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

2002 FORM 10-K

(Mark One)

OR

Commission File Number 1-8097

ENSCO International Incorporated
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (214) 397-3000

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

Securities registered pursuant to Section 12(g) of the Act: None

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

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

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

As of June 28, 2002, 135,448,060 shares of the registrant's common stock were outstanding. The aggregate market value of the common stock (based upon the closing price on the New York Stock Exchange on June 28, 2002 of $27.26) of ENSCO International Incorporated held by nonaffiliates of the registrant at that date was approximately $2,947,644,876.

As of February 25, 2003 there were 149,116,127 shares of the registrant's common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the Company's definitive proxy statement to be filed under the Securities Exchange Act of 1934 within 120 days of the end of the Company's fiscal year ended December 31, 2002, are incorporated by reference into Part III hereof. Except for those portions specifically incorporated by reference herein, such document shall not be deemed to be filed with the Commission as part of this Form 10-K.

TABLE OF CONTENTS

PART I

Item 1.  Business

Overview and Operating Strategy

       ENSCO International Incorporated ("ENSCO" or the "Company") is an international offshore contract drilling company that also provides marine transportation services in the Gulf of Mexico. The Company's complement of offshore drilling rigs includes 43 jackup rigs, seven barge rigs, five platform rigs and one semisubmersible rig. The Company's marine transportation fleet consists of 27 vessels. The Company's offshore contract drilling and marine transportation operations are integral to the exploration, development and production of oil and natural gas. The Company is one of the leading international providers of offshore drilling and marine transportation services to the oil and gas industry. The Company's operations are concentrated in the geographic regions of North America, Europe/West Africa, Asia Pacific and South America/Caribbean.

       Since 1987, the Company has pursued a strategy of building its fleet of offshore drilling rigs through corporate acquisitions, rig acquisitions and rig construction. The Company acquired Penrod Holding Corporation in August 1993, Dual Drilling Company in June 1996 and Chiles Offshore Inc. ("Chiles") in August 2002, which added 19, 15 and 5 rigs, respectively, to the Company's current 56-rig fleet. Additionally, the Company has otherwise acquired five jackup rigs since 1994, including four harsh environment North Sea class jackup rigs, and constructed four barge rigs that were completed in 1994, and three barge rigs that were completed in 1999. In 2000, the Company completed construction of the ENSCO 101, a harsh environment jackup rig, and the ENSCO 7500, a dynamically positioned deepwater semisubmersible rig capable of drilling in water depths up to 8,000 feet. In June 2002, the Company and its joint venture partner, Keppel FELS Limited, completed construction of the ENSCO 102, a harsh environment jackup rig that is being operated by the Company and is owned by a joint venture in which the Company holds a 25% interest and has a two year post-delivery option to acquire the remaining 75%.

       With the Company's increasing emphasis on offshore markets, the Company has disposed of businesses that are not offshore oriented or that management believed would not meet the Company's standards for financial performance. Accordingly, the Company sold its supply business in 1993, its land rigs in 1994 and 1996, and its technical services business in 1995. In February 2003, the Company entered into an agreement to sell its 27-vessel marine transportation fleet. The transaction, which is subject to various regulatory approvals, is expected to close during the second quarter of 2003, at which time the Company will cease conducting marine transportation operations. Management believes this transaction will allow the Company to further focus on expansion of the size and capability of its offshore rig fleet.

       The Company was formed as a Texas corporation in 1975 and was reincorporated in Delaware in 1987. The Company's principal office is located at 500 North Akard Street, Suite 4300, Dallas, Texas, 75201-3331, and its telephone number is (214) 397-3000. The Company's website is www.enscous.com.

Contract Drilling Operations

       The Company's contract drilling operations are conducted by a number of subsidiaries (the "Subsidiaries"), substantially all of which are wholly-owned. The Subsidiaries engage in the drilling of offshore oil and gas wells in domestic and international markets under contracts with major international oil and gas companies, government-owned oil and gas companies and independent oil and gas companies. The Company currently operates 43 jackup rigs, seven barge rigs, five platform rigs and one semisubmersible rig. Of the 43 jackup rigs, presently 22 are located in the Gulf of Mexico, seven are located in the North Sea, 12 are located in the Asia Pacific region, one is located offshore West Africa and one is located offshore Trinidad and Tobago. Of the seven barge rigs, six are located in Venezuela and one is located in Indonesia. The five platform rigs and the semisubmersible rig are all located in the Gulf of Mexico.

       The Company's contract drilling services and equipment are used to drill and complete oil and gas wells. Demand for the Company's drilling services is based upon many factors over which the Company has no control, including the market price of oil and gas, the stability of these prices, the production levels and other activities of the Organization of Petroleum Exporting Countries ("OPEC") and other oil and gas producers, the regional supply and demand for natural gas, the worldwide expenditures for offshore oil and gas drilling, the level of worldwide economic activity, the long-term effect of worldwide energy conservation measures and the development and use of alternatives to hydrocarbon-based energy sources.

       The drilling services provided by the Company are conducted on a "day rate" contract basis. Under day rate contracts, the Company provides the drilling rig and rig crews and receives a fixed amount per day for drilling the well, and the customer bears a major portion of the ancillary costs of constructing the well and supporting the drilling operations. The customer may pay all or a portion of the cost of moving the equipment and personnel to the job site and, in the case of platform rigs, the cost of assembling and dismantling the equipment. In some cases, the Company provides drilling services on a day rate contract basis along with "well management" services which provide additional incentive compensation to the Company for completion of drilling activity ahead of specified targets. The Company does not provide "turnkey" or other risk-based drilling services.

       The Company evaluates the performance of its drilling rigs on an ongoing basis, and seeks opportunities to sell or otherwise dispose of those that are less capable or less competitive. In connection with these evaluations, the Company removed four drilling rigs from service during 2001, including two platform rigs that were retired and two barge rigs that are currently being offered for sale.

Marine Transportation Operations

       The Company conducts its marine transportation operations through a wholly-owned subsidiary, ENSCO Marine Company ("ENSCO Marine"), based in Broussard, Louisiana. The Company currently owns a marine transportation fleet of 27 vessels consisting of five anchor handling towing supply ("AHTS") vessels and 22 supply vessels. All of the Company's marine transportation vessels are currently located in the Gulf of Mexico. As discussed above, the Company has entered into an agreement to sell all of its marine transportation vessels and expects to cease conducting marine transportation operations upon close of the transaction, which is subject to certain regulatory approvals, in the second quarter of 2003.

       The Company's five AHTS vessels can support semisubmersible drilling rigs and large offshore construction projects or provide towing services, including moving some of the Company's rigs between drilling locations. The Company's 22 supply vessels support general drilling and production activity by ferrying supplies from ashore and between offshore rigs. The Company's supply vessels are often supplied to customers in combination with the Company's offshore drilling rigs, although this practice will cease upon sale of the vessels.

Backlog Information

       During recent years, contracts for many of the Company's rigs have typically been short-term, particularly in the U.S. Gulf of Mexico where the Company has its largest concentration of rigs. The Company also has term contracts, typically one year with customer term extension options, on several rigs in its Europe/West Africa, Asia Pacific and South America/Caribbean operations. The Company's marine transportation vessels are typically chartered on a spot basis, or on term contracts that may be terminated on short notice.

       The current and historic backlog of business for the Company's contract drilling and marine transportation operations is as follows (in millions):

       Approximately $70.4 million of the backlog for contract drilling services as of February 1, 2003 is expected to be realized after December 31, 2003. The marine transportation services backlog as of February 1, 2003 is based on the assumption that the Company's marine transportation operations cease, and the Company's marine vessel fleet is sold, effective April 1, 2003. However, the sale, which is subject to certain regulatory approvals, may occur before or after this date.

Segment Information

       The following table provides information regarding the Company's two segments, contract drilling and marine transportation, for each of the last five years in the period ended December 31, 2002:

       Financial information regarding the Company's operating segments and foreign and domestic operations is presented in Note 13 of the Notes to Consolidated Financial Statements included in "Item 8. Financial Statements and Supplementary Data." Additional financial information regarding the Company's operating segments is presented in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

Major Customers

       The Company provides its services to a broad customer base, which includes major international oil and gas companies, government-owned oil and gas companies and independent oil and gas companies. The number of customers served by the Company has been reduced in recent years as a result of mergers and consolidation. While the Company has not experienced a significant impact as a result of such oil and gas industry consolidation to date, the long-term impact on the Company's operations, if any, is not determinable at this time.

       During 2002, aggregate revenues provided to the Company's contract drilling and marine transportation operations by subsidiaries of ConocoPhillips were $90.8 million, or 13% of total revenues. No other customer represented more than 10% of total revenues in 2002.

Industry Conditions

       Operations in the offshore contract drilling and marine transportation industries have historically been highly cyclical. Regional and worldwide levels of offshore exploration and development spending by oil and gas companies largely determine the market for offshore drilling and marine transportation services. Such levels of spending may be influenced significantly by oil and natural gas prices and expected changes or instability of such prices, as well as other factors, including demand for oil and gas, regional and global economic conditions and expected changes therein, political and legislative environments in major oil-producing countries, the production levels and related activities of OPEC and other oil and gas producers, and technological advancements that impact the methods or cost of oil and gas exploration and development. Events causing reductions in exploration and development spending by oil and gas companies may decrease demand for the Company's services and adversely impact revenues through lower day rates and reduced utilization of the Company's equipment.

       Industry conditions fluctuate in response to supply and demand forces. During industry up cycles, the Company usually experiences higher utilization and day rates, and generally is able to negotiate more favorable contract terms. During industry down cycles, the Company competes more aggressively for contracts and may accept contractual liability and indemnity provisions that do not offer the same level of protection against potential losses as can be obtained during industry up cycles. Increased contractual liabilities may have an adverse effect on results of operations in connection with risks for which the Company is uninsured or underinsured.

       The Company's drilling and marine transportation contracts often are cancelable upon specific notice by the customer. Although some contracts require the customer to pay an early termination payment upon cancellation, such payment may not fully compensate for the loss of the contract. In periods of rapid market downturn, the Company's customers may not honor the terms of existing contracts, may terminate contracts or may seek to renegotiate contract rates and terms to conform with depressed market conditions. Furthermore, contracts customarily specify automatic termination or termination at the option of the customer in the event of a total loss of the drilling rig or marine vessel and often include provisions addressing termination rights or cessation of day rates if operations are suspended for extended periods by reason of excessive downtime for repairs, acts of God or other specified conditions. The Company's operating results may be adversely affected by early termination of contracts, contract renegotiations or cessation of day rates while operations are suspended.

