PRIDE INTERNATIONAL INC - 10-Q Quarterly Report

Back to GetFilings.com

================================================================================

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

----------

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

OR

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

COMMISSION FILE NUMBER: 1-13289

----------

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)

(713) 789-1400
(Registrant's telephone number, including area code)

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 whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). YES [X] NO [ ]

Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practical date.

Outstanding as of August 12, 2003
Common Stock, par value $.01 per share 135,119,806

================================================================================

PRIDE INTERNATIONAL, INC.

INDEX

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PRIDE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUES)

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

2

PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

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

3

PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

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

4

PRIDE INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

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

5

PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

Principles of Consolidation and Reporting

The unaudited consolidated financial statements included herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and note disclosures normally
included in financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted pursuant to such rules and regulations. Certain
reclassifications have been made to the prior periods' condensed financial
statements to conform with the current period presentation. Effective January 1,
2003, the Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 145, which eliminates the requirement that gains and losses from the
extinguishment of debt be aggregated and classified as extraordinary items.
Accordingly, the consolidated statement of operations for the three months and
six months ended June 30, 2002 reflect reclassifications of $155,000 and
$609,000, respectively, from extraordinary item into other, net and tax
provision. These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
of Pride International, Inc. (the "Company" or "Pride") included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002.

In the opinion of management, the unaudited consolidated financial
information included herein reflects all adjustments, consisting only of normal
recurring adjustments, which are necessary for a fair presentation of the
Company's financial position, results of operations and cash flows for the
interim periods presented. The results of operations for the interim periods
presented herein are not necessarily indicative of the results to be expected
for a full year or any other interim period.

PricewaterhouseCoopers LLP, the Company's independent accountants, have
performed a review of the unaudited consolidated financial statements included
herein in accordance with standards established by the American Institute of
Certified Public Accountants. Pursuant to Rule 436(c) under the Securities Act
of 1933, the report of PricewaterhouseCoopers LLP, included herein, should not
be considered a part of any registration statement prepared or certified within
the meanings of Sections 7 and 11 of the Securities Act, and the liability
provisions of Section 11 of the Securities Act do not apply to such report.

Comprehensive Income

Comprehensive income is the change in the Company's equity from all
transactions except those resulting from investments by or distributions to
owners. Comprehensive loss was as follows:

Rig Construction Contracts

The Company has historically constructed drilling rigs only for its own
use. However, at the request of some of its significant customers, the Company
has entered into contracts to design, construct and mobilize specialized
drilling rigs through the Company's technical services group. The Company also
has 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. Accordingly, the Company reviews contract price
and cost estimates periodically as the work progresses and reflects adjustments
in income (i) to recognize a gain proportionate to the percentage of completion
in the case of projects showing an estimated profit at completion and (ii) to
recognize the entire amount of the loss in the case of projects showing an
estimated loss at completion. To the extent these adjustments result in an
increase in previously reported losses or a reduction in or an elimination of
previously reported profits with respect to a project, the Company would
recognize a charge against current earnings.

6

PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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). The
consolidated statement of operations for the three and six months ended June 30,
2002, reflects increases in revenues and operating costs of $26.0 and $41.7
million, respectively for the change in presentation. See Note 2.

Stock-Based Compensation

The Company uses the intrinsic value based method of accounting for
stock-based compensation prescribed by Accounting Principles Board ("APB")
Opinion 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.

If the fair value based method of accounting prescribed by SFAS No. 123 had
been applied, the Company's pro forma net loss, net 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.

7

PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Sale of Non-Core Assets

The Company may consider from time to time opportunities to dispose of
non-core assets when it believes the capital could be more effectively deployed
to reduce debt or for other purposes. In this connection, the Company previously
reported that it had agreed to sell certain non-core marine assets for
approximately $170 million. The transaction, which was subject to numerous
contingencies, has been terminated. The Company continues, however, to discuss
with potential buyers the possible sale of certain non-core assets. No assurance
can be given that any such sale will be completed.

Supplemental Cash Flow Information

Non-cash transactions for the six months ended June 30, 2003 and 2002
consisted of increases in capital expenditures included in accounts payable of
$25.5 million and $46.7 million, respectively.

New Accounting Pronouncements

In January 2003, the FASB issued FASB Interpretation ("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
Company has adopted the disclosure provisions of FIN No. 46, as well as the
consolidation provisions of FIN No. 46 for variable interest entities created
after January 31, 2003, and for variable interest entities in which the Company
obtained 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. The Company is currently evaluating these provisions of FIN No.
46, but does not expect them to have a material impact on the Company's
consolidated financial position, results of operations or cash flows when
adopted.

The FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" and SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
during the second quarter of 2003. SFAS No. 149 amends and clarifies financial
accounting and reporting for derivative instruments, including those embedded in
other contracts, and for hedging activities and is effective for contracts
entered into or modified after June 30, 2003. SFAS No. 150 establishes standards
for the classification and measurement of certain financial instruments with
both liability and equity characteristics and is effective at the beginning of
the third quarter of 2003. SFAS Nos. 149 and 150 are not expected to have a
material impact on the Company's consolidated financial position, results of
operations or cash flows when effective.

2. CONSTRUCTION PROJECTS

During the second quarter of 2003, the Company recorded loss provisions,
included in operating costs, totaling $46.9 million, or $30.5 million net of
taxes at the U.S. statutory rate, relating to the construction of deepwater
platform rigs (see Note 4). On several of these projects, costs are expected to
substantially exceed revenues. Approximately $3.3 million, net of taxes, of the
loss provision represents the elimination of previously reported estimated
profits with respect to the projects and $27.2 million, net of taxes, represents
a provision for currently estimated losses at completion on three of the four
projects. The loss provision does not include certain adjustments to contract
prices that the Company believes will qualify for revenue recognition in future
periods. The fourth project is expected to result in a profit upon completion.

