GLOBALSANTAFE CORP - 10-K Annual Report

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

2002 FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

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

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

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

The aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold as of the last business day of the Registrant's most recently
completed second fiscal quarter (June 28, 2002) was $5,205,854,739.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: Ordinary Shares,
$.01 par value, 233,271,447 shares outstanding as of February 28, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement in connection with the 2003 Annual General
Meeting of Shareholders are incorporated into Part III of this Report.

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TABLE OF CONTENTS

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

EARNINGS CONFERENCE CALL

On Wednesday, April 23, 2003, GlobalSantaFe is scheduled to release its
first quarter 2003 financial results before trading opens on the New York Stock
Exchange. On April 23, 2003, at 10:00 a.m. Central Time (11:00 a.m. Eastern
Time), the Company is scheduled to hold an earnings conference call to discuss
the results.

Interested parties may participate in the conference by calling
913-981-5571, confirmation code 364669. The call is also available through the
Company's website at www.gsfdrill.com. It is recommended that listeners connect
to the website prior to the conference call to ensure adequate time for any
software download that may be needed to hear the webcast. Replays will be
available starting at 1:00 p.m. Central Time (2:00 p.m. Eastern Time) on the day
of the conference call by webcast on the Company's website or by telephoning
719-457-0820, confirmation code 364669. Both services will discontinue replays
at 7:00 p.m. Central Time on April 30, 2003.

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," "should," and "will."

Our forward-looking statements include statements about the following
subjects:

- our possible or assumed results of operations;

- our funding and financing plans;

- the dates drilling rigs will become available following completion of
current contracts;

- the dates our rigs that are under construction are expected to be
delivered;

- projected cash outlays, the timing of such outlays and expected sources
of funding in connection with the rigs that are under construction;

- our belief that a Venezuelan tax lien and customs claim will not impact
the operations of the rigs within Venezuela;

- our contract drilling and drilling management services revenue backlogs
and the amounts expected to be realized in 2003;

- our expectations regarding the impact our suspension of drilling
operations in Kuwait will have on our results of operations;

- our expectations regarding the length of time mobile assets will be
operating in given locations and our resulting conclusions regarding the
future tax consequences of operating in those locations;

- our plans to implement a business restructuring that will better
integrate the operations of the Company and change the U.S. tax
classification of certain subsidiaries before the occurrence of any
events that could give rise to a tax liability;

- the fact that Jon A. Marshall will succeed C. Stedman Garber, Jr. as
President and Chief Executive Officer and will stand for election as a
director of the Company at the 2003 annual general meeting of
shareholders;

- the expected outcomes of legal and administrative proceedings, their
materiality, and their expected effects on our financial position and
results of operations;

- our expectation that our effective tax rate will continue to fluctuate
from year to year as our operations are conducted in different taxing
jurisdictions;

- the amount of the Company's net actuarial loss on its pension plans
expected to be recognized in pension plan cost in 2003;

- our expectations regarding future conditions in various geographic
markets in which we operate and the prospects for future work and
dayrates in those markets;

- expected transition expenses in connection with the Merger between Global
Marine and Santa Fe International and our belief that they are not
indicative of the Company's ongoing operations;

- the fact that we do not anticipate using ordinary shares to satisfy
future purchase obligations in connection with our Zero Coupon
Convertible Debentures;

- our estimated capital expenditures in 2003;

2

- our expectation that we will fund various commitments, primarily related
to our debt and capital lease obligations, leases for office space and
other property and equipment as well as commitments for construction of
drilling rigs, with cash generated from operations but may use a portion
of the proceeds of the 5% Notes to satisfy these obligations;

- our ability to service indebtedness;

- our ability to meet all of our current obligations, including working
capital requirements, capital expenditures and debt service, from our
existing cash and marketable securities balances, the net proceeds from
our 5% Notes and future cash flow from operations;

- the anticipated effect of the required adoption of SFAS No. 143 in 2003
and the required adoption of SFAS No. 146;

- the results of our sensitivity analyses to assess the impact of oil price
changes under certain dayrate contracts;

- our expectation that, if required, any additional payments made under
certain fully defeased financing leases would not be material to our
financial position or results of operations in any given year;

- our belief that our exposure to interest rate fluctuations is not
material to our financial position, results of operations or cash flows;

- our belief that credit risk in our commercial paper, money-market funds
and Eurodollar time deposits with a variety of financial institutions
with strong credit ratings is minimal;

- the adequacy of our valuation allowance in connection with net operating
loss carryforwards;

- the costs, adequacy and availability of insurance; and

- any other statements that are not historical facts.

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 following the Merger, which could require further
operating, administrative and/or accounting adjustments;

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

- changes in rig utilization and dayrates in response to the level of
activity in the oil and natural gas industry, which is significantly
affected by indications and expectations regarding the level and
volatility of oil and natural gas prices, which in turn are affected by
such things as political, economic and weather conditions affecting or
potentially affecting regional or worldwide demand for oil and natural
gas, actions or anticipated actions by OPEC, inventory levels,
deliverability constraints, and futures market activity;

- the extent to which customers and potential customers continue to pursue
ultra-deepwater drilling;

- exploration success or lack of exploration success by our customers and
potential customers;

- our ability to enter into and the terms of future drilling contracts;

- our ability to win bids for turnkey drilling operations;

- rig availability;

3

- the availability of qualified personnel;

- the availability of adequate insurance at a reasonable cost;

- the risks of failing to complete a well or wells under turnkey contracts;

- other risks inherent in turnkey contracts;

- our failure to retain the business of one or more significant customers;

- the termination or renegotiation of contracts by customers;

- the operating hazards inherent in drilling for oil and natural gas;

- the risks of international operations and compliance with foreign laws;

- political and other uncertainties inherent in non-U.S. operations,
including exchange and currency fluctuations;

- compliance with or breach of environmental laws;

- proposed United States tax law changes;

- changes in our executive succession planning due to unforeseen factors
such as individual family, health or other personal issues;

- changes in employee demographics that impact the estimated remaining
service lives of the active participants in our pension plans;

- the impact of governmental laws and regulations and the uncertainties
involved in their administration, particularly in some foreign
jurisdictions;

- the highly competitive and cyclical nature of our business, with periods
of low demand and excess rig availability;

- the outbreak, escalation, severity or protraction of war with Iraq or
other military operations, terrorist acts or embargoes in the Middle East
or elsewhere;

- political or social disruptions that limit oil and/or gas production,
such as those in Venezuela;

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

- delays or cost overruns in our construction projects caused by such
things as shortages of materials or skilled labor, unforeseen engineering
problems, unanticipated actual or purported change orders, work
stoppages, shipyard financial or operating difficulties, adverse weather
conditions or natural disasters, unanticipated cost increases, and the
inability to obtain requisite permits or approvals;

- the occurrence or nonoccurrence of anticipated changes in our revenue mix
between our domestic and international drilling markets due to changes in
our customers' oil and gas drilling plans, which can be the result of
such things as changes in regional or worldwide economic conditions and
fluctuations in the prices of oil and natural gas, which in turn could
change or stabilize effective tax rates;

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

- currently unknown rig repair needs and/or additional opportunities to
accelerate planned maintenance expenditures due to presently
unanticipated rig downtime;

- changes in oil and natural gas drilling technology or in 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;

4

- the incurrence of secured debt or additional unsecured indebtedness or
other obligations by us or our subsidiaries;

- the uncertainties inherent in dealing with financial and other
third-party institutions that could have internal weaknesses unknown to
us;

- changes in accepted interpretations of accounting guidelines and other
accounting pronouncements;

- the effects and uncertainties of legal and administrative proceedings and
other contingencies; and

- such other factors as may be discussed in this report in the "Risk
Factors" section under Items 1 and 2 and elsewhere, and in 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.

5

PART I

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

GlobalSantaFe Corporation ("GlobalSantaFe" or the "Company") is a leading
worldwide oil and gas drilling contractor, owning or operating a high quality,
technologically advanced fleet of over 100 marine and land drilling rigs. The
Company's fleet currently includes 13 floating rigs, 44 cantilevered jackup
rigs, 31 land rigs and one platform rig. In addition, the Company or its
affiliates operate 11 platform rigs for third parties, and it participates in a
joint venture that operates two semisubmersible rigs for third parties. The
Company provides offshore oil and gas contract drilling services to the oil and
gas industry worldwide on a daily rate ("dayrate") basis. The Company also
provides offshore oil and gas drilling management services on either a dayrate
or completed-project, fixed-price ("turnkey") basis, as well as drilling
engineering and drilling project management services, and it participates in oil
and gas exploration and production activities. Business segment and geographic
information is set forth in Note 13 of Notes to Consolidated Financial
Statements in Item 8 of this Annual Report on Form 10-K. The Company is a Cayman
Islands company, with its executive offices in Houston, Texas.

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

MERGER OF SANTA FE INTERNATIONAL CORPORATION AND GLOBAL MARINE INC.

On November 20, 2001, Santa Fe International Corporation ("Santa Fe
International") and Global Marine Inc. ("Global Marine") consummated their
business combination with the merger (the "Merger") of an indirect wholly owned
subsidiary of Santa Fe International with and into Global Marine, with Global
Marine surviving the Merger as a wholly owned subsidiary of Santa Fe
International. In connection with the Merger, Santa Fe International was renamed
GlobalSantaFe Corporation. 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 stockholders of Global Marine owned slightly over 50% of
GlobalSantaFe after the Merger, Global Marine was considered the acquiring
entity for accounting purposes. Accordingly, the historical basis of Global
Marine in its assets and liabilities has been carried forward to the
consolidated financial statements of GlobalSantaFe Corporation. The assets and
liabilities of Santa Fe International were recorded at estimated fair market
value at the date of the Merger in the consolidated financial statements of
GlobalSantaFe, with the excess of the purchase price over the sum of such fair
values recorded as goodwill. The $2.6 billion purchase price was calculated
using the number of Santa Fe International ordinary shares outstanding
immediately prior to the Merger and a $14.67 per share average trading price of
Global Marine's common stock, as adjusted for the merger ratio ($22.06 per
share, as adjusted), for a period of time immediately before and after the
Merger was announced, plus the estimated fair value of Santa Fe International's
outstanding stock options.

BACKGROUND OF SANTA FE INTERNATIONAL AND GLOBAL MARINE

At the time of the Merger, Santa Fe International was a leading
international offshore and land contract driller of oil and natural gas wells
and owned and operated a high-quality, technologically advanced fleet of 26
marine drilling rigs and 31 land drilling rigs located in 16 countries
throughout the world. In addition, Santa Fe International operated 13 marine
drilling rigs owned by third parties. Santa Fe International primarily
contracted its drilling rigs, related equipment and crews to oil and gas
companies on a dayrate basis. As part of its contract drilling services, Santa
Fe International also provided third-party rig operations and incentive drilling
services to the international oil and gas industry. In the area of drilling
management services, Santa Fe International provided drilling engineering and
project management services. Santa Fe International was incorporated in its
current form under the laws of the Cayman Islands in 1990.

6

At the time of the Merger, Global Marine was a major domestic and
international offshore drilling contractor, with a modern, diversified fleet of
33 mobile offshore drilling rigs worldwide. Global Marine provided offshore
drilling services on a dayrate basis in the U.S. Gulf of Mexico and
internationally. Global Marine also provided drilling management services on a
turnkey basis. As part of its drilling management services, Global Marine
provided planning, engineering and management services beyond the scope of its
traditional contract drilling business. Global Marine also engaged in oil and
gas exploration, development and production activities principally in order to
facilitate the acquisition of turnkey contracts for its drilling management
services operations.

CONTRACT DRILLING

Substantially all of the Company's domestic offshore contract drilling
operations are conducted by GlobalSantaFe Drilling Company ("GSFDC"), a wholly
owned subsidiary headquartered in Houston, Texas. International offshore
contract drilling operations are conducted by subsidiaries of the Company with
operations in 22 countries throughout the world.

Offshore Rig Fleet. The Company has a modern, diversified fleet of 57
mobile offshore drilling rigs and one platform rig. The Company's mobile
offshore drilling rigs include six cantilevered heavy-duty harsh environment
jackups, 38 cantilevered jackups, nine semisubmersibles, three ultra-deepwater,
dynamically positioned drillships and one moored drillship. All of the Company's
offshore rigs, with the exception of the Britannia jackup and the platform rig,
were placed into service in 1974 or later, and, as of January 31, 2003, the
average age of the Company's offshore fleet was approximately 19 years.

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

The following table lists the rigs in the Company's offshore drilling fleet
as of January 31, 2003, indicating the year each rig was placed in service, each
rig's maximum water and drilling depth capabilities, current location, customer,
and the date each rig is estimated to become available.

OFFSHORE RIG FLEET
STATUS AS OF JANUARY 31, 2003

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

(1) As currently equipped.

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

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

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

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

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

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

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

9

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

In January 2003, the Company entered into a lease-leaseback arrangement
with a European bank related to the Company's Britannia cantilevered jackup.
Pursuant to this arrangement, the Company leased the Britannia to the bank,
which then leased the rig back to the Company, each lease being for a five-year
term. The Company has classified this arrangement as a capital lease.

The Company has definitive contracts with PPL Shipyard PTE, Ltd. of
Singapore ("PPL Shipyard") for the construction of two high performance jackup
rigs at a cost of approximately $132 million each. The Company has options with
PPL Shipyard for construction of additional jackup units, the first two of which
are at a similar price to the current contracts. The Company does not intend to
exercise these options. Construction of the first new jackup, the GSF
Constellation I, commenced in the second quarter of 2001 and the rig is expected
to be delivered during the second quarter of 2003. The second new jackup is
expected to be delivered near the end of the first quarter of 2004.

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

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

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

The Company has historically concentrated its land rig operations in the
Middle East, South America and North Africa. All of the Company's land rigs were
placed into service in 1972 or later, and, as of January 31, 2003, their average
age was approximately 13 years.

10

The following table lists the rigs in the Company's land drilling fleet as
of January 31, 2003, indicating the year each rig was placed in service, rig
type, each rig's drilling depth capabilities, current location, customer, and
the date each rig is estimated to become available.

LAND RIG FLEET(1)
STATUS AS OF JANUARY 31, 2003

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

(1) Excludes Rig 159, which was held for sale at December 31, 2002.

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

The Company has title to all of the land drilling rigs in its fleet. The
Company's Rig 187 land rig in Venezuela is presently encumbered by a lien
asserted by the Venezuelan tax authorities in connection with certain assessed
retroactive tax liabilities. In addition, the Company's Rig 119 land rig, also
in Venezuela, is subject to a

11

customs claim. Although these claims restrict the Company's ability to export
the rigs from Venezuela, the Company does not believe that the claims will
impact the operations of the rigs within Venezuela. The Company is contesting
the imposition of the lien and the various assertions of the tax authorities and
is also contesting the customs claim. None of the Company's other land rigs are
currently subject to any outstanding liens or mortgages.

Third-Party Rig Operations. The Company's third-party rig operations are
presently concentrated on oil and gas platforms in the North Sea, an area where
the Company maintains substantial contract drilling operations, and
semisubmersible rig operations in the Caspian Sea. See "-- Joint Venture, Agency
and Sponsorship Relationships and Other Investments." As of January 31, 2003,
the Company operated or maintained 11 platform rigs for third parties, and it
participates in a joint venture that operated two semisubmersible rigs for third
parties under a joint venture agreement.

Backlog. The Company's contract drilling backlog at December 31, 2002, was
$1.2 billion, consisting of $1.1 billion related to executed contracts and $0.1
billion related to customer commitments for which contracts had not yet been
executed as of December 31, 2002. Approximately $800 million of the backlog is
expected to be realized in 2003. The Company's contract drilling backlog at
December 31, 2001, was $1.4 billion and included $0.1 billion attributable to
customer commitments for which contracts had not yet been executed as of that
date.

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

The Company's business is subject to the usual risks associated with having
a limited number of customers for its services. One customer accounted for more
than 10% of consolidated revenues in 2002: ExxonMobil provided $267.7 million of
contract drilling revenues and $0.1 million of drilling management services
revenues. Two customers each accounted for more than 10% of consolidated
revenues in 2001: ExxonMobil provided $180.1 million of contract drilling
revenues, and BP provided $146.0 million of contract drilling revenues and $1.6
million of drilling management services revenues. No single customer accounted
for more than 10% of Global Marine's historical consolidated revenues in 2000.
The Company's results of operations could suffer a material adverse effect if
any of its major customers terminates its contracts with the Company, fails to
renew the Company's existing contracts or refuses to award new contracts to the
Company. See "Risk Factors -- The Company relies heavily on a small number of
customers".

DRILLING MANAGEMENT SERVICES

The Company provides drilling management services primarily on a turnkey
basis through a wholly owned subsidiary, Applied Drilling Technology Inc.
("ADTI"), and through GlobalSantaFe Drilling U.K. Limited ("GSFDUKL"). ADTI
operates primarily in the U.S. Gulf of Mexico, and GSFDUKL operates
internationally. Under a turnkey arrangement, the Company will assume
responsibility for the design and execution of a well and deliver a logged or
cased hole to an agreed depth for a guaranteed price. Compensation is contingent
upon satisfactory completion of the drilling program. Under the Company's
turnkey drilling operations, the Company provides planning, engineering and
management services beyond the scope of its traditional contract drilling
business and thereby assumes greater liability.

12

As of December 31, 2002, the Company's drilling management services revenue
backlog was approximately $118 million, all of which is expected to be realized
in 2003. The Company's drilling management services backlog was approximately
$64 million at December 31, 2001.

OIL AND GAS OPERATIONS

The Company conducts oil and gas exploration, development and production
activities through its wholly owned subsidiary, Challenger Minerals Inc.
("CMI"). CMI acquires its interests in oil and gas properties principally in
order to facilitate the acquisition of turnkey contracts for the Company's
drilling management services operations. In this capacity, CMI facilitated the
acquisition of contracts to drill 19 turnkey wells in 2002. CMI participated in
18 of these turnkey wells, of which 10 proved successful. The Company's oil and
gas activities are conducted in the North Sea and in the United States offshore
Louisiana and Texas.

JOINT VENTURE, AGENCY AND SPONSORSHIP RELATIONSHIPS AND OTHER INVESTMENTS

In some areas of the world, local customs and practice or governmental
requirements necessitate the formation of joint ventures with local
participation. The Company is an active participant in several joint venture
drilling companies, principally in Azerbaijan, Indonesia, Malaysia, Nigeria,
Oman and Saudi Arabia.

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

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

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

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

RISK FACTORS

THE COMPANY'S BUSINESS DEPENDS ON THE LEVEL OF ACTIVITY IN THE OIL AND NATURAL
GAS INDUSTRY, WHICH IS SIGNIFICANTLY AFFECTED BY THE LEVEL AND VOLATILITY OF
OIL AND NATURAL GAS PRICES

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

- worldwide demand for oil and natural gas;

- the ability of the Organization of Petroleum Exporting Countries, or
OPEC, to set and maintain production levels and pricing;

13

- the worldwide military or political environment, including uncertainty or
instability resulting from the possibility of war with Iraq or other
armed hostilities in the Middle East or other geographic areas in which
the Company operates, or further acts of terrorism in the United States
or elsewhere;

- political or other disruptions that limit production in oil-producing
countries, such as the labor strikes and political unrest currently being
experienced in Venezuela;

- the level of production by non-OPEC countries;

- domestic and foreign tax policy;

- laws and governmental regulations that restrict exploration and
development of oil and natural gas in various jurisdictions; and

- advances in exploration and development technology.

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

THE COMPANY'S BUSINESS IS HIGHLY PRICE-COMPETITIVE AND CYCLICAL, WITH PERIODS
OF LOW DEMAND AND EXCESS RIG AVAILABILITY

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

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

The industry in which the Company operates historically has been cyclical,
marked by periods of high demand, short rig supply and high dayrates, followed
by periods of lower demand, excess rig supply and low dayrates. Changes in
commodity prices can have a dramatic effect on rig demand, and periods of excess
rig supply intensify the competition in the industry and often result in rigs
being idled. Declines in oil or gas prices could reduce demand for the Company's
drilling services and adversely affect both utilization and dayrates in one or
more of the regions in which it operates. Prolonged periods of low utilization
and dayrates could also result in the recognition of impairment charges on
certain of the Company's drilling rigs if future cash flow estimates, based upon
information available to management at the time, indicate that the carrying
value of these rigs may not be recoverable.

