GLOBALSANTAFE CORP - 10-Q Quarterly Report

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

FORM 10-Q

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

For the quarterly period ended September 30, 2002

OR

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

Commission File Number 1-14634

GLOBALSANTAFE CORPORATION
(Exact name of registrant as specified in its charter)

Cayman Islands 98-0108989
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

15375 Memorial Drive, Houston, Texas 77079-4101
(Address of principal executive offices) (Zip Code)

777 N. Eldridge Parkway, Houston, Texas 77079-4493
(Former address of principal executive offices) (Former Zip Code)

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

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 [ ]

The number of shares of the registrant's ordinary shares, par value $.01 per
share, outstanding as of October 31, 2002, was 232,754,279.

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS TO FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2002

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2

FORWARD-LOOKING STATEMENTS

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

Our forward-looking statements include statements about the following subjects:
estimated costs, changes in estimated costs and expected transition expenses in
connection with the Merger and subsequent integration of the administration,
operations and accounting records and systems of Global Marine and Santa Fe
International; our contract drilling backlog and the amount expected to be
realized in the remainder of 2002; our expectations regarding future conditions
in the various geographic markets in which we operate and the prospects for
future work and dayrates for our rigs in those markets; the dates our rigs that
are under construction are scheduled for delivery; our expectation that our
effective tax rate will be higher in 2003 than in 2002; the possible impact on
our future financial position and results of operations as a result of various
pieces of proposed legislation; projected cash outlays, the timing of such
outlays and expected sources of funding in connection with rigs that are under
construction; the fact that we do not anticipate using stock to satisfy future
purchase obligations in connection with our Zero Coupon Convertible Debentures;
our estimated capital expenditures in 2002; our ability to meet all of our
current obligations, including working capital requirements, capital
expenditures and debt service, and the amount in excess of cash flow generated
from operations that we estimate we will use in 2002; the anticipated effect of
the required adoption of SFAS No. 143 in 2003 and the required adoption of SFAS
No. 146; and any other statements that are not historical facts.

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

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

- the discovery of additional issues and/or opportunities for
further synergies as we continue to integrate the
administration, operations and accounting records and systems
of Global Marine and Santa Fe International, which could
require further operating, administrative and/or accounting
adjustments;

- the regional or worldwide demand for oil or natural gas and
resulting fluctuations in the price of oil or natural gas and
the level of activity in oil or natural gas exploration,
development and production;

- the outbreak or escalation of war or other armed hostilities
in the Middle East or elsewhere;

- the actions of our competitors in the offshore contract
drilling industry, which could significantly influence rig
dayrates and utilization;

- delays in construction projects and cost overruns on such
projects caused by such things as unforeseen engineering
problems, supplier problems, or work stoppages by or other
disruptions involving shipyard workers;

- changes in the geographic areas in which our customers plan to
operate, which in turn could change our expected effective tax
rate;

- the vagaries of the legislative process due to the
unpredictable nature of politics and national and world
events, among other things;

- changes in oil and natural gas drilling technology or in our
competitors' drilling rig fleets that could make our drilling
rigs less competitive or require major capital investments to
keep them competitive;

- the adequacy of sources of liquidity;

- the effect of litigation, regulatory proceedings and other
contingencies; and

- such other factors as may be discussed in the "Risk Factors"
section under Items 1 and 2 and elsewhere in our Annual Report
on Form 10-K for the year ended December 31, 2001, and in our
other reports filed with the U.S. Securities and Exchange
Commission.

YOU SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS. EACH
FORWARD-LOOKING STATEMENT SPEAKS ONLY AS OF THE DATE OF THE PARTICULAR
STATEMENT, AND WE DISCLAIM ANY OBLIGATION OR UNDERTAKING TO DISSEMINATE ANY
UPDATES OR REVISIONS TO OUR STATEMENTS, FORWARD-LOOKING OR OTHERWISE, TO REFLECT
CHANGES IN OUR EXPECTATIONS OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES
ON WHICH ANY SUCH STATEMENTS ARE BASED.

3

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders
of GlobalSantaFe Corporation

We have reviewed the accompanying condensed consolidated balance sheets of
GlobalSantaFe Corporation and subsidiaries as of September 30, 2002, and the
related condensed consolidated statements of income for each of the three and
nine-month periods ended September 30, 2002 and 2001 and the condensed
consolidated statements of cash flows for the nine-month periods ended September
30, 2002 and 2001. These financial statements are the responsibility of the
Company's management.

We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated interim financial statements
for them to be in conformity with accounting principles generally accepted in
the United States of America.

We previously audited, in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheets as of December
31, 2001, and the related consolidated statements of income, shareholders'
equity, and of cash flows for the year then ended (not presented herein); and in
our report dated March 14, 2002, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 2001,
is fairly stated in all material respects in relation to the consolidated
balance sheet from which it has been derived.

/s/ PricewaterhouseCoopers LLP

Houston, Texas
November 12, 2002

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
($ in millions, except per share amounts)

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(1) Per share data for the three and nine months ended September 30, 2001 has
been restated to reflect the effect of the exchange ratio established in
the merger agreement; all prior period amounts presented reflect the
pre-merger results of Global Marine Inc. only.

See notes to condensed consolidated financial statements.

5

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in millions)

See notes to condensed consolidated financial statements.

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
($ in millions)

See notes to condensed consolidated financial statements.

7

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)

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(1) Prior period amounts reflect the pre-merger results of Global Marine Inc.
only.

See notes to condensed consolidated financial statements.

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

GlobalSantaFe Corporation (the "Company" or "GlobalSantaFe") is an oil and gas
drilling contractor, with a fleet of over 100 owned or operated drilling rigs.
The Company's owned fleet includes 13 floating rigs, 44 jackups, 31 land rigs
and one platform rig, and the Company or its affiliates also operate 11 platform
rigs and two semisubmersibles owned by others. The Company provides offshore oil
and gas contract drilling services to the oil and gas industry worldwide on a
daily-rate ("dayrate") basis. The Company also provides offshore oil and gas
drilling management services on either a dayrate or completed-project,
fixed-price ("turnkey") basis, as well as drilling engineering and drilling
project management services, and it participates in oil and gas exploration and
production activities.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include
the accounts of GlobalSantaFe Corporation and its consolidated subsidiaries.
Intercompany accounts and transactions have been eliminated. Unless the context
otherwise requires, the term "Company" refers to GlobalSantaFe Corporation and
its consolidated subsidiaries. The condensed consolidated financial statements
and related footnotes are presented in U.S. dollars and in accordance with
accounting principles generally accepted in the United States of America.

The financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods. Such adjustments are considered to be of a normal recurring nature
unless otherwise identified. Interim-period results may not be indicative of
results for the full year. The condensed consolidated balance sheet as of
December 31, 2001, was derived from audited financial statements but does not
include all disclosures required by accounting principles generally accepted in
the United States of America. These interim financial statements should be read
in conjunction with the Company's audited financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001.
Certain prior period amounts have been reclassified to conform to the current
presentation. Such reclassifications had no effect on net income or
shareholders' equity.

In April 2002, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on Issue 01-14, "Income Statement
Characterization of Reimbursement Received for 'Out-of-Pocket' Expenses
Incurred." The EITF consensus requires that all reimbursements received for
out-of-pocket expenses incurred be characterized as revenue in the income
statement. The Company previously recorded certain reimbursements received from
customers as a reduction of the related expenses incurred. As part of the
implementation of the consensus in this issue, the Company has reclassified
certain reimbursements received from customers for the three and nine months
ended September 30, 2001 as revenues and related operating expenses to conform
to the current presentation. Operating income and net income for all periods
presented were not affected by this reclassification. The amounts of revenues
and expenses reclassified by segment for each period presented are as follows
(in millions):

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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(1) Prior year amounts reflect the pre-merger results of Global Marine Inc.
only.

MERGER OF SANTA FE INTERNATIONAL CORPORATION AND GLOBAL MARINE INC.

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

The Merger was accounted for as a purchase business combination in accordance
with accounting principles generally accepted in the United States of America.
As the former stockholders of Global Marine owned slightly more than 50% of the
Company after the Merger, Global Marine was considered the acquiring entity for
accounting purposes.