Increased costs have resulted mainly from difficulties the Company has
experienced with the initial shipyard constructing the first two rigs. In
response to these difficulties, the Company has terminated its contract with the
shipyard prior to the completion of the first two rigs. As a result, the Company
has incurred substantial unplanned costs in completing the construction of the
first unit in connection with its installation on the customer's platform. The
Company also has engaged another shipyard to complete construction of the second
rig. The aggregate costs paid to the initial shipyard and committed to the
second shipyard, as well as costs to transfer the rig and components, have
greatly exceeded budgeted expenditures for the project. In addition, because of
the difficulties with the initial shipyard, the Company is now utilizing
shipyards in the Asia Pacific region for the third and fourth deepwater rig
projects. As a result, the lump sum contracts and anticipated freight costs for
these two projects are higher than originally budgeted. The Company has
commenced arbitration proceedings against the initial shipyard claiming damages
of approximately $10 million, and the shipyard has asserted counterclaims
against the Company for unspecified damages expected to be in the range of $10
million to $15 million.

8

PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company's technical services segment is performing these deepwater
platform rig construction projects under fixed-price contracts with its
customers. In pricing the contracts, the Company uses all reasonable efforts to
accurately estimate its cost to perform the work and to cover anticipated
increases in costs of changes in labor, material and services through estimates
of cost increases, which are reflected in the original contract price. Despite
these efforts, however, the revenue, cost and gross profit realized on a
fixed-price contract may vary from the estimated amounts. There can be no
assurance that there will not be further losses resulting from completing these
projects.

The first of two large land rigs in Kazakhstan commenced operations in
April 2003 and the second rig commenced operations in July 2003. The related
contracts required substantial engineering, logistics and construction work to
modify, enhance and deploy the rigs in accordance with the customer's
specifications. The Company received up-front fees that are being recognized
over the period of drilling. The unamortized balance of these fees at June 30,
2003 was $26.4 million, of which approximately $23.9 million is expected to be
recognized in the third quarter of 2003 and $2.5 million in the fourth quarter.

3. LONG-TERM DEBT

Long-term debt consisted of the following:

The Company has a senior secured revolving credit facility with a group of
banks that provides aggregate availability of up to $250.0 million. The Company
may issue up to $50.0 million of letters of credit under the facility. As of
June 30, 2003, $9.0 million of borrowings and an additional $5.1 million of
letters of credit were outstanding under the facility. The Company also has a
senior secured revolving credit facility with non-U.S. banks that provides
aggregate availability of up to $95.0 million, including up to $10.0 million of
letters of credit. As of June 30, 2003, $85.0 million of borrowings and an
additional $10.0 million of letters of credit were outstanding under this credit
facility. As of June 30, 2003, the Company had $235.9 million in aggregate
availability under its senior secured revolving credit facilities.

In January 2003, the Company repurchased substantially all of the
outstanding zero coupon convertible senior debentures due 2021 for $98.2
million. In April 2003, as required by the terms of the Company's zero coupon
convertible subordinated debentures due 2018, the Company repurchased $226.5
million face amount of the outstanding debentures for $112.0 million, which was
equal to their accreted value on the date of purchase. The purchase price was
funded through borrowings under the Company's senior secured revolving credit
facilities and available cash. Debentures with a face amount of $2.1 million,
and an accreted value of $1.1 million as of June 30, 2003, remain outstanding.

9

PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In April and May 2003, the Company issued $300 million aggregate principal
amount of 3.25% convertible senior notes due 2033. Substantially all of the net
proceeds (after estimated expenses) of approximately $294.8 million were used to
repay amounts outstanding under the Company's senior secured revolving credit
facilities, which included borrowings used to fund a portion of the purchase
price of the zero coupon convertible subordinated debentures due 2018. The notes
bear interest at a rate of 3.25% per annum. The Company also will pay contingent
interest during any six-month interest period commencing on or after May 1, 2008
for which the trading price of the notes for each of the five trading days
immediately preceding such period equals or exceeds 120% of the principal amount
of the notes. Beginning May 5, 2008, the Company may redeem any of the notes at
a redemption price of 100% of the principal amount redeemed plus accrued and
unpaid interest. In addition, noteholders may require the Company to repurchase
the notes on May 1 of 2008, 2010, 2013, 2018, 2023 and 2028 at a repurchase
price of 100% of the principal amount redeemed plus accrued and unpaid interest.
The Company may elect to pay all or a portion of the repurchase price in common
stock instead of cash, subject to certain conditions. The notes are convertible
under specified circumstances into shares of the Company's common stock at a
conversion rate of 38.9045 shares per $1,000 principal amount of notes (which is
equal to a conversion price of $25.704), subject to adjustment. Upon conversion,
the Company will have the right to deliver, in lieu of shares of its common
stock, cash or a combination of cash and common stock.

In July 2003, the Company redeemed $150 million principal amount of its
9 3/8% senior notes due 2007 at a redemption price of 103.125% of the principal
amount, plus accrued and unpaid interest to the redemption date. The Company
paid a total of $157.6 million in connection with the redemption, including $2.9
million of accrued and unpaid interest and a $4.7 million premium. As of June
30, 2003, the notes that were redeemed were classified as long-term debt based
on the Company's intended refinancing of the notes with its secured revolving
credit facility.

As of June 30, 2003, $52.2 million of the Company's cash balances, which
amount is included in restricted cash, consists of funds held in trust in
connection with the Company's drillship and semisubmersible loans and its
limited-recourse collateralized term loans and, accordingly, is not available
for use by the Company.

4. INCOME TAXES

The Company's consolidated effective income tax rate for the three months
ended June 30, 2003 was 15.0% as compared to 74.7% for the corresponding period
in 2002. The difference in the effective tax rate resulted primarily from the
provision for expected losses on construction projects in a higher tax rate
jurisdiction, together with the true-up of the provision relating to tax returns
for prior periods, in the 2003 period. Additionally, in the second quarter of
2002, there was a revision of the year-to-date estimated effective tax rate due
to a reduction in estimated earnings from zero to low tax rate jurisdictions.
For the six months ended June 30, 2003, the Company recorded an overall tax
provision, despite having a loss before income taxes for the period, principally
as a result of the true-up of the provision relating to tax returns for prior
periods, as compared with an effective income tax rate of 29.3% for the
corresponding period in 2002.

5. 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.

10

PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

The calculation of diluted weighted average shares outstanding excludes
34.2 million and 37.1 million common shares for the three months ended June 30,
2003 and 2002, respectively, and 31.5 million and 32.5 million common shares for
the six months ended June 30, 2003 and 2002, respectively, issuable pursuant to
convertible debt and outstanding options. These shares were excluded as their
effect was antidilutive or the exercise price of stock options exceeded the
average price of the Company's common stock for the period.