WAR, OTHER ARMED CONFLICTS OR TERRORIST ATTACKS COULD RESULT IN A MATERIAL
ADVERSE EFFECT ON THE BUSINESS OF THE COMPANY

The potential for war with Iraq, increasing military tension with regard to
North Korea, as well as the terrorist attacks of September 11, 2001, and
subsequent terrorist attacks and unrest, have caused instability in the world's
financial and insurance markets, have significantly increased political and
economic instability in the geographic areas in which the Company operates and
have contributed to volatility in prices for crude oil and natural gas. The
United States and the United Kingdom are marshaling a large military force in
the Persian Gulf and have alleged that Iraq is in violation of several United
Nations resolutions, indicating that they will take military action if
circumstances warrant. The attacks of September 11, 2001, led to war in
Afghanistan and may lead to armed hostilities or to further acts of terrorism in
the United States or elsewhere, and such acts of

14

terrorism could be directed against companies such as ours. In addition, recent
acts of terrorism and threats of armed conflicts in or around various areas in
which the Company operates, such as the Middle East and Indonesia, could limit
or disrupt the Company's markets and operations. In particular, the Company
currently has eight cantilevered jackups, with an additional cantilevered jackup
en route, and 23 land rigs located in the Middle East and North Africa and six
cantilevered jackups in Southeast Asia. In March 2003, the Company suspended
drilling operations in and evacuated its employees from Kuwait in response to
the threat of war in Iraq. Although the suspension of drilling operations is not
expected to have a material impact on the Company's results of operations for
the first quarter of 2003, the Company estimates, based on current contracts and
commitments, that its results of operations for each subsequent quarter will be
negatively impacted by approximately $0.03 per diluted ordinary share for each
full quarter that operations are suspended. In addition, an outbreak of war or
other hostilities or additional acts of terrorism in these regions could result
in the evacuation of additional personnel, cancellation of drilling contracts or
the loss of personnel or assets. There can be no assurance that armed conflicts,
terrorism and their effects on the Company or its markets will not significantly
affect the Company's business in the future. United States government
regulations effectively preclude the Company from actively engaging in business
activities in certain countries, including oil-producing countries such as Iran,
Iraq and Libya. These regulations could be amended to cover countries where the
Company currently operates or where the Company may wish to operate in the
future. Immediately following the events of September 11, 2001, the Company's
war risk and terrorist insurance underwriters cancelled those coverages in
accordance with the terms of the policies and would only reinstate them for
significantly higher premiums. The Company has reinstated and currently
maintains war and terrorism coverage for physical damage to its entire fleet.
Such war and terrorism coverage is generally cancelable by underwriters on 48
hours notice, and there can be no assurance that underwriters will not cancel
nor that they will then offer to reinstate on terms deemed acceptable by the
Company following any future acts of terrorism or armed conflicts in and around
the various areas in which the Company operates. The Company may not have
insurance to cover any or all of its liabilities to its personnel for death or
injury caused by terrorist acts. These developments will subject the worldwide
operations of the Company to increased risks and, depending on their magnitude,
could have a material adverse effect on the business of the Company.

TURNKEY DRILLING OPERATIONS ARE CONTINGENT ON THE COMPANY'S ABILITY TO WIN
BIDS AND ON RIG AVAILABILITY

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

TURNKEY DRILLING OPERATIONS EXPOSE THE COMPANY TO ADDITIONAL RISKS BECAUSE IT
ASSUMES THE RISK FOR OPERATIONAL PROBLEMS AND THE CONTRACTS ARE ON A
FIXED-PRICE BASIS

The Company enters into a significant number of turnkey contracts each
year. The Company's compensation under turnkey contracts will depend on whether
it successfully drills to a specified depth or, under some of its contracts,
completes the well. Unlike dayrate contracts, where ultimate control is
exercised by the operator, the Company will be exposed to additional risks when
serving as a turnkey drilling contractor, because it will make all critical
decisions. Under a turnkey contract, the amount of the Company's compensation
will be fixed at the amount it bids to drill the well. Thus, it will not be paid
if operational problems prevent performance unless it chooses to drill a new
well at its own expense. Further, the Company must absorb the loss if unforeseen
problems arise that cause the cost of performance to exceed the turnkey price.
By contrast, in a dayrate contract, the customer generally retains these risks.
Although the Company will budget for these contingencies, there can be no
assurance that the cost of contingencies will not exceed budgeted amounts. The
Company is not insured against all of these risks associated with turnkey
drilling operations.

15

FAILURE TO OBTAIN AND RETAIN KEY PERSONNEL COULD IMPEDE OPERATIONS

The Company requires highly skilled personnel to operate and provide
technical services and support for its business. Competition for the skilled and
other labor required for deepwater and other drilling operations has intensified
as the number of rigs activated or added to worldwide fleets or under
construction has increased in the last few years. The Company currently has two
premium jackup rigs and two deepwater rigs under construction. The Company must
hire full crews for these rigs before they commence operations in addition to
its routine requirements for drilling crews. Although competition for skilled
and other labor has not materially affected the Company to date, in periods with
high utilization, the Company has found it more difficult to find qualified
individuals, and the possibility exists that competition for skilled and other
labor for deepwater and other operations could limit the Company's results of
operations.

THE COMPANY RELIES HEAVILY ON A SMALL NUMBER OF CUSTOMERS

The Company's business is subject to the usual risks associated with having
a limited number of customers for its services. One customer, ExxonMobil,
accounted for more than 10% of consolidated revenues in 2002. ExxonMobil
provided approximately $267.8 million in revenues, which constituted
approximately 13.3% of consolidated revenues. For 2002, approximately 45% of the
Company's operating revenues was derived from six customers. On a pro forma
basis for the year ended December 31, 2001, approximately 12% of the pro forma
operating revenues for the Company would have been attributable to the largest
customer on a combined basis and approximately 38% of pro forma operating
revenues would have been attributable to the Company's five largest customers.
The Company's results of operations could be materially adversely affected if
any of its major customers terminates any of its contracts with the Company,
fails to renew the Company's existing contracts or refuses to award new
contracts to the Company.

THE COMPANY MAY SUFFER LOSSES IF ITS CUSTOMERS TERMINATE OR SEEK TO
RENEGOTIATE ITS CONTRACTS

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

RIG UPGRADE, REFURBISHMENT AND CONSTRUCTION PROJECTS, INCLUDING THE COMPANY'S
DEEPWATER SEMISUBMERSIBLE AND PREMIUM JACKUP RIGS THAT ARE UNDER CONSTRUCTION,
WILL BE SUBJECT TO RISKS, INCLUDING DELAYS AND COST OVERRUNS, AND CONTRACTS
HAVE YET TO BE ENTERED INTO FOR THE DEPLOYMENT OF THE DEEPWATER
SEMISUBMERSIBLES AND PREMIUM JACKUP RIGS UPON COMPLETION

The first of the Company's two high-performance jackups currently under
construction is scheduled for delivery during the second quarter of 2003, while
the first of two ultra-deepwater semisubmersibles, also under construction, is
scheduled for delivery during the first quarter of 2004. In addition, the
Company may make upgrade and refurbishment expenditures for its fleet, and the
Company may also make substantial expenditures for the construction of
additional new rigs. Rig upgrade, refurbishment and construction projects are
subject to the risks of delay or cost overruns inherent in any large
construction project, including the following:

- shortages of materials or skilled labor;

- unforeseen engineering problems;

16

- unanticipated actual or purported change orders;

- work stoppages;

- financial or operating difficulties of the shipyard upgrading,
refurbishing or constructing the rig;

- adverse weather conditions;

- unanticipated cost increases; and

- inability to obtain any of the requisite permits or approvals.

Significant cost overruns or delays would adversely affect the Company's
financial condition and results of operations. In addition, the Company's
premium jackups and ultra-deepwater semisubmersibles currently under
construction will employ advancements in technology that may lead to certain
difficulties as to the Company's use of this technology.

None of the four vessels that the Company has under construction has
secured a contract for deployment upon completion. Historically, the industry
has experienced prolonged periods of overcapacity, during which many rigs were
idle for long periods of time. 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. The Company can
make no assurances that it will be able to obtain contracts for all of its new
or existing rigs or that the contract terms will be similar to those for similar
equipment in current market conditions.

THE COMPANY'S BUSINESS INVOLVES NUMEROUS OPERATING HAZARDS AND IT IS NOT FULLY
INSURED AGAINST ALL OF THEM

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

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

The Company believes its policy of purchasing insurance coverage is
consistent with its industry peers for the types, amounts and limits of
insurance maintained. However, 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 most recent renewal of its insurance coverage. The Company's
current insurance program expires in the third quarter of 2003, and premiums and
deductibles may increase further.

The occurrence of a significant event, including terrorist acts, war, civil
disturbances, pollution or environmental damage, not fully insured or
indemnified against or the failure of a customer to meet its indemnification
obligations, could materially and adversely affect the Company's operations and
financial condition. Moreover, no assurance can be made that the Company will be
able to maintain adequate insurance in the future at rates it considers
reasonable or be able to obtain insurance against certain risks, particularly in
light of the instability and developments in the insurance markets following the
recent terrorist attacks.

17

THE COMPANY'S INTERNATIONAL OPERATIONS INVOLVE ADDITIONAL RISKS NOT ASSOCIATED
WITH DOMESTIC OPERATIONS

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

- terrorist acts, war and civil disturbances;

- expropriation or nationalization of assets;

- renegotiation or nullification of existing contracts;

- foreign exchange restrictions;

- foreign currency fluctuations;

- foreign taxation;

- assaults on property or personnel;

- limitations on the ability to repatriate income or capital to the U.S.;

- changing political conditions; and

- foreign and domestic monetary policies.

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

Eight of our land drilling rigs are located in Venezuela, which has been
experiencing labor strikes and demonstrations and in 2002 experienced an attempt
to overthrow the government. The implications and results of the political,
economic and social instability in Venezuela are uncertain at this time, but the
instability has had and could continue to have an adverse effect on our
business. None of our land rigs located in Venezuela were operating as of
January 31, 2003. When or if those rigs will return to work is uncertain.

THE COMPANY MAY SUFFER LOSSES AS A RESULT OF CURRENCY RISKS

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

LAWS AND GOVERNMENTAL REGULATIONS MAY ADD TO COSTS OR LIMIT DRILLING ACTIVITY

The Company's business is affected by changes in public policy and by
federal, state, foreign and local laws and regulations relating to the energy
industry. The drilling industry is dependent on demand for services from the oil
and natural gas exploration and production industry and, accordingly, the
Company will be directly affected by the adoption of laws and regulations
curtailing exploration and development drilling for oil and natural gas for
economic, environmental and other policy reasons. The Company may be required to
make

18

significant capital expenditures to comply with governmental laws and
regulations. It is also possible that these laws and regulations may in the
future add significantly to the Company's operating costs or may significantly
limit drilling activity.

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

THE COMPANY MAY BE LIMITED IN ITS USE OF ITS NET OPERATING LOSSES

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

As of December 31, 2002, the Company had approximately $540.4 million of
NOL carryforwards for U.S. federal income tax purposes, including an NOL
carryforward of $408.4 million at November 19, 2001, related to Global Marine.
The Company also had approximately $168.4 million of NOL carryforwards from
foreign jurisdictions. The Company can provide no assurance that the full amount
of its NOL carryforwards will be allowed. The NOL carryforwards are scheduled to
expire from 2003 to 2023. Section 382 of the U.S. Internal Revenue Code could
limit the future use of all or some of the U.S. NOL carryforwards if the direct
and indirect ownership of stock of the relevant company changes by more than 50%
in certain circumstances over a prescribed testing period. The Internal Revenue
Service may take the position that the Merger consummated pursuant to the
business combination of Santa Fe International and Global Marine caused a
greater-than-50-percent ownership change with respect to Global Marine. If the
Merger did not result in such an ownership change, changes in the ownership of
the Company's ordinary shares following the Merger could result in such an
ownership change. In the event of such an ownership change, the Section 382
rules would limit the utilization of the NOL carryforwards of Global Marine in
each taxable year ending after the ownership change to an amount equal to a
federal long-term tax-exempt rate published monthly by the Internal Revenue
Service, multiplied by the fair market value of all of Global Marine's stock at
the time of the ownership change. For purposes of this calculation, the value of
Global Marine's stock could also be subject to adjustments, thereby further
limiting the ability of the Company to utilize its NOL carryforwards in each
taxable year thereafter.

PROPOSED UNITED STATES TAX LAW CHANGES COULD REDUCE THE COMPANY'S NET INCOME

In 2002 and 2003, various changes to the U.S. federal income tax code were
proposed that, if enacted, could adversely affect the Company's United States
federal income tax position. Many of the proposed changes target United States
corporations that have expatriated to a foreign jurisdiction and would in
certain cases treat such corporations as United States corporations for United
States federal income tax purposes. Several of the proposals would have
retroactive application and would treat the Company as a United States
corporation. Some of the proposals would impose additional limitations on the
deductibility for United States federal income tax purposes of certain
intercompany transactions, including intercompany interest expense.

At this time, it is impossible to predict what changes, if any, may be
enacted, and if enacted, what effect such changes may have on the Company.
However, there is a risk that changes to U.S. tax laws could substantially
increase the 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.

In addition, due to the Company's structure and extensive foreign
operations, its effective tax rate is based on the provisions of numerous tax
treaties, conventions and agreements between various countries and taxing

19

jurisdictions, as well as the tax laws of many jurisdictions. Changes in one or
more of these tax regimes could also have a material adverse effect on the
Company.

THE COMPANY MAY BE REQUIRED TO ACCRUE ADDITIONAL TAX LIABILITY ON CERTAIN
EARNINGS

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

In certain circumstances, management expects that, due to the changing
demands of the offshore drilling markets, the Company's mobile assets are more
likely than not to be redeployed to other locations before those assets operate
in certain jurisdictions long enough to give rise to future tax consequences. As
a result, no deferred tax liability has been recognized on the earnings from
these assets. In addition, the Company has not provided for U.S. deferred taxes
on foreign earnings that could be taxed in the United States upon the occurrence
of certain events in a future period. The Company plans, subject to approval by
its Board of Directors, to implement a business restructuring that will better
integrate the operations of the Company. This integration will change the U.S.
tax classification of certain of its subsidiaries before the occurrence of any
events that could give rise to a tax liability. Should management's expectations
change regarding the length of time a mobile asset will be operating in a given
location, or should the Company choose not to implement the planned business
restructuring, the Company would be required to record additional deferred taxes
that could have a material adverse effect on its financial position, results of
operations and cash flows.

GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS COULD SIGNIFICANTLY AFFECT
THE COMPANY'S OPERATIONS

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

THE COMPANY MAY NOT BE ABLE TO GENERATE SUFFICIENT CASH FLOW TO MEET ITS DEBT
SERVICE OBLIGATIONS

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

If the Company does not generate sufficient cash flow from operations to
satisfy its debt obligations, it may have to undertake alternative financing
plans, such as refinancing or restructuring its debt, selling assets, reducing

20

or delaying capital investments or seeking to raise additional capital. The
Company can provide no assurance that any refinancing would be possible, that
any assets could be sold, or, if sold, of the timing of the sales and the amount
of proceeds that may be realized from those sales, or that additional financing
could be obtained on terms acceptable to the Company, if at all. The Company's
inability to generate sufficient cash flow to satisfy all of its debt
obligations, or to refinance its indebtedness on commercially reasonable terms,
would materially adversely affect its financial position, results of operations
and cash flows.

SFIC HOLDINGS HAS THE ABILITY TO SIGNIFICANTLY INFLUENCE MATTERS ON WHICH
SHAREHOLDERS MAY VOTE

SFIC Holdings (Cayman), Inc. ("SFIC Holdings"), a wholly owned subsidiary
of Kuwait Petroleum Corporation, which is in turn wholly owned by the State of
Kuwait, holds approximately 18.7% of the outstanding ordinary shares of the
Company.

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

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

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

SOME OF THE DIRECTORS OF THE COMPANY ARE ALSO DIRECTORS OR OFFICERS OF KUWAIT
PETROLEUM CORPORATION OR ITS AFFILIATES AND MAY HAVE INTERESTS THAT ARE IN
CONFLICT WITH THE INTERESTS OF OTHER SHAREHOLDERS

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

THE COMPANY'S SHAREHOLDERS HAVE LIMITED RIGHTS UNDER CAYMAN ISLANDS LAW

The Company is incorporated under the laws of the Cayman Islands, and its
corporate affairs are governed by its memorandum of association and its articles
of association and by the Companies Law (2001 Second

21

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

EMPLOYEES

The Company had approximately 8,800 employees worldwide at December 31,
2002. The Company requires highly skilled personnel to operate its drilling rigs
and, accordingly, conducts extensive personnel training and safety programs. A
total of 114 of the Company's local employees in Trinidad, 52 local employees in
Australia and 274 of the Company's local employees in Nigeria are represented by
labor unions. The Company, through its membership in the U.K. Drilling
Contractors Association, has entered into a recognition agreement with a union
representing 1,512 employees in the U.K. sector of the North Sea. At such time
as the Company recommences operations in Venezuela, local rig employees will be
represented by a labor union.

EXECUTIVE OFFICERS OF THE REGISTRANT

The name, age as of December 31, 2002, and office or offices currently held
by each of the executive officers of the Company are as follows:

Officers serve for a one-year term or until their successors are elected
and qualified to serve. Each executive officer's principal occupation has been
as an executive officer of the Company or its predecessors, Santa Fe
International or Global Marine, for more than the past five years, with the
exception of Messrs. Boyd, Stegall, Rose and Woolie. Mr. Boyd has been the
Company's Senior Vice President, Human Resources and Corporate Affairs since
November 2001. Previously, he served as the Company's Vice President, Human
Resources and Corporate Affairs from 1985 until November 2001. Mr. Stegall has
been the Company's Vice President and Controller since December 2002.
Previously, he served in a management transition position from November 2001 to
December 2002, following his service as Vice President and Controller of Global
Marine from February 2000 until November 2001. Prior to such service, Mr.
Stegall was Vice President and Controller of GSFDC. Prior to his election in
November 2001 as the Chairman of the Board, Mr. Rose served as Global Marine's
Chairman since May 1999 and its President and Chief Executive Officer since May
1998, prior to which he was President and Chief Executive Officer of Cardinal
Services, Inc., an oil services company, since April 1998, and President and
Chief Executive Officer of Diamond Offshore Drilling, Inc. and its predecessor,
Diamond M Company, for more than a decade. Prior to his election in November
2001 as Senior Vice President, Operations of the Company,

22

Mr. Woolie served as President of GSFDC since 1998. He was GSFDC's Senior Vice
President, Sales and Contracts, from 1997 to 1998, prior to which he was
responsible for GSFDC's North and South American sales.

EXECUTIVE MANAGEMENT CHANGE

C. Stedman Garber, Jr. has announced his intention to retire from his
position as President and Chief Executive Officer and a director of the Company
as of May 6, 2003, the date of the Company's annual general meeting. Jon A.
Marshall, currently the Company's Executive Vice President and Chief Operating
Officer, will succeed Mr. Garber as President and Chief Executive Officer and
will stand for election as a director of the Company at the annual general
meeting.

ITEM 3. LEGAL PROCEEDINGS

Applied Drilling Technology Inc. ("ADTI"), a wholly owned subsidiary of the
Company, was a defendant 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 arose out of
damage caused to an offshore well owned by Newfield, which had been drilled by
ADTI pursuant to a turnkey contract. The lawsuit has been dismissed with
prejudice by the court, and Newfield has waived its right to appeal.

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"). The Company ultimately provided a total of $103.1 million
under the Funding Agreement.

The Lessors and the Company were involved in arbitration proceedings with
the Shipbuilder, in which the Shipbuilder claimed 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, change orders and additional compensation for
increased steelweight. The Company was involved in an arbitration proceeding
with Fred. Olsen Energy ASA ("Olsen") relating to disputes under the Funding
Agreement. In February 2003, the Lessors and the Company agreed to pay an
additional $8.2 million to the Shipbuilder and Olsen in exchange for settlement
of all outstanding disputes between the parties. This amount is to be adjusted
by reference to the award to be issued by the arbitration tribunal for the cost
of completion arbitration in respect of the Glomar Jack Ryan, subject to a
minimum additional payment of $7.7 million and a maximum additional payment of
$10.0 million. In the event that the Company is required to pay the maximum
amount of $10.0 million, total cost of construction will be $485.1 million for
the two drillships.

The Company filed a claim in 1993 in the amount of $40.6 million with the
United Nations Compensation Commission ("UNCC") for losses suffered as a result
of the Iraqi invasion of Kuwait in 1990. The claim was for the loss of four rigs
and associated equipment, lost revenue, and miscellaneous expenditures. The
Governing Council of the UNCC has awarded the Company compensation in the amount
of $22.1 million in a final, non-appealable, adjudication of the claim. The
Company has been advised that the funds will be paid upon receipt of a formal
request, which has now been made. As a result of this award, the Company
recorded a pretax gain of $22.1 million in the first quarter of 2003.

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

The Company has been named as a PRP in connection with a site located in
Santa Fe Springs, California known as the Waste Disposal, Inc. site. The Company
and other PRPs have agreed with the U.S. Environmental Protection Agency ("EPA")
and the U.S. Department of Justice ("DOJ") to settle their potential liabilities
for this site by agreeing to perform the remaining remediation required by 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
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 is not likely to owe any substantial additional amounts
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:

- 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

24

asserted, is adequately accrued and should not have a material effect on the
Company's financial position or ongoing results of operations. Estimated costs
of future expenditures for environmental remediation obligations are not
discounted to their present value.