The condensed consolidated balance sheets as of September 30, 2002 and December
31, 2001 and the condensed consolidated statements of income for the three and
nine months ended September 30, 2002 and statement of cash flows for the nine
months ended September 30, 2002, reflect the consolidated financial position,
results of operations and cash flows of the combined company. The condensed
consolidated statements of income for the three and nine months ended September
30, 2001 and statement of cash flows for the nine months ended September 30,
2001, reflect the historical results of Global Marine only. As a result,
comparisons to prior year data may not be meaningful. Share and per share data
for the three and nine months ended September 30, 2001 have been restated to
reflect the exchange ratio as outlined in the merger agreement.

RESTRUCTURING COSTS

In connection with the Merger, the Company implemented a restructuring program
that included the consolidation of Santa Fe International's administrative
office in Dallas, Global Marine's administrative office in Lafayette and Global
Marine's administrative office in Houston into a single administrative office in
Houston, the consolidation of Santa Fe International's and Global Marine's North
Sea administrative offices in Aberdeen, Scotland and the separation of 162
employees from the Company. The employee functions affected were primarily
corporate support in nature and included accounting, information technology, and
employee benefits, among others. Approximately 60% of the affected positions
were located in Dallas, 24% were located in Houston and Lafayette, and the
remaining 16% were located in Aberdeen.

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Estimated restructuring costs associated with Global Marine were recorded as a
pretax charge in the fourth quarter of 2001. Payments related to these
restructuring costs for the nine months ended September 30, 2002 are summarized
as follows:

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(1) The liability at September 30, 2002 includes $2.0 million of special
termination costs related to certain retirement plans which are included in
"Other long-term liabilities" in the Condensed Consolidated Balance Sheets.

Estimated costs associated with Santa Fe International's employee severance and
closure of its Dallas and Aberdeen offices were recognized as a liability
assumed in the purchase business combination and included in the cost of
acquisition in accordance with the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations." Changes in
estimated costs and payments related to this liability for the nine months ended
September 30, 2002, are summarized as follows:

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(1) Earnings per share data for the three and nine months ended September 30,
2001 has been restated to reflect the effect of the exchange ratio of
0.665 as established in the merger agreement. Prior year amounts reflect
the pre-merger results of Global Marine Inc. only.

The computation of diluted earnings per ordinary share for all periods presented
excludes outstanding options to purchase GlobalSantaFe Ordinary Shares with
exercise prices greater than the average market price of GlobalSantaFe Ordinary
Shares for the period, because the inclusion of such options would have the
effect of increasing diluted earnings per ordinary share (i.e., their effect
would be "antidilutive"). Options to purchase a total of 14,700,741 and
8,718,677 ordinary shares were excluded from the computation of diluted earnings
per ordinary share for the three and nine months ended September 30, 2002,
respectively. Options to purchase a total of 5,393,437 and 2,938,741 ordinary
shares were excluded from the computation of diluted earnings per ordinary share
for the three and nine months ended September 30, 2001, respectively. The number
of antidilutive options for the 2001 periods has been restated to reflect the
effect of the exchange ratio of 0.665 established in the merger agreement.

Diluted earnings per ordinary share for the three and nine months ended
September 30, 2002 also excludes 4,875,062 potentially dilutive shares issuable
upon conversion of the Company's Zero Coupon Convertible Debentures because the
inclusion of such shares would be antidilutive given the level of net income for

12

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

these periods. Holders of the Zero Coupon Convertible Debentures have the right
to require the Company to repurchase the debentures as early as June 25, 2005.
The Company may pay the repurchase price with either cash or stock or a
combination thereof. The Company does not anticipate using stock to satisfy any
such future purchase obligation.

NOTE 3 - SEGMENT INFORMATION

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

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(1) Revenues for the periods shown reflect the application of the guidance set
forth in EITF Issue 01-14 (see Note 1).

(2) Prior year amounts reflect the pre-merger results of Global Marine Inc.
only.

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - COMMITMENTS AND CONTINGENCIES

CAPITAL COMMITMENTS

The Company has definitive contracts with PPL Shipyard PTE, Ltd. of Singapore
for construction of two ultra-deepwater semisubmersibles and two
high-performance jackups, with options for two additional similarly priced
semisubmersibles, and up to four additional jackups, the first two of which are
similarly priced. Contractual obligations in connection with construction of the
two ultra-deepwater semisubmersibles, excluding capitalized interest, capital
spares, startup expenses and mobilization costs, are expected to total
approximately $570 million, or $285 million per rig. Of the $570 million, $222
million had been incurred as of September 30, 2002. Contractual obligations in
connection with construction of the two high-performance jackups, excluding
capitalized interest, capital spares, startup expenses and mobilization costs,
are expected to total approximately $260 million, or $130 million per rig. Of
the $260 million, $128 million had been incurred as of September 30, 2002.

LEGAL PROCEEDINGS

Applied Drilling Technology Inc. ("ADTI"), a wholly-owned subsidiary of the
Company, Patterson Energy Services, Inc. and Eagle Oilfield Inspection Services,
Inc. are defendants in a civil lawsuit filed in September 2001 by Newfield
Exploration Co. ("Newfield") and its insurance underwriters in the United States
District Court for the Eastern District of Louisiana. The lawsuit arises out of
damage caused to an offshore well owned by Newfield, which had been drilled by
ADTI in the U.S. Gulf of Mexico pursuant to a turnkey drilling contract and in
respect of which Patterson Services, Inc. and Eagle Oilfield Inspection
Services, Inc. also performed services. The well was damaged following
completion of a turnkey contract when the well head was struck by a fishing
vessel. The plaintiffs allege breach of contract, negligence and breach of
warranty on the part of the defendants and have sued for damages of
approximately $13 million. The Company believes that the claims are without
merit, and intends to vigorously pursue the defense of this matter.

In 1998, the Company entered into fixed-price contracts with Harland and Wolff
Shipbuilding and Heavy Industries Limited (the "Shipbuilder") totaling $315
million for the construction of two dynamically positioned, ultra-deepwater
drillships, the Glomar C.R. Luigs and the Glomar Jack Ryan, originally scheduled
for delivery in the fourth quarter of 1999 and first quarter of 2000,
respectively. Pursuant to two 20-year capital lease agreements, the Company
subsequently novated the construction contracts for the drillships to two
financial institutions (the "Lessors"), which now own the drillships and lease
them to the Company.

The Company acted as the Lessors' construction supervisor and has paid on behalf
of the Lessors, or provided for the Lessors' payment of, all amounts it believes
were required under the terms of the contracts, including payments for all
approved change orders.

In November 1999, because the Company was concerned about the Shipbuilder's
financial viability and the satisfactory completion of the drillships in a
timely manner, the Company agreed to provide additional funding to the
Shipbuilder for completion of the two drillships in exchange for certain
assurances by the Shipbuilder and its parent, Fred. Olsen Energy ASA (the
"Funding Agreement").

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Under the terms of the Funding Agreement, the Company agreed to advance to the
Shipbuilder, without prejudice to any issues of liability under the shipbuilding
contracts, L.57 million ($92.6 million) above the drillships' $315
million contract price. The Company also agreed to advance amounts equal to half
of subsequent cost overruns until the Company's total advances under the Funding
Agreement reached L.65 million ($104.7 million). The Company and the
Lessors have advanced a total of L.63.9 million ($103.1 million)
under the Funding Agreement, including L.6.9 million ($10.5 million)
in connection with the Company's share of cost overruns.

In December 2001 and January 2002, the Shipbuilder served points of claim in the
existing arbitration proceedings in London for the shipbuilding contracts for
the Glomar C.R. Luigs and the Glomar Jack Ryan, respectively. The Shipbuilder
claims breach of contract in connection with the Company's obligations regarding
design of the drillships, the timely delivery to the Shipbuilder of
owner-furnished equipment and information relating thereto, and change orders.
The Shipbuilder also requested additional compensation for increases in the
steelweight of the drillships. The claims for the two drillships total L.169
million ($256.9 million), in addition to $43.6 million with respect to the
steelweight claims, in excess of the contract price. With the exception of a
small portion of the steelweight claim, the Company believes that the claims are
totally without merit.

The Funding Agreement did not settle any portion of the Shipbuilder's claims
referred to above. The agreement provides that the Shipbuilder will repay to the
Company amounts advanced under the Funding Agreement, to the extent the amount
of the advanced funds exceeds any arbitration award in favor of the Shipbuilder,
and that the Company will pay the Shipbuilder to the extent any arbitration
award in favor of the Shipbuilder exceeds the funds so advanced. In view of the
current financial condition of the Shipbuilder, collection from the Shipbuilder
of any amounts to which the Company may be entitled under the Funding Agreement
is doubtful.