       The Company's domestic offshore drilling operations are conducted in the Gulf of Mexico. The U.S. natural gas market and trends in oil company spending largely determine domestic offshore drilling industry conditions. U.S. natural gas prices increased significantly during 2000, and demand, and ultimately day rates, for offshore drilling rigs increased as many oil companies accelerated drilling programs in response to historically high natural gas prices. Jackup rigs mobilized to the Gulf of Mexico from international markets to take advantage of this strong demand. During 2001, natural gas prices decreased from record levels, and oil company Gulf of Mexico drilling budgets were sharply reduced over the course of the year and remained at moderate levels during 2002. Today, demand for jackup drilling rigs in the Gulf of Mexico is significantly lower than that realized in early 2001. Although some jackup rigs have recently departed the Gulf of Mexico for international service, the supply of jackup rigs is still in excess of current demand. As a result of this imbalance, day rates are significantly lower today than they were in 2000 and early 2001. The Company does not expect any significant improvement in domestic day rates during the first half of 2003.

       Industry conditions in most international offshore drilling markets have improved over the last two years, as many of the major international and government-owned oil companies have increased spending in those markets. Cutbacks in OPEC production and an improved outlook for oil demand contributed to higher oil prices in 1999 and 2000, and a more favorable climate for oil company spending. Although oil prices declined somewhat over the course of 2001, increased drilling activity related to major natural gas development projects in Asia Pacific and the Middle East contributed to increased demand for jackup drilling rigs in those regions. Demand and day rates for international jackup rigs strengthened during 2001 and much of 2002, particularly in Europe and Asia Pacific. However, in the second half of 2002, day rates began to decline modestly in Europe. Day rates for jackup rigs in Europe have stabilized to date in 2003 at the levels in effect at the end of 2002, but current activity levels could lead to some near term softening of day rates in Europe. Recently, concerns related to global economic activity and the impact on oil demand growth have contributed to more modest increases in oil company spending. Uncertainty with regard to the Middle East and the political unrest in Venezuela have also contributed to cautiousness by oil companies, and this may impact spending plans over the course of 2003. Although the outlook is uncertain, at this time the Company expects day rates and utilization for international jackup rigs to remain relatively stable throughout 2003.

       The Company's South America barge rig fleet operations have historically been concentrated on Lake Maracaibo in Venezuela. Lake Maracaibo market conditions have been depressed for several years due to reduced or deferred exploration and development spending by Venezuela's national oil company, Petroleos de Venezuela, S.A. ("PdVSA"), which resulted from reduced demand for Venezuelan oil production, economic decline and OPEC quota reductions. In addition, the economic and political situation in Venezuela has become increasingly unstable during recent years. In September and November of 2001, a customer elected to pay an aggregate $28.8 million to terminate two of its three long-term contracts after approximately half of the five-year contract terms had been completed. In December 2001, the Company removed its two oldest, least capable barge rigs from service and recognized a $9.2 million impairment charge. During the third quarter of 2002 the Company mobilized a barge rig out of Venezuela to perform a long-term contract in Indonesia.

       During the fourth quarter of 2002, the economic and political environment in Venezuela deteriorated severely. A strike originating within PdVSA spread nationwide, involving the entire oil industry and the banking system, and causing substantial economic upheaval. The strike, mass terminations of PdVSA employees, and political interference in the management of PdVSA resulted in the near shutdown of the Venezuelan oil industry. Exchange controls have now been enacted and many Venezuela businesses have ceased or reduced operations causing substantial layoffs. Further substantial contraction of the Venezuela economy is possible. As a result of these adverse developments, the Company recognized a $59.9 million impairment charge related to its Venezuela-based assets in the fourth quarter of 2002. (See Note 3 to the Company's Consolidated Financial Statements for a further discussion of the impairment of the Company's Venezuela assets.) All six of the Company's barge rigs based in Venezuela are currently idle, although one rig continues to receive revenue in connection with a long-term contract that expires in March 2004. The timing of an expected recovery of drilling activity in Venezuela is uncertain and considered unlikely in the near term.

       The Company's marine transportation services are used primarily in connection with the process of servicing offshore oil and gas operations in the Gulf of Mexico. Demand for these services is largely dependent on the factors affecting the level of drilling activity in the domestic offshore oil and gas industry. As a result, marine transportation industry conditions are typically similar to domestic offshore drilling industry conditions. Unlike the offshore drilling business however, there has been a substantial increase in the supply of new marine transportation vessels in the Gulf of Mexico from newly constructed vessels in recent years. As a result, industry day rates and utilization were lower in 2002 than those experienced during 2001 and the Company does not expect day rates to improve during the first half of 2003. The Company has entered into an agreement to sell its marine transportation fleet.

       Additional information regarding industry conditions is presented in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."

Competition

       The offshore contract drilling and marine transportation industries are highly competitive. The Company competes with other offshore drilling contractors and marine transportation companies on the basis of price, quality of service, operational and safety performance, equipment suitability and availability, reputation and technical expertise. Competition is usually on a regional basis, but offshore drilling rigs and marine vessels are mobile and may be moved from one region to another in response to demand.

       The Company has numerous competitors in both the offshore contract drilling and marine transportation industries. Some competitors have larger market shares than the Company and some competitors may have access to greater financial and other resources than the Company.

Governmental Regulation

       The Company's businesses are affected by political developments and by federal, state, foreign and local laws and regulations that relate directly to the oil and gas industry. The industry may be affected by changing tax laws, price controls and other laws impacting the energy business. The adoption of laws and regulations curtailing exploration and development drilling for oil and gas for economic, environmental or other policy reasons adversely affects the Company's operations by limiting available drilling and other opportunities in the energy service industry, as well as increasing the costs of operations.

       The Company, its rigs and vessels, and its operations are also subject to federal, state, local and foreign laws and regulations relating to engineering, design, structural, safety, operational and inspection standards.

       Most of the Company's marine transportation operations are conducted in U.S. waters and are subject to the coastwise laws of the United States, principally, the Jones Act. Such laws reserve marine transportation between points in the United States to vessels built and documented under U.S. laws and owned and manned by U.S. citizens. From time to time, interests opposed to the Jones Act have expressed a desire to seek changes to the Jones Act. Although the Company believes it is unlikely, there can be no assurance the Jones Act may not be modified or repealed. Any substantive modifications in, or the repeal of, the Jones Act or changes in the Company's status thereunder prior to completion of the pending sale of its marine vessel fleet could have a material adverse effect on the Company's operations and financial condition.

Environmental Matters

       The Company's operations are subject to federal, state, foreign and local laws and regulations controlling the discharge of materials into the environment and hazardous waste disposal or otherwise relating to the protection of the environment. Laws and regulations specifically applicable to the Company's business activities could impose significant liability on the Company for damages, clean-up costs and penalties in the event of the occurrence of oil spills or similar discharges of pollutants into the environment or improper disposal of hazardous waste in the course of the Company's operations. Although, to date, such laws and regulations have not had a material adverse effect on the Company's results of operations, and the Company has not experienced an accident that has exposed it to material liability for discharges of pollutants into the environment. In addition, events in recent years have heightened environmental concerns about the oil and gas industry generally. From time to time, legislative proposals have been introduced that would materially limit or prohibit offshore drilling in certain areas. To date, no proposals which would materially limit or prohibit offshore drilling in the Company's principal areas of operation have been enacted into law. If laws are enacted or other governmental action is taken that restrict or prohibit offshore drilling in the Company's principal areas of operation or impose environmental protection requirements that materially increase the cost of offshore exploration, development or production of oil and gas, the Company could be materially adversely affected.

       The United States Oil Pollution Act of 1990 ("OPA 90"), as amended, and other federal statutes applicable to the Company and its operations, as well as similar state statutes in Texas, Louisiana and other coastal states, address oil spill prevention and control and significantly expand liability exposure across all segments of the oil and gas industry. These statutes and related regulations, both federal and state, impose a variety of obligations on the Company related to the prevention of oil spills and liability for resulting damages. For instance, OPA 90 imposes strict and, with limited exceptions, joint and several liability upon each responsible party for oil removal costs and a variety of damages. A failure to comply with these statutes, including without limitation, OPA 90, may subject a responsible party to civil or criminal enforcement action.

Operational Risks and Insurance

       Contract drilling, marine transportation and offshore oil and gas operations in general are subject to numerous risks including blowouts, fires, explosions and other loss of well control events causing damage to wells, reservoirs, production facilities and other properties and which may require drilling of relief wells; craterings, punchthroughs, or other events causing rigs to capsize, sink or otherwise incur significant damage; extensive uncontrolled fires, oil spills, or other discharges of pollutants causing damage to the environment; machinery breakdowns, equipment failures, personnel shortages, failure of subcontractors and vendors to perform or supply goods and services and other events causing the suspension or cancellation of drilling or marine transportation operations; unionization or similar collective actions by the Company's employees causing significant increases in operating costs; and property damage resulting from collisions, groundings, other accidents and severe weather conditions. In addition, many of the hazards and risks associated with the Company's operations, and accidents or other events resulting from such hazards and risks, subject the Company's personnel, as well as personnel of the Company's customers, subcontractors, vendors and other third parties to personal injury or death.

       The Company maintains broad insurance coverage, subject to certain deductibles and levels of self-insurance. While management believes such insurance coverage is adequate, it does not cover all types of losses and in some situations it may not provide full coverage of losses or liabilities resulting from its operations. The Company maintains insurance coverage for damage to equipment and generally insures its drilling rigs and marine transportation vessels for amounts not less than the estimated fair market value thereof. However, in the event of full loss, such coverage may not necessarily be sufficient to recover the cost of a newly constructed replacement rig or vessel. The Company also maintains insurance coverage for various types of liabilities and management believes the types, amounts, limits and general scope of such liability insurance coverage is comparable to the levels of coverage carried by the Company's competitors.

       The Company generally obtains contractual indemnification from its customers whereby such customers agree to protect and indemnify the Company to some degree for liabilities resulting from pollution and damage to the environment, damage to wells, reservoirs and other customer property, control of wild wells, drilling of relief wells and certain personnel injuries. The Company does not generally maintain business interruption or loss of hire insurance. The losses or liabilities resulting from uninsured or underinsured events, the failure of a customer to meet indemnification obligations or the failure of one or more of the Company's insurance providers to meet claim obligations could have a material adverse effect on the Company's financial position, results of operations and cash flows.

       The cost of many of the types of insurance coverage maintained by the Company has increased significantly. In addition, insurance market conditions have resulted in retention of additional risk by the Company, primarily through higher insurance deductibles. Very few insurance carriers offer certain types of insurance coverage maintained by the Company, and there can be no assurance that any particular type of insurance coverage will continue to be available in the future, that the Company will not accept retention of additional risk through higher insurance deductibles or otherwise, or that the Company will be able to purchase its desired level of insurance coverage at commercially feasible rates.

       Terrorist acts or acts of war may cause damage to or disruption of the Company's operations, its employees, its property and equipment, or its customers, suppliers and subcontractors, which could significantly impact the Company's financial position, results of operations and cash flows. The potential for future terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility could create many economic and political uncertainties, including an impact on oil and gas exploration and development, which could adversely affect the Company's operations in ways that cannot be readily determined.

International Operations

       A significant portion of the Company's contract drilling operations are conducted in foreign countries. Revenues from international operations as a percentage of the Company's total revenues were 56% in 2002 and 43% in 2001. The Company's international operations are subject to political, economic and other uncertainties, such as the risks of expropriation of its equipment, expropriation of a customer's property or drilling rights, repudiation of contracts, adverse tax policies, general hazards associated with international sovereignty over certain areas in which the Company operates and fluctuations in international economies.

