or business in the U.S. or (2) if you are an individual Non-U.S. Holder, you are present in the U.S. for 183 days or more in the taxable year of the
sale or exchange and certain other conditions are met.

72

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Backup Withholding Tax and Information Reporting Requirements

U.S. backup withholding tax and information reporting requirements generally apply to certain payments to certain noncorporate holders of stock. Information
reporting generally will apply to payments of dividends on, and to proceeds from the sale or redemption of, Common Shares or ADSs made within the U.S. to a holder of Common Shares or ADSs, other than
an "exempt recipient", including a corporation, a payee that is not a U.S. person that provides an appropriate certification and
certain other persons. A payor will be required to withhold backup withholding tax from any payments of dividends on, or the proceeds from the sale or redemption of, Common Shares or ADSs within the
U.S. to a holder, other than an "exempt recipient", if you fail to furnish your correct taxpayer identification number or otherwise fail to comply with, or establish an exemption from, such backup
withholding tax requirements. The backup withholding tax rate is 30% for years 2002 and 2003, 29% for years 2004 and 2005, and 28% for years 2006 through 2010.

The
above description is not intended to constitute a complete analysis of all tax consequences relating to acquisition, ownership and disposition of Common Shares or ADSs. We urge you
to consult your own tax advisor concerning the tax consequences of your particular situation.

Documents on Display

We are subject to the informational requirements of the Securities Exchange Act of 1934 applicable to foreign private issuers and, in accordance with these
requirements, we file reports with the Securities and Exchange Commission. As a foreign private issuer, we are exempt from the rules under the Exchange Act relating to the furnishing and content of
proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In
addition, we are not required under the Exchange Act to file periodic reports and financial statements with the Securities and Exchange Commission as frequently or as promptly as U.S. companies whose
securities are registered under the Exchange Act.

You
may read and copy any documents that we file with the Securities and Exchange Commission, including this Report and the related exhibits, without charge at the Securities and
Exchange Commission's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the public reference room
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference
room. In addition, the registration statement and the documents incorporated by reference into this Report are publicly available through the web site maintained by the Securities and Exchange
Commission at www.sec.gov.

Documents
concerning Stolt Offshore that are referred to in this Report may be inspected at our principal executive offices, c/o Stolt Offshore M.S. Ltd, Dolphin House, Windmill
Road, Sunbury-on-Thames TW16 7HT England.

Item 11. Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risk, including changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures on a
consolidated basis, we enter into derivative
instruments in accordance with our company policies. The financial impact of these instruments is offset by corresponding changes in the underlying exposure being hedged. We do not hold or issue
derivative instruments for trading purposes.

73

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Foreign-Exchange Risk Management

Our exposure to currency rate fluctuations results from our net investments in foreign subsidiaries, primarily in the United Kingdom, Norway, France and Brazil,
and from our share of the local currency earnings in our operations in the United Kingdom, Norway and SEAME. We are also exposed to fluctuations in several other currencies resulting from operating
expenditures and one-off liabilities.

Our
currency rate exposure policy prescribes the range of allowable hedging activity. We primarily use forward exchange contracts. We do not use derivative instruments to hedge the value
of investments in foreign subsidiaries.

Interest-Rate Risk Management

Our exposure to third-party interest rate fluctuations result primarily from floating-rate, short-term lines of credit, as well as
floating-rate, long-term revolving credit facilities tied to the London Interbank Offered Rate.

We
use a value-at-risk ("VAR") model to estimate the maximum potential loss on financial instruments that could occur from adverse movements in either interest
rates or foreign exchange rates. The VAR model uses historical foreign exchange rates and interest rates to estimate the volatility and correlation of these rates in future periods. It estimates a
potential one-day loss in the fair market value of the instruments using statistical modeling techniques and including substantially all market risk exposures, specifically excluding joint
venture investments. The VAR model estimates were made assuming normal market conditions and a 95% confidence level.

The
95% confidence level signifies our degree of confidence that actual losses would not exceed the estimated losses shown in the table below. The amounts shown here disregard the
possibility that interest rates and foreign currency rates could move favorably. The VAR model assumes that all movements in these rates would be adverse. Actual experience has shown that gains and
losses tend to offset each other over time, and it is highly unlikely that we could experience losses such as these over
an extended period of time. These amounts should not be considered to be projections of future losses, since actual results may differ significantly depending upon activity in the global financial
markets.

Our
maximum potential one-day losses in fair value for adverse changes given a 95% confidence level are shown below:

VARAs of November 302002

2001($ in millions)Interest rates

0.2

0.2Foreign exchange rates

2.4

0.9


The
increase in the VAR in connection with foreign exchange rates from $0.9 million to $2.4 million is attributable to increased volatility in the exchange rates between
the Euro and the U.S.Dollar.

A
discussion of our accounting policies for financial instruments is included in Note 2 to the Consolidated Financial Statements, and disclosure relating to the financial
instruments is included in Note 23 to the Consolidated Financial Statements.

Based
on our overall interest rate exposures as of April 30, 2003, a near-term change in interest rates would not materially affect our consolidated financial
position, results of operations, or cash flows.

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Other Financial Instruments

All of our derivative activities are over the counter instruments entered into with major financial credit institutions to hedge our committed exposures. Our
derivative instruments are primarily standard foreign exchange forward contracts which subject us to a minimum level of exposure risk and have maturities of less than 24 months. We do not
consider that we have a material exposure to credit risk from third parties failing to perform according to the terms of derivative instruments.

Item 12. Description of Securities Other than Equity Securities.

Not applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

None.

Item 15. Controls and Procedures.

Evaluation of disclosure controls and procedures

The term "disclosure controls and procedures" is defined in Rules 13a-14(c) and 15d-14(c) of the Exchange Act. These rules refer to
the controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that are filed under the Exchange Act is recorded,
processed, summarized and reported within required time periods. Our Chief Executive Officer and our Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures
as of a date within 90 days before the filing of this Report (the "Evaluation Date") and they have concluded that such controls and procedures are effective to ensure that required information
will be disclosed on a timely basis in our reports filed under the Exchange Act.

The
evaluation disclosed, however, that procedures for estimating the costs required to complete lump sum EPIC projects were not followed in respect of certain projects in the SEAME
Region. Unless such estimation procedures are followed, on an ongoing basis, material revisions to results are more likely. We have instigated a program of remedial measures which is further discussed
under changes in internal controls below. Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving the stated objectives and
our senior management was necessarily required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The design of any system of controls
and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all
potential future conditions.

Changes in internal controls

We maintain a system of internal accounting controls that are designed to provide reasonable assurance that our books and records accurately reflect our
transactions and that our established policies and procedures are followed. Subsequent to the Evaluation Date, there were no significant changes to our internal controls or in other factors that could
significantly affect our internal controls

75

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other
than implementation of the remedial measures to correct the deficiency identified above which include the following:



Our
senior management is continuing to evaluate our costing procedures and expects that there will be further actions taken to address the weaknesses that have been identified.

Item 16. Reserved.

PART III

Item 17. Financial Statements.

We have elected to provide financial statements for the fiscal year ended November 30, 2002 and the related information pursuant to Item 18.

Item 18. Financial Statements.

See pages F-1 to F-60, S-1 and S-2, which are incorporated herein by reference.









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Item 19. Exhibits.

|1.1  |  | Amended and Restated Articles of Incorporation. Incorporated by reference to Exhibit 1.1 of Stolt Offshore's Annual Report on Form 20-F for the fiscal year ended November 30, 2000, filed with the Securities and Exchange Commission on May 30,
2001.                                                                                                                                     
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  |  | Amended and Restated Deposit Agreement among Stolt Offshore, Citibank, N.A., as Depositary, and the holders and beneficial owners from time to time of American Depositary Shares. Incorporated by reference to Stolt Offshore's Registration Statement on
Form F-6 (File No. 333-90470) filed with the Securities and Exchange Commission on June 10, 2002.                                
|2.2  |  | Form of American Depositary Receipt (included in Exhibit 2.1).                                                                                                                                                                                                                                                                                                                              
|4.1  |  | Loan Facility Agreement, dated September 22, 2000, among Stolt Comex Seaway Finance B.V., Stolt Offshore's Den norske Bank ASA and the banks listed therein. Incorporated by reference to Exhibit 4.1 of Stolt Offshore's Annual Report on Form 20-F for
the fiscal year ended November 30, 2000, filed with the Securities and Exchange Commission on May 30, 2001.                        
|4.2  |  | Letter Agreement, dated December 20, 2002 to the Loan Facility Agreement. Incorporated by reference to Exhibit 99.6 of Stolt Offshore's current report on Form 6-K, filed with the Securities and Exchange Commission on February 26, 2003.                                                                                                                                                 
|4.3  |  | $100,000,000 Secured Multi-Currency Revolving Loan Facility Agreement, dated July 9, 2002, among Stolt Offshore, Stolt Comex Seaway Finance B.V., Nordea Bank Norge ASA, Grand Cayman Branch and the banks listed therein. Incorporated by reference to
Exhibit 99.4 of Stolt Offshore's current report on Form 6-K, filed with the Securities and Exchange Commission on February 26, 2003.
|4.4  |  | First Supplemental Agreement, dated January 3, 2003 to the $100,000,000 Loan Facility Agreement. Incorporated by reference to Exhibit 99.5 of Stolt Offshore's current report on Form 6-K, filed with the Securities and Exchange Commission on
February 26, 2003.                                                                                                                          
|4.5  |  | Form of Indenture for the issuance of senior debt securities (including the form of senior debt securities). Incorporated by reference to Exhibit 4.1 of Stolt Offshore's registration statement on Form S-3/A (Registration No. 333-86288), filed with
the Securities and Exchange Commission on June 30, 2002.                                                                            
|4.6  |  | Form of Indenture for the issuance of subordinated debt securities (including the form of subordinated debt securities). Incorporated by reference to Exhibit 4.2 of Stolt Offshore's registration statement on Form S-3/A (Registration No. 333-86288),
filed with the Securities and Exchange Commission on August 29, 2002.                                                              
|8.1  |  | Significant subsidiaries as of the end of the year covered by this Report: see "Significant Subsidiaries" under "Item 4. Information on the Company."                                                                                                                                                                                                                                       
|10.1 |  | Consent of Deloitte & Touche, Independent Auditors.                                                                                                                                                                                                                                                                                                                                         
|10.2 |  | Consent of Elvinger, Hoss & Prussen.                                                                                                                                                                                                                                                                                                                                                        
|10.3 |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002.*                                                                                                                                                                                                                                     
|10.4 |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002.*                                                                                                                                                                                                                                     

---

77

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.

|                   |  | STOLT OFFSHORE S.A.
|------------------ |  | -------------------
|                   |  | By:                
|                   |  |                    
|                   |  |                    
|                   |  |                    
|                   |  | By:                
|                   |  |                    
|                   |  |                    
|                   |  |                    
|Date: June 2, 2003 |  |                    

78

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I, Tom Ehret, certify that:

|Date: June 2, 2003 |  |                                                                            
|------------------ |  | ---------------------------------------------------------------------------
|                   |  | /s/TOM EHRETTom Ehret
Chief Executive Officer
(Principal Executive Officer)

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I, Stuart Jackson, certify that:

|Date: June 2, 2003 |  |                                                                                      
|------------------ |  | -------------------------------------------------------------------------------------
|                   |  | /s/STUART JACKSONStuart Jackson
Chief Financial Officer
(Principal Financial Officer)

80

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INDEX TO FINANCIAL STATEMENTS

|                                                                                                           |  | Page
|---------------------------------------------------------------------------------------------------------- |  | ----
|Audited Consolidated Financial Statements of Stolt Offshore S.A.                                           |  |     
|Independent Auditors' Report                                                                               |  | F-2 
|Consolidated Statements of Operations for the years ended November 30, 2002, 2001 and 2000                 |  | F-4 
|Consolidated Balance Sheets at November 30, 2002 and 2001                                                  |  | F-5 
|Consolidated Statements of Shareholders' Equity for the years ended November 30, 2002, 2001, 2000 and 1999 |  | F-6 
|Consolidated Statements of Cash Flows for the years ended November 30, 2002, 2001 and 2000                 |  | F-7 
|Notes to Consolidated Financial Statements                                                                 |  | F-8 
|Audited Financial Statements of Mar Profundo Girassol                                                      |  |     
|Report of Independent Public Accountants (Year ending December 31, 2001 and 2000; 2002 unaudited)          |  | F-48
|Balance Sheets at December 31, 2002 (unaudited) and 2001                                                   |  | F-49
|Income Statements for the years ended December 31, 2002 (unaudited), 2001 and 2000                         |  | F-50
|Statement of Cash Flows for the years ended December 31, 2002 (unaudited), 2001 and 2000                   |  | F-51
|Notes to Financial Statements                                                                              |  | F-52

F-1

---



Independent auditors' report

To
Stolt Offshore S.A.

We
have audited the accompanying consolidated balance sheet of Stolt Offshore S.A. (a Luxembourg company) and its subsidiaries as of November 30, 2002, and the related
consolidated statements of operations, shareholders' equity and cash flows for the year ended November 30, 2002. The consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated financial statements based on our audit. The consolidated financial statements of the Company as of and for the years ended
November 30, 2001 and 2000, before the reclassifications and inclusion of disclosures discussed in Note 2 to the financial statements, were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated January 30, 2002.

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

In
our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of Stolt Offshore S.A. and subsidiaries as of
November 30, 2002 and the consolidated results of its operations and its cash flows for the year ended November 30, 2002, in conformity with accounting principles generally accepted in
the United States of America.

As
discussed above, the consolidated financial statements of the Company as of and for the years ended November 30, 2001 and 2000 were audited by other auditors who ceased
operations. As described in Note 2, these consolidated financial statements have been revised to reflect reclassifications and
disclosures to conform with the 2002 presentation. Our audit procedures with respect to the reclassifications included agreeing the previously reported line items or disclosure amounts to the Company
analyses, comparing reclassification amounts in the analyses to supporting documentation and testing the mathematical accuracy of the analyses. Our audit procedures with respect to the disclosures
included agreeing the additional disclosures to the Company's underlying records obtained from management. In our opinion such reclassifications and disclosures are appropriate and have been properly
applied. However, we were not engaged to audit, review or apply any procedures to the 2001 or 2000 consolidated financial statements of the Company other than with respect to such reclassifications
and disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 or 2000 consolidated financial statements taken as a whole.

Deloitte &
Touche
Glasgow, United Kingdom
April 1, 2003

F-2

---



Independent auditors' report

We have audited the accompanying consolidated balance sheets of Stolt Offshore S.A. (a Luxembourg company) and its subsidiaries as of November 30, 2001 and
2000, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended November 30, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stolt Offshore S.A. and subsidiaries as of
November 30, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended November 30, 2001, in conformity with accounting
principles generally accepted in the United States.