In September 2000, the Shipbuilder requested that the arbitration panel consider
whether the Company had an obligation to pay the final delivery installment upon
completion of the vessel even if the Shipbuilder was in default of its
obligation to deliver the vessel, as the Company contends. The arbitration panel
issued a preliminary award requiring the payment to the Shipbuilder of $31.8
million of the $35.8 million contractual delivery installment, and that amount
has been paid. The Shipbuilder has now requested that the Company be required to
pay the balance of the delivery installment ($4.0 million). Should the
arbitrators agree with the Shipbuilder, the net effect in that case will be that
the Company will have provided for the payment of the full contract price of
$315 million plus the cost of certain agreed change orders and related expenses.
This price excludes amounts totaling $103.1 million that the Company has
advanced under the Funding Agreement. The Company's liability for the breach of
contract and steelweight claims and the status of the Company advances under the
Funding Agreement will be determined in the arbitration proceedings that are
currently underway in London.

ENVIRONMENTAL MATTERS

The Company has certain potential liabilities in the area of claims under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
and similar state acts regulating cleanup of various waste disposal sites,
including those described below. CERCLA is intended to expedite the remediation
of hazardous substances without regard to fault. Potentially responsible parties
("PRPs")

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

for each site include present and former owners and operators of, transporters
to and generators of the substances at the site. Liability is strict and can be
joint and several.

The Company has been named as a PRP in connection with a site located in Santa
Fe Springs, California and maintained by Waste Disposal, Inc. The Company and
other PRPs have agreed with the U.S. Environmental Protection Agency ("EPA") and
the U.S. Department of Justice ("DOJ") to settle their potential liabilities for
this site by agreeing to perform the remaining remediation required by EPA. The
form of the agreement is a consent decree which has not yet been lodged or
entered by the Court. Although the settlement is not final until the decree is
entered by the Court, the Company expects the decree to be entered by the Court.
The parties to the settlement have entered into a participation agreement which
makes the Company liable for an estimated 7.7% of the remediation costs.
Although the remediation costs cannot be determined with certainty until the
remediation is complete, the consultant advising the group with respect to
remediation believes that the remediation costs will be such that the Company's
share of the remaining remediation costs will be less than $800,000. There are
additional potential liabilities related to the site, but these cannot be
quantified, and there is no reason at this time to believe that they will be
material.

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

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

Resolutions of other claims by the U.S. Environmental Protection Agency, the
involved state agency and/or PRPs are at various stages of investigation. These
investigations involve determinations of

- the actual responsibility attributed to the Company and the other PRPs
at the site;

- appropriate investigatory and/or remedial actions; and

- allocation of the costs of such activities among the PRPs and other
site users.

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

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

- the volume and nature of material, if any, contributed to the site for
which the Company is responsible;

- the numbers of other PRPs and their financial viability; and

- the remediation methods and technology to be used.

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

Other than the proceedings discussed above, there are no material pending legal
proceedings, other than ordinary routine litigation incidental to the business
of the Company, to which the Company is a party or of which any of its property
is the subject.

NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION - NONCASH INVESTING AND FINANCING
ACTIVITY

During the nine months ended September 30, 2002, the Company incurred
approximately $12.2 million of capital expenditures related to its rig expansion
program that had been accrued but not paid as of September 30, 2002. These
amounts are included in "Accounts payable" in the Condensed Consolidated Balance
Sheet at September 30, 2002.

In September 2002, the Company's Board of Directors declared a regular quarterly
cash dividend in the amount of $0.0325 per ordinary share, payable to
shareholders of record as of the close of business on September 30, 2002. The
dividend in the amount of $7.6 million was paid on October 15, 2002.

In June 2001, the Company completed the sale of the Glomar Beaufort Sea I
concrete island drilling system to Exxon Neftegas Limited for $45.0 million. The
Company received $5.0 million in cash at closing with the remainder of the
purchase price in the amount of $40.0 million, plus interest, being due on or
before March 1, 2003. The Company received approximately $42.0 million,
including accrued interest, during the first quarter of 2002, representing full
payment of the remaining purchase price.

NOTE 6 - DERIVATIVE INSTRUMENTS

One of the Company's cantilevered jackup rigs is contracted under a two-year
agreement expiring in May 2004 containing a variable-dayrate formula linked to
crude oil prices, whereby dayrates earned under this contract increase or
decrease in response to increases or decreases in oil prices. A second rig began
work under a similar two-year agreement in October 2002. Dayrates under these
agreements are calculated using a sliding scale formula based on the arithmetic
average of the daily closing price of Light Sweet Crude on the New York
Mercantile Exchange, subject to a maximum of $28.00 per barrel and a minimum of
$12.00 per barrel.

17

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The variable-dayrate formula contained in these agreements is comprised of
multiple embedded derivative financial instruments as defined in SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The fair value
of these embedded derivatives fluctuate in response to changes in oil prices. At
September 30, 2002, the fair value of the embedded derivatives in the first
contract was $1.7 million.

As part of the Company's overall risk management strategy, the Company has
entered into a number of commodity caps, swaps and floors designed to mitigate
its exposure to fluctuations in fair values of the embedded derivatives in these
contracts resulting from changes in oil prices.

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

Subsequent to September 30, 2002, the Company entered into a fixed-for-floating
interest rate swap with a notional amount of $50 million, effective October 2002
through September 2007. This interest-rate swap is intended to manage a portion
of the fair-value risk related to the Company's 7-1/8% Notes due 2007. Under the
terms of this swap, the Company has agreed to pay the counterparty an interest
rate equal to the six-month LIBOR rate plus 330 basis points on the notional
amount and the Company will receive the fixed 7.125% rate.

At September 30, 2002, the net fair value of the Company's 7-1/8% Notes due 2007
was $339.9 million compared to their carrying value of $299.7 million (net of
discount), $323.4 million for the Company's Zero Coupon Convertible Debentures
due 2020 compared to their carrying value of $324.4 million (net of discount)
and $319.4 million for the Company's 7% Notes due 2028 compared to their
carrying value of $296.7 million (net of discount).

NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS

In 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142,
"Goodwill and Other Intangible Assets", SFAS No. 143, "Accounting for Asset
Retirement Obligations" and SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." In May 2002, the FASB issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections." In July 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." In October
2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial
Institutions," the provisions of which are not applicable to the Company's
operations. The Company adopted the provisions of SFAS No. 142 and SFAS No. 144
effective January 1, 2002. The Company adopted SFAS No. 145 in the second
quarter of 2002.

SFAS No. 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their initial recognition. The provisions of SFAS No. 142:

o Eliminate the amortization of goodwill and indefinite-lived intangible
assets;

o Require that goodwill and indefinite-lived intangible assets be tested at
least annually for impairment (and in interim periods if certain events
occur indicating that the carrying value of goodwill and/or
indefinite-lived intangible assets may be impaired); and

18

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

o Require that reporting units be identified for the purpose of assessing
potential future impairments of goodwill.

At September 30, 2002, Goodwill in the Company's Condensed Consolidated Balance
Sheet totaled approximately $385.9 million, substantially all of which was
recorded in connection with the Merger (see Note 1). All of the goodwill
recorded in connection with the Merger has been allocated to the Company's
contract drilling segment. The Company has completed its goodwill impairment
testing for 2002 and will not be required to record a goodwill impairment loss
for 2002. The amortization of goodwill existing before the Merger was
immaterial.

SFAS No. 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS No. 144, among other things:

o Establishes criteria to determine when a long-lived asset is held for sale,
including a group of assets and liabilities that represents the unit of
accounting for a long-lived asset classified as held for sale;

o Provides guidance on the accounting for a long-lived asset if the criteria
for classification as held for sale are met after the balance sheet date
but before the issuance of the financial statements; and

o Provides guidance on the accounting for a long-lived asset classified as
held for sale.

The adoption of SFAS No. 144 did not have a material impact on the Company's
results of operations, financial position or cash flows.

SFAS No. 145, among other things, addresses the criteria for the classification
of extinguishment of debt as an extraordinary item and addresses the accounting
treatment of certain sale-leaseback transactions. The adoption of SFAS No. 145
did not have a material impact on the Company's results of operations, financial
position or cash flows.

