PRIDE INTERNATIONAL INC - 10-K Annual Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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: 1-13289
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PRIDE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 76-0069030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

5847 SAN FELIPE, SUITE 3300
HOUSTON, TEXAS 77057
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 789-1400

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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 126-2 of the Act). Yes [X] No [ ]

The aggregate market value of the common stock held by non-affiliates of
the registrant at June 28, 2002, based on the closing price on the New York
Stock Exchange on such date, was approximately $1.7 billion. (The executive
officers and directors of the registrant and First Reserve Corporation, its
affiliates and related parties are considered affiliates for the purposes of
this calculation.)

The number of shares of the registrant's Common Stock outstanding on March
14, 2003 was 134,200,533.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's definitive proxy statement for the Annual
Meeting of Stockholders to be held in May 2003 are incorporated by reference
into Part III of this report.
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TABLE OF CONTENTS

PART I

ITEM 1. BUSINESS

In this Annual Report on Form 10-K, we refer to Pride International, Inc.
and its subsidiaries as "we," the "Company" or "Pride," unless the context
clearly indicates otherwise.

OVERVIEW

Pride is a leading international provider of contract drilling and related
services, operating both offshore and on land. As of March 14, 2003, we operated
a global fleet of 331 rigs, including two ultra-deepwater drillships, 11
semisubmersible rigs, 35 jackup rigs, 29 tender-assisted, barge and platform
rigs and 254 land-based drilling and workover rigs. We operate in more than 30
countries and marine provinces. Our operations are conducted in many of the most
active oil and gas basins of the world, including South America, the Gulf of
Mexico, the Mediterranean, West and North Africa, the Middle East, Asia Pacific,
Russia and Kazahkstan. The significant diversity of our rig fleet and areas of
operation enables us to provide a broad range of services and to take advantage
of market upturns while reducing our exposure to sharp downturns in any
particular market sector or geographic region.

In recent years, we have expanded our offshore drilling fleet and increased
the number of rigs capable of drilling in deeper waters, with the following
significant additions:

- Drillships. We have a 51% interest in and operate two ultra-deepwater
drillships, the Pride Africa and the Pride Angola, which commenced
operations in October 1999 and May 2000, respectively. The drillships,
which are capable of operating in water depths of up to 10,000 feet, are
contracted to work for Elf Exploration Angola under contracts expiring in
June 2005 and May 2005, respectively, each with two one-year extension
options.

- Pride Carlos Walter and Pride Brazil. We own two fourth-generation
dynamically-positioned, deepwater semisubmersible drilling rigs, the
Pride Carlos Walter and the Pride Brazil, which commenced operations
offshore Brazil in June and July 2001, respectively, for Petroleo
Brasilerio S.A. ("Petrobras") under five-year charter and service
rendering contracts, each with two one-year extension options.

- Marine Drilling Companies, Inc. In September 2001, we acquired Marine
Drilling Companies, Inc. in a tax free, stock-for-stock transaction that
positioned us as one of the world's largest offshore drilling
contractors. Marine owned and operated a fleet of 17 offshore drilling
rigs consisting of two semisubmersible units and 15 jackup units.
Additionally, Marine owned one jackup rig configured as an accommodation
unit. The combination with Marine enhanced our competitive position in
the Gulf of Mexico jackup rig market and elsewhere. The acquisition was
accounted for as a pooling-of-interests for accounting and financial
reporting purposes and, accordingly, our consolidated financial
statements for each period prior to the merger reflect the combined
operations of Pride and Marine.

- Other Recent Acquisitions and Agreements. In February 2001, we acquired
a second-generation semisubmersible drilling rig (now the Pride North
Sea) and a third-generation semisubmersible drilling rig (now the Pride
Venezuela). The Pride Venezuela is under contract with Petroleos de
Venezuela, S.A. ("PDVSA") through at least August 2003, with extension
options thereafter. The Pride North Sea was refurbished prior to
commencing operations in July 2001 and is now working in the
Mediterranean Sea under a nine-month contract expiring in December 2003.

We have also expanded our land-based operations. In late 2001 and early
2002, we commenced operations in Chad with five newly constructed land rigs
under a seven-year contract with Exxon Mobil Corporation. In addition, during
2001, we acquired 14 land-based drilling rigs in Argentina and Venezuela. In
2002, we relocated a large land drilling rig from Argentina to Russia, where it
commenced operation in December 2001, and mobilized the first of two land
drilling rigs to Kazakhstan. The first rig began earning a standby rate in
November 2002 and will earn a full day rate when drilling commences, which is
expected in the spring of 2003. The second rig is expected to commence
operations in Kazakhstan in mid-2003.

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During 2002, we implemented a strategy to move a number of our offshore
rigs to stronger markets and to enter into long-term contracts where available
at attractive rates. We moved 11 of our 27 Gulf of Mexico jackup rigs and four
of our 11 semisubmersible rigs to new markets. Nine jackup rigs were moved to
Mexico and one each to Nigeria and India pursuant to contracts ranging from
approximately two to four years. These rigs were relocated to markets at higher
day rates and are providing substantially higher cash margins than would have
been realized in the depressed U.S. Gulf of Mexico jackup market. At the same
time, we believe our remaining available jackup capacity in the U.S. Gulf of
Mexico leaves us well-positioned to benefit from any improvement in that market.

We expect to continue to redeploy assets to more active regions and to
explore opportunities to expand our operations through acquisitions and rig
upgrades from time to time.

We are a Delaware corporation with our principal executive offices located
at 5847 San Felipe, Suite 3300, Houston, Texas 77057. Our telephone number at
such address is (713) 789-1400.

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. These filings are available free of charge through our
internet website at www.prideinternational.com as soon as reasonably practicable
after we electronically file that material with, or furnish it to, the SEC.

OPERATIONS

SOUTH AMERICA

We operate five semisubmersible rigs, two jackup rigs, two barge rigs and
233 land-based rigs in South America.

Brazil. Our semisubmersible rig, Pride South Atlantic, has been operating
offshore Brazil for Petrobras since September 1997. The rig is working under a
contract expiring in October 2003. The Pride South America, a
dynamically-positioned, self-propelled semisubmersible rig, is currently working
offshore Brazil under a charter and service rendering contract that expires in
January 2005. The Pride Carlos Walter and Pride Brazil, which are deepwater,
dynamically-positioned semisubmersible rigs, began work under five-year charter
and service rendering contracts for Petrobras in June and July 2001,
respectively. We also operate one land-based drilling rig and seven land-based
workover rigs in Brazil.

Venezuela. Our offshore fleet in Venezuela includes two jackup rigs and
two barge rigs operating on Lake Maracaibo and one semisubmersible rig operating
offshore Venezuela. The two jackup rigs are owned by PDVSA, and the contracts
for the rigs expire in June 2003. The two barge rigs are working under ten-year
contracts for PDVSA expiring in 2005. Our semisubmersible rig, the Pride
Venezuela, is operating for PDVSA under contract through at least August 2003.
Our land-based fleet in Venezuela consists of 42 rigs, of which eight are
drilling rigs and 34 are workover rigs.

Argentina. In Argentina, we operate 149 land-based rigs, which we believe
constitutes approximately 50% of the land-based rigs in the Argentine market. Of
these rigs, 49 are drilling rigs and 100 are workover rigs. Argentine rig
operations are generally conducted in remote regions of the country and require
substantial fixed infrastructure and operating support costs. We believe that
our established infrastructure and scale of operations provide us with a
competitive advantage in this market.

Other South America. In Colombia, we operate 13 land-based drilling rigs
and eight land-based workover rigs under contracts with major integrated and
independent international oil companies and with the national oil company. We
operate six land-based drilling rigs and four land-based workover rigs for
private sector operators in Bolivia, most of which are our customers in
neighboring countries. We operate three land-based drilling rigs in Ecuador.

E&P Services. We provide a variety of services to exploration and
production companies in Argentina, Peru, Bolivia, Colombia, Ecuador, Brazil,
Venezuela and Mexico through our E&P services division, including cementing,
fracturing, coil tubing, directional drilling and fishing services. We also
manage integrated services projects in Argentina and other South American
countries.

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During 2002, our land and E&P services operations in Argentina and
Venezuela were adversely affected by the economic and political instability in
those countries. Please read "-- Risk Factors -- International events may hurt
our operations" in this Item 1 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7 of this annual report.

GULF OF MEXICO

Offshore. We operate two semisubmersible rigs, two independent-leg jackup
units and 23 mat-supported jackup units in the Gulf of Mexico. We are the second
largest operator in the Gulf of Mexico of mat-supported jackup rigs capable of
operating in water depths of 200 to 300 feet. We also operate a fleet of 21
offshore modular platform rigs in the Gulf of Mexico.

In the Mexican sector of the Gulf of Mexico, one semisubmersible, nine
jackup rigs and two platform rigs are working for Petroleos Mexicanos S.A.
("Pemex"), under contracts with terms that range from one to four years in
length. Between April and November 2002, we mobilized the nine jackups from the
U.S. sector to the Mexican sector to perform under the Pemex contracts. The
semisubmersible rig, the Pride South Seas, was mobilized from South Africa and
operates under a contract that expires in June 2005.

We operate one semisubmersible, 16 jackups and 19 platform rigs in the U.S.
sector of the Gulf of Mexico. Seven jackups and two platform rigs are currently
working in the U.S. sector under short-term or well-to-well contracts. Two
additional platform rigs are being mobilized for customer contracts beginning in
April 2003, and another platform rig has been committed to a customer. The
remaining rigs are stacked. We are marketing the semisubmersible rig, the
Viking, in the Gulf of Mexico and elsewhere.

OTHER INTERNATIONAL

Offshore. Our fleet in West Africa includes two ultra-deepwater
drillships, three semisubmersibles, two jackups, three tender-assisted rigs and
one barge rig. We have a 51% ownership interest in two ultra-deepwater
drillships, the Pride Angola and the Pride Africa. The drillships are contracted
to work offshore West Africa for Elf Exploration Angola under contracts expiring
in May 2005 and June 2005, respectively, each with two one-year extension
options. In January 2002, we assumed operations of the dynamically positioned
semisubmersible rig, the Leiv Eiriksson, in Angola. The rig owner pays us a
management fee to operate the rig on its behalf, under a contract that extends
until June 2003. Our semisubmersible rigs Pride South Pacific and Pride North
America are working offshore Angola under contracts expiring in March 2004 and
August 2004, respectively. The jackup Pride Cabinda is working offshore Angola
under a long-term contract expiring in 2005. In October 2002, we mobilized the
jackup Pride North Dakota from the Gulf of Mexico to Nigeria and commenced work
under a contract that expires in October 2004. The tender-assisted rig Barracuda
is operating in Angola under a contract that expires in September 2003, and the
Alligator is idle. Also, the swamp barge rig Bintang Kalimantan is contracted in
Nigeria until September 2003, and the tender-assisted rig Al Baraka I is working
in the Ivory Coast under a four-well contract.

We operate two jackup rigs in India. In November 2002, we mobilized the
Pride West Virginia from the Gulf of Mexico to India pursuant to a two-year
contact. The Pride Pennsylvania also is working offshore India under contracts
that expire in 2006. The semisubmersible rig Pride North Sea is operating in the
Mediterranean Sea under a contract that expires in December 2003. The jackup
Pride Ohio is operating in the Middle East under a contract that expires in
March 2004. The jackup Pride Montana is currently in Saudi Arabia working under
a contract expiring in June 2004. The Pride Hawaii, a jackup working offshore
Malaysia, is under contract until August 2003. The Pride Rotterdam, an
accommodation unit, is working in the Dutch sector of the North Sea under a
contract that expires September 2003. The tender-assisted rigs Ile de Sein,
working in Indonesia, and the Piranha, working in Malaysia, operate under
contracts expiring in December 2004 and June 2005, respectively.

Land. We currently operate five land-based rigs in Chad, one in Russia,
two in Kazakhstan, four in North Africa and three in the Middle East. In Chad,
we commenced operations in 2002 of three drilling rigs and two workover rigs and
provide various other support services under five to seven year contracts.

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RIG FLEET

OFFSHORE RIGS

The table below presents information about our offshore rig fleet as of
March 14, 2003:

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(1) These rigs are owned by joint ventures in which we have a 51% interest.

(2) This rig is subject to a sale and leaseback agreement.

(3) Currently under construction. These rigs are owned by a joint venture in
which we have a 30% interest.

(4) Managed by us, but owned by third parties.

(5) Owned by a joint venture in which we have a 12.5% interest.

Drillships. The Pride Africa and Pride Angola are ultra-deepwater
self-propelled drillships that can be positioned over a drill site through the
use of a computer-controlled thruster (dynamic positioning) system. Drillships
are suitable for deepwater drilling in remote locations because of their
mobility and large load-carrying capacity.

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Semisubmersible Rigs. Our semisubmersible rigs are floating platforms
that, by means of a water ballasting system, can be submerged to a predetermined
depth so that a substantial portion of the lower hulls, or pontoons, is below
the water surface during drilling operations. The rig is "semisubmerged,"
remaining afloat in a position, off bottom, where the lower hull is about 60 to
80 feet below the water line and the upper deck protrudes well above the
surface. This type of rig maintains its position over the well through the use
of either an anchoring system or a computer-controlled thruster system similar
to that used by our drillships.

Jackup Rigs. The jackup rigs we operate are mobile, self-elevating
drilling platforms equipped with legs that can be lowered to the ocean or lake
floor until a foundation is established to support the drilling platform. The
rig legs may have a lower hull or mat attached to the bottom to provide a more
stable foundation in soft bottom areas. Independent leg rigs are better suited
for harsher or uneven seabed conditions. Jackup rigs are generally subject to a
maximum water depth of approximately 300 feet, while some jackup rigs may drill
in water depths as shallow as ten feet. The length of the rig's legs and the
operating environment determine the water depth limit of a particular rig. A
cantilever jackup has a feature that allows the drilling platform to be extended
out from the hull, allowing it to perform drilling or workover operations over a
pre-existing platform or structure. Some cantilever jackup rigs have "skid-off"
capability, which allows the derrick equipment to be skidded onto an adjacent
platform, thereby increasing the operational capacity of the rig. Slot type
jackup rigs are configured for drilling operations to take place through a slot
in the hull. Slot type rigs are usually used for exploratory drilling because
their configuration makes them difficult to position over existing platforms or
structures.

Tender-Assisted Rigs. Our tender-assisted rigs are generally
non-self-propelled barges moored alongside a platform and containing crew
quarters, mud tanks, mud pumps and power generation systems. The only equipment
transferred to the platform for drilling or workover operations is the derrick
equipment set consisting of the substructure, drillfloor, derrick and drawworks.
As a result, tender-assisted rigs are less hazardous and allow smaller, less
costly platforms to be used for development projects. Self-erecting tenders
carry their own derrick equipment and have a crane capable of erecting the
derrick on the platform, thereby eliminating the cost associated with a separate
derrick barge and related equipment.

Barge Rigs. We operate barge rigs on Lake Maracaibo, Venezuela that have
been designed to work in a floating mode with a cantilever feature and a mooring
system that enables the rig to operate in waters up to 150 feet deep. In
Nigeria, we operate a swamp barge rig. This rig is held on location by
submerging the hull onto the sea floor before commencement of work.

Platform Rigs. Our platform rigs consist of drilling equipment and
machinery arranged in modular packages that are transported to and assembled and
installed on fixed offshore platforms owned by the customer. Fixed offshore
platforms are steel, tower-like structures that stand on the ocean floor, with
the top portion, or platform, above the water level, providing the foundation
upon which the platform rig is placed. Two of our platform rigs are capable of
operating at well depths of up to 25,000 feet. Our platform rigs are often used
to provide drilling and horizontal reentry services using top drives, enhanced
pumps and solids control equipment for drilling fluids, as well as for workover
services.

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LAND RIGS

The table below presents information about our land-based rig fleet as of
March 14, 2003:

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(1) One land-based drilling rig and three land-based rigs are managed by us, but
owned by third parties.

A land-based drilling rig consists of engines, drawworks, a mast,
substructure, pumps to circulate the drilling fluid, blowout preventers, drill
string and related equipment. The intended well depth and the drilling site
conditions are the principal factors that determine the size and type of rig
most suitable for a particular drilling job. A land-based well servicing rig
consists of a mobile carrier, engine, drawworks and derrick. The primary
function of a well servicing rig is to act as a hoist so that pipe, rods and
down-hole equipment can be run into and out of a well. All of our well servicing
rigs can be readily moved between well sites and between geographic areas of
operations. Most of our land-based drilling and land-based workover rigs operate
under short-term or well-to-well contracts.

SERVICES PROVIDED

DRILLING SERVICES

We provide contract drilling services to oil and gas exploration and
production companies through the use of mobile offshore and land-based drilling
rigs in both U.S. offshore and international markets. Generally, land-based rigs
and offshore platform rigs operate with crews of six to 17 persons, jackup rigs,
tender-assisted rigs and barge rigs operate with crews of 15 to 25 persons and
semisubmersible rigs and drillships operate with crews of 60 to 75 persons. We
provide the rig and drilling crew and are responsible for the payment of
operating and maintenance expenses.

MAINTENANCE AND WORKOVER SERVICES

Maintenance services are required on producing oil and gas wells to ensure
efficient, continuous operation. These services consist of mechanical repairs
necessary to maintain production from the well, such as repairing parted sucker
rods, replacing defective downhole pumps in an oil well or replacing defective
tubing in a gas well. We provide the rigs, equipment and crews for these
maintenance services, which are performed on both oil and gas wells but are more
often required on oil wells.

In addition to periodic maintenance, producing oil and gas wells
occasionally require major repairs or modifications, called "workovers."
Workover services include the opening of new producing zones in an

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existing well, recompletion of a well in which production has declined, drilling
out plugs and packers and the conversion of a producing well to an injection
well during enhanced recovery operations.