Arthur
Andersen (1)
Glasgow, United Kingdom
January 30, 2002

---

F-3

---

Consolidated statements of operations

|                                                                                  |        
|--------------------------------------------------------------------------------- | -------
|
|                                                                                  |        
|Net operating revenue                                                             |        
|                                                                                  |        
|Operating expenses                                                                |        
|                                                                                  |        
|Gross profit $                                                                   |        
|                                                                                  |        
| %                                                                               |        
|                                                                                  |        
|Equity in net income of non-consolidated joint ventures                           |        
|                                                                                  |        
|Administrative and general expenses                                               |        
|                                                                                  |        
|Impairment of goodwill and Comex trade name                                       |        
|                                                                                  |        
|Restructuring charges                                                             |        
|                                                                                  |        
|Gain on sale of fixed assets                                                      |        
|                                                                                  |        
|Other operating income (loss), net                                                |        
|                                                                                  |        
|Net operating (loss) income                                                       |        
|                                                                                  |        
|Non-operating (expense) income                                                    |        
|                                                                                  |        
|Interest expense                                                                  |        
|                                                                                  |        
|Interest income                                                                   |        
|                                                                                  |        
|Foreign currency exchange gains (losses), net                                     |        
|                                                                                  |        
|(Loss) income before income taxes and minority interests                          |        
|                                                                                  |        
|Income tax (provision) benefit                                                    |        
|                                                                                  |        
|Loss before minority interests                                                    |        
|                                                                                  |        
|Minority interests                                                                |        
|                                                                                  |        
|Net loss                                                                          |        
|                                                                                  |        
|Earnings per Common Share                                                         |        
|                                                                                  |        
|Net loss per Common Share and Common Share equivalent:                            |        
|                                                                                  |        
|                                                                                  | Basic  
|                                                                                  |        
|                                                                                  | Diluted
|                                                                                  |        
|Weighted average number of Common Shares and Common Share equivalents outstanding |        
|                                                                                  |        
|                                                                                  | Basic  
|                                                                                  |        
|                                                                                  | Diluted
|                                                                                  |        

The
accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.

F-4

---



Consolidated balance sheets

|                                                                                                                                              | 
|--------------------------------------------------------------------------------------------------------------------------------------------- | 
|
|                                                                                                                                              | 
|ASSETS                                                                                                                                        | 
|                                                                                                                                              | 
|Current assets                                                                                                                                | 
|                                                                                                                                              | 
|Cash and cash equivalents                                                                                                                     | 
|                                                                                                                                              | 
|Restricted cash deposits                                                                                                                      | 
|                                                                                                                                              | 
|Trade receivables                                                                                                                             | 
|                                                                                                                                              | 
|Inventories and work-in-progress                                                                                                              | 
|                                                                                                                                              | 
|Receivables due from related parties and short-term advances to non-consolidated joint ventures                                               | 
|                                                                                                                                              | 
|Forward contracts                                                                                                                             | 
|                                                                                                                                              | 
|Prepaid expenses and other current assets                                                                                                     | 
|                                                                                                                                              | 
|Total current assets                                                                                                                          | 
|                                                                                                                                              | 
|Fixed assets, at cost                                                                                                                         | 
|                                                                                                                                              | 
|Less accumulated depreciation and amortization                                                                                                | 
|                                                                                                                                              | 
|Total fixed assets, net                                                                                                                       | 
|                                                                                                                                              | 
|Deposits and non-current receivables                                                                                                          | 
|                                                                                                                                              | 
|Investments in and advances to non-consolidated joint ventures                                                                                | 
|                                                                                                                                              | 
|Deferred taxes                                                                                                                                | 
|                                                                                                                                              | 
|Goodwill and other intangible assets                                                                                                          | 
|                                                                                                                                              | 
|Prepaid pension asset                                                                                                                         | 
|                                                                                                                                              | 
|Total assets                                                                                                                                  | 
|                                                                                                                                              | 
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                          | 
|                                                                                                                                              | 
|Current liabilities                                                                                                                           | 
|                                                                                                                                              | 
|Bank overdrafts and lines of short-term credit                                                                                                | 
|                                                                                                                                              | 
|Short-term payables due to SNSA                                                                                                               | 
|                                                                                                                                              | 
|Current maturities of long-term debt and capital lease obligations                                                                            | 
|                                                                                                                                              | 
|Accounts payable and accrued liabilities                                                                                                      | 
|                                                                                                                                              | 
|Accrued salaries and benefits                                                                                                                 | 
|                                                                                                                                              | 
|Advance billings                                                                                                                              | 
|                                                                                                                                              | 
|Other current liabilities                                                                                                                     | 
|                                                                                                                                              | 
|Total current liabilities                                                                                                                     | 
|                                                                                                                                              | 
|Long-term debt and capital lease obligations                                                                                                  | 
|                                                                                                                                              | 
|Deferred taxes                                                                                                                                | 
|                                                                                                                                              | 
|Other long-term liabilities                                                                                                                   | 
|                                                                                                                                              | 
|Accrued pension liability                                                                                                                     | 
|                                                                                                                                              | 
|Minority interests                                                                                                                            | 
|                                                                                                                                              | 
|Commitments and contingencies                                                                                                                 | 
|                                                                                                                                              | 
|Shareholders' equity                                                                                                                          | 
|                                                                                                                                              | 
|Common Shares, $2.00 par value140,000,000 shares authorized (2001: 140,000,000), 76,262,215 shares issued and outstanding (2001: 70,228,536) | 
|                                                                                                                                              | 
|Class B Shares, $2.00 par value34,000,000 shares authorized, issued and outstanding (2001: 34,000,000)                                       | 
|                                                                                                                                              | 
|Paid-in surplus                                                                                                                               | 
|                                                                                                                                              | 
|(Deficit) retained earnings                                                                                                                   | 
|                                                                                                                                              | 
|Accumulated other comprehensive loss                                                                                                          | 
|                                                                                                                                              | 
|Total shareholders' equity                                                                                                                    | 
|                                                                                                                                              | 
|Total liabilities and shareholders' equity                                                                                                    | 
|                                                                                                                                              | 

The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.

F-5

---



Consolidated statement of shareholders' equity

|                                                                  | 
|----------------------------------------------------------------- | 
|
|                                                                  | 
|Balance, November 30, 1999                                        | 
|                                                                  | 
|Issuance of 1,758,242 Class A Shares                              | 
|                                                                  | 
|Issuance of 6,142,857 Class A Shares                              | 
|                                                                  | 
|Issuance of 10,341,261 Class A Shares                             | 
|                                                                  | 
|Issuance of 9,433,962 Class A Shares                              | 
|                                                                  | 
|Net loss                                                          | 
|                                                                  | 
|Translation adjustments, net                                      | 
|                                                                  | 
|Comprehensive loss                                                | 
|                                                                  | 
|Exercise of share options                                         | 
|                                                                  | 
|Other, net                                                        | 
|                                                                  | 
|Balance, November 30, 2000                                        | 
|                                                                  | 
|Reclassification of Class A Shares to Common Shares               | 
|                                                                  | 
|Net loss                                                          | 
|                                                                  | 
|Translation adjustment in respect of SFAS No. 133                 | 
|                                                                  | 
|Gain on hedging reclassified into earnings                        | 
|                                                                  | 
|Translation adjustments, net                                      | 
|                                                                  | 
|Comprehensive loss                                                | 
|                                                                  | 
|Exercise of share options                                         | 
|                                                                  | 
|Balance, November 30, 2001                                        | 
|                                                                  | 
|Purchase of 6,392,478 Treasury Shares at market value(a)          | 
|                                                                  | 
|Settlement of share price guarantee(a)                            | 
|                                                                  | 
|Sale of 6,392,478 Treasury Shares                                 | 
|                                                                  | 
|Issuance of 6,019,287 Common Shares                               | 
|                                                                  | 
|Net loss                                                          | 
|                                                                  | 
|Net gains in respect of derivative instruments, net of tax $3,184 | 
|                                                                  | 
|Translation adjustments, net                                      | 
|                                                                  | 
|Minimum pension liability adjustment, net of tax $915             | 
|                                                                  | 
|Comprehensive loss                                                | 
|                                                                  | 
|Exercise of share options                                         | 
|                                                                  | 
|Balance, November 30, 2002                                        | 
|                                                                  | 

The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.

F-6

---



Consolidated statements of cash flows

|                                                                                                                    | 
|------------------------------------------------------------------------------------------------------------------- | 
|
|                                                                                                                    | 
|Cash flows from operating activities                                                                                | 
|                                                                                                                    | 
|Net loss                                                                                                            | 
|                                                                                                                    | 
|Adjustments to reconcile net loss to net cash provided by operating activities                                      | 
|                                                                                                                    | 
|Depreciation and amortization                                                                                       | 
|                                                                                                                    | 
|Impairment of goodwill and other intangibles                                                                        | 
|                                                                                                                    | 
|Amortization of dry-dock costs                                                                                      | 
|                                                                                                                    | 
|Equity in net income of non-consolidated joint ventures                                                             | 
|                                                                                                                    | 
|Dividends from non-consolidated joint ventures                                                                      | 
|                                                                                                                    | 
|Minority interest in consolidated subsidiaries                                                                      | 
|                                                                                                                    | 
|Deferred tax                                                                                                        | 
|                                                                                                                    | 
|Gain on sale of assets                                                                                              | 
|                                                                                                                    | 
|Changes in operating assets and liabilities, net of acquisitions                                                    | 
|                                                                                                                    | 
|Trade receivables                                                                                                   | 
|                                                                                                                    | 
|Prepaid expenses and other current assets                                                                           | 
|                                                                                                                    | 
|Inventories and work-in-progress                                                                                    | 
|                                                                                                                    | 
|Accounts and notes payable                                                                                          | 
|                                                                                                                    | 
|Accrued salaries and benefits                                                                                       | 
|                                                                                                                    | 
|Other short-term and other long-term liabilities                                                                    | 
|                                                                                                                    | 
|Payments of drydock costs                                                                                           | 
|                                                                                                                    | 
|Net cash provided by operating activities                                                                           | 
|                                                                                                                    | 
|Cash flows used in investing activities                                                                             | 
|                                                                                                                    | 
|Acquisition of subsidiaries, net of cash acquired                                                                   | 
|                                                                                                                    | 
|Settlement of share price guarantees                                                                                | 
|                                                                                                                    | 
|Purchase of fixed assets                                                                                            | 
|                                                                                                                    | 
|Proceeds from sale of fixed and intangible assets                                                                   | 
|                                                                                                                    | 
|Increase in investments and other non-current financial assets                                                      | 
|                                                                                                                    | 
|Decrease in investments and other non-current financial assets                                                      | 
|                                                                                                                    | 
|Net cash used in investing activities                                                                               | 
|                                                                                                                    | 
|Cash flows (used) provided by financing activities                                                                  | 
|                                                                                                                    | 
|Net increase (decrease) in bank overdraft                                                                           | 
|                                                                                                                    | 
|Proceeds from issuance of long-term debt                                                                            | 
|                                                                                                                    | 
|Repayments of long-term debt                                                                                        | 
|                                                                                                                    | 
|(Increase) decrease in restricted cash deposits securing capital lease obligations and accrued taxation liabilities | 
|                                                                                                                    | 
|Repayments of capital lease obligations                                                                             | 
|                                                                                                                    | 
|Repayment of debt to an affiliate                                                                                   | 
|                                                                                                                    | 
|Proceeds from issuance of debt by SNSA                                                                              | 
|                                                                                                                    | 
|Proceeds from the issuance of Class A Shares                                                                        | 
|                                                                                                                    | 
|Repurchase of Treasury Shares                                                                                       | 
|                                                                                                                    | 
|Exercise of share options                                                                                           | 
|                                                                                                                    | 
|Dividends paid to minority interests                                                                                | 
|                                                                                                                    | 
|Net cash (used) provided by financing activities                                                                    | 
|                                                                                                                    | 
|Effect of exchange rate changes on cash                                                                             | 
|                                                                                                                    | 
|Net increase in cash and cash equivalents                                                                           | 
|                                                                                                                    | 
|Cash and cash equivalents at beginning of year                                                                      | 
|                                                                                                                    | 
|Cash and cash equivalents at end of year                                                                            | 
|                                                                                                                    | 

Details of non-cash transactions are provided in Note 2.

The accompanying notes to the consolidated financial statements are an integral part of these consolidated financial statements.

F-7

---



Notes to the consolidated financial statements

1.    The Company

Stolt Offshore S.A., a Luxembourg company, and consolidated subsidiaries (together "the Company") is one of the largest offshore contractors in the world with
services covering all phases of subsea offshore oil and gas operations from exploration to decommissioning. The Company operates in more than 60 countries worldwide and maintains regional offices in
the U.K.; Norway; Asia Pacific; Southern Europe, Africa and the Middle East ("SEAME"); South America; and North America.

The
market for the Company's services is dependent upon the success of exploration and the level of development and production expenditures in the oil and gas industry. Such expenditures
are cyclical in nature and influenced by prevailing and anticipated oil and gas prices.

As
discussed in more detail in Note 13, the long-term debt and capital lease obligations section, the Company's latest forecasts for 2003 indicate that there will be a
narrow margin of compliance with debt covenants at each quarter end. The Company's ability to remain within these covenants is dependent on (1) its operating performance, (2) funding
from its parent company, SNSA, and (3) the Company's plans to divest certain assets. The Company's plans and the risks relating to its projections and these plans are described in
Note 13.

2.    Accounting policies

Principles of consolidation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. and include the accounts of all
majority-owned companies in which the Company has operating control. All significant intercompany transactions and balances have been eliminated. The Company has invested in several joint ventures.
These include Seaway Heavy Lifting ("SHL") and NKT Flexibles I/S ("NKT"), Sonamet, Sonastolt and project-specific joint ventures. In these joint ventures, the Company will typically
have economic and voting interests of 30% to 55%. The Company accounts for its investments in non-consolidated joint ventures under the equity method.

The
preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the dates of the financial statements and reported amounts of revenues and expenses during the
year. In the preparation of these consolidated financial statements, estimates and assumptions have been made by management including costs to complete on projects, recognition of revenue in respect
of variation orders and claims, the selection of useful lives of tangible and intangible fixed assets, provisions necessary for trade receivables, the carrying value of non-consolidated
joint ventures, income tax valuation allowances, provisions for legal disputes and other similar evaluations. Actual results could differ from those estimates.

The
Company records minority interest expense, which reflects the portion of the earnings of the majority-owned operations that are applicable to the minority interest partners. The
minority interest amounts recorded in the accompanying consolidated financial statements primarily represent the share of minority partners' interest of 331/3% in Alto Mar Girassol and
the minority partners' 63% interest in Paragon Engineering Services, Inc., the acquisition of which is discussed further in Note 3.

F-8

---

Foreign currency translation

The Company, incorporated in Luxembourg, has U.S. Dollar share capital and long-term debt is denominated in U.S. Dollars. As a result, the Company's
reporting currency and functional currency is the U.S. Dollar.

The
Company translates the financial statements of its subsidiaries from their functional currencies (usually local currencies) into U.S. Dollars. Assets and liabilities denominated in
foreign currencies are translated at the exchange rates in effect at the balance sheet date. Revenue and expenses are
translated at exchange rates which approximate the average exchange rates prevailing during the period. The resulting translation adjustments are recorded in a separate component of accumulated other
comprehensive loss as "Translation adjustments, net" in the accompanying consolidated statements of shareholders' equity. Exchange gains and losses resulting from transactions denominated in a
currency other than that of the functional currency are included in "Foreign currency exchange gains (losses), net" in the accompanying consolidated statements of operations. The functional currencies
of the companies that comprise the Norway region and the U.K. region are Norwegian Kroner and British Pound, respectively. The U.S. Dollar is the functional currency of the most significant
subsidiaries within the Asia Pacific, North America, SEAME and South America regions.

The
Company uses derivative instruments, primarily foreign exchange forward contracts, to reduce its exposure to currency fluctuations. All of the instruments used are hedges against
forecasted underlying operating exposures, which are designated as cash flow hedges. The Company does not enter into open speculative positions. Effective December 1, 2000, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No.133, "Accounting for Derivative Instruments and Hedging Activities", as amended, which requires
that all derivative instruments be reported on the balance sheet at fair value and establishes criteria for designation and effectiveness of hedging relationships. If the derivative is designated as a
cash flow hedge, the effective portions of the changes in the fair value of the derivative instrument are recorded in other comprehensive loss ("OCI") in the consolidated statement of shareholders'
equity, and ineffective portions of changes in cash flow hedges are recognized in the consolidated statement of operations when the hedged item affects earnings. If the derivative instrument is
terminated or settled prior to the expected maturity or realization of the underlying item, hedge accounting is discontinued prospectively.