SFAS No. 143 establishes accounting standards for the recognition and
measurement of liabilities in connection with asset retirement obligations, and
is effective for fiscal years beginning after June 15, 2002. The Company does
not anticipate that the required adoption of SFAS No. 143 in 2003 will have a
material effect on its results of operations, financial position or cash flows.

SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, rather than the
date of an entity's commitment to an exit plan. The provisions of this statement
are effective for exit or disposal activities that are initiated after December
31, 2002. The Company does not anticipate that the required adoption of SFAS No.
146 will have a material effect on its results of operations, financial position
or cash flows.

19

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The Company is a major oil and gas drilling contractor, owning or operating a
high quality, technologically advanced fleet of over 100 drilling rigs. The
Company's owned fleet currently includes 13 floating rigs, 44 jackups, 31 land
rigs and one platform rig, and the Company or its affiliates also operate 11
platform rigs and two semisubmersibles owned by others. The Company provides
offshore oil and gas contract drilling services to the oil and gas industry
worldwide on a daily-rate ("dayrate") basis. The Company also provides offshore
oil and gas drilling management services on either a dayrate or
completed-project, fixed-price ("turnkey") basis, as well as drilling
engineering and drilling project management services, and it participates in oil
and gas exploration and production activities.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The Company's consolidated financial statements are impacted by the accounting
policies used and the estimates and assumptions made by management during their
preparation. These policies, estimates and assumptions affect the carrying
values of assets and liabilities and disclosures of contingent assets and
liabilities at the balance sheet date and the amounts of revenues and expenses
recognized during the period. Actual results could differ from such estimates
and assumptions. There have been no significant changes in the Company's
critical accounting policies since December 31, 2001. For a discussion of the
critical accounting policies and estimates that the Company uses in the
preparation of its condensed consolidated financial statements, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.

MERGER WITH SANTA FE INTERNATIONAL

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

The Merger was accounted for as a purchase business combination in accordance
with accounting principles generally accepted in the United States of America.
As the former stockholders of Global Marine owned slightly more than 50% of the
Company after the Merger, Global Marine was considered the acquiring entity for
accounting purposes. The Company's results of operations for the three and nine
months ended September 30, 2002, reflect the operations of the combined company.
The Company's results of operations for the comparable periods of 2001 reflect
the operations of Global Marine only.

RESTRUCTURING COSTS

In connection with the Merger, the Company implemented a restructuring program
that included the consolidation of Santa Fe International's administrative
office in Dallas, Global Marine's administrative office in Lafayette and Global
Marine's administrative office in Houston into a single administrative office in
Houston, the consolidation of Santa Fe International's and Global Marine's North
Sea administrative offices in Aberdeen, Scotland and the separation of 162
employees from the Company. The employee functions affected were primarily
corporate support in nature and included accounting, information technology, and
employee benefits, among others. Approximately 60% of the affected positions
were located in Dallas, 24% were located in Houston and Lafayette, and the
remaining 16% were located in Aberdeen.

20

Estimated restructuring costs associated with Global Marine were recorded as a
pretax charge in the fourth quarter of 2001. Payments related to these
restructuring costs for the nine months ended September 30, 2002 are summarized
as follows:

- ----------
(1) The liability at September 30, 2002 includes $2.0 million of special
termination costs related to certain retirement plans which are included in
"Other long-term liabilities" in the Condensed Consolidated Balance Sheets.

Estimated costs associated with Santa Fe International's employee severance and
closure of its Dallas and Aberdeen offices were recognized as a liability
assumed in the purchase business combination and included in the cost of
acquisition in accordance with the provisions of SFAS No. 141, "Business
Combinations." Changes in estimated costs and payments related to this liability
for the nine months ended September 30, 2002, are summarized as follows:

All accrued estimated restructuring costs associated with Global Marine and
costs associated with Santa Fe International's employee severance and closure of
its Dallas and Aberdeen offices are included in "Other accrued liabilities" on
the accompanying Condensed Consolidated Balance Sheets, except for the special
termination costs related to certain retirement plans noted above.

21

OPERATING RESULTS

The Company's results of operations for the three and nine months ended
September 30, 2002, represent the operations of the combined company. The
Company's results of operations for the comparable periods of 2001 represent the
historical operations of Global Marine only. As a result, comparisons to prior
year data may not be meaningful.

In April 2002, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on Issue 01-14, "Income Statement
Characterization of Reimbursement Received for 'Out-of-Pocket' Expenses
Incurred." The EITF consensus requires that all reimbursements received for
out-of-pocket expenses incurred be characterized as revenue in the income
statement. The Company previously recorded certain reimbursements received from
customers as a reduction of the related expenses incurred. As part of the
implementation of the consensus in this issue, the Company has reclassified
certain reimbursements received from customers for the three and nine months
ended September 30, 2001, as revenues and related operating expenses to conform
to the current presentation. Operating income and net income for all periods
presented were not affected by this reclassification. The amounts of revenues
and expenses reclassified by segment for each period presented are as follows
(in millions):

- ----------
(1) Prior year amounts reflect the pre-merger results of Global Marine Inc.
only

22

SUMMARY

Data relating to the Company's operations by business segment follows (dollars
in millions):

- ----------
(1) Prior year amounts reflect the pre-merger results of Global Marine Inc.
only.

Operating income for the three and nine months ended September 30, 2002,
increased to $90.7 million and $272.2 million, respectively, from $90.5 million
and $250.5 million, respectively, for the same periods in 2001, due primarily to
the operations of the Santa Fe drilling fleet, offset by lower dayrates and
utilization in the U.S. Gulf of Mexico, reduced turnkey drilling activity and an
increase in corporate expenses.

In August 2002, the existing drilling contract for the Glomar Jack Ryan
ultra-deepwater drillship was assigned by the customer to an Australian
subsidiary of the customer to drill a series of deepwater wells on the western
and southern coasts of Australia. To facilitate the assignment of this contract,
the Company was paid $21.7 million, which is being amortized over the remaining
contract term expiring August 1, 2003.

In February 2002, the Company sold the Key Bermuda jackup drilling rig to Nabors
Drilling International Limited for approximately $29 million, less selling costs
of approximately $5 million. The carrying value of the Key Bermuda was adjusted
to its estimated market value in the consolidated financial statements of the
Company at the time of the Merger and, therefore, no gain or loss was recorded
as a result of this sale.

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

The Company's contract drilling backlog at September 30, 2002, totaled
approximately $1.2 billion, of which approximately $315 million is expected to
be realized in the remainder of 2002. Contract drilling backlog at December 31,
2001 was $1.4 billion.

23

MARKET CONDITIONS

The drilling business has historically been cyclical, marked by periods of low
demand, excess rig supply and low dayrates, followed by periods of high demand,
short rig supply and increasing dayrates. These cycles are highly volatile and
are influenced by a number of factors, including oil and gas prices, the
spending plans of the Company's customers and the highly competitive nature of
the offshore drilling industry. Rig markets which appear to have stabilized at a
certain level of utilization and dayrates can change swiftly and dramatically,
making it difficult to predict trends or conditions in the market. A summary of
current market conditions in the Company's areas of operations follows:

North Sea. The Company currently operates five semisubmersibles, five heavy-duty
harsh environment jackups, three cantilevered jackups and a platform rig in the
North Sea market. Utilization and dayrates for both jackups and semisubmersibles
have declined in this market following the announcement of tax law changes in
the United Kingdom. The Company expects continued weakness in this market and
anticipates that several of its rigs currently under contract in this area will
either receive lower dayrates or be idle when their current contracts expire. Of
the Company's semisubmersibles in this market, one is undergoing a major paint
project, after which it will be cold-stacked, and another is expected to depart
the North Sea in December 2002 for a commitment in Equatorial Guinea. One of the
cantilevered jackups obtained a commitment in Nigeria and departed the North Sea
in early November 2002.

Gulf of Mexico. The Company currently operates eleven cantilevered jackups and
two semisubmersibles in this market. The Gulf of Mexico market for cantilevered
jackups is characterized by short-term contracts, and dayrates during 2002 have
generally been improving marginally as rigs roll over to new contracts. One of
the Company's semisubmersibles in this market is currently committed through the
second quarter of 2003, while the other is operating under a contract that
expires in the fourth quarter of 2002 and currently does not have another
commitment.