ENGINEERING AND TECHNICAL SERVICES

We employ a technical staff dedicated to designing specialized drilling
equipment to fulfill specific customer requirements and to conduct research and
development in drilling solutions and technologies. The technical services group
has designed and managed the construction of several rigs in our fleet.
Currently, the group is undertaking five projects to design, engineer, manage
construction of and commission deepwater platform drilling rigs. These rigs are
being constructed on behalf of major oil company customers. We also expect to
provide drilling operations management of the rig packages once they have been
installed on the deepwater development platforms in the Gulf of Mexico and West
Africa.

OTHER SERVICES

We provide a wide variety of additional oilfield services to customers in
Argentina, Peru, Bolivia, Colombia, Ecuador, Brazil, Venezuela and Mexico,
including directional drilling, coiled tubing services, cementing, well
stimulation and fishing operations. We also offer integrated services and
comprehensive project management, as well as turnkey services, at the well site.

COMPETITION

Our competition ranges from large multinational competitors offering a wide
range of drilling and other oilfield services to smaller, locally owned
companies. We believe that we are competitive in terms of pricing, performance,
equipment, safety, availability of equipment to meet customer needs and
availability of experienced, skilled personnel. Competition is usually on a
regional basis, but offshore drilling rigs are mobile and may be moved from one
region to another in response to demand.

Drilling contracts are generally awarded on a competitive bid basis. While
an operator may consider the contractor's safety record, crew quality, rig
location and quality of service and equipment, price is often the primary factor
in determining which contractor, among those with suitable rigs, is awarded a
job. Some of our competitors have greater financial resources than us, which may
enable them to better withstand periods of low utilization, to compete more
effectively on the basis of price, to build new rigs or to acquire existing
rigs.

CUSTOMERS

We work for large multinational oil and gas companies, government-owned oil
companies and independent oil and gas producers. During 2002, we had two
customers that accounted for approximately 16% and 12%, respectively, of our
consolidated revenues.

CONTRACTS

Our drilling contracts are awarded through competitive bidding or on a
negotiated basis. The contract terms and rates vary depending on competitive
conditions, the geographical area, the geological formation to be drilled, the
equipment and services to be supplied, the on-site drilling conditions and the
anticipated duration of the work to be performed.

Oil and gas well drilling contracts are carried out on a dayrate, footage
or turnkey basis. Under dayrate contracts, we charge the customer a fixed charge
per day regardless of the number of days needed to drill the well. In addition,
dayrate contracts usually provide for a reduced day rate (or lump sum amount)
for mobilizing the rig to the well location and for assembling and dismantling
the rig. Under dayrate contracts, we ordinarily bear no part of the costs
arising from down-hole risks (such as time delays for various reasons, including
a stuck or broken drill string or blowouts). Most of our contracts are on a
dayrate basis. Contracts may also include reimbursement of costs to modify or
upgrade a rig to meet customer specifications. Other contracts provide for
payment on a footage basis, whereby we are paid a fixed amount for each foot
drilled regardless of the time required or the problems encountered in drilling
the well. We may also enter into

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turnkey contracts, whereby we agree to drill a well to a specific depth for a
fixed price and to bear some of the well equipment costs. Compared to dayrate
contracts, footage and turnkey contracts involve a higher degree of risk to us
and, accordingly, normally provide greater profit potential.

In international offshore markets, contracts generally provide for longer
terms than contracts in domestic offshore markets. When contracting abroad, we
are faced with the risks of currency fluctuation and, in certain cases, exchange
controls. Typically, we limit these risks by obtaining contracts providing for
payment in U.S. dollars or freely convertible foreign currency. To the extent
possible, we seek to limit our exposure to potentially devaluating currencies by
matching our acceptance thereof to our expense requirements in such local
currencies. There can be no assurance that we will be able to continue to take
such actions in the future, thereby exposing us to foreign currency fluctuations
that could have a material adverse effect upon our results of operations and
financial condition. Please read "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7 of this annual report
and "Quantitative and Qualitative Disclosures About Market Risk" in Item 7A of
this annual report.

SEASONALITY

In general, our business activities are not significantly affected by
seasonal fluctuations. Most of our rigs are located in geographical areas that
are not subject to severe weather changes that would halt operations for
prolonged periods.

EMPLOYEES

As of March 14, 2003, we employed approximately 10,100 employees.
Approximately 1,200 of our employees were located in the United States and 8,900
were located abroad. Hourly rig crews constitute the vast majority of our
employees. None of our U.S. employees are represented by a collective bargaining
unit. Many of our international employees are subject to industry-wide labor
contracts within their respective countries. We believe that our employee
relations are good.

SEGMENT INFORMATION

Information with respect to revenues, earnings from operations and
identifiable assets attributable to our industry segments and geographic areas
of operations for the last three fiscal years is presented in Note 14 of our
Notes to Consolidated Financial Statements included in Item 8 of this annual
report.

RISK FACTORS

OUR BUSINESS DEPENDS ON THE LEVEL OF ACTIVITY IN THE OIL AND GAS INDUSTRY,
WHICH IS SIGNIFICANTLY AFFECTED BY VOLATILE OIL AND GAS PRICES.

The profitability of our operations depends upon conditions in the oil and
gas industry and, specifically, the level of exploration and production
expenditures of oil and gas company customers. The oil and gas industry is
cyclical. The demand for contract drilling and related services is directly
influenced by many factors beyond our control, including:

- oil and gas prices and expectations about future prices

- the demand for oil and gas

- the cost of producing and delivering oil and gas

- advances in exploration, development and production technology

- government regulations

- local and international political and economic conditions

- the ability of the Organization of Petroleum Exporting Countries (OPEC)
to set and maintain production levels and prices

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- the level of production by non-OPEC countries

- the policies of various governments regarding exploration and development
of their oil and gas reserves

Depending on the market prices of oil and gas, companies exploring for oil
and gas may cancel or curtail their drilling programs, thereby reducing demand
for drilling services. Such a reduction in demand may erode daily rates and
utilization of our rigs, negatively impacting our financial results.

Utilization rates and dayrates are also affected by the total supply of
comparable rigs available for service in the geographic markets in which we
compete. Short-term improvements in demand in a geographic market may cause our
competitors to respond by moving competing rigs into the market, thus
intensifying price competition. Significant new rig construction could also
intensify price competition. In the past, there have been prolonged periods of
rig oversupply with correspondingly depressed utilization and dayrates largely
due to earlier, speculative construction of new rigs. Improvements in dayrates
and expectations of longer-term, sustained improvements in utilization rates and
dayrates for offshore drilling rigs may cause our competitors to construct new
rigs, which could adversely affect our business.

INTERNATIONAL EVENTS MAY HURT OUR OPERATIONS.

We derive a significant portion of our revenues from international
operations. In 2002, we derived approximately 41% of our revenues from
operations in countries within South America and approximately 40% of our
revenues from operations in other countries outside the U.S. Our operations in
these areas are subject to the following risks, among others:

- foreign currency fluctuations and devaluation

- new economic policies

- restrictions on currency repatriation

- political instability, war and civil disturbances, including uncertainty
or instability resulting from armed hostilities or other crises in the
Middle East or other geographic areas in which we operate or acts of
terrorism.

In March 2003, the U.S. and a coalition of other countries initiated
military action in Iraq. A protracted war in Iraq and the occurrence or threat
of future terrorist attacks such as those against the U.S. on September 11, 2001
could adversely affect the economies of the U.S. and other developed countries.
A lower level of economic activity could result in a decline in energy
consumption, which could adversely affect our revenues and margins and limit our
future growth prospects. More specifically, these risks could lead to increased
volatility in prices for crude oil and natural gas and could affect the markets
for our drilling services. In addition, these risks could increase instability
in the financial and insurance markets and adversely affect our ability to
access capital and to obtain insurance coverages that we consider adequate or
are otherwise required by our contracts. We currently have two jackup rigs
operating in the Middle East, the Pride Montana and the Pride Ohio, and provide
supervisory personnel for two land rigs in Kuwait owned by a third party.
Certain of these operations may have to be suspended if the current military
conflict with Iraq expands beyond the borders of that country.

We attempt to limit the risks of currency fluctuation and restrictions on
currency repatriation by obtaining contracts providing for payment in U.S.
dollars or freely convertible foreign currency. To the extent possible, we limit
our exposure to potentially devaluating currencies by matching the acceptance of
local currencies to our expense requirements in those currencies. Although we
have done this in the past, we may not be able to take these actions in the
future, thereby exposing us to foreign currency fluctuations that could have a
material adverse effect upon our results of operations and financial condition.

During 2002, approximately 24% of our consolidated revenues were derived
from our land-based drilling, workover and E&P services operations in Argentina
and Venezuela, which are currently experiencing political and economic
instability that have resulted in significant changes in their general economic
policies and regulations.

10

During 2002, the Argentine peso declined in value against the U.S. dollar
following the Argentine government's decisions to abandon the country's fixed
dollar-to-peso exchange rate, requiring private sector, dollar-denominated loans
and contracts to be paid in pesos and placing restrictions on the convertibility
of the Argentine peso. The devaluation, coupled with the government's mandated
conversion of all dollar-based contracts to pesos, severely pressured our
margins. During 2002, we engaged in discussion with all of our Argentine
customers regarding the recovery of losses sustained from the devaluation of
accounts receivable and the basis on which new business would be contracted. We
have restructured most of our contracts on a basis that we believe limits our
exposure to further devaluations. However, we can give no assurances that
further devaluations will not adversely affect our results.

Since the second quarter of 2002, Venezuela has experienced political and
economic turmoil, including prolonged labor strikes, demonstrations and an
attempt to overthrow the government. Much of the turmoil has negatively impacted
PDVSA, which is our principal customer in Venezuela, and led to the dismissal of
more than 12,000 PDVSA employees by 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 continuing to have an adverse
effect on our business. Currently 30 of our 47 rigs in the country are idle.
Venezuela has also recently implemented exchange controls, which, together with
recent employee dismissals and reorganization within PDVSA, have led to a slower
rate of collection of our trade receivables and could limit our ability to
convert local currency into U.S. dollars and transfer funds out of Venezuela.
The exchange controls could result in an artificially high value being placed on
the local currency.

Although foreign exchange in the other countries where we operate is
currently carried out on a free-market basis, there is no assurance that local
monetary authorities in these countries will not, in the future, implement
exchange controls or other economic measures that would adversely affect our
right to receive payments or to otherwise conduct business in these countries.

From time to time, certain of our foreign subsidiaries operate in countries
that are subject to sanctions and embargoes imposed by the U.S. government and
the United Nations. Although these sanctions and embargoes do not prohibit those
subsidiaries from completing existing contracts or from entering into new
contracts to provide drilling services in such countries, they do prohibit us
and our domestic subsidiaries, as well as employees of our foreign subsidiaries
who are U.S. citizens, from participating in or approving any aspect of the
business activities in those countries. These constraints on our ability to have
U.S. persons, including our senior management, provide managerial oversight and
supervision may adversely affect the financial or operating performance of such
business activities.

Our international operations are also subject to other risks, including
foreign monetary and tax policies, expropriation, nationalization and
nullification or modification of contracts. Additionally, our ability to compete
in international contract drilling markets may be adversely affected by foreign
governmental regulations that favor or require the awarding of contracts to
local contractors or by regulations requiring foreign contractors to employ
citizens of, or purchase supplies from, a particular jurisdiction. Furthermore,
our foreign subsidiaries may face governmentally imposed restrictions from time
to time on their ability to transfer funds to us.

OUR CUSTOMERS MAY SEEK TO CANCEL OR RENEGOTIATE SOME OF OUR DRILLING CONTRACTS
DURING PERIODS OF DEPRESSED MARKET CONDITIONS OR IF WE EXPERIENCE OPERATIONAL
DIFFICULTIES.

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. In addition, our customers may seek to terminate existing contracts
if we experience operational problems. The deepwater markets in which we operate
require the use of floating rigs with sophisticated positioning, subsea and
related systems designed for drilling in deep water. If this equipment fails to
function properly, the rig cannot engage in drilling operations, and customers
may have the right to terminate the drilling contracts. The likelihood that a
customer may seek to terminate a contract for operational difficulties is
increased during periods of market

11

weakness. The cancellation of a number of our drilling contracts could adversely
affect our results of operations.

WE MAY BE CONSIDERED HIGHLY LEVERAGED. OUR SIGNIFICANT DEBT LEVELS AND DEBT
AGREEMENT RESTRICTIONS MAY LIMIT OUR FLEXIBILITY IN OBTAINING ADDITIONAL
FINANCING AND IN PURSUING OTHER BUSINESS OPPORTUNITIES.

As of December 31, 2002, we had approximately $1.9 billion in long-term
debt and capital lease obligations. The level of our indebtedness will have
several important effects on our future operations, including:

- a significant portion of our cash flow from operations will be dedicated
to the payment of interest and principal on such debt and will not be
available for other purposes

- covenants contained in our existing debt arrangements require us to meet
certain financial tests, which may affect our flexibility in planning
for, and reacting to, changes in our business and may limit our ability
to dispose of assets, withstand current or future economic or industry
downturns and compete with others in our industry for strategic
opportunities

- our ability to obtain additional financing for working capital, capital
expenditures, acquisitions, general corporate and other purposes may be
limited

Our ability to meet our debt service obligations and to reduce our total
indebtedness will be dependent upon our future performance, which will be
subject to general economic conditions, industry cycles and financial, business
and other factors affecting our operations, many of which are beyond our
control.

WE ARE SUBJECT TO HAZARDS CUSTOMARY IN THE OILFIELD SERVICE INDUSTRY AND TO
THOSE MORE SPECIFIC TO MARINE OPERATIONS. WE MAY NOT HAVE INSURANCE TO COVER
ALL THESE HAZARDS.

Our operations are subject to the many hazards customary in the oilfield
services industry. Contract drilling and well servicing require the use of heavy
equipment and exposure to hazardous conditions, which may subject us to
liability claims by employees, customers and third parties. These hazards can
cause personal injury or loss of life, severe damage to or destruction of
property and equipment, pollution or environmental damage and suspension of
operations. Our offshore fleet is also subject to hazards inherent in marine
operations, either while on site or during mobilization, such as capsizing,
sinking and damage from severe weather conditions. In certain instances, we are
required by contract to indemnify customers or others.

We maintain insurance for injuries to our employees and other insurance
coverage for normal business risks, including general liability insurance.
Although we believe our current insurance coverage to be adequate and in
accordance with industry practice against normal risks in our operations, any
insurance protection may not be sufficient or effective under all circumstances
or against all hazards to which we may be subject. The occurrence of a
significant event against which we are not fully insured, or of a number of
lesser events against which we are insured, but subject to substantial
deductibles, could materially and adversely affect our operations and financial
condition. Moreover, the September 11, 2001 terrorist attacks have significantly
increased premiums for some types of coverage. We may not be able to maintain
adequate insurance at rates or on terms that we consider reasonable or
acceptable.

FAILURE TO RETAIN KEY PERSONNEL COULD HURT OUR OPERATIONS.

We require highly skilled personnel to operate and provide technical
services and support for our drilling units. To the extent demand for drilling
services and the size of the worldwide industry fleet increase, shortages of
qualified personnel could arise, creating upward pressure on wages and
difficulty in staffing rigs and managerial positions.

GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL LIABILITIES MAY ADVERSELY AFFECT
OUR OPERATIONS.

Many aspects of our operations are subject to numerous governmental
regulations that may relate directly or indirectly to the contract drilling and
well servicing industries, including those relating to the protection of

12

the environment. We have spent and will continue to spend material amounts to
comply with these regulations. Laws and regulations protecting the environment
have become more stringent in recent years and may in certain circumstances
impose strict liability, rendering us liable for environmental damage without
regard to negligence or fault on our part. These laws and regulations may expose
us 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 the acts were
performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on us. In addition, the
modification of existing laws or regulations or the adoption of new laws or
regulations curtailing exploratory or development drilling for oil and gas could
have a material adverse effect on our operations by limiting future contract
drilling opportunities.

ITEM 2. PROPERTY

Our property consists primarily of mobile offshore and land-based drilling
rigs, well servicing rigs and ancillary equipment, most of which we own. We
operate some rigs under joint venture arrangements, management agreements and
lease agreements. Some of our rigs are pledged to collateralize secured credit
facilities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" in Item 7 of this
annual report. We also own and operate transport and heavy-duty trucks and other
ancillary equipment.

We own office and operating facilities in Houma, Louisiana and in France,
Argentina, Brazil, Venezuela, Algeria, Peru, Angola and Colombia. Additionally,
we lease other office and operating facilities in Houston, Texas and in other
international locations.

We incorporate by reference in response to this item the information set
forth in Item 1 of this annual report and the information set forth in Notes 2
and 5 of our Notes to Consolidated Financial Statements included in Item 8 of
this annual report.

ITEM 3. LEGAL PROCEEDINGS

We are routinely involved in litigation incidental to our business, which
at times involves claims for significant monetary amounts, some of which would
not be covered by insurance. In the opinion of management, none of the existing
litigation will have a material adverse effect on our financial position,
results of operations or cash flow. See Note 11 of our Notes to Consolidated
Financial Statements included in Item 8 of this annual report.

13

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

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

EXECUTIVE OFFICERS OF THE REGISTRANT

We have presented below information about our executive officers as of
March 14, 2003. Officers are elected annually by the Board of Directors and
serve until their successors are chosen or until their resignation or removal.