OTHER LEGAL MATTERS

There are no other 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.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of 2002.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Ordinary Shares, $.01 par value per share, are listed on the
New York Stock Exchange under the symbol "GSF." The following table sets forth
the high and low sales prices of the Company's Ordinary Shares as reported on
the New York Stock Exchange Composite Transactions Tape for the calendar periods
indicated. Data for periods prior to November 20, 2001, represents high and low
prices for Santa Fe International's ordinary shares.

On February 28, 2003, the closing price of the Ordinary Shares, as reported
by the NYSE, was $22.25 per share. As of February 28, 2003, there were
approximately 2,885 shareholders of record of Ordinary Shares. This number does
not include shareholders for whom shares are held in a nominee or street name.

DIVIDEND POLICY

On March 4, 2003, the Company's Board of Directors increased the dividend
for the first quarter of 2003 to $0.0375 per share, payable on April 15, 2003,
to holders of record of Ordinary Shares as of the close of business on March 31,
2003. The Company (and, prior to November 20, 2001, Santa Fe International) paid
a dividend of $0.0325 per share during each period shown in the table above. The
dividends paid in a given quarter relate to the immediately preceding quarter.
The Company's payment of dividends in the future, if any, will be at the
discretion of the Company's Board of Directors and will depend on the Company's
results of operations, financial condition, cash requirements, future business
prospects and other factors. There can be no assurance that the Company will pay
dividends in the future.

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ITEM 6. SELECTED FINANCIAL DATA

In the following table, the Company's operating results for 2002 represent
operations of the combined company. Operating results for 2001 include Global
Marine's operations for the full year and Santa Fe International's operations
from the November 2001 merger date (42 days). Selected financial data for years
prior to 2001 represents the operations of Global Marine only. As a result,
comparisons to prior years' data may not be meaningful. 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," requiring 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, and in order to implement the consensus, certain reimbursements
received from customers for the periods presented have been reclassified as
revenues and related operating expenses. Operating income and net income for all
periods presented were not affected by this reclassification. The selected
financial data should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited consolidated financial statements and the notes thereto included
under "Item 8. Financial Statements and Supplementary Data."

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
FIVE-YEAR REVIEW

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

(1) Restructuring costs for 2001 represent estimated restructuring costs
associated with Global Marine recorded in connection with the Merger.

(2) Includes a $35.1 million gain on the sale of the Glomar Beaufort Sea I
concrete island drilling system, which was sold in June 2001.

(3) Includes a $47.2 million charge incurred in the fourth quarter of 2001 for
increased valuation allowances, partially offset by adjustments to prior
years' tax contingencies.

(4) Income per share data for years prior to 2001 has been restated to reflect
the effect of the exchange ratio of 0.665 established in the merger
agreement.

(5) In 2001, cash dividends declared per ordinary share included a regular
quarterly cash dividend of $0.0325 per ordinary share approved by the
Company's Board of Directors in December 2001. Global Marine historically
did not pay dividends on its common stock.

(6) Capital expenditures for 2002 included approximately $12.8 million of
capital expenditures related to the Company's rig building program that had
been accrued but not paid as of December 31, 2002.

(7) In 1999, the Company increased the estimated useful lives of certain of its
drilling rigs. The effect of the change was to reduce 1999 depreciation
expense by approximately $27.2 million.

(8) The average rig utilization rate for a period represents the ratio of days
in the period during which the rigs were under contract to the total days
in the period during which the rigs were available to work.

(9) Average dayrate is the ratio of contract drilling revenues less non-rig
related revenues divided by the aggregate contract days, adjusted to
exclude days under contract at zero dayrate. Non-rig related revenues,
consisting mainly of cost reimbursements, were $74.9 million, $26.5
million, $14.4 million, $20.8 million and $17.1 million for 2002, 2001,
2000, 1999 and 1998, respectively. Inclusion of these amounts in the
average dayrate calculation would increase the amount reported for each of
the years specified by $2,100, $2,500, $2,700, $2,900 and $2,100 per day
for 2002, 2001, 2000, 1999 and 1998, respectively, for the Company's marine
rigs and $900 and $2,100 per day for 2002 and 2001, respectively, for the
Company's land rigs. Global Marine had no land rig operations prior to the
Merger in November 2001.

(10) Excludes Rig 159, which was held for sale as of December 31, 2002.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The Company is a leading worldwide oil and gas drilling contractor, owning
or operating a high quality, technologically advanced fleet of over 100 marine
and land drilling rigs. The Company's fleet currently includes 13 floating rigs,
44 cantilevered jackup rigs, 31 land rigs and one platform rig. In addition, the
Company or its affiliates operate 11 platform rigs for third parties and it
participates in a joint venture that operates two semisubmersible rigs for third
parties. 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

The Company's consolidated financial statements are impacted by the
accounting policies used and the estimates and assumptions made by management
during their preparation. The following is a discussion of the Company's most
significant accounting policies as well as the use of estimates.

PROPERTIES AND DEPRECIATION

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

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

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

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

REVENUE RECOGNITION

The Company's contract drilling business provides crewed rigs to customers
on a dayrate basis. Dayrate contracts can be for a specified period of time or
the time required to drill a specified well or number of wells. Revenues and
expenses from dayrate drilling operations, which are classified under contract
drilling services, are recognized on a per-day basis as the work progresses.
Lump-sum fees received as compensation for the cost of

28

relocating drilling rigs from one major operating area to another, whether
received up-front or upon termination of the drilling contract, are recognized
as earned, which is generally over the term of the related drilling contract.

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

INCOME TAXES

The Company is a Cayman Islands company. The Cayman Islands does not impose
corporate income taxes. Consequently, income taxes have been provided based on
the tax laws and rates in effect in the countries in which operations are
conducted and income is earned. The income taxes in these jurisdictions vary
substantially. The Company's effective tax rate for financial statement purposes
will continue to fluctuate from year to year as the Company's operations are
conducted in different taxing jurisdictions. The Company's ability to realize
the benefit of its deferred tax assets requires that the Company achieve certain
future earnings levels prior to the expiration of its net operating loss ("NOL")
carryforwards.

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

In certain circumstances, management expects that, due to the changing
demands of the offshore drilling markets, the Company's mobile assets are more
likely than not to be redeployed to other locations before those assets operate
in certain jurisdictions long enough to give rise to future tax consequences. As
a result, no deferred tax liability has been recognized on the earnings from
these assets. In addition, the Company has not provided for U.S. deferred taxes
on foreign earnings that could be taxed in the United States upon the occurrence
of certain events in a future period. The Company plans, subject to approval by
its Board of Directors, to implement a business restructuring that will better
integrate the operations of the Company. This integration will change the U.S.
tax classification of certain of its subsidiaries before the occurrence of any
events that could give rise to a tax liability. Should management's expectations
change regarding the length of time a mobile asset will be operating in a given
location, or should the Company choose not to implement the planned business
restructuring, the Company would be required to record additional deferred taxes
that could have a material adverse effect on its financial position, results of
operations and cash flows.

GOODWILL

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

STOCK-BASED COMPENSATION

The Company accounts for its stock option and stock-based compensation
plans using the intrinsic-value method prescribed by Accounting Principles Board
("APB") Opinion No. 25. Accordingly, the Company computes compensation cost for
each employee stock option granted as the amount by which the quoted market
price of the Company's common stock on the date of grant exceeds the amount the
employee must pay to acquire the stock. The amount of compensation cost, if any,
is charged to income over the vesting period. No compensation cost has been
recognized for any of the Company's outstanding stock options, all of which have
exercise prices equal to the market price of the stock on the date of grant.

29

PENSION COST AND OTHER POSTRETIREMENT BENEFITS

The Company's pension costs and liabilities are actuarially determined
based on certain assumptions including expected long-term rates of return on
plan assets, rate of increase in future compensation levels and the discount
rate used to compute future benefit obligations. The expected long-term rate of
return on plan assets used to compute pension cost was 9% for 2002, 2001 and
2000. The assumed rate of increase in future compensation levels was 4.5% for
2002 and 2001, and 6.0% for 2000. The discount rate used to compute the
projected benefit obligation was 6.75% for 2002, 7.25% for 2001 and 7.5% for
2000. The Company's policy is to use a discount rate comparable to rates of
return on high-quality fixed-income investments currently available and expected
to be available during the period to maturity of the Company's pension benefits.
Actuarial gains and losses resulting from experience different from these
assumptions or from changes in these assumptions are amortized over the
remaining service period of active employees expected to receive benefits under
the plans. Actual results could differ materially from estimated amounts. For a
discussion of the components of the Company's net periodic pension cost and the
funded status of the Company's pension plans, see Note 9 of Notes to the
Consolidated Financial Statements.

As of December 31, 2002, the Company had an unrecognized net actuarial loss
of $109.9 million. This loss will be recognized in net periodic pension cost
over the estimated remaining service lives of the active participants in the
plans. Approximately $11 million of this loss is expected to be recognized in
2003.

The calculation of other postretirement benefits costs and liabilities
includes the weighted-average annual assumed rate of increase in the per capita
cost of covered medical benefits. These assumptions are based on data available
to management at the time these assumptions are made. Actual results could
differ materially from estimated amounts.

USE OF ESTIMATES

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

Key estimates used by management in this report include:

Allowance for doubtful accounts. The Company estimates its allowance for
doubtful accounts based on analysis of historical collection activity. Factors
that may affect this estimate include changes in the financial position of a
major customer or significant changes in the prices of oil or natural gas.

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

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

Turnkey drilling estimates. The Company typically relies on detailed cost
estimates created by project engineering staff to compute and book profits on
turnkey drilling projects based on known revenues. These cost estimates are
adjusted when final actual project costs have been determined, which may result
in adjustments to previously recorded amounts.

Accrued claims and liabilities. The Company estimates its accrued claims
and liabilities based on the facts and circumstances specific to the claims and
past experience with similar claims. The actual outcome of litigated claims
could differ significantly from estimated amounts.

30

Fair values of financial instruments. The Company estimates the fair
values of its financial instruments based on available third-party market quotes
for its financial instruments or market quotes based on financial instruments
with similar characteristics. Where market quotes are unavailable, the Company
bases its estimates of fair values on the net present value of estimated future
cash flows.

Cash flow estimates. The Company's estimates of future cash flows are
based on the most recent currently available market and operating data for the
applicable asset or reporting unit at the time the estimate is made. In addition
to fair value calculations discussed above, cash flow estimates are also used to
determine certain tax-related valuations and for asset impairment analyses.
Actual results could differ materially from these estimated amounts.

MERGER WITH SANTA FE INTERNATIONAL

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

The Merger was accounted for as a purchase business combination in
accordance with accounting principles generally accepted in the United States of
America. As the stockholders of Global Marine owned slightly over 50% of
GlobalSantaFe after the Merger, Global Marine was considered the acquiring
entity for accounting purposes. Accordingly, the historical basis of Global
Marine in its assets and liabilities has been carried forward to the
consolidated financial statements of the Company. The assets and liabilities of
Santa Fe International were recorded at estimated fair market value at the date
of the Merger in the consolidated financial statements of the Company, with the
excess of the purchase price over the sum of such fair values recorded as
goodwill.

In connection with the Merger, the Company implemented a restructuring
program that included the consolidation of Santa Fe International's
administrative office in Dallas, Texas, Global Marine's administrative office in
Lafayette, Louisiana, and Global Marine's administrative office in Houston,
Texas, into a single administrative office in Houston, the consolidation of
Santa Fe International's and Global Marine's North Sea administrative offices in
Aberdeen, Scotland and the separation of 167 employees from the Company. The
employee functions affected were primarily corporate support in nature and
included accounting, information technology, and employee benefits, among
others. Approximately 60% of the affected positions were located in Dallas, 23%
were located in Houston and Lafayette, and the remaining 17% were located in
Aberdeen.

31

Estimated restructuring costs associated with Global Marine were recorded
as a pretax charge in the fourth quarter of 2001. Changes in estimated costs,
consisting mainly of refinements of cost estimates, and payments related to
these restructuring costs for the year ended December 31, 2002, are summarized
as follows:

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

(1) The liability at December 31, 2002, included $2.0 million of special
termination costs related to certain retirement plans, which were included
in Other long-term liabilities in the 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, consisting primarily of costs
associated with employee terminations and further employee relocation costs, and
payments related to this liability for the year ended December 31, 2002, are
summarized as follows:

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

(1) The liability at December 31, 2002, included $7.6 million related to the
Dallas office lease obligation, which was included in Other long-term
liabilities in the Consolidated Balance Sheets.

32

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

OPERATING RESULTS

The Company's operating results for 2002 represent the first full year of
operations of the combined company, while the Company's results of operations
for 2001 include Global Marine's operations for the full year and Santa Fe
International's operations from November 20, 2001 (42 days). The Company's
results of operations for 2000 represent the operations of Global Marine only.
As a result, year-to-year comparisons 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. In connection with
the implementation of the consensus on this issue, the Company has reclassified
certain reimbursements received from customers for the years ended December 31,
2001 and 2000, as revenues and related operating expenses to conform to the 2002
presentation. Operating income and net income for all periods presented were not
affected by this reclassification. Amounts classified as revenues and expenses
for 2002 pursuant to this consensus and the amounts of revenues and expenses
reclassified by segment for each prior period presented are as follows (in
millions):

SUMMARY

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

33

Operating income in 2002 increased by $1.9 million to $331.8 million from
$329.9 million in 2001, due primarily to the inclusion of $168.7 million
attributable to the full-year operations of the Santa Fe International drilling
fleet. Excluding the contribution from the Santa Fe fleet, operating income
decreased by $166.8 million due primarily to lower dayrates and utilization in
the U.S. Gulf of Mexico, increases in repair and maintenance expenses, reduced
turnkey drilling activity, lower average oil and gas prices and an increase in
corporate expenses. Operating income for 2002 included $22.7 million of
transition expenses, which are costs incurred in connection with the Merger and
subsequent integration of Global Marine and Santa Fe International. Such costs
are not considered to be indicative of the Company's ongoing operations.
Operating income for 2001 included a $22.3 million charge in connection with a
restructuring program related to the Merger.

Operating income in 2001 increased by $141.4 million to $329.9 million from
$188.5 million in 2000. Approximately $114.6 million of this increase was
attributable to Global Marine's operating results, and $26.8 million was
attributable to Santa Fe International's operating results from the date of the
Merger. The increase in Global Marine's operating income in 2001 as compared to
2000 was primarily attributable to the full-year results of the Glomar C.R.
Luigs and Glomar Jack Ryan drillships, which were added to the Company's fleet
in April 2000 and December 2000, respectively, along with increases in average
dayrates and rig utilization. These increases were offset in part by the $22.3
million restructuring charge related to the Merger noted above.

In August 2002, the existing drilling contract for the Glomar Jack Ryan
ultra-deepwater drillship was assigned by the Company's customer to their
Australian subsidiary 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.

PRO FORMA FINANCIAL INFORMATION

The following unaudited condensed consolidated pro forma results for the
years ended December 31, 2001 and 2000, has been prepared as if the Merger had
occurred on January 1, 2000. Revenues for both periods have been reclassified
pursuant to EITF Issue 01-14 discussed above. If Global Marine and Santa Fe
International had merged on this date, GlobalSantaFe might have performed
differently. The pro forma financial information should not be relied on as an
indication of the financial position or results of operations that the Company
would have achieved had the Merger taken place at a different date or of the
future results that the Company will achieve.

The pro forma information includes adjustments for additional revenue based
on the fair market value of certain drilling contracts acquired, elimination of
goodwill amortization, additional depreciation based on the fair

34

market value of drilling rigs and other property and equipment acquired and
related adjustments for income taxes, reflecting the incremental benefit
attributable to the effect of the Company's tax structure on the earnings of the
combined companies.

BACKLOG

The Company's contract drilling backlog at December 31, 2002, totaled
approximately $1.2 billion, of which approximately $800 million is expected to
be realized in 2003. Contract drilling backlog at December 31, 2001 was $1.4
billion.

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 traditionally influenced by a number of factors, including oil
and gas prices, the spending plans of the Company's customers and the highly
competitive nature of the offshore drilling industry. Even when rig markets
appear to have stabilized at a certain level of utilization and dayrates, these
markets can change swiftly, making it difficult to predict trends or conditions
in the market. The relocation of rigs from weak markets to stable or strong
markets may also have a significant impact on utilization and dayrates in the
affected markets. A summary of current market conditions in the Company's areas
of operations follows:

North Sea. The Company currently operates three semisubmersibles, five
cantilevered 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 recent period of
reorganization and asset sales among our clients, and the reassessment of
production targets by our clients. The Company expects continued weakness in
this market and anticipates that several of its rigs currently under contract in
this area will either continue to receive low dayrates, or be idle when their
current contracts expire. The Company also expects jackup dayrates to soften in
the first quarter of 2003, and anticipates semisubmersible and jackup market
weakness to continue throughout 2003, likely resulting in intermittent periods
of idle time for a portion of its rigs. In the fourth quarter of 2002, the
Company mobilized one of its semisubmersibles that had previously been operating
in this market to a shipyard in Poland for painting and other maintenance, after
which it will be cold-stacked in Scotland.

U.S. Gulf of Mexico. The Company currently operates two semisubmersibles
and ten cantilevered jackups in the U.S. Gulf of Mexico market, which is
characterized by short-term contracts. Although the U.S. Gulf of Mexico jackup
market has historically reacted to changes in natural gas prices, recent high
natural gas prices have thus far had little effect on utilization, and this
market is currently experiencing significant idle capacity for both jackups and
semisubmersibles. One of the Company's semisubmersibles in this market is
currently committed until June 2003, and the other is operating under a contract
that expires in the first quarter of 2003. Dayrates for jackup rigs marginally
improved during the first half of 2002 but have weakened slightly since that
time. Despite this market weakness, the Company's ten jackups in the U.S. Gulf
of Mexico experienced 96% utilization in the fourth quarter of 2002 while
generally maintaining market dayrates.

Ultra-deepwater drillship market. The Company currently operates three
drillships in the ultra-deepwater markets in the U.S. Gulf of Mexico (two units)
and Australia (one unit). The worldwide ultra-deepwater market is currently
oversupplied, and the contracts of numerous units in this class worldwide are
expected to expire in 2003 and 2004. There are presently fewer oil companies
pursuing operations in ultra-deepwater, and several oil companies with these
types of rigs under contract have offered them to other oil companies at
subsidized dayrates. While the Company's ultra-deepwater drillships have been
operating under long-term contracts, one contract will expire in April 2003, to
be followed by a 60-day contract at a significantly reduced dayrate, and the
contracts of the other two drillships will expire in the third quarter of 2003.
The Company currently has no long-term commitments for its drillships following
these expirations.

35

West Africa. The Company currently operates two semisubmersibles and nine
cantilevered jackups in this market. One of the Company's semisubmersibles in
this market is contracted through 2003, while the other is contracted through a
substantial portion of 2003. While jackup dayrates and utilization remained firm
in this market throughout most of 2002, recent jackup contract early
terminations in Nigeria and possible rig relocations into this market may cause
dayrates and utilization to decline in the West Africa market. Although the
Company is facing the potential for lower dayrates and utilization for its nine
jackups, four of its jackups in this market are contracted through 2003.

Middle East and Mediterranean. The Company currently operates six
cantilevered jackups in the Middle East region and two cantilevered jackups in
the Mediterranean region offshore North Africa, with one additional cantilevered
jackup being mobilized to the Mediterranean. Although both markets appear to be
stable, contracts on two of these rigs expire in the first quarter of 2003 and
the current contract on an additional rig expires in the second quarter of 2003.
The Company's moored drillship is cold-stacked in Malta.

Southeast Asia. The Company currently operates six cantilevered jackups in
Southeast Asia. Four of these jackups are contracted beyond the end of 2003,
with a fifth jackup rig contracted until the fourth quarter of 2003. The
remaining jackup concluded a contract in the first quarter of 2003 and will
undergo modifications and upgrades in a Singapore shipyard, with no contract
commitment thereafter. Although the market is generally balanced in this region
and utilization remains high, the Company has observed a reduction in dayrates
in recent contract placements.

Other. In Northeast Canada, the Company currently operates one
semisubmersible and one heavy-duty harsh environment jackup. The semisubmersible
is undergoing upgrades and modifications during the first quarter of 2003 prior
to the mid-2003 commencement of a two-year contract. The jackup is under
contract until the fourth quarter of 2003. In Trinidad and Tobago, the Company
currently operates one cantilevered jackup under a contract expiring in the
second quarter of 2003.

Land drilling fleet. The Company owns 31 land drilling rigs, with 19 of
these located in the Middle East (Rig 159, located in the Middle East, is held
for sale), four in North Africa and eight in Venezuela. All but three of the
active rigs in the Middle East were under contract at the start of 2003, but the
Company anticipates that utilization and dayrates for the Middle East and North
Africa land rig markets may experience some softening in the first and second
quarters of 2003.