       The Company has historically maintained insurance coverage and contractual indemnities that protect it from most, but not all, of the risks associated with its foreign operations. However, there can be no assurance that any particular type of insurance coverage will be available in the future or that the Company will be able to purchase its desired level of insurance coverage at commercially feasible rates. Accordingly, a significant event for which the Company is uninsured or underinsured, or for which the Company fails to recover a contractual indemnity from a customer, could cause a material adverse effect on the Company's financial position, results of operations and cash flows.

       The Company is subject to various tax laws and regulations in substantially all of the foreign countries in which it operates. The Company evaluates applicable tax laws and employs various business structures and operating strategies in foreign countries to reduce the level of taxation on its revenues, income and assets. Actions by foreign tax authorities that impact the Company's business structures and operating strategies, such as changes to tax laws and regulations or repeal of same, adverse rulings in connection with audits, or other challenges, may result in substantially increased tax expense.

       The Company's international operations also face the risk of fluctuating currency values and exchange controls. Some of the countries in which the Company operates have occasionally enacted exchange controls. Historically, the Company has been able to limit these risks by obtaining compensation in U.S. dollars or freely convertible international currency and, to the extent possible, by limiting acceptance of foreign currency to amounts which approximate its expenditure requirements in such currencies. The Company also uses derivative financial instruments, on a limited basis, to reduce its exposure to foreign currency risk.

       The Company currently has contract drilling operations in certain countries that have experienced substantial devaluations of their currency compared to the U.S. dollar. However, since the Company's drilling contracts generally stipulate payment wholly or substantially in U.S. dollars, the Company has experienced no significant losses due to the devaluation of such currencies.

Executive Officers of the Registrant

The following table sets forth certain information regarding the executive officers of the Company:

       Set forth below is certain additional information concerning the executive officers of the Company, including the business experience of each executive officer for at least the last five years.

       Carl F. Thorne has been a Director of the Company since December 1986. He was elected President and Chief Executive Officer of the Company in May 1987 and was elected Chairman of the Board of Directors in November 1987. Mr. Thorne holds a Bachelor of Science Degree in Petroleum Engineering from The University of Texas at Austin and a Juris Doctorate Degree from Baylor University College of Law.

       William S. Chadwick, Jr. joined the Company in June 1987 and was elected to his present position of Senior Vice President, Member - Office of the President and Chief Operating Officer effective January 2002. Prior to his current position, Mr. Chadwick served the Company as Vice President - Administration and Secretary. Mr. Chadwick holds a Bachelor of Science Degree in Economics from the Wharton School of the University of Pennsylvania.

       C. Christopher Gaut joined the Company in December 1987 and was elected to his present position of Senior Vice President, Chief Financial Officer, Member - Office of the President and Chief Operating Officer effective January 2002. Prior to his current position, Mr. Gaut served the Company as Senior Vice President and Chief Financial Officer. Mr. Gaut holds a Bachelor of Arts Degree in Engineering Science from Dartmouth College and a Master of Business Administration Degree in Finance from the Wharton School of the University of Pennsylvania. Mr. Gaut has announced his resignation from the Company to pursue another professional opportunity effective February 28, 2003.

       Phillip J. Saile joined the Company in August 1987 and was elected to his present position of President and Chief Operating Officer of ENSCO Offshore International Company effective June 2002. Prior to his current position, Mr. Saile served the Company as Senior Vice President, Member - Office of the President and Chief Operating Officer, and as Vice President - Operations. Mr. Saile holds a Bachelor of Business Administration Degree from the University of Mississippi.

       William E. Chiles joined the Company as Vice President in August 2002, following the Company's acquisition of Chiles. He previously served as President and Chief Executive Officer of Chiles. beginning upon its inception in August 1997. Prior thereto he served in various executive and management positions with Cliffs Drilling Company, Southwestern Offshore Corporation and Chiles Offshore Corporation. Mr. Chiles holds a Bachelor of Business Administration Degree from The University of Texas at Austin and a Master of Business Administration Degree from Southern Methodist University.

       Eugene R. Facey joined the Company in August 1996 and was elected Vice President - Engineering effective May 2001. Prior to his current position, Mr. Facey served the Company as Vice President - Operations. From 1990 to 1996, Mr. Facey served in various capacities as an employee of Wilrig AS and Transocean AS, most recently as Vice President International Operations. Mr. Facey holds a Bachelor of Science Degree in Civil Engineering from the University of Virginia.

       Richard A. LeBlanc joined the Company in July 1989 as Manager of Finance. He assumed responsibilities for the investor relations function in March 1993, was elected Treasurer in May 1995 and Vice President in May 2002. Mr. LeBlanc holds a Bachelor of Science Degree in Finance and a Master of Business Administration Degree, both from Louisiana State University.

       H. E. Malone, Jr. joined the Company in August 1987 and was elected Vice President - Accounting, Tax and Information Systems effective May 2002. Prior to his current position, Mr. Malone served the Company as Vice President - Finance and Vice President -Controller. Mr. Malone holds Bachelor of Business Administration Degrees from The University of Texas at Austin and Southern Methodist University and a Master of Business Administration Degree from the University of North Texas.

       Cary A. Moomjian, Jr. joined the Company in January 2002 and thereupon was elected Vice President, General Counsel and Secretary. From 1976 to 2001, Mr. Moomjian served in various management and executive capacities as an employee of Santa Fe International Corporation, including Vice President, General Counsel and Secretary. Mr. Moomjian holds a Bachelor of Arts Degree from Occidental College and a Juris Doctorate Degree from Duke University School of Law.

       David A. Armour joined the Company in October 1990 as Assistant Controller and was elected Controller effective January 2002. From 1981 to 1990, Mr. Armour served in various capacities as an employee of the public accounting firm Deloitte & Touche LLP, and its predecessor firm, Touche Ross & Co. Mr. Armour holds a Bachelor of Business Administration Degree from The University of Texas at Austin.

       Officers each serve for a one-year term or until their successors are elected and qualified to serve. Mr. Thorne and Mr. Malone are brothers-in-law.

Employees

       The Company had approximately 4,300 full-time employees worldwide as of February 1, 2003. The Company considers relations with its employees to be satisfactory. None of the Company's domestic employees are represented by unions. The Company entered into a voluntary agreement with a labor union in the North Sea and has not experienced any significant work stoppages or strikes as a result of labor disputes.

       The Company is highly dependent upon its experienced drilling rig and marine vessel crews and supervisory workforce, which contribute significantly to operational performance. There may be continued labor union efforts to organize offshore employees, primarily in the Gulf of Mexico, which may adversely impact the Company's cost of labor and ability to retain its current workforce or hire comparable personnel.

Available Information

       The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act and reports pertaining to the Company filed under Section 16 of the Securities Exchange Act are available free of charge on the Company's website at www.enscous.com.

Item 2.  Properties

Contract Drilling

       The following table provides certain information about the Company's drilling rig fleet as of February 15, 2003:

       The equipment on the Company's drilling rigs includes engines, drawworks, derricks, pumps to circulate the drilling fluid, blowout preventers, drill string and related equipment. The engines power a drive mechanism that turns the drill string and drill bit so that the hole is drilled by grinding subsurface materials, which are then carried to the surface by the drilling fluid. The intended well depth, water depth and drilling conditions are the principal factors that determine the size and type of rig most suitable for a particular drilling job.

       Jackup rigs stand on the ocean floor with their hull and drilling equipment elevated above the water on connected leg supports. Jackup rigs are generally preferred over other rig types in water depths of 400 feet or less, primarily because jackup rigs provide a more stable drilling platform with above water blowout prevention equipment. All of the Company's jackup rigs are of the independent leg design. The majority of the Company's jackup units are equipped with cantilevers, which allow the drilling equipment to extend outward from their hulls over fixed platforms enabling drilling of both exploratory and development wells. The jackup rig hull supports the drilling equipment, jacking system, crew quarters, storage and loading facilities, helicopter landing pad and related equipment.

       A semisubmersible rig is a floating offshore drilling unit with pontoons and columns that, when flooded with water, cause the unit to be partially submerged to a predetermined depth. Semisubmersibles can be held in a fixed location over the ocean floor by being either anchored to the sea bottom with mooring chains or dynamically positioned by computer-controlled propellers, or "thrusters." The Company's semisubmersible rig, which is capable of drilling in water depths up to 8,000 feet, is a dynamically positioned rig, but it also can be adapted for moored operations.

       Barge rigs are towed to the drilling location and are held in place by anchors while drilling activities are conducted. The Company's barge rigs have all of the crew quarters, storage facilities and related equipment mounted on floating barges, with the drilling equipment cantilevered from the stern of the barge.

       Platform rigs are designed to be temporarily installed on permanently constructed offshore platforms. The platform rig sections are lifted onto the offshore platforms with heavy lift cranes. A platform rig typically stays at a location for a longer period of time than a jackup rig, because several wells can be drilled from a single offshore platform.

       Over the life of a typical rig, several of the major components are replaced due to normal wear and tear or due to technological advancements in drilling equipment. All of the Company's rigs are in good condition and the Company owns all of the rigs in its fleet with the exception of the ENSCO 102, which is owned by a joint venture in which the Company holds a 25% interest. The Company has an option to purchase the remaining 75% interest in the ENSCO 102 that expires in May 2004.

Marine Transportation

       At February 15, 2003, the Company owned and operated a marine transportation fleet of 27 vessels, consisting of five anchor handling towing supply ("AHTS") vessels and 22 supply vessels. The Company has entered into an agreement to sell all of its marine transportation vessels and expects to cease conducting marine transportation operations upon close of the transaction, which is subject to certain regulatory approvals, in the second quarter of 2003.

       The following table provides certain information regarding the Company's current marine transportation vessel fleet:
 

MARINE FLEET

Other Property

       The Company leases its executive offices in Dallas, Texas. The Company owns offices and other facilities in Louisiana and Scotland. The Company currently rents office space domestically in Houston, Texas, and internationally in Australia, Bermuda, Brunei, Denmark, India, Indonesia, Malaysia, the Netherlands, Nigeria, Qatar, Saudi Arabia, Singapore, Thailand, Trinidad and Tobago, Scotland and Venezuela.

Item 3.  Legal Proceedings

       In September 2000, the Company and a number of other offshore drilling companies were named as a defendent in a purported class action, anti-trust lawsuit. The lawsuit alleged, among other things, that the Company and more than 15 other defendant companies, whose collective operations represent a majority of the U.S. offshore contract drilling industry, conspired to avoid competition for drilling labor by illegally fixing or suppressing the wages and benefits paid their drilling employees in violation of certain provisions of the Sherman and Clayton Acts. The plaintiffs alleged damages in excess of $5 billion, which could be trebled under anti-trust laws, as well as attorney's fees and costs. Although the Company denied the plaintiffs' claim, it has agreed to settle the case in order to avoid costly and time consuming litigation. In connection with the settlement and in consideration for the release of all claims regarding the Company's alleged actions, the Company paid the plaintiffs $625,000.