Paul A. Bragg has been Chief Executive Officer since March 1999, President
since February 1997 and was Chief Operating Officer from February 1997 to April
1999. He joined Pride in July 1993 as its Vice President and Chief Financial
Officer. From 1988 until he joined Pride, Mr. Bragg was an independent business
consultant and managed private investments. He previously served as Vice
President and Chief Financial Officer of Energy Service Company, Inc. (now ENSCO
International, Inc.), an oilfield services company, from 1983 through 1987.

James W. Allen was named Senior Vice President -- Operations in February
1996 and Chief Operating Officer in April 1999. He joined Pride in January 1993
as its Vice President -- International Operations (Latin America). From 1988
through 1992, Mr. Allen was an independent business consultant and managed
private investments. From 1984 to 1988, he was Vice President, Latin America for
ENSCO. Mr. Allen has 30 years of oilfield experience with several different
companies.

John C.G. O'Leary was named Vice President -- International Marketing in
March 1997 in connection with our acquisition of Forasol-Foramer N.V. Mr.
O'Leary had been Manager, Marketing and Business Development of Forasol since
June 1993, with primary responsibility for worldwide business development. Mr.
O'Leary joined Forasol in August 1985.

John R. Blocker, Jr. was named Vice President -- Latin American Operations
in March 2000. He joined Pride in 1993 as President of our Argentina subsidiary,
Pride International, S.R.L. He has more than 32 years of oilfield experience
with several companies.

Gary W. Casswell was named Vice President -- Eastern Hemisphere Operations
in May 1999. He joined Pride in August 1998 and has approximately 23 years of
oilfield drilling experience. From 1974 through 1998, Mr. Casswell was
Operations Manager and Technical Development Manager of Santa Fe International
Corporation (now part of GlobalSantaFe Corporation), an oilfield services
company.

David A. Bourgeois was named Vice President -- North American Operations in
May 2002. He joined Pride in April 1994 with the purchase of Offshore Rigs,
L.L.C., where he was Chief Operating Officer. From April 1994 to June 1996, Mr.
Bourgeois was Sales and Marketing Manager of Pride Offshore, Inc., from June

14

1996 until May 1999 he was Vice President and General Manager of Pride Offshore,
Inc. and from May 1999 to May 2002, he served as Vice President -- U.S.
Operations.

Marcelo D. Guiscardo joined Pride in March 2000 as Vice President -- E&P
Services. From September 1999 until joining Pride, he was President of GDM
Business Development, a private company providing consulting services to the
energy industry. From November 1993 to September 1999, Mr. Guiscardo held
various senior management positions with YPF Sociedad Anonima (now part of
Repsol YPF S.A.), an integrated energy company, including Vice
President -- Exploration & Production.

Thomas Duhen was appointed Vice President -- Engineering in September 2001.
Prior to that time, he served as Technical Director of Pride and previously
Forasol since July 1995. Mr. Duhen joined Forasol in January 1981.

Earl W. McNiel has been Vice President and Chief Financial Officer of Pride
since February 1997. He joined Pride in September 1994 as its Chief Accounting
Officer. From 1990 to 1994, Mr. McNiel served as Chief Financial Officer of
several publicly owned waste management companies. From 1987 to 1990, he was
employed by ENSCO as Manager, Finance.

Robert W. Randall has been Vice President and General Counsel of Pride
since May 1991. He was elected Secretary in 1993. Prior to 1991, he was Senior
Vice President, General Counsel and Secretary for Tejas Gas Corporation, a
natural gas transmission company.

Nicolas J. Evanoff joined Pride in April 2002 as Vice
President -- Corporate and Governmental Affairs. From February 1997 until
joining Pride, he served as Associate General Counsel and as General Counsel,
Asia & Middle East, of Transocean Inc., an oilfield services company. From
August 1992 to February 1997, Mr. Evanoff practiced corporate and securities law
with Baker Botts L.L.P. in Houston, Texas.

PART II

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

Our common stock is listed on the New York Stock Exchange under the symbol
"PDE." As of March 14, 2003, there were 1,592 stockholders of record. The
following table presents the range of high and low sales prices of our common
stock on the NYSE for the periods shown:

We have not paid any cash dividends on our common stock since becoming a
publicly held corporation in September 1988. We currently have a policy of
retaining all available earnings for the development and growth of our business
and do not anticipate paying dividends on our common stock at any time in the
foreseeable future. Our ability to pay cash dividends in the future is
restricted by our existing financing arrangements. The desirability of paying
such dividends could also be materially affected by U.S. and foreign tax
considerations.

15

ITEM 6. SELECTED FINANCIAL DATA

We have derived the following selected consolidated financial information
as of December 31, 2002 and 2001, and for each of the years in the three-year
period ended December 31, 2002, from our audited consolidated financial
statements included in Item 8 of this annual report. You should read this
information in conjunction with those consolidated financial statements and the
notes thereto. We have derived the selected consolidated financial information
as of December 31, 2000 and for the year ended December 31, 1999, from our
audited consolidated financial statements included in our annual report on Form
10-K for the year ended December 31, 2001 that are not included herein. We have
derived the selected consolidated financial information as of December 31, 1999
and 1998 and for the year ended December 31, 1998, from the audited consolidated
financial statements of Pride and Marine that are not included herein. Please
read "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 of this annual report.

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

(1) Restructuring charges include the cost of involuntary employee termination
benefits, including severance, wage continuation, medical and other
benefits, facility closures, related personnel relocation costs and other
costs in connection with a reduction in our workforce in 1999.

(2) Pooling and merger costs consist of costs incurred for investment advisory,
legal and other professional fees, closure of duplicate office facilities
and employee terminations in connection with our acquisition of Marine in
September 2001. Please read Note 3 of the Notes to Consolidated Financial
Statements in Item 8 of this annual report for more information about these
charges.

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

The following discussion and analysis should be read in conjunction with
our consolidated financial statements and related notes included in Item 8 of
this annual report. The following information contains forward-looking
statements. Please read "Forward-Looking Statements" for a discussion of certain
limitations inherent in such statements.

OVERVIEW

We provide contract drilling and related services to oil and gas companies
worldwide, operating both offshore and on land. As of March 14, 2003, we
operated a global fleet of 331 rigs, including two ultra-deepwater drillships,
11 semisubmersible rigs, 35 jackup rigs, 29 tender-assisted, barge and platform
rigs and 254 land-based drilling and workover rigs. We operate in more than 30
countries and marine provinces. We have five principal operating segments: Gulf
of Mexico, International Offshore, International Land, E&P Services and
Technical Services.

In recent years, we have expanded our offshore drilling fleet and increased
the number of rigs capable of drilling in deeper waters. We have a 51% ownership
interest in and operate two ultra-deepwater drillships, the Pride Africa and the
Pride Angola, that were placed in service in October 1999 and May 2000,
respectively. In November 2000, we acquired a jackup drilling rig, the Pride
Ohio, which we had been operating under a bareboat charter since 1999. In
February 2001, we purchased two semisubmersible drilling rigs, now the Pride
Venezuela and the Pride North Sea. In March 2001, we increased our ownership
from 26.4% to 100% in two newly built, dynamically-positioned, deepwater
semisubmersible drilling rigs, the Pride Carlos Walter and the Pride Brazil. The
Pride Carlos Walter and Pride Brazil commenced operations offshore Brazil in
June and July 2001, respectively, working under five-year charter and service
rendering contracts.

In September 2001, we acquired Marine Drilling Companies, Inc. in a
stock-for-stock transaction that created one of the world's largest offshore
drilling contractors. Marine owned and operated a fleet of 17 offshore drilling
rigs consisting of two semisubmersible units and 15 jackup units. Additionally,
Marine owned one jackup rig configured as an accommodation unit. We issued 58.7
million shares of our common stock to the former shareholders of Marine, which
equaled approximately 44% of the outstanding shares of our common stock
immediately following completion of the acquisition. The combination with Marine
has enhanced our competitive position in the Gulf of Mexico jackup rig market
and elsewhere. The acquisition was accounted for as a pooling-of-interests for
accounting and financial reporting purposes and, accordingly,

17

our consolidated financial statements for each period prior to the merger
reflect the combined operations of Pride and Marine.

In 2001, we acquired 14 land-based drilling and workover rigs in Argentina
and Venezuela for a total cost of $48.0 million. In October 2002, we acquired
Uniao Nacional De Perfuracao Limitada ("Unap") for aggregate consideration of
$5.5 million. Unap manages one land-based drilling rig and seven land-based
workover rigs and provides directional drilling and other related services
onshore Brazil.

We expect to continue to redeploy assets to more active regions and to
explore opportunities to expand our operations through acquisitions and rig
upgrades from time to time.

BUSINESS ENVIRONMENT AND OUTLOOK

General

Our revenues depend principally upon the number of available drilling and
workover rigs, the number of days these rigs are utilized and the day rates
received, the amount of integrated project management, coiled tubing drilling
and other E&P services we provide and the amount of technical services projects
that we manage.

The number of available rigs may increase or decrease as a result of the
acquisition or disposal of rigs, the construction of new rigs, the number of
rigs being upgraded or repaired at any time and the entering into or termination
of rig management contracts.

The number of days our rig fleets are utilized and the day rates received
are largely dependent upon the balance of supply and demand for drilling and
workover services in the different geographic regions in which we operate. In
order to improve utilization or realize higher day rates, we may mobilize our
rigs from one market to another.

Oil and gas companies' exploration and development drilling programs drive
the demand for drilling, workover and related services. These drilling programs
are affected by their expectations about oil and natural gas prices, anticipated
production levels, demand for crude oil and natural gas products, government
regulations and many other factors. Oil and gas prices are volatile, which has
historically led to significant fluctuations in expenditures for oil and gas
drilling and related services.

Please read "Business -- Risk Factors" in Item 1 of this annual report.

Gulf of Mexico

Prices for natural gas increased during 2000 and early 2001, which had a
favorable impact on utilization, day rates and demand for our services in the
Gulf of Mexico. From mid-2001, however, activity in the U.S. Gulf of Mexico
began to weaken, and in the fourth quarter of 2001 and throughout 2002, we
experienced particularly weak conditions in the U.S. Gulf of Mexico jackup and
platform rig markets as high natural gas inventory storage levels resulted in
reduced demand for rig services. In response to these poor market conditions, we
actively marketed a number of rigs in our U.S. Gulf of Mexico fleet to
international markets. During 2002, we obtained long-term contracts for nine
jackup rigs and one platform rig with Pemex in the Mexican sector of the Gulf of
Mexico and for two jackup rigs in other international markets, one in Nigeria
and one in India. Additionally, we have obtained a long-term contract with Pemex
in Mexico for the Pride South Seas, a semisubmersible rig that we mobilized from
South Africa.

The following table summarizes average daily revenue and percentage
utilization for our Gulf of Mexico jackup and available platform rig fleets for
each of the last three years. In this annual report, average daily revenue
information is based on total revenues for each rig type divided by actual days
worked by all rigs of

18

that type. Percentage utilization is calculated as the total days worked divided
by the total days available for work by all rigs of that type.

As of March 14, 2003, nine of our Gulf of Mexico jackups were working
offshore Mexico on contracts with an average remaining term of two and one half
years and an average day rate of $34,000, seven were working in the U.S. Gulf of
Mexico, of which six were on short-term contracts, with an average day rate of
$22,300, and nine rigs were available. Additionally, two of our platform rigs
were working offshore Mexico on contracts with an average day rate of $19,600
and two were working in the U.S. Gulf of Mexico at an average day rate of
$13,700. Of the remaining 17 platform rigs, two are being mobilized for customer
contracts beginning in April 2003 and one has been committed to a customer.

Although natural gas prices have recently increased significantly and
natural gas storage levels have declined dramatically, demand for drilling
services in the U.S. Gulf of Mexico has shown only a marginal improvement to
date. Our current expectation is that sustained natural gas prices at current
levels will lead to increased activity levels and day rates in the U.S. Gulf of
Mexico in the second half of 2003. Our available jackup rigs have been well
maintained and could be put back into service at minimal cost. As a result, we
believe we are well positioned to take advantage of any upturn in demand in this
market.

We expect that revenues and gross margins derived from our entire Gulf of
Mexico operations in 2003 will exceed those for 2002 due to the impact of a full
year of operations for our rigs working in Mexico even if market conditions
remain at their current depressed levels in the U.S. sector of the Gulf.

International Offshore

Our international offshore segment has continued to experience high levels
of activity, and we maintained essentially full utilization of six of our seven
high-specification deepwater rigs during 2002. The seventh deepwater rig, the
Pride South Pacific, completed a contract in April 2002 and underwent upgrades
before commencing a new contract offshore Angola at the end of November 2002.
The new contract is expected to last approximately one year. All of these high
specification rigs are working on long-term development projects and are
expected to achieve nearly 100% utilization in 2003. The Pride South America
semisubmersible rig, however, received its five-year periodic inspection and
related maintenance in the first quarter of 2003 and was out of service for
approximately 70 days.

Our intermediate water-depth semisubmersibles experienced approximately 81%
utilization in 2002 with most of the non-chargeable time due to scheduled
periodic inspections and to time preparing for and mobilizing to new contracts.
We currently expect a similar or slightly improved level of activity for these
rigs in 2003.

Following the mobilization of the jackup rigs Pride North Dakota and the
Pride West Virginia to Nigeria and India, respectively, in the second half of
2002 under two-year contracts, we currently have eight jackup rigs working in
international waters outside of the Gulf of Mexico. All of these rigs are
currently working under long-term contracts. Additionally, we manage two jackup
rigs on behalf of PDVSA in Venezuela under contracts that expire in June 2003.

The following table summarizes average daily revenue and percentage
utilization by type of rig for our international offshore rigs for the last
three years.

19

International Land

During 2002, our international land operations were adversely affected by
the economic and political instability in Argentina and Venezuela. The Argentine
peso declined in value against the U.S. dollar following the Argentine
government's decision to abandon the country's fixed dollar-to-peso exchange
rate at the end of 2001. The devaluation, coupled with the government's mandated
conversion of all dollar-based contracts to pesos, severely pressured our
margins. As a result, we recorded a charge in the fourth quarter of 2001 of $6.9
million, net of estimated income taxes, to reduce the carrying value of our net
monetary assets in Argentina. During the first quarter of 2002, we engaged in
discussions with all of our Argentine customers regarding recovery of losses
sustained from the devaluation of accounts receivable and the basis on which new
business would be contracted. We restructured most of our contracts on a basis
that we believe limits our exposure to further devaluations. Activity levels
slowly recovered in Argentina during the second half of 2002 as high oil prices
positively impacted our customers' cash flows and have continued to improve
subsequent to year end. The average rate of utilization of our drilling and
workover rig fleets in Argentina was 68% in 2002, down from 79% in 2001 and 72%
in 2000. As of March 14, 2003, 128, or 86%, of our total fleet of 149 drilling
and workover rigs in Argentina were under contract.

In 2002, $121.3 million, or approximately 10%, of our consolidated revenues
were derived from land and offshore drilling, workover and E&P services in
Venezuela, which has been experiencing political, economic and social
instability. A prolonged strike by PDVSA employees has led to the dismissal of
more than 12,000 employees by the government. While the recent turmoil in
Venezuela is likely to lead to increased demand at some time in the future for
integrated project management services as well as workover services to repair
wells that have been shut-in, it has led to a reduction in our level of
operations in that country during the first quarter of 2003. Since the
conclusion of the strike, our rig activity level has returned to approximately
the same level as before the strike. Currently 12, or 29%, of our 42 land-based
drilling and workover rigs and all five of our offshore rigs in Venezuela are
under contract. Venezuela has also recently implemented exchange controls which,
together with recent employee dismissals and reorganization within PDVSA, have
led to a slower rate of collection of our trade receivables and could limit our
ability to convert local currency to U.S. dollars and transfer funds out of the
country. Our billed trade receivables in Venezuela have increased from $30.6
million at December 31, 2002 to $36.4 million as of February 28, 2003.
Management believes that all such receivables will be recovered and that the
recently implemented exchange controls will not have a significant impact on our
financial position or results of operations.

The effect of reduced activity in our land drilling and workover markets in
South America was partially offset by increased activity in Africa, where five
newly constructed mobile land rigs started work in Chad in December 2001 and
early 2002 under contracts with ExxonMobil with initial terms ranging from five
to seven years. Additionally, activity increased in Russia, where a 3000
horsepower land rig worked throughout 2002 following its relocation from
Argentina to Western Siberia in late 2001. In 2002 we mobilized the first of two
large land rigs to Kazakhstan. The rig has been earning a standby rate since
being accepted by the customer in November 2002 and will commence drilling on an
artificial island in the Caspian Sea after the spring thaw that is expected to
occur in April 2003. The second rig is currently being shipped to Kazakhstan and
is expected to commence drilling operations early in the third quarter of 2003.

E&P Services

Our E&P Services activity is generated predominately in South America and
was negatively impacted by the crises in Argentina and Venezuela in 2002.
Revenues and gross margins have, however, recovered steadily throughout the year
from a low point in the second quarter of 2002 as activity in Argentina has
recovered. Revenues from E&P services are expected to improve in 2003 in part
due to expansion into new markets.

Technical Services

Prior to 2002, our technical services group conducted its activities almost
exclusively for Pride's operating groups. Its projects included the design,
engineering and construction of new rigs, including the Pride Africa and Pride
Angola drillships, and the design and management of major rig upgrades and
maintenance projects.

20

The technical services group is currently providing design, engineering and
construction management services to our customers on a remunerated basis. The
technical services group has five major projects ongoing to design, engineer,
manage construction of and commission deepwater platform drilling rigs, which
are being constructed on behalf of two major oil company customers. We will also
provide drilling operations management of the rig packages once they have been
installed on the deepwater platforms, which include spars, tension-leg platforms
and other designs.

Please read "Business -- Overview" in Item 1 of this annual report and
"Liquidity and Capital Resources" in this Item 7.