6. SHAREHOLDERS' EQUITY

In the second quarter of 2003, the Company sold approximately 830,000
shares of common stock under its Direct Stock Purchase Plan for aggregate net
proceeds of $15.0 million. The Company did not sell any shares under the plan in
the first quarter of 2003 or in 2002.

7. 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 that exceeded 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 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.

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.

8. INVESTMENT IN AMETHYST JOINT VENTURE

As of June 30, 2003, 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. The rigs are being constructed at a shipyard in Maine and are
anticipated to be completed in late 2003 or early 2004. The

11

PRIDE INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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. In addition, the joint venture partners
have agreed to provide equity contributions to finance all of the incremental
costs associated with upgrading both rigs to a water depth capacity of 1,700
meters from the originally assigned capacity of approximately 1,500 meters. The
Company expects that the partners will be required to provide additional
contributions of approximately $4.0 million in connection with these upgrades,
of which the Company's 30% share would be approximately $1.2 million. Through
June 30, 2003, the Company's equity contributions to the joint venture totaled
$30.6 million, including capitalized interest of $6.7 million and an initial
contribution of $0.4 million in connection with the upgrades. 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 equity contributions by the joint venture
partners other than contributions in connection with the water depth capacity
upgrades.

9. SEGMENT INFORMATION

The following table sets forth selected consolidated financial information
of the Company by operating segment:

Two customers accounted for approximately $100.7 million and $192.5
million, or 24.6% and 23.9%, respectively, of consolidated revenues for the
three and six months ended June 30, 2003. Two customers accounted for
approximately $68.4 million and $141.5 million, or 22.1% and 23.3%,
respectively, of consolidated revenues for the three and six months ended June
30, 2002.

12

REPORT OF INDEPENDENT ACCOUNTANTS

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

We have reviewed the accompanying consolidated balance sheet of Pride
International, Inc. as of June 30, 2003, and the related consolidated statements
of operations for the three month and six month periods ended June 30, 2003 and
2002 and consolidated statement of cash flows for the six month periods ended
June 30, 2003 and 2002. These interim financial statements are the
responsibility of the Company's management.

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

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

We have previously audited in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2002, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein) and in our report dated March 25, 2003, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 2002 is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.

PricewaterhouseCoopers LLP

Houston, Texas
August 14, 2003

13

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

You should read the following discussion and analysis in conjunction with
the accompanying unaudited consolidated financial statements as of June 30, 2003
and for the three and six months ended June 30, 2003 and 2002 included elsewhere
herein, and with our Annual Report on Form 10-K for the year ended December 31,
2002. The following information contains forward-looking statements. Please read
"Forward-Looking Statements" for a discussion of limitations inherent in such
statements.

GENERAL

We provide contract drilling and related services to oil and gas companies
worldwide, operating both offshore and on land. As of August 8, 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.

BUSINESS ENVIRONMENT AND OUTLOOK

General

Revenues. Our revenues depend principally upon the number of our available
rigs, the number of days these rigs are utilized and the contract day rates
received. The number of days our rigs are utilized and the contract day rates
received are largely dependent upon the balance of supply and demand for
drilling and related services in the different geographic regions in which we
operate. The number of available rigs may increase or decrease as a result of
the acquisition, relocation or disposal of rigs, the construction of new rigs
and the number of rigs being upgraded or repaired at any time. In order to
improve utilization or realize higher contract day rates, we may mobilize our
rigs from one market to another. Our revenues also depend on the number and
scope of construction or engineering projects being undertaken by our technical
services group. Revenues for these projects are recognized on a
percentage-of-completion basis.

Oil and gas companies' exploration and development drilling programs drive
the demand for drilling 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.

Operating Expenses. Earnings from operations are primarily affected by
changes in revenue, but are also a function of changes in operating expenses.
Operating expenses are generally influenced by changes in utilization. For
instance, if a rig is expected to be idle for an extended period of time, we may
reduce the size of the rig's crew and take steps to "cold stack" the rig, which
reduces expenses and partially offsets the impact on operating income associated
with loss of revenues. We recognize as an operating expense routine overhauls
that maintain rather than upgrade the rigs or E&P services equipment. These
expenses vary from period to period. Costs of rig enhancements are capitalized
and depreciated over the expected useful lives of the enhancements. Depreciation
expense decreases earnings from operations in periods subsequent to capital
upgrades. Operating expenses in relation to our engineering and construction
projects are recognized in proportion to revenues using the
percentage-of-completion method. Additionally, operating expenses may include a
provision for expected losses if we estimate that a project will be unprofitable
in total. Our selling, general and administrative expenses are principally
related to our corporate headquarters and our regional offices

The following table summarizes average daily revenue and percentage
utilization for our Gulf of Mexico and international offshore rig fleets for the
three and six months ended June 30, 2003 and 2002. In this quarterly report,
average daily revenue information is based on total revenues for each rig type
divided by actual days worked by all rigs of that type. Average daily revenue
will differ from average contract day rates for a rig due to billing adjustments
for any non-productive time, mobilization fees, performance bonuses and charges
to the customer for ancillary services. Percentage utilization is calculated as
the total days worked divided by the total days available for work by all rigs
of that type.

14

Gulf of Mexico

Throughout 2002 and the first six months of 2003, we experienced
particularly weak conditions in the U.S. Gulf of Mexico jackup and platform rig
markets. High natural gas inventory storage levels at the start of 2002 resulted
in reduced demand for rig services. Although natural gas prices are currently
significantly higher than they were at this time last year and natural gas
storage levels have declined, demand for drilling services in the U.S. Gulf of
Mexico has shown only a marginal improvement to date.