       The Company and its subsidiaries are named defendants in certain lawsuits and are involved from time to time as parties to governmental proceedings, all arising in the ordinary course of business. Although the outcome of lawsuits or other proceedings involving the Company and its subsidiaries cannot be predicted with certainty and the amount of any liability that could arise with respect to such lawsuits or other proceedings cannot be predicted accurately, management does not expect these matters to have a material adverse effect on the financial position, results of operations or cash flows of the Company.

Item 4.  Submission of Matters to a Vote of Security Holders

       There were no matters submitted to a vote of security holders in the fourth quarter of 2002.

PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

       The following table sets forth the high and low sales prices for each period indicated for the Company's common stock, $.10 par value, for each of the last two fiscal years:

       The Company's common stock (Symbol: ESV) is traded on the New York Stock Exchange. At February 15, 2003, there were approximately 1,500 stockholders of record of the Company's common stock.

       The Company initiated the payment of a $.025 per share quarterly cash dividend on its common stock during the third quarter of 1997 and has continued to pay such quarterly dividends through December 31, 2002. Cash dividends totaling $.10 per share were paid in both 2002 and 2001. On February 19, 2003, the Company's Board of Directors declared a regular quarterly dividend of $.025 per share payable on March 19, 2003 to holders of record on March 5, 2003. The Company currently intends to continue to pay such quarterly dividends for the foreseeable future. However, the final determination of the timing, amount and payment of dividends on the common stock is at the discretion of the Board of Directors and will depend on, among other things, the Company's profitability, liquidity, financial condition and capital requirements.

       For information concerning common stock to be issued in connection with our equity compensation plans, see Part III, Item 12, of this Annual Report on Form 10-K.

Item 6.  Selected Financial Data

       The selected consolidated financial data set forth below for the five years in the period ended December 31, 2002 has been derived from the Company's audited consolidated financial statements. This information should be read in conjunction with the audited consolidated financial statements and notes thereto included in "Item 8. Financial Statements and Supplementary Data."

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of
            Operations

BUSINESS ENVIRONMENT

       The Company is one of the leading international providers of offshore drilling and marine transportation services to the oil and gas industry. The Company's operations are concentrated in the geographic regions of North America, Europe/West Africa, Asia Pacific and South America/Caribbean.

       Demand for the Company's services is significantly affected by worldwide expenditures for oil and gas drilling. Expenditures for oil and gas drilling may fluctuate substantially from year to year and from region to region. Such fluctuations result from many factors, including demand for oil and gas, world economic conditions, the legislative environment in the U.S. and other countries in which the Company operates, production levels and other activities of OPEC and other oil and gas producers, and the impact that these and other events have on the current and expected future pricing of oil and natural gas.

       The Company's domestic offshore drilling operations are conducted in the Gulf of Mexico. The U.S. natural gas market and trends in oil company spending largely determine domestic offshore drilling industry conditions. U.S natural gas prices increased significantly during 2000, and demand, and ultimately day rates, for offshore drilling rigs increased as many oil companies accelerated drilling programs in response to historically high natural gas prices. Jackup rigs mobilized to the Gulf of Mexico from international markets to take advantage of this strong demand. During 2001, natural gas prices decreased from record levels, and oil company Gulf of Mexico drilling budgets were sharply reduced over the course of the year and remained at moderate levels during 2002. Currently, demand for jackup drilling rigs in the Gulf of Mexico is significantly lower than that realized in early 2001. Although some jackup rigs have now departed the Gulf of Mexico for international service, the supply of jackup rigs is still in excess of current demand. As a result of this imbalance, day rates are significantly lower today than they were in 2000 and early 2001. The Company does not expect any significant improvement in domestic day rates during the first half of 2003.

       Industry conditions in most international offshore drilling markets have improved over the last two years, as many of the major international and government-owned oil companies have increased spending in those markets. Cutbacks in OPEC production and an improved outlook for oil demand contributed to higher oil prices in 1999 and 2000, and a more favorable climate for oil company spending. Although oil prices declined somewhat over the course of 2001, increased drilling activity related to major natural gas development projects in Asia Pacific and the Middle East contributed to increased demand for jackup drilling rigs in those regions. Demand and day rates for international jackup rigs strengthened during 2001 and much of 2002, particularly in Europe and Asia Pacific. However, in the second half of 2002, day rates began to decrease modestly in Europe. Day rates for jackups in Europe have stabilized to date in 2003 at the levels in effect at the end of 2002, but current activity levels could lead to some near term softening of day rates in Europe. Recently, concerns related to global economic activity and the impact on oil demand growth have contributed to more modest increases in oil company spending. Uncertainty with regard to the Middle East and the political unrest in Venezuela have also contributed to cautiousness by oil companies, and this may impact spending plans over the course of 2003. Although the outlook is uncertain, at this time the Company expects day rates and utilization for international jackup rigs to remain relatively stable throughout 2003.

RESULTS OF OPERATIONS

       On August 7, 2002, the Company completed its merger with Chiles Offshore Inc. ("Chiles"), which has been accounted for as a purchase business combination in accordance with generally accepted accounting principles in the United States, with the Company treated as the acquirer. Under the terms of the Merger Agreement, each Chiles shareholder received 0.6575 of a share of the Company's common stock and $5.25 in cash in exchange for each share of Chiles common stock held. Upon completion of the transaction, the Company issued approximately 13.3 million shares of its common stock and paid approximately $106.6 million in cash to the holders of Chiles common stock. The Company's financial statements include the operating results of Chiles from the August 7, 2002 acquisition date. The acquired Chiles operations consisted of a fleet of five ultra premium jackup rigs, including two rigs operating in the Gulf of Mexico, one rig operating offshore Australia, one rig operating offshore Trinidad and Tobago, and one rig under construction that subsequently entered service in the Gulf of Mexico. The acquisition of Chiles further strengthened the Company's position in the premium jackup market, which the Company believes currently represents one of the strongest segments of the offshore drilling market.

       The Company's results for 2002 as compared to 2001 generally reflect a weakened demand for drilling rigs in the Gulf of Mexico and the resulting decrease in industry day rates. The reduced operating results in domestic drilling operations are somewhat offset by the continued strength of the Company's international operations, particularly in the Asia Pacific region, where operating results have improved substantially from the prior year as a result of increased day rates and the increased size of the Company's Asia Pacific rig fleet. The decrease in overall operating results in 2002 as compared to 2001 is also attributable to a $59.9 million impairment charge in 2002 related to the Company's barge rigs in Venezuela and $28.8 million of lump sum, early contract termination payments received in 2001 also related to the Company's Venezuelan operations.

       The Company's 2001 results reflect a continued improvement in industry conditions from those experienced during 2000. In 2001, the Company experienced improved operating results from both its marine transportation and contract drilling segments, including both domestic and international regions of its contract drilling segment. The improvement in operating results is primarily attributable to increased day rates and the contributions of the recently constructed ENSCO 7500 and ENSCO 101, which commenced drilling operations in December 2000 and April 2001, respectively.

       The following table highlights the Company's consolidated operating results for each of the three years in the period ended December 31, 2002 (in millions):

       The following is an analysis of the Company's revenues and operating margin for each of the three years in the period ended December 31, 2002 (in millions):

       Discussions relative to each of the Company's operating segments and geographic operations are set forth below.

Contract Drilling

       The following is an analysis of the geographic locations of the Company's offshore drilling rigs at December 31, 2002, 2001 and 2000.

       In 2002, revenues for the Company's contract drilling segment decreased by $103.2 million, or 14%, and operating margin decreased by $131.6 million, or 30%, from 2001. These decreases are primarily attributable to lower average day rates for the Company's North America jackup rig fleet, which decreased 43% from the prior year. In addition, the Company received $28.8 million in 2001 from the early termination of long-term contracts for two of the Company's barge rigs in Venezuela. The overall decrease in revenues and operating margin is partially offset by the operating results from the five jackup rigs acquired from Chiles in August 2002, and from the newly constructed ENSCO 102, a deep water harsh environment jackup rig. The five rigs acquired from Chiles contributed $44.2 million of revenue and $23.5 million of operating margin during the last five months of 2002. The ENSCO 102, which began operating in the third quarter of 2002, added $8.1 million of revenue and $2.5 million of operating margin in 2002. Contract drilling expenses increased by $28.4 million, or 9%, due primarily to the increase in the size of the Company's jackup rig fleet, an increase in mobilization expense and an increase in insurance costs.

       In 2001, revenues for the Company's contract drilling segment increased by $256.6 million, or 52%, and operating margin increased by $197.6 million, or 84%, from 2000. These increases are primarily attributable to higher average day rates for the Company's jackup rig fleet, which increased 39% from the prior year. The increase is also attributable to the impact of operating the ENSCO 7500 and ENSCO 101, the Company's recently constructed semisubmersible and harsh environment jackup rigs that commenced drilling operations in December 2000 and April 2001, respectively. In addition, the Company received $28.8 million in 2001 from the early termination of two long-term contracts for two of the Company's barge rigs in Venezuela. Contract drilling expenses increased by $59.0 million, or 23%, from the prior year due primarily to the operations of the ENSCO 7500 and ENSCO 101, higher personnel costs and $6.3 million of nonrecurring reductions in operating expenses during 2000 in connection with the favorable resolution of personnel tax liabilities and personal injury claims and related disputes with insurance carriers.

   North America Jackup Rigs

       In 2002, revenues for the Company's North America jackup rigs decreased by $135.6 million, or 44%, and the operating margin decreased by $137.1 million, or 76%, as compared to 2001. The decrease in revenues and operating margin is due primarily to a 43% decline in average day rates and the mobilization of three jackup rigs from the Gulf of Mexico to the Asia Pacific region in the fourth quarter of 2001 and first quarter of 2002. The decrease in revenues and operating margin is partially offset by the operating results of the ENSCO 74, ENSCO 75 and ENSCO 105 acquired from Chiles in August 2002. These three rigs contributed $18.1 million of revenue and $8.8 million of operating margin for 2002. Construction of the ENSCO 105 was completed in the fourth quarter of 2002 and the rig operated 21 days in 2002. Contract drilling expenses increased by $1.5 million, or 1%, in 2002 compared to 2001. Contract drilling expenses increased as a result of the addition of the three rigs acquired from Chiles and an increase in insurance cost for the fleet, offset in part by the impact of three rigs leaving the Gulf of Mexico.

       In 2001, revenues for the Company's North America jackup rigs increased by $30.4 million, or 11%, and the operating margin increased by $26.4 million, or 17%, from 2000. The increases in revenues and operating margin are primarily attributable to a 34% increase in average day rates. Contract drilling expenses increased by $4.0 million, or 3%, from 2000 due primarily to an increase in personnel costs.