RESULTS OF OPERATIONS

The following table presents selected consolidated financial information by
operating segment for the periods indicated.

2002 COMPARED WITH 2001

Revenues. Revenues in 2002 decreased $243.1 million, or 16.1%, as compared
to 2001, primarily due to reduced activity and day rates for our jackup and
platform rigs in the U.S. Gulf of Mexico and a reduction in revenues in
Argentina and Venezuela due to reduced activity levels for our land drilling and
E&P services operations and the devaluation of their currencies. Additionally,
one of our seven high-specification deepwater rigs, the Pride South Pacific,
which worked throughout 2001, completed a contract in April 2002 and did not
work again until the end of November 2002. These decreases were partially offset
by a full year of operations for two of our semisubmersibles, the Pride Carlos
Walter and Pride Brazil, which commenced working for Petrobras under five-year
contracts in June and July 2001, increased jackup activity in Mexico, the
21

commencement of land drilling operations in Chad and Kazakhstan and the start-up
of operations for our technical services division.

Operating Costs. Operating costs in 2002 decreased $94.8 million, or
10.5%, as compared to 2001 due to decreased costs associated with rigs that were
stacked or being upgraded during 2002 that operated during 2001 and a reduction
in operating costs in Argentina and Venezuela due to reduced activity levels in
those countries and the devaluation of their local currencies. These reductions
in costs were partially offset by a full year of operating costs for the Pride
Carlos Walter and Pride Brazil placed into service in June and July 2001, costs
related to the commencement of operations in Chad and Kazakhstan and to the
start-up of operations of our technical services division.

Depreciation and Amortization. Depreciation and amortization expense
increased $27.5 million, or 13.8%, in 2002 as compared with 2001, due to
incremental depreciation on newly acquired and constructed rigs and other rig
refurbishments and upgrades. This increase was partially offset by the impact of
a reassessment of residual values and estimated remaining useful lives of
certain rigs during the third quarter of 2001 and the elimination of
amortization of goodwill beginning in January 2002.

Selling, General and Administrative. Selling, general and administrative
expenses for 2002 decreased $6.1 million, or 6.0%, as compared with 2001,
primarily due to cost savings associated with the closure of duplicate
facilities and staffing reductions following our September 2001 acquisition of
Marine. Additionally, the devaluation of the currencies in Argentina and
Venezuela favorably impacted expenses denominated in their local currencies.

Pooling and Merger Costs. Costs totaling $35.8 million were incurred in
connection with the acquisition of Marine in September 2001. The costs consisted
of investment advisory, legal and other professional fees totaling $24.4 million
and costs associated with the closure of duplicate office facilities and
employee terminations of $11.4 million

Other Income (Expense). Other expense in 2002 increased $9.3 million, or
7.7%, as compared to 2001. Interest expense increased by $15.8 million,
principally due to interest on indebtedness added in the March 2001 acquisition
of the remaining 73.6% ownership of the Pride Carlos Walter and Pride Brazil and
interest on construction financing for the rigs that had been capitalized during
their construction. During 2002, we capitalized $1.9 million of interest expense
in connection with construction projects, as compared to $19.0 million of
interest capitalized in 2001. Interest income declined $9.1 million due to lower
cash balances available for investment and to a reduction in interest rates.
Other expense in 2001 included net foreign exchange losses of $13.1 million and
a $5.1 million charge in connection with the settlement of a wage-related
antitrust lawsuit, partially offset by a gain from the sale of surplus assets.
The 2001 foreign exchange losses included a pre-tax charge of $10.7 million (or
$6.9 million net of estimated income taxes) to reduce the carrying value of our
net monetary assets in Argentina following devaluation of the Argentine
currency.

Income Tax Provision. Our consolidated effective income tax rate for 2002
decreased to 30.0% from 31.8% in 2001. The higher rate in 2001 was principally a
result of approximately $19.0 million of the pooling and merger costs being
estimated to be non-deductible for U.S. federal income tax purposes.

Minority Interest. Minority interest in 2002 increased $0.6 million, or
3.8%, as compared to 2001, primarily due to an increase in net income generated
by our 51% owned drillships, the Pride Africa and Pride Angola, as a result of
decreased downtime and increased performance bonuses received from our customer.

Extraordinary Item. We recognized an extraordinary loss in 2002 of $0.8
million, net of estimated income taxes, related to the early extinguishment of
approximately $244.2 million accreted value, net of offering costs, of our zero
coupon convertible senior and subordinated debentures. In 2001, we recognized an
extraordinary gain of $1.3 million, net of estimated income taxes, related to
the early extinguishment of approximately $58.2 million accreted value, net of
offering costs, of our zero coupon convertible subordinated debentures.

22

2001 COMPARED WITH 2000

Revenues. Revenues in 2001 increased $339.9 million, or 29.0%, as compared
to 2000, primarily due to increases in average day rates for our Gulf of Mexico
jackup and platform rig fleets, full-period operations in 2001 for the drillship
Pride Angola, revenues from the Pride Carlos Walter and the Pride Brazil, which
entered into service in June and July 2001, respectively, revenues from the
Pride Venezuela and the Pride North Sea semisubmersible rigs, which were
acquired in February 2001, and increased revenues from our international land
operations as a result of increased day rates for our rigs in South America and
the addition of 14 drilling rigs during 2001. Additionally, revenues from E&P
services increased primarily due to the inclusion of a full year of operations
in 2001 as compared with only nine months of activity in 2000, following the
acquisition of the division in April of that year.

Operating Costs. Operating costs in 2001 increased $180.0 million, or
24.9%, as compared to 2000. The increase was principally due to costs related to
the newly acquired or constructed semisubmersible rigs, to increased costs of
rigs that operated during 2001 that were being upgraded or were stacked in 2000,
to costs for a full period in 2001 for the Pride Angola and the E&P services
division as compared with partial periods in 2000 and to costs associated with
integrated project management services and coiled tubing drilling.

Depreciation and Amortization. Depreciation and amortization expense
increased $24.4 million, or 14.0%, in 2001 as compared with 2000, due to
incremental depreciation recorded on newly acquired and constructed rigs and
depreciation of the costs associated with significant rig refurbishments and
upgrades. This increase was partially offset by the effect of a reassessment
during the third quarter of 2001 of residual values and estimated remaining
useful lives of certain rigs of $10.3 million.

Selling, General and Administrative. Selling, general and administrative
expenses for 2001 increased $4.8 million, or 5.0%, as compared with 2000,
primarily due to a full year of expenses for our E&P services division as
compared with nine months of expenses in 2000 and our July 2001 acquisition of
14 additional rigs in Argentina and Venezuela. As a percentage of revenues,
selling, general and administrative expenses decreased from 8.1% in 2000 to 6.6%
in 2001.

Pooling and Merger Costs. Costs totaling $35.8 million were incurred in
connection with the acquisition of Marine in September 2001. The costs consisted
of investment advisory, legal and other professional fees totaling $24.4 million
and costs associated with the closure of duplicate office facilities and
employee terminations of $11.4 million.

Other Income (Expense). Other expense in 2001 increased $35.1 million, or
40.9%, as compared to 2000. Interest expense increased by $14.6 million,
principally due to interest on indebtedness added in the March 2001 acquisition
of the remaining 73.6% ownership of the Pride Carlos Walter and Pride Brazil,
interest on construction financing for the rigs that had been capitalized during
their construction and amortization of deferred financing costs relating to our
zero coupon convertible debentures. The increase in interest expense was
partially offset by the impact of a reduction in interest rates on floating rate
debt. During 2001, we capitalized $19.0 million of interest expense in
connection with construction projects, as compared to $11.2 million of interest
capitalized in 2000.

Other expense in 2001 included foreign exchange losses of $13.1 million and
a $5.1 million charge in connection with the settlement of a wage-related
antitrust lawsuit, partially offset by a gain from the sale of surplus assets.
The foreign exchange losses included a pre-tax charge of $10.7 million (or $6.9
million net of estimated income taxes) to reduce the carrying value of our net
monetary assets in Argentina. Other income in 2000 included a gain from a
litigation settlement partially offset by losses on foreign currency exchange
contracts.

Income Tax Provision. Our consolidated effective income tax rate for 2001
decreased to 31.8% from 36.9% in 2000, principally as a result of increased
income in foreign jurisdictions with low or zero effective tax rates. The
decrease was partially offset as approximately $19.0 million of the pooling and
merger costs is estimated to be non-deductible for U.S. federal income tax
purposes. Exclusive of the effects of such non-deductible pooling and merger
costs, the effective tax rate would have been approximately 28.9%.

23

Minority Interest. Minority interest in 2001 increased $4.7 million, or
43.4%, as compared to 2000 due to an increase in net income generated by our 51%
owned drillship, the Pride Angola, which commenced operations in May 2000.

Extraordinary Item. We recognized an extraordinary gain in 2001 of $1.3
million, net of estimated income taxes, related to the early extinguishment of
approximately $58.2 million accreted value, net of offering costs, of our zero
coupon convertible subordinated debentures due 2018.

LIQUIDITY AND CAPITAL RESOURCES

We had net working capital of $122.5 million and $92.1 million as of
December 31, 2002 and December 31, 2001, respectively. Our current ratio, the
ratio of current assets to current liabilities, was 1.2 at both December 31,
2002 and December 31, 2001. The increase in net working capital was attributable
primarily to an increase in cash received from our issuance of $300 million
principal amount of 2 1/2% convertible senior notes in March 2002 and from
borrowings of $225 million under our new senior secured bank term loan, net of
amounts used to retire other bank debt and repurchase our zero coupon
convertible debentures.

In June 2002, we entered into senior secured credit facilities with a group
of banks providing for aggregate availability of up to $450.0 million,
consisting of a five-year $200.0 million term loan and a three-year $250.0
million revolving credit facility. Proceeds from the term loan were used to
refinance a portion of the amounts outstanding under other credit facilities.
Borrowings under the revolving credit facility are available for general
corporate purposes. As of December 31, 2002, $25.0 million of borrowings and an
additional $12.4 million of letters of credit were outstanding under the
revolving credit facility. The facilities are collateralized by two deepwater
semisubmersible rigs, the Pride North America and the Pride South Pacific, and
28 jackup rigs. Borrowings under the facilities currently bear interest at
variable rates based on LIBOR plus a spread based on the credit rating of the
facility or, if unrated, index debt. As of March 14, 2003, the spread was 3.5%
for the term loan and 2.6% for the revolving credit facility. The interest rate
on the term loan was 5.3% as of December 31, 2002. The credit facilities contain
provisions that limit our ability and the ability of our subsidiaries, with
certain exceptions, to pay dividends or make other restricted payments and
investments; incur additional debt; create liens; incur dividend or other
payment restrictions affecting subsidiaries; consolidate, merge or transfer all
or substantially all of our assets; sell assets or subsidiaries; enter into
speculative hedging arrangements outside the ordinary course of business; enter
into transactions with affiliates; make maintenance capital expenditures and
incur long-term operating leases. The credit facilities also require us to
comply with specified financial tests, including a ratio of net debt to EBITDA,
as defined, an interest coverage ratio, a ratio of net debt to total
capitalization and a minimum net worth.

We also have a senior revolving credit facility with non-U.S. banks that
provide aggregate availability of up to $95.0 million. The credit facility
terminates in June 2005 and is collateralized by a semisubmersible rig, the
Pride South Atlantic, a jackup rig, the Pride Montana, and a tender-assisted
rig. Borrowings under the credit facility bear interest at variable rates based
on LIBOR plus a spread ranging from 1.00% to 1.55%. As of December 31, 2002,
there were borrowings of $85.0 million outstanding under this credit facility.

During 2002, we purchased on the open market and then extinguished $277.9
million principal amount at maturity of our zero coupon convertible senior
debentures due 2021. The aggregate purchase price was $172.8 million, and the
accreted value of the debentures, less offering costs, was $171.9 million. In
January 2003, we were required by the terms of the debentures to make an offer
to purchase them at the accreted value of the debentures on the purchase date.
In connection with the offer, we repurchased and then cancelled all remaining
outstanding debentures for $98.2 million. Also in 2002, we purchased on the open
market and then extinguished a total of $153.3 million principal amount at
maturity of our zero coupon convertible subordinated debentures due 2018. The
total purchase price was $72.7 million, and the accreted value of the
debentures, less offering costs, was $72.3 million. Holders have the right to
require us to purchase the remaining outstanding zero coupon convertible
subordinated debentures in April 2003 at an accreted price of $113.2 million
based on the amount outstanding as of December 31, 2002. The debentures are
convertible at any time into shares of our common stock at a conversion rate of
13.794 shares of common stock per $1,000

24

principal amount at maturity, which represents a conversion price of $28.35 per
share. The closing price of our common stock on the New York Stock Exchange on
March 14, 2003 was $13.11 per share. Based on current market conditions, we
believe that we will likely be required to purchase for cash all the debentures
on their initial put date. If we become obligated to repurchase the debentures,
we intend to use available cash and credit facilities to make the purchases.

In March 2002, we issued $300.0 million principal amount of 2 1/2%
convertible senior notes due 2007. Net proceeds, after deducting underwriting
discounts and offering costs, were $291.5 million. The notes are convertible
into approximately 18.2 million shares of our common stock (equal to a
conversion rate of 60.5694 shares of common stock per $1,000 principal amount,
or $16.51 per share). The net proceeds were used to repay debt, including the
repurchase of outstanding zero coupon debentures. In connection with the
issuance of the notes, a private equity fund related to First Reserve
Corporation purchased 7.9 million shares of our common stock from third parties.
First Reserve manages private equity funds that specialize in the energy
industry.

Additions to property and equipment during 2002 totaled $250.8 million,
including $10.7 million for the completion of five mobile land rigs which have
commenced operations in Chad, $84.3 million for upgrades to nine jackup rigs,
one platform rig and one semisubmersible rig for work offshore Mexico and for
two additional jackups to work in Nigeria and India, $25.2 million for upgrading
and equipping two 3000 horsepower land rigs for work in Kazakhstan, $61.4
million for other rig upgrades, refurbishments and reactivations, and
approximately $69.2 million for sustaining capital projects. Approximately $40.0
million of the above expenditures have been reimbursed by our customers.

We have a 51% ownership interest in and operate the ultra-deepwater
drillships Pride Africa and Pride Angola, which are contracted to work for Elf
Exploration Angola under contracts expiring in June 2005 and May 2005,
respectively, each with two one-year extension options. Financing for
approximately $400 million of the drillships' total construction cost of $495
million was provided by a group of banks. The loans are secured by the two
drillships and the proceeds from the related drilling contracts and are
non-recourse to us and the joint owner. As of December 31, 2002, a total of
$232.0 million was outstanding under these loans. As a condition of the
drillship loans, we entered into interest rate swap and cap agreements. The
agreements effectively fixed the interest rate on the Pride Africa loan at 7.34%
through December 2006, effectively fixed the interest rate on the Pride Angola
loan at 6.52% through January 2003 and effectively capped the interest rate on
the Pride Angola loan at 6.52% from February 2003 to January 2007.

In February 2001, we purchased a second-generation semisubmersible drilling
rig (now the Pride North Sea) and a third-generation semisubmersible drilling
rig (now the Pride Venezuela) for $44.7 million in cash and 3.0 million shares
of our common stock valued at $78.9 million.

In March 2001, we increased from 26.4% to 100% our ownership in a joint
venture that constructed two dynamically-positioned, deepwater semisubmersible
drilling rigs. The Pride Carlos Walter commenced operations in June 2001, and
the Pride Brazil commenced operations in July 2001. These rigs are operating for
Petrobras under five-year charter and service rendering contracts, each with two
one-year extension options. The purchase consideration for the interests we did
not previously own consisted of approximately $86 million aggregate principal
amount of senior convertible notes, which were issued to the Brazilian
participant in the joint venture, and 519,468 shares of our common stock valued
at approximately $14.0 million, which were issued to two investment funds
managed by First Reserve Corporation pursuant to the funds' original investment
in the joint venture. The acquisition added to our consolidated balance sheet
approximately $443 million of assets represented by the two rigs, approximately
$287 million of indebtedness incurred to finance the construction of the rigs
and approximately $86 million of senior convertible notes issued to the
Brazilian participant. The notes mature in March 2004, bear interest at 9% per
annum and are convertible into approximately 4.0 million shares of our common
stock.

In July 2001, we entered into a credit agreement with a group of foreign
banks to provide loans totaling up to $250.0 million to refinance the
construction loans for the Pride Carlos Walter and Pride Brazil. Borrowings
under the facility bear interest at rates based on LIBOR plus an applicable
margin of 1.50% to 1.85%. Principal and interest on the new loans are payable
semi-annually from March 2002 through 2008.

25

Funding under the facility and repayment of the construction loans (which had
interest rates of 11% per annum) was completed in November 2001. The loans are
collateralized by, among other things, a first priority mortgage on the drilling
rigs and assignment of the charters for the rigs. As required by the lenders, we
entered into interest rate swap and cap agreements, which capped the interest
rate on $50.0 million of the debt at 7% and which fixed the interest rate on the
remainder of the debt at 5.58% from March 2002 through September 2006. As of
December 31, 2002, there were borrowings of $215.4 million outstanding under
this facility.

In 1997 and 1999, respectively, we issued $325.0 million of 9 3/8% senior
notes due 2007 and $200.0 million of 10% senior notes due 2009. The notes
contain provisions that limit our ability and the ability of our subsidiaries,
with certain exceptions, to pay dividends or make other restricted payments;
incur additional debt or issue preferred stock; create or permit to exist liens;
incur dividend or other payment restrictions affecting subsidiaries;
consolidate, merge or transfer all or substantially all our assets; sell assets;
enter into transactions with affiliates and engage in sale and leaseback
transactions.