Ultra-deepwater drillship market. The Company currently operates three
drillships in the ultra-deepwater (water depths greater than 7,000 ft.) market.
The ultra-deepwater market appears to be somewhat oversupplied for at least
the short term. There are presently fewer oil companies pursuing operations in
ultra-deepwater, and several oil companies with deepwater rigs under contract
have offered them to other oil companies on a subcontract basis. During 2003 and
2004, a significant percentage of the world's deepwater rig fleet faces contract
expirations. While the Company's ultra-deepwater drillships have been operating
under long-term contracts, one contract will expire in March 2003 and the other
two contracts will expire in the third quarter of 2003.

West Africa. The Company currently operates one semisubmersible and eight
cantilevered jackups in this market with an additional semisubmersible and a
cantilevered jackup moving to the region from the North Sea during the fourth
quarter of 2002. Jackup utilization and dayrates remained stable in this market
during the third quarter. The softer market in the North Sea, however, may
result in downward pressure on the West Africa market. While the semisubmersible
market in this area has softened, the Company's two semisubmersibles are
contracted through a substantial portion of 2003. The Company also has a
substantial contract backlog during 2003 for its 300 ft. jackups in this market,
but is facing the potential for lower dayrates and utilization for its 250 ft.
jackups. The Company's moored drillship, which had previously been operated in
this market, will be cold-stacked and the Company does not intend to reactivate
this rig until the market for mid-range floating drilling rigs improves
substantially.

24

Middle East and Mediterranean. The Company operates six cantilevered jackups in
the Middle East region and two cantilevered jackups in the Mediterranean region
offshore North Africa. Both markets appear to be stable and all of the
cantilevered jackups in these regions are currently under contract.

Southeast Asia. The Company operates six cantilevered jackups in Southeast Asia.
Five of these jackups are operating under long-term contracts and the remaining
jackup is committed through December 2002. Although the market is generally
balanced in this region, the Company has observed a reduction in dayrates in
recent contract placements.

Other. In Northeast Canada, the Company operates one semisubmersible and one
heavy-duty harsh environment jackup. The jackup is under contract until the
fourth quarter of 2003, and the outlook for additional work for the
semisubmersible following expiration of its current contract appears favorable
following a four-month period of idle time and upgrades. In Trinidad, the
Company operates one cantilevered jackup under a long-term contract expiring in
the second quarter of 2003.

Land drilling fleet. The Company owns 31 land drilling rigs (GSF Rig 159,
located in the Middle East, is held for sale), with 19 of these located in the
Middle East, four in North Africa and eight in Venezuela. Three of the active
rigs in the Middle East are idle, while utilization and dayrates for the
remainder of the Middle Eastern and North African rigs remain stable for the
remainder of 2002. In January 2003, the Company expects three land rigs to be
released in Kuwait. The eight land rigs located in Venezuela are currently idle.

FUTURE MARKET FOR NEWBUILDS

The first of the Company's two high-performance jackups currently under
construction is scheduled for delivery around the end of the first quarter of
2003, while the first of two ultra-deepwater semisubmersibles, also under
construction, is scheduled for delivery around the end of the fourth quarter of
2003. The Company's ability to obtain contracts for its newbuild rigs and the
terms of such contracts will be dependent on market conditions at the time these
rigs are available for contract. While the Company believes that its newbuild
rigs will have substantial advantages in efficiency and capability over
competitive equipment in the industry, it can provide no assurance that it will
be able to obtain contracts for all of its new rigs or that the contract terms
will be similar to those for similar equipment in current market conditions.

RECENT TERRORIST ACTS AND THREATS OF ARMED CONFLICTS

In addition to those risks brought about by the terrorist attacks on September
11, 2001, recent acts of terrorism and threats of armed conflicts in or around
various areas in which the Company operates, such as Indonesia and the Middle
East, could limit or disrupt the Company's markets and operations. In
particular, the Company currently operates six cantilevered jackups and 18 land
rigs in the Middle East and six cantilevered jackups in Southeast Asia. An
outbreak of hostilities or additional acts of terrorism in these regions could
result in the evacuation of personnel, cancellation of drilling contracts or the
loss of personnel or assets. These recent developments will subject the
Company's worldwide operations to increased risks and, depending on their
magnitude, could have a material adverse effect on the business of the Company.
See "Risk Factors - Recent Terrorist Attacks Could Result in a Material Adverse
Effect on the Business of the Company" and "- The Company's International
Operations Involve Additional Risks

25

Not Associated with Domestic Operations" in the Company's Annual Report on Form
10-K for the year ended December 31, 2001.

INSURANCE

As a result of poor underwriting results suffered by the insurance industry over
the past few years and the catastrophic events of September 11, 2001, the
Company incurred significant premium and deductible increases in its insurance
coverage upon renewal of its insurance program in June 2002.

The Company maintains insurance coverage against certain general and marine
liabilities, including liability for personal injury, in the amount of $500
million. This general and marine liability coverage now includes a $250,000 per
occurrence deductible with an additional aggregate deductible for protection and
indemnity coverage for the period from July 2002 to December 2003 of $2.8
million for amounts exceeding the per occurrence deductibles. The Company also
continues to separately insure its rigs and related equipment against certain
marine and other perils resulting in property damages under hull and machinery
policies. The Company's hull and machinery policy deductible has increased from
approximately $300,000 per occurrence to one percent of the insured value of the
drilling rig covered, subject to a minimum of $1.0 million and a maximum of $2.5
million. The Company continues with its practice of insuring each active rig for
its market value, which does not necessarily cover all costs required to replace
each rig with a newly constructed one.

With respect to turnkey drilling operations, the Company purchases insurance to
cover well control expense, pollution liability and re-drill expense in an
amount normally not less than $50 million per occurrence. The Company's
deductible for well-control insurance has increased from $200,000 per occurrence
to $1.0 million per occurrence with an additional annual aggregate deductible of
$5.0 million for amounts exceeding the per occurrence deductibles.

The Company believes that its policy of purchasing insurance coverage is
consistent with its industry peers for the types, amounts and limits of
insurance maintained. The occurrence of a significant event, however, that is
not fully insured against could materially and adversely affect the Company's
operations, cash flows and financial condition. For a discussion of this and
other risk factors affecting the Company's operations, see "Risk Factors - The
Company's Business Involves Numerous Operating Hazards and It is Not Fully
Insured against All of Them" in the Company's Annual Report on Form 10-K for the
year ended December 31, 2001.

CONTRACT DRILLING OPERATIONS

Data with respect to the Company's contract drilling operations follows (dollars
in millions, except average revenues per day):

26

- ----------
(1) Includes revenue earned from affiliates.
(2) Prior year amounts reflect the pre-merger results of Global Marine Inc.
only.

Three Months Ended September 30, 2002, Compared to Three Months Ended
September 30, 2001

Contract drilling revenues increased $172.1 million to $402.9 million for the
third quarter of 2002 compared to $230.8 million for the 2001 third quarter due
primarily to the addition of the Santa Fe International rigs to the Company's
drilling fleet, partially offset by lower dayrates and utilization in the U.S.
Gulf of Mexico.

The Company's offshore utilization rates for the third quarter of 2002 averaged
83% for its rigs in the U.S. Gulf of Mexico, 89% in West Africa, 87% in the
North Sea, 84% in the Far East, 100% in South America and 100% in the Middle
East. This compares with Global Marine's third quarter 2001 average utilization
of 100% in West Africa, 99% in the U.S. Gulf of Mexico, 89% in the North Sea and
77% in South America. Global Marine's offshore fleet did not operate in the
Middle East or the Far East during the third quarter of 2001. The Company's land
drilling fleet averaged 63% utilization in the third quarter of 2002. Global
Marine had no land drilling operations in 2001.

The Company's results for the quarter ended September 30, 2002, reflect downtime
on six of the Company's offshore rigs at various times during the quarter for
planned maintenance and upgrades as part of the Company's continuing program to
upgrade its drilling rigs. All of these rigs have since returned to work.

The Company's operating profit margin for contract drilling operations decreased
to 24% for the third quarter of 2002 from Global Marine's 37% for the third
quarter of 2001 due primarily to the addition of land drilling operations as a
result of the Merger and lower dayrates in the U.S. Gulf of Mexico, along with

27

an increase in depreciation expense due to the adjustment of the carrying values
of the Santa Fe International rigs to their estimated market value in connection
with the Merger. Land operations have historically operated at substantially
lower margins than the Company's offshore fleet.