In response to the poor market conditions, we have actively marketed a
number of rigs in our U.S. Gulf of Mexico fleet to international markets. Since
early 2002, we have obtained long-term contracts for 14 jackup rigs and two
platform rigs with Petroleos Mexicanos S.A. ("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 obtained long-term contracts with
Pemex in Mexico for the Pride South Seas, a semisubmersible rig that we
mobilized from South Africa, and for the Viking, a newly acquired conventionally
moored semisubmersible rig. The first nine jackup rigs, one of the platform rigs
and the Pride South Seas semisubmersible rig were contracted and completed
redeployment in 2002 and worked throughout the first six months of 2003. Three
of the jackups and the second platform rig commenced operations in July 2003,
with the remaining two jackup rigs, as well as the Viking semisubmersible rig,
expected to commence operations in the fourth quarter of 2003. We continue to
market additional rigs into Mexico and other international markets as suitable
opportunities arise. There can be no assurance, however, that any additional
contracts will result from these efforts.

As of August 14, 2003, 12 of our Gulf of Mexico jackups were working and
two others were being upgraded to work offshore Mexico on contracts with an
average remaining term of 2.4 years and an average contract day rate of $35,600.
Five of our jackups were working in the U.S. Gulf of Mexico, of which three were
on short-term contracts, with an average contract day rate of $23,700, and six
rigs were available. Additionally, three of our platform rigs were working
offshore Mexico on contracts with an average contract day rate of $20,200 and
six were working in the U.S. Gulf of Mexico at an average contract day rate of
$20,000.

We expect that revenues and gross margins derived from our entire Gulf of
Mexico operations will continue to improve during the remainder of 2003 and into
the first quarter of 2004 due to the positive impact of the additional contracts
in Mexico. In addition, the timing and terms under which any of our available
jackup rigs are contracted could have a significant impact on our results.

International Offshore

Our international offshore segment has continued to experience high levels
of activity, and we have maintained essentially full utilization of six of our
seven high-specification deepwater rigs throughout the first six months of 2003.
The seventh deepwater rig, the Pride South America semisubmersible rig, 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 91% utilization
during the first half of 2003. The idle time was primarily due to one of the
rigs undergoing its five-year periodic survey during the period. In July 2003,
the Pride Venezuela completed its contract with Petroleos de Venezuela, S.A.
("PDVSA") and was demobilized from Venezuela to Trinidad. Additionally, we have
been informed by Petroleo Brasilerio S.A. ("Petrobras") that the contract for
the Pride South Atlantic offshore Brazil may not be extended beyond its expected
termination date in September 2003. Both the Pride Venezuela and the Pride South
Atlantic are being marketed internationally.

15

Following the transfer of two independent-leg jackup rigs to Nigeria and
India under two-year contracts in 2002, 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. These jackup rigs experienced
89% utilization in the first six months of 2003. The idle time was primarily due
to two of these rigs undergoing shipyard repairs in the period. Additionally, we
manage two jackup rigs on behalf of PDVSA in Venezuela under contracts that
expire in the first six months of 2004.

International Land

During 2002, our international land segment was adversely affected by the
economic and political instability in Argentina. 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. 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 have recovered steadily from
mid-2002 as high oil prices positively impacted our customers' cash flows. The
average rate of utilization of our rig fleet in Argentina was 88% in the six
months ended June 30, 2003 as compared with 60% in the corresponding period in
2002. As of August 8, 2003, 130 rigs, or 87% of our total fleet of 150 rigs, in
Argentina were under contract.

Venezuela also has been experiencing political, economic and social
instability. A prolonged strike by PDVSA employees that ended in February 2003
led to the dismissal of more than 18,000 employees by the government. The recent
turmoil in Venezuela 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 has recovered and currently exceeds the level that existed
before the strike. As of August 14, 2003, we had 21 rigs, or 68% of our
land-based rigs and all four of our offshore rigs in Venezuela under contract as
compared with only seven rigs at the end of the strike. Recently implemented
exchange controls, together with employee dismissals and reorganization within
PDVSA, initially led to a slower rate of collection of our trade receivables in
early 2003. Collections have, however, recently improved.

Revenues and gross margins from our international land segment are expected
to improve throughout the remainder of 2003 due to the recovery of activity in
Venezuela. Additionally, the first of two large land rigs in Kazakhstan, which
had been earning a standby rate since being accepted by the customer in November
2002, commenced operations on an artificial island in the Caspian Sea in April
2003 and the second rig commenced operations in July 2003. The related contracts
required substantial engineering, logistics and construction work to modify,
enhance and deploy our rigs in accordance with the customer's specifications. We
received up-front fees that are being recognized over the period of drilling.
The unamortized balance of these fees at June 30, 2003 was $26.4 million, of
which approximately $23.9 million is expected to be recognized in the third
quarter of 2003 and $2.5 million in the fourth quarter.

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 in the first six months of 2003 increased significantly due to the
recovery of activity in Argentina and to the commencement of E&P services
activity in Brazil. Revenues from E&P services are expected to increase further
in subsequent quarters due to the improvement of market conditions in Venezuela
and to the commencement of new contracts in Argentina, as well as the start-up
of operations in Mexico.

Technical Services

The technical services group has four 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
for installation on spars and tension-leg platforms. We also are to provide
drilling operations management of the rig packages once they have been installed
on the platforms. The first platform drilling rig has been mated with the
customer's platform and is awaiting tow to Angola, where it is expected to
commence drilling operations in late 2003. The other deepwater platform rigs are
expected to enter into service between late 2004 and 2005.

During the second quarter of 2003, we recorded loss provisions, included in
operating costs, totaling $46.9 million, or $30.5 million net of taxes at the
U.S. statutory rate, relating to the construction of deepwater platform rigs. On
several of these projects, costs are expected to substantially exceed revenues.
Approximately $3.3 million, net of taxes, of the loss provision represents the
elimination of

16

previously reported estimated profits with respect to the projects and $27.2
million, net of taxes, represents a provision for currently estimated losses at
completion on three of the four projects. The loss provision does not include
certain adjustments to contract prices that we believe will qualify for revenue
recognition in future periods. The fourth project is expected to result in a
profit upon completion.