In addition to the debt obligations described above, we had, as of December
31, 2002, approximately $26.0 million of other debt and capital lease
obligations incurred primarily in connection with additions to our offshore rig
fleet. These include a balance of $10.3 million principal amount of
limited-recourse collateralized term loans made with two Japanese trading
companies in 1994 to finance construction of our barge rigs, the Pride I and the
Pride II, which term loans are being repaid from charter payments for the rigs
in equal monthly installments of principal and interest (at 9.61% per annum)
through July 2004.

As of December 31, 2002, we had approximately $4.3 billion in total assets
and $1.9 billion of long-term debt and capital lease obligations. We also had
aggregate availability under our senior credit facilities of $222.6 million as
of December 31, 2002. Although we do not expect that our level of total
indebtedness will have a material adverse impact on our financial position,
results of operations or liquidity in future periods, it may limit our
flexibility in certain areas. Please read "Risk Factors -- We may be considered
highly leveraged. Our significant debt levels and debt agreement restrictions
may limit our flexibility in obtaining additional financing and in pursuing
other business opportunities" in Item 1 of this annual report.

The following table summarizes our contractual cash obligations at December
31, 2002.

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

(1) Does not include unconditional purchase commitments to third parties for
materials, goods and services incurred in the normal course of business.

(2) Assumes that we purchase $382.2 million principal amount at maturity of the
outstanding zero coupon convertible debentures for cash on their initial put
dates, including $153.6 million principal amount at maturity of our zero
coupon convertible senior debentures purchased in January 2003 for $98.2
million, which was funded by borrowings under our existing senior credit
facilities. The remaining $228.6 million principal amount at maturity of our
zero coupon convertible subordinated debentures may, at the option of
holders, be put to us in April 2003 at an accreted price of $113.2 million,
which we expect to fund by additional borrowings under our existing senior
credit facilities and by available cash.

(3) Primarily related to the Pride South America semisubmersible rig. In
addition to rig operating leases, we have operating leases for other
equipment, vehicles and various facilities. Rental expense under all
operating leases for the years ended December 31, 2002, 2001 and 2000 was
$41.1 million, $48.8 million and $39.4 million, respectively.

26

We own a 30% equity interest in a joint venture company that is
constructing two dynamically positioned deepwater semisubmersible drilling rigs,
currently referred to as the Amethyst 4 and Amethyst 5. The rigs are being
constructed at a shipyard in Maine, and we anticipate that they will be
completed in late 2003. The joint venture company has financed 87.5% of the cost
of construction of those rigs through credit facilities, with repayment of the
borrowings under those facilities guaranteed by the United States Maritime
Administration ("MARAD"). Advances under the credit facilities are being
provided without recourse to any of the joint venture owners. The remaining
12.5% of the cost of construction is being provided by the joint venture company
from equity contributions that have been made by the joint venture partners.
Through December 31, 2002, our equity contributions to the joint venture totaled
$29.6 million, including capitalized interest of $6.1 million. Based on the
availability of funds under performance and payment bonds issued on behalf of a
prior construction contractor and draws remaining under the MARAD-guaranteed
credit facilities, we believe the Amethyst 4 and Amethyst 5 will be completed
without requiring additional contributions by the joint venture partners.

In October 2002, the two First Reserve managed funds that collectively held
an 11.9% interest in the joint venture transferred their interests to us in
exchange for a total of 527,652 share of our common stock. The other joint
venture partner exercised its option to acquire up to 70% of the interest we
acquired in the First Reserve exchange, which reduced our interest to 30%. The
exercise price of that option was 369,356 shares of our common stock. As a
result of the exchange and other purchases of our common stock by First Reserve
managed funds, First Reserve funds owned as of December 31, 2002 approximately
20.0 million shares of our common stock, or approximately 15% of the total
shares outstanding.

The Amethyst 4 and Amethyst 5 are being built to operate under long-term
charter and service rendering contracts with Petrobras; however, Petrobras has
given notice of cancellation of those contracts for late delivery. We believe
that Petrobras or another customer will employ the Amethyst 4 and Amethyst 5
under new or amended contracts. There can be no assurance, however, that either
the Amethyst 4 or Amethyst 5 will be chartered to Petrobras or to any other
customer.

We established the Pride International, Inc. Direct Stock Purchase Plan in
2000, which provides a convenient way for investors to purchase shares of our
common stock without paying brokerage commissions or service charges. During
2001, we sold approximately 2.6 million shares of common stock under this plan
for net proceeds of $62.0 million. No shares were sold under the plan in 2002.

As of December 31, 2002, $52.7 million of our cash balances, which amount
is included in restricted cash, consists of funds held in trust in connection
with our drillship and semisubmersible loans and our limited-recourse
collateralized term loans and, accordingly, is not currently available for our
use.

We believe that cash and cash equivalents on hand, together with the cash
generated from our operations and borrowings under our credit facilities, will
be adequate to fund normal ongoing capital expenditures, working capital and
debt service requirements for the foreseeable future.

We expect to continue to redeploy assets to more active regions and to
explore opportunities to expand our operations through acquisitions and rig
upgrades from time to time. The timing, size or success of any acquisition
effort and the associated potential capital commitments are unpredictable. From
time to time, we have one or more bids outstanding for contracts that could
require significant capital expenditures and mobilization costs. We expect to
fund acquisitions and project opportunities primarily through a combination of
working capital, cash flow from operations and full or limited recourse debt or
equity financing.

TAX MATTERS

We have a U.S. deferred tax asset of $183.3 million relating to U.S. net
operating loss ("NOL") carryforwards. Due to the acquisition of Marine, certain
NOL carryforwards are subject to limitation under Sections 382 and 383 of the
U.S. Internal Revenue Code. We have determined that such limitations should not
affect our ability to realize the benefits associated with such NOL
carryforwards. The U.S. NOL carryforwards total $523.8 million and expire in
2019 through 2022. We estimate that we will generate

27

sufficient U.S. taxable income of approximately $524 million prior to the
expiration dates of these NOL carryforwards to fully utilize them.

Historically, the difference between financial income (loss) and taxable
income (loss) is primarily due to accelerated tax depreciation. Tax depreciation
in excess of book depreciation for the years ended December 31, 2002, 2001, 2000
and 1999 was $106.5 million, $78.5 million, $60.5 million and $54.6 million,
respectively.

We also have Argentine deferred tax assets of $6.5 million consisting
primarily of NOL carryforwards. We expect to generate sufficient taxable income
to fully utilize these NOL carryforwards. If the income from these operations is
not sufficient to create sufficient taxable income to utilize NOL carryforwards,
tax planning strategies exist that we believe would permit us to utilize these
NOL carryforwards. The Argentina NOL carryforwards total $18.5 million and
expire in 2004 through 2007.

SIGNIFICANT ACCOUNTING POLICIES

We consider policies concerning use of estimates, property and equipment,
revenue recognition, periodic inspections and surveys and foreign currency
translation to have the most significant impact on our consolidated financial
statements.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period, including realization of
customer and insurance receivables and resolutions of tax claims. While we
believe that such estimates are reasonable, actual results could differ from
those estimates.

Property and equipment are carried at original cost or adjusted net
realizable value, as applicable. Major renewals and improvements are capitalized
and depreciated over the respective asset's remaining useful life. Maintenance
and repair costs are charged to expense as incurred. When assets are sold or
retired, the remaining costs and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in income.

Property and equipment held and used by us are reviewed for impairment
whenever events or changes in circumstances indicate the carrying amounts may
not be recoverable. Indicators of possible impairment include extended periods
of idle time and/or an inability to contract specific assets or groups of
assets, such as a specific type of drilling rig, or assets in a specific
geographical region. However, the drilling, workover and related service
industries in which we operate are highly cyclical and it is not unusual to find
that assets that were idle, underutilized or contracted at sub-economic rates
for significant periods of time resume activity at economic rates when market
conditions improve. Additionally, most of our assets are mobile and we may
mobilize rigs from one market to another to improve utilization or realize
higher day rates. We estimate the future undiscounted cash flows of the affected
assets to determine the recoverability of carrying amounts. In general, analyses
are based on expected costs, utilization and day rates for the estimated
remaining useful lives of the asset or group of assets being assessed.

Asset impairment evaluations are, by nature, highly subjective. They
involve expectations about future cash flows generated by our assets, and
reflect management's assumptions and judgements regarding future industry
conditions and their effect on future utilization levels, day rates and costs.
The use of different estimates and assumptions could result in materially
different carrying values of our assets.

We recognize revenue as services are performed based upon contracted day
rates and the number of operating days during the period. Revenue from turnkey
contracts is generally recognized upon completion. Anticipated losses on turnkey
contracts are recognized in operating results when known. Mobilization fees
received and costs incurred to mobilize a rig in connection with a customer
contract from one geographic area to another are deferred and recognized over
the term of such contract. Construction contract revenues and related costs are
recognized using the percentage of completion method. Fees received for capital
improvements to rigs or other property and equipment are deferred and recognized
over the period of the related

28

drilling contract. The costs of such capital improvements are capitalized and
depreciated over the useful lives of the assets.

We are required to obtain certifications from various regulatory bodies in
order to operate our offshore drilling rigs and must maintain such
certifications through periodic inspections and surveys. The costs associated
with obtaining and maintaining such certifications, including inspections and
surveys, drydock costs and remedial structural work to the rigs are deferred and
amortized over the corresponding certification periods.

We account for translation of foreign currency in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency
Translation." The majority of our revenues and expenditures are denominated in
U.S. dollars to limit our exposure to foreign currency fluctuations, resulting
in the use of the U.S. dollar as the functional currency. In addition, our
operations in certain foreign jurisdictions are in "highly inflationary"
economies resulting in the use of the U.S. dollar as the functional currency. As
a result, certain assets and liabilities of foreign operations are translated at
historical exchange rates, revenues and expenses in these countries are
translated at the average rate of exchange for the period, and all translation
gains or losses are reflected in the period's results of operations. In those
countries where the U.S. dollar is not the functional currency, revenues and
expenses are translated at the average rate of exchange for the period, assets
and liabilities are translated at end-of-period exchange rates and all
translation gains and losses are recorded in accumulated other comprehensive
loss within stockholders' equity.

Effective January 1, 2002, we adopted SFAS No. 142, which eliminates the
amortization of goodwill and requires that goodwill be reviewed annually for
impairment. We ceased amortizing goodwill on January 1, 2002. We performed an
impairment test of goodwill at year end 2002 and determined that the fair value
exceeded the recorded cost as of December 31, 2002; accordingly, no impairment
was recorded.

RECENT ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143
addresses financial accounting and reporting obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002
with early adoption encouraged.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections." SFAS No.
145 eliminates the requirement that gains and losses from the extinguishment of
debt be aggregated and classified as extraordinary items and requires
sale-leaseback accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002 with early adoption
encouraged. Upon adoption, previously reported extraordinary items from the
extinguishment of debt will be combined with other income (expense) and the
related tax provision (benefit) will be reported with the income tax provision.

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 that is associated with an exit or disposal activity be
recognized when the liability is incurred. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002 with early
application encouraged.

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on
required disclosures by a guarantor in its financial statements about
obligations under certain guarantees that it has issued and requires a guarantor
to recognize, at the inception of certain guarantees, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The provisions of
FIN No. 45 relating to initial recognition and measurement of guarantor
liabilities, are effective for qualifying guarantees entered into or modified
after December 31, 2002. The disclosure provisions of FIN No. 45 for certain
guarantees are effective immediately.

29

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock Based
Compensation -- Transition and Disclosure -- an Amendment of FASB Statement No.
123." SFAS No. 148 provides two alternative transition methods for the voluntary
adoption of SFAS No. 123, "Accounting for Stock-Based Compensation." We have
elected to continue to account for stock based compensation in accordance with
APB No. 25. The disclosure provisions of SFAS No. 148 are effective immediately
and require revised disclosures in both annual and interim financial statements
about the method of accounting for stock-based compensation and the effect of
the method on reported results. We adopted the new disclosure requirements for
our fiscal year ended December 31, 2002. See Note 1 of the Notes to Consolidated
Financial Statements included in Item 8 of this annual report.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51." FIN No. 46 requires a
company to consolidate a variable interest entity, as defined, when the company
will absorb a majority of the variable interest entity's expected losses,
receive a majority of the variable interest entity's expected residual returns,
or both. FIN No. 46 also requires certain disclosures relating to consolidated
variable interest entities and unconsolidated variable interest entities in
which a company has a significant variable interest. The disclosure provisions
of FIN No. 46 are effective for all financial statements issued after January
31, 2003. The consolidation provisions of FIN No. 46 apply immediately to
variable interest entities created after January 31, 2003, and to variable
interest entities in which a company obtains an interest after January 31, 2003.
With respect to variable interest entities in which a company holds a variable
interest that is acquired before February 1, 2003, the consolidation provisions
are required to be applied no later than the company's first fiscal year or
interim period beginning after June 15, 2003.

SFAS Nos. 143, 145, 146 and 148 and FIN Nos. 45 and 46 are not expected to
have a material impact on our consolidated financial position, results of
operations or cash flows when adopted.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks arising from the use of financial
instruments in the ordinary course of business. These risks arise primarily as a
result of potential changes in the fair market value of financial instruments
that would result from adverse fluctuation in interest rates and foreign
currency exchange rates as discussed below. We entered into these instruments
other than for trading purposes. We incorporate by reference in response to this
item the information set forth in Note 6 of the Notes to Consolidated Financial
Statements included in Item 8 of this annual report.

Interest Rate Risk. We are exposed to interest rate risk through our
convertible and fixed rate long-term debt. We have entered into agreements as
required by the lenders under certain loan and credit agreements that
effectively fixed or capped the interest rate on such debt. As of December 31,
2002, we held interest rate swap and cap agreements covering $447.3 million of
our long-term debt. The fair market value of fixed rate debt will increase as
prevailing interest rates decrease. The fair value of our long-term debt is
estimated based on quoted market prices where applicable, or based on the
present value of expected cash flows relating to the debt discounted at rates
currently available to us for long-term borrowings with similar terms and
maturities. The estimated fair value of our long-term debt as of December 31,
2002 and 2001 was approximately $1,962 million and $1,744 million, respectively,
which is more than its carrying value as of December 31, 2002 and 2001 of $1,887
million and $1,725 million, respectively. A hypothetical 10% decrease in
interest rates relative to market interest rates at December 31, 2002 would
increase the fair market value of our long-term debt at December 31, 2002 by
approximately $32 million.

Foreign Currency Exchange Rate Risk. We operate in a number of
international areas and are involved in transactions denominated in currencies
other than U.S. dollars, which expose us to foreign exchange rate risk. We
utilize forward exchange and option contracts, local currency borrowings and the
payment structure of customer contracts to selectively reduce our exposure to
exchange rate fluctuations in connection with monetary assets, liabilities and
cash flows denominated in certain foreign currencies. The estimated unrealized
loss on our forward exchange and option contracts as of December 31, 2002 and
2001 was approximately $1.0 million and $6.6 million, respectively. A
hypothetical 10% increase in the U.S. dollar relative to the Euro

30

as of December 31, 2002 would result in an approximate $1.1 million decrease in
the fair value of our forward exchange and option contracts. We do not hold or
issue forward exchange contracts, option contracts or other derivative financial
instruments for speculative purposes.

31

FORWARD-LOOKING STATEMENTS

This annual report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. All statements, other than statements of historical fact,
included in this annual report that address activities, events or developments
that we expect, project, believe or anticipate will or may occur in the future
are forward-looking statements. These include such matters as:

- market conditions, expansion and other development trends in the contract
drilling industry

- utilization rates and contract rates for rigs

- future capital expenditures and investments in the construction,
acquisition and refurbishment of rigs (including the amount and nature
thereof and the timing of completion thereof)

- completion and employment of rigs under construction

- repayment of debt

- utilization of net operating loss carryforwards

- business strategies

- expansion and growth of operations

- future exposure to currency devaluations

- future operating results and financial condition and

- the effectiveness of our disclosure controls and procedures

We have based these statements on our assumptions and analyses in light of
our experience and perception of historical trends, current conditions, expected
future developments and other factors we believe are appropriate in the
circumstances. These statements are subject to a number of assumptions, risks
and uncertainties, including those described under "Business -- Risk Factors" in
Item 1 of this annual report and the following:

- general economic business conditions

- prices of oil and gas and industry expectations about future prices

- foreign exchange controls and currency fluctuations

- political stability in the countries in which we operate

- the business opportunities (or lack thereof) that may be presented to and
pursued by us

- changes in laws or regulations and

- the validity of the assumptions used in the design of our disclosure
controls and procedures

Most of these factors are beyond our control. We caution you that
forward-looking statements are not guarantees of future performance and that
actual results or developments may differ materially from those projected in
these statements. We will not update these statements unless the securities laws
require us to do so.

32

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of Pride International, Inc.:

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the consolidated financial position of
Pride International, Inc. and Subsidiaries as of December 31, 2002 and 2001, and
the consolidated 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. The consolidated financial statements give retroactive effect to the
acquisition of Marine Drilling Companies, Inc. on September 13, 2001 in a
transaction accounted for as a pooling of interests, as described in Note 1 to
the consolidated financial statements. We did not audit the financial statements
of Marine Drilling Companies, Inc., which reflect total revenue of $264 million
for the year ended December 31, 2000. Those statements were audited by other
auditors whose report thereon has been furnished to us, and our opinion
expressed herein, insofar as it relates to the amounts included for Marine
Drilling Companies, Inc., is based solely on the report of other auditors. We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audits 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.

As discussed in Note 1 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, "Accounting for Goodwill and Other Intangible Assets".