   Europe/West Africa Jackup Rigs

       In 2002, revenues for the Europe/West Africa jackup rigs increased by $14.1 million, or 8%, and the operating margin increased by $2.3 million, or 2%, as compared to the prior year. The increase in revenues and operating margin is due primarily to a 15% increase in average day rates, partially offset by lower utilization, which decreased to 81% in the current year from 88% in 2001. In August 2002, the Company mobilized the ENSCO 100 jackup rig from the North Sea to Nigeria where it commenced drilling operations in September 2002. Contract drilling expenses increased by $11.8 million, or 17%, due primarily to costs associated with relocating the ENSCO 100 from Europe to West Africa, increased shorebase support cost and an increase in insurance costs.

       In 2001, revenues for the Europe jackup rigs increased by $102.6 million, or 161%, and the operating margin increased by $79.7 million, or 474%, as compared to 2000. The increase in revenues and operating margin is primarily attributable to a 69% increase in average day rates and to an increase in utilization to 88% in 2001 from 59% in 2000. Contract drilling expenses increased by $22.9 million, or 49%, from the prior year due primarily to higher utilization.

   Asia Pacific Jackup Rigs

       In 2002, revenues for the Asia Pacific jackup rigs increased by $77.7 million, or 74%, and operating margin increased by $46.6 million, or 86%, as compared to 2001. The increase in revenues and operating margin is due primarily to higher average day rates, which increased 39% from the prior year, and the increase in the size of the Asia Pacific jackup rig fleet. The ENSCO 94, ENSCO 54 and ENSCO 51 were mobilized from the Gulf of Mexico and commenced operations in the Asia Pacific region in February 2002, July 2002 and December 2002, respectively. In addition, the newly constructed ENSCO 102 entered service in July 2002 and the ENSCO 104 operating results are included from the August 7, 2002 Chiles acquisition date. These five rigs contributed $50.1 million of revenue and $21.2 million of operating margin to the Asia Pacific region in 2002. Contract drilling expenses increased by $31.1 million, or 62%, as compared to 2001 due primarily to expenses associated with the five rigs added to the fleet, including related mobilization expenses, and an increase in insurance costs on the remaining rigs in the fleet.

       In 2001, revenues for the Asia Pacific jackup rigs increased by $31.7 million, or 44%, and the operating margin increased by $25.6 million, or 90%, as compared to 2000. These increases are due primarily to a 13% increase in average day rates and to an increase in utilization to 96% in 2001 from 73% in 2000. Contract drilling expenses increased by $6.1 million, or 14%, in 2001 due primarily to higher utilization and $3.3 million in nonrecurring reductions in operating expenses during 2000 in connection with the favorable resolution of personnel tax liabilities and personal injury claims related to disputes with insurance carriers.

   South America/Caribbean Jackup Rig

       The Company has one jackup rig, the ENSCO 76, acquired in connection with the Chiles acquisition, operating under a long-term contract in Trinidad and Tobago. The results of the ENSCO 76 operations are included in the Company's operating results from the date of the Chiles acquisition on August 7, 2002. Revenue and operating margin for 2002 for the period subsequent to the Chiles acquisition were $11.4 million and $6.1 million, respectively.

   North America Semisubmersible Rig

       The Company completed construction of the ENSCO 7500, a dynamically positioned deepwater semisubmersible rig, in the fourth quarter of 2000 and the rig commenced drilling operations in the Gulf of Mexico in December 2000 under an approximate $190 million, three-year contract.

       In 2002, revenues for the ENSCO 7500 increased by $1.5 million, or 2%, and operating margin decreased by $2.1 million, or 5%, as compared to 2001. The increase in revenue is primarily attributable to a 3% increase in average day rates which resulted from contractual rate adjustments that compensate the Company for certain cost increases. The decrease in operating margin is due primarily to higher contract drilling expenses, which increased by $3.6 million, or 20%, due primarily to costs associated with steel hull repairs during the first quarter of 2002 and an increase in insurance costs.

   Asia Pacific Barge Rig

       The ENSCO I, one of the Company's larger barge rigs, was mobilized from Venezuela in August 2002 to a shipyard in Singapore for modifications and enhancements to fulfill a long-term contract in Indonesia. Shipyard modifications were completed, and contract operations commenced, in late December 2002. Substantially all of the $2.5 million of revenue for 2002 is attributable to the mobilization of the rig from Venezuela to the drilling location in Indonesia.

   South America/Caribbean Barge Rigs

       In 2002, revenues for the South America/Caribbean barge rigs decreased by $60.3 million, or 77%, and operating margin decreased by $43.5 million, or 91.6%, as compared to 2001. The decrease in revenues and operating margin is due primarily to lower utilization, which decreased to 17% in 2002 from 34% in the prior year, and the termination of two contracts in 2001. In September and November of 2001, a customer elected to terminate two long-term contracts after approximately half of the respective five-year contract terms had been completed. The terminations resulted from the customer's disappointing oil production rates from the reservoir and the ensuing reduction in their drilling plans, and were not due to any fault with the Company's drilling rigs. In connection with the two contract terminations, the Company received lump sum, early contract termination payments totaling $28.8 million, all of which was recognized as revenue during 2001. Contract drilling expenses decreased by $16.8 million, or 55%, from the prior year due primarily to lower utilization.

       In 2001, excluding the $28.8 million early contract termination revenue discussed above, revenues for the South America/Caribbean barge rigs increased by $4.3 million, or 10%, and operating margin decreased by $1.6 million, or 8%, from 2000. The increase in revenues is primarily attributable to a 7% increase in average day rates, which resulted from contractual rate adjustments that compensate the Company for certain cost increases. Contract drilling expenses increased by $5.9 million, or 24%, from the prior year, which contributed to a decrease in operating margin. The increase in contract drilling expenses is primarily due to higher personnel costs resulting from collective contracts with the unions representing petroleum industry personnel in Venezuela and to an increase in costs associated with idle rigs.

   Platform Rigs

       In 2002, revenues for the platform rigs decreased by $14.5 million, or 40%, and operating margin decreased by $3.6 million, or 33%, from 2001. The decrease in revenues and operating margin is primarily due to two rigs, one of which was idle during 2002 compared to being 80% utilized during the prior year and a second rig that earned a minimal standby rate during substantially all of 2002 compared to earning a full day rate in 2001. Contract drilling expenses for the platform rigs decreased by $10.9 million, or 44%, from the prior year due primarily to the two rigs discussed above.

       In 2001, revenues for the platform rigs increased by $2.2 million, or 7%, and operating margin decreased by $800,000, or 7%, as compared to 2000. The increase in revenues is primarily due to a 12% increase in average day rates. Contract drilling expenses increased by $3.0 million, or 14%, from the prior year primarily due to higher personnel related costs. The 2001 contract drilling expenses also increased, and the operating margin declined, as a result of $900,000 in nonrecurring reductions in contract drilling expenses in 2000 in connection with the favorable resolution of personal injury claims and related disputes with insurance carriers.

Marine Transportation

       At December 31, 2002, the Company had a marine transportation fleet of 27 vessels, consisting of five anchor handling towing supply ("AHTS") vessels and 22 supply vessels. The Company sold one supply vessel during the fourth quarter of 2002. All of the Company's marine transportation vessels are located in the Gulf of Mexico.

       In 2002, revenues for the Company's marine transportation segment decreased by $16.1 million, or 25%, and operating margin decreased by $18.5 million, or 70%, from 2001. These decreases are primarily attributable to lower average day rates, which decreased 19% from the prior year, and lower utilization, which decreased to 75% in 2002 from 80% in 2001. Marine transportation expenses increased by $2.4 million, or 6%, from the prior year due primarily to increases in regulatory drydocking costs and insurance costs.

       In 2001, revenues for the Company's marine transportation segment increased by $27.0 million, or 72%, and operating margin increased by $17.7 million, or 206%. These increases are primarily due to higher average day rates for supply vessels, which increased 80% from the prior year, and higher fleet utilization, which increased to 80% in 2001 from 65% in 2000. Marine transportation expenses increased by $9.3 million, or 32%, from the prior year due primarily to increased utilization and higher personnel related costs.

Depreciation and Amortization

       Effective January 1, 2002, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which, among other things, eliminated the requirement to amortize goodwill. Accordingly, the Company recognized no goodwill amortization in 2002, compared to $3.0 million of goodwill amortization in the prior year.

       Depreciation and amortization expense in 2002 increased by $8.6 million, or 7%, as compared to 2001. The increase is primarily attributable to the Chiles rigs acquired in August 2002 and depreciation on capital enhancement projects completed in 2002 and 2001, partially offset by the recognition of $3.0 million of goodwill amortization in 2001 and $1.3 million of depreciation in the prior year associated with two barge rigs that were taken out of service in December 2001.

       Depreciation and amortization expense in 2001 increased by $16.5 million, or 17%, as compared to 2000. The increase is primarily attributable to an $8.8 million increase in depreciation expense associated with the ENSCO 101 and ENSCO 7500, which were placed in service in July 2000 and December 2000, respectively, and a $5.9 million increase in depreciation expense associated with the ENSCO 100, for which depreciation expense was suspended until November 2000 while the rig was undergoing conversion from a water injection unit to a conventional drilling unit.

Impairment of Assets

       The Company's South America/Caribbean barge rig fleet operations have historically been concentrated on Lake Maracaibo in Venezuela. Lake Maracaibo market conditions have been depressed for several years due to reduced or deferred exploration and development spending by Venezuela's national oil company, Petroleos de Venezuela, S.A. ("PdVSA"), which resulted from reduced demand for Venezuelan oil production, economic decline and OPEC quota reductions. In addition, the economic and political situation in Venezuela has become increasingly unstable during recent years. As a result of the uncertainty surrounding its South America/Caribbean barge rig fleet, the Company has evaluated the carrying value of the barge rigs for impairment on a regular basis during recent years.

       During the fourth quarter of 2002 the economic and political environment in Venezuela deteriorated severely. A strike originating within PdVSA spread nationwide, involving the entire oil industry and the banking system, and causing substantial economic upheaval. The strike, mass terminations of PdVSA employees, and political interference in the management of PdVSA resulted in the near shutdown of the Venezuelan oil industry. Exchange controls have now been enacted and many Venezuela businesses have ceased or reduced operations causing substantial layoffs. As a result of these adverse developments, the Company recognized a $59.9 million impairment charge related to its Venezuela-based assets in the fourth quarter of 2002. (See Note 3 to the Company's Consolidated Financial Statements for a further discussion of the impairment of the Company's assets in Venezuela.)

       In December 2001, the Company decided to sell the two oldest, least capable rigs in its South America/Caribbean barge rig fleet and removed those rigs from service. The carrying value of the two rigs was reduced to estimated net realizable value and the Company recognized a $9.2 million impairment charge for the year ended December 31, 2001.

General and Administrative

       General and administrative expense in 2002 increased by $1.8 million, or 11%, as compared to 2001. The increase is primarily attributable to higher personnel costs, including additional personnel attributable to the Chiles acquisition, and costs associated with relocating the Company's corporate headquarters.

       General and administrative expense in 2001 increased by $3.5 million, or 26%, as compared to 2000. The increase is primarily attributable to increases in performance-based compensation and professional fees.