Increased costs have resulted mainly from difficulties we have experienced
with the initial shipyard constructing the first two rigs. In response to these
difficulties, we have terminated our contract with the shipyard prior to the
completion of the first two rigs. As a result, we have incurred substantial
unplanned costs in completing the construction of the first unit in connection
with its installation on the customer's platform. We also have engaged another
shipyard to complete construction of the second rig. The aggregate costs paid to
the initial shipyard and committed to the second shipyard, as well as costs to
transfer the rig and components, have greatly exceeded our budgeted expenditures
for the project. In addition, because of the difficulties with the initial
shipyard, we are now utilizing shipyards in the Asia Pacific region for the
third and fourth deepwater rig projects. As a result, the lump sum contracts and
anticipated freight costs for these two projects are higher than originally
budgeted. We have commenced arbitration proceedings against the initial shipyard
claiming damages of approximately $10 million, and the shipyard has asserted
counterclaims against us for unspecified damages expected to be in the range of
$10 million to $15 million.

Our technical services segment is performing these deepwater platform rig
construction projects under fixed-price contracts with our customers. In pricing
the contracts, we use all reasonable efforts to accurately estimate our cost to
perform the work and to cover anticipated increases in costs of changes in
labor, material and services through estimates of cost increases, which are
reflected in the original contract price. Despite these efforts, however, the
revenue, cost and gross profit we realize on a fixed-price contract may vary
from the estimated amounts because of risks generally inherent in the marine
construction industry, including variations in labor and equipment productivity
over the term of the contract, unanticipated cost increases, engineering,
shipyard or systems problems, shortages of equipment, materials or skilled
labor, unscheduled delays in the delivery of ordered materials and equipment,
work stoppages and shipyard unavailability or delays. We have experienced cost
overruns on these contracts that have adversely impacted our financial results.
There can be no assurance that there will not be further losses resulting from
completing these projects.

In addition, we recognize revenues under our contracts in the technical
services segment on a percentage-of-completion basis. Accordingly, we review
contract price and cost estimates periodically as the work progresses and
reflect adjustments in income (1) to recognize a gain proportionate to the
percentage of completion in the case of projects showing an estimated profit at
completion and (2) to recognize the entire amount of the loss in the case of
projects showing an estimated loss at completion. To the extent these
adjustments result in an increase in previously reported losses or a reduction
in or an elimination of previously reported profits with respect to a project,
we would recognize a charge against current earnings, which could be material.
Although we continually strive to improve our ability to estimate our contract
costs and profitability associated with our construction projects, our current
estimates may be revised in future periods, and those revisions may be material.

17

RESULTS OF OPERATIONS

We have presented in the following table selected consolidated financial
and operational information by operating segment:

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30,
2002.

Revenues. Revenues for the three months ended June 30, 2003 were $99.1
million, or 32.0%, higher than in the three months ended June 30, 2002,
primarily due to increased activity and day rates for our jackup and platform
rigs in Mexico, an increase in land drilling activity due to the recovery in
Argentina and Venezuela and the start-up of activity in Kazakhstan. These
increases in revenues were partly offset by a decrease in activity in the U.S.
sector of the Gulf of Mexico.

Operating Costs. Operating costs for the quarter ended June 30, 2003 were
$113.9 million, or 58.2%, higher than in the corresponding quarter of 2002 due
to increased costs associated with rigs that operated during the second quarter
of 2003 that were stacked or being upgraded during the second quarter of 2002
and the start-up of activity in Kazakhstan. Additionally, we incurred increased
costs due to an increase in the number of projects being undertaken by our
technical services group and to the recording, in the quarter ended June 30,
2003, of a provision in respect of expected losses on several of those projects.
Operating costs denominated in euros also increased due to the strengthening of
that currency as compared with the dollar from an average of $0.91 per euro in
the quarter ending June 30, 2002 to an average of $1.13 per euro in the quarter
ending June 30, 2003. These increases in costs were partially offset by the
favorable impact of the devaluation of the currency in Venezuela on expenses
denominated in its local currency. Operating costs as a percentage of revenues
increased by 12.5% to 75.7% in the quarter ended June 30, 2003, from 63.2% in
the corresponding quarter in 2002, principally due to the losses associated with
our technical services segment.

Depreciation and Amortization. Depreciation expense increased by $3.1
million, or 5.5%, to $59.5 million in the quarter ended June 30, 2003, from
$56.4 million in the corresponding period in 2002. The increase is primarily

18

attributable to depreciation on rig refurbishments and upgrades, principally for
rigs being prepared to work in Mexico, and other capital projects completed
after the first six months of 2002.

Selling, General and Administrative. Selling, general and administrative
expenses increased by $7.7 million, or 34.4%, to $30.0 million for the three
months ended June 30, 2003, from $22.3 million for the three months ended June
30, 2002, primarily due to increased activity in Argentina and Mexico, the
impact of the decline in the value of the dollar relative to the euro on
expenses denominated in euros and higher professional fees and staffing costs.

Other Income (Expense). Other expense for the three months ended June 30,
2003 decreased by $7.3 million, or 21.7%, as compared to the corresponding
period in 2002. Interest expense decreased by $1.1 million principally due to a
reduction in the weighted average interest rate of our debt as a result of
recent debt refinancings, partly offset by an increase in the average amount of
outstanding debt. Interest income declined $0.9 million due to a reduction in
average cash balances held on deposit and to a reduction in interest rates.
Other, net in the three-month period ended June 30, 2003 principally comprised
net foreign exchange gains realized in connection with our Venezuelan
operations. Other, net in the corresponding period in 2002 principally comprised
net foreign exchange losses in Argentina and Venezuela.

Income Tax Provision. Our consolidated effective income tax rate for the
three months ended June 30, 2003 was 15.0% as compared to 74.7% for the
corresponding period in 2002. The difference in the effective tax rate resulted
primarily from the provision for expected losses on construction projects in a
higher tax rate jurisdiction, together with the true-up of the provision
relating to tax returns for prior periods, in the 2003 period. Additionally, in
the second quarter of 2002, there was a revision of the year-to-date estimated
effective tax rate due to a reduction in estimated earnings from zero to low tax
rate jurisdictions.

Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002.

Revenues. Revenues for the six months ended June 30, 2003 were $196.0
million, or 32.2%, higher than in the six months ended June 30, 2002, primarily
due to increased activity and day rates for our jackup rigs in Mexico, an
increase in land drilling activity due to the recovery in Argentina and
Venezuela, increased activity in Chad, the start-up of activity in Kazakhstan
and an increase in design, engineering and construction management services
being provided by our technical services group, which was partially offset by a
decrease in activity in the U.S. sector of the Gulf of Mexico.