PRICEWATERHOUSECOOPERS LLP

Houston, Texas
March 25, 2003

33

PRIDE INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEET

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

34

PRIDE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

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

35

PRIDE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

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

36

PRIDE INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

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

37

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Reporting

The consolidated financial statements include the accounts of Pride
International, Inc. and its wholly-owned and majority-owned subsidiaries (the
"Company" or "Pride"). All significant intercompany transactions and balances
have been eliminated in consolidation. Investments in which the Company owns
less than 50% and exercises significant influence are accounted for using the
equity method of accounting, and investments in which the Company does not
exercise significant influence are accounted for using the cost method of
accounting. Certain reclassifications have been made to prior years' amounts to
conform with the current year presentation.

In September 2001, Pride acquired Marine Drilling Companies, Inc.
("Marine") pursuant to a merger of Marine into a wholly owned subsidiary of
Pride. Approximately 58.7 million shares of Pride common stock were issued to
the former shareholders of Marine, which equaled approximately 44% of the
outstanding common shares of the combined company immediately following the
acquisition. The Marine merger was followed by a merger that changed Pride's
state of incorporation from Louisiana to Delaware. The acquisition of Marine was
accounted for as a pooling-of-interests for accounting and financial reporting
purposes. Under this method of accounting, the recorded historical carrying
amounts of the assets and liabilities of Pride and Marine are carried forward to
the financial statements of the combined company at recorded amounts, results of
operations of the combined company include the income and expenses of Pride and
Marine for the entire fiscal period in which the combination occurred, and the
historical results of operations of the separate companies for fiscal periods
prior to the combination are combined and reported as the historical results of
operations of the combined company. The results of operations of Pride and
Marine for periods prior to the combination that are included in the combined
company's recorded amounts are as follows (in thousands):

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments having maturities
of three months or less at the date of purchase to be cash equivalents.

Parts and Supplies

Parts and supplies consist of spare rig parts and supplies held for use in
operations and are valued at the lower of weighted average cost or estimated
market value.

Property and Equipment

Property and equipment are carried at original cost or adjusted net
realizable value, as applicable. Major renewals and improvements are capitalized
and depreciated over the respective asset's remaining useful life. Maintenance
and repair costs are charged to expense as incurred. When assets are sold or
retired, the remaining costs and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in income.

38

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For financial reporting purposes, depreciation of property and equipment is
provided using the straight-line method based upon expected useful lives of each
class of assets. Estimated useful lives of the assets for financial reporting
purposes are as follows:

Rigs and rig equipment have salvage values not exceeding 20% of the cost of
the rig or rig equipment.

Interest is capitalized on construction in progress at the interest rate on
debt incurred for construction or at the weighted average cost of debt
outstanding during the period of construction.

Goodwill

Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 142, which eliminates the amortization of
goodwill and requires that goodwill be reviewed annually for impairment. The
Company ceased amortizing goodwill on January 1, 2002, which was previously
amortized using the straight-line method over ten to fifteen years. The Company
performed an impairment test of goodwill in the fourth quarter of 2002 and
determined that the fair value exceeded the recorded cost as of December 31,
2002; accordingly, no impairment was recorded.

The Company's net earnings and net earnings per share, adjusted to exclude
goodwill amortization expense, for the years ended 2001 and 2000, are as
follows:

Long Lived Asset Impairment

Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets". This statement supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of", and the accounting and reporting

39

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

provisions of Accounting Principles Board ("APB") Opinion No. 30 "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". SFAS No. 144 retains the fundamental provisions of SFAS No. 121
and the basic requirements of APB No. 30; however, it establishes a single
accounting model to be used for long-lived assets to be disposed of by sale and
it expands the presentation of discontinued operations to include more disposal
transactions.

The Company performed an impairment test on certain specific rigs and
groups of rigs in the fourth quarter of 2002 and determined that the
undiscounted future cash flows based on expected day rates and utilization rates
exceeded the recorded cost as of December 31, 2002; accordingly, no impairment
was recorded.

Revenue Recognition

The Company recognizes revenue as services are performed based upon
contracted day rates and the number of operating days during the period. Revenue
from turnkey contracts is generally recognized upon completion. Anticipated
losses on turnkey contracts are recognized in operating results when known.
Mobilization fees received and costs incurred to mobilize a rig in connection
with a customer contract from one geographic area to another are deferred and
recognized over the term of such contract. Costs incurred to mobilize a rig
without a contract are expensed as incurred. Fees received for capital
improvements to rigs or other property and equipment are deferred and recognized
over the period of the related drilling contract. The costs of such capital
improvements are capitalized and depreciated over the useful lives of the
assets.

Rig Construction Contracts

The Company has historically only constructed drilling rigs for its own
use. At the request of some of its significant customers, the Company entered
into contracts to design, construct and mobilize specialized drilling rigs. The
Company also entered into contracts to operate the rigs on behalf of the
customers. Construction contract revenues and related costs are recognized using
the percentage of completion method. Revenues recognized in excess of (less
than) billings to the customer are accumulated and reported as part of other
assets (other long-term liabilities), which as of December 31, 2002 and 2001
were $28.4 million and $(23.0 million), respectively.

Beginning October 1, 2002, the Company's technical services group is
reported as a separate business segment, with the first three quarters of 2002
adjusted to reflect the change in presentation, which had no effect on
consolidated gross margin, earnings from operations or net earnings (loss).
Amounts related to prior periods were not significant.

Rig Certifications

The Company is required to obtain certifications from various regulatory
bodies in order to operate its offshore drilling rigs and must maintain such
certifications through periodic inspections and surveys. The costs associated
with obtaining and maintaining such certifications, including inspections and
surveys, drydock costs and remedial structural work to the rigs are deferred and
amortized over the corresponding certification periods.

Income Taxes

The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred tax liabilities and assets are determined
based on the difference between the financial statement and the tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the asset is recovered or the liability is settled.

40

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Foreign Currency Translation

The Company accounts for translation of foreign currency in accordance with
SFAS No. 52, "Foreign Currency Translation." The majority of the Company's
revenues and expenditures are denominated in U.S. dollars to limit the Company's
exposure to foreign currency fluctuations, resulting in the use of the U.S.
dollar as the functional currency. In addition, the Company's operations in
certain foreign jurisdictions are in "highly inflationary" economies resulting
in the use of the U.S. dollar as the functional currency. As a result, certain
assets and liabilities of foreign operations are translated at historical
exchange rates, revenues and expenses in these countries are translated at the
average rate of exchange for the period, and all translation gains or losses are
reflected in the period's results of operations. In those countries where the
U.S. dollar is not the functional currency, revenues and expenses are translated
at the average rate of exchange for the period, assets and liabilities are
translated at end-of-period exchange rates and all translation gains and losses
are included in accumulated other comprehensive loss within stockholders'
equity.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents and
trade receivables. The Company places its cash and cash equivalents in U.S.
Government securities and other high quality financial instruments. The Company
limits the amount of credit exposure to any one financial institution or issuer.
The Company's customer base consists primarily of major integrated and
government-owned international oil companies, as well as smaller independent oil
and gas producers. Management believes the credit quality of its customers is
generally high. The Company has in place insurance to cover certain exposure in
its foreign operations and provides allowances for potential credit losses when
necessary.

Venezuela has recently implemented exchange controls which, together with
recent employee dismissals and reorganization within Petroleos de Venezuela,
S.A. ("PDVSA"), have led to a slower rate of collection of trade receivables,
and which may limit the Company's ability to convert local currency to U.S.
dollars and transfer funds out of the country. Management believes that all such
receivables will ultimately be recovered.

Conditions Affecting Ongoing Operations

The Company's current business and operations are substantially dependent
upon conditions in the oil and gas industry and, specifically, the exploration
and production expenditures of oil and gas companies. The demand for contract
drilling and related services is influenced by oil and gas prices, expectations
about future prices, the cost of producing and delivering oil and gas,
government regulations and local and international political and economic
conditions. There can be no assurance that current levels of exploration and
production expenditures of oil and gas companies will be maintained or that
demand for the Company's services will reflect the level of such activities.

Stock-Based Compensation

The Company uses the intrinsic value based method of accounting for
stock-based compensation prescribed by APB No. 25 "Accounting for Stock Issued
to Employees" and related interpretations. Under this method, the Company
records no compensation expense for stock options granted when the exercise
price for options granted is equal to the fair market value of the Company's
stock on the date of the grant.

In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock Based Compensation-Transition and
Disclosure-an Amendment of FASB Statement No. 123". SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based compensation. The disclosure provisions of
SFAS No. 148 are effective immediately and require revised disclosures in both
annual and interim financial statements about the

41

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

method of accounting for stock-based compensation and the effect of the method
used on reported results. The Company has adopted the new disclosure
requirements for its fiscal year ended December 31, 2002, as reflected below.

Under SFAS No. 123, the fair value of stock-based awards is calculated
using option pricing models. The Company's calculations were made using the
Black-Sholes option pricing model with the following significant assumptions:

The weighted average fair values per share of options granted during the
years ended December 31, 2002, 2001 and 2000 were $7.94, $9.31 and $10.55,
respectively.

If the fair value based method of accounting prescribed by SFAS No. 123 had
been applied, the Company's pro forma net earnings (loss), net earnings (loss)
per share and stock-based compensation cost would approximate the amounts
indicated below. The effects of applying SFAS No. 123 in this pro forma
disclosure are not indicative of future amounts.

Derivative Instruments and Hedging

The Company accounts for derivative instruments and hedging activities in
accordance with SFAS No. 133, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" as amended by SFAS No. 138 (collectively "SFAS No.
133"). SFAS No. 133 requires that all derivative financial instruments,
including certain derivative instruments imbedded in other contracts, be
recognized in the balance sheet at fair value, and that changes in such fair
value be recognized in earnings unless specific hedging criteria are met. The
Company adopted SFAS No. 133, on January 1, 2001. Adoption of SFAS No. 133, has
not had nor is it expected to have a material impact on the Company's
consolidated results of operations or financial position.

42

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Management Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the U.S. requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, including realization of customer and
insurance receivables and resolutions of tax claims. While it is believed that
such estimates are reasonable, actual results could differ from those estimates.

New Accounting Pronouncements

In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of SFAS No. 13 and Technical Corrections." SFAS No.
145 eliminates the requirement that gains and losses from the extinguishment of
debt be aggregated and classified as extraordinary items and requires
sale-leaseback accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002. Upon adoption,
previously reported extraordinary items from the extinguishment of debt will be
combined with other income (expense) and the related tax provision (benefit)
will be reported with the income tax provision.

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 that is associated with an exit or disposal activity be
recognized when the liability is incurred. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002.

In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 elaborates on
required disclosures by a guarantor in its financial statements about
obligations under certain guarantees that it has issued and requires a guarantor
to recognize, at the inception of certain guarantees, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The provisions of
FIN No. 45 relating to initial recognition and measurement of guarantor
liabilities are effective for qualifying guarantees entered into or modified
after December 31, 2002. The disclosure provisions of FIN No. 45 for certain
guarantees are effective immediately.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB No. 51". FIN 46 requires a company
to consolidate a variable interest entity, as defined, when the company will
absorb a majority of the variable interest entity's expected losses, receive a
majority of the variable interest entity's expected residual returns, or both.
FIN No. 46 also requires certain disclosures relating to consolidated variable
interest entities and unconsolidated variable interest entities in which a
company has a significant variable interest. The disclosure provisions of FIN
No. 46 are effective for all financial statements issued after January 31, 2003.
The consolidation provisions of FIN No. 46 apply immediately to variable
interest entities created after January 31, 2003, and to variable interest
entities in which a company obtains an interest after January 31, 2003. With
respect to variable interest entities in which a company holds a variable
interest that is acquired before February 1, 2003, the consolidation provisions
are required to be applied no later than the company's first fiscal year or
interim period beginning after June 15, 2003.

SFAS Nos. 143, 145, 146 and FIN Nos. 45 and 46 are not expected to have a
material impact on the Company's consolidated financial position, results of
operations or cash flows when adopted.

43

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

The Company capitalizes interest applicable to the construction of
significant additions to property and equipment. For the years ended December
31, 2002, 2001 and 2000, total interest incurred was $134.5 million, $135.8
million and $113.4 million, respectively, of which $1.9 million, $19.0 million
and $11.2 million, respectively, was capitalized.

During the years ended December 31, 2002, 2001 and 2000, maintenance and
repair costs included in operating costs on the accompanying consolidated
statement of operations were $81.6 million, $85.2 million and $116.5 million,
respectively.

3. ACQUISITIONS

In February 2001, the Company acquired a second-generation semisubmersible
drilling rig (now the Pride North Sea) and a third-generation semisubmersible
drilling rig (now the Pride Venezuela) for $44.7 million in cash and 3.0 million
shares of the Company's common stock valued at $78.9 million.

In March 2001, the Company increased from 26.4% to 100% its ownership in a
joint venture that constructed two dynamically-positioned, deepwater
semisubmersible drilling rigs, the Pride Carlos Walter and the Pride Brazil. The
purchase consideration for the interests the Company did not previously own
consisted of approximately $86 million aggregate principal amount of senior
convertible notes, convertible into approximately 4.0 million shares of the
Company's common stock, which were issued to the Brazilian participant in the
joint venture, and 519,468 shares of the Company's common stock valued at
approximately $14 million, which were issued to two investment funds managed by
First Reserve Corporation pursuant to the funds' original investment in the
joint venture. The acquisition added to the Company's consolidated balance sheet
approximately $443 million of assets represented by the two rigs, approximately
$287 million of indebtedness incurred to finance the construction of the rigs
($215 million of which was outstanding as of December 31, 2002) and
approximately $86 million of convertible senior notes issued to the Brazilian
participant. See Note 4.

In July 2001, the Company acquired all the outstanding capital stock of
Almeria Austral S.A. and an affiliate ("Almeria") for aggregate consideration of
$48 million. Almeria operated 12 land drilling rigs in Argentina and two land
drilling rigs in Venezuela.

44

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In October 2002, the Company acquired Uniao Nacional De Perfuracao Limitada
("Unap") for aggregate consideration of $5.5 million. Unap manages one
land-based drilling rig and seven land-based workover rigs and provides
directional drilling and other related services onshore Brazil.

Each of the acquisitions discussed above was recorded using the purchase
method of accounting. The operating results of each acquisition have been
included in the Company's consolidated results of operations from the date of
the acquisition.

In September 2001, the Company acquired Marine in a stock-for-stock
transaction. Marine owned and operated a fleet of 17 offshore drilling rigs
consisting of two semisubmersible units and 15 jackup units. Additionally,
Marine owned one jackup rig configured as an accommodation unit. The acquisition
of Marine was accounted for as a pooling-of-interests for accounting and
financial reporting purposes. In connection with the acquisition, the estimated
remaining useful lives and residual values of certain rigs were reassessed and,
as a result, net income for 2001 increased $6.7 million (or $.05 per share on a
basic and diluted basis). The Company incurred pooling and merger costs totaling
$35.8 million associated with this acquisition which consisted of investment
advisory, legal and other professional fees of $24.4 million and costs
associated with the closure of duplicate office facilities and employee
terminations of $11.4 million. During 2002 and 2001, the Company paid $12.0
million and $22.9 million, respectively, of such fees and acquisition costs.

4. DEBT

Short-Term Borrowings

The Company has agreements with several banks for short-term lines of
credit primarily denominated in U.S. dollars. The facilities are renewable
annually and bear interest at variable rates based on LIBOR. The weighted
average interest rates on such borrowings at December 31, 2002 was 3.1%. As of
December 31, 2002, $17.7 million was outstanding under these facilities and
$34.1 million was available.

45

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-Term Debt

Long-term debt consists of the following:

Senior Secured Term Loan and Senior Secured Revolving Credit Facilities

In June 2002, the Company entered into senior secured credit facilities
with a group of banks providing for aggregate availability of up to $450.0
million, consisting of a five-year $200.0 million term loan and a three-year
$250.0 million revolving credit facility. Proceeds from the term loan were used
to refinance a portion of the amounts outstanding under other credit facilities.
Borrowings under the revolving credit facility are available for general
corporate purposes. The Company may issue up to $50.0 million of letters of
credit under the facility. As of December 31, 2002, $25.0 million of borrowings
and an additional $12.4 million of letters of credit were outstanding under the
facility. The facilities are collateralized by two deepwater semisubmersible
rigs, the Pride North America and the Pride South Pacific, and 28 jackup rigs.
Borrowings under the facilities currently bear interest at variable rates based
on LIBOR plus a spread based on the credit rating of the facility or, if
unrated, index debt. As of March 14, 2003, the spread was 3.5% for the term loan
and 2.6% for the revolving credit facility. The interest rate on the term loan
was 5.3% at December 31, 2002. The credit facilities contain provisions that
limit the ability of the Company and its subsidiaries, with certain exceptions,
to pay dividends or make other restricted payments and investments; incur
additional debt; create liens; incur dividend or other payment restrictions
affecting subsidiaries; consolidate, merge or transfer all or substantially all
of its assets; sell assets or subsidiaries; enter into speculative hedging
arrangements outside the ordinary course of business; enter into transactions
with affiliates; make maintenance capital expenditures and incur long-term
operating leases. The credit facilities also require the Company to comply with
specified financial tests, including a ratio of net debt to EBITDA, as defined,
an interest coverage ratio, a ratio of net debt to total capitalization and a
minimum net worth.

The Company also has a senior revolving credit facility with non-U.S. banks
that provides aggregate availability of up to $95.0 million. The credit facility
terminates in June 2005 and is collateralized by a

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PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

semisubmersible rig, the Pride South Atlantic, a jackup rig, the Pride Montana,
and a tender-assisted rig. Borrowings under the credit facility bear interest at
variable rates based on LIBOR plus a spread ranging from 1.00% to 1.55%. As of
December 31, 2002, there was $85.0 million outstanding under this credit
facility. Together with the revolving credit facility discussed above, the
Company had $222.6 million in aggregate availability under its senior revolving
credit facilities as of December 31, 2002.