In March 2003, the Company suspended drilling operations and evacuated its
employees from Kuwait in response to the threat of war in Iraq. Although the
suspension of drilling operations is not expected to have a material impact on
the Company's results of operations for the first quarter of 2003, the Company
estimates, based on current contracts and commitments, that its results of
operations for each subsequent quarter will be negatively impacted by
approximately $0.03 per diluted ordinary share for each full quarter that
operations are suspended. Should the threat of war continue, or if hostilities
break out, the Company may be forced to evacuate employees in other countries in
the region, possibly resulting in the termination of some contracts.

Venezuela has been experiencing labor strikes and demonstrations and in
2002 experienced an attempt to overthrow the government. The implications and
results of the political, economic and social instability in Venezuela are
uncertain at this time, but the instability has had and is expected to continue
to have an adverse effect on this market. None of the Company's land rigs
located in Venezuela are currently operating.

FUTURE MARKET FOR NEWBUILDS

The GSF Constellation I, the first of the Company's two high-performance
jackups currently under construction, is scheduled for delivery during the
second quarter of 2003, while the GSF Development Driller I, the first of two
ultra-deepwater semisubmersibles also under construction, and the GSF
Constellation II are scheduled for delivery around the end of the first quarter
of 2004. Although the Company has options for construction of additional jackup
and ultra-deepwater semisubmersible units beyond these four, it does not intend
to exercise these options. The Company's ability to obtain contracts for its
newbuild rigs and the terms of such contracts will depend on market conditions
at the time these rigs are available for contract. The Company is

36

actively marketing the GSF Constellation I and the GSF Development Driller I.
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.

CONTRACT DRILLING OPERATIONS

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

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

(1) Includes revenues earned from affiliates.

(2) Includes the results of Global Marine for the full-year 2001 and the results
of Santa Fe International from November 20, 2001 (42 days).

(3) Reflects the pre-Merger results of Global Marine only.

(4) See note (9) under "Item 6. Selected Financial Data."

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

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

For 2002, 2001 and 2000, respectively, the Company's average offshore
utilization for its drilling rigs in the U.S. Gulf of Mexico was 90%, 94% and
100%. The average utilization for rigs located in the North Sea was 85%, 88% and
62%, respectively, for 2002, 2001 and 2000. For the same periods, rigs located
offshore West Africa averaged 86%, 97% and 77%, respectively, and rigs in South
America averaged 100%, 94% and 100%, respectively. The Company's utilization
rate for 2002 averaged 82% in Southeast Asia and 97% in the Middle East. Global
Marine's offshore fleet did not operate in Southeast Asia or the Middle East
during 2001 or 2000. The Company's land drilling utilization rates averaged 69%
for 2002 and 84% for the 42 days in 2001.

The Company's operating profit margin for contract drilling operations
decreased to 22% in 2002, from 35% in 2001 due primarily to the addition of land
drilling operations, which have historically operated at substantially lower
margins than the Company's offshore fleet, and lower average dayrates in the
U.S. Gulf of Mexico, along with an increase in depreciation expense due to the
adjustment of the carrying values of the Santa Fe International

37

rigs to their estimated market value in connection with the Merger. In addition,
the Company's contract drilling operating results for 2002 were impacted by
accelerated repair and maintenance expenditures on several rigs that were
relocating, undergoing upgrades or idle, as well as a painting and maintenance
project on one of its semisubmersibles. In accordance with its normal practice,
the Company is taking advantage of idle rig time in the North Sea and elsewhere
to perform repair, maintenance and upgrade work on several of its idle rigs,
which will result in a continuation of this increased level of repair and
maintenance costs in the first quarter of 2003.

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

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. 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 U.S. Gulf of Mexico in August 2002; one drillship
from the U.S. Gulf of Mexico to Trinidad in March 2002, back to the U.S. Gulf of
Mexico in May 2002 and to Australia in September 2002; one jackup from Trinidad
to the North Sea in May 2002; one jackup from Trinidad to West Africa in July
2002; one semisubmersible from the North Sea to the east coast of Canada in July
2002; and one jackup from the North Sea to West Africa in November 2002. Prior
to the Merger, Global Marine mobilized one drillship from offshore Peru to West
Africa in April 2000, one drillship from West Africa to the U.S. Gulf of Mexico
in June 2000, 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.

As of January 31, 2003, 14 of the Company's offshore drilling rigs were
located in the U.S. Gulf of Mexico; 12 rigs, including its platform rig, were
located in the North Sea; 11 were offshore West Africa; six were in the Middle
East; six were in Southeast Asia; two were offshore North Africa with one en
route; two were off the northeast coast of Canada; one was offshore Trinidad and
Tobago; one was off the western coast of Australia; one was cold-stacked in
Malta and one was undergoing a painting and maintenance project in a shipyard in
Poland, after which it will be cold-stacked in Scotland.

As of January 31, 2003, 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 January 31, 2003, 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.

Year Ended December 31, 2001, Compared to Year Ended December 31, 2000

Contract drilling revenues increased by $370.5 million in 2001 to $974.1
million compared to $603.6 million in 2000. Approximately $274.6 million of this
increase was attributable to Global Marine's fleet, and $95.9 million was
attributable to Santa Fe International's fleet from the Merger date. Of the
$274.6 million increase in Global Marine's contract drilling revenues in 2001 as
compared to 2000, $104.3 million was attributable to the addition of the Glomar
C.R. Luigs drillship in April 2000 and the Glomar Jack Ryan drillship in
December 2000, $95.1 million was attributable to an increase in average
dayrates, $67.5 million was attributable to an increase in average rig
utilization and $7.7 million was attributable to an increase in reimbursable
revenues. The increase in average dayrates in 2001 as compared to 2000 was
primarily due to operations in West Africa and the U.S. Gulf of Mexico, and the
increase in average rig utilization was primarily due to operations in West
Africa and the North Sea. Of the $95.9 million in contract drilling revenues
attributable to Santa Fe International's fleet, $75.3 million was attributable
to marine rigs and $20.6 million was attributable to land rigs.

Operating income and operating margin increased to $338.5 million and 35%,
respectively, for 2001 compared to $184.5 million and 31%, respectively, for
2000. Operating expenses increased by $216.5 million to

38

$635.6 million in 2001 from $419.1 million in 2000. Approximately $148.9 million
of this increase was attributable to Global Marine's fleet, and $67.6 million
was attributable to Santa Fe International's fleet from the Merger date. The
increase in Global Marine's contract drilling operating expenses in 2001 as
compared to 2000 was primarily due to higher operating costs in connection with
the full-year operations of the Glomar C.R. Luigs and the Glomar Jack Ryan
drillships, an increase in rig utilization and full-year crewed operations of
the GSF Arctic II (formerly the Maersk Jutlander), which was being leased from
the Company under a bareboat charter for most of 2000. Under this bareboat
charter, the Company provided the customer with the rig, and the customer used
its own crews to operate the rig.

DRILLING MANAGEMENT SERVICES

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

Drilling management services revenues decreased by $0.5 million to $416.8
million in 2002 from $417.3 million in 2001. The decrease in revenues consisted
of a $59.8 million decrease attributable to fewer turnkey projects completed,
partly offset by a $32.0 million increase attributable to higher average
revenues per turnkey project and a $27.3 million increase in daywork,
reimbursable and other revenues. The Company completed 98 turnkey projects in
2002 (78 wells drilled and 20 well completions) as compared to 119 turnkey
projects in 2001 (97 wells drilled and 22 well completions).

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

Year Ended December 31, 2001, Compared to Year Ended December 31, 2000

Drilling management services revenues decreased by $32.8 million to $417.3
million in 2001 from $450.1 million in 2000. Approximately $33.5 million of this
decrease was attributable to Global Marine's operations, offset by a $0.7
million increase attributable to operations of Santa Fe International after the
Merger. The decrease in Global Marine's revenues consisted of a $77.3 million
decrease attributable to a decrease in the number of turnkey projects, partly
offset by a $25.3 million increase attributable to higher average revenues per
turnkey project and an $18.5 million increase attributable to daywork,
reimbursable and other revenues. The Company completed 119 turnkey projects in
2001 (97 wells drilled and 22 well completions) as compared to 149 projects in
2000 (122 wells drilled and 27 well completions).

Operating income for drilling management services increased by $11.8
million to $33.4 million in 2001 from $21.6 million in 2000, and operating
profit margin increased to 8.0% in 2001 from 4.8% in 2000. Of the $11.8 million
increase in drilling management services operating income for 2001 as compared
to 2000, $11.3 million was attributable to Global Marine, and $0.5 million was
attributable to the operations of Santa Fe International from the Merger date.
The increase in operating margin in 2001 as compared to 2000 was due in part to
the Company incurring fewer loss wells in 2001 as compared to 2000. The Company
incurred losses totaling $13.5 million on 11 of the 119 turnkey projects in 2001
as compared to losses totaling $18.1 million incurred on 18 of the 149 turnkey
projects during 2000.

Also contributing to the increase in the Company's operating margin in 2001
as compared to 2000 was a turnkey well drilled in the North Sea in December
2000. The turnkey drilling contract guaranteed the Company recovery of its
turnkey drilling costs upon completion of the well and included a provision for
additional revenue based on production from the well. The Company received $4.1
million of additional revenue from this well in the fourth quarter of 2001, all
of which was operating profit.

39

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

OTHER INCOME AND EXPENSE

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

General and administrative expenses increased by $3.4 million to $26.0
million in 2001 from $22.6 million in 2000. Approximately $2.0 million of this
increase was attributable to the operations of Santa Fe International after the
Merger, and $1.4 million was attributable to Global Marine. The increase in
Global Marine's general and administrative expenses was primarily due to an
increase in information systems costs and professional fees, partly offset by
lower compensation expense.

Interest expense was $57.1 million for 2002, $57.4 million for 2001 and
$63.6 million for 2000. Interest expense was essentially flat in 2002 as
compared to 2001. The decrease in interest expense from 2000 to 2001 reflects
lower effective interest rates for the year 2001 due to the issuance of the Zero
Coupon Convertible Debentures in June 2000 as well as lower average debt
balances.

The Company capitalized approximately $20.5 million of interest costs in
2002 in connection with the Company's rig expansion program discussed in
"Liquidity and Capital Resources -- Financing and Investing Activities." The
Company capitalized interest costs of $1.1 million in 2001 in connection with
the construction of these rigs. Global Marine capitalized interest costs of
$26.4 million in 2000 in connection with the construction of the Glomar C.R.
Luigs and Glomar Jack Ryan drillships.

Interest income increased to $15.1 million in 2002 from $13.9 million in
2001 due to increased average cash, cash equivalents and marketable securities
balances, primarily as a result of the Merger, and cash generated from
operations, offset in part by lower interest rates earned in 2002 on the
Company's cash, cash equivalents and marketable securities balances. Interest
income increased to $13.9 million in 2001 from $4.0 million in 2000 primarily
due to higher average cash balances and short-term investments in 2001 as
compared to 2000.

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.

Other income totaled $2.3 million in 2002, due primarily to net gains
totaling $4.0 million recorded on embedded derivative financial instruments
associated with two-year variable-dayrate contracts for two of the Company's
cantilevered jackups. See discussion in "Item 7A -- Quantitative and Qualitative
Disclosures About Market Risk -- Commodity Price Risk." The net gains in 2002
were offset in part by a $1.1 million loss on the sale of long-term marketable
securities related to one of the Company's retirement plans.

INCOME TAXES

The Company's effective tax rate was approximately 11% for the year ended
December 31, 2002, as compared to 38% in 2001. Global Marine's effective tax
rate was 27% in 2000. The lower effective tax rate for

40

2002 was 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 intercompany
debt incurred in connection with the Merger. In 2001, the Company recorded a
valuation allowance against the NOL carryforwards of Global Marine and its
subsidiaries. The effect of that valuation allowance was to increase 2001 tax
expense by $47.2 million. The Company's ability to realize the benefit of Global
Marine's U.S. NOL carryforwards requires that the Company achieve a certain
level of future earnings in the United States prior to the expiration of its NOL
carryforwards. Reduced activity levels in the U.S. Gulf of Mexico in 2001
contributed to a decrease in the expected future earnings of the Company's U.S.
subsidiaries. Also, as a result of the Merger, the expiration dates of the
Company's NOL carryforwards were accelerated by one year, decreasing the number
of years available to fully utilize the NOL carryforwards before they expire.
Based upon currently anticipated market conditions in the United States, the
Company did not adjust the valuation allowance against the U.S. NOL
carryforwards of Global Marine in 2002.

The Company is a Cayman Islands company. The Cayman Islands does not impose
corporate income taxes. 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 year to year as the Company's
operations are conducted in different taxing jurisdictions.

In certain circumstances, management expects that, due to the changing
demands of the offshore drilling markets, the Company's mobile assets are more
likely than not to be redeployed to other locations before those assets operate
in certain jurisdictions long enough to give rise to future tax consequences. As
a result, no deferred tax liability has been recognized on the earnings from
these assets. In addition, the Company has not provided for U.S. deferred taxes
on foreign earnings that could be taxed in the United States upon the occurrence
of certain events in a future period. The Company plans, subject to approval by
its Board of Directors, to implement a business restructuring that will better
integrate the operations of the Company. This integration will change the U.S.
tax classification of certain of its subsidiaries before the occurrence of any
events that could give rise to a tax liability. Should management's expectations
change regarding the length of time a mobile asset will be operating in a given
location, or should the Company choose not to implement the planned business
restructuring, the Company would be required to record additional deferred taxes
that could have a material adverse effect on its financial position, results of
operations and cash flows.

The Company intends to permanently reinvest all of the unremitted earnings
of its U.S. Subsidiaries in their businesses. As a result, the Company has not
provided for deferred taxes on $1.2 billion of cumulative unremitted earnings at
December 31, 2002. Should the Company make a distribution from the unremitted
earnings of its U.S. Subsidiaries, the Company would be required to record
additional U.S. deferred taxes that could have a material adverse effect on its
financial position, results of operations and cash flows.

The Company believes the positions taken on its tax returns with regard to
the taxability of its subsidiaries are reasonable; however, it can provide no
assurance that its positions will not be challenged or that, if challenged, it
would prevail.

In 2002 and 2003, various changes to the U.S. federal income tax code were
proposed that, if enacted, could adversely affect the Company's United States
federal income tax position. Many of the proposed changes target United States
corporations that have expatriated to a foreign jurisdiction and would in
certain cases treat such corporations as United States corporations for United
States federal income tax purposes. Several of the proposals would have
retroactive application and would treat the Company as a United States
corporation. Some of the proposals would impose additional limitations on the
deductibility for United States federal income tax purposes of certain
intercompany transactions, including intercompany interest expense.

At this time, it is impossible to predict what changes, if any, may be
enacted, and if enacted, what effect it may have on the Company. However, there
is a risk that changes to U.S. tax laws 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.

41

TRANSACTIONS WITH AFFILIATES

In connection with the initial public offering of Santa Fe International,
Santa Fe International entered into an intercompany agreement with Kuwait
Petroleum Corporation and SFIC Holdings, which agreement was amended in
connection with the Merger. The intercompany agreement, as amended, provides
that, as long as Kuwait Petroleum Corporation and its affiliates, in the
aggregate, own at least 10% of the Company, the consent of SFIC Holdings is
required to change the jurisdiction of any existing subsidiary of the Company or
incorporate a new subsidiary in any jurisdiction in a manner materially
adversely affecting the rights or interests of Kuwait Petroleum Corporation and
its affiliates or reincorporate the Company in another jurisdiction. The
intercompany agreement, as amended, also provides SFIC Holdings the right to
designate up to three representatives to the Company's Board of Directors based
on SFIC Holdings' ownership percentage in the Company and provides SFIC Holdings
rights to access information concerning the Company. At December 31, 2002, SFIC
Holdings held approximately 18.7% of the outstanding ordinary shares of the
Company.

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

During the year ended December 31, 2002, the Company earned revenues from
KOC and its affiliate for performing contract drilling services in the ordinary
course of business totaling $62.7 million and paid $586,000 of agency fees
pursuant to such agency agreement. During the period following the Merger until
December 31, 2001, the Company earned revenues from KOC and its affiliate
totaling $6.9 million and paid $80,000 of agency fees. At December 31, 2002 and
2001, the Company had accounts receivable from affiliates of Kuwait Petroleum
Corporation of $11.1 million and $9.9 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES

SOURCES OF LIQUIDITY

The Company's primary sources of liquidity are its cash and cash
equivalents, marketable securities and cash generated from operations. As of
December 31, 2002, the Company had $736.5 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. Cash generated from operating activities
totaled $551.1 million, $413.1 million and $280.6 million for the years ended
December 31, 2002, 2001 and 2000, respectively.

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. The Company does not intend to exercise these options.
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, $297 million had been
incurred as of December 31, 2002. A total of approximately $188 million is
expected to be incurred in 2003, and an additional $85 million is expected to be
incurred in 2004. Estimated cash outlays in connection with the construction of
two high-performance jackups, excluding capitalized interest, startup costs,

42

capital spares and mobilization costs, are expected to total approximately $264
million, or $132 million per rig. Of the $264 million, $154 million had been
incurred as of December 31, 2002. A total of approximately $95 million is
expected to be incurred in 2003, and an additional $15 million is expected to be
incurred in 2004. The first of two high-performance jackups, the GSF
Constellation I, is expected to be delivered during the second quarter of 2003,
and the first of two ultra-deepwater semisubmersibles, the GSF Development
Driller I, is expected to be delivered around the end of the first quarter 2004.
The Company expects to fund the construction and startup of these rigs from its
existing cash and marketable securities balances and future cash flow from
operations.

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. The Company is actively
marketing the GSF Constellation I and the GSF Development Driller I.

Other significant financing and investing activities during the year ended
December 31, 2002, were as follows:

- 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.

- Received approximately $35 million (including accrued interest), net of
$7 million in sales commissions and payments to minority owners, in the
first quarter of 2002, related to the 2001 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.

- Repurchased and retired 2,374,600 ordinary shares in the third quarter of
2002 pursuant to the Company's share repurchase program at an aggregate
purchase price, including commissions, of $51.4 million.

- Paid quarterly dividends of $0.0325 per ordinary share for the fourth
quarter of 2001 and the first three quarters of 2002. These dividend
payments totaled $30.4 million for the year ended December 31, 2002.

- Announced in December 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 January 15,
2003, to shareholders of record as of the close of business on December
31, 2002.

- Funded approximately $30.7 million of accrued pension liabilities related
to various pension plans in July 2002. As a result of, and at the time
of, this payment, the Company was approximately 100% funded with respect
to its accumulated benefit obligation as of January 1, 2002.

The Company's debt to capitalization ratio, calculated as the ratio of
total debt, including undefeased capitalized lease obligations, to the sum of
total shareholders' equity and total debt, was 18.2% at December 31, 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 December 31, 2002 and 2001.

In January 2003, the Company entered into a lease-leaseback arrangement
with a European bank related to the Company's Britannia cantilevered jackup.
Pursuant to this arrangement, the Company leased the Britannia to the bank for a
five-year term for a lump-sum payment of approximately $37 million, net of
origination fees of approximately $1.5 million. The bank then leased the rig
back to the Company for a five-year term, under which the Company will make
annual lease payments of $8.0 million, payable in advance. The Company has
classified this arrangement as a capital lease.

On February 11, 2003, the Company issued $250 million of 5% Notes due 2013
(the "5% Notes") and received cash proceeds of approximately $247.6 million
after deduction for discount, underwriting fees and estimated expenses. The
Company plans to use the funds for general corporate purposes. Interest on the
5% Notes

43

is payable on February 15 and August 15 of each year beginning on August 15,
2003. No principal payments are required with respect to the 5% Notes prior to
their final maturity date. The Company has agreed to file a registration
statement with the Securities and Exchange Commission relating to an offer to
exchange the 5% Notes for registered notes having substantially identical terms.

On a pro forma basis, assuming that the Company completed the 5% Note
offering and the lease-leaseback arrangement discussed above on December 31,
2002, the Company's cash and marketable securities balances would have totaled
$1,021.1 million; total debt, including capitalized lease obligations, would
have been $1,231.6 million; and the Company's debt to capitalization ratio would
have been 22.5%.

CASH FLOWS

In 2002, cash flow provided by operating activities totaled $551.1 million.
An additional $93.4 million was provided from the sales of properties and
equipment, $63.6 million was provided from maturities of marketable securities,
net of purchases, $27.3 million was provided from the issuance of ordinary
shares, primarily in connection with the exercise of employee stock options and
$6.4 million was provided from other sources, primarily bank overdrafts. From
the $741.8 million sum of cash inflows, $561.3 million was used for capital
expenditures, $51.4 million was used to purchase the Company's ordinary shares
as part of the Company's share repurchase program and $30.4 million was used for
dividend payments.

In 2001, cash flow provided by operating activities totaled $413.1 million.
An additional $190.7 million, representing Santa Fe International's cash and
cash equivalents balances at November 20, 2001, was received in the Merger,
$13.2 million was provided from the sales of properties and equipment and $7.6
million was provided from the exercise of employee stock options. From the
$624.6 million sum of cash inflows, $158.4 million was used for capital
expenditures, $24.5 million was used for purchases of marketable securities, net
of maturities and $7.7 million was used for other purposes.