Presentation of financial statements

The 2001 and 2000 consolidated financial statements have been revised to reflect reclassifications and disclosures to conform with the 2002 presentation as
follows:



F-9

---



Revenue recognition

Long-term contracts are accounted for using the percentage-of-completion method. The Company applies Statement of Position
81-1 "Accounting for Performance of Certain Construction-Type Projects". Revenue and gross profit are recognized each period
based upon the advancement of the work-in-progress unless the stage of completion is insufficient to enable a reasonably certain forecast of gross profit to be established. In
such cases, no gross profit is recognized during the period. The percentage-of-completion is calculated based on the ratio of costs incurred to date to total estimated costs.
Provisions for anticipated losses are made in the period in which they become known.

A
major portion of the Company's revenue is billed under fixed-price contracts. However, due to the nature of the services performed, variation orders and claims are commonly billed to
the customers in the normal course of business and are recognized as contract revenue when realization is probable and can be reasonably estimated. In addition, some contracts contain incentive
provisions based upon
performance in relation to established targets which are recognized in the contract estimates when deemed realizable.

The
financial reporting of the Company's contracts depends on estimates, which are assessed continually during the term of these contracts. Recognized revenues and profits are subject to
revisions as the contract progresses to completion and revisions in profit estimates are reflected in the period in which the facts that give rise to the revision become known. The net effect on net
income of significant revisions to contract estimates was $(58.8) million in 2002, $2.4 million in 2001 and $(10.7) million in 2000. The net effect of these revisions on net (loss) income per
share was $(0.69) in 2002, $0.03 in 2001 and $(0.14) in 2000.

Fixed assets

Fixed assets are recorded at cost. Interest costs incurred between the date that financing is provided for an asset and the date that the asset is ready for use
are capitalized. No interest was capitalized for the years ended November 30, 2002, 2001 or 2000. Assets acquired pursuant to capital leases are capitalized at the present value of the
underlying lease obligations and amortized on the same basis as fixed assets described below.

F-10

---

Depreciation
of fixed assets is recorded on a straight-line basis over the useful lives of the assets as follows:

|                           
|---------------------------
|Construction support ships:
|                           
|                           
|                           
|Operating equipment        
|Buildings                  
|Other assets               
|                           

Ships
are depreciated to a residual value of 10% of acquisition cost, which reflects management's estimate of salvage or otherwise recoverable value. No residual value is assumed with
respect to other fixed assets.

Costs
for fitting out construction support ships are capitalized and amortized over a period equal to the remaining useful life of the related equipment.

Depreciation
expense, which includes amortization of assets under capital leases, was approximately $89.7 million for the year ended November 30, 2002 (2001:
$86.0 million and 2000: $76.2 million).

On
December 1, 1999 the Company changed its accounting policy for dry-dock costs from an accrual basis to a deferral basis. Capitalized dry-dock costs are
amortized over the period between vessel dockings, which is typically between two and five years. Amortization of capitalized dry-dock costs was $15.4 million for the year ended
November 30, 2002 (2001: $8.4 million and 2000: $4.0 million). The unamortized portion of capitalized dry-dock costs of $27.4 million (2001:
$21.2 million) is included in "Deposits and non-current receivables" in the accompanying consolidated balance sheets.

Maintenance
and repair costs, which are expensed as incurred, were $43.6 million for the year ended November 30, 2002 (2001: $42.1 million and 2000:
$44.2 million).

Goodwill and other intangible assets

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill arising on acquisitions prior
to June 30, 2001 was amortized on a straight-line basis over 10 to 30 years and goodwill is reviewed for impairment whenever events or changes in circumstances indicated that
the carrying value may not be recoverable. Goodwill arising on acquisitions after June 30, 2001 is not amortized, but is tested for impairment annually or earlier, whenever impairment
indicators arise.

In
accordance with the transitional provisions of SFAS No.142, "Goodwill and Other Intangible Assets", from December 1, 2002,
goodwill acquired in business considerations subsequent to June 30, 2001 is not amortized.

Included
in the net book value of intangible assets at November 30, 2002 was goodwill of $6.0 million (2001: $120.1 million) and other intangible assets of
$4.7 million (2001: $2.1 million). The amortization expense for the year ended November 30, 2002 was $6.4 million, excluding the impairment

F-11

---

of
goodwill charge of $106.4 million (2001: $5.7 million and 2000: $5.9 million). The 2001 expense of $5.7 million excludes the one-off impairment charge of
$7.9 million for the Comex trade name as discussed below.

Impairment of tangible fixed assets, goodwill and other intangibles

In accordance with SFAS No.121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of," tangible fixed assets, goodwill and other intangibles are required to be reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for impairment, the Company estimates the future cash flows expected to result from the use of the asset and its eventual
disposition. If the undiscounted future cash flow is less than the carrying amount of the asset, the asset is deemed impaired. The amount of the impairment is measured as the difference between the
carrying value and the fair value of the asset.

During
the year ended November 30, 2002, the continuing poor returns obtained on certain investments made in 1998 and 1999 led the Company to perform an impairment review of all
goodwill on acquisition. As a result, impairment charges totalling $106.4 million were recorded against goodwill, of which $103.0 million related to the entire remaining goodwill on the
acquisition of Ceanic Corporation. The remainder of the impairment related to the write-off of goodwill arising on the acquisition of Danco A/S, which holds the equity investment in the
NKT joint venture, and PT Komaritim, the Company's Indonesian subsidiary.

Several
factors were taken into account in the analysis and supporting projected cash flows that resulted in the impairment charge of $103.0 million to eliminate the entire
remaining goodwill on acquisition of Ceanic Corporation. The acquisition was made in 1998 as part of a strategy to establish a presence in one of the world's most important offshore markets, at a
price that reflected rising oil prices and favorable investment conditions. Since then the Gulf of Mexico offshore contractor market has experienced an unprecedented downturn. As a result, the North
America Region was loss-making for the two years ended November 30, 2001, and again performed below management's expectations in 2002. Recent market analysts' reports indicate that
the major oil companies are directing their development funds away from U.S. waters and towards overseas targets,
particularly West Africa, where the per-barrel recovery costs are lower. The Company foresees no significant upturn in demand in the Gulf of Mexico market in 2003 and has therefore revised
earlier assumptions of long-term market growth in its impairment model and eliminated the remaining goodwill. The Company's strategy is still to maintain a strong competitive presence in
the Gulf of Mexico, and is planning to expand its service offering to the ultra-deepwater market in this and other regions, including shipboard Radial Friction Welding. The Ceanic goodwill was
previously amortized over 25 years.

The
NKT joint venture has been loss-making since the Company acquired its 49% share in 2000, and the market for flexible pipes has not grown as quickly as expected. As a
consequence, the joint venture has suffered from excess production capacity and has not met its performance targets. During 2002, NKT management revised its strategy to focus on efficiency and has
predicted slower growth in the next few years than initially forecast. The Company performed an impairment test for the goodwill in Danco A/S based on the cash flow projections in the NKT business
plan, and determined that the goodwill was fully impaired. An impairment adjustment of $1.8 million was recorded in November 2002. This goodwill was previously amortized over
10 years on a straight-line basis.

F-12

---

The
PT Komaritim subsidiary in Indonesia has been loss-making for several years, and in 2002 once again underperformed management's expectations. The Indonesian market is
still characterized by high competition in the shallow water sector, an environment in which the Company is unable to fully leverage its technology and core expertise. The Company determined, on the
basis of projected cash flows, that the goodwill was fully impaired, and a charge of $1.6 million was recorded in the year ended November 30, 2002. This goodwill was previously amortized
over 20 years on a straight-line basis.

The
Company changed its name from "Stolt Comex Seaway" to "Stolt Offshore" midway through 2000. In 2000, management's view was that both names were used in the marketplace and management
expected that the "Comex" brand continued to be recognized by customers in the main markets. By the final quarter of 2001, management determined that the "Stolt Offshore" name had gained a higher
prominence than the "Stolt Comex Seaway" name. As a result it was not practicable to justify separate projected cash flow streams to support the value of the "Comex" name. Therefore, management
determined that the "Comex" brand had been fully impaired and the Company recorded an impairment charge of $7.9 million during the year ended November 30, 2001. The "Comex" trade name
was previously amortized over 30 years on a straight-line basis.

Impairment of investments in non-consolidated joint ventures

The Company reviews its investments in non-consolidated joint ventures periodically to assess whether there is an other than temporary decline in the
carrying value of the investment. The Company considers whether there is an absence of an ability to recover the carrying value of the investment. This is assessed by reference to projected
undiscounted cash flows for the joint venture.

Research and development expenditure

The costs of research and development are expensed as incurred.

Income taxes

The Company accounts for income taxes under the provisions of SFAS No.109, "Accounting for Income Taxes". SFAS
No.109 requires recognition of deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted rates in effect for the
year in which the differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in income from continuing operations for
the period that includes the enactment date. Deferred tax assets are reduced through the establishment of a valuation allowance at such time as, based on available evidence, it is more likely than not
that the deferred tax assets will not be realized.

Cash and cash equivalents

Cash and cash equivalents include time deposits and certificates of deposit with an original maturity of three months or less.

Debt costs

Costs incurred in connection with issuance of debt such as facility fees, are treated as a deferred charge and classified as a non-current asset. Such
costs are amortized over the life of the debt as additional interest. If the debt expires or is terminated, the deferred costs are expensed immediately.

F-13

---



Earnings per share

Earnings per share is computed using the weighted average number of Common and Class B Shares and equivalents outstanding during each period. The
computations for the three years ended November 30, 2002 are based upon the following outstanding shares:

|                                  
|----------------------------------
|
|                                  
|Basic                             
|                                  
|Common Shares                     
|                                  
|Class B Shares                    
|                                  
|Total                             
|                                  
|Diluted                           
|                                  
|Common Shares                     
|                                  
|Class B Shares                    
|                                  
|Total                             
|                                  
|Basic                             
|                                  
|Potentially dilutive share options
|                                  
|Diluted                           
|                                  

The
diluted loss per share for the year ended November 30, 2002 does not include Common Share equivalents in respect of share options of 98,330 as their effect would be
anti-dilutive (2001: 415,941 and 2000: 624,373).

Class B
Shares have only 50% of the economic rights of Common Shares.

All
share data and per share data have been restated to reflect the share reclassification on March 7, 2001 whereby Class A Shares were reclassified to Common Shares on a
one-for-one basis.

Treasury shares

Capital stock acquired, that is not retired, is treated as if it had been retired or carried at cost and reflected as a separate reduction from shareholders'
equity.

Stock based compensation

The Company has elected to account for its stock-based compensation awards to employees and Directors under Accounting Principles Board ("APB") Opinion No.25 and
to provide the disclosures required by SFAS No.123, "Accounting for Stock Based Compensation" in Note 20.

F-14

---

Consolidated statement of cash flows

The following table sets forth non-cash financing and investing activities and selected cash flow information. The table summarizes acquisitions
accounted for under the purchase method and the issue of shares to SNSA in return for reduction of debt.

|                                                                                     |                       
|------------------------------------------------------------------------------------ | ----------------------
|
|                                                                                     |                       
|Estimated fair value of tangible assets acquired less liabilities assumed or created |                       
|                                                                                     |                       
|Goodwill and identifiable intangible assets acquired                                 |                       
|                                                                                     |                       
|Cash acquired                                                                        |                       
|                                                                                     |                       
|Purchase price                                                                       |                       
|                                                                                     |                       
|                                                                                     | Cash                  
|                                                                                     |                       
|                                                                                     | Deferred consideration
|                                                                                     |                       
|                                                                                     | Shares issued         
|                                                                                     |                       
|                                                                                     | Capital lease         
|                                                                                     |                       
|Sale of 6,392,478 Common Shares to SNSA                                              |                       
|                                                                                     |                       
|Issuance of 6,019,287 Common Shares to SNSA                                          |                       
|                                                                                     |                       
|Repayment of loan due due to SNSA                                                    |                       
|                                                                                     |                       
|Interest paid                                                                        |                       
|                                                                                     |                       
|Income taxes paid                                                                    |                       
|                                                                                     |                       

Interest
paid includes $0.6 million paid to SNSA in the year ended November 30, 2002 (2001: $0.4 million, 2000: $3.6 million).

Impact of new accounting standards

The Company has adopted SFAS No.142 "Goodwill and Other Intangible Assets", from December 1, 2002 which
required the Company to cease amortization of its remaining net goodwill balance and perform an impairment test of its existing goodwill based on a fair value concept. In view of the
$106.4 million write off of goodwill on acquisition booked in 2002, which was calculated under SFAS No.121, the only future impact of SFAS No.142 will be in respect of the assessment of
impairment of the goodwill and intangibles arising on the acquisition of Paragon Engineering Services, Inc. (Note 3). The Company does not believe that the adoption of the new standard
will have a material impact on the results of its operations and financial position.

In
June 2001, the FASB issued SFAS No.143, "Accounting for Asset Retirement Obligations". SFAS No.143 requires the fair value of a
liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. The Company

F-15

---

has
adopted SFAS No.143 from December 1, 2002 and does not anticipate that the standard will have a material impact on its results of operations or financial position.

In
August 2001, the FASB issued SFAS No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS
No.144 superseded SFAS No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
SFAS No.144 primarily addresses significant issues relating to the implementation of SFAS No.121 and develops a single accounting model for long-lived assets to be disposed of by sale that
is consistent with the fundamental provisions of SFAS No.121. The Company has adopted SFAS No.144 from December 1, 2002 and does not anticipate that adoption of SFAS No.144 will have material
impact on results of operations or financial position.

In
April 2002, the FASB issued SFAS No.145, "Rescission of SFAS Nos.4, 44 and 64, Amendment of SFAS No.13, and Technical Corrections as of
April 2002" ("SFAS No.145"). SFAS No.145 rescinds SFAS No.4, "Reporting Gains and Losses from Extinguishment of Debt,"
SFAS No.44, "Accounting for Intangible Assets of Motor Carriers," and SFAS No.64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements". As a result, gains and losses from extinguishment of debt that are part of the Company's recurring operations will no longer be
classified as extraordinary items. In addition, SFAS No.145 amends SFAS No.13, "Accounting for Leases," to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No.145 also amends other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The Company has adopted SFAS No.145 from December 1, 2002 and is currently
evaluating the impact that the adoption of SFAS No.145 will have on its results of operations and financial position. However, the Company does not believe that the adoption of SFAS No.145 will have a
material impact on its results of operations or financial position.

In
June 2002, the FASB issued SFAS No.146, "Accounting for Costs Associated with Exit or Disposal Activities". This SFAS addresses
financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No.94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS
No.146 eliminates the definition and requirements for recognition of exit costs in EITF 94-3. SFAS No.146 requires that a liability for a cost associated with an exit or disposal activity
be recognized when the liability is incurred. Under EITF 94-3, a liability for an exit cost as defined in EITF 94-3 was recognized at the date of an entity's commitment to an
exit plan. SFAS No.146 also concluded that an entity's commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. SFAS No.146 also
establishes that fair value is the objective for initial measurement of the liability. SFAS No.146 will be applied to exit or disposal activities occurring subsequent to December 1, 2002.

In
November 2002, the FASB issued Interpretation Number 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This Interpretation requires certain disclosures to be made by a guarantor in its interim and annual financial statements
about its obligations under certain guarantees that it has issued. It also requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The disclosure requirements of FIN 45 are effective for

F-16

---

reporting
periods ending after December 15, 2002. The initial recognition and initial measurement requirements of FIN 45 are effective prospectively for guarantees issued or modified after
December 31, 2002. The Company does not believe that the adoption of the recognition and initial measurement requirements of FIN 45 will have a material impact on its financial position, cash
flows or results of operations.