9 3/8% Senior Notes due 2007

In May 1997, the Company issued $325.0 million principal amount of 9 3/8%
Senior Notes due May 1, 2007 (the "9 3/8% Senior Notes"). Interest on the 9 3/8%
Senior Notes is payable semi-annually on May 1 and November 1 of each year. The
9 3/8% Senior Notes are redeemable, in whole or in part, at the option of the
Company at redemption prices starting at 104.688% and declining to 100% by May
1, 2005. The indenture governing the 9 3/8% Senior Notes contains provisions
that limit the ability of the Company and its subsidiaries, with certain
exemptions, to pay dividends or make other restricted payments; incur additional
debt or issue preferred stock; create or permit to exist liens; incur dividend
or other payment restrictions affecting subsidiaries; consolidate, merge or
transfer all or substantially all of its assets; sell assets; enter into
transactions with affiliates and engage in sale and leaseback transactions.

10% Senior Notes due 2009

In May 1999, the Company issued $200.0 million principal amount of 10%
Senior Notes due June 1, 2009 (the "10% Senior Notes"). Interest on the 10%
Senior Notes is payable semi-annually on June 1 and December 1 of each year. The
10% Senior Notes are not redeemable prior to June 1, 2004, after which they will
be redeemable, in whole or in part, at the option of the Company at redemption
prices starting at 105% of the principal amount and declining to 100% by June 1,
2007. The indenture governing the 10% Senior Notes contains provisions that
limit the ability of the Company and its subsidiaries, with certain exemptions,
to pay dividends or make other restricted payments; incur additional debt or
issue preferred stock; create or permit to exist liens; incur dividend or other
payment restrictions affecting subsidiaries; consolidate, merge or transfer all
or substantially all of its assets; sell assets; enter into transactions with
affiliates and engage in sale and leaseback transactions.

Drillship Loans

In connection with the construction of two ultra-deepwater drillships, the
Pride Africa and the Pride Angola, the Company and the two joint venture
companies in which the Company has a 51% interest entered into financing
arrangements with a group of banks that provided $400 million of the drillships'
total cost of $495 million. The loans with respect to the Pride Africa and the
Pride Angola are non-recourse to the Company and the joint owner. As of December
31, 2002, $97.8 million was outstanding under the loans for the Pride Africa and
$134.2 million was outstanding under the loans for the Pride Angola. The loans
are being repaid from the proceeds of the related charter contracts in
semi-annual installments of principal and interest through December 2006 and
July 2007 for the Pride Africa and Pride Angola, respectively. The payment terms
of the Pride Angola loan were extended from July 2005 to July 2007 when the
customer extended the drilling contract to five years in February 2002. The
drillship loans bear interest at LIBOR plus 1.10% to 1.25%. As a condition of
the drillship loans, the Company entered into interest rate swap and cap
agreements with the lenders that fixed the interest rate on the Pride Africa
loan at 7.34% through December 2006, fixed the interest rate on the Pride Angola
loan at 6.52% through January 2003 and capped the interest rate on the Pride
Angola loan at 6.52% from February 2003 to January 2007. As a result, the
drillship loans had a weighted average interest rate of 6.9% at December 31,
2002. Such swap and cap agreements are not considered derivatives because (1)
the swap and cap agreements were required by the lenders under the drillship
loans; (2) the Company believes that such loans would not have been available to
the Company without the related swap and cap agreements; and (3) the drillship
loans prohibit the Company from selling or

47

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

transferring the swap and cap agreements without the consent of the lenders, and
the Company does not believe that the lenders would grant such consent as long
as any principal amounts are outstanding. In accordance with the debt
agreements, certain cash balances are held in trust to assure that timely
interest and principal payments are made. At December 31, 2002 and 2001, $34.3
million and $48.4 million, respectively, of such cash balances, which amount is
included in restricted cash, was held in trust and is not available for use by
the Company.

Semisubmersible Loans

In July 2001, the Company entered into a credit agreement with a group of
foreign banks to provide loans totaling up to $250 million to refinance the
construction loans for the Pride Carlos Walter and Pride Brazil. Borrowings
under the facility bear interest at rates based on LIBOR plus an applicable
margin of 1.50% to 1.85%. Principal and interest are payable semi-annually from
March 2002 through 2008. Funding under the facility and repayment of the
construction loans (which had interest rates of 11% per annum) was completed in
November 2001. As required by the lenders under the facility, the Company
entered into interest rate swap and cap agreements with the lenders that capped
the interest rate on $50.0 million of the debt at 7% and which fixed the
interest rate on the remainder of the debt at 5.58% through September 2006. Such
swap and cap agreements are not considered derivatives because (1) the swap and
cap agreements were required by the lenders under the facility agreement; (2)
the Company believes that such credit facility would not have been available to
the Company without the related swap and cap agreements; and (3) the credit
facility prohibits the Company from selling or transferring the swap and cap
agreements without the consent of the lenders, and the Company does not believe
that the lenders would grant such consent as long as any principal amounts are
outstanding. The new loans are collateralized by, among other things, a first
priority mortgage on the drilling rigs and assignment of the charters for the
rigs. The debt agreement requires certain cash balance to be held in trust to
assure that timely interest and principal payments are made. At December 31,
2002 and 2001, $16.0 million and $4.6 million, respectively, of such cash
balances, which amount is included in restricted cash, was held in trust and is
not available for use by the Company.

2 1/2% Convertible Senior Notes Due 2007

In March 2002, the Company issued $300.0 million principal amount of 2 1/2%
convertible senior notes due March 1, 2007. The net proceeds to the Company,
after deducting underwriting discounts and offering costs, were $291.5 million.
The notes are convertible into approximately 18.2 million shares of common stock
of the Company (equal to a conversion rate of 60.5694 shares of common stock per
$1,000 principal amount, or $16.51 per share). Interest on the notes is payable
semiannually on March 1 and September 1 of each year. On or after March 4, 2005,
the notes are redeemable at the Company's option, in whole or in part, for cash
at redemption prices starting at 101% and declining to 100% by March 1, 2007, in
each case plus accrued and unpaid interest. The Company may redeem some or all
of the notes at any time prior to March 4, 2005 at 100% of the principal amount,
plus accrued and unpaid interest and an amount equal to 7.5% of the principal
amount, less the amount of any interest actually paid on the notes on or prior
to the redemption date, if the closing price of the Company's common stock has
exceeded 150% of the conversion price per share then in effect for at least 20
trading days within a period of 30 consecutive trading days. In connection with
the issuance of the notes, a private equity fund related to First Reserve
Corporation purchased 7.9 million shares of the Company's common stock from
third parties. First Reserve manages private equity funds that specialize in the
energy industry.

Zero Coupon Convertible Senior Debentures Due 2021

In January 2001, the Company issued zero coupon convertible senior
debentures due January 16, 2021 with a face amount of $431.5 million. The net
proceeds to the Company in connection with the sale, after deducting
underwriting discounts and offering expenses, amounted to approximately $254.5
million. The issue

48

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

price of $608.41 for each debenture represents a yield to maturity of 2.50% per
annum (computed on a semiannual bond equivalent basis) calculated from the issue
date. The difference between the issue price and face amount of the debentures
is recorded as a discount and amortized to interest expense using the effective
interest method over the term of the debentures.

During 2002, the Company purchased on the open market and then extinguished
$277.9 million face amount of the debentures. The total purchase price was
$172.8 million and the accreted value of the debentures, less unamortized
deferred offering costs, was $171.9 million, resulting in an extraordinary loss
after estimated income taxes of $.6 million. As of December 31, 2002, the
outstanding debentures had a face amount of $153.6 million. In January 2003, the
Company purchased all of the outstanding zero coupon convertible senior
debentures for $98.2 million.

Zero Coupon Convertible Subordinated Debentures Due 2018

In April 1998, the Company issued zero coupon convertible subordinated
debentures due April 24, 2018 with a face amount of $588.1 million. The net
proceeds to the Company in connection with the sale, after deducting
underwriting discounts and offering expenses, amounted to approximately $222.6
million. The issue price of $391.06 for each debenture represents a yield to
maturity of 4.75% per annum (computed on a semiannual bond equivalent basis)
calculated from the issue date. The difference between the issue price and face
amount of the debentures is recorded as a discount and amortized to interest
expense using the effective interest method over the term of the debentures. The
debentures are convertible into shares of common stock of the Company at a
conversion rate of 13.794 shares of common stock per $1,000 principal amount at
maturity. The Company will become obligated to purchase the debentures, at the
option of the holders, in whole or in part, on April 24, 2003, 2008 and 2013 at
a price per debenture equal to the issue price plus accrued original issue
discount to the relevant purchase date, settled either in cash, common stock or
a combination thereof at the option of the Company. On or subsequent to April
24, 2003, the debentures are redeemable at the option of the Company, in whole
or in part, for cash at a price equal to the issue price plus accrued original
issue discount to the date of redemption.

During 2001, the Company purchased on the open market and then extinguished
$129.1 million face amount of the debentures. The total purchase price was $56.2
million and the accreted value of the debentures, less unamortized deferred
offering costs, was $58.2 million, resulting in an extraordinary gain after
estimated income taxes of $1.3 million.

During 2002, the Company purchased on the open market and then extinguished
$153.3 million face amount of the debentures. The total purchase price was $72.7
million and the accreted value of the debentures, less unamortized deferred
offering costs, was $72.3 million, resulting in an extraordinary loss after
estimated income taxes of $.2 million. As of December 31, 2002, the outstanding
debentures had a face amount of $228.6 million.

Senior Convertible Notes Payable

In March 2001, in connection with the acquisition of the interests the
Company did not previously own in the Pride Carlos Walter and the Pride Brazil,
the Company issued approximately $86 million aggregate principal amount of
senior convertible notes. The notes, which mature in March 2004 and bear
interest at 9% per annum, are convertible into approximately 4.0 million shares
of the Company's common stock.

Limited-Recourse Collateralized Term Loans

The limited-recourse collateralized term loans are collateralized by two of
the Company's drilling/ workover barge rigs, the Pride I and the Pride II, and
related charter contracts. The loans are being repaid from the proceeds of the
related charter contracts in equal monthly installments of principal and
interest

49

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

through July 2004. These loans are non-interest bearing and have implied
interest rates of 9.61%. In addition, a portion of contract proceeds is being
held in trust to assure that timely payment of future debt service obligations
is made. At December 31, 2002 and 2001, $2.4 million of such contract proceeds,
which amount is included in restricted cash, was being held in trust as security
for the lenders and is not available for use by the Company.

Note Payable to Seller

In connection with the acquisition in April 2000 of Services Especiales San
Antonio S.A. ("San Antonio"), which is included in the Company's E&P services
division, the Company issued a $26.0 million promissory note to the seller. The
note was settled in full in June 2002.

Future Maturities

Future maturities of long-term debt at December 31, 2002 are as follows:

As of December 31, 2002, the fair value of long-term debt was approximately
$1,962 million.

The Company purchased for cash all outstanding zero coupon convertible
senior debentures due 2021 during January 2003. As required by the terms of the
Company's zero coupon convertible subordinated debentures due 2018, the Company
has made an offer to purchase the debentures for cash on April 24, 2003 at a
price per debenture equal to the issue price plus accrued original issue
discount to the purchase date. The debentures are convertible at any time into
shares of the Company's common stock at a conversion rate of 13.794 shares of
common stock per $1,000 principal amount at maturity, which represents a
conversion price of $28.35 per share. The closing price of the Company's common
stock on the New York Stock Exchange on March 14, 2003 was $13.11 per share.
Based on current market conditions, the Company believes that it will likely be
required to purchase all debentures outstanding on the initial put date. The
accreted price on such put date of the debentures outstanding as of December 31,
2002 is $113.2 million. The future maturities of long-term debt in 2005 included
in the above table reflect the accreted amount of both series of debentures as
of December 31, 2002. These debentures are classified as long-term debt based on
the Company's ability and intent to refinance the debentures using its existing
senior credit facilities maturing in 2005 and available cash.

5. LEASES

In February 1999, the Company completed the sale and leaseback of the Pride
South America semisubmersible drilling rig with an unaffiliated entity pursuant
to which it received $97.0 million as the sales price. The excess of funding
over net book value of the rig has been deferred and is being amortized as a
reduction of lease expense over the lease term. The lease is for a maximum term
of 13.5 years, and the Company has options to purchase the rig at the end of 8.5
years and at the end of the maximum term. The lease has been classified as an
operating lease for financial statement purposes. Rent expense on the rig ranges
from $11.7 million to $15.9 million annually.

50

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company has agreements with an unaffiliated financial institution for
the sale and leaseback of up to $22.0 million of equipment to be used in the
Company's business. The Company has received aggregate proceeds of $15.9 million
pursuant to these facilities attributable to two offshore platform rigs placed
in service in 1996. The Company has purchase and lease renewal options at
projected future fair market values under the agreements. The leases have been
classified as operating leases for financial statement purposes. The excess of
funding over net book value has been deferred and is being amortized as a
reduction of lease expense over the maximum lease term of five years. Rent
expense on these transactions total $3.1 million annually.

Rental expense for operating leases for equipment, vehicles and various
facilities of the Company for the years ended December 31, 2002, 2001 and 2000
were $41.1 million, $48.8 million and $39.4 million, respectively.

The Company has capital lease obligations pursuant to sale and leaseback
agreements or financing arrangements with unaffiliated entities for three
platform rigs and offices in France. The obligations are payable in semiannual
installments through June 2006 and bear interest at a weighted average rate of
7.8%.

Future maturities of capital lease obligations, net of interest, at
December 31, 2002 are as follows:

6. FINANCIAL INSTRUMENTS

The Company's operations are subject to foreign exchange risks, including
the risks of adverse foreign currency fluctuations and devaluations and of
restrictions on currency repatriation.

The Company limits the risks of adverse currency fluctuations and
restrictions on currency repatriation by obtaining contracts providing for
payment in U.S. dollars or freely convertible currency. To the extent possible,
the Company limits its exposure to potentially devaluating currencies by
matching its acceptance of local currencies to its expense requirements in those
currencies. Moreover, the Company enters into forward exchange contracts and
option contracts to manage foreign currency exchange risk associated with its
Euro-denominated expenses. These forward exchange contacts and option contracts
have not been designated as hedging instruments under SFAS No. 133, as the
forward or option contracts are not systematically identified as being the hedge
of specific expenditures at inception.

Currency option contracts existing at December 31, 2002 consist of U.S.
dollar calls/Euro puts sold by the Company. These contracts provide an economic
hedge of the Company's exposure to fluctuations in the value of the Euro
relative to the U.S. dollar. If the U.S. dollar strengthens during the period of
the contracts, the counterparties will likely exercise their options and deliver
Euro for U.S. dollars at the predetermined rate. In this case, the premium on
the contract will offset part of the difference between the contractual strike
rate on the option and the spot U.S. dollar/Euro rate at which the Company could
otherwise have sold its U.S. dollars for Euro. If the U.S. dollar falls below
the strike rate, the counterparties will tend not to exercise their options. In
this case, the premium will partially offset the negative effect to the Company
of the increase in the

51

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

U.S. dollar equivalent of its Euro-denominated expenditures. The counterparties
to these contracts are all major European banks.

The unrealized loss on all forward exchange contracts and option contracts
based on quoted market prices of comparable instruments was approximately $1.0
million and $6.6 million at December 31, 2002 and 2001, respectively. The net
realized and unrealized gains (losses) on all forward and option contracts,
included in other income (expense) for the years ended December 31, 2002, 2001
and 2000, were approximately $4.8 million, $(0.1) million and $(3.3) million,
respectively.

The following table summarizes forward exchange contracts and option
contracts outstanding at December 31, 2002:

The value of forward exchange contracts and option contracts upon ultimate
settlement is dependent upon actual currency exchange rates at the various
maturity or exercise dates. Upon maturity of forward exchange contracts, the
Company delivers U.S. dollars and receives the Euro at the contractual rate or
may pay or receive cash based on the notional amounts of the contracts and the
difference between the contractual and market exchange rates on the maturity
dates. In the case of sales of U.S. dollar call options, the Company is obliged
to accept the Euro in exchange for U.S. dollars at the contractual rate on the
exercise date notified by the counterparty or, by agreement, may pay cash based
on the notional amounts of the contracts and the excess of market exchange rates
over the contractual exchange rates on the exercise date.

7. INCOME TAXES

The components of the income tax provision were as follows:

52

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The difference between the effective federal income tax rate reflected in
the income tax provision and the amounts which would be determined by applying
the statutory federal tax rate to earnings before income taxes and minority
interest is summarized as follows:

The domestic and foreign components of earnings before income taxes and
minority interest were as follows:

The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities and deferred tax assets were as
follows:

Applicable U.S. deferred income taxes and related foreign dividend
withholding taxes have not been provided on approximately $388.0 million of
undistributed earnings and profits of the Company's foreign subsidiaries. The
Company considers such earnings to be permanently reinvested outside the United
States. It is not practicable to estimate the amount of deferred income taxes
associated with these unremitted earnings.

53

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 2002, the Company had deferred tax assets of $217.1
million relating to $624.3 million of net operating loss ("NOL") carryforwards
and had $28.0 million of non-expiring Alternative Minimum Tax ("AMT") credits.
The NOL carryforwards and AMT credits can be used to reduce the Company's
federal and foreign income taxes payable in future years. The Company's ability
to realize the entire benefit of its deferred tax assets requires that the
Company achieve certain future earnings levels prior to the expiration of its
NOL carryforwards. U.S. NOL carryforwards total $523.8 million and expire in
2019 through 2022. Foreign NOL carryforwards include $41.9 million which do not
expire and $58.6 million which expire in 2003 through 2013. The Company has
recognized a partial valuation allowance due to the uncertainty of realizing
certain foreign NOL carryforwards. The Company could be required to record an
additional valuation allowance against certain or all of its remaining deferred
tax assets if market conditions deteriorate or future earnings are below current
estimates.