Other Income (Expense)

       Other income (expense) for each of the three years in the period ended December 31, 2002, is as follows (in millions):

       Interest income decreased $3.2 million in 2002, as compared to 2001, due to lower average interest rates. Interest income increased $1.2 million in 2001, as compared to 2000, due primarily to higher average invested cash balances, partially offset by a decrease in average interest rates.

       Interest expense increased $1.2 million in 2002, as compared to 2001, due primarily to the additional debt assumed in the Chiles acquisition. See "Liquidity and Capital Resources - Financing and Capital Resources" for further information on the debt assumed from Chiles. Interest expense increased $4.9 million in 2001, as compared to 2000. The increase is primarily attributable to increased average debt balances, resulting from the 15-year bonds issued in January 2001 to finance the cost of the ENSCO 7500, partially offset by a decrease in effective interest rates.

       Capitalized interest increased $2.9 million in 2002, as compared to 2001, due to an increase in the amount invested in construction and enhancement projects, primarily the ENSCO 105 (acquired from Chiles in August 2002). Construction of the ENSCO 105 was completed and the rig commenced operations in December 2002. Capitalized interest decreased $14.5 million in 2001, as compared to 2000. The decrease is attributable to a reduction in capital invested in the ENSCO 7500 and ENSCO 101 construction projects, which were completed in 2000.

       Other, net for 2002 includes a $5.8 million gain in connection with the settlement of an insurance claim related to the ENSCO 51, which sustained damage from a natural gas fire, a $600,000 gain on the sale of a supply vessel and net gains resulting from changes in foreign currency exchange rates, partially offset by an $800,000 loss related to the decrease in fair value of certain treasury rate lock agreements obtained in connection with the Chiles acquisition. See "Market Risk" for further information on the Chiles treasury rate lock agreements. Other, net in 2001 includes a $625,000 provision for the settlement of a class action, anti-trust lawsuit (see "Item 3. Legal Proceedings" and Note 12 to the Company's Consolidated Financial Statements).

Provision for Income Taxes

       The Company recorded income tax expense of $27.8 million, $84.6 million and $39.8 million in the years ended December 31, 2002, 2001 and 2000, respectively. The $56.8 million decrease in income tax provision from 2001 to 2002 is primarily attributable to decreased profitability in 2002, partially offset by an increase in the effective tax rate. The effective tax rate increased from 29.0% in 2001 to $31.9% in 2002 due primarily to the recognition of a limited deferred tax benefit in connection with the $59.9 million impairment charge recorded in 2002. The $44.8 million increase in income tax provision from 2000 to 2001 is primarily due to increased profitability in 2001, partially offset by a decrease in the effective tax rate. The effective tax rate decreased to 29.0% in 2001 from 31.8% in 2000 primarily due to changes in the relative portions of the Company's earnings generated by foreign subsidiaries whose earnings are being permanently reinvested and taxed at lower rates and, to a lesser extent, to increases in certain tax credits and income not subject to tax.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow from Operations and Capital Expenditures

       In 2002, cash flow from operations decreased by $211.4 million, or 50%, as compared to 2001. The decrease in cash flow from operations is primarily attributable to a decrease in the Company's level of profitability and a decrease in cash flow from working capital changes in 2002. In 2001, cash flow from operations increased by $283.7 million, or 206%, as compared to 2000. The increase in cash flow from operations in 2001 is attributable to an increase in the Company's level of profitability and an increase in cash flow from working capital changes.

       The Company continues to expand the size and quality of its drilling rig and marine vessel fleets. During the last three years, the Company has invested $323.1 million upgrading the capability and extending the service lives of its drilling rigs and marine vessels as part of its ongoing enhancement program and an additional $213.9 million relating to new construction and acquisitions. The Company also utilized $106.6 million of cash in connection with the Chiles acquisition in August 2002.

       Management anticipates that capital expenditures in 2003 will total approximately $250 million, including an estimated $200 million for upgrades and enhancements and $50 million for sustaining operations. The Company may also elect to exercise its option to acquire the remaining 75% interest in the ENSCO 102 or make capital expenditures to construct or acquire additional rigs in 2003, depending on market conditions and opportunities. (See "Off-Balance Sheet Arrangements" and Note 5 to the Company's Consolidated Financial Statements for information concerning the Company's investment in, and option to acquire, the ENSCO 102.)

Financing and Capital Resources

       The Company's long-term debt, total capital and long-term debt to capital ratios are summarized below (in millions, except percentages):

     In connection with the acquisition of Chiles on August 7, 2002, the Company assumed Chiles' floating rate term loan agreement (the "Interim Construction Loan"), which provides approximately $80.0 million of interim financing for the construction of the ENSCO 105 (formerly the Chiles Galileo). Amounts borrowed under the Interim Construction Loan will be repaid with proceeds from long-term bonds that the Company intends to issue in October 2003. The bonds will be repaid in equal semi-annual payments of principal and all borrowings under both the Interim Construction Loan and long-term bonds are guaranteed by the United States Maritime Administration ("MARAD"). The Interim Construction Loan is collateralized by the ENSCO 105 and the Company has guaranteed the performance of its obligations under the Interim Construction Loan to MARAD. As of December 31, 2002, the Company had $54.3 million outstanding under the Interim Construction Loan.

     In connection with the acquisition of Chiles on August 7, 2002, the Company assumed Chiles' bonds that were originally issued to provide long-term financing for the ENSCO 76 (formerly the Chiles Coronado). The bonds are guaranteed by MARAD and are being repaid in 24 equal semiannual principal installments of $2.9 million, which commenced in January 2000 and will end in July 2011. Interest on the bonds is payable semiannually, in January and July, at a fixed rate of 5.63%. The bonds are collateralized by the ENSCO 76 and the Company has a guaranteed the performance of its obligations under the bonds to MARAD. As of December 31, 2002, the Company had $52.1 million outstanding under the bonds.

     On January 25, 2001, the Company issued $190.0 million of 15-year bonds to provide long-term financing for the ENSCO 7500. The bonds are guaranteed by MARAD and are being repaid in 30 equal semiannual principal installments of $6.3 million, which commenced in June 2001 and will end in December 2015. Interest on the bonds is payable semiannually, in June and December, at a fixed rate of 6.36%. The bonds are collateralized by the ENSCO 7500 and the Company has guaranteed the performance of its obligations under the bonds to MARAD. As of December 31, 2002, the Company had $164.7 million outstanding under the bonds.

     In July 2002, the Company cancelled its existing $185.0 million credit agreement and replaced it with a new $250.0 million unsecured revolving credit agreement (the "Credit Agreement") with a syndicate of banks that matures in July 2007. Interest on amounts borrowed under the Credit Agreement is based on LIBOR plus an applicable margin rate (currently .525%), depending on the Company's credit rating. The Company pays a facility fee (currently .225% per annum) on the total $250.0 million commitment, which also is based on the Company's credit rating. In addition, the Company is required to pay a utilization fee of .25% per annum on outstanding advances under the facility if such advances exceed 33% of the total $250.0 million commitment. The Company is required to maintain certain financial covenants under the Credit Agreement, including a specified level of interest coverage, debt ratio and tangible net worth. The Company had no amounts outstanding under the Credit Agreement at December 31, 2002.

       The Company's total capital increased $611.9 million during the year ended December 31, 2002, due primarily to $449.1 million of common stock issued and $102.0 million of net long-term debt assumed in connection with the Chiles acquisition. In addition, total capital increased in 2002 due to the profitability of the Company, partially offset by the payment of $14.2 million in dividends. The Company's total capital increased $151.5 million during the year ended December 31, 2001, primarily due to the profitability of the Company and the net increase in long-term debt, partially offset by the payment of $84.2 million for the repurchase of the Company's common stock and $13.7 million in dividends.

Off-Balance Sheet Arrangements

       During the fourth quarter of 2000, the Company entered into an agreement with Keppel FELS Limited ("KFELS"), a major international shipyard, and acquired a 25% ownership interest in a harsh environment jackup rig under construction, which was subsequently named the ENSCO 102. During the second quarter of 2002, the Company and KFELS established a joint venture company, ENSCO Enterprises Limited ("EEL"), to own and charter the ENSCO 102. Upon completion of rig construction in May 2002, the Company and KFELS transferred their respective interests in the ENSCO 102 to EEL in exchange for promissory notes in the amount of $32.5 million and $97.3 million, respectively. The Company has an option to purchase the ENSCO 102 from EEL, at a formula derived price, which expires in May 2004. The Company and KFELS have initial ownership interests in EEL of 25% and 75%, respectively.

       Concurrent with the transfer of the rig to EEL, the Company agreed to charter the ENSCO 102 from EEL for a two-year period that expires in May 2004. Under the terms of the charter, the majority of the net cash flow generated by the ENSCO 102 operations is remitted to EEL in the form of charter payments. However, the charter obligation is determined on a cumulative basis such that cash flow deficits incurred prior to initial rig operations are satisfied prior to the commencement of charter payments. Charter proceeds received by EEL are used to pay interest on the promissory notes and any cash remaining after all accrued interest has been paid is used to repay the outstanding principal of the KFELS promissory note. Pursuant to an agreement between the Company and KFELS, the respective ownership interests of the Company and KFELS in EEL are adjusted concurrently with repayments of principal on the KFELS promissory note such that each party's ownership interest is equal to the ratio of its outstanding promissory note balance to the aggregate outstanding principal balance of both promissory notes. (See Note 5 to the Company's Consolidated Financial Statements for summary financial statements of EEL and a further discussion of the Company's investment.)

       The Company's equity interest in, and related charter arrangement with, EEL constitute a variable interest in an unconsolidated entity, as defined in the Financial Accounting Standards Board's FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51." While the Company has certain contingent obligations relative to its investment in EEL, any unsatisfied obligations or net losses of EEL would be incurred by the Company and KFELS essentially in proportion to their respective ownership interests in EEL. The Company has utilized the KFELS joint venture arrangement to increase its presence in the premium jackup rig market, while limiting present exposure through minimal capital investment, and management believes the Company's purchase option provides the flexibility to expand its premium jackup rig fleet in a cost-efficient manner.

Contractual Obligations and Commercial Commitments

       The Company's significant contractual obligations as of December 31, 2002, and the periods in which such obligations are due, are as follows:

       The Company has no significant commercial commitments or capital lease obligations.

Liquidity

       The Company's liquidity position is summarized in the table below (in millions, except ratios):

       At December 31, 2002, the Company had $147.1 million of cash and cash equivalents and $38.4 million of short-term investments, as well as $250.0 million available for borrowing under its Credit Agreement. Management expects to fund the Company's short-term liquidity needs, including $275.6 million in contractual obligations and anticipated capital expenditures during 2003, as well as any working capital requirements, from its cash and cash equivalents, short-term investments and operating cash flow.

       Management expects to fund the Company's long-term liquidity needs, including contractual obligations and anticipated capital expenditures, from its cash and cash equivalents, investments, operating cash flow and, if necessary, funds drawn under its Credit Agreement or other future financing arrangements.

       The Company has historically funded the majority of its liquidity from operating cash flow. While future operating cash flow cannot be accurately predicted, management believes its long-term liquidity will continue to be funded primarily by operating cash flow.