In
December 2002, the FASB issued SFAS No.148, "Accounting for stock-based compensationTransition and Disclosure, an amendment of FASB
Statement No.123." This statement amends SFAS No.123, "Accounting for Stock-based Compensation", to provide alternative methods
of transition for an entity that voluntarily changes to the fair value-based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of that Statement to
require prominent disclosure about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. Since the Company is continuing to
account for stock-based compensation according to APB No.25, the Company has
adopted the provisions of SFAS No.148 which require prominent disclosure. The standard is effective for reporting periods ending after December 15, 2002.

In
January 2003, the FASB issued Interpretation Number 46 ("FIN 46"), "Consolidation of Variable Interest Entities, an Interpretation of APB
No.51." FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other
parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1,
2003, the provisions of FIN 46 must be applied for the first reporting period beginning after June 15, 2003. The Company is currently evaluating the effect that the adoption of FIN 46 will have
on its results of operations and financial condition.

3.    Business acquisitions

On March 30, 2001, the Company acquired 82% of the voting rights and 62% of the economic rights of a newly-created company, Paragon Engineering
Holdings, Inc. ("PEH"). PEH subsequently purchased 20% of the share capital of Paragon Engineering Services, Inc. ("Paragon"), a Houston-based engineering service company, and an option
to purchase an additional 40% of the share capital. PEH exercised the option on September 4, 2001. On July 18, 2001, the Company purchased the entire share capital of the Paris-based
engineering company Ingerop Litwin ("Litwin"). These acquisitions, by adding conceptual design and detailed engineering services, will enable the Company to better undertake all engineering required
on many of the large engineering, procurement, installation and commission type contracts that are expected to come into the market in the next few years.

The
consideration, including acquisition costs, paid to acquire Paragon and Litwin was $16.7 million of which $4.3 million in relation to the Paragon acquisition has been
deferred for payment until March 30, 2005. The net present value of the deferred payment has been included in "Other long-term liabilities" in the accompanying consolidated balance
sheet. Additionally, from March 30, 2005, the Paragon sale agreement provides for a further payment to be made to a former shareholder of Paragon. This payment is contingent upon a multiplier
of the future earnings of Paragon, as defined in the agreement, exceeding the deferred consideration. No recognition of the

F-17

---

contingent
payment has been made in the financial statements of the Company as it is not certain beyond reasonable doubt that this payment will be made and currently it is not possible to quantify the
amount.

The
results of Paragon have been included in the consolidated results of operations from September 4, 2001, when the Company assumed effective control of the entity. The amount
which represents the
minority shareholders' interests in the results of Paragon, effectively 63%, has been recorded as minority interest expense in the results of operations of the Company. The results of Litwin have been
included in the consolidated results of operations from July 18, 2001.

At
November 30, 2001 the Company preliminarily estimated that its share of the fair value of intangible assets acquired in Paragon was $2.1 million. The share of the fair
value of these intangible assets was subsequently revised to $5.2 million during the current year on the finalization of external valuations. The increase in the fair value of the intangible
assets of $3.1 million, net of associated deferred tax liability of $0.8 million, was offset by a reduction of $2.3 million to the goodwill on acquisition in 2002.

Of
the $5.2 million of acquired intangible assets, $1.7 million was allocated to the "Paragon" trade name which is considered to have an indefinite useful life;
$1.4 million was allocated to order backlog which is being amortized over the period to November 30, 2004; and $1.2 million was allocated to non-complete agreements,
which are being amortized over the period to March 31, 2005. The remaining $0.9 million of acquired intangible assets relating to software patents and a favorable leasehold have a
weighted-average useful life of approximately six years. The Company considers each reporting period whether a useful life can be determined for the trade name and reviews the trade name for
impairment at least annually.

The
following table summarizes the revised estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition.

|                         | 
|------------------------ | 
|
|                         | 
|Cash                     | 
|                         | 
|Other current assets     | 
|                         | 
|Fixed assets, at cost    | 
|                         | 
|Intangible assets        | 
|                         | 
|Goodwill                 | 
|                         | 
|Other non-current assets | 
|                         | 
|Total assets acquired    | 
|                         | 
|Current liabilities      | 
|                         | 
|Non-current liabilities  | 
|                         | 
|Minority interest        | 
|                         | 
|Net assets acquired      | 
|                         | 

F-18

---

The
following unaudited pro forma information presents a summary of the consolidated results of operations of the Company, Paragon and Litwin as if the acquisitions occurred at the
beginning of 2000. Pro forma adjustments include depreciation and amortization, interest charges on debt and lines of credit, elimination of related party transactions and the tax adjustments
associated with the above.

|                      |        
|--------------------- | -------
|
|                      |        
|Net operating revenue |        
|                      |        
|Net loss              |        
|                      |        
|Net loss per share:   |        
|                      |        
|                      | Basic  
|                      |        
|                      | Diluted
|                      |        

The
pro forma consolidated results do not purport to be indicative of results that would have occurred had the acquisitions been in effect for the period presented, nor do they purport
to be indicative of the results that will be obtained in the future.

The
Company's revenue for 2001 included sales of $1.1 million to Paragon.

On
December 7, 1999, the Company completed a transaction to form a joint venture entity, NKT Flexibles I/S ("NKT"), a manufacturer of flexible flowlines and dynamic
flexible risers for the offshore oil and gas industry. The transaction was effected through the acquisition of Danco A/S, a wholly-owned Norwegian company, which holds the investment in NKT. NKT is
owned 51% by NKT Holdings A/S, and 49% by the Company through Danco A/S. The total consideration for the acquisition was $36.0 million: $10.5 million cash and the issue of 1,758,242
Class A Shares, with an average guaranteed value of $14.475 per share, for a value of $25.5 million. The Class A Shares have subsequently been converted to Common Shares on a
one-for-one basis.

On
February 20, 2002 the Company paid cash of $3.4 million to repurchase 249,621 of the Common Shares previously issued to NKT Holdings A/S. $1.6 million related to
the settlement of the minimum share price guarantee, being the difference between the guarantee price and the market price of Common Shares on February 20, 2002. This was deducted from paid in
surplus. The remaining $1.8 million represented the market value of the shares repurchased. As described in Note 19, these shares were subsequently sold to Stolt-Nielsen S.A. ("SNSA"),
the Company's majority shareholder, on November 19, 2002.

As
of November 30, 2002, the Company continued to have an obligation for an average guaranteed value of $15.30 per share over 879,121 Common Shares.

The
acquisition of Danco A/S has been accounted for by the purchase method of accounting and, accordingly, the operating results have been included in the Company's results of operations
from the date of acquisition. The excess of cash paid over the fair value of net assets acquired was recorded as goodwill of $2.1 million at the date of acquisition, but in view of the poor
financial performance of the entity since acquisition, the remaining unamortized goodwill of $1.8 million was identified as impaired and fully written off at November 30, 2002.

F-19

---



On
December 16, 1999, the Company acquired approximately 55% of the French offshore construction and engineering company ETPM S.A. ("ETPM"), a wholly-owned subsidiary of Groupe
GTM S.A. ("GTM"). GTM has subsequently been acquired by Groupe Vinci S.A. ("Vinci"). The remaining 45% of ETPM was acquired on February 4, 2000.

The
total consideration for the acquisition was $350.0 million and was comprised of the following items: (i) $111.6 million in cash; (ii) the issue of
6,142,857 Class A Shares, which were subsequently converted to Common Shares on a one-for-one basis, with a minimum guarantee price of $18.50 per share for a total value
of $113.6 million; (iii) the assumption of debt of $18.4 million due from ETPM to GTM and debt of $71.0 million due to third parties; (iv) acquisition costs of
$3.4 million; and (v) $32.0 million being the net present value at acquisition of a hire purchase arrangement for two ships owned by GTM, the Seaway Polaris and the DLB 801, with
an early purchase option after two years.

During
the year ended November 30, 2002 the Company settled the share price guarantee with Vinci, the vendors of ETPM. On May 3, 2002, the Company paid cash of
$113.6 million to repurchase the 6,142,857 Common Shares held by Vinci. $58.9 million related to the settlement of the minimum share price guarantee, being the difference between the
guarantee price and the market price of Common Shares on May 3, 2002. This was deducted from paid in surplus. The remaining $54.7 million paid represented the market value of the shares
repurchased. As described in Note 19, these shares were subsequently sold to SNSA on June 24, 2002 and November 14, 2002.

The
acquisition of ETPM has been accounted for by the purchase method of accounting and, accordingly, the operating results have been included in the Company's results of operations from
the date of acquisition. The acquisition generated negative goodwill of $5.8 million and non-current assets have been reduced by this amount.

The
acquisition was initially funded by cash provided by SNSA the Company's majority shareholder, and was replaced by a bridge finance facility which has subsequently been repaid.

4.    Restricted cash deposits

Restricted cash balances comprise both funds held in a separate Company bank account, which will be used to settle accrued taxation liabilities, and deposits made
by the Company as security for certain third-party obligations. There are no other significant conditions on the restricted cash balances.

5.    Trade receivables

Trade receivables at November 30, 2002 of $428.1 million (2001: $428.6 million) are net of allowances for doubtful accounts of
$5.9 million (2001: $9.2 million). Included in trade receivables at November 30, 2002 was $261.9 million (2001: $215.1 million) of unbilled receivables. As at
November 30, 2002, included in unbilled trade receivables was $46.2 million (2001: $4.4 million) of unbilled receivables due in respect of disputed variation orders and claims.
The Company obtained an independent expert's report to corroborate management assertions on the amount of variation orders and claims for which recovery is both probable and could be reliably
estimated.

F-20

---

6.    Inventories and work-in-progress

Inventories and work-in-progress are stated at the lower of cost or market value and comprise the following:

|                                  
|----------------------------------
|
|                                  
|Materials and supplies            
|                                  
|Spare parts                       
|                                  
|Work-in-progress and mobilizations
|                                  
|Fuels                             
|                                  
|Other                             
|                                  
|Total                             
|                                  

Costs
are determined in accordance with the weighted-average cost method. Costs of fitting out and preparing equipment for specific contracts are included in
work-in-progress. Such costs, principally labor and materials, are amortized over the shorter of the expected duration of the contracts or the estimated useful life of the
asset.

Mobilizations
relate to costs incurred to prepare and mobilize vessels for new contracts. These costs are recognized as operating expenses over the estimated primary term of the
contract.

7.    Employee loans

Included in prepaid expenses and other current assets are loans to employees of $2.3 million (2001: $4.5 million). Included in deposits and
non-current receivables are loans to employees of $0.1 million (2001: $0.1 million).

8.    Fixed assets, net

Fixed assets comprise the following:

|                                               
|-----------------------------------------------
|
|                                               
|Construction support ships                     
|                                               
|Operating equipment                            
|                                               
|Land and buildings                             
|                                               
|Other assets                                   
|                                               
|                                               
|                                               
|Less: Accumulated depreciation and amortization
|                                               
|Total                                          
|                                               

F-21

---

9.    Investments in and advances to non-consolidated joint ventures

Investments in and advances to non-consolidated joint ventures comprise the following:

|                             | 
|---------------------------- | 
|
|                             | 
|NKT Flexibles I/S ("NKT")    | 
|                             | 
|Mar Profundo Girassol        | 
|                             | 
|Sonamet                      | 
|                             | 
|Sonastolt                    | 
|                             | 
|Seaway Heavy Lifting Limited | 
|                             | 
|Stolt/Subsea 7               | 
|                             | 
|Kingfisher D.A.              | 
|                             | 
|Other                        | 
|                             | 
|Total                        | 
|                             | 

In
circumstances where the Company owns more than 50% of the voting interest, but the Company's ability to control the operation of the investee is restricted by the significant
participating interest held by another party, the investment is accounted for under the equity method of accounting.

The
Company accrues losses in excess of the investment value when the Company is committed to provide ongoing financial support to the joint venture.

During
2002, NKT management revised the joint venture's strategy and downgraded expectations for growth in future years.

The
Company's share of equity in the net loss in NKT Flexibles I/S includes $8.1 million in respect of fixed asset impairment charges recorded by the joint venture.

Taxation
in respect of joint ventures, which have a legal status of partnership, has been included in the results of the relevant subsidiaries, which hold the investments in the joint
ventures. Undistributed reserves of all other joint ventures will not be taxed on distribution.

Summarized
financial information for the Company's non-consolidated joint ventures, representing 100% of the respective amounts included in the joint ventures' financial
statements, is as follows:

Income statement data

|                     
|---------------------
|
|                     
|Net operating revenue
|                     
|Gross profit         
|                     
|Net income           
|                     

F-22

---

Balance sheet data

|                     
|---------------------
|
|                     
|Current assets       
|                     
|Non-current assets   
|                     
|Current liabilities  
|                     
|Long-term liabilities
|                     

For
commercial reasons, the Company has structured certain contractual services through its joint ventures. The income statement data for the non-consolidated joint ventures
presented above includes the following expenses related to transactions with the Company in 2002, 2001 and 2000 respectively: charter hire of $16.7 million, $5.1 million and
$4.4 million and other expenses of $36.7 million, $60.5 million and $34.2 million. The joint ventures also received revenue of $29.4 million, $39.5 million
and $45.0 million from the Company. The balance sheet data includes amounts payable to joint ventures by the Company of $5.3 million and $9.7 million and short-term
amounts receivable by the Company of $62.4 million and $61.1 million at November 30, 2002 and 2001, respectively.

10.    Income taxes

The income tax (provision) benefit is as follows:

|                               | 
|------------------------------ | 
|
|                               | 
|Current                        | 
|                               | 
|Deferred                       | 
|                               | 
|Income tax (provision) benefit | 
|                               | 

F-23

---

The
tax effects of temporary differences and net operating loss carry forwards ("NOLs") at November 30, 2002 and 2001 are as follows:

|                              |                                                         
|----------------------------- | --------------------------------------------------------
|
|                              |                                                         
|Deferred tax assets:          |                                                         
|                              |                                                         
|                              | Net operating loss carry forwards                       
|                              |                                                         
|                              | Accrued expenses and provisions not currently deductible
|                              |                                                         
|Gross deferred tax assets     |                                                         
|                              |                                                         
|Less: valuation allowance     |                                                         
|                              |                                                         
|Net deferred tax assets       |                                                         
|                              |                                                         
|Deferred tax liabilities:     |                                                         
|                              |                                                         
|                              | Fixed asset timing differences                          
|                              |                                                         
|Net deferred tax liability    |                                                         
|                              |                                                         
|Short-term deferred tax asset |                                                         
|                              |                                                         
|Long-term deferred tax asset  |                                                         
|                              |                                                         
|Deferred tax liability        |                                                         
|                              |                                                         
|                              |                                                         
|                              |                                                         

The
Company accounts for income taxes in accordance with SFAS No.109, "Accounting for Income Taxes". SFAS No.109 requires that the tax
benefit of such NOLs be recorded as an asset to the extent that management assesses the utilization of such NOLs to be "more likely than not".

United States

The Company recorded an additional valuation allowance of $10.8 million against a deferred tax asset for NOLs (net of fixed asset and other temporary
differences). The Company has recognized no deferred tax benefit against the 2002 results. Therefore the Company has now recognized a 100% valuation allowance. At November 30, 2002 the Company
has estimated NOLs of $80.0 million, none of which expire within 10 years.

Scandinavia

The long-term deferred tax asset represents NOLs and other future deductions of $38.0 million in Norway, net of fixed asset and other temporary
differences of $26.8 million. Management has determined, based on the history of operating profits and expectations of future projected taxable profits, that the operating income of the Company
will more likely than not be sufficient to fully realize the net deferred tax asset of $3.1 million relating to these temporary differences, which expires through 2008 to 2012.

F-24

---

United Kingdom

In 2001 the Company's U.K. shipping subsidiaries elected to join the U.K. tonnage tax regime, whereby taxable income is computed by reference to the tonnage of
the vessels rather than by reference to profits and accordingly released part of the deferred tax liability arising on accelerated U.K. shipping tax allowances.