Operating Costs. Operating costs for the six months ended June 30, 2003
were $189.3 million, or 49.4%, higher than in the corresponding period in 2002
due to increased costs associated with rigs that operated during the first six
months of 2003 that were stacked or being upgraded during the corresponding
period in 2002, the increase in activity in Chad and the start-up of activity in
Kazakhstan, the increased number of technical services projects and to the
recording, in the six months ended June 30, 2003, of a provision in respect of
expected losses on several of those contracts. Additionally, operating costs
denominated in euros increased due to the strengthening of that currency
relative to the dollar. These increases in costs were partially offset by the
favorable impact of the devaluation of the currency in Venezuela on expenses
denominated in its local currency. Operating costs as a percentage of revenues
increased by 8.2% to 71.2% in the six months ended June 30, 2003, from 63.0% in
the corresponding period in 2002, principally due to the losses associated with
our technical services segment.

Depreciation and Amortization. Depreciation expense increased by $9.2
million, or 8.3%, to $120.3 million in the six months ended June 30, 2003, from
$111.1 million in the corresponding period in 2002, due to incremental
depreciation on newly acquired and constructed rigs and other rig refurbishments
and upgrades.

Selling, General and Administrative. Selling, general and administrative
expenses increased by $8.0 million, or 17.5%, to $53.7 million for the six
months ended June 30, 2003, from $45.7 million for the six months ended June 30,
2002, primarily due to increased activity in Argentina and Mexico, the impact of
the decline in the value of the dollar relative to the euro on expenses
denominated in euros and higher professional fees and staffing costs.

Other Income (Expense). Other expense for the six months ended June 30,
2003 increased by $0.9 million, or 1.4%, as compared to the corresponding period
in 2002. Interest expense increased by $0.4 million principally due to an
increase in the average amount of outstanding debt. Interest income declined
$2.0 million due to a reduction in average cash balances held on deposit and to
a reduction in interest rates. Other, net, which was income in the six-month
period ended June 30, 2003, principally comprised net foreign exchange gains.
Other, net in the corresponding period in 2002 principally comprised net foreign
exchange losses in Argentina and Venezuela.

19

Income Tax Provision. For the six months ended June 30, 2003, we recorded
an overall tax provision, despite having a loss before income taxes for the
period, principally as a result of the true-up of the provision relating to tax
returns for prior periods, as compared with an effective income tax rate of
29.3% for the corresponding period in 2002.

Liquidity and Capital Resources

We had net working capital of $47.3 million and $122.5 million as of June
30, 2003 and December 31, 2002, respectively. Our current ratio, the ratio of
current assets to current liabilities, was 1.1 as of June 30, 2003 and 1.2 as of
December 31, 2002. The decrease in net working capital was attributable
primarily to a decrease in cash used to repurchase our remaining outstanding
zero coupon convertible senior debentures in January 2003, an increase in the
current portion of long-term debt as a result of the reclassification of
approximately $86 million of senior convertible notes that mature in March 2004
from long-term to current liabilities and losses on deepwater platform rig
construction projects.

We have a senior secured revolving credit facility with a group of banks
that provides aggregate availability of up to $250.0 million. Letters of credit
of up to $50.0 million may be issued under the facility. As of June 30, 2003,
$9.0 million of borrowings and an additional $5.1 million of letters of credit
were outstanding under the facility. We also have a senior secured revolving
credit facility with non-U.S. banks that provides aggregate availability of up
to $95.0 million, including $10.0 million for letters of credit. As of June 30,
2003, $85.0 million of borrowings and an additional $10.0 million of letters of
credit were outstanding under this credit facility. As of June 30, 2003, we had
aggregate availability of $235.9 million under our senior secured revolving
credit facilities.

In January 2003, we repurchased substantially all of our outstanding zero
coupon convertible senior debentures due 2021 for $98.2 million. In April 2003,
as required by the terms of our zero coupon convertible subordinated debentures
due 2018, we repurchased $226.5 million face amount of the outstanding
debentures for $112.0 million, which was equal to their accreted value on the
date of purchase. The purchase price was funded through borrowings under our
senior secured revolving credit facilities and available cash. Debentures with a
face amount of $2.1 million, and an accreted value of $1.1 million as of August
14, 2003, remain outstanding.

In April and May 2003, we issued $300 million aggregate principal amount of
3.25% convertible senior notes due 2033. Substantially all of the net proceeds
(after estimated expenses) of approximately $294.8 million were used to repay
amounts outstanding under our senior secured revolving credit facilities, which
included borrowings used to fund a portion of the purchase price of our zero
coupon convertible subordinated debentures due 2018. The notes bear interest at
a rate of 3.25% per annum. We also will pay contingent interest during any
six-month interest period commencing on or after May 1, 2008 for which the
trading price of the notes for each of the five trading days immediately
preceding such period equals or exceeds 120% of the principal amount of the
notes. Beginning May 5, 2008, we may redeem any of the notes at a redemption
price of 100% of the principal amount redeemed plus accrued and unpaid interest.
In addition, noteholders may require us to repurchase the notes on May 1 of
2008, 2010, 2013, 2018, 2023 and 2028 at a repurchase price of 100% of the
principal amount redeemed plus accrued and unpaid interest. We may elect to pay
all or a portion of the repurchase price in common stock instead of cash,
subject to certain conditions. The notes are convertible under specified
circumstances into shares of our common stock at a conversion rate of 38.9045
shares per $1,000 principal amount of notes (which is equal to a conversion
price of $25.704), subject to adjustment. Upon conversion, we will have the
right to deliver, in lieu of shares of common stock, cash or a combination of
cash and common stock.

We have a Direct Stock Purchase Plan, which provides a convenient way for
investors to purchase shares of our common stock without paying brokerage
commissions or service charges. In the second quarter of 2003, we sold
approximately 830,000 shares of common stock under this plan for net proceeds of
$15.0 million. No shares were sold under the plan in the first quarter of 2003
or in 2002.

In July 2003, we redeemed $150.0 million principal amount of our 9 3/8%
senior notes due 2007 at a redemption price of 103.125% of the principal amount,
plus accrued and unpaid interest to the redemption date. We paid a total of
$157.6 million in connection with the redemption, including $2.9 million of
accrued and unpaid interest and a $4.7 million premium.