MARKET RISK

     The Company uses various methods to manage its exposure to foreign currency exchange risk. The Company predominantly structures its drilling rig contracts in U.S. dollars, which significantly reduces the portion of the Company's cash flows and assets denominated in foreign currencies. The Company also employs various strategies, including the use of derivative instruments, to match foreign currency denominated assets with equal or near equal amounts of foreign currency denominated liabilities, thereby minimizing exposure to earnings fluctuations caused by changes in foreign currency exchange rates. The Company occasionally utilizes derivative instruments to hedge forecasted foreign currency denominated transactions. At December 31, 2002, the Company had foreign currency exchange contracts outstanding to exchange $3.3 million U.S. dollars for Australian dollars. The fair value of the Company's outstanding foreign currency exchange contracts at December 31, 2002, a net unrealized loss of $2,000, is included in accrued liabilities.

     The Company uses various derivative financial instruments to manage its exposure to interest rate risk. The Company occasionally uses interest rate swap agreements to effectively convert the variable interest rate on debt to a fixed rate, and interest rate lock agreements to hedge against increases in interest rates on pending financing. At December 31, 2002, the Company had no outstanding interest rate swap agreements.

     In connection with the acquisition of Chiles on August 7, 2002, the Company obtained $80.0 million notional amount of outstanding treasury rate lock agreements. Chiles entered into the treasury rate lock agreements during the first and second quarters of 2002 and they mature in October 2003. Upon acquisition, the Company designated approximately $65.0 million notional amount of the treasury rate lock agreements as an effective hedge against the variability in cash flows of $76.5 million of MARAD guaranteed bonds the Company intends to issue in October 2003. The bonds will provide long-term financing for the recently constructed ENSCO 105. The Company deemed the remaining $15.0 million notional amount of treasury rate lock agreements obtained in the Chiles acquisition to be speculative in nature. In October 2002, the Company settled $10.0 million of the $15.0 million notional amount of treasury rate lock agreements deemed as speculative. The fair value of the treasury rate lock agreements at December 31, 2002, which is included in accrued current liabilities, has declined $3.7 million from the August 7, 2002 Chiles acquisition date, and a cumulative $8.6 million since their inception. The Company recognized an $800,000 loss during 2002 in connection with the treasury rate lock agreements, which resulted from the decrease in fair value of treasury rate lock agreements deemed to be speculative.

     The Company utilizes derivative instruments and undertakes hedging activities in accordance with its established policies for the management of market risk. The Company does not enter into derivative instruments for trading or other speculative purposes. It is the Company's intention to settle the remaining $5.0 million notional amount of speculative treasury rate lock agreements obtained in connection with the Chiles acquisition prior their maturity. Management believes that the Company's use of derivative instruments and related hedging activities do not expose the Company to any material interest rate risk, foreign currency exchange rate risk, commodity price risk, credit risk or any other market rate or price risk.

OUTLOOK AND FORWARD-LOOKING STATEMENTS

       Changes in industry conditions and the corresponding impact on the Company's operations cannot be accurately predicted because of the short-term nature of many of the Company's contracts and the volatility of oil and natural gas prices, which impact expenditures for oil and gas drilling. Whether recent levels of regional and worldwide expenditures for oil and gas drilling will increase, decrease or remain unchanged, is not determinable at this time.

       The Company's domestic offshore drilling operations are conducted in the Gulf of Mexico. The U.S. natural gas market and trends in oil company spending largely determine domestic offshore drilling industry conditions. U.S natural gas prices increased significantly during 2000, and demand, and ultimately day rates, for offshore drilling rigs increased as many oil companies accelerated drilling programs in response to historically high natural gas prices. Jackup rigs mobilized to the Gulf of Mexico from international markets to take advantage of this strong demand. During 2001, natural gas prices decreased from record levels, and oil company Gulf of Mexico drilling budgets were sharply reduced over the course of the year and remained at moderate levels during 2002. Today, demand for jackup drilling rigs in the Gulf of Mexico is significantly lower than that realized in early 2001. Although some jackup rigs have now departed the Gulf of Mexico for international service, the supply of jackup rigs is still in excess of current demand. As a result of this imbalance, day rates are significantly lower today than they were in 2000 and early 2001. The Company does not expect any significant improvement in domestic day rates during the first half of 2003.

       Industry conditions in most international offshore drilling markets have improved over the last two years, as many of the major international and government-owned oil companies have increased spending in those markets. Cutbacks in OPEC production and an improved outlook for oil demand contributed to higher oil prices in 1999 and 2000, and a more favorable climate for oil company spending. Although oil prices declined somewhat over the course of 2001, increased drilling activity related to major natural gas development projects in Asia Pacific and the Middle East contributed to increased demand for jackup drilling rigs in those regions. Demand and day rates for international jackup rigs strengthened during 2001 and and much of 2002, particularly in Europe and Asia Pacific. However, in the second half of 2002, day rates began to decrease modestly in Europe. Day rates for jackup rigs in Europe have stabilized to date in 2003 at the levels in effect at the end of 2002, but current activity levels could lead to some near term softening of day rates in Europe. Today, concerns related to global economic activity and the impact on oil demand growth have contributed to more modest increases in oil company spending. Uncertainty with regard to the Middle East and the political unrest in Venezuela have also contributed to cautiousness among oil companies, and this may impact spending plans over the course of 2003. Although the outlook is uncertain, at this time the Company expects day rates and utilization for international jackup rigs to remain relatively stable throughout 2003.

       The Company continues its upgrade program on several of its North America jackup rigs, particularly in light of the current Gulf of Mexico market weakness. The Company moved three of its North America jackup rigs to pursue international opportunities, the ENSCO 94 in December 2001, to Doha, Qatar for a long-term contract and the ENSCO 51 and ENSCO 54 in the first quarter of 2002. The ENSCO 51 is operating in Brunei and the ENSCO 54 is currently operating under a contract in India.

       The Chiles merger in August 2002 increased the Company's Gulf of Mexico jackup rig count to 22 with three of the five rigs acquired in the Chiles merger located in the Gulf of Mexico. Currently, 19 of the Company's 22 North America jackup rigs are working. The three idle rigs are undergoing shipyard modifications and upgrades and regulatory work. The ENSCO 81 is completing shipyard work and will commence operating under a contract in March 2003. The ENSCO 82 and ENSCO 98 entered a shipyard in early February 2003 and are scheduled to return to service in August and June 2003, respectively.

       Currently, six of the Company's seven jackup rigs in the Europe region are working, with the one idle rig in a shipyard undergoing enhancements to the crew quarters and regulatory work in preparation for operations in the Netherlands commencing in May 2003. In August 2002, the Company mobilized the ENSCO 100 jackup rig from the North Sea to Nigeria where it commenced drilling operations in September 2002.

       The Company's Asia Pacific rig fleet has increased to 12 jackup rigs, with the addition of the three jackup rigs mobilized from the Gulf of Mexico, the completion of the ENSCO 102 in May 2002 and the addition of the ENSCO 104 as a result of the Chiles merger on August 7, 2002. Currently 11 of the Company's 12 Asia Pacific unit rigs are operating, with one rig, the ENSCO 57, in a shipyard. The ENSCO 57 completed its contract in Thailand in January 2003 and was mobilized to a shipyard in Singapore for enhancements and regulatory work, with shipyard work completion projected mid-year 2003. Currently the ENSCO 57 is uncommitted.

       The Company's South America/Caribbean jackup rig, the ENSCO 76, is operating under a long-term contract offshore Trinidad and Tobago.

       The ENSCO 7500, the Company's deep water semisubmersible rig that began Gulf of Mexico operations in December 2002, is committed under contract until March 2004.

       Currently, five of the Company's six barge rigs located in Venezuela are without contract, with one barge rig, the ENSCO II, contracted through May 2004. During the fourth quarter of 2002 the economic and political environment in Venezuela deteriorated severely. A strike originating within PdVSA spread nationwide, involving the entire oil industry and the banking system, and causing substantial economic upheaval. The strike, mass terminations of PdVSA employees and political interference in the management of PdVSA resulted in the near shutdown of the Venezuelan oil industry. Exchange controls have now been enacted and many Venezuela businesses have ceased or reduced operations, causing substantial layoffs. Further substantial contraction of the Venezuela economy is possible. The Company believes the timing of an expected recovery of drilling activity in Venezuela is uncertain and unlikely in the near term.

       The Company mobilized one of its large barge rigs from Venezuela in the third quarter of 2002. The rig is now operating under a long-term contract in Indonesia after completing shipyard enhancements and modifications in Singapore.

       Currently, two of the Company's five platform rigs are operating under short-term contracts. The Company's platform rigs have experienced utilization in the 50% to 60% range since 1999. The Company's platform rigs are all capable of completing deep well programs as the rigs are rated for 25,000 to 30,000 feet wells. The rigs are best suited for long-term, deep well drilling applications where the platform rig components will stay in place for a substantial period of time. The Company's platform rigs compete against smaller, easier to mobilize and assemble, self-erecting platform rigs for shallow well drilling. The Company is not able to predict when there will be a recovery of drilling activity that will require increased use of the class of platform rigs owned and operated by the Company.

       The Company's marine transportation segment experienced decreased fleet utilization and day rates in 2002. The Company expects the marine transportation market to remain soft in the near-term as a result of the recent slow down in Gulf of Mexico drilling activity. The Company has entered into an agreement to sell all of its marine transportation vessels and expects to cease conducting marine transportation operations upon close of the transaction, which is subject to certain regulatory approvals, in the second quarter of 2003.

       This report contains forward-looking statements by management and the Company that are subject to a number of risks and uncertainties. Generally, forward-looking statements include words or phrases such as "anticipates," "believes," "expects," "plans," "intends" and words and phrases of similar impact. The forward-looking statements include, but are not limited to, statements regarding future operations, industry conditions and business environment, as well as statements regarding future levels of, or trends in, day rates, utilization, revenues, operating expenses, capital expenditures and financing. The forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including the following: (i) industry conditions and competition, (ii) fluctuations in the price of oil and natural gas, (iii) regional and worldwide expenditures for oil and gas drilling, (iv) demand for oil and gas, (v) operational risks and insurance, (vi) risks associated with operating in foreign jurisdictions, (vii) environmental liabilities that may arise in the future that are not covered by insurance or indemnity, (viii) the impact of current and future laws and government regulation, as well as repeal or modification of same, affecting the oil and gas industry, the environment, taxes and the Company's operations in particular, (ix) changes in costs associated with rig construction or enhancement, as well as changes in dates rigs being constructed or undergoing enhancement will enter service, (x) renegotiations, nullification, or breaches of contracts with customers, vendors, subcontractors or other parties, (xi) unionization or similar collective actions by the Company's employees, (xii) consolidation among the Company's competitors or customers, (xiii) uncertainty with regards to the Middle East, (xiv) the political unrest in Venezuela, (xv) general economic concerns and the impact of high oil and gas commodity prices and (xvi) the risks described elsewhere herein and from time to time in the Company's reports to the Securities and Exchange Commission.