In 2000, cash flow provided by operating activities totaled $280.6 million.
An additional $292.6 million was provided from the issuance of the Zero Coupon
Convertible Debentures (after deduction for legal, accounting and underwriting
fees), $14.0 million was provided from exercises of employee stock options and
$3.3 million was provided from other sources. From the $590.5 million sum of
cash inflows, $349.9 million was used to reduce long-term debt, $177.8 million
was used for capital expenditures and $1.8 million was used for other purposes.

FUTURE CASH REQUIREMENTS

As of December 31, 2002, the Company had total long-term debt, including
the current portion of its capital lease obligation, of $943.7 million and
shareholders' equity of $4.2 billion. Long-term debt consisted of $327.2 million
(net of discount) Zero Coupon Convertible Debentures due 2020, $301.3 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 $18.5 million. The Company was in compliance with its debt covenants at
December 31, 2002.

Annual interest on the 7 1/8% Notes is $21.4 million, payable semiannually
each March and September. Annual interest on the 7% Notes is $21.0 million,
payable semiannually each June and December. Annual interest on the 5% Notes
issued in February 2003 is $12.5 million, payable semiannually each February and
August, beginning August 15, 2003. No principal payments are due under all three
issues until the maturity date.

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

44

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

Capital expenditures for 2003 are currently estimated to be approximately
$598 million, including $317 million in connection with the construction of the
four newbuild marine rigs, $107 million for major upgrades to the marine fleet,
$127 million for maintenance capital expenditures, $38 million for capitalized
interest and $9 million for other capital expenditures.

The Company has various commitments primarily related to its debt and
capital lease obligations, leases for office space and other property and
equipment as well as commitments for construction of drilling rigs. The Company
expects to fund these commitments with cash generated from operations, but may
use a portion of the proceeds of the 5% Notes to satisfy these obligations.

The following table summarizes the Company's contractual obligations at
December 31, 2002, giving effect to the 5% Notes and the Britannia lease
discussed in "Financing and Investing Activities."

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

(1) Represents cash payments required. Long-term debt is recorded net of
unamortized discount at December 31, 2002. Holders of the Zero Coupon
Convertible Debentures have the right to require the Company to repurchase
the debentures as early as June 23, 2005.

(2) Represents cash payments required. Obligation is recorded at net present
value at December 31, 2002.

(3) See discussion of newbuild construction commitments in "Financing and
Investing Activities."

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 December 31, 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 could be required.

45

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 existing cash and marketable securities balances, the net
proceeds from its 5% Notes and future cash flow from operations.

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." The Company adopted the provisions of SFAS No.
142 and SFAS No. 144 effective January 1, 2002.

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

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

- 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

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

At December 31, 2002, Goodwill in the Company's Condensed Consolidated
Balance Sheet totaled approximately $386.9 million, substantially all of which
was recorded in connection with the Merger. The Company has defined reporting
units within its contract drilling segment based upon economic and market
characteristics of these units. All of the goodwill recorded in connection with
the Merger has been allocated to the jackup drilling fleet reporting unit, as
these rigs were the primary source of value in the Merger discussions and
negotiations. The estimated fair value of this reporting unit for purposes of
the Company's annual goodwill impairment testing is based upon the present value
of its estimated future net cash flows, utilizing a discount rate based upon the
Company's cost of capital. The Company has completed its goodwill impairment
testing for 2002 and was not required to record a goodwill impairment loss. The
amortization of goodwill existing before the Merger was immaterial.

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

- 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;

- 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

- 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.

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." The Company adopted SFAS No. 145 in the second quarter of 2002.
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.

46

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." 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.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148 provides three
alternative methods of transition and disclosure requirements for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. The three alternative methods available are: (1) the prospective
method, (2) the modified prospective method, and (3) the retroactive restatement
method. Under the prospective method, which is available only for companies
converting to SFAS No. 123 prior to December 16, 2003, compensation cost is
recognized for awards granted, modified or settled after the beginning of the
year of adoption. The modified prospective method recognizes compensation costs
from the beginning of the year of adoption as if the fair value method had been
used for all grants awarded, modified or settled in fiscal years beginning after
December 15, 1994. The retroactive restatement method provides that all periods
presented are restated to reflect compensation costs as if the fair value method
had been used for all grants awarded, modified or settled in fiscal years
beginning after December 15, 1994. In addition to providing compensation cost
recognition methods, SFAS No. 148 also requires certain disclosures, including
the accounting method used for each period presented, a description of the
method used to report the change in accounting principle and continuing tabular
presentation of proforma net income and earnings per share effects for any
awards outstanding under the intrinsic method of Accounting Principles Board
Opinion No. 25. SFAS No. 148 is effective for fiscal years ending after December
15, 2002. The Company has adopted the disclosure provisions of SFAS No. 148, and
is currently evaluating the potential effects of the implementation of the
transition requirements of this Statement on its financial position and results
of operations.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This Interpretation provides
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued and
clarifies that a liability for the fair value of the obligation undertaken in
issuing certain guarantees shall be recognized at inception of the guarantee.
The initial recognition and initial measurement provisions of FIN 45 are
applicable to guarantees issued or modified after December 31, 2002. The
disclosure requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002. The Company believes
that it has no material guarantees within the scope of FIN 45 other than the
fully defeased financing leases for two of its drillships. See "Item
7A -- Quantitative and Qualitative Disclosures About Market Risk -- Interest
Rate Risk."

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). This
interpretation provides guidance on the identification of, and financial
reporting for, entities over which control is achieved through means other than
voting rights, or variable-interest entities ("VIEs"). FIN 46 is effective for
public entities with VIEs created before February 1, 2003, at the beginning of
the first interim or annual reporting period starting after June 15, 2003. For
VIEs created after January 31, 2003, FIN 46 is effective immediately. Upon the
applicable effective date, FIN 46 will become the guidance that determines
whether consolidation is required and whether the variable-interest accounting
model must be used to account for existing and new entities. The Company does
not believe that it currently has any VIEs within the scope of FIN 46.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

COMMODITY PRICE RISK

Two of the Company's cantilevered jackup rigs are currently operating under
similar dayrate contracts that expose the Company to commodity price risk. These
two-year agreements, expiring in May 2004 and October 2004, respectively, each
contain a variable-dayrate formula linked to crude oil prices, whereby dayrates
earned

47

under these contracts increase or decrease in response to increases or decreases
in oil prices. Dayrates under these agreements are calculated using a sliding
scale formula based on the arithmetic average of the daily closing price of
Light Sweet Crude on the New York Mercantile Exchange ("NYMEX"), subject to a
maximum of $28.00 per barrel and a minimum of $12.00 per barrel.

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

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
December 31, 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
$3.8 million and $4.0 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 $2.8 million and $3.0 million,
respectively. A hypothetical ten percent increase in NYMEX oil prices over the
lives of these agreements would increase the net fair values of the embedded
derivatives contained in these contracts by $3.2 million and $3.5 million,
respectively. Conversely, a ten percent decrease in oil prices over the lives of
these agreements would decrease the net fair value of the embedded derivatives
by approximately $2.4 million and $2.7 million, respectively. An 11% discount
rate was applied to the future cash flows of the contracts to determine the net
fair values discussed above. The net fair value, based upon market price, of the
embedded derivatives in each of these contracts was an asset of approximately
$2.5 million at December 31, 2002, or $5.0 million in the aggregate.

As part of the Company's overall risk management strategy, the Company has
entered into a number of commodity caps, swaps and floors designed to mitigate
its exposure to fluctuations in fair values of the embedded derivatives in these
contracts resulting from changes in oil prices. The net fair values of these
derivative financial instruments represented a total obligation of $5.0 million
at December 31, 2002.

INTEREST RATE RISK

In 1998 the Company entered into fixed-price contracts with Harland and
Wolff Shipbuilding and Heavy Industries Limited totaling $315 million for the
construction of two dynamically positioned, ultra-deepwater drillships, the
Glomar C.R. Luigs and the Glomar Jack Ryan. Pursuant to two 20-year, capital
lease agreements, the Company subsequently novated the construction contracts
for the drillships to two financial institutions (the "Lessors"), which now own
the drillships and lease them to the Company. The Company has deposited with
three large foreign banks (the "Payment Banks") amounts equal to the progress
payments that the Lessors were required to make under the construction
contracts, less a lease benefit of approximately $62 million (the "Defeasance
Payment"). In exchange for the deposits, the Payment Banks have assumed
liability for making rental payments required under the leases and the Lessors
have legally released the Company as the primary obligor of such rental
payments. Accordingly, the Company has recorded no capital lease obligations on
its balance sheet with respect to the two drillships. The Glomar C.R. Luigs and
the Glomar Jack Ryan began operating under contract in April and December 2000,
respectively.

The Company has interest rate risk in connection with its fully defeased
financing leases for the Glomar Jack Ryan and Glomar C.R. Luigs. The Defeasance
Payment earns interest based on the British Pound Sterling three-month LIBOR,
which approximated 8.00% at the time of the agreement. Should the Defeasance
Payment earn less than the assumed 8.00% rate of interest, the Company will be
required to make additional payments as necessary to augment the annual payments
made by the Payment Banks pursuant to the agreements. If the December 31, 2002,
LIBOR rate of 4.02% were to continue over the next ten years, the Company would
be required to fund an additional estimated $50 million during that period. Any
additional payments made by the Company pursuant to the financing leases would
increase the carrying value of its leasehold interest in the rigs and therefore
be reflected in higher depreciation expense over their then-remaining useful
lives. The Company

48

does not expect that, if required, any additional payments made under these
leases would be material to its financial position or results of operations in
any given year.

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

FAIR VALUE RISK

The objectives of the Company's short-term investment strategy are safety
of principal, liquidity maintenance, yield maximization and full investment of
all available funds. As a result, the Company's investment portfolio at December
31, 2002, consists primarily of high credit quality commercial paper, Eurodollar
debt securities and money market funds, all with original maturities of less
than nine months. The Company believes that the carrying value of these
investments approximates market value at December 31, 2002, due to the
short-term nature of these instruments.

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

In October 2002, the Company entered into a fixed-for-floating interest
rate swap with a notional amount of $50 million, effective October 2002 through
September 2007. This interest rate swap is intended to manage a portion of the
fair value risk related to the Company's 7 1/8% Notes 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 1/8% rate. The estimated fair value of
this swap was an asset of approximately $1.6 million at December 31, 2002. The
Company has designated this swap as a fair value hedge.

The estimated fair value of the Company's $300 million principal amount
7 1/8% Notes due 2007, based on quoted market prices, was $342.4 million at
December 31, 2002, compared to the carrying amount of $301.3 million. The
estimated fair value of the Company's $300 million principal amount 7% Notes due
2028, based on quoted market prices, was $333.9 million at December 31, 2002,
compared to the carrying amount of $296.7 million. The estimated fair value of
the Company's $600 million Zero Coupon Convertible Debentures due 2020, based on
quoted market prices, was $326.2 million at December 31, 2002, compared to the
carrying amount of $327.2 million.

The Company's long-term debt is subject to fair value risk due to changes
in market interest rates. In addition, the fair value of the Company's zero
coupon convertible debt is subject to changes in the market price of the
Company's ordinary shares. The Company has performed sensitivity analyses to
assess the impact of these changes in interest rates and share prices on the
fair values of its long-term debt based on a hypothetical ten-percent increase
in market interest rates and a hypothetical ten-percent decrease in the price of
its ordinary shares. Market interest rate and share price volatility are
dependent on many factors that are impossible to forecast, and actual interest
rate increases and share price decreases could be more severe than the
hypothetical ten-percent change.

The Company estimates that if prevailing market interest rates had been ten
percent higher at December 31, 2002, and all other factors affecting the
Company's debt remained the same, the fair value of the Company's 7 1/8% Notes
due 2007, as determined on a present-value basis using prevailing market
interest rates, would have decreased by $5.2 million or 1.5%, the fair value of
the Company's 7% Notes due 2028 would have decreased by $24.1 million or 7.2%,
and the fair value of the Company's zero coupon convertible debt would have
decreased by $19.1 million or 5.9%. With respect to the Company's zero coupon
convertible debt, if the market price of the Company's ordinary shares had been
ten percent lower at December 31, 2002, and all other factors remained the same,
the decrease in the fair value of the zero coupon convertible debt would have
been less than one percent.

With respect to the Company's fixed-for-floating interest rate swap, if
prevailing market interest rates had been ten percent higher at December 31,
2002, and all other factors had remained the same, the fair value of the

49

Company's $50 million notional amount fixed-for-floating interest rate swap, as
determined on a present-value basis, would have decreased by $0.7 million or
41.3%.

FOREIGN CURRENCY RISK

The Company, through its international operations, is subject to foreign
currency risk. This risk arises from holding net monetary assets (cash and
receivables in excess of payables) denominated in foreign currencies during
periods of a strengthening U.S. dollar. The Company attempts to minimize this
currency risk by seeking international drilling contracts payable in local
currency in amounts equal to its estimated local currency-based operating costs
and in U.S. dollars for the balance of the contract. Due to this strategy, the
Company has minimized its net asset or liability positions denominated in local
currencies and has not experienced significant gains or losses associated with
changes in currency exchange rates. Accordingly, the Company has not entered
into financial hedging transactions to manage risks relating to fluctuations in
currency exchange rates. The Company may, however, enter into such transactions
in the future should the Company assume significant foreign currency risks.

CREDIT RISK

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

The Company's cash deposits were distributed among various banks in the
areas of the Company's operations throughout the world as of December 31, 2002.
In addition, the Company had commercial paper, money-market funds and Eurodollar
time deposits with a variety of financial institutions with strong credit
ratings. As a result, the Company believes that credit risk in such instruments
is minimal.

50

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of GlobalSantaFe Corporation

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, shareholders' equity and cash flows
present fairly, in all material respects, the financial position of
GlobalSantaFe Corporation and subsidiaries (the "Company") at December 31, 2002
and 2001, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
March 21, 2003

51

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

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

(1) Results for 2001 include the operations of the Company since the November
2001 merger date (42 days). Results for 2000 reflect the operations of
Global Marine Inc. only.

(2) Earnings per ordinary share for 2000 have been restated to reflect the
effect of the exchange ratio of 0.665 established in the Merger (see Note
1).

See notes to consolidated financial statements.
52

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements.
53

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See notes to consolidated financial statements.
54

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

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

See notes to consolidated financial statements.
55

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS

GlobalSantaFe Corporation (the "Company" or "GlobalSantaFe") is an oil and
gas drilling contractor, owning or operating a fleet of over 100 marine and land
drilling rigs. The Company's fleet currently includes 13 floating rigs, 44
cantilevered jackup rigs, 31 land rigs and one platform rig. In addition, the
Company or its affiliates operate 11 platform rigs for third parties, and it
operates two semisubmersible rigs for third parties under a joint venture
agreement. 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.

MERGER OF SANTA FE INTERNATIONAL CORPORATION AND GLOBAL MARINE INC.

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

BACKGROUND OF SANTA FE INTERNATIONAL AND GLOBAL MARINE

At the time of the Merger, Santa Fe International was an international
offshore and land contract driller of oil and natural gas wells and owned and
operated a fleet of 26 marine drilling rigs and 31 land drilling rigs in 16
countries throughout the world. In addition, Santa Fe International operated 13
marine drilling rigs owned by third parties. Santa Fe International primarily
contracted its drilling rigs, related equipment and crews to oil and gas
companies on a dayrate basis. As part of its contract drilling services, Santa
Fe International also provided third-party rig operations and incentive drilling
services to the international oil and gas industry. In the area of drilling
management services, Santa Fe International provided drilling engineering and
project management services. Santa Fe International was incorporated in its
current form under the laws of the Cayman Islands in 1990.

At the time of the Merger, Global Marine was a domestic and international
offshore drilling contractor, with a fleet of 33 mobile offshore drilling rigs
worldwide. Global Marine provided offshore drilling services on a dayrate basis
in the U.S. Gulf of Mexico and internationally. Global Marine also provided
drilling management services on a turnkey basis. As part of its drilling
management services, Global Marine also provided planning, engineering and
management services beyond the scope of its traditional contract drilling
business. Global Marine also engaged in oil and gas exploration, development and
production activities principally in order to facilitate the acquisition of
turnkey contracts for its drilling management services operations.

MERGER TRANSACTION

The Merger was accounted for as a purchase business combination in
accordance with accounting principles generally accepted in the United States of
America. As the stockholders of Global Marine owned slightly over 50% of the
Company after the Merger, Global Marine was considered the acquiring entity for
accounting purposes. Accordingly, the historical basis of Global Marine in its
assets and liabilities has been carried forward to the consolidated financial
statements of the Company. The assets and liabilities of Santa Fe International
have been recorded at estimated fair market value at the date of the Merger in
the consolidated financial statements of

56

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company, with the excess of the purchase price over the sum of such fair
values recorded as goodwill. The purchase price of $2,567.1 million was
calculated using the number of Santa Fe International ordinary shares
outstanding immediately prior to the Merger and a $14.67 per share average
trading price of Global Marine's common stock, as adjusted for the merger ratio
($22.06 per share, as adjusted), for a period of time immediately before and
after the Merger was announced, plus the estimated fair value of Santa Fe
International's outstanding stock options.

The following table summarizes the allocation of the purchase price to the
specific assets and liabilities of Santa Fe International based on estimates of
fair values and costs at the time of the Merger. All of the goodwill was
assigned to the Company's contract drilling segment. Goodwill recorded in
connection with the Merger is nondeductible for tax purposes.

The recording of goodwill is supported by the nature of the offshore
drilling industry, the acquisition of long-lived drilling equipment and the
long-standing relationships between Santa Fe International and its core
customers. Subsequent to the Merger, $4.3 million of additional goodwill was
recognized due primarily to additional employee separation costs incurred.

The consolidated balance sheets as of December 31, 2002 and 2001, represent
the consolidated financial position of the combined company. The statements of
income, cash flows and shareholders' equity for the year ended December 31,
2002, reflect the results of the combined company. The statements of income,
cash flows and shareholders' equity for the year ended December 31, 2001,
include the results of Global Marine for the full-year 2001 and the results of
Santa Fe International from November 20, 2001 (42 days). The statements of
income, cash flows and shareholders' equity for the year ended December 31,
2000, reflect the historical results of Global Marine. Share and per share data
for all periods prior to the Merger have been restated to reflect the exchange
ratio as outlined in the merger agreement.

PRO FORMA FINANCIAL INFORMATION (UNAUDITED)

The following unaudited condensed consolidated pro forma results for the
years ended December 31, 2001 and 2000, has been prepared as if the Merger had
occurred on January 1, 2000. Revenues for both periods have been reclassified
pursuant to EITF Issue 01-14 (see discussion in "Basis of Presentation"). If
Global Marine and Santa Fe International had merged on this date, GlobalSantaFe
might have performed differently. The pro forma financial information should not
be relied on as an indication of the financial position or results of operations
that

57

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company would have achieved had the Merger taken place at a different date
or of the future results that the Company will achieve.

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

RESTRUCTURING COSTS

In connection with the Merger, the Company implemented a restructuring
program that included the consolidation of Santa Fe International's
administrative office in Dallas, Texas, Global Marine's administrative office in
Lafayette, Louisiana, and Global Marine's administrative office in Houston,
Texas, into a single administrative office in Houston, the consolidation of
Santa Fe International's and Global Marine's North Sea administrative offices in
Aberdeen, Scotland and the separation of 167 employees from the Company. The
employee functions affected were primarily corporate support in nature and
included accounting, information technology, and employee benefits, among
others. Approximately 60% of the affected positions were located in Dallas, 23%
were located in Houston and Lafayette, and the remaining 17% were located in
Aberdeen.

58

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Estimated restructuring costs associated with Global Marine were recorded
as a pretax charge in the fourth quarter of 2001. Changes in estimated costs,
consisting mainly of refinements of cost estimates, and payments related to
these restructuring costs for the year ended December 31, 2002, are summarized
as follows:

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

(1) The liability at December 31, 2002, included $2.0 million of special
termination costs related to certain retirement plans, which were included
in Other long-term liabilities in the 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, consisting primarily of costs associated with employee
terminations and further employee relocation costs, and payments related to this
liability for the year ended December 31, 2002, are summarized as follows:

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

(1) The liability at December 31, 2002, included $7.6 million related to the
Dallas office lease obligation, which was included in Other long-term
liabilities in the Consolidated Balance Sheets.

59

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

All remaining 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 Consolidated Balance Sheets, except for special termination
costs and long-term office lease obligations noted in the tables above.