The Company recorded approximately $2.1 million of "transition expenses" related
to its contract drilling operations during the third quarter of 2002, which
represent costs incurred as part of the integration of the operations of Global
Marine and Santa Fe International. Such costs are not considered to be
indicative of the Company's ongoing operations.

Nine Months Ended September 30, 2002, Compared to Nine Months Ended
September 30, 2001

Contract drilling revenues increased by $562.7 million to $1,215.5 million for
the nine months ended September 30, 2002, compared to $652.8 million for the
nine months ended September 30, 2001, due primarily to the addition of the Santa
Fe International rigs to the Company's drilling fleet, partially offset by lower
dayrates and utilization in the U.S. Gulf of Mexico and lower utilization in
West Africa.

The Company's offshore utilization rates for the nine months ended September 30,
2002, averaged 90% for its rigs in the U.S. Gulf of Mexico, 85% in West Africa,
90% in the North Sea, 76% in the Far East, 87% in South America and 97% in the
Middle East. This compares with Global Marine's 2001 average utilization of 98%
in the U.S. Gulf of Mexico, 95% in West Africa, 88% in the North Sea and 92% in
South America. Global Marine's offshore fleet did not operate in the Middle East
or the Far East during 2001. The Company's land drilling fleet averaged 71%
utilization for the nine months ended September 30, 2002. Global Marine had no
land drilling operations in 2001.

The Company's operating profit margin for contract drilling operations decreased
to 24% for the nine months ended September 30, 2002, from Global Marine's 37%
for the comparable period of 2001 due primarily to the addition of land drilling
operations and lower dayrates in the U.S. Gulf of Mexico, along with the
increase in depreciation expense noted in the discussion of the third quarter
results above.

The Company recorded approximately $13.2 million of "transition expenses"
related to its contract drilling operations during the nine months ended
September 30, 2002, which represent costs incurred as part of the integration of
the operations of Global Marine and Santa Fe International. Such costs are not
considered to be indicative of the Company's ongoing operations. The Company
expects to incur a total of approximately $15 million of transition expenses
related to its contract drilling operations, all of which is expected to be
incurred in 2002.

Along with the addition of the Santa Fe International drilling fleet, the
mobilization of rigs between geographic areas also affected each area's revenues
over the periods indicated. Specifically, Global Marine mobilized one jackup
from West Africa to the U.S. Gulf of Mexico in February 2001, one drillship from
Trinidad to the U.S. Gulf of Mexico in May 2001, one semisubmersible from Canada
to the North Sea in May 2001, one jackup from the U.S. Gulf of Mexico to West
Africa in July 2001 and one jackup from the U.S. Gulf of Mexico to Trinidad in
September 2001. Subsequent to the Merger, the Company's mobilization of rigs was
as follows: one jackup from the U.S. Gulf of Mexico to Trinidad in December 2001
and back to the Gulf of Mexico in August 2002; one drillship from the U.S. Gulf
of Mexico to Trinidad in March 2002, back to the Gulf of Mexico in May 2002 and
to Australia in September 2002; one jackup from Trinidad to West Africa in July
2002; and one semisubmersible from the North Sea to the east coast of Canada in
July 2002.

28

As of November 8, 2002, 14 of the Company's offshore drilling rigs, including
its platform rig, were located in the North Sea, 15 were located in the U.S.
Gulf of Mexico, 10 were offshore West Africa, with one rig currently en route,
six were in the Middle East, six were in Southeast Asia, two were offshore North
Africa, two were off the northeast coast of Canada, one was offshore Trinidad
and one was off the western coast of Australia.

As of November 8, 2002, 19 of the Company's 31 land rigs were located in the
Middle East, eight were in South America and four were in North Africa

As of November 8, 2002, 53 of the Company's 58 offshore rigs were either
committed or under contract and 19 of the Company's 31 land rigs were under
contract.

DRILLING MANAGEMENT SERVICES

Three Months Ended September 30, 2002, Compared to Three Months Ended
September 30, 2001

Drilling management services revenues increased by $24.7 million to $117.6
million in the third quarter of 2002 from $92.9 million in the comparable 2001
quarter due to higher average revenues per turnkey project along with higher
reimbursable revenues primarily related to well management projects in the North
Sea. These increases were partially offset by a decrease in the number of
turnkey projects completed. The Company completed 26 turnkey projects in the
third quarter of 2002 (21 wells drilled and five well completions) as compared
to 29 turnkey projects in the third quarter of 2001 (24 wells drilled and five
well completions).

Drilling management services operating income, however, decreased by $2.5
million to $7.3 million in the third quarter of 2002 from $9.8 million in the
third quarter of 2001, due primarily to lower margins achieved on turnkey wells
drilled in the third quarter of 2002. Operating margin declined to 6.2% for the
third quarter of 2002 from 10.5% for the comparable prior year quarter due
primarily to the lower margins on turnkey wells drilled noted above, along with
the effect of reimbursable revenues, which represent expenses billed to the
customer. The Company incurred losses totaling $1.6 million on three of the 26
turnkey projects completed in the third quarter of 2002 compared to losses
totaling $1.3 million on two of the 29 turnkey projects completed in the third
quarter of 2001. Results for the third quarters of 2002 and 2001 were also
affected by the deferral of turnkey drilling profit totaling $3.5 million and
$1.8 million, respectively, on wells in which Challenger Minerals, Inc. ("CMI"),
a wholly-owned subsidiary of the Company, was either the operator or held a
working interest. The deferral of this profit is required under the "full-cost"
method of accounting for oil and gas properties. The Company will recognize this
profit through lower depletion expense over the productive lives of these wells.

Nine Months Ended September 30, 2002, Compared to Nine Months Ended
September 30, 2001

Drilling management services revenues decreased by $38.3 million to $299.9
million for the nine months ended September 30, 2002, from $338.2 million in the
comparable 2001 period due primarily to a decrease in the number of turnkey
projects completed, partly offset by an increase in reimbursable revenues. The
Company completed 72 turnkey projects for the nine months ended September 30,
2002, (59 wells drilled and 13 well completions) as compared to 101 turnkey
projects in the comparable period of 2001 (83 wells drilled and 18 well
completions).

29

Drilling management services operating income decreased by $2.1 million to $18.5
million for the nine months ended September 30, 2002, from $20.6 million for the
comparable prior year period due primarily to the deferral of turnkey drilling
profit totaling $10.2 million and $6.6 million for the nine months ended
September 2002 and 2001, respectively, related to wells in which CMI was either
the operator or held a working interest. Excluding the deferral of this profit,
drilling management services operating income increased by $1.5 million to $28.7
million for the nine months ended September 30, 2002, from $27.2 million for the
same period in 2001, due primarily to improved turnkey drilling performance in
2002 as compared to the same period in 2001. The Company incurred losses
totaling $3.0 million on six of the 72 turnkey projects completed in the nine
months ended September 30, 2002, compared to losses totaling $13.5 million on
ten of the 101 turnkey projects completed in the comparable period of 2001

OTHER INCOME AND EXPENSE

General and administrative expenses increased to $14.4 million and $39.3 million
for the quarter and nine months ended September 30, 2002, respectively, compared
to $5.4 million and $17.3 million, respectively, for the comparable periods of
2001 due primarily to increases in personnel from the inclusion of Santa Fe
International operations as a result of the Merger and an increase in pension
expenses. Pension expense included in general and administrative expenses
increased to $3.9 million and $5.8 million, respectively, for the quarter and
nine months ended September 30, 2002, compared to $0.4 million and $1.3 million,
respectively, for the same periods in 2001 due primarily to the inclusion of
expenses related to legacy Santa Fe International plans, lower returns on plan
assets and plan changes to conform benefits under the legacy pension plans as a
result of the Merger.

Also included in general and administrative expenses for the 2002 periods are
"transition expenses," which represent costs incurred as part of the integration
of the operations of Global Marine and Santa Fe International. General and
administrative transition expenses were approximately $2.0 million and $5.8
million for the three and nine months ended September 30, 2002, respectively.
Such costs are not considered to be indicative of the Company's ongoing
operations. The Company expects to incur a total of approximately $7 million of
general and administrative transition expense, all of which is expected to be
incurred in 2002.