The
Company has recalculated the deferred tax liability and management has released a further $21.3 million in 2002 on the basis that the Company will remain in the tonnage tax
regime in perpetuity. A liability of $8.0 million is recognized in the financial statements as the deferred tax liability in respect of anticipated non-tonnage tax use of those
ships in the regime. As part of this review, the Company has taken a valuation allowance of $9.9 million against the deferred tax assets in the U.K. that are represented by NOLs, fixed asset
and other timing differences. Of this amount $6.4 million
represents an additional valuation allowance against assets that were recognized at November 30, 2001 and the balance represents provision against deferred tax assets arising in the year.

At
November 30, 2002 the Company has approximately $76.0 million of losses, future interest deductions and other short-term timing differences that could lead
to a future tax deduction. None of these items is subject to time expiration. A net deferred tax asset of $6.9 million is recognized in respect of these items, and this asset is set against
deferred tax liabilities of $8.9 million carried in respect of fixed asset timing differences in respect of non-tonnage tax activities.

Under
U.K. tonnage tax legislation a proportion of tax depreciation previously claimed by the Company may be subject to tax in the event that a significant number of vessels are sold and
are not replaced. This contingent liability decreases over the first seven years following entry into the tonnage tax regime, to $Nil. The contingent liability in respect of all ships at
November 30, 2002 was $46.2 million. As management has no current intentions to dispose of the vessels, no further provision has been made for this contingent liability.

France

The Company has taken a valuation allowance against the NOLs arising in France. At November 30, 2002 the Company has estimated NOLs of $47.5 million
which expire from 2004 onwards.

Other

The Company has taken a valuation allowance against the NOLs arising in the other countries in which it is operating. In total the Company has losses estimated at
approximately $20.0 million spread over several territories at November 30, 2002.

F-25

---

The
Company's net operating losses expire as follows:

|          
|----------
|
|          
|2003      
|          
|2004      
|          
|2005      
|          
|2006      
|          
|2007      
|          
|Thereafter
|          

Withholding
and remittance taxes have not been recorded on the undistributed earnings of the Company's subsidiaries, which represent substantially all of the Company's consolidated
retained earnings, primarily because, under the current tax laws of Luxembourg and the countries in which substantially all of the Company's subsidiaries are incorporated, no taxes would be assessed
upon the payments or receipt of dividends. Earnings retained by subsidiaries incorporated in those countries which impose withholding or remittance taxes are considered by management to be permanently
reinvested in such subsidiaries. The undistributed earnings of these subsidiaries as of November 30, 2002 were not significant.

F-26

---



The
income tax benefit (provision) at the Company's effective tax rate differs from the income tax benefit (provision) at the statutory rate. Principal reconciling items include the
following:

|                                                 | 
|------------------------------------------------ | 
|
|                                                 | 
|Loss before income taxes and minority interest   | 
|                                                 | 
|Statutory tax rate                               | 
|                                                 | 
|Tax at statutory rate                            | 
|                                                 | 
|Withholding and local taxes                      | 
|                                                 | 
|Profits (losses) subject to turnover-based taxes | 
|                                                 | 
|Change in valuation allowance                    | 
|                                                 | 
|U.K. tonnage tax                                 | 
|                                                 | 
|Profits subject to tonnage tax regime            | 
|                                                 | 
|Non-deductible amortization                      | 
|                                                 | 
|Change in tax regime                             | 
|                                                 | 
|Impairment review                                | 
|                                                 | 
|Other permanent differences                      | 
|                                                 | 
|Income tax benefit (provision)                   | 
|                                                 | 

|                                                        | 
|------------------------------------------------------- | 
|
|                                                        | 
|(Loss) income before income taxes and minority interest | 
|                                                        | 
|Statutory tax rate                                      | 
|                                                        | 
|Tax at statutory rate                                   | 
|                                                        | 
|Withholding and local taxes                             | 
|                                                        | 
|Profits subject to turnover-based taxes                 | 
|                                                        | 
|Change in valuation allowance                           | 
|                                                        | 
|Change in tax regime                                    | 
|                                                        | 
|Imputed interest deduction                              | 
|                                                        | 
|Non-deductible amortization                             | 
|                                                        | 
|Other permanent differences                             | 
|                                                        | 
|Income tax benefit (provision)                          | 
|                                                        | 

|                                                        | 
|------------------------------------------------------- | 
|
|                                                        | 
|(Loss) income before income taxes and minority interest | 
|                                                        | 
|Statutory tax rate                                      | 
|                                                        | 
|Tax at statutory rate                                   | 
|                                                        | 
|Withholding and local taxes                             | 
|                                                        | 
|Profits subject to turnover-based taxes                 | 
|                                                        | 
|Change in valuation allowance                           | 
|                                                        | 
|Tax credits for research and development                | 
|                                                        | 
|Imputed interest deduction                              | 
|                                                        | 
|Non-deductible amortization                             | 
|                                                        | 
|Other permanent differences                             | 
|                                                        | 
|Income tax benefit (provision)                          | 
|                                                        | 

F-27

---

11.    Pension commitments

The Company operates both defined contribution and defined benefit pension plans, depending on location, covering certain qualifying employees. Contributions
under the defined contribution pension plans are determined as a percentage of gross salary. The expense relating to these plans for the years ended November 30, 2002, 2001 and 2000 was
$4.5 million, $1.6 million and $1.1 million, respectively.

The
Company operates both funded and unfunded defined benefit pension plans. The benefits under the defined benefit pension plans are based on years of service and salary levels. Plan
assets of the funded schemes are primarily comprised of marketable securities.

The
following tables provide a reconciliation of benefit obligation and plan assets for funded plans:

|                                               | 
|---------------------------------------------- | 
|
|                                               | 
|Change in benefit obligation                   | 
|                                               | 
|Benefit obligation at beginning of year        | 
|                                               | 
|Service cost                                   | 
|                                               | 
|Interest cost                                  | 
|                                               | 
|Actuarial gains                                | 
|                                               | 
|Foreign currency exchange rate changes         | 
|                                               | 
|Benefits paid from plan assets                 | 
|                                               | 
|Benefit obligation at end of year              | 
|                                               | 
|Change in plan assets                          | 
|                                               | 
|Fair value of plan assets at beginning of year | 
|                                               | 
|Actual return on plan assets                   | 
|                                               | 
|Foreign currency exchange rate changes         | 
|                                               | 
|Company contributions                          | 
|                                               | 
|Benefits paid from plan assets                 | 
|                                               | 
|Plan amendments                                | 
|                                               | 
|Fair value of plan assets at end of year       | 
|                                               | 

The
following table sets forth the funded status of the funded defined benefit pension plans and a reconciliation to prepaid benefit cost:

|                                       |  | Pension benefits |  
|-------------------------------------- |  | ---------------- | -
|
|
|                                       | 
|Funded status of the plans             |  | (4,495           | )
|                                       | 
|Unrecognized net gain                  |  | 8,773            |  
|                                       | 
|Unrecognized prior service benefit     |  | 273              |  
|                                       | 
|Unrecognized net transition obligation |  | (304             | )
|                                       | 
|Prepaid benefit cost                   |  | 4,247            |  
|                                       | 

F-28

---

The
weighted average assumptions used are as follows:

|                              
|------------------------------
|
|                              
|Discount rate                 
|                              
|Expected return on plan assets
|                              
|Rate of compensation increase 
|                              

Net
periodic pension benefit costs for funded defined benefit schemes include the following components:

|                                      | 
|------------------------------------- | 
|
|                                      | 
|Service cost                          | 
|                                      | 
|Interest cost                         | 
|                                      | 
|Expected return on plan assets        | 
|                                      | 
|Amortization of transition obligation | 
|                                      | 
|Recognized net actuarial losses       | 
|                                      | 
|Amortization of prior service benefit | 
|                                      | 
|Benefit cost                          | 
|                                      | 

As
at November 30, 2002, the Company had funded pension plans which had accumulated benefit obligations in excess of plan assets. The projected benefit obligations of these plans
were $13.4 million
at November 30, 2002 and the fair value of assets under these plans were $8.6 million. The accumulated benefit obligations under the plans were $10.6 million at
November 30, 2002.

For
the year ended November 30, 2002, the Company has recorded an adjustment for minimum liability of $2.9 million, which is included in the accrued pension liability
balance, for one of its plans. This is prescribed by SFAS No.87, "Employers' Accounting for Pensions", when the accumulated benefit obligation in the
plan exceeds the fair value of the underlying plan assets. The corresponding entry of $2.0 million (net of deferred tax of $0.9 million) was recorded as a component of accumulated other
comprehensive income.

As
at November 30, 2001, all of the Company's funded pension plans had plan assets in excess of accumulated benefit obligations.

F-29

---

The
following tables provide a reconciliation of the benefit obligation and accrued pension liability of the unfunded plans. As the plans are unfunded, the benefit obligation is equal to
the unfunded status of the plans and the accrued pension liabilities.

|                                       
|---------------------------------------
|
|                                       
|Benefit obligation at beginning of year
|                                       
|Acquisitions                           
|                                       
|Service cost                           
|                                       
|Interest cost                          
|                                       
|Benefits paid from plan assets         
|                                       
|Foreign currency exchange rate changes 
|                                       
|Benefit obligation at end of year      
|                                       

The
weighted average assumptions used are as follows:

|                              
|------------------------------
|
|                              
|Discount rate                 
|                              
|Expected return on plan assets
|                              
|Rate of compensation increase 
|                              

Net
periodic pension benefit costs include the following components:

|             
|-------------
|
|             
|Service cost 
|             
|Interest cost
|             
|Benefit cost 
|             

In
Asia Pacific, retirement indemnities, for which the Company has accrued $0.4 million at November 30, 2002 (2001: $0.3 million), are paid as a lump sum upon
retirement. They are primarily based upon the employees' years of service and salary levels. Accrued retirement indemnities are classified in other long-term liabilities.

12.    Bank overdraft and lines of short-term credit

As of November 30, 2002, the Company has external, uncommitted, third-party bank overdrafts and lines of credit and short-term loan notes
totaling $57.3 million (2001: $45.9 million). Amounts borrowed pursuant to these facilities bear interest at rates ranging from 1.4% to 12.0% at November 30, 2002. The weighted
average interest rate was 3.5% and 5.6% at November 30, 2002 and

F-30

---

2001
respectively. As of November 30, 2002 short-term borrowings under these facilities totaled $16.0 million (2001: $5.2 million).

13.    Long-term debt and capital lease obligations

The Company's principal credit facility is a $385.0 million secured multi-currency five-year revolving facility. The facility was entered into
on September 22, 2000 with a syndicate of banks, the lead banks being Den norske Bank ASA, Banc of America Securities LLC, Salomon Brothers International Limited, HSBC Bank plc and ING Barings
LLC. The facility reduces to $330.0 million on August 31, 2003.

On
July 9, 2002, the Company entered into another secured multi-currency four-year revolving credit facility (together with the $385.0 million facility, the
"Secured Credit Facilities") with a principal amount of $100.0 million. The facility amount reduces by $10.0 million commencing on January 9, 2004 and thereafter by
$10.0 million at six-monthly intervals until the termination date when the facility reduces to zero.

The
total amounts which can be drawn under the Secured Credit Facilities and the interest charge on outstanding debt is based on the ratio of the Company's debt to earnings before
interest, taxes, depreciation and amortization ("EBITDA"). The interest charge will range from 0.75% to 3.00% over the London InterBank Offered Rate ("LIBOR"). Debt under the Secured Credit Facilities
is secured by a first priority mortgage on certain of the Company's ships.

Under
the Secured Credit Facilities agreements, the Company is permitted to borrow up to $100.0 million from SNSA provided that this debt is subordinate and junior to all
indebtedness due under the agreement.

As
of November 30, 2002, the Company had available bank facilities, including overdrafts and short-term lines of credit, of $542.3 million of which
$351.0 million were utilized. Of the bank facilities utilized, $335.0 million was classified as long-term debt.

Commitment
fees for any unused lines of credit expensed in the year ended November 30, 2002 totaled $0.4 million (2001: $0.9 million, 2000: $ 1.7 million).

Long-term
debt, excluding borrowings from SNSA, comprises the following:

|                                                                                         | 
|---------------------------------------------------------------------------------------- | 
|
|                                                                                         | 
|Revolving credit agreements with a weighted average interest rate of 2.97% (2001: 3.82%) | 
|                                                                                         | 
|Other bank borrowings                                                                    | 
|                                                                                         | 
|                                                                                         | 
|                                                                                         | 
|Less: current portion                                                                    | 
|                                                                                         | 
|Long-term bank debt                                                                      | 
|                                                                                         | 

The
net book value of assets collateralizing this debt was $500.9 million as of November 30, 2002.

F-31

---

Total
long-term debt outstanding at November 30, 2002 is repayable as $335.0 million in U.S. Dollars.

Minimum
annual principal repayments of debt for the fiscal years subsequent to November 30, 2002 are as follows:

|    
|----
|
|    
|2005
|    
|2006
|    
|    
|    

The
Secured Credit Facilities contain various financial covenants, including but not limited to, minimum consolidated tangible net worth, maximum consolidated debt to tangible net worth
and maximum consolidated debt to EBITDA.

The
covenants were renegotiated with the banks in January 2003 in order to permit higher multiples of EBITDA to be used in 2003. The Company's most recent covenant calculations
and projections, which include a number of less significant, non-strategic investments for disposal, indicate that there is a narrow margin of compliance with the Debt to EBITDA ratio
covenant at the first and second quarters of 2003, and with the tangible net worth covenant throughout 2003. Non-compliance would lead to the facilities potentially being repayable on
demand.
These covenant projections are subject to the risk factors inherent in forecasting income and cash flows in the offshore contracting industry. Examples of these uncertainties include, but are not
limited to, the timing and quantum of agreement of variation orders and claims with customers; changes in estimates of costs to complete projects; the timing of receipt of trade receivables;
recoverability issues on outstanding invoices; changes in estimates of the probable outcome of legal disputes and tax matters; fixed asset impairments; and results from joint ventures. Further risk
factors are discussed in the section "Forward-looking statements" in the Management's discussion and analysis. The Company takes the view that, despite these uncertainties, it has the possibility to
take timely corrective action to prevent breach of its covenants, and on that basis it has obtained a commitment from SNSA to provide a subordinated credit line of $50 million, which is
currently available until November 28, 2003 and which is excluded in the calculation of covenants. In addition, SNSA has agreed to provide support for bonding lines and performance guarantees
to enable tendering to continue.

Furthermore,
the Company has made contingency plans in the event that the operational results for the year fall below the latest updated estimates. Management is continuously
investigating ways to strengthen the capitalization of the Company.

At
November 30, 2002, property under capital leases, comprising operating and other equipment, amounts to $0.1 million at cost. Accumulated amortization of these leases is
$0.1 million.

F-32

---

Minimum
payments under capital leases at November 30, 2002, which are due primarily in U.S. Dollars, are as follows:

|                                                      
|------------------------------------------------------
|
|                                                      
|2003                                                  
|                                                      
|2004 to 2005                                          
|                                                      
|Total minimum lease payments                          
|                                                      
|Less: Amount representing interest and executory costs
|                                                      
|Present value of net minimum lease payments           
|                                                      

14.    Accounts payable and accrued liabilities

Accounts payable and accrued liabilities comprise the following:

|                   
|-------------------
|
|                   
|Invoice accruals   
|                   
|Trade payables     
|                   
|Trade notes payable
|                   
|Other              
|                   
|                   
|                   

15.    Related party transactions

Related party transactions included the following charges paid to/received from SNSA:

|                               
|-------------------------------
|
|                               
|Management services            
|                               
|Interest charges               
|                               
|Insurance premia               
|                               
|Receipts under insurance policy
|                               
|Guarantee fees                 
|                               

Management
services comprise charges for legal, administrative, treasury, taxation, insurance and information technology services performed by SNSA for the Company.