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

DIVIDENDS

Holders of GlobalSantaFe Ordinary Shares are entitled to participate in the
payment of dividends in proportion to their holdings. Under Cayman Islands law,
the Company may pay dividends or make other distributions to the Company's
shareholders, in such amounts as the Board of Directors deems appropriate from
the profits of the Company or out of the Company's share premium account
(equivalent to additional paid-in capital) if the Company thereafter has the
ability to pay its debts as they come due. Cash dividends, if any, will be
declared and paid in U.S. dollars. The Company has declared cash dividends of
$7.6 million that were unpaid as of December 31, 2002.

BASIS OF PRESENTATION

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

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 years ended December 31,
2001 and 2000, 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. Amounts classified as revenues and
expenses for 2002 pursuant to this consensus and the amounts of revenues and
expenses reclassified by segment for each prior period presented are as follows
(in millions):

60

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

CASH EQUIVALENTS AND MARKETABLE SECURITIES

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

PROPERTIES AND DEPRECIATION

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

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

Rigs and drilling equipment included $1.0 billion of assets recorded under
capital leases at both December 31, 2002 and 2001. Accumulated amortization of
assets under capital leases totaled $134.2 million and $84.8 million at December
31, 2002 and 2001, respectively.

The Company reviews its long-term assets for impairment when changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable, in accordance with Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment and Disposal of Long-lived
Assets." SFAS No. 144 requires that long-lived assets and certain intangibles to
be held and used be reported at the lower of carrying amount or fair value.
Assets to be disposed of and assets not expected to provide any future service
potential to the Company are recorded at the lower of carrying amount or fair
value less cost to sell. The Company recorded no impairment charges during the
years ended December 31, 2002, 2001 or 2000.

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

61

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GOODWILL

The Company accounts for goodwill in accordance with the provisions of SFAS
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 primarily
addresses the accounting for goodwill and intangible assets subsequent to their
initial recognition. The key provisions of SFAS No. 142:

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

- 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

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

At December 31, 2002, Goodwill in the Company's Condensed Consolidated
Balance Sheet totaled approximately $386.9 million, substantially all of which
was recorded in connection with the Merger (see Note 1). The Company has defined
reporting units within its contract drilling segment based upon economic and
market characteristics of these units. All of the goodwill recorded in
connection with the Merger has been allocated to the jackup drilling fleet
reporting unit, as these rigs were the primary source of value in the Merger
discussions and negotiations. The estimated fair value of this reporting unit
for purposes of the Company's annual goodwill impairment testing is based upon
the present value of its estimated future net cash flows, utilizing a discount
rate based upon the Company's cost of capital. The Company has completed its
goodwill impairment testing for 2002 and was not required to record a goodwill
impairment loss. The amortization of goodwill existing before the Merger was
immaterial.

REVENUE RECOGNITION

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

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

DERIVATIVE FINANCIAL INSTRUMENTS

From time to time, the Company may make use of derivative financial
instruments to manage its exposure to fluctuations in cash flows, interest rates
or foreign currency exchange rates. The Company accounts for its derivative
financial instruments pursuant to SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by SFAS No. 138, "Accounting for
Derivative Instruments and Hedging Activities -- an amendment of FASB Statement
No. 133." Derivative instruments held by the Company at December 31, 2002,
include dayrate contracts on two of the Company's drilling rigs that are indexed
to exchange-traded oil futures contracts, various commodity caps, swaps and
floors used to mitigate the Company's exposure to fluctuations in the fair
values of these dayrate contracts, and an interest rate swap related to the
Company's 7 1/8% Notes due 2007 (see Note 7).

62

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FOREIGN CURRENCY TRANSACTIONS

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

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

INCOME TAXES

The Company is a Cayman Islands company. The Cayman Islands does not impose
corporate income taxes. Consequently, income taxes have been provided based on
the tax laws and rates in effect in the countries in which the operations are
conducted and income is earned. The income taxes in these jurisdictions vary
substantially. The Company's effective tax rate for financial statement purposes
will continue to fluctuate from year to year as the Company's operations are
conducted in different taxing jurisdictions. The Company's ability to realize
the benefit of its deferred tax assets requires that the Company achieve certain
future earnings levels prior to the expiration of its NOL carryforwards.

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

STOCK-BASED COMPENSATION PLANS

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

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

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

follows (earnings per share amounts for 2000 have been restated to reflect the
effect of the exchange ratio as outlined in the Merger):

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

The weighted average per share fair value of stock options as of the grant
date was $15.82 in 2002, $13.29 in 2001 and $11.73 in 2000. The weighted average
per share fair value of the outstanding Santa Fe International stock options at
November 20, 2001 was $4.94. The per share value of options granted under the
Employee Share Purchase Plan was $9.61 for 2002. The per share fair value of the
Company's performance-based stock awards as of the grant date was $23.92 in
2002, $29.36 in 2001 and $19.32 in 2000.

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

USE OF ESTIMATES

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

NOTE 3 -- INVESTMENTS

At December 31, 2002 and 2001, the Company had investments in commercial
paper, money market funds and Eurodollar time deposits that were classified as
held-to-maturity and carried at amortized cost. These investments are classified
as Marketable securities on the Consolidated Balance Sheets. Due to the
short-term

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

maturities of these instruments, the fair value of these investments in debt
securities approximated their carrying value; therefore, there were no
unrealized holding gains or losses as of December 31, 2002 or 2001.

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

NOTE 4 -- LONG-TERM DEBT

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

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

(1) The balance at December 31, 2002, includes a mark-to-market adjustment of
$1.6 million as part of fair value hedge accounting related to the Company's
fixed-for-floating interest rate swap (see Note 7).

The Zero Coupon Convertible debentures were issued at a price of $499.60
per debenture, which represents a yield to maturity of 3.5% per annum to reach
an accreted value at maturity of $1,000 per debenture. The Company has the right
to redeem the debentures in whole or in part on or after June 23, 2005, at a
price equal to the issuance price plus accrued original issue discount through
the date of redemption. Each debenture is convertible into 8.125103
GlobalSantaFe ordinary shares (4,875,062 total shares, as restated to reflect
the effect of the exchange ratio established in the Merger) at the option of the
holder at any time prior to maturity, unless previously redeemed. Holders have
the right to require the Company to repurchase the debentures on June 23, 2005,
June 23, 2010, and June 23, 2015, at a price per debenture of $594.25 on June
23, 2005, $706.82 per debenture on June 23, 2010, and $840.73 per debenture on
June 23, 2015. These prices represent the accreted value through the date of
repurchase. The Company may pay the repurchase price with either cash or shares
or a combination thereof.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

redemption, plus a premium, if any, relating to the then-prevailing Treasury
Yield and the remaining life of the notes.

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

All of the Company's debt is unsecured and unsubordinated and ranked
equally in right of payment with all other unsecured and unsubordinated
obligations of the Company.

Subsequent to the balance sheet date, on February 11, 2003, the Company
issued $250 million of 5% Notes due 2013 (the "5% Notes") in a private placement
and received cash proceeds of approximately $247.6 million after deduction for
discount, underwriting fees and estimated expenses. The Company plans to use the
funds for general corporate purposes. The 5% Notes are unsecured senior
obligations of the Company and rank equally with all other senior unsecured
indebtedness of the Company. The 5% Notes, however, have a junior position to
the claims of holders of the indebtedness and capital lease obligations of
Global Marine and its subsidiaries on Global Marine's assets and earnings. The
indenture relating to the 5% Notes contains limitations on the Company's ability
to incur indebtedness for borrowed money secured by certain liens and on its
ability to engage in certain sale/leaseback transactions. The indenture,
however, does not restrict the Company's ability to incur additional senior
indebtedness. Interest on the 5% Notes is payable on February 15 and August 15
of each year beginning on August 15, 2003. No principal payments are required
with respect to the 5% Notes prior to their final maturity date.

The Company may redeem the 5% Notes in whole or in part, at any time and
from time to time, at a price equal to 100% of the principal amount plus accrued
interest to the redemption date, plus a premium relating to the then-prevailing
Treasury Yield and the remaining life of the notes. The Company has agreed to
file a registration statement with the Securities and Exchange Commission
relating to an exchange offer to exchange the 5% Notes for registered notes
having substantially identical terms.

NOTE 5 -- COMMITMENTS AND CONTINGENCIES

At December 31, 2002, the Company had office space and equipment under
operating leases with remaining terms ranging from approximately one to seven
years. Certain of the leases may be renewed at the Company's option, and some
are subject to rent revisions based on the Consumer Price Index or increases in
building operating costs. In addition, at December 31, 2002, the Company had the
Glomar Explorer drillship under capital lease through 2026. Total rent expense
was $73.9 million for 2002, $116.9 million for 2001, and $114.4 million for
2000. Included in rent expense was the rental of offshore drilling rigs used in
the Company's turnkey operations totaling $55.0 million for 2002, $109.9 million
for 2001, and $108.4 million for 2000.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Future minimum rental payments with respect to the Company's lease
obligations as of December 31, 2002, were as follows:

As of December 31, 2002, the Company had operating leases in place for
Santa Fe International's offices in Dallas, Texas and Aberdeen, Scotland and
Global Marine's office in Lafayette, Louisiana, which have been closed as part
of the restructuring program described in Note 1. These costs are included in
the table above. Costs associated with the closure of Santa Fe International's
offices in Dallas and Aberdeen totaling approximately $11.5 million were
recognized as a liability assumed in the Merger and included in the cost of
acquisition in accordance with SFAS No. 141, "Business Combinations." Estimated
costs related to the closure of Global Marine's Lafayette office along with the
consolidation of the Company's offices in Aberdeen and Houston totaling
approximately $4.3 million were accrued as part of Restructuring costs in the
consolidated financial statements for the year ended December 31, 2001. These
estimated costs assumed that Global Marine's Houston office would be subleased
to a third party. The Company, however, has not yet entered into such a
transaction. Consequently, the Company has revised its original estimate of
closure costs associated with Global Marine's former office space to $7.2
million.

In March 2002, the Company entered into a sublease agreement with BP
America Inc. for the Company's current executive offices located at 15375
Memorial Drive, Houston, Texas. This sublease expires in September 2009. Lease
payments pursuant to this sublease total $2.3 million per year. The Company has
also entered into an 11-year lease for the Company's Aberdeen, Scotland office.
Payments pursuant to this lease total GBP597,000 (approximately $1 million) per
year.

Subsequent to the balance sheet date, in January 2003, the Company entered
into a lease-leaseback arrangement with a European bank related to the Company's
Britannia cantilevered jackup. Pursuant to this arrangement, the Company leased
the Britannia to the bank for a five-year term for a lump-sum payment of
approximately $37 million, net of origination fees of $1.5 million. The bank
then leased the rig back to the Company for a five-year term, under which the
Company will make annual lease payments of $8.0 million. The Company has
classified this arrangement as a capital lease.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

priced semisubmersibles, and up to four additional jackups, the first two of
which are similarly priced. The Company does not intend to exercise any of these
options. 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, $297
million had been incurred as of December 31, 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 $264 million, or $132 million per rig. Of
the $264 million, $154 million had been incurred as of December 31, 2002.

LEGAL PROCEEDINGS

Applied Drilling Technology Inc. ("ADTI"), a wholly owned subsidiary of the
Company, was a defendant 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 arose out of
damage caused to an offshore well owned by Newfield, which had been drilled by
ADTI pursuant to a turnkey contract. The lawsuit has been dismissed with
prejudice by the court, and Newfield has waived its right to appeal.

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"). The Company ultimately provided a total of $103.1 million
under the Funding Agreement.

The Lessors and the Company were involved in arbitration proceedings with
the Shipbuilder, in which the Shipbuilder claimed 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, change orders and additional compensation for
increased steelweight. The Company was involved in an arbitration proceeding
with Fred. Olsen Energy ASA ("Olsen") relating to disputes under the Funding
Agreement. In February 2003, the Lessors and the Company agreed to pay an
additional $8.2 million to the Shipbuilder and Olsen in exchange for settlement
of all outstanding disputes between the parties. This amount is to be adjusted
by reference to the award to be issued by the arbitration tribunal for the cost
of completion arbitration in respect of the Glomar Jack Ryan, subject to a
minimum amount of $7.7 million and a maximum amount of $10.0 million. In the
event that the Company is required to pay the maximum amount of $10.0 million,
total cost of construction will be $485.1 million for the two drillships.

The Company filed a claim in 1993 in the amount of $40.6 million with the
United Nations Compensation Commission ("UNCC") for losses suffered as a result
of the Iraqi invasion of Kuwait in 1990. The claim was for the loss of four rigs
and associated equipment, lost revenue, and miscellaneous expenditures. The
Governing Council of the UNCC has awarded the Company compensation in the amount
of $22.1 million in a final, non-appealable, adjudication of the claim. The
Company has been advised that the funds will be paid upon receipt of a formal
request, which has now been made.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

The Company has been named as a PRP in connection with a site located in
Santa Fe Springs, California known as the Waste Disposal, Inc. site. The Company
and other PRPs have agreed with the U.S. Environmental Protection Agency ("EPA")
and the U.S. Department of Justice ("DOJ") to settle their potential liabilities
for this site by agreeing to perform the remaining remediation required by 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
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 is not likely to owe any substantial additional amounts
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:

- 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.

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

CONTINGENCIES AND OTHER LEGAL MATTERS

Pursuant to the capital lease agreements on the Company's two dynamically
positioned, ultra-deepwater drillships, the Glomar C.R. Luigs and the Glomar
Jack Ryan discussed above in "Legal Proceedings," the Company has deposited with
three large foreign banks (the "Payment Banks") amounts equal to the progress
payments that the Lessors were required to make under the construction
contracts, less a lease benefit of approximately $62 million (the "Defeasance
Payment"). In exchange for the deposits, the Payment Banks have assumed
liability for making rental payments required under the leases and the Lessors
have legally released the Company as the primary obligor of such rental
payments. Accordingly, the Company has recorded no capital lease obligations on
its balance sheet with respect to the two drillships. The Glomar C.R. Luigs and
the Glomar Jack Ryan began operating under contract in April and December 2000,
respectively.

The Company has interest rate risk in connection with its fully defeased
financing leases for the Glomar Jack Ryan and Glomar C. R. Luigs. The Defeasance
Payment earns interest based on the British Pound Sterling three-month LIBOR,
which approximated 8.00% at the time of the agreement. Should the Defeasance
Payment earn less than the assumed 8.00% rate of interest, the Company will be
required to make additional payments as necessary to augment the annual payments
made by the Payment Banks pursuant to the agreements. If the December 31, 2002,
LIBOR rate of 4.02% were to continue over the next ten years, the Company would
be required to fund an additional estimated $50 million during that period. Any
additional payments made by the Company pursuant to the financing leases would
increase the carrying value of its leasehold interest in the rigs and therefore
be reflected in higher depreciation expense over their then-remaining useful
lives. The Company does not expect that, if required, any additional payments
made under these leases would be material to its financial position or results
of operations in any given year.

There are no other 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 6 -- ACCUMULATED OTHER COMPREHENSIVE LOSS

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

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The minimum pension liability adjustments in the table above are shown net
of a tax benefit of $14.8 million in 2002 and a tax benefit of $6.4 million in
2001. The tax effect of the unrealized holding gains and losses was immaterial
for all periods presented.

NOTE 7 -- DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUES OF FINANCIAL
INSTRUMENTS

DERIVATIVE INSTRUMENTS

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

The variable-dayrate formula contained in these agreements is comprised of
multiple embedded derivative financial instruments as defined in SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The fair values
of these embedded derivatives fluctuate in response to changes in oil prices.
The net fair value of the embedded derivatives in each of these contracts was an
asset of approximately $2.5 million at December 31, 2002, or $5.0 million in the
aggregate.

As part of the Company's overall risk management strategy, the Company has
entered into a number of commodity caps, swaps and floors designed to mitigate
its exposure to fluctuations in fair values of the embedded derivatives in these
contracts resulting from changes in oil prices. The fair values of these
derivative financial instruments represented a total liability of $5.0 million
at December 31, 2002.

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

In October 2002, the Company entered into a fixed-for-floating interest
rate swap with a notional amount of $50 million, effective October 2002 through
September 2007. This interest rate swap is intended to manage a portion of the
fair value risk related to the Company's 7 1/8% Notes 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 1/8% rate. The estimated fair value of
this swap was an asset of approximately $1.6 million at December 31, 2002. The
Company has designated this swap as a fair value hedge.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair value of the Company's $300 million principal amount
7 1/8% Notes due 2007, based on quoted market prices, was $342.4 million at
December 31, 2002, compared to the carrying amount of $301.3 million. The
estimated fair value of the Company's $300 million principal amount 7% Notes due
2028, based on quoted market prices, was $333.9 million at December 31, 2002,
compared to the carrying amount of $296.7 million. The estimated fair value of
the Company's $600 million Zero Coupon Convertible Debentures due 2020, based on
quoted market prices, was $326.2 million at December 31, 2002, compared to the
carrying amount of $327.2 million.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONCENTRATIONS OF CREDIT RISK

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

The Company's cash deposits were distributed among various banks in the
areas of the Company's operations throughout the world as of December 31, 2002.
In addition, the Company had commercial paper, money-market funds and Eurodollar
time deposits with a variety of financial institutions with strong credit
ratings. As a result, the Company believes that credit risk in such instruments
is minimal.

NOTE 8 -- STOCK-BASED COMPENSATION PLANS

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

As a result of the Merger, all options to purchase Global Marine stock
outstanding as of November 20, 2001, the effective date of the Merger, became
immediately exercisable and were converted into options to purchase
GlobalSantaFe Ordinary Shares. The number of GlobalSantaFe Ordinary Shares
issuable upon exercise of these options is calculated by multiplying the number
of shares of Global Marine originally issuable upon exercise of the option by
the conversion ratio (0.665) as outlined in the merger agreement. The exercise
price is calculated by dividing the original exercise price of the Global Marine
options by the conversion ratio. All options to purchase Santa Fe International
ordinary shares that were outstanding as of the Merger date also became
immediately exercisable pursuant to the terms of the merger agreement.

At December 31, 2002, there were a total of 6,528,801 shares available for
future grants under the Company's various stock-based compensation plans,
including 327,486 shares reserved for issuance under the Company's Employee
Share Purchase Plan.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STOCK OPTIONS

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

All stock options granted in 2000 through 2002 had exercise prices equal to
the market price of the Company's ordinary shares on the date of grant.

The weighted average per share fair value of options as of the grant date
was $15.82 in 2002, $13.29 in 2001 and $11.73 in 2000. The weighted average per
share fair value of the outstanding Santa Fe International options at November
20, 2001 was $4.94.

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information with respect to stock options
outstanding at December 31, 2002:

EMPLOYEE SHARE PURCHASE PLAN

The Company maintains the GlobalSantaFe Corporation 1997 Employee Share
Purchase Plan (the "Share Purchase Plan"). The Share Purchase Plan is designed
to furnish eligible employees of the Company and designated subsidiaries of the
Company an incentive to advance the best interests of the Company by providing a
formal program whereby they may voluntarily purchase ordinary shares of the
Company at a favorable price and upon favorable terms. Generally speaking,
substantially all covered employees who are scheduled to work an average of at
least 20 hours per week are eligible to participate in the Share Purchase Plan.

Once a year, participants in the Share Purchase Plan will be granted
options to purchase ordinary shares with a fair market value equal to the lesser
of 10% of the participant's eligible compensation (as defined in the Share
Purchase Plan) and the amount specified in Section 423(b) of the Code (currently
$25,000). The exercise price of the options is 85% of the fair market value of
the ordinary shares on the date of the grant, or the date of exercise, whichever
is less. Options granted under the Share Purchase Plan are exercisable on the
date one year after the date of grant. Generally, participants pay option
exercise prices through payroll deductions made ratably throughout the year. The
Company granted options to purchase a total of 263,713 ordinary shares in 2002
under the Share Purchase Plan. The fair value of options granted under the Share
Purchase Plan as of the grant date was $9.61 per share for 2002.

PERFORMANCE-BASED STOCK AWARDS

The Company offers ordinary shares to certain key employees at nominal or
no cost to the employee. Under the Company's current plan, which covers grants
for 2002 in the table below, the exact number of shares that each employee
receives is dependent on Company performance over a one-year period as measured
against performance goals with respect to operating performance and cash flow,
among other measures. The performance period applicable to each offer ends on
December 31 of the year of the grant. Data for 2001 and 2000 represent

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares granted under the Global Marine plan. A summary of the status of
performance-based stock awards (prior year periods have been adjusted for the
conversion ratio) is presented in the table that follows:

The amount of compensation cost included in income for the Company's
performance-based stock awards was $1.3 million in 2002, $4.6 million in 2001,
and $3.4 million in 2000.

NOTE 9 -- RETIREMENT PLANS

PENSIONS

The Company has defined benefit pension plans covering all of its U.S.
employees and a portion of its non-U.S. employees. For the most part, benefits
are based on the employee's length of service and average earnings for the
highest consecutive 60 months of compensation during the last ten years of
service. Substantially all benefits are paid from funds previously provided to
trustees. The Company is the sole contributor to the plans, with the exception
of one of the Company's plans in the U.K., and its funding objective is to fund
participants' benefits under the plans as they accrue, taking into consideration
future salary increases. Net periodic pension cost for 2002 includes full-year
costs related to the Santa Fe International plans. The components of net
periodic pension benefit cost for the Company's pension plans were as follows:

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

(1) Special termination costs related to certain pension plans are included in
Restructuring costs in 2001. See discussion in Note 1.