Interest expense, net of capitalized interest, decreased to $8.7 million and
$29.8 million, respectively, for the three and nine months ended September 30,
2002 compared to $14.4 million and $42.6 million, respectively for the same
periods in 2001, due primarily to the capitalization of approximately $5.6
million and $13.1 million, respectively, of interest costs in the three and nine
months ended September 30, 2002, in connection with the Company's rig expansion
program discussed in "Liquidity and Capital Resources - Financing and Investing
Activities." Global Marine had no construction program in progress in 2001 and,
therefore, did not capitalize any interest costs in 2001.

Interest income increased to $3.8 million and $12.0 million for the three and
nine months ended September 30, 2002, respectively, from $3.7 million and $9.7
million for the comparable 2001 periods due to increased average cash, cash
equivalents and marketable securities balances primarily as a result of the
Merger and cash generated from operations, offset in part by lower interest
rates earned in 2002 on the Company's cash, cash equivalents and marketable
securities balances.

Other income totaled $1.7 million and $1.3 million for the three and nine months
ended September 30, 2002, respectively, due primarily to a $1.7 million net gain
recorded on embedded derivative financial

30

instruments associated with a two-year variable-dayrate contract for one of the
Company's cantilevered jackups. An additional cantilevered jackup began work
under a similar two-year contract in October 2002. See discussion in "Item 3 -
Quantitative and Qualitative Disclosures About Market Risk."

INCOME TAXES

The Company's effective income tax rates for financial reporting purposes were
approximately 14.3% and 11.8%, respectively, for the three and nine months ended
September 30, 2002 as compared to 22.2% and 26.0% for the same periods in 2001.
The lower effective tax rates for the 2002 periods are due in part to the
addition of the Santa Fe International operations, which increased earnings in
international jurisdictions that are taxed at generally lower rates. The
effective tax rate was further lowered by approximately $27 million of reduced
annual tax costs related to interest expense on intercompany debt incurred in
the Merger.

The Company is a Cayman Islands company and the Cayman Islands does not impose a
corporate income tax. Consequently, income taxes have been provided based upon
the tax laws and rates in effect in the countries in which operations are
conducted and income is earned. The income taxes imposed in these jurisdictions
vary substantially. The Company's effective tax rate for financial statement
purposes will continue to fluctuate from quarter to quarter and year to year as
the Company's operations are conducted in different taxing jurisdictions. Based
on current market conditions and expectations of rig employment, the Company
believes that its effective tax rate will be higher in 2003 than in 2002.

Earlier this year, several members of Congress introduced various pieces of
legislation that, if enacted, could adversely affect the Company's United States
federal income tax position. Much of the proposed legislation targets United
States corporations that have expatriated to a foreign jurisdiction and would in
certain cases treat such corporations as United States corporations for United
States federal income tax purposes. Several of the proposals would have
retroactive application and would treat the Company as a United States
corporation. Some of the proposed legislation would impose additional
limitations on the deductibility for United States federal income tax purposes
of certain intercompany transactions, including intercompany interest expense.

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

LIQUIDITY AND CAPITAL RESOURCES

FINANCING AND INVESTING ACTIVITIES

The Company has definitive contracts with PPL Shipyard PTE, Ltd. of Singapore
for construction of two ultra-deepwater semisubmersibles and two
high-performance jackups, with options for two additional similarly priced
semisubmersibles, and up to four additional jackups, the first two of which are
similarly priced. Estimated cash outlays in connection with construction of the
two ultra-deepwater semisubmersibles, excluding capitalized interest, startup
costs, capital spares and mobilization costs, are expected to total
approximately $570 million, or $285 million per rig. Of the $570 million, $222
million had been incurred as of September 30, 2002. A total of approximately
$186 million is expected to be incurred in 2002, including approximately $119
million incurred during the nine months ended September 30, 2002, and an
additional $281 million is expected to be

31

incurred through 2004. Estimated cash outlays in connection with the
construction of two high-performance jackups, excluding capitalized interest,
startup costs, capital spares and mobilization costs, are expected to total
approximately $260 million, or $130 million per rig. Of the $260 million, $128
million had been incurred as of September 30, 2002. A total of approximately $96
million is expected to be incurred in 2002, including approximately $76 million
incurred during the nine months ended September 30, 2002, and an additional $112
million is expected to be incurred through 2004. The first of two
high-performance jackups, the GSF Constellation I, is scheduled for delivery
around the end of the first quarter of 2003, and the first of two
ultra-deepwater semisubmersibles, the GSF Development Driller I, is scheduled
for delivery around the end of the fourth quarter of 2003. The Company expects
to fund the construction and startup of the rigs from its cash and short-term
investments and future cash flow from operations; however, the Company may
borrow a portion of the required funds if conditions warrant. None of the four
vessels that the Company has under construction or has firm commitments to build
has secured a contract for deployment upon completion. While the Company
believes that its newbuild rigs will have substantial advantages in efficiency
and capability over competitive equipment in the industry, it can provide no
assurance that it will be able to obtain contracts for all of its new rigs or
that the contract terms will be similar to those for similar equipment in
current market conditions.

Other significant financing and investing activities during the nine months
ended September 30, 2002 were as follows:

o Completed the sale of the Key Bermuda jackup drilling rig in the first
quarter of 2002 to Nabors Drilling International Limited for $29
million, less selling costs of approximately $5 million.

o Received approximately $42 million, including interest, in the first
quarter of 2002, related to the sale of the Glomar Beaufort Sea I
concrete island drilling system, which was sold to Exxon Neftegas
Limited in June 2001. The Company sold the Glomar Beaufort Sea I for
$45 million and received $5 million at closing. The remaining amount,
plus interest, was recorded as a receivable, which was classified in
"Other assets" in the Consolidated Balance Sheet at December 31, 2001.

o Repurchased and retired 2,374,600 Ordinary Shares pursuant to the
Company's share repurchase program at an aggregate purchase price,
including commissions, of $51.4 million.

o Paid quarterly dividends of $0.0325 per ordinary share for the fourth
quarter of 2001 and the first two quarters of 2002. These dividend
payments totaled $22.8 million for the nine months ended September 30,
2002.

o Announced in September 2002 that the Company's Board of Directors
declared a regular quarterly cash dividend in the amount of $0.0325
per ordinary share. The dividend in the amount of $7.6 million was
paid on October 15, 2002, to shareholders of record as of the close of
business on September 30, 2002.

During the third quarter of 2002, the Company funded a total of approximately
$30.7 million of accrued pension liabilities related to its various pension
plans. As a result of, and at the time of, this payment, the Company was
approximately 100% funded with respect to its actuarially determined pension
liabilities as of January 1, 2002.

32

The Company's debt to capitalization ratio, including its capitalized lease
obligation, was 18.2% at September 30, 2002 compared to 18.8% at December 31,
2001. The Company's total debt includes the current portion of its capitalized
lease obligation, which totaled $1.8 million at both September 30, 2002 and
December 31, 2001.

FUTURE CASH REQUIREMENTS

As of September 30, 2002, the Company had total long-term debt, including the
current portion of its capital lease obligation, of $938.9 million and
shareholders' equity of $4.2 billion. Long-term debt consisted of $324.4 million
(net of discount) Zero Coupon Convertible Debentures due 2020, $299.7 million
(net of discount) 7-1/8% Notes due 2007, $296.7 million (net of discount) 7%
Notes due 2028, and a capital lease obligation, including the current portion,
totaling $18.1 million.

Annual interest on the 7-1/8% Notes is $21.4 million, payable semiannually each
March and September. Annual interest on the 7% Notes is $21.0 million, payable
semiannually each June and December. No principal payments are due under either
issue until the maturity date.

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

Holders of the Zero Coupon Convertible Debentures have the right to require the
Company to repurchase the debentures as early as June 25, 2005. The Company may
pay the repurchase price with either cash or stock or a combination thereof. The
Company does not anticipate using stock to satisfy any such future purchase
obligation.

Capital expenditures for 2002 are currently estimated to be approximately $534
million, including $282 million in connection with the construction of the two
new high-performance jackups and two new ultra-deepwater semisubmersibles, $131
million for major upgrades to the marine fleet, $99 million for maintenance
capital expenditures, $20 million for capitalized interest and $2 million for
other capital expenditures.

In August 2002, the Company's board of directors authorized the Company to
repurchase up to $150 million of its Ordinary Shares from time to time depending
on market conditions, the share price and other factors. At September 30, 2002,
$98.6 million of this authorized amount remained available for future purchases.