Additions to property and equipment during the six months ended June 30,
2003 totaled $110.6 million, including $23.4 million for the upgrade of one
large land rig to work in Kazakhstan, $12.2 million for the acquisition of the
Viking, a conventionally moored semisubmersible rig, $25.9 for the upgrading
of three jackup rigs and one platform rig for contracts in Mexico, $14.2 million
for other rig upgrades, refurbishments and reactivations, and approximately
$34.9 million for sustaining capital projects. Approximately $26.3 million of
these expenditures have been reimbursed by our

20

customers. Since early 2002, we have obtained long-term contracts in Mexico for
14 jackup rigs, two platform rigs and two semisubmersible rigs. Most of these
rigs came from our U.S. Gulf of Mexico rig fleet and required substantial
upgrades to meet international standards and Pemex's specific requirements. The
upgrades included expanding the living quarters and adding additional equipment
such as extra mud pumps, top-drives and higher load capacity cranes.

As of June 30, 2003, we 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. The rigs are being constructed at a shipyard in Maine and are
anticipated to be completed in late 2003 or early 2004. 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. In addition, the joint venture partners have
agreed to provide equity contributions to finance all of the incremental costs
associated with upgrading both rigs to a water depth capacity of 1,700 meters
from the originally assigned capacity of approximately 1,500 meters. We expect
that the partners will be required to provide additional contributions of
approximately $4.0 million in connection with these upgrades, of which our 30%
share would be approximately $1.2 million. Through June 30, 2003, our equity
contributions to the joint venture totaled $30.6 million, including capitalized
interest of $6.7 million and an initial contribution of $0.4 million in
connection with the upgrades. 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 equity contributions by the joint venture partners other than
contributions in connection with the water depth capacity upgrades.

As of June 30, 2003, we had approximately $4.4 billion in total assets and
$1.9 billion of long-term debt and capital lease obligations. 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.

As of June 30, 2003, $52.2 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 available for our use.

Management believes that the 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 rig upgrades and
acquisitions 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. In addition, we may consider from time to time opportunities
to dispose of non-core assets when we believe the capital could be more
effectively deployed to reduce debt or for other purposes. In this connection,
we previously reported that we had agreed to sell certain non-core marine assets
for approximately $170 million. The transaction, which was subject to numerous
contingencies, has been terminated. We continue, however, to discuss with
potential buyers the possible sale of certain non-core assets. No assurance can
be given that any such sale will be completed.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation ("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. We have adopted the disclosure provisions of FIN
No. 46, as well as the consolidation provisions of FIN No. 46 for variable
interest entities created after January 31, 2003, and for variable interest
entities in which we have obtained an interest after January 31, 2003. With
respect to variable interest entities in

21

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. We
are currently evaluating these provisions of FIN No. 46 but do not expect them
to have a material impact on our consolidated financial position, results of
operations or cash flows when adopted.

The FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" and SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity"
during the second quarter of 2003. SFAS No. 149 amends and clarifies financial
accounting and reporting for derivative instruments, including those embedded in
other contracts, and for hedging activities and is effective for contracts
entered into or modified after June 30, 2003. SFAS No. 150 establishes standards
for the classification and measurement of certain financial instruments with
both liability and equity characteristics and is effective at the beginning of
the third quarter of 2003. SFAS Nos. 149 and 150 are not expected to have a
material impact on our consolidated financial position, results of operations or
cash flows when effective.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 facts, included in this Quarterly Report on Form 10-Q 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:

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

o utilization rates and contract rates for rigs

o 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)

o estimates of profit or loss from performance of rig construction
contracts

o future asset sales

o completion and employment of rigs under construction

o repayment of debt

o business strategies

o expansion and growth of operations

o future exposure to currency devaluations

o expected outcomes of legal and administrative proceedings and their
expected effects on our financial position, results of operations and
cash flows

o future operating results and financial condition and

o 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 the following:

o general economic business conditions

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

o cost overruns in our fixed-price construction and other turnkey
contracts

22

o adjustments in estimates affecting our revenue recognition under
percentage-of-completion accounting

o foreign exchange controls and currency fluctuations

o political stability in the countries in which we operate

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

o changes in laws or regulations and

o 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding our exposure to certain market risks, see
"Quantitative and Qualitative Disclosures about Market Risk" in Item 7A of our
Annual Report on Form 10-K for the year ended December 31, 2002. There have been
no material changes to the disclosure regarding our exposure to certain market
risks made in the annual report. For additional information regarding our
long-term debt, see Note 3 of the Notes to Unaudited Consolidated Financial
Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

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-15 under the
Securities Exchange Act of 1934 as of the end of the period covered by this
quarterly report. In the course of this evaluation, management considered
certain internal control areas, including those enumerated below, 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, 2004, Section 404 of the
Sarbanes-Oxley Act of 2002 will require us to include an internal control report
of management with our annual report on Form 10-K. The internal control report
must contain (1) a statement of management's responsibility for establishing and
maintaining adequate internal control over financial reporting for our company,
(2) a statement identifying the framework used by management to conduct the
required evaluation of the effectiveness of our internal control over financial
reporting, (3) management's assessment of the effectiveness of our internal
control over financial reporting as of the end of our most recent fiscal year,
including a statement as to whether or not our internal control over financial
reporting is effective, and (4) a statement that our independent auditors have
issued an attestation report on management's assessment of our internal control
over financial reporting. In order to achieve compliance with Section 404 within
the prescribed period, management has formed an internal control steering
committee, engaged outside consultants and adopted a detailed project work plan
to assess the adequacy of our internal control over financial reporting,
remediate any control weaknesses that may be identified, validate through
testing that controls are functioning as documented and implement a continuous
reporting and improvement process for internal control over financial reporting.
As a result of this initiative, we may make changes in our internal control over
financial reporting from time to time during the period prior to December 31,
2004. There were no changes in our internal control over financial reporting
that occurred during the most recent fiscal quarter, other than those enumerated
below, that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