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table shows the changes in the projected benefit obligation
and assets for all plans for the year ended December 31 and a reconciliation of
the plans' funded status at year-end.

During 2002, the Company made certain amendments to its pension plans,
including, among other things, calculations of retirement benefit formulas, the
amount of compensation included in these calculations and

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

formulas used for the determination of early retirement benefits. These
amendments were made to conform benefits received under the Global Marine and
Santa Fe International plans. Benefits paid for 2002 included approximately
$11.4 million of lump-sum termination payments made as a result of the Merger.

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

The Company has established grantor trusts to provide funding for benefits
payable under certain nonqualified plans. Assets in the trusts, which are
irrevocable and can only be used to pay such benefits, with certain exceptions,
are excluded from plan assets in the preceding tables in accordance with
Statement of Financial Accounting Standards No. 87, "Employers' Accounting for
Pensions." The fair market value of such assets was $27.3 million at December
31, 2002, and $19.2 million at December 31, 2001 (see Note 3).

The expected long-term rate of return on plan assets used to compute
pension cost was 9% for 2002, 2001 and 2000. The assumed rate of increase in
future compensation levels was 4.5% for 2002 and 2001, and 6.0% for 2000. The
discount rate used to compute the projected benefit obligation was 6.75% for
2002, 7.25% for 2001 and 7.5% for 2000.

The Company has a defined contribution ("401(k)") savings plan in which
substantially all of the Company's U.S. employees are eligible to participate.
Company contributions to the 401(k) savings plan are based on the amount of
employee contributions. The Company matches 100% of each participant's first six
percent of compensation contributed to the plan. Charges to expense with respect
to this plan totaled $7.4 million for 2002, $5.2 million for 2001 and $3.9
million for 2000.

OTHER POSTRETIREMENT BENEFITS

The Company provides health care benefits to all retirees who are U.S.
citizens and to certain non-U.S. citizen employees who were participants in a
U.S. based health care plan at the time of their retirement and elect to enroll
for continued coverage. Generally, employees who have reached the age of 55 and
have rendered a minimum of five years of service are eligible for health care
benefits. For the most part, health care benefits require a contribution from
the retiree. Prior to July 1, 2002, the Company also provided term life
insurance to certain retirees, both U.S. citizens and non-U.S. citizens.
Liabilities for postretirement health care and life insurance benefits were
$13.9 million at December 31, 2002, and $13.3 million at December 31, 2001.

The weighted-average annual assumed rate of increase in the per capita cost
of covered medical benefits was 11% in 2002 and 2001, and 7% in 2000. This 11%
rate is expected to decrease ratably to 5% in 2009 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. For example, as of and for the year ended December 31,
2002, increasing or decreasing the assumed health care cost trend rates by one
percentage point each year would change the accumulated postretirement benefit
obligation by approximately $0.6 million and $0.5 million, respectively, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit by approximately $35,000 and $32,000, respectively.

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- INCOME TAXES

Income before income taxes was comprised of the following:

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

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

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

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

(1) The 2001 amount is comprised of the net change in the valuation allowance
for the year of $105.9 million less $25.4 million of valuation allowance
acquired from Santa Fe International at the time of the Merger.

The Company intends to permanently reinvest all of the unremitted earnings
of its U.S. Subsidiaries in their businesses. As a result, the Company has not
provided for deferred taxes on $1.2 billion of cumulative unremitted

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

earnings at December 31, 2002. Should the Company make a distribution from the
unremitted earnings of its U.S. Subsidiaries, the Company would be required to
record additional U.S. deferred taxes. It is not practicable to estimate the
amount of deferred tax liability associated with these unremitted earnings.

In certain circumstances, management expects that, due to the changing
demands of the offshore drilling markets, the Company's mobile assets are more
likely than not to be redeployed to other locations before those assets operate
in certain jurisdictions long enough to give rise to future tax consequences. As
a result, no deferred tax liability has been recognized on the earnings from
these assets. In addition, the Company has not provided for U.S. deferred taxes
on foreign earnings that could be taxed in the United States upon the occurrence
of certain events in a future period. The Company plans, subject to approval by
its Board of Directors, to implement a business restructuring that will better
integrate the operations of the Company. This integration will change the U.S.
tax classification of certain of its subsidiaries before the occurrence of any
events that could give rise to a tax liability. Should management's expectations
change regarding the length of time a mobile asset will be operating in a given
location, or should the Company choose not to implement the planned business
restructuring, the Company would be required to record additional deferred taxes
that could have a material adverse effect on its financial position, results of
operations and cash flows.

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

In 2002, based upon currently anticipated market conditions in the United
States, the Company did not adjust the valuation allowance against the U.S. NOL
carryforwards.

In 2001, the valuation allowance increased by approximately $105.9 million,
of which $102.9 million related to U.S. NOL carryforwards. The $102.9 million
increase in the valuation allowance was partially offset by a $55.7 million
adjustment to prior years' tax contingencies, resulting in a net charge in the
fourth quarter of 2001 of $47.2 million. The Company recorded a valuation
allowance against its U.S. NOL carryforwards because the Company believes it is
more likely than not that it will not generate sufficient U.S. taxable income to
fully utilize its NOL carryforwards before they expire. Reduced activity levels
in the U.S. Gulf of Mexico in 2001 contributed

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to a decrease in the expected future earnings of the Company's U.S.
subsidiaries. Also, as a result of the Merger, the expiration dates of the
Company's NOL carryforwards were accelerated by one year, decreasing the number
of years available to fully utilize the NOL carryforwards before they expire. In
addition, the Company had previously recorded a valuation allowance against the
net deferred tax assets in certain foreign jurisdictions. These net deferred tax
assets decreased by approximately $22.4 million in 2001 and increased by $21.1
million in 2002. The valuation allowance recorded against the net deferred tax
asset changed accordingly in each respective year.

At December 31, 2002, the Company had $540.4 million of U.S. NOL
carryforwards. In addition, the Company has $15.2 million of non-expiring U.S.
alternative minimum tax credit carryforwards. Both the NOL carryforwards and the
U.S. alternative minimum tax credit carryforwards can be used to reduce the
Company's U.S. federal income taxes payable in future years. The NOL
carryforwards subject to expiration expire as follows (in millions):

In addition, the Company also had $63.5 million and $75.6 million of
non-expiring NOL carryforwards in the United Kingdom and Trinidad and Tobago,
respectively.

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

As of December 31, 2002, Global Marine and its U.S. subsidiaries had
approximately $540.4 million of NOL carryforwards for United States federal
income tax purposes. This amount included an NOL carryforward of $408.4 million
at November 19, 2001, related to Global Marine. The Company also had
approximately $168.4 million of NOL carryforwards from foreign jurisdictions.
The Company can provide no assurance that the full amount of its NOL
carryforwards will be allowed. The NOL carryforwards are scheduled to expire
from 2003 to 2023. Section 382 of the U.S. Internal Revenue Code could limit the
future use of the NOL carryforwards if the direct and indirect ownership of
stock of the relevant company changes by more than 50% in certain circumstances
over a prescribed testing period. The Internal Revenue Service may take the
position that the Merger caused a greater-than-50% ownership change with respect
to Global Marine (see Note 1). If the Merger did not result in such an ownership
change, changes in the ownership of the Company's stock following the Merger
could result in such an ownership change. In the event of such an ownership
change, the Section 382 rules would limit the utilization of the NOL
carryforwards of Global Marine in each taxable year ending after the

80

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ownership change to an amount equal to a federal long-term tax-exempt rate
published monthly by the Internal Revenue Service, multiplied by the fair market
value of all of Global Marine's stock at the time of the ownership change. For
this purpose, the value of Global Marine's stock could also be subject to
adjustments, thereby further limiting the ability of the Company to utilize its
NOL carryforwards in each taxable year thereafter.

NOTE 11 -- EARNINGS PER ORDINARY SHARE

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

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

(1) Earnings per share data for 2000 has been restated to reflect the effect of
the exchange ratio of 0.665 established in the Merger.

The computation of diluted earnings per share excludes outstanding stock
options with exercise prices greater than the average market price of the
Company's ordinary shares for the year, because the inclusion of such options
would be antidilutive. The number of antidilutive options that were excluded
from diluted earnings per ordinary share and could potentially dilute basic
earnings per ordinary share in the future were 9,401,866 shares in 2002,
4,668,834 shares in 2001, and 610,641 shares in 2000. Antidilutive options for
2000 have been restated to reflect the effect of the exchange ratio of 0.665
established in the merger agreement.

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

NOTE 12 -- SUPPLEMENTAL CASH FLOW INFORMATION

During the year ended December 31, 2002, the Company incurred approximately
$12.8 million of capital expenditures related to its rig building program that
had been accrued but not paid as of December 31, 2002. These amounts are
included in Accounts payable in the Consolidated Balance Sheet at December 31,
2002.

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In December 2002, 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 January 15, 2003, to
shareholders of record as of the close of business on December 31, 2002.

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

In 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 $35 million (including
accrued interest), net of $7 million in sales commissions and payments to
minority owners, during the first quarter of 2002, representing full payment of
the remaining purchase price.

Cash payments for interest, net of amounts capitalized, totaled $21.9
million, $41.3 million and $29.5 million for the years ended December 31, 2002,
2001 and 2000, respectively. Cash payments for income taxes, net of refunds,
totaled $51.8 million, $14.5 million and $6.6 million for the years ended
December 31, 2002, 2001 and 2000, respectively.

NOTE 13 -- SEGMENT AND GEOGRAPHIC INFORMATION

The Company has three lines of business, each organized along the basis of
services and products and each with a separate management team. The Company's
three lines of business are reported as separate operating segments and consist
of contract drilling, drilling management services and oil and gas. The
Company's contract drilling business provides crewed, mobile offshore and land
drilling rigs to oil and gas operators on a daily rate basis and is also
referred to as dayrate drilling. The drilling management services business, also
referred to as turnkey drilling, designs, develops, and executes specific
offshore drilling programs and delivers a logged or cased hole to an agreed
depth for a guaranteed price. The Company's oil and gas business participates in
exploration and production activities, principally in order to facilitate the
acquisition of turnkey contracts for the Company's drilling management services
operations.

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

82

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

(1) Revenues for prior periods have been reclassified to include certain
reimbursements received for out-of-pocket expenditures as revenues (Note 1).

(2) Restructuring costs are discussed in Note 1.

(3) Capital expenditures for 2002 include approximately $12.8 million of capital
expenditures related to the Company's rig building program that had been
accrued but not paid as of December 31, 2002 (Note 12).

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

83

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of drilling management services revenues. No single customer accounted for more
than ten percent of consolidated revenues in 2000.

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

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

(1) Individually less than 5% of consolidated revenues for 2002, 2001 and 2000.

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

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

(1) Individually less than 10% of consolidated long-lived assets at December 31,
2002 and 2001.

NOTE 14 -- TRANSACTIONS WITH AFFILIATES

In connection with its initial public offering, Santa Fe International
entered into an intercompany agreement with Kuwait Petroleum Corporation and
SFIC Holdings, which agreement was amended in connection with the Merger. The
intercompany agreement, as amended, provides that, as long as Kuwait Petroleum
Corporation and its affiliates, in the aggregate, own at least 10% of the
Company, the consent of SFIC Holdings is required to change the jurisdiction of
any existing subsidiary of the Company or incorporate a new subsidiary in any
jurisdiction in a manner materially adversely affecting the rights or interests
of Kuwait Petroleum Corporation and its affiliates or reincorporate the Company
in another jurisdiction. The intercompany agreement, as amended,

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

also provides SFIC Holdings the right to designate up to three representatives
to the Company's Board of Directors based on SFIC Holdings' ownership percentage
in the Company and provides SFIC Holdings rights to access certain information
concerning the Company. SFIC Holdings currently holds approximately 18.7% of the
outstanding ordinary shares of the Company.

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

During the year ended December 31, 2002, the Company earned revenues from
KOC and its affiliate for performing contract drilling services in the ordinary
course of business totaling $62.7 million and paid $586,000 of agency fees
pursuant to such agency agreement. During the period following the Merger until
December 31, 2001, the Company earned revenues from KOC and its affiliate
totaling $6.9 million and paid $80,000 of agency fees. At December 31, 2002 and
2001, the Company had accounts receivable from affiliates of Kuwait Petroleum
Corporation of $11.1 million and $9.9 million, respectively.

NOTE 15 -- SUMMARIZED FINANCIAL DATA -- GLOBAL MARINE INC. AND SUBSIDIARIES

Global Marine Inc. ("Global Marine"), a wholly owned subsidiary of
GlobalSantaFe Corporation, is a domestic and international offshore drilling
contractor, with a fleet of 33 mobile offshore drilling rigs worldwide. Global
Marine, through its subsidiaries, provides offshore drilling services on a
dayrate basis in the U.S. Gulf of Mexico and internationally, provides drilling
management services on a turnkey basis, and also engages in oil and gas
exploration, development and production activities, principally in order to
facilitate the acquisition of turnkey contracts for its drilling management
services operations.

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

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

(1) Prior period amounts have been reclassified to include certain
reimbursements received for out-of-pocket expenses as revenues per EITF
Issue 01-14 (Note 1). These amounts were previously recorded as a reduction
of the related expenses incurred.

(2) Includes capitalized lease obligation.

NOTE 16 -- 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." The Company adopted the provisions of SFAS No.
142 and SFAS No. 144 effective January 1, 2002.

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

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

- 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

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

At December 31, 2002, Goodwill in the Company's Condensed Consolidated
Balance Sheet totaled approximately $386.9 million, substantially all of which
was recorded in connection with the Merger (see Note 1). The Company has defined
reporting units within its contract drilling segment based upon economic and
market characteristics of these units. All of the goodwill recorded in
connection with the Merger has been allocated to the jackup drilling fleet
reporting unit, as these rigs were the primary source of value in the Merger
discussions and negotiations. The estimated fair value of this reporting unit
for purposes of the Company's annual goodwill impairment testing is based upon
the present value of its estimated future net cash flows, utilizing a discount
rate based upon the Company's cost of capital. The Company has completed its
goodwill impairment testing for 2002 and was not required to record a goodwill
impairment loss. The amortization of goodwill existing before the Merger was
immaterial.

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.

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

- 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;

- 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

- 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.

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." The Company adopted SFAS No. 145 in the second quarter of 2002.
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.

In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." 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.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure," which amends SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 148 provides three
alternative methods of transition and disclosure requirements for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. The three alternative methods available are: (1) the prospective
method, (2) the modified prospective method, and (3) the retroactive restatement
method. Under the prospective method, which is available only for companies
converting to SFAS No. 123 prior to December 16, 2003, compensation cost is
recognized for awards granted, modified or settled after the beginning of the
year of adoption. The modified prospective method recognizes compensation costs
from the beginning of the year of adoption as if the fair value method had been
used for all grants awarded, modified or settled in fiscal years beginning after
December 15, 1994. The retroactive restatement method provides that all periods
presented are restated to reflect compensation costs as if the fair value method
had been used for all grants awarded, modified or settled in fiscal years
beginning after December 15, 1994. In addition to providing compensation cost
recognition methods, SFAS No. 148 also requires certain disclosures, including
method used for each period presented, a description of the method used to
report the change in accounting principle and continuing tabular presentation of
proforma net income and earnings per share effects for any awards outstanding
under the intrinsic method of Accounting Principles Board Opinion No. 25. SFAS
No. 148 is effective for fiscal years ending after December 15, 2002. The
Company has adopted the disclosure provisions of SFAS No. 148, and is currently
evaluating the potential effects of the implementation of the transition
requirements of this Statement on its financial position and results of
operations.

In November 2002, the FASB issued Interpretation No. 45; "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" ("FIN 45"). This Interpretation provides
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued and
clarifies that a liability for the fair value of the obligation undertaken in
issuing certain guarantees shall be recognized at inception of the guarantee.
FIN 45 does

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GLOBALSANTAFE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

not, however, prescribe a specific approach for subsequently measuring the
guarantor's recognized liability over the term of the related guarantee. The
initial recognition and initial measurement provisions of FIN 45 are applicable
to guarantees issued or modified after December 31, 2002. The disclosure
requirements of FIN 45 are effective for financial statements of interim or
annual periods ending after December 15, 2002. The Company believes that it has
no material guarantees within the scope of FIN 45 other than the fully defeased
financing leases for two of its drillships (see Note 5).

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51" ("FIN 46"). This
interpretation provides guidance on the identification of, and financial
reporting for, entities over which control is achieved through means other than
voting rights, or variable-interest entities ("VIEs"). FIN 46 is effective for
public entities with VIEs created before February 1, 2003, at the beginning of
the first interim or annual reporting period starting after June 15, 2003. For
VIEs created after January 31, 2003, FIN 46 is effective immediately. Upon the
applicable effective date, FIN 46 will become the guidance that determines
whether consolidation is required or whether the variable-interest accounting
model must be used to account for existing and new entities. The Company does
not believe that it currently has any VIEs within the scope of FIN 46.

88

CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

In the following table, the Company's operating results for 2002 reflect
the operations of the combined company. The Company's operating results for the
fourth quarter of 2001 include Global Marine's operations for the full quarter
and Santa Fe International's operations from the merger date (42 days), while
the Company's quarterly operating results for the first three quarters of 2001
represent Global Marine only. The consolidated selected quarterly financial data
should be read in conjunction with "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the audited consolidated
financial statements and the notes thereto included under "Item 8. Financial
Statements and Supplementary Data."

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

(1) Revenues for the first quarter of 2002 and all 2001 periods have been
reclassified pursuant to EITF Issue 01-14 (Note 1).

(2) Per share data of Global Marine prior to the Merger has been restated to
reflect the effect of the exchange ratio of 0.665 established in the merger
agreement.

(3) The Company established a valuation allowance in the fourth quarter 2001
against a tax asset related to its United States net operating loss (NOL)
carryforwards. As a result of the Merger, the Company's NOL expirations were
accelerated by a year. In addition, reduced activity levels in the U.S. Gulf
of Mexico in 2001 contributed to a decrease in the expected future earnings
of the Company's U.S. subsidiaries.

(4) In the fourth quarter 2001, the Company's Board of Directors declared a
regular quarterly cash dividend of $0.0325 per ordinary share. Global Marine
historically did not pay dividends on its common stock.

(5) Data for 2001 represents the high and low share prices of Global Marine
common shares up to the merger date, as adjusted to reflect the exchange
ratio of 0.665 established in the Merger.

89

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of GlobalSantaFe Corporation:

Our audits of the consolidated financial statements referred to in our
report dated March 21, 2003, appearing in the 2002 Annual Report on Form 10-K of
GlobalSantaFe Corporation and subsidiaries also included an audit of the
financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our
opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
March 21, 2003

90

GLOBALSANTAFE CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

91

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

As permitted by General Instruction G, the information called for by this
item with respect to the Company's directors, and the information required by
this item and Item 405 of Regulation S-K with respect to filings under Section
16 of the 1934 Securities Exchange Act, is incorporated by reference from the
Company's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after the end of the last fiscal year. Information with respect
to the Company's executive officers required by Item 401 of Regulation S-K is
set forth in Part I of this Annual Report on Form 10-K under the caption
"Executive Officers of the Registrant."

ITEM 11. EXECUTIVE COMPENSATION

As permitted by General Instruction G, the information called for by this
item is incorporated by reference from the Company's definitive proxy statement
to be filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As permitted by General Instruction G, the information called for by this
item is incorporated by reference from the Company's definitive proxy statement
to be filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As permitted by General Instruction G, the information called for by this
item is incorporated by reference from the Company's definitive proxy statement
to be filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.

ITEM 14. 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.