Short-term
payables due to SNSA of $0.6 million as of November 30, 2002 (2001: $9.5 million) relate primarily to outstanding insurance premia and
management service charges.

In
May 2002, SNSA advanced $64.0 million to the Company in order to assist the Company to repurchase the 6,142,857 Common Shares previously issued to Vinci and to settle
the ETPM share

F-33

---

price
guarantee. Further details are provided in Note 3. As described in Note 19, the Company subsequently issued these and other shares to SNSA during 2002. The proceeds from the issue
of the shares were used to partially repay the advance due to SNSA.

During
2002 the Company made a payment of $50,000 for marketing services to a company in which a non-executive director has an interest (2001: $50,000).

16.    Restructuring and reorganization program

In 2000, in relation to the integration of ETPM, the Company recorded restructuring charges of $3.3 million. Additionally, the Company capitalized costs of
$1.0 million, net of tax, as an adjustment to the purchase price of ETPM.

The
costs are summarized in the table below.

|                                       
|---------------------------------------
|
|                                       
|Redundancy costs                       
|                                       
|Lease costs, net of tax of $0.4 million
|                                       
|Integration costs                      
|                                       
|Total                                  
|                                       

The
reorganization program removed duplicate capacity in the U.K. and SEAME regions. The Company recorded redundancy costs of $0.9 million to close the former ETPM sites in the
U.K. and transfer all administrative and operational functions to the Company's office in Aberdeen, Scotland and $1.7 million to close its office in Marseille, France and transfer all
operational and administrative functions for the SEAME region to Paris, France. The costs associated with leasing and maintaining the U.K. premises while vacant and, subsequently terminating the
leases, amounted to $1.0 million. The lease costs were capitalized as an adjustment to the purchase price of ETPM. Additionally, integration costs of $0.7 million were incurred to
introduce common information and reporting systems and to standardize processes. All redundancy, integration and lease costs have been fully paid, and there is no outstanding provision for such costs
at November 30, 2002.

17.    Operating leases

Total operating lease commitments as of November 30, 2002 amount to $129.5 million. Charter hire obligations towards certain construction support,
diving support, survey and inspection ships account for $56.5 million of the total commitments. The remaining obligations relate to office facilities and equipment.

F-34

---



Total
minimum annual lease commitments are payable as follows:

|          
|----------
|
|          
|2003      
|          
|2004      
|          
|2005      
|          
|2006      
|          
|2007      
|          
|Thereafter
|          
|          
|          

|(in thousands)     |  | $      
|------------------ |  | -------
|                  
|Norwegian Kroner   |  | 64,539 
|                  
|Euros              |  | 40,639 
|                  
|U.S. Dollars       |  | 17,093 
|                  
|British Pounds     |  | 6,942  
|                  
|Singapore Dollars  |  | 252    
|                  
|Australian Dollars |  | 33     
|                  
|Indonesian Rupiah  |  | 29     
|                  
|                   |  | 129,527
|                  

Total
operating lease rentals charged as an expense for the year ended November 30, 2002 were $34.0 million (2001: $21.4 million and 2000: $23.2 million).

Future
minimum lease payments have not been reduced by future minimum sublease rentals of $5.3 million under operating leases.

18.    Segment and related information

The Company has reportable segments based on the geographic distribution of where work is carried out.

F-35

---

The
following table defines the Company's reportable segments:

|                                                                                                                          
|--------------------------------------------------------------------------------------------------------------------------
|
|                                                                                                                          
|Asia Pacific RegionIncludes all activities east of the Indian sub-continent including Australasia                         
|                                                                                                                          
|North America RegionIncludes all activities in Canada, the U.S. and Central America                                       
|                                                                                                                          
|Norway RegionIncludes all activities in Scandinavia and the Baltic states                                                 
|                                                                                                                          
|SEAME RegionIncludes all activities in Southern Europe and Africa, India and the Middle East                              
|                                                                                                                          
|South America RegionIncludes all activities in South America and the islands of the southern Atlantic Ocean               
|                                                                                                                          
|U.K. RegionIncludes all activities in the U.K., Ireland, Germany, Belgium, the Netherlands and the northern Atlantic Ocean
|                                                                                                                          
|CorporateIncludes all activities which cannot be allocated to one particular region. These include:                       



F-36

---



Summarized
financial information concerning each of the Company's reportable segments is provided in the following tables:

|                                                               | 
|-------------------------------------------------------------- | 
|
|                                                               | 
|Net operating revenueexternal                                 | 
|                                                               | 
|Net operating revenueinternal(a)                              | 
|                                                               | 
|Equity in net income of non-consolidated joint ventures        | 
|                                                               | 
|Depreciation and amortization                                  | 
|                                                               | 
|Impairment of goodwill                                         | 
|                                                               | 
|Research and development expense                               | 
|                                                               | 
|Interest expense                                               | 
|                                                               | 
|Interest income                                                | 
|                                                               | 
|Net income (loss) before tax after minority interest           | 
|                                                               | 
|Income tax (expense) benefit                                   | 
|                                                               | 
|Net income (loss)                                              | 
|                                                               | 
|Segment assets                                                 | 
|                                                               | 
|Long-lived assets(b)                                           | 
|                                                               | 
|Investments in and advances to non-consolidated joint ventures | 
|                                                               | 
|Capital expenditures                                           | 
|                                                               | 

|                                                               | 
|-------------------------------------------------------------- | 
|
|                                                               | 
|Net operating revenueexternal                                 | 
|                                                               | 
|Net operating revenueinternal(a)                              | 
|                                                               | 
|Equity in net income of non-consolidated joint ventures        | 
|                                                               | 
|Depreciation and amortization                                  | 
|                                                               | 
|Impairment of Comex trade name                                 | 
|                                                               | 
|Research and development expense                               | 
|                                                               | 
|Interest expense                                               | 
|                                                               | 
|Interest income                                                | 
|                                                               | 
|Net income (loss) before tax after minority interest           | 
|                                                               | 
|Income tax (expense) benefit                                   | 
|                                                               | 
|Net (loss) income                                              | 
|                                                               | 
|Segment assets                                                 | 
|                                                               | 
|Long-lived assets(b)                                           | 
|                                                               | 
|Investments in and advances to non-consolidated joint ventures | 
|                                                               | 
|Capital expenditures                                           | 
|                                                               | 

F-37

---

|                                                               | 
|-------------------------------------------------------------- | 
|
|                                                               | 
|Net operating revenueexternal                                 | 
|                                                               | 
|Net operating revenueinternal(a)                              | 
|                                                               | 
|Equity in net income of non-consolidated joint ventures        | 
|                                                               | 
|Depreciation and amortization                                  | 
|                                                               | 
|Research and development expense                               | 
|                                                               | 
|Restructuring charges                                          | 
|                                                               | 
|Interest expense                                               | 
|                                                               | 
|Interest income                                                | 
|                                                               | 
|Net income (loss) before tax after minority interest           | 
|                                                               | 
|Income tax (expense) benefit                                   | 
|                                                               | 
|Net (loss) income                                              | 
|                                                               | 
|Segment assets                                                 | 
|                                                               | 
|Long-lived assets(b)                                           | 
|                                                               | 
|Investments in and advances to non-consolidated joint ventures | 
|                                                               | 
|Capital expenditures                                           | 
|                                                               | 

Revenue Analysis by Product Line:

|                           
|---------------------------
|
|                           
|Regional Business          
|                           
|Subsea Construction        
|                           
|Pipelay & EPIC             
|                           
|Deepwater Development      
|                           
|Stand-alone Business(a)    
|                           
|Total Net Operating Revenue
|                           

During
the year ended November 30, 2002, two customers of the Company each individually accounted for more than 10% of the Company's revenue. The revenue from the largest customer
was $285.8 million and was attributable to the Norway, SEAME, U.K. and North America reporting segments (2001: $269.2 million attributable to the SEAME reporting segment). The revenue
from the second largest customer was $146.9 million and was attributable to the Asia Pacific, Norway, SEAME and U.K. reporting segments.

During
the year ended November 30, 2001, in addition to the largest customer described in the comparative information above, another customer accounted for more than 10% of the
Company's revenue. The revenue from this customer was $131.5 million and was attributable to the North America reporting segment.

During
the year ended November 30, 2000, two customers accounted for more than 10% of the Company's revenue. Revenue from the largest customer was $198.2 million and was
attributable to the

F-38

---

Norway,
SEAME, U.K. and North America reporting segments. The revenue from the second customer was $99.3 million and was attributable to Asia Pacific, Norway, SEAME, U.K. and North America
reporting segments.

19.    Common Shares, Class A Shares and Class B Shares

The Company has authorized share capital of 140,000,000 Common Shares, par value $2.00 per share, and 34,000,000 Class B Shares, par value $2.00 per share.
Class B Shares are convertible into Common Shares, on a two-for-one basis, at any time at the option of the Class B shareholder.

As
of November 30, 2002, 76,262,215 Common Shares and 34,000,000 Class B Shares were outstanding. SNSA holds 55% of the Common Shares and 100% of the Class B Shares
which represents an economic interest of 63% of the Company and 69% of the voting rights.

Common
Shares and Class B Shares vote as a single class on all matters submitted to a vote of shareholders, with each share entitled to one vote, with the exception of
recapitalization, reclassification or similar transactions affecting the relative rights, preferences and priorities of the Common Shares and Class B Shares, which require an affirmative vote
of the holders of a majority of the outstanding Common Shares and Class B Shares each voting as a separate class. With respect to liquidation and dividend rights, the Class B Shares
receive $0.005 per share for each $0.01 per Common Share.

As
described in Note 3, the Company repurchased 6,142,857 Common Shares from Vinci and 249,621 Common Shares from NKT Holdings A/S during 2002 as part of the transaction to settle
the share price guarantees in respect of the acquisitions of ETPM and NKT respectively. These shares, through a series of transactions, were subsequently issued to SNSA for proceeds of
$38.4 million to repay a loan of $64.0 million provided by SNSA to assist in funding the settlement of the guarantees. These transactions were as follows: on June 24, 2002 the
Company issued 3,000,000 Common Shares to SNSA for proceeds of $24.0 million; on November 14, 2002 the Company issued 3,142,857 Common Shares to SNSA for proceeds of
$13.4 million; and on November 19, 2002 the Company issued 249,621 Common Shares to SNSA for proceeds of $1.0 million. The difference between the market price at which these
shares were repurchased from Vinci and NKT and the amount of the proceeds from SNSA was $18.1 million. This has been deducted from retained earnings.

On
November 26, 2002, the Company issued 6,019,287 Common Shares to SNSA for proceeds of $25.6 million to repay the remaining outstanding portion of the
$64.0 million loan provided by SNSA to assist in funding the settlement of these guarantees.

On
March 7, 2001, the Company reorganized the share structure of the Company by increasing the authorized share capital of the Company from 102,000,000 to 140,000,000 Common
Shares and reclassifying all outstanding Class A Shares to Common Shares on a one-for-one basis. On February 4, 2000, the Company issued 6,142,857 Class A
Shares, which have subsequently been reclassified to Common Shares on a one-for-one basis, as partial consideration for its acquisition of ETPM as described in Note 3.

During
2000, the Company, through a series of transactions, issued 19,775,223 Class A Shares, which have subsequently been reclassified to Common Shares on a
one-for-one basis, to SNSA for cash of $200.0 million.

On
December 7, 1999, the Company issued 1,758,242 Class A Shares, which have subsequently been reclassified to Common Shares on a one-for-one basis,
as partial consideration for its acquisition of the 49% interest in NKT as described in Note 3.

F-39

---

Luxembourg
law requires that 5% of the Company's unconsolidated net profits each year be allocated to a legal reserve before declaration of dividends. This requirement continues until
the reserve is 10% of the stated capital of the Company, as represented by Common Shares and Class B Shares, after which no further allocations are required until further issuance of shares.

The
legal reserve may also be satisfied by allocation of the required amount at the issuance of shares or by a transfer from paid-in surplus. The legal reserve is not
available for dividends. The legal reserve for all outstanding Common Shares and Class B Shares has been satisfied and appropriate allocations are made to the legal reserve account at the time
of each issuance of new shares.

As
of November 30, 2002, $5.7 million of the consolidated deficit represented undistributed earnings of non-consolidated joint ventures (2001:
$5.4 million of consolidated retained earnings).

20.    Share option plan

On April 28, 1993 the Company adopted a share option plan ("the Plan") covering 7.7 million shares represented by Common Shares, Class A
Shares or any combination thereof not exceeding 7.7 million. Since March 7, 2001, all Class A Share options, when exercised, are automatically converted into Common Shares.

The
Company accounts for awards granted to Directors and key employees under APB Opinion No.25; no compensation cost has been recognized because options are granted at the market price
at the date of grant. Had compensation cost for all share option grants in fiscal years 2002, 2001 and 2000 been
determined consistent with SFAS No.123, the Company's net loss and net loss per share would be changed to the following pro forma amounts:

|                            | 
|--------------------------- | 
|
|                            | 
|Net loss                    | 
|                            | 
|Net loss pro forma          | 
|                            | 
|Loss per share, as reported | 
|                            | 
|Basic                       | 
|                            | 
|Diluted                     | 
|                            | 
|Loss per share pro forma    | 
|                            | 
|Basic                       | 
|                            | 
|Diluted                     | 
|                            | 

Options
may be granted under the Plan which are exercisable during periods of up to 10 years. The options granted under the Plan will be at an exercise price not less than the
fair market value per share at the time the option is granted. Options vest 25% on the first anniversary of the grant date, with an additional 25% vesting on each subsequent anniversary. A
Compensation Committee appointed by the Company's Board of Directors administers the Plan. Options are awarded at the discretion of the Company to Directors and key employees.

F-40

---



The following tables reflect activity under the Plan for the three-year period ended November 30, 2002:

|                                              
|----------------------------------------------
|
|
|
|                                              
|Outstanding at beginning of year              
|                                              
|Granted                                       
|                                              
|Exercised                                     
|                                              
|Forfeited                                     
|                                              
|Outstanding at end of year                    
|                                              
|Exercisable at end of year                    
|                                              
|Weighted average fair value of options granted
|                                              

All
share data and per share data has been restated to reflect the share reclassification on March 7, 2001 whereby Class A Shares were reclassified to Common Shares on a
one-for-one basis.

The
fair value of each share option grant is estimated as of the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

|                         
|-------------------------
|
|                         
|Risk-free interest rates 
|                         
|Expected lives of options
|                         
|Expected volatility      
|                         
|Expected dividend yields 
|                         

F-41

---

The
following tables summarize information about share options outstanding as of November 30, 2002:

|              
|--------------
|
|
|
|              
|Common Shares 
|$12.13 - 16.58
|              
|$7.82 - 11.20 
|              
|$4.38 - 7.38  
|              
|$2.71 - 3.00  
|              
|              
|              
|Class A Shares
|              
|$12.13 - 16.58
|              
|$7.82 - 11.20 
|              
|$4.38 - 7.38  
|              
|$2.71 - 3.00  
|              
|              
|              

As
part of the acquisition of the former Ceanic Corporation in 1998, holders of Ceanic share options were entitled to exercise all vested and one-third of the unvested
options, or to convert any portion thereof to vested Stolt Offshore S.A. Common Share options. Their remaining two-thirds of the unvested Ceanic share options were automatically converted
to unvested Stolt Offshore S.A. Common Share options at the date of acquisition. The following table summarizes information about these options which are outstanding as at November 30, 2002:

|             
|-------------
|
|
|
|             
|Common Shares
|             
|$7.82 - 11.20
|             
|$4.38 - 7.38 
|             
|             
|             

F-42

---

21.    Compensation and reward

During 2002, the Company introduced a new incentive compensation plan, which provides for annual cash awards to officers, Directors and employees.