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

33

SOURCES OF LIQUIDITY

As of September 30, 2002, the Company had $737.6 million of cash, cash
equivalents and marketable securities, all of which was unrestricted. The
Company had $707.9 million in cash, cash equivalents and marketable securities
at December 31, 2001, all of which was unrestricted.

The Company believes it will be able to meet all of its current obligations,
including working capital requirements, capital expenditures and debt service,
from its cash and short-term investments and future cash flow from operations.
In 2002, the Company estimates that it will use approximately $150 million in
excess of cash flow generated from operations, primarily due to increased
capital expenditures related to the drilling rig expansion program and the
retirement plan contributions discussed above in "Financing and Investing
Activities" and its share repurchase program discussed above in "Future Cash
Requirements."

RISK FACTORS

The preceding discussion should be read in light of certain risk factors
inherent in the Company's business and in the oil and gas industry as a whole,
many of which are beyond the Company's control. For a discussion of these risk
factors, see "Risk Factors" under Items 1. and 2. in the Company's Annual Report
on Form 10-K for the year ended December 31, 2001, as supplemented by the
disclosures in this Quarterly Report on Form 10-Q.

RECENT ACCOUNTING PRONOUNCEMENTS

In 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142,
"Goodwill and Other Intangible Assets," SFAS No. 143, "Accounting for Asset
Retirement Obligations" and SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." In May 2002, the FASB issued SFAS No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections." In July 2002, the FASB issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." In October
2002, the FASB issued SFAS No. 147, "Acquisitions of Certain Financial
Institutions," the provisions of which are not applicable to the Company's
operations. The Company adopted the provisions of SFAS No. 142 and SFAS No. 144
effective January 1, 2002. The Company adopted SFAS No. 145 in the second
quarter of 2002.

SFAS No. 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their initial recognition. The provisions of SFAS No. 142:

o Eliminate the amortization of goodwill and indefinite-lived intangible
assets;

o Require that goodwill and indefinite-lived intangible assets be tested
at least annually for impairment (and in interim periods if certain
events occur indicating that the carrying value of goodwill and/or
indefinite-lived intangible assets may be impaired); and

o Require that reporting units be identified for the purpose of
assessing potential future impairments of goodwill.

At September 30, 2002, Goodwill in the Company's Condensed Consolidated Balance
Sheet totaled approximately $385.9 million, substantially all of which was
recorded in connection with the Merger. All of the goodwill recorded in
connection with the Merger has been allocated to the Company's contract

34

drilling segment. The Company has completed its goodwill impairment testing for
2002 and is not required to record a goodwill impairment loss for 2002. The
amortization of goodwill existing before the Merger was immaterial.

SFAS No. 144 addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. SFAS No. 144, among other things:

o Establishes criteria to determine when a long-lived asset is held for
sale, including a group of assets and liabilities that represents the
unit of accounting for a long-lived asset classified as held for sale;

o Provides guidance on the accounting for a long-lived asset if the
criteria for classification as held for sale are met after the balance
sheet date but before the issuance of the financial statements; and

o Provides guidance on the accounting for a long-lived asset classified
as held for sale.

The adoption of SFAS No. 144 did not have a material impact on the Company's
results of operations, financial position or cash flows.

SFAS No. 145, among other things, addresses the criteria for the classification
of extinguishment of debt as an extraordinary item and addresses the accounting
treatment of certain sale-leaseback transactions. The adoption of SFAS No. 145
did not have a material impact on the Company's results of operations, financial
position or cash flows.

SFAS No. 143 establishes accounting standards for the recognition and
measurement of liabilities in connection with asset retirement obligations, and
is effective for fiscal years beginning after June 15, 2002. The Company does
not anticipate that the required adoption of SFAS No. 143 in 2003 will have a
material effect on its results of operations, financial position or cash flows.

SFAS No. 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, rather than the
date of an entity's commitment to an exit plan. The provisions of this statement
are effective for exit or disposal activities that are initiated after December
31, 2002. The Company does not anticipate that the required adoption of SFAS No.
146 will have a material effect on its results of operations, financial position
or cash flows.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

COMMODITY PRICE RISK

One of the Company's cantilevered jackup rigs is contracted under a two-year
agreement expiring in May 2004 containing a variable-dayrate formula linked to
crude oil prices, whereby dayrates earned under this contract increase or
decrease in response to increases or decreases in oil prices. A second rig began
work under a similar two-year agreement in October 2002. Dayrates under these
agreements are to be calculated using a sliding scale formula based on the
arithmetic average of the daily closing price of Light Sweet Crude on the New
York Mercantile Exchange ("NYMEX"), subject to a maximum of $28.00 per barrel
and a minimum of $12.00 per barrel.

The variable-dayrate formula contained in these agreements is comprised of
multiple embedded derivative financial instruments as defined in SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The fair value
of these embedded derivatives fluctuate in response to changes in oil prices.

35

The Company has performed sensitivity analyses to assess the impact of these
risks based on a hypothetical ten-percent increase or decrease in NYMEX Light
Sweet Crude futures prices over the remaining lives of these agreements at
September 30, 2002. Oil prices are dependent on many factors that are impossible
to forecast, and actual oil price increases or decreases could be greater than
the hypothetical ten-percent change.

The Company estimates that if average oil prices over the remaining lives of
these agreements increase by ten percent, undiscounted cash flows received for
these agreements over their respective lives would increase by approximately
$4.5 million and $5.4 million, respectively. Conversely, a ten percent decrease
in oil prices over the life of the agreements would decrease cash flows over
their respective lives by approximately $3.6 million and $3.9 million,
respectively. A hypothetical ten-percent increase in NYMEX oil prices would
increase the net fair value of the embedded derivatives contained in the first
contract by $1.8 million. Conversely, a ten percent decrease in oil prices over
the life of the agreement would decrease the net fair value of the embedded
derivatives by approximately $2.3 million. The net fair value of the embedded
derivatives in the first contract was $1.7 million at September 30, 2002.

As part of the Company's overall risk management strategy, the Company has
entered into a number of commodity caps, swaps and floors designed to mitigate
its exposure to fluctuations in fair values of the embedded derivatives in these
contracts resulting from changes in oil prices.

MARKET VALUE RISK

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

Subsequent to September 30, 2002, the Company entered into a fixed-for-floating
interest rate swap with a notional amount of $50 million, effective October 2002
through September 2007. This interest-rate swap is intended to manage a portion
of the fair-value risk related to the Company's 7-1/8% Notes due 2007. Under the
terms of this swap, the Company has agreed to pay the counterparty an interest
rate equal to the six-month LIBOR rate plus 330 basis points on the notional
amount and the Company will receive the fixed 7.125% rate.

At September 30, 2002, the fair value of the Company's 7-1/8% Notes due 2007 was
$339.9 million compared to their carrying value of $299.7 million (net of
discount), $323.4 million for the Company's Zero Coupon Convertible Debentures
due 2020 compared to their carrying value of $324.4 million (net of discount)
and $319.4 million for the Company's 7% Notes due 2028 compared to their
carrying value of $296.7 million (net of discount).

For further discussion of the Company's exposure to the above risks and other
identified risks, see "Item 7A. Quantitative and Qualitative Disclosures About
Market Risk" in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.

36

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic Securities and Exchange Commission filings.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date the Company completed its evaluation.

37

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1 GlobalSantaFe Supplemental Executive Retirement Plan,
effective July 1, 2002.

15.1 Letter of Independent Accountants regarding Awareness
of Incorporation by Reference.

(b) Reports on Form 8-K

The Company filed the following reports on Form 8-K during the
quarter ended September 30, 2002:

38

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

GLOBALSANTAFE CORPORATION
(Registrant)

Dated: November 12, 2002 /s/ W. Matt Ralls
------------------
W. Matt Ralls
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal Financial
Officer of the Registrant)

39

CERTIFICATIONS

I, C. Stedman Garber, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of GlobalSantaFe
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

40

Date: November 12, 2002

/s/ C. Stedman Garber, Jr.
-------------------------
C. Stedman Garber, Jr.
President and Chief Executive Officer

41

CERTIFICATIONS

I, W. Matt Ralls, certify that:

1. I have reviewed this quarterly report on Form 10-Q of GlobalSantaFe
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.

42

Date: November 12, 2002

/s/ W. Matt Ralls
-----------------
W. Matt Ralls
Senior Vice President and Chief Financial Officer

43

EXHIBIT INDEX