In connection with the acquisition of Marine, the Company determined that
certain NOL carryforwards and AMT credits are subject to limitation under
Sections 382 and 383 of the U.S. Internal Revenue Code as a result of the
greater than 50% cumulative change in the Company's ownership. However, the
Company has determined that such limitations should not affect its ability to
realize the benefits of the deferred tax assets associated with such NOL
carryforwards and AMT credits.

8. NET EARNINGS PER SHARE

Basic net earnings per share has been computed based on the weighted
average number of shares of common stock outstanding during the applicable
period. Diluted net earnings per share has been computed based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period, as if stock options, convertible debentures and
other convertible debt were converted into common stock, after giving
retroactive effect to the elimination of interest expense, net of income tax
effect, applicable to the convertible debentures and other convertible debt.

54

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents information necessary to calculate basic and
diluted net earnings per share:

The calculation of diluted weighted average shares outstanding excludes
34.3 million, 13.2 million and 13.1 million common shares issuable pursuant to
outstanding options, convertible notes and debentures for the years ended
December 31, 2002, 2001 and 2000, respectively, because their effect was
antidilutive.

9. EMPLOYEE BENEFITS

The Company has 401(k) defined contribution plans for its employees, which
allow eligible employees to defer up to 15% of their eligible annual
compensation, with certain limitations. The Company may at its discretion match
up to 100% of the first 6% of compensation. The Company's contributions to the
plan for the years ended December 31, 2002, 2001 and 2000 were $1.6 million,
$3.5 million and $2.9 million, respectively.

The Company has a deferred compensation plan, which provides its officers
and key employees with the opportunity to participate in an unfunded,
non-qualified plan. Eligible employees may defer up to 100% of compensation,
including bonuses and net proceeds from the exercise of stock options.

10. STOCKHOLDERS' EQUITY

Preferred Stock

The Company is authorized to issue 50 million shares of preferred stock,
par value $0.01 per share. The Company's board of directors has the authority to
issue shares of preferred stock in one or more series and to fix the number of
shares, designations and other terms of each series. The board of directors has
designated 4.0 million shares of preferred stock to constitute the Series A
Junior Participating Preferred Stock in

55

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

connection with the Company's stockholders' rights plan. As of December 31,
2002, no shares of preferred stock are outstanding.

Common Stock

In March 2000, the Company issued 4.5 million shares of common stock to a
fund managed by First Reserve Corporation for approximately $72.0 million in
order to finance the $35.0 million cash portion of the consideration paid for
San Antonio (which constitutes the Company's E&P services division) and to
improve the Company's overall liquidity.

In 2000, the Company established the Pride International, Inc. Direct Stock
Purchase Plan, which provides a convenient way for investors to purchase shares
of its common stock without paying brokerage commissions or service charges. For
the years ended December 31, 2001 and 2000, the Company sold 2.6 million shares
for $62.0 million and 2.3 million shares for $54.4 million, respectively. There
were no shares sold under the plan in 2002.

In February 2001, the Company issued 3.0 million shares of common stock
valued at $78.9 million in connection with the acquisition of the Pride North
Sea and the Pride Venezuela.

In March 2001, the Company issued 519,468 shares of common stock valued at
approximately $14.0 million to investment funds managed by First Reserve
Corporation in connection with the Company's acquisition of the funds' equity
ownership interest in the Pride Carlos Walter and Pride Brazil (see Note 3).

In October 2002, the Company issued 527,652 shares of common stock to two
funds managed by First Reserve in exchange for an additional 11.9% investment in
the Amethyst joint venture. Subsequently, in November 2002 the other joint
venture partner exercised its option to acquire up to 70% of the interest
acquired by the Company, in exchange for 369,356 shares of the Company's common
stock. The shares of Company common stock acquired in the exchange are currently
held as treasury shares.

Stockholders' Rights Plan

The Company has a preferred share purchase rights plan. Under the plan,
each share of common stock includes one right to purchase preferred stock. The
rights will separate from the common stock and become exercisable (1) ten days
after public announcement that a person or group of affiliated or associated
persons has acquired, or obtained the right to acquire, beneficial ownership of
15% of the Company's outstanding common stock or (2) ten business days following
the start of a tender offer or exchange offer that would result in a person's
acquiring beneficial ownership of 15% of the Company's outstanding common stock.
A 15% beneficial owner is referred to as an "acquiring person" under the plan.
Certain investment funds managed by First Reserve Corporation, their affiliates
and certain related parties currently have the right to acquire beneficial
ownership of up to 19% of the Company's common stock without becoming an
acquiring person under the plan.

The Company's board of directors can elect to delay the separation of the
rights from the common stock beyond the ten-day periods referred to above. The
plan also confers on the board the discretion to increase or decrease the level
of ownership that causes a person to become an acquiring person. Until the
rights are separately distributed, the rights will be evidenced by the common
stock certificates and will be transferred with and only with the common stock
certificates.

After the rights are separately distributed, each right will entitle the
holder to purchase from the Company one one-hundredth of a share of Series A
Junior Participating Preferred Stock for a purchase price of $50. The rights
will expire at the close of business on September 30, 2011, unless the Company
redeems or exchanges them earlier as described below.

56

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

If a person becomes an acquiring person, the rights will become rights to
purchase shares of the Company's common stock for one-half the current market
price, as defined in the rights agreement, of the common stock. This occurrence
is referred to as a "flip-in event" under the plan. After any flip-in event, all
rights that are beneficially owned by an acquiring person, or by certain related
parties, will be null and void. The Company's board of directors has the power
to decide that a particular tender or exchange offer for all outstanding shares
of the Company's common stock is fair to and otherwise in the best interests of
its stockholders. If the board makes this determination, the purchase of shares
under the offer will not be a flip-in event.

If, after there is an acquiring person, the Company is acquired in a merger
or other business combination transaction or 50% or more of the Company's
assets, earning power or cash flow are sold or transferred, each holder of a
right will have the right to purchase shares of the common stock of the
acquiring company at a price of one-half the current market price of that stock.
This occurrence is referred to as a "flip-over event" under the plan. An
acquiring person will not be entitled to exercise its rights, which will have
become void.

Until ten days after the announcement that a person has become an acquiring
person, the Company's board of directors may decide to redeem the rights at a
price of $0.01 per right, payable in cash, shares of common stock or other
consideration. The rights will not be exercisable after a flip-in event until
the rights are no longer redeemable.

At any time after a flip-in event and prior to either a person's becoming
the beneficial owner of 50% or more of the shares of common stock or a flip-over
event, the Company's board of directors may decide to exchange the rights for
shares of common stock on a one-for-one basis. Rights owned by an acquiring
person, which will have become void, will not be exchanged.

Stock Option Plans

The Company has a long-term incentive plan which provides for the granting
or awarding of stock options, restricted stock, stock appreciation rights and
stock indemnification rights to officers and other key employees. The number of
shares authorized and reserved for issuance under the long-term incentive plan
is limited to 10% of total issued and outstanding shares, subject to adjustment
in the event of certain changes in the Company's corporate structure or capital
stock. Stock options may be exercised in whole or in part within 60 days of
termination of employment or one year after retirement, total disability or
death of an employee.

Options granted under the long-term incentive plan prior to 1998 were
vested 25% immediately, 50% after one year, 75% after two years and 100% after
three years. Options granted in 1998 were vested 20% after one year, 40% after
two years, 60% after three years, 80% after four years and 100% after five
years. Options granted in 1999 and thereafter were vested 20% immediately, 40%
after six months, 60% after 18 months, 80% after two years and 100% after 30
months.

In 1993, the shareholders of the Company approved and ratified the 1993
Directors' Stock Option Plan. The purpose of the plan is to afford the Company's
directors who are not full-time employees of the Company or any subsidiary of
the Company an opportunity to acquire a greater proprietary interest in the
Company. A maximum of 400,000 shares of the Company's common stock has been
reserved for issuance upon the exercise of options granted pursuant to the plan.
The exercise price of options is the fair market value per share on the date the
option is granted. Directors' stock options vest over two years at the rate of
50% per year and expire ten years from date of grant.

Pursuant to the merger agreement with Marine, all options to acquire Marine
common stock under various Marine stock option plans were deemed to be options
to acquire the same number of shares of the Company's common stock and all
Marine options became fully vested and exercisable pursuant to the "change of
control" provisions of the Marine stock option plans.

57

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Employee and director stock option transactions for the last three years
are summarized as follows:

The following table summarizes information on stock options outstanding and
exercisable at December 31, 2002 pursuant to the employee stock option plans:

The following table summarizes information on stock options outstanding and
exercisable at December 31, 2002 pursuant to the directors' stock option plan:

11. COMMITMENTS AND CONTINGENCIES

In April 2002, the Company contributed $14.1 million to the settlement of a
wage-related antitrust lawsuit, of which $5.1 million, not within the policy
limits of the Company's insurance, had previously been recognized in 2001. The
Company's insurance carrier has not yet agreed to pay the remaining amount, and
the Company has commenced litigation against this insurer. The Company believes
it will prevail in this matter

58

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and collect the approximately $10.2 million receivable, representing the insured
settlement amount and legal costs, included in other assets in the accompanying
balance sheet.

Since the second quarter of 2002, Venezuela has experienced political and
economic turmoil, including prolonged labor strikes, demonstrations and an
attempt to overthrow the government. Much of the turmoil has negatively impacted
PDVSA, which is the Company's principal customer in Venezuela, and led to the
dismissal of more than 12,000 PDVSA employees by 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
continuing to have an adverse effect on the Company's business. Currently 17 of
the Company's 47 rigs in the country are working. Venezuela has also recently
implemented exchange controls, which, together with recent employee dismissals
and reorganization within PDVSA, have led to a slower rate of collection of the
Company's trade receivables and could limit the Company's ability to convert
local currency into U.S. dollars and transfer funds out of Venezuela. The
exchange controls could result in an artificially high value being placed on the
local currency.

The Company is routinely involved in other litigation, claims and disputes
incidental to its business, which at times involves claims for significant
monetary amounts, some of which would not be covered by insurance. In the
opinion of management, none of the existing litigation will have a material
adverse effect on the Company's financial position, results of operations or
cash flows.

12. INVESTMENT IN AMETHYST JOINT VENTURE

As of December 31, 2002, the Company had a 30.0% equity interest in a joint
venture company that is constructing two dynamically-positioned, deepwater
semisubmersible drilling rigs, currently referred to as the Amethyst 4 and
Amethyst 5. In October 2002, two funds managed by First Reserve Corporation that
collectively held an 11.9% interest in the joint venture transferred their
interests to the Company in exchange for a total of 527,652 shares of the
Company's common stock. Subsequently, in November 2002, the other joint venture
partner exercised its option to acquire 70% of the interest acquired by the
Company in the First Reserve exchange, which reduced the Company's interest to
30%. The exercise price of that option was 369,356 shares of the Company's
common stock. As a result of the exchange and other purchases of the Company's
common stock by First Reserve managed funds, First Reserve funds owned as of
December 31, 2002 approximately 20.0 million shares of the Company's common
stock, or approximately 15% of the total shares outstanding.

The Amethyst 4 and Amethyst 5 are being constructed at a shipyard in Maine.
The Company anticipates that the construction of the rigs will be completed in
late 2003. The joint venture company has financed 87.5% of the cost of
construction of these rigs through credit facilities, with repayment of the
borrowings under those facilities guaranteed by the United States Maritime
Administration ("MARAD"). Advances under the credit facilities are being
provided without recourse to any of the joint venture owners. The remaining
12.5% of the cost of construction is being provided by the joint venture company
from equity contributions that have been made by the joint venture partners.
Through December 31, 2002, the Company's equity contributions to the joint
venture totaled $29.6 million, including capitalized interest of $6.1 million.
Based on the availability of funds under performance and payment bonds issued on
behalf of a prior construction contractor and draws remaining under the
MARAD-guaranteed credit facilities, the Company believes the Amethyst 4 and
Amethyst 5 will be completed without requiring additional contributions by the
joint venture partners.

59

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13. SUPPLEMENTAL FINANCIAL INFORMATION

Other Current Assets

Other current assets consists of the following:

Other Assets

Other assets consists of the following:

Accrued Expenses

Accrued expenses consists of the following:

60

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other Long-Term Liabilities

Other long-term liabilities consists of the following:

Other Income (Expense), net

Other income (expense), net consists of the following:

Cash Flow Information

Supplemental cash flow and non-cash transactions are as follows:

61

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. FINANCIAL DATA OF DOMESTIC AND INTERNATIONAL OPERATIONS

The following table sets forth certain consolidated information with
respect to the Company by operating segment:

62

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table sets forth certain information with respect to the
Company by geographic area:

Revenue is classified in geographic areas based on the physical location of
the rigs. Transactions between reportable segments are accounted for consistent
with revenue and expense of external customers and are eliminated in
consolidation.

Significant Customers

Two customers accounted for approximately 16% and 12%, respectively, of
consolidated revenue for the year ended December 31, 2002, which amounts are
included in South America and Other International geographic segments,
respectively. One customer accounted for approximately 11% of consolidated
revenue for the years ended December 31, 2001 and 2000, which amounts are
included in the South America geographic segment for the respective years.

63

PRIDE INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Summarized quarterly financial data for the years ended December 31, 2002
and 2001 were as follows:

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

(1) Includes revenues of $15.7 million, $26.0 million and $26.5 million for the
first, second and third quarters, respectively, to reflect the separate
presentation of the technical services segment. See Note 1.

64

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

There have been no changes in or disagreements with our independent
accountants regarding accounting and financial disclosure matters.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item is incorporated by reference to our
definitive proxy statement, which is to be filed with the SEC pursuant to the
Securities Exchange Act of 1934 within 120 days of the end of our fiscal year on
December 31, 2002.

Information with respect to our executive officers is set forth under the
caption "Executive Officers of the Registrant" in Part I of this annual report.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to our
definitive proxy statement, which is to be filed with the SEC pursuant to the
Exchange Act within 120 days of the end of our fiscal year on December 31, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference to our
definitive proxy statement, which is to be filed with the SEC pursuant to the
Exchange Act within 120 days of the end of our fiscal year on December 31, 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference to our
definitive proxy statement, which is to be filed with the SEC pursuant to the
Exchange Act within 120 days of the end of our fiscal year on December 31, 2002.

ITEM 14. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our President and Chief Executive Officer and our Vice President and
Chief Financial Officer, of the effectiveness of our disclosure controls and
procedures pursuant to Rule 13a-14 under the Exchange Act. In the course of this
evaluation, management considered certain internal control areas in which we
have made and are continuing to make changes to improve and enhance controls.
Based upon that evaluation, our President and Chief Executive Officer and our
Vice President and Chief Financial Officer concluded that our disclosure
controls and procedures are effective, in all material respects, with respect to
the recording, processing, summarizing and reporting, within the time periods
specified in the SEC's rules and forms, of information required to be disclosed
by us in the reports that we file or submit under the Exchange Act.

Beginning with the year ending December 31, 2003, Section 404 of the
Sarbanes-Oxley Act of 2002, will require us to include an internal controls
report with our annual report on Form 10-K. The internal controls report must
assert (i) management's responsibilities to establish and maintain adequate
internal controls and procedures for financial reporting and (ii) management's
conclusions as to the effectiveness of these internal controls and procedures,
based on management's evaluation of them at year end. Our auditors will be
required to attest to and report on these assertions. In order to achieve
compliance with Section 404 within the statutory period, management has formed
an internal controls steering committee and adopted a detailed project work plan
to assess the adequacy of our internal controls, remediate any control
weaknesses that may be identified, validate through testing that controls are
functioning as documented and implement a continuous reporting

65

and improvement process for internal controls. As a result of this initiative,
we may make changes in our internal controls from time to time during the period
prior to December 31, 2003. There have been no significant changes in our
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of the evaluation referred to above.

PART IV

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

(a) The following documents are included as part of this report:

(1) Financial Statements:

(2) Consolidated Financial Statement Schedules:

All financial statement schedules have been omitted because they are not
applicable or not required, or the information required thereby is included in
the consolidated financial statements or the notes thereto included in this
annual report.

(3) Exhibits:

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

* Filed herewith.

+ Compensatory plan, contract or arrangement.

(b) Reports on Form 8-K

We filed no current reports on Form 8-K during the fourth quarter of 2002.

69

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, IN THE CITY OF
HOUSTON, STATE OF TEXAS, ON MARCH 28, 2003.

PRIDE INTERNATIONAL, INC.

By: /s/ PAUL A. BRAGG
------------------------------------
Paul A. Bragg
President, Chief Executive Officer and
Director

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES INDICATED ON MARCH 28, 2003.

70

CERTIFICATIONS

I, Paul A. Bragg, certify that:

1. I have reviewed this annual report on Form 10-K of Pride International,
Inc.;

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.

Date: March 28, 2003

By: /s/ PAUL A. BRAGG
--------------------------------------------------------
Paul A. Bragg
President and Chief Executive Officer

71

I, Earl W. McNiel, certify that:

1. I have reviewed this annual report on Form 10-K of Pride International,
Inc.;

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.

Date: March 28, 2003

By: /s/ EARL W. MCNIEL
--------------------------------------------------------
Earl W. McNiel
Vice President and Chief Financial Officer

72

EXHIBIT INDEX

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

* Filed herewith.

+ Compensatory plan, contract or arrangement.