In connection with the completion of their review of our financial
statements for the three-month and six-month periods ended June 30, 2003 and, in
particular, their analysis of our loss provision related to our rig construction
contracts, our independent auditors, PricewaterhouseCoopers LLP, issued a letter
to our audit committee dated August 13, 2003 noting certain matters in our
technical services division that it considers to be a material weakness in
internal control. The matters listed in the letter are the misapplication of
generally accepted accounting principles and the lack of procedures and policies
to properly process change orders with customers on a timely basis. The
evaluation of internal controls is subjective and involves judgment, and
although we believe there were areas in our internal controls with respect to
the processing of change orders that could be improved, we do not believe these
matters constituted a material weakness in our internal control over financial
reporting. We have, however, made and are continuing to make changes in policies
and procedures to improve and enhance internal controls with regard to the
processing of change orders and in the technical services division generally.

o Established procedures for the centralized review and
monitoring of change orders;

o Enhanced procedures for the periodic review and assessment for
income recognition of each change order in accordance with
generally accepted accounting principles;

o Strengthened the accounting function within the technical
services segment and enhanced formal reporting procedures to
the corporate accounting group; and

o Initiated monthly meetings among project managers and
corporate accounting personnel to review change order
analysis, estimates to complete and supporting documentation
for each project in connection with the monthly close of
accounts.

Furthermore, we have completed a comprehensive evaluation of all the
project change orders with respect to revenue recognition in our reported
results in accordance with generally accepted accounting principles.

23

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

The information set forth in Note 3 of the Notes to Unaudited Consolidated
Financial Statements in Item 1 of Part I of this Quarterly Report on Form 10-Q
and in Management's Discussion and Analysis of Financial Condition and Results
of Operations in Item 2 of Part I of this Quarterly Report on Form 10-Q
regarding the issuance on April 24, 2003 of $250 million aggregate principal
amount of our 3.25% convertible senior notes due 2033 and on May 9, 2003 of an
additional $50 million aggregate principal amount of notes is incorporated by
reference in response to this item. We have been advised by Morgan Stanley & Co.
Incorporated, the initial purchaser of the notes, that the notes were issued
only to "qualified institutional buyers" in reliance on Rule 144A under the
Securities Act of 1933. The notes were issued at 100% of the principal amount
thereof, plus accrued interest. The initial purchaser purchased the notes from
us at 98.5% of the principal amount thereof, plus accrued interest.

The notes are convertible into shares of our common stock at a conversion
rate of 38.9045 shares per $1,000 principal amount of notes (which is equal to a
conversion price of $25.704), subject to adjustment, but only prior to the close
of business on May 1, 2033 and only under any of the following circumstances:
(1) during any quarter commencing after June 30, 2003 for which the closing sale
price of our common stock exceeded 120% of the conversion price for at least 20
trading days in the 30 consecutive trading days ending on the last trading day
of the preceding quarter; (2) during the five business day period immediately
after any five consecutive trading day period in which the trading price per
$1,000 principal amount of notes for each day of that period was less than 98%
of the product of the closing sale price of our common stock and the conversion
rate; (3) if the notes have been called for redemption; or (4) upon the
occurrence of specified corporate events.

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

Our annual meeting of stockholders was held in Houston, Texas on May 22,
2003 for the purpose of voting on the proposals described below. Proxies for the
meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act
of 1934 and there was no solicitation in opposition to management's
solicitation. There were 20,187,189 shares of common stock not voted at the
meeting.

Stockholders approved the election of eight directors, each to serve for a
one-year term, by the following votes:

Stockholders ratified the appointment of PricewaterhouseCoopers LLP as our
independent accountants for 2003 by the following vote:

For.................................................. 110,175,282
Against.............................................. 3,780,961
Abstain.............................................. 57,101

24

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits*

15 Letter on unaudited interim financial information of
PricewaterhouseCoopers LLP

31.1 Certification of Chief Executive Officer of Pride pursuant to Section
302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer of Pride pursuant to Section
302 of the Sarbanes-Oxley Act of 2002

32 Certification of the Chief Executive Officer and the Chief Financial
Officer of Pride pursuant to Section 906 of the Sarbanes-Oxley Act of
2002

- ----------

* Pride and its subsidiaries are parties to several debt instruments
under which the total amount of securities authorized does not exceed
10% of the total assets of Pride and its subsidiaries on a consolidated
basis. Pursuant to paragraph 4(iii) (A) of Item 601(b) of Regulation
S-K, Pride agrees to furnish a copy of such instruments to the SEC upon
request.

(b) Reports on Form 8-K

In a Current Report on Form 8-K submitted to the SEC on April 22, 2003, we
(i) filed pursuant to Item 5 of Form 8-K information regarding purchases of our
zero coupon convertible debentures, the potential sale of certain non-core
assets and a private offering of convertible senior debt securities due 2033,
(ii) furnished pursuant to Item 12 of Form 8-K information regarding our
issuance of a press release with respect to our expectations for 2003 first
quarter and full year earnings and (iii) filed pursuant to Item 7 of Form 8-K
the related Rule 135c notice of private offering and furnished pursuant to Item
7 of Form 8-K the related earnings guidance press release.

In a Current Report on Form 8-K submitted to the SEC on April 25, 2003, we
(i) filed pursuant to Item 5 of Form 8-K information regarding a private
offering of 3.25% Convertible Senior Notes Due 2033 and (ii) filed pursuant to
Item 7 of Form 8-K the related Rule 135c notice.

In a Current Report on Form 8-K submitted to the SEC on April 25, 2003, we
(i) furnished pursuant to Item 9 of Form 8-K information regarding the contract
status of our rigs posted to our website on April 24, 2003, (ii) furnished
pursuant to Item 12 of Form 8-K information regarding our issuance of a press
release with respect to our 2003 first quarter earnings and (iii) furnished
pursuant to Item 7 of Form 8-K the related website posting and earnings press
release.

In a Current Report on Form 8-K submitted to the SEC on June 23, 2003, we
(i) furnished pursuant to Item 9 of Form 8-K information regarding the contract
status of our rigs posted to our website on June 20, 2003 and (ii) furnished
pursuant to Item 7 of Form 8-K the related website posting.

25

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

PRIDE INTERNATIONAL, INC.

By: EARL W. MCNIEL
--------------------------------
(EARL W. MCNIEL)
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER

Date: August 14, 2003

26

INDEX TO EXHIBIT