Performance bonus

The performance bonus provides for annual cash rewards to employees. The determination of an employee's individual award will be based on salary and individual
performance measured against set criteria. The Compensation Committee appointed by the Company's Board of Directors administers the policy. A charge of $2.8 million has been recorded in respect
of 2002.

Net profit sharing

During 1993 the Company adopted a profit sharing plan which distributes 10% of the Company's net income after specific adjustments, to certain of its employees
worldwide. The determination of an employee's individual award will be based on salary and overall contribution to the Company. The Compensation Committee appointed by the Company's Board of Directors
administers this plan. No charge in respect of profit sharing has been included in the statement of operations for each of the years ended November 30, 2002, 2001 and 2000.

22.    Commitments and contingencies

The Company has issued performance bonds amounting to $349.5 million at November 30, 2002. In the normal course of business, the Company provides
project guarantees to guarantee the project performance of subsidiaries and joint ventures to third parties.

At
November 30, 2002, the Company has committed to purchase fixed assets of $10.2 million from external suppliers.

Coflexip
S.A. ("CSO") commenced legal proceedings through the U.K. High Court against three subsidiaries of Stolt Offshore S.A. claiming infringement of a certain patent held by CSO
relating to flexible flowline laying technology in the U.K. Judgement was given on January 22, 1999 and January 29, 1999. The disputed patent was held valid. The Company appealed and the
Appeal Court maintained in July 2000 the validity of the patent and potentially broadened its application compared to the High Court decision. The Company applied for leave to appeal the Appeal
Court decision to the House of Lords, which was denied.

During
2001 after the Appeal Court decision became final, CSO submitted an amended claim to damages claiming lost profit on a total of 15 projects. In addition, there is a claim for
alleged price depreciation on certain other projects. The total claim for lost profits was for approximately $89.0 million, up from approximately $14.0 million claimed after the High
Court decision confirming the patent's validity, plus interest, legal costs and a royalty for each time that the flexible lay system tower on theSeaway
Falconwas brought into U.K. waters. The increase came because several more projects potentially became relevant. The amount of the claim has not yet been considered by the
Court and has thus so far not been upheld. The Company estimates that the total claim as submitted is in the order of $130.0 million at November 30, 2002, increasing at 8% simple
interest per annum.

In
the alternative, CSO claims a reasonable royalty for each act of infringement, interest and legal costs. CSO has not quantified this claim, but it will be considerably less than the
claim to lost profits.

F-43

---

In
July and October 2002 the High Court has held that CSO's case for lost profit has to be repleaded. CSO appealed this decision. On March 13, 2003, the Court of Appeal
held that CSO's case for lost profit has to be repleaded. The repleading is being considered by the Company and will require to be considered by the Court before it is accepted.

The
Company, in consultation with its advisers, has assessed that the range of possible outcomes for the resolution of damages is $1.5 million to $130.0 million and has
determined that there is no amount within the range that is a better estimate than any other amount. Consequently, in accordance with SFAS No.5, "Accounting for
Contingencies", as interpreted by FASB Interpretation No.14, "Reasonable Estimation of the Amount of a Loss", the Company has
provided $1.5 million in the financial statements, being the lower amount of the range. The Company's provision of $1.5 million is based on a royalty calculation. The amount of damages
is nevertheless uncertain and no assurance can be given that the provided amount is sufficient.

Legal
costs are expensed as incurred.

In
the ordinary course of business, various claims, suits and complaints have been filed against the Company. In the opinion of management, all such matters are adequately covered by
indemnity agreements, recorded provisions in the financial statements and insurance or, if not so covered, would not have a material effect on the financial position, results of operations or cash
flows of the Company if resolved unfavorably.

In
the ordinary course of business, the Company enters into contracts, which include liquidated damages provisions which the customer may invoke in the event of non-timely
completion by the Company. In the opinion of the Company, where contractual completion dates have not been achieved, this is due to customer induced changes in work scope or other factors envisaged in
the contract, such that no provision is required.

In
connection with a major West African contract, the Company received a letter dated December 13, 2002 from the customer notifying the consortium of which the Company is a
member, of a potential claim for liquidated damages, of which the Company's share would be $14.5 million. The claim relates to delays in completion of certain milestones. The Company believes
that the customer does not have a valid case for liquidated damages, and on that basis has not recorded a provision.

23.    Financial instruments

The Company operates in a large number of countries throughout the world and, as a result, is exposed to currency fluctuations largely as a result of incurring
operating expenses in the normal course of business. The Company's major foreign currency exposures are to the Euro, British Pound and Norwegian Krone. These exposures are managed by the Company by
entering into derivative instruments pursuant to the Company's policies in areas such as counterparty exposure and hedging practices. Designation is performed on a specific exposure basis to support
hedge accounting. The changes in the fair value of these derivative instruments are offset in part or in whole by corresponding changes in the fair value of cash flows of the underlying exposures
being hedged. The Company does not hold or issue derivative instruments for trading purposes.

All
of the Company's derivative instruments are over-the-counter instruments entered into with major financial credit institutions to hedge the Company's
committed exposures. The Company's derivative instruments are primarily standard foreign exchange forward contracts which subject the Company to a minimum level of exposure risk and have maturities of
less than 24 months. The

F-44

---

Company
does not consider that it has a material exposure to credit risk from third parties failing to perform according to the terms of derivative instruments.

The
following foreign exchange forward contracts, maturing between December 5, 2002 and November 17, 2004 were outstanding as at November 30, 2002:

|                 
|-----------------
|
|                 
|Euros            
|                 
|Singapore Dollars
|                 
|Swedish Kroner   
|                 
|Danish Kroner    
|                 
|Norwegian Kroner 
|                 
|British Pounds   
|                 

As
at November 30, 2002, the fair value of these derivative instruments recorded in the consolidated balance sheet was $23.4 million in assets and $1.6 million in
liabilities. Gains and losses on the effective portions of these derivative instruments have been deferred in Other Comprehensive Loss ("OCI") until the underlying transaction is recognized in the
results of operations. A gain of $0.2 million relating to the ineffective portion of these derivative instruments has been recognized in the statement of operations. An additional
$3.8 million of gains on derivative instruments that matured during the year has been deferred into OCI, as the underlying transactions to which they relate had not occurred at
November 30, 2002.

The
gains and losses deferred in OCI are shown net of deferred taxes of $3.2 million in 2002. These amounts will be reclassified into results of operations as underlying
transactions are recognized.

The
following table summarizes the estimated fair value amounts of the Company's other financial instruments which have been determined by the Company, using appropriate market
information and valuation methodologies. Considerable judgement is required to develop these estimates of fair values,

F-45

---

thus
the estimates provided herein are not necessarily indicative of the amounts that could be realized in a current market exchange:

|                               
|-------------------------------
|
|                               
|Financial assets               
|                               
|Cash and cash equivalents      
|                               
|Restricted cash deposits       
|                               
|Employee loans                 
|                               
|Financial liabilities          
|                               
|Bank overdrafts                
|                               
|Short-term payables due to SNSA
|                               
|Long-term debt                 
|                               

The
carrying amounts of cash and cash equivalents and bank overdrafts approximate their fair value. The estimated value of the Company's long-term debt is based on interest
rates at November 30, 2002 and 2001 using debt instruments of similar risk.

Concentration of credit risk

Substantially all of the Company's trade accounts receivable are from companies in the oil and gas exploration and production sector. The Company performs ongoing
credit evaluations of its customers' financial conditions and limits the amount of credit extended when deemed necessary but generally requires no collateral.

As
at November 30, 2002 accounts receivable include $102.9 million (2001: $61.9 million) in respect of the largest customer and $35.9 million (2001:
$39.0 million) in respect of the second largest customer.

24.    Subsequent events

On December 3, 2002, the Company made a capital contribution of $12.0 million in cash to the NKT Flexibles I/S joint venture, the same date NKT
Flexibles I/S repaid an outstanding loan for $12.0 million due to the Company.

In
the first quarter of fiscal year 2003, one of the Company's West African projects has suffered disruption due to a strike at a subcontractor's yard and the hijacking of a chartered
survey vessel. The extent to which the impact of these events will be borne by the Company is currently under negotiation with the customer.

On
February 28, 2003, the Company made a drawdown of $48.0 million against the $50.0 million liquidity line provided by SNSA as discussed in Note 13. The
$48.0 million drawdown was repaid within seven days.

F-46

---

On
March 10, 2003 the Company made the final payment to NKT Holdings A/S of $13.5 million in respect of the settlement of the outstanding share price guarantee for the
remaining 879,121 Common Shares owned by NKT Holdings A/S, which were issued as partial consideration in the acquisition of 49% of the NKT Flexibles I/S joint venture in December 1999.
$12.4 million will be deducted from paid in surplus in 2003, representing the value of the share price settlement guarantee.

Events subsequent to the issue of the 2002 Annual Report and Accounts (Unaudited)

Major Project Downgrades and other adverse cost effects

Subsequent to the distribution of the Company's 2002 Annual Report and Accounts to its shareholders on April 11, 2003, the following events have occurred.

Following
review of information which became available in recent project reporting and a subsequent major project review led by the Company's CEO, the Company has identified
substantially poorer than anticipated performance and cost overruns on three major EPIC contracts and several smaller projects. In addition, it is expected that activity levels will be slightly lower
than previously anticipated. As a result of these factors, the Company at this time expects to incur a significant loss for the 2003 fiscal year. A substantial portion of this loss will be taken in
the second quarter. The specific reasons for the loss include:



Revised banking arrangements

In light of the revised forecast, the Company is working closely with its main banks in seeking to amend its two primary bank Credit facilities to reflect its
current financial position, including a waiver of certain financial covenant tests through November 30, 2003. As an interim step, the Company's banks have agreed to a 30-day "standstill"
whereby they will take no actions on any potential non-compliance with its financial covenants while internal bank approvals are sought and documentation is finalized. Without a waiver of certain
financial covenants, the Company would be out of compliance with its bank credit agreements.

F-47

---

To the Members
of the G.I.E. Mar Profundo Girassol:

We
have audited the accompanying balance sheets of Mar Profundo Girassol as of December 31, 2001 and December 31, 2000 and the related statements of income and cash flows
for each of the two years in the period ended December 31, 2001, all expressed in Euros. These financial statements are the responsibility of the company's management. Our responsibility is to
express an opinion on this financial statements based on our audits.

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

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mar Profundo Girassol as of December 31, 2001 and
December 31, 2000, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2001 in conformity with generally accepted accounting
principles in France.

Accounting
practices used by the company in preparing the accompanying financial statements conform with generally accepted accounting principles in France, but do not conform in certain
respects with accounting principles generally accepted in the United States of America ("U.S. GAAP"). A description of these differences and a complete reconciliation of net income to U.S. GAAP is set
forth in Note VIII.

Neuilly-sur-Seine,
France,
April 2, 2002

BARBIER
FRINAULT & ASSOCIÉS(1)
Member of Andersen Worldwide Organization
Francis Scheidecker

---

F-48

---



Balance sheets        December 31, 2002 and 2001        All amounts reported in thousand of Euros

|                                                      
|------------------------------------------------------
|
|                                                      
|Intangible assets, net                                
|Tangible assets, net                                  
|Long-term investments, net                            
|                                                      
|Total noncurrent assets                               
|                                                      
|Inventories and work-in-progress                      
|                                                      
|Trade accounts receivables                            
|                                                      
|Other receivables                                     
|                                                      
|Cash and cash equivalents                             
|                                                      
|Prepaid expenses                                      
|                                                      
|Unrealized exchange losses on working capital accounts
|                                                      
|Total assets                                          
|                                                      
|LIABILITIES AND EQUITY                                
|                                                      
|(Loss) Profit for the financial year                  
|                                                      
|Equity                                                
|                                                      
|Reserves for losses and contingencies                 
|                                                      
|Bank overdrafts                                       
|Trade accounts payable                                
|Other payables                                        
|Unrealized exchange gains on working capital accounts 
|Deferred revenue                                      
|                                                      
|Total current liabilities                             
|                                                      
|Total liabilities and equity                          
|                                                      

The accompanying notes are an integral part of these financial statements.

F-49

---



Income statements        For the three financial years ended December 31, 2002        All amounts reported in thousand of Euros

|                                                 | 
|------------------------------------------------ | 
|
|                                                 | 
|Sales                                            | 
|Other income                                     | 
|                                                 | 
|Total operating products                         | 
|                                                 | 
|Purchase of raw material, equipment and supplies | 
|Other purchases and external charges             | 
|Taxes                                            | 
|Allowance for provisions and depreciation        | 
|Other expenses                                   | 
|                                                 | 
|Total operating expenses                         | 
|                                                 | 
|Operating (loss) income                          | 
|Financial interests and income                   | 
|Foreign exchange gains                           | 
|Net gains on sales of short-term investments     | 
|                                                 | 
|Total financial income                           | 
|                                                 | 
|Financial expenses and interests                 | 
|Foreign exchange losses                          | 
|                                                 | 
|Total financial expenses                         | 
|                                                 | 
|Financial income (expenses), net                 | 
|                                                 | 
|Extraordinary income (loss)                      | 
|                                                 | 
|Net (loss) income                                | 
|                                                 | 

The accompanying notes are an integral part of these financial statements.

F-50

---



Statement of cash flows        For the three financial years ended December 31, 2002        All amounts reported in thousand of Euros

|                                                                                        |                             
|--------------------------------------------------------------------------------------- | ----------------------------
|
|                                                                                        |                             
|ACash flows from operating activities                                                  |                             
|Net (Loss) Income                                                                       |                             
|Adjustments to reconcile net (loss) income to net cash provided by operating activities |                             
|Depreciation and amortization                                                           |                             
|Increase (decrease) of provisions                                                       |                             
|Loss on sale of property, plant and equipment                                           |                             
|                                                                                        |                             
|                                                                                        |                             
|Changes in assets and liabilities                                                       |                             
|Decrease (increase) in trade accounts receivable                                        |                             
|Decrease (increase) other current assets                                                |                             
|(Decrease) increase in trade accounts payable                                           |                             
|(Decrease increase in other current liabilities                                         |                             
|                                                                                        |                             
|                                                                                        |                             
|                                                                                        |                             
|Net cash provided by operating activities                                               |                             
|BCash flows from investing activities                                                  |                             
|Increase of fixed assets                                                                |                             
|                                                                                        | Acquisitions of fixed assets
|                                                                                        | Rent deposits               
|                                                                                        |                             
|                                                                                        |                             
|Proceeds from sales of assets                                                           |                             
|                                                                                        |                             
|Net cash provided by investing activities                                               |                             
|CCash flows from financing activities                                                  |                             
|Dividends paid                                                                          |                             
|(Decrease) increase in bank overdrafts                                                  |                             
|                                                                                        |                             
|Net cash used in financing activities                                                   |                             
|                                                                                        |                             
|Net (decrease) increase in cash and cash equivalents                                    |                             
|                                                                                        |                             
|Cash and cash equivalents at beginning of year                                          |                             
|                                                                                        |                             
|Cash and cash equivalents at end of year                                                |                             
|                                                                                        |                             

The accompanying notes are an integral part of these financial statements.

F-51

---



Notes to the financial statements        All amounts are presented in thousands of Euros unless stated otherwise.

Mar Profundo Girassol is a "Groupement d'Intérêt Economique" (G.I.E.), which is a French form of joint venture. It was incorporated
April, 2 1998 and registered June, 15 1998. The registration has a term of five years until June, 15 2003.

|Registration number:
Main Office: |  | RCS Nanterre C 419 223 524
32 avenue Pablo Picasso
92000 Nanterre
France.
|--------------------------------- |  | -------------------------------------------------------------------------

Mar
Profundo Girassol members are:

Saipem S.A.
3 rue Stephenson
78180 Montigny le Bretonneux
RCS: Versailles B 302588462
equity interest: 50%

Stolt Offshore
32 avenue Pablo Picasso
92000 Nanterre France
France RCS: Nanterre B 692007495
equity interest: 50%


The
purpose of the G.I.E. is to jointly perform the following works:



F-52

---

NOTE ISUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1.     Financial statements presentation

Financial statements are presented in Euros in compliance with generally accepted French accounting principles. These accounting principles have not changed since
the incorporation of the G.I.E. Mar Profundo Girassol. The accounting period is: January 1st to December 31st.