CRITICAL ACCOUNTING POLICIES

       The Company's significant accounting policies are included in Note 1 to the Consolidated Financial Statements. These policies, along with the underlying assumptions and judgements made by the Company's management in their application, have a significant impact on the Company's consolidated financial statements. The Company identifies its most critical accounting policies as those that are the most pervasive and important to the portrayal of the Company's financial position and results of operations, and that require the most difficult, subjective and/or complex judgements by management regarding estimates about matters that are inherently uncertain. The Company's most critical accounting policies are those related to property and equipment, impairment of assets and income taxes.

   Property and Equipment

       At December 31, 2002, the carrying value of the Company's property and equipment totaled $2,258.0 million, which represents 74% of total assets. This carrying value reflects the application of the Company's property and equipment accounting policies, which incorporate estimates, assumptions and judgements by management relative to the capitalized costs, useful lives and salvage values of the Company's rigs and vessels.

       The Company develops and applies property and equipment accounting policies that are designed to appropriately and consistently capitalize those costs incurred to enhance, improve and extend the useful lives of its assets and expense those costs incurred to repair or maintain the existing condition or useful lives of its assets. The development and application of such policies requires judgement and assumptions by management relative to the nature of, and benefits from, expenditures on Company assets. The Company establishes property and equipment accounting policies that are designed to depreciate or amortize its assets over their estimated useful lives. The assumptions and judgements used by management in determining the estimated useful lives of its property and equipment reflect both historical experience and expectations regarding future operations, utilization and performance of its assets. The use of different estimates, assumptions and judgements in the establishment of property and equipment accounting policies, especially those involving the useful lives of the Company's rigs and vessels, would likely result in materially different carrying values of assets and results of operations.

   Impairment of Assets

       The Company evaluates the carrying value of its property and equipment when events or changes in circumstances indicate that the carrying value of such assets may be impaired. The Company tests its $350.2 million of goodwill for impairment on an annual basis, or when events or changes in circumstances indicate that the carrying value of the Company's drilling segment likely exceeds its fair value. Generally, extended periods of idle time and/or inability to contract assets at economical rates are an indication that an asset may be impaired. However, the offshore drilling and marine transportation industries are highly cyclical and it is not unusual for assets to be unutilized or underutilized for significant periods of time and subsequently resume full or near full utilization when business cycles change. Likewise, during periods of supply and demand imbalance, assets are frequently contracted at or near cash break-even rates for extended periods of time until demand comes back into balance with supply. Impairment situations may arise with respect to specific individual assets, groups of assets, such as a type of drilling rig or class of marine vessel, or assets in a certain geographic location. The Company's assets are mobile and may be moved from markets with excess supply, if economically feasible. The Company's jackup rigs, semisubmersible rig and marine transportation vessels are suited for, and accessible to, broad and numerous markets throughout the world. However, there are fewer economically feasible markets available to the Company's barge rigs and platform rigs.

       Asset impairment evaluations are, by nature, highly subjective. They involve expectations of future cash flows to be generated by the Company's assets, and are based on management's assumptions and judgements regarding future industry conditions and operations, as well as management's estimates of future expected utilization, contract rates, expense levels and capital requirements of the Company's drilling rigs and marine vessels. The estimates, assumptions and judgements used by management in the application of the Company's asset impairment policies reflect both historical experience and an assessment of current operational, industry, economic and political environments. The use of different estimates, assumptions, judgements and expectations regarding future industry conditions and operations, would likely result in materially different carrying values of assets and results of operations.

   Income Taxes

       The Company conducts operations and earns income in numerous foreign countries and is subject to the laws of taxing jurisdictions within those countries, as well as U.S. federal and state tax laws. At December 31, 2002, the Company has a $323.4 million net deferred income tax liability and $49.2 million of accrued liabilities for income taxes currently payable.

       The carrying values of deferred income tax assets and liabilities reflect the application of the Company's income tax accounting policies in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), and are based on management's assumptions and estimates regarding future operating results and levels of taxable income, as well as management's judgements regarding the interpretation of the provisions of SFAS 109. The carrying values of liabilities for income taxes currently payable are based on management's interpretation of applicable tax laws, and incorporate management's assumptions and judgements regarding the use of tax planning strategies in various taxing jurisdictions. The use of different estimates, assumptions and judgements in connection with accounting for income taxes, especially those involving the deployment of tax planning strategies, may result in materially different carrying values of income tax assets and liabilities and results of operations.

NEW ACCOUNTING PRONOUNCEMENTS

       In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 142 supersedes Accounting Principles Board Opinion No. 17, "Intangible Assets," eliminates the requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life and requires impairment testing and recognition for goodwill and intangible assets. The Company adopted SFAS 142 effective January 1, 2002. (See Note 1 to the Company's Consolidated Financial Statements for a summary of the impact of the adoption of SFAS 142 on the Company's net income, basic earnings per share and diluted earnings per share.)

       In June 2001, the FASB issued Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company was required to adopt SFAS 143 on January 1, 2003 and does not expect SFAS 143 to have a material impact on its consolidated financial position or results of operations.

       In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement supercedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"), and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30 ("APB 30"). SFAS 144 retains the fundamental provisions of SFAS 121 and the basic requirements of APB 30; however, it establishes a single accounting model to be used for long-lived assets to be disposed of by sale and it expands the presentation of discontinued operations to include more disposal transactions. The Company adopted the provisions of SFAS 144 effective January 1, 2002. (See Note 3 to the Company's Consolidated Financial Statements.)

       In April 2002, the FASB issued Statement of Financial Accounting Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections" ("SFAS 145"). SFAS 145 amends, updates, clarifies and simplifies various accounting pronouncements and impacts the financial accounting and/or reporting for gains and losses from extinguishment of debt, extinguishments of debt made to satisfy sinking-fund requirements, intangible assets of motor carriers, and leases. Some provisions of SFAS 145 became effective in May 2002 and the remaining provisions were adopted by the Company, as required, on January 1, 2003. The Company does not expect the adoption of the remaining provisions to have a material impact on its consolidated financial position or results of operations.

       In June 2002, the FASB issued Statement of Financial Accounting Standards No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 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 146 requires liability recognition for a cost associated with an exit or disposal activity on the date the liability is incurred, rather than on the date of commitment to an exit plan, as provided under EITF 94-3. The Company was required to adopt SFAS 146 on January 1, 2003 and does not expect SFAS 146 to have a material impact on its consolidated financial position or results of operations.

       In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 expands existing accounting guidance and disclosure requirements for certain guarantees and requires recognition, at the inception of a guarantee, of a liability for the fair value of an obligation undertaken in connection with issuing a guarantee. The disclosure requirements of FIN 45 are effective for the Company's December 31, 2002 financial statements and the remaining provisions of FIN 45 apply to guarantees issued or modified after December 31, 2002. The Company does not expect this Interpretation to have a material impact on its consolidated financial position or results of operations.

       In December 2002, the FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure" ("FSAS 148"), which provides optional transition guidance for those companies electing to voluntarily adopt the accounting provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). In addition, SFAS 148 amends the disclosure requirements of SFAS 123 and requires certain disclosures in both annual and interim financial statements. The Company will continue to account for stock-based compensation in accordance with APB 25. As such, the Company does not expect this standard to have a material impact on its consolidated financial position or results of operations. The Company has adopted the disclosure provisions of SFAS 148 at December 31, 2002. (See Note 10 to the Company's Consolidated Financial Statements.)

       In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). FIN 46 requires a company to consolidate a variable interest entity, as defined, when the company will absorb a majority of the variable interest entity's expected losses, receive a majority of the variable interest entity's expected residual returns, or both. FIN 46 also requires certain disclosures relating to consolidated variable interest entities and unconsolidated variable interest entities in which a company has a significant variable interest. The disclosure provisions of FIN 46 are effective for all financial statements issued after January 31, 2003. The consolidation provisions of FIN 46 apply immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which a company obtains an interest after January 31, 2003. With respect to variable interest entities in which a company holds a variable interest that it acquired before February 1, 2003, the consolidation provisions are required to be applied no later than the company's first fiscal year or interim period beginning after June 15, 2003. The Company's equity interest in, and related charter arrangement with, ENSCO Enterprises Limited ("EEL") constitute a variable interest in a variable interest entity under FIN 46. The Company has not completed an assessment of the impact of the FIN 46 consolidation provisions on its investment in EEL. However, management currently does not expect to consolidate EEL. The Company has adopted the disclosure provisions of FIN 46 in its December 31, 2002 financial statements (see "Liquidity and Capital Resources - Off-Balance Sheet Arrangements" and Note 5 to the Company's Consolidated Financial Statements).

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

       Information required under Item 7A. has been incorporated into "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk."

Item 8.  Financial Statements and Supplementary Data

REPORT OF MANAGEMENT

       The management of ENSCO International Incorporated and its subsidiaries has responsibility for the preparation, integrity and reliability of the consolidated financial statements and related financial information contained in this report.

       The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and prevailing practices of the industries in which the Company operates. In some instances, these financial statements include amounts that are based on management's best estimates and judgments.

       The Company maintains a system of procedures and controls over financial reporting that is designed to provide reasonable assurance to the Company's management and Board of Directors regarding the integrity and the fair and reliable preparation and presentation, in all material respects, of its published financial statements. This system of financial controls and procedures is reviewed, modified, and improved as changes occur in business conditions and operations, and as a result of suggestions from the Company's independent accountants. There are inherent limitations in the effectiveness of any system of internal control and even an effective system of internal control can provide only reasonable assurance with respect to the financial statement preparation and may vary over time. Management believes that the Company's internal control system provides reasonable assurance that material errors or irregularities will be prevented or detected within a timely period and is cost effective.

       As part of management's responsibility for monitoring compliance with established policies and procedures, it relies on, among other things, audit procedures performed by internal auditors and independent accountants to give assurance that established policies and procedures are adhered to in all areas subject to their audits. The Board of Directors, operating through its Audit Committee composed solely of outside directors, meets periodically with management, the internal auditors and the independent accountants to review and assess the activities of each. Both the independent accountants and the internal auditors meet with the Audit Committee, without management present, to review the results of their audits and their assessment of the adequacy of the systems of internal accounting control and the quality of financial reporting.

REPORTS OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of ENSCO International Incorporated

       We have audited the accompanying consolidated balance sheet of ENSCO International Incorporated (a Delaware corporation), and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income and cash flows for each of the years in the two-year period then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

       We conducted our audits 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 audits provide a reasonable basis for our opinion.

       In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ENSCO International Incorporated and subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

       As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets in accordance with Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" in 2002. As discussed in Note 7 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" in 2001.

/s/ KPMG LLP

Dallas, Texas
January 27, 2003, except as to note 16 which is as of February 20, 2003.

To the Board of Directors and Stockholders of ENSCO International Incorporated

       In our opinion, the accompanying consolidated statements of income and of cash flows for the year ended December 31, 2000, present fairly, in all material respects, the results of operations and cash flows of ENSCO International Incorporated for the year ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Dallas, Texas
January 25, 2001

ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in millions, except per share amounts)

ENSCO INTERNATIONAL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in millions, except par value amounts)