92

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

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

93

4.6 Terms of 7% Note Due 2028 (incorporated herein by this
reference to Exhibit 4.1 of Global Marine Inc.'s Current
Report on Form 8-K (Commission File No. 1-5471) dated May
20, 1998).
4.7 Form of Zero Coupon Convertible Debentures Due June 23, 2020
(incorporated herein by this reference to Exhibit 4.4 of
Global Marine Inc.'s Quarterly Report on Form 10-Q
(Commission File No. 1-5471) for the quarter ended June 30,
2000).
+4.8 Purchase Agreement dated February 4, 2003, between the
Company and Goldman, Sachs & Co. relating to 5% Notes due
2013.
+4.9 Indenture dated as of February 1, 2003, between
GlobalSantaFe Corporation and Wilmington Trust Company, as
Trustee, relating to Debt Securities of GlobalSantaFe
Corporation.
+4.10 Form of 5% Note due 2013.
+4.11 Terms of 5% Note due 2013.
+4.12 Registration Rights Agreement dated as of February 11, 2003,
between GlobalSantaFe Corporation and Goldman, Sachs, & Co.
10.1 Intercompany Agreement by and among Kuwait Petroleum
Corporation, SFIC Holdings (Cayman), Inc. and the Company,
dated June 9, 1997 (incorporated herein by this reference to
the Company's Annual Report on Form 20-F for the fiscal year
ended June 30, 1997); Amendment to Intercompany Agreement
dated December 26, 2000 (incorporated herein by this
reference to Exhibit 10.39 to the Company's Annual Report on
Form 10-K for the calendar year ended December 31, 2000);
Consent and Amendment to Intercompany Agreement dated August
31, 2001 (incorporated herein by this reference to Annex E
to the joint proxy statement/prospectus constituting part of
Amendment No. 1 to the Company's Registration Statement on
Form S-4 (No. 333-70268) filed October 12, 2001).
10.2 Management Services Agreement by and between SFIC Holdings
(Cayman), Inc. and the Company, dated June 9, 1997
(incorporated herein by this reference to the Company's
Annual Report on Form 20-F for the fiscal year ended June
30, 1997).
10.3 Agency Agreement between Kuwait Santa Fe Braun for
Engineering and Petroleum Enterprises(K.S.B.) Company K.S.C.
and the Company, dated April 1, 1992 (incorporated herein by
this reference to the Company's Registration Statement on
Form F-1 (No. 333-6912) filed May 14, 1997).
10.4 Drilling Contract between Azerbaijan International Operating
Company and the Company, executed on March 14, 2000, dated
effective July 7, 1999 (incorporated herein by this
reference to the Company's Report on Form 6-K filed May 5,
2000).
10.5 Overall Agreement between Santa Fe International Corporation
and PPL Shipyard PTE, Ltd. of Singapore, dated February 1,
2001 (incorporated herein by this reference to Exhibit 10.40
to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 2001).
10.6 Amendment of Overall Agreement between Santa Fe
International Corporation and PPL Shipyard PTE, Ltd. of
Singapore, dated February 1, 2001 (incorporated herein by
this reference to Exhibit 10.41 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2001).
10.7 Contract for the Construction and Sale of a Jackup Drilling
Unit (Hull No. 2001) between Santa Fe International
Corporation and PPL Shipyard PTE, Ltd. of Singapore, dated
February 1, 2001 (incorporated herein by this reference to
Exhibit 10.42 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001).
10.8 Contract for the Construction and Sale of a Jackup Drilling
Unit (Hull No. 2002) between Santa Fe International
Corporation and PPL Shipyard PTE, Ltd. of Singapore, dated
February 1, 2001 (incorporated herein by this reference to
Exhibit 10.43 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001).
10.9 Overall Agreement between the Company and PPL Shipyard PTE,
Ltd. of Singapore, dated April 11, 2001 (incorporated herein
by this reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
2001).
10.10 Contract for the Construction and Sale of a Semi-submersible
Drilling Unit (Hull No. P.2003) between the Company and PPL
Shipyard PTE, Ltd. of Singapore, dated April 11, 2001
(incorporated herein by this reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001).

94

10.11 Contract for the Construction and Sale of a Semi-submersible
Drilling Unit (Hull No. P-2004) between the Company and PPL
Shipyard PTE, Ltd. of Singapore, dated April 11, 2001
(incorporated herein by this reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001).
10.12 Bareboat Charter Agreement, dated July 2, 1996, between the
United States of America and Global Marine Capital
Investments Inc. (incorporated herein by this reference to
Exhibit 10.1 of Global Marine Inc.'s Current Report on Form
8-K (Commission File No. 1-5471) dated August 1, 1996).
10.13 Head Lease Agreement dated 8th December 1998 by and between
Nelstar Leasing Company Limited, as lessor, and Global
Marine Leasing Corporation, as lessee, relating to a Glomar
Hull 456 class deepwater drillship to be constructed by
Harland and Wolff Shipbuilding and Heavy Industries Ltd.
with hull number 1739 (t.b.n. "Glomar C.R. Luigs")
(incorporated herein by this reference to Exhibit 10.10 of
Global Marine Inc.'s Annual Report on Form 10-K (Commission
File No. 1-5471) for the year ended December 31, 1998).
10.14 Guarantee and Indemnity dated 8th December 1998 by and
between Global Marine Inc., as guarantor, and Nelstar
Leasing Company Limited, as lessor (incorporated herein by
this reference to Exhibit 10.11 of Global Marine Inc.'s
Annual Report on Form 10-K (Commission File No. 1-5471) for
the year ended December 31, 1998).
10.15 Head Lease Agreement dated 8th December 1998 by and between
BMBF (No. 12) Limited, as lessor, and Global Marine
International Drilling Corporation, as lessee, relating to
one double hulled, dynamically positioned ultra-deepwater
Glomar class 456 drillship to be constructed by Harland and
Wolff Shipbuilding and Heavy Industries Ltd. with hull
number 1740 (incorporated herein by this reference to
Exhibit 10.14 of Global Marine Inc.'s Annual Report on Form
10-K (Commission File No. 1-5471) for the year ended
December 31, 1998).
10.16 Deed of Guarantee and Indemnity dated 8th December 1998 by
and between Global Marine Inc., as Guarantor, and BMBF (No.
12) Limited, as Lessor (incorporated herein by this
reference to Exhibit 10.15 of Global Marine Inc.'s Annual
Report on Form 10-K (Commission File No. 1-5471) for the
year ended December 31, 1998).
+10.17 Head-lease Agreement dated January 30, 2003 between
GlobalSantaFe Drilling Company (North Sea) Limited, as
lessor, and Sogelease B.V., as lessee, in respect of the
jack-up drilling unit known as "Britannia."
+10.18 Sub-lease Agreement dated January 30, 2003 between Sogelease
B.V., as sub-lessor, and GlobalSantaFe Drilling Company
(North Sea) Limited, as sub-lessee, in respect of the
jack-up drilling unit known as "Britannia."
+10.19 Guarantee and Indemnity dated January 30, 2003 between
GlobalSantaFe Corporation, as guarantor, and Sogelease B.V.
relating to the jack-up drilling unit known as "Britannia."
*10.20 Amended and Restated Employment Agreement dated as of August
16, 2001, among Global Marine Inc., Global Marine Corporate
Services Inc. and Robert E. Rose, and First Amendment
thereto dated August 31, 2001 (subsequently assumed by the
Company) (incorporated herein by this reference to Exhibit
10.3 of Global Marine Inc.'s Quarterly Report on Form 10-Q
(Commission File No. 1-5471) for the quarter ended September
30, 2001.)
*10.21 Employee Severance Protection Plan adopted May 2, 1997
(incorporated herein by this reference to the Company's
Annual Report on Form 20-F for the fiscal year ended June
30, 1997); Form of Executive Severance Protection Agreement
thereunder, effective October 18, 1999, between the Company
and fourteen executive officers, respectively (incorporated
herein by this reference to the Company's Annual Report on
Form 20-F for the calendar year ended December 31, 1999).
*10.22 Amendments to Executive Severance Protection Agreements,
dated October 25, 2001, between the Company and three
executive officers, respectively (incorporated herein by
this reference to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002).
*10.23 Amendment to Executive Severance Protection Agreement, dated
August 31, 2001, between the Company and C. Stedman Garber,
Jr. (incorporated herein by this reference to Exhibit 10.32
to the Company's Annual Report on Form 10-K for the year
ended December 31, 2001).

95

*10.24 Form of Severance Agreement dated August 16, 2001, between
Global Marine Inc. and six executive officers, respectively
(subsequently assumed by the Company) (incorporated herein
by this reference to Exhibit 10.4 of Global Marine Inc.'s
Quarterly Report on Form 10-Q (Commission File No. 1-5471)
for the quarter ended September 30, 2001).
+*10.25 Supplemental Agreement to Severance Agreement dated January
20, 2003 by and between Global Marine Inc., GlobalSantaFe
Corporation and W. Matt Ralls.
*10.26 Global Marine Severance Program for Shorebased Staff
Personnel, as amended and restated effective August 16, 2001
(subsequently assumed by the Company) (incorporated herein
by this reference to Exhibit 10.5 of Global Marine Inc.'s
Quarterly Report on Form 10-Q (Commission File No. 1-5471)
for the quarter ended September 30, 2001).
*10.27 1997 Long Term Incentive Plan (incorporated herein by this
reference to the Company's Registration Statement on Form
S-8 (No. 333-7070) filed June 13, 1997); Amendment to 1997
Long Term Incentive Plan (incorporated herein by this
reference to the Company's Annual Report on Form 20-F for
the calendar year ended December 31, 1998); Amendment to
1997 Long Term Incentive Plan dated December 1, 1999
(incorporated herein by this reference to the Company's
Annual Report on Form 20-F for the calendar year ended
December 31, 1999).
*10.28 GlobalSantaFe Corporation 2001 Long-Term Incentive Plan
(incorporated herein by this reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001).
*10.29 Global Marine Inc. 1989 Stock Option and Incentive Plan
(incorporated herein by this reference to Exhibit 10.6 of
Global Marine Inc.'s Annual Report on Form 10-K (Commission
File No. 1-5471) for the year ended December 31, 1988);
First Amendment (incorporated herein by this reference to
Exhibit 10.6 of Global Marine Inc.'s Annual Report on Form
10-K (Commission File No. 1-5471) for the year ended
December 31, 1990); Second Amendment (incorporated herein by
this reference to Exhibit 10.7 of Global Marine Inc.'s
Annual Report on Form 10-K (Commission File No. 1-5471) for
the year ended December 31, 1991); Third Amendment
(incorporated herein by this reference to Exhibit 10.19 of
Global Marine Inc.'s Annual Report on Form 10-K (Commission
File No. 1-5471) for the year ended December 31, 1993.);
Fourth Amendment (incorporated herein by this reference to
Exhibit 10.16 of Global Marine Inc.'s Annual Report on Form
10-K (Commission File No. 1-5471) for the year ended
December 31, 1994.); Fifth Amendment (incorporated herein by
this reference to Exhibit 10.1 of Global Marine Inc.'s
Quarterly Report on Form 10-Q (Commission File No. 1-5471)
for the quarter ended June 30, 1996.); Sixth Amendment
(incorporated herein by this reference to Exhibit 10.18 of
Global Marine Inc.'s Annual Report on Form 10-K (Commission
File No. 1-5471) for the year ended December 31, 1996).
*10.30 GlobalSantaFe Corporation 1998 Stock Option and Incentive
Plan (incorporated herein by this reference to Exhibit 10.1
of Global Marine Inc.'s Quarterly Report on Form 10-Q
(Commission File No. 1-5471) for the quarter ended March 31,
1998); First Amendment (incorporated herein by this
reference to Exhibit 10.2 of Global Marine Inc.'s Quarterly
Report on Form 10-Q (Commission File No. 1-5471) for the
quarter ended June 30, 2000).
*10.31 Memorandum dated November 20, 2001,Regarding Grant of
Restricted Stock, including Terms and Conditions of
Restricted Stock (incorporated herein by this reference to
Exhibit 10.39 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2001).
*10.32 Form of Memorandum dated March 4, 2002, Regarding Grant of
Performance-Based Restricted Units to ten executive officers
of the Company, respectively, including Terms and Conditions
of Performance-Based Restricted Units (incorporated herein
by this reference to Exhibit 10.40 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2001).
*10.33 Form of Notice of Grant of Stock Options currently in use
for new stock option grants under the 2001 Long-Term
Incentive Plan and the GlobalSantaFe Corporation 1998 Stock
Option and Incentive Plan as amended (incorporated herein by
this reference to Exhibit 10.41 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2001).
*10.34 Form of Notice of Stock Option Grant currently in use for
new stock option grants to non-employee directors under the
GlobalSantaFe Corporation 2001 Long-Term Incentive Plan
(incorporated by this reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002).

96

*10.35 Global Marine Executive Life Insurance Plan (incorporated
herein by this reference to Exhibit 10.5 of Global Marine
Inc.'s Annual Report on Form 10-K (Commission File No.
1-5471) for the year ended December 31, 1988).
*10.36 Equity Restoration Plan (incorporated herein by this
reference to the Company's Registration Statement on Form
F-1 (No. 333-6912) filed May 14, 1997).
*10.37 GlobalSantaFe Supplemental Executive Retirement Plan
(incorporated herein by this reference to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 2002).
*10.38 Global Marine Executive Deferred Compensation Trust as
established effective January 1, 1995 (incorporated herein
by this reference to Exhibit 10.24 of Global Marine Inc.'s
Annual Report on Form 10-K (Commission File No. 1-5471) for
the year ended December 31, 1995); First Amendment
(incorporated herein by this reference to Exhibit 10.2 of
Global Marine Inc.'s Quarterly Report on Form 10-Q
(Commission File No. 1-5471) for the quarter ended March 31,
1997); Second Amendment and Appointment of Successor Trustee
dated as of June 1, 1999, by and between Global Marine
Corporate Services Inc. and SEI Trust Company (incorporated
herein by this reference to Exhibit 10.2 of Global Marine
Inc.'s Quarterly Report on Form 10-Q (Commission File No.
1-5471) for the quarter ended June 30, 1999).
*10.39 Global Marine Benefit Equalization Retirement Plan effective
January 1, 1990 (incorporated herein by this reference to
Exhibit 10.8 of Global Marine Inc.'s Annual Report on Form
10-K (Commission File No. 1-5471) for the year ended
December 31, 1989).
*10.40 Global Marine Benefit Equalization Retirement Trust as
established effective January 1, 1990 (incorporated herein
by this reference to Exhibit 10.9 of Global Marine Inc.'s
Annual Report on Form 10-K (Commission File No. 1-5471) for
the year ended December 31, 1989); First Amendment and
Appointment of Successor Trustee dated as of June 1, 1999,
by and between Global Marine Corporate Services Inc. and SEI
Trust Company (incorporated herein by this reference to
Exhibit 10.3 of Global Marine Inc.'s Quarterly Report on
Form 10-Q (Commission File No. 1-5471) for the quarter ended
June 30, 1999).
*10.41 Form of GlobalSantaFe Indemnity Agreement (incorporated
herein by this reference to Exhibit 10.51 to the Company's
Annual Report on Form 10-K for the year ended December 31,
2002).
*10.42 Resolution of the Company's Board of Directors dated
December 5, 2001, regarding Non-Employee Director
Compensation Schedule (incorporated herein by this reference
to Exhibit 10.52 to the Company's Annual Report on Form 10-K
for the year ended December 31, 2002).
*10.43 Non-Employee Director Deferred Compensation Plan
(incorporated herein by this reference to the Company's
Annual Report on Form 20-F for the calendar year ended
December 31, 1998).
*10.44 1997 Non-Employee Director Stock Option Plan (incorporated
herein by this reference to the Company's Registration
Statement on Form S-8 (No. 333-7070) filed June 13, 1997);
Amendment to 1997 Non-Employee Director Stock Option Plan
(incorporated herein by this reference to the Company's
Annual Report on Form 20-F for the calendar year ended
December 31, 1998); Amendment to 1997 Non-Employee Director
Stock Option Plan (incorporated herein by this reference to
the Company's Annual Report on Form 20-F for the calendar
year ended December 31, 1998); Amendment to 1997
Non-Employee Director Stock Option Plan dated March 23, 1999
(incorporated herein by this reference to the Company's
Annual Report on Form 20-F for the calendar year ended
December 31, 1999); Amendment to Non-Employee Director Stock
Option Plan dated December 1, 1999 (incorporated herein by
this reference to the Company's Annual Report on Form 20-F
for the calendar year ended December 31, 1999).
*10.45 Global Marine Inc. 1990 Non-Employee Director Stock Option
Plan (incorporated herein by this reference to Exhibit 10.18
of Global Marine Inc.'s Annual Report on Form 10-K
(Commission File No. 1-5471) for the year ended December 31,
1991); First Amendment (incorporated herein by this
reference to Exhibit 10.1 of Global Marine Inc.'s Quarterly
Report on Form 10-Q (Commission File No. 1-5471) for the
quarter ended June 30, 1995); Second Amendment (incorporated
herein by this reference to Exhibit 10.37 of Global Marine
Inc.'s Annual Report on Form 10-K (Commission File No.
1-5471) for the year ended December 31, 1996).
*10.46 GlobalSantaFe Corporation 2001 Non-Employee Director Stock
Option and Incentive Plan (incorporated herein by this
reference to the Company's Registration Statement on Form
S-8 (No. 333-73878) filed November 21, 2001).

97

*10.47 Trust Under Santa Fe International Corporation Nonqualified Plans,
dated January 3, 1995, between the Company and Wachovia Bank of
North Carolina, N.A. (incorporated herein by this reference to
Exhibit 10.57 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2001).
*10.48 Amendment to Trust under Santa Fe International Corporation
Nonqualified Plans, dated December 1, 1999 (incorporated herein by
this reference to the Company's Annual Report on Form 20-F for the
calendar year ended December 31, 1999).
*10.49 GlobalSantaFe Annual Incentive Management Plan for 2002 (incorporated
herein by this reference to Exhibit 10.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002).
*10.50 Global Marine Personal Financial Planning Assistance Program for
Senior Executive Officers, adopted August 16, 2001 Amendment
(incorporated herein by this reference to Exhibit 10.1 of Global
Marine Inc.'s Quarterly Report on Form 10-Q (Commission File
No. 1-5471) for the quarter ended September 30, 2001).
+*10.51 Employment Agreement dated as of January 8, 2002, by and among Global
SantaFe Corporate Services Inc., GlobalSantaFe Corporation and
Douglas C. Stegall; and Employment Agreement Amendment thereto dated
as of November 22, 2002.
+21.1 List of Subsidiaries.
+23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
99.1 Corporate Governance Policy of GlobalSantaFe Corporation, adopted
May 14, 2002 (incorporated herein by this reference to Exhibit 99.1
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2002).
99.2 Press Release dated August 6, 2002, announcing a share repurchase
program (incorporated herein by this reference to Exhibit 99.1 to the
Company's Current Report on Form 8-K dated August 7, 2002).

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

+ Filed herewith.

* Indicates management contract or compensatory plan or arrangement.

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

(b) Reports on Form 8-K

The Company filed the following Current Reports on Form 8-K during the last
quarter of 2002:

98

SIGNATURES

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

GLOBALSANTAFE CORPORATION
(Registrant)

Date: March 26, 2003 By: /s/ W. MATT RALLS
------------------------------------
(W. Matt Ralls)
Senior Vice President
and Chief Financial Officer

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

100

CERTIFICATIONS

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

1. I have reviewed this annual report on Form 10-K of GlobalSantaFe
Corporation;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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
annual report (the "Evaluation Date"); and

c) presented in this annual 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 functions):

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
annual report whether 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.

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

Date: March 26, 2003

101

CERTIFICATIONS

I, W. Matt Ralls, certify that:

1. I have reviewed this annual report on Form 10-K of GlobalSantaFe
Corporation;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual 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 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 annual 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
annual report (the "Evaluation Date"); and

c) presented in this annual 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 functions):

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
annual report whether 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.

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

Date: March 26, 2003

102

EXHIBIT INDEX

1. Copies of the exhibits listed below are submitted with this Annual
Report on Form 10-K, immediately following this index.

4.8 Purchase Agreement dated February 4, 2003, between the
Company and Goldman, Sachs & Co. relating to 5% Notes due
2013.
4.9 Indenture dated as of February 1, 2003, between
GlobalSantaFe Corporation and Wilmington Trust Company, as
Trustee, relating to Debt Securities of GlobalSantaFe
Corporation.
4.10 Form of 5% Note due 2013.
4.11 Terms of 5% Note due 2013.
4.12 Registration Rights Agreement dated as of February 11, 2003,
between GlobalSantaFe Corporation and Goldman, Sachs, & Co.
10.17 Head-lease Agreement dated January 30, 2003 between
GlobalSantaFe Drilling Company (North Sea) Limited, as
lessor, and Sogelease B.V., as lessee, in respect of the
jack-up drilling unit known as "Britannia."
10.18 Sub-lease Agreement dated January 30, 2003 between Sogelease
B.V., as sub-lessor, and GlobalSantaFe Drilling Company
(North Sea) Limited, as sub-lessee, in respect of the
jack-up drilling unit known as "Britannia."
10.19 Guarantee and Indemnity dated January 30, 2003 between
GlobalSantaFe Corporation, as guarantor, and Sogelease B.V.
relating to the jack-up drilling unit known as "Britannia."
10.25 Supplemental Agreement to Severance Agreement dated January
20, 2003 by and between Global Marine Inc., GlobalSantaFe
Corporation and W. Matt Ralls.
10.51 Employment Agreement dated as of January 8, 2002, by and
among GlobalSantaFe Corporate Services Inc., GlobalSantaFe
Corporation and Douglas C. Stegall; and Employment Agreement
Amendment thereto dated as of November 22, 2002.
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.

2. All other exhibits listed in Item 14(a)(3) are incorporated by reference
in this Annual Report on Form 10-K, as stated in Item 14(a)(3). Descriptions of
these exhibits are incorporated herein by this reference to Item 14(a)(3) of
this Report.