2.     Use of estimates:

In conformity with generally accepted accounting principles in France, the preparation of financial statements requires management to make estimates and
assumptions based on current information and expectations. These may affect the amounts reported in financial statements and accompanying notes. The actual final results may differ from these
estimates which may then impact subsequent financial statements.

Memorandum
of understanding 2:

As
of today the final settlement with TFE Angola is still under negotiation on the basis of the proposal made on March 13, 2003. In December 2002 the accounts were closed using the last
statements submitted by MPG but not yet formally accepted by TFE Angola.

3.     Foreign Currency transactions

A substantial portion of Mar Profundo Girassol's revenue is denominated in US Dollars. However, some of Mar Profundo Girassol's costs are denominated in other
currencies, particularly in Euros.

In
order to shield Mar Profundo Girassol from future currency exchange rate variations, its policy is to hedge future forecasted outflows against future forecasted inflows using forward
sales contracts. This
applies only to unbalanced currency positions. Thus, US Dollar versus Euro forward sales contracts are settled only for the portion of US Dollar revenue that exceeds US Dollar expenditure or vice
versa.

Mar
Profundo Girassol's exchange position is updated on a regular basis using all information available such as actual and forecasted sales and expenses, budget variations, management's
best estimate, etc... Major variations in the use of a currency different from the currency initially forecasted result in an appropriate adjustment of the forward currency exchange contracts.

It
is not Mar Profundo Girassol's intent to hold derivative financial instruments for speculative purpose.

Based
on the forward exchange rates for all the forward currency exchange contracts, Mar Profundo Girassol determines an average exchange rate for each currency against Euro, in
particular for US Dollars. Hedged transactions denominated in currencies other than Euro are recorded using the average exchange rate as described above. All US Dollar denominated transactions are
recorded on a pre-determinated rate based on the forward exchange contracts as explained above. A variation in the currency position that impacts currency hedging, such as delays in cash
collection or change in the currency of a forecasted cash-flows results in costs because of the mismatch. This is immediately evaluated for both current and subsequent impacts and
reflected in the accounts in proportion of the overall progress of the contract.

F-53

---

4.     Intangible and tangible assets

Intangible assets

These
consist of the software for the project. Software is valued at its acquisition cost and amortized on a straight-line basis over a period of one year. This has been
fully amortized as of December 31, 1999.

Tangible
assets

Tangible
assets are recorded at acquisition cost and depreciated on the straight line method over 3 years.

5.     Contract and revenue recognition

Contract revenues and related costs are recognized on the percentage of completion method, based on total project costs incurred to date, over the estimated total
costs of contract at completion. Claims for extra work or change in scope of work may be included in contract revenues when collection is probable.

Contract
price and cost estimates are reviewed periodically as the works progress and adjustments proportionate to the percentage of completion are reflected in the margin. Billings that
exceed revenues recognized under percentage of completion are recorded as deferred revenue. Revenues recognized under percentage of completion method that exceed billings are booked as unbilled
receivable.

General
and administrative costs supported by the members of the G.I.E are not charged to Mar Profundo Girassol.

6.     Cash and cash equivalents

They consist of cash in hand and in highly liquid investments (marketable securities) with original maturity date of three months or less.

7.     Income taxes

As a G.I.E, Mar Profundo Girassol shares its earnings between members in proportion to equity interest.

As
a consequence and in application of French fiscal and corporate laws, earnings of Mar Profundo Girassol taxable in France are subject to French income tax at the level of the members.

Corporate
income tax borne by Mar Profundo Girassol for its non French earnings are recognized, up to the percentage of completion of the project, in Mar Profundo Girassol accounts.

8.     Retirement benefits

The G.I.E Mar Profundo Girassol does not employ personnel directly. The personnel engaged on the project are either employees of a G.I.E. member or subcontracted.
Any retirements benefits provisions, when necessary, are accounted by these external companies.

F-54

---

9.     Research and development

Research and development costs are expensed when incurred.

NOTE IIFIXED ASSETS

1.     Change in tangible assets

|                                 
|---------------------------------
|
|                                 
|Gross amount as of Dec. 31, 2000 
|Additions                        
|Disposals                        
|                                 
|Gross amount as of Dec. 31, 2001 
|Additions*                       
|Disposals*                       
|                                 
|Gross amount as of Dec. 31, 2002*
|                                 

Disposals
result from the sale of obsolete data processing equipment. Related revenue is reported as extraordinary income in the Income Statement.

2.     Change in accumulated depreciation of fixed assets

|                           
|---------------------------
|
|                           
|Amount as of Dec. 31, 2000 
|Depreciation               
|Disposal                   
|                           
|Amount as of Dec. 31, 2001 
|Depreciation*              
|Disposals *                
|                           
|Amount as of Dec. 31, 2002*
|                           

3.     Other long term investments

These amounts are made of deposits linked to operating leases.

F-55

---



Notes to the financial statements        All amounts are presented in thousands of Euros unless stated otherwise.

NOTE IIICASH AND CASH EQUIVALENTS

They consist of cash in hand and in liquid investments (marketable securities) with original maturity date of three months or less.

NOTE IVPREPAID EXPENSES AND OTHER CURRENT ASSETS

1.     Trade accounts receivable and other receivables

|                                         
|-----------------------------------------
|
|                                         
|Gross amount as of December 31, 2001     
|                                         
|Receivable from related parties included 
|Accrued receivables included             
|Gross amount as of December 31, 2002*    
|                                         
|Receivable from related parties included*
|Accrued receivables included*            
|                                         

All
amounts are due within one year.

2.     Prepaid expenses

These amounts represent the work in progress adjustment of major subcontracts.

NOTE VACCRUED EXPENSES AND OTHER LIABILITIES

1.     Reserves for losses and contingencies

|                                 
|---------------------------------
|
|                                 
|Amount as of December 31, 2001   
|                                 
|Foreign Taxes(1)                 
|Plant demobilisation(2)          
|                                 
|Amount as of December 31, 2002*  
|                                 
|Foreign Taxes(1)                 
|Deductibles for warranty calls(3)
|                                 

F-56

---

2.     Trade accounts payable and other payables

|                                       
|---------------------------------------
|
|                                       
|Gross amount as of December 31, 2001   
|                                       
|Payables from related parties included 
|Accrued expenses included              
|Gross amount as of December 31, 2002*  
|                                       
|Payables from related parties included*
|Accrued expenses included*             
|                                       

NOTE VIINCOME AND EXPENSES

1.     Sales

Recognition of the contract income in proportion to the overall progress of the project.

2.     Related parties transactions

Mar Profundo Girassol contracts with its members for the purchase of a number of services in the normal course of business. The amounts are:

|                
|----------------
|
|                
|2000            
|2001            
|2002 (unaudited)
|                

3.     Financial income

These amounts represent mainly the cost of Mar Profundo Girassol currency hedging adjustments and the unrealized exchange gains.

4.     Extraordinary Income

These amounts are related to the sale and disposal of obsolete data processing equipment.

F-57

---

5.     Income for the financial year

Mar Profundo Girassol's results does not include general and administrative costs nor French income tax charges. These costs are accounted for at the G.I.E.
member's level. Results are immediately distributed to the G.I.E. members.

NOTE VIIFORWARD CURRENCY CONTRACTS

|                                                           
|-----------------------------------------------------------
|
|                                                           
|Forward exchangeCurrency sold                             
|USD                                                        
|Forward exchangeCurrency purchased                        
|EURO                                                       
|NOK                                                        
|GBP                                                        
|                                                           
|All contracts are expected to mature before the end of 2003

NOTE VIIISIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND THE US GAAP

The accompanying financial statements have been prepared in accordance with French GAAP, which differ in some respects from the accounting principles generally
accepted in the United States of America ("US GAAP").

The
only significant difference that impacts the net equity and the net income of the Company corresponds to the accounting of foreign currency transactions in relation with hedging
policy, as described hereafter.

1.     Description of the significant differences between accounting principles followed by Mar Profundo Girassol and US GAAP

French GAAP accounting principles related to foreign currency transactions

Under
French GAAP, as disclosed in Note I.3 to the financial statements of Mar Profundo Girassol, hedged foreign currency transactions are recorded using the average guaranteed
exchange rate resulting from the forward exchange contracts used as hedges, which includes the discount or premiums from those various contracts. Discount or premiums resulting from further rollovers
of these contracts are recorded in proportion to the percentage of completion of the project.

US
GAAP accounting principles related to foreign currency transactions

For
the year 2001

For
US GAAP reconciliation purposes, the Company has adopted as of January 1, 2001, Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging

F-58

---

Activities
issued by the Financial Accounting Standards Board (FASB) in June 1998. In June 1999, the FASB issued Statement No. 137, Accounting for Derivative Instruments and
Hedging ActivitiesDeferral of the Effective Date of FASB Statement No. 133. In June 2000, the FASB issued Statement 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities, an amendment of FASB Statement No. 133. Statement 133, as amended, establishes accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes
in the derivative instrument's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative
instrument's gains and losses to offset related results on the hedged item in the income statement, to the extent effective, and requires that a company must formally document, designate, and assess
the effectiveness of transactions that receive hedge accounting.

Cash
inflows generated by the sale contract with Elf Exploration Angola are denominated in U.S. Dollars, and are, as mentioned in note I.3 used to cover cash outflows denominated
in the same currency. Additionally, the Company uses foreign currency forwards to hedge the foreign currency risks related to certain cash outflows not denominated in USD, and to finally exchange U.S
dollars in its functional currency.

As
of January 1, 2001, the Company identified the foreign currency component of its sale contract as an embedded foreign exchange derivative. A portion of each monthly USD cash
inflows generated according to the provisions of the sale contract was designated under SFAS 133 either:

All
residual USD cash inflows were converted in Euro using forward exchange contracts. Such hedge relationship is considered as a natural hedge under SFAS 133.

As
of December 31, 2001, due to the percentage of completion of the contract with Elf Exploration Angola almost all anticipated inflows and outflows have been invoiced, and/or
accrued for in the balance sheet. All amounts recorded in OCI as of January 1, 2001 (MEUR 2,3) have been reclassified in earnings over the period (symmetrically with the hedged cash flows). As
of December 31, 2001 all hedging relationships are natural hedges consisting of foreign currency receivables or payables, residual embedded derivative and hedging forward contracts.

Under
French GAAP, all foreign currency transactions are recorded based on the average hedge rate and the derivative instruments are not recognized. Under US GAAP all revenues and
expenses denominated in foreign currencies should be recorded using the exchange rate prevailing at the date of the transaction, except for those from which embedded derivatives were bifurcated which
are recorded at the forward exchange rates prevailing as of the dates the contracts were signed. For US GAAP reconciliation purposes, all revenues and expenses were revalued accordingly which resulted
in a reclassification of MEUR 33,8 from operating profit to financial profit. In addition, all receivables and payables were re-measured at closing spot rate and all outstanding
derivatives (either embedded or

F-59

---

freestanding)
were recognized in the balance sheet. This adjustment resulted in a MEUR 3,3 net impact in earnings.

For
the year 2002 (unaudited)

As
of December 31, 2002 all hedging relationships are natural hedges consisting of foreign currency receivables or payables, residual embedded derivative and hedging forward
contracts.

Under
French GAAP, all foreign currency transactions are recorded based on the average hedge rate and the derivative instruments are not recognized. Under US GAAP all revenues and
expenses denominated in foreign currencies should be recorded using the exchange rate prevailing at the date of the transaction, except for those from which embedded derivatives were bifurcated which
are recorded at the forward exchange rates prevailing as of the dates the contracts were signed. For US GAAP reconciliation purposes, all revenues and expenses were revalued accordingly which resulted
in a reclassification of MEUR 0,4 from operating profit to financial profit. In addition, all receivables and payables were re-measured at closing spot rate and all outstanding derivatives
(either embedded or freestanding) were recognized in the balance sheet. This adjustment resulted in a MEUR (1,7) net impact in earnings.

2.     Quantification of the difference on 2002, 2001 and 2000 Net Income and Net Equity

(In millions of Euro)

|                                            
|--------------------------------------------
|
|                                            
|Net (loss) income, as reported              
|                                            
|Foreign Currency transactions adjustment    
|                                            
|Net (loss) income in accordance with US GAAP
|                                            

The
net income of French "G.I.E." is immediately shared proportionately among its partners. Thus, the adjustments cannot be reflected in Net Equity, which only corresponds to the result
of the year.

F-60

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INDEPENDENT AUDITORS' REPORT

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
STOLT OFFSHORE S.A.
LUXEMBOURG

We
have audited the financial statements of Stolt Offshore S.A. (a Luxembourg company) and its subsidiaries ("the Company') as of November 30, 2002, and for the year then ended,
and have issued our report thereon dated April 1, 2003 (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the application of procedures relating to
certain disclosures and reclassifications of financial statement amounts related to the 2001 and 2000 financial statements that were audited by other auditors who have ceased operations and for which
we have expressed no opinion or other form of assurance other than with respect to such disclosures and reclassifications); such financial statements and report are included in your 2002 Annual Report
to Shareholders and are incorporated herein by reference. Our audit also includes the 2002 financial statement schedules of the Company. These financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on our audit. In our opinion, the 2002 financial statement schedules, when considered in relation to the 2002 basic
financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. The financial statement schedules for the years ended November 30, 2001 and
2000 were audited by other auditors who have ceased operations. Those auditors expressed an opinion, in their report dated January 30, 2002, that such 2001 and 2000 financial statement
schedules, when considered in relation to the 2001 and 2000 basic financial statements taken as a whole (prior to the disclosures and reclassifications referred to above), presented fairly, in all
material respects, the information set forth therein.

/s/DELOITTE & TOUCHEGlasgow, United Kingdom
April 1, 2003

S-1

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SCHEDULE II

STOLT OFFSHORE S.A. AND SUBSIDIARIES    VALUATION AND QUALIFYING ACCOUNTS    (AMOUNTS IN THOUSANDS)

|                                      |  | Balance at
Beginning of
Period |        | Charged to
Costs and
Expenses |   | Write-offs
Against the
Reserve |  | Other Add
(Deduct)(a) |         | Balance at End
of Period
|------------------------------------- |  | ------------------------------ | ------ | ----------------------------- | - | ------------------------------ |  | --------------------- | ------- | ------------------------
|For the year ended November 30, 2000: |  |                                |        |                               |   |                                |  |                       |         |                         
|Allowance for doubtful accounts       |  | $                              | 6,205  |                               | $ | 3,076                          |  | $                     | (937    | )                       
|Other (b)                             |  | $                              | 3,517  |                               | $ | 10,601                         |  | $                     | (5,000  | )                       
|For the year ended November 30, 2001: |  |                                |        |                               |   |                                |  |                       |         |                         
|Allowance for doubtful accounts       |  | $                              | 8,295  |                               | $ | 7,241                          |  | $                     | (6,364  | )                       
|Other (b)                             |  | $                              | 28,608 |                               | $ | 9,634                          |  | $                     | (5,301  | )                       
|For the year ended November 30, 2002: |  |                                |        |                               |   |                                |  |                       |         |                         
|Allowance for doubtful accounts       |  | $                              | 9,176  |                               | $ | 422                            |  | $                     | (4,055  | )                       
|Other (b)                             |  | $                              | 33,113 |                               | $ | 5,846                          |  | $                     | (12,419 | )                       

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